DS Smith Trading remained resilient with relatively limited impact from COVID-19

corrugated packaging
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DS Smith Plc (LON:SMDS) has today provided a trading and dividend update.

Trading since our update on 4 March 2020 has remained resilient with relatively limited impact from COVID-19 seen to date, with performance for the financial year anticipated to be in line with our current expectations.

During these unprecedented times our priorities remain to look after the safety of our staff, our partners and our communities as well as ensuring excellent levels of customer service. In virtually all markets in which we operate, governments have classified us as a critical business involved in the supply of packaging to        sectors such food and essential products. All our factories are, and have been operational throughout, albeit with further enhanced safety and hygiene standards.

In terms of demand, corrugated box volumes have continued to be good and we have seen improvement on the first half on a like for like basis, with our focus on the FMCG customer base, in particular, benefitting us during these uncertain times.  On a regional basis, the main impact to date has been in Southern Europe which includes the markets of Italy, France and Spain. The Northern region including Germany, Benelux, UK and Scandinavia has seen less effect whilst Eastern Europe has not seen any meaningful effect to date. Within our North American operations, trading has remained relatively robust, consistent with the overall Group.

Supplies into the grocery sector have been very busy particularly in ambient food, drinks, hygiene, frozen food and dry packaged grocery categories. E-commerce has also been strong in most categories but increasingly in everyday essential products. These are sectors where we have clear market leading positions with outstanding service and product quality. The industrial sector has however been heavily affected but our more limited exposure has protected us.

Thanks to the exceptional support and resilience of our employees, our standards of customer service and product quality have remained excellent during this period, although there have been some additional operating costs as a result of COVID-19, particularly in relation to employees, logistics and enhanced health and safety measures as we continue to manage our operations within this challenging environment. However, pricing remains resilient and we therefore expect a return on sales for the current financial year to be similar to the first half.

Liquidity, financial position and cost reduction measures

The Group has a highly cash generative business model and our balance sheet and liquidity profile are strong, with c£1.4bn of facilities currently undrawn, and no significant refinancing required until 2023. We currently anticipate our net debt to EBITDA ratio at 30 April 2020 to be around our medium term target of 2.0. Although we will continue to invest in the maintenance and efficiency of our asset base, we are taking a number of steps to ensure the continued financial strength of the business including stopping discretionary expenditure and an enhanced focus on working capital and capital expenditure. The Executive Directors will be waiving their rights to any annual bonus in respect of the current year. 

Outlook and dividend

Notwithstanding our strong liquidity profile, the resilient trading to date and the actions we are taking, we are conscious that we are operating in an exceptionally uncertain global environment and we will inevitably be impacted by any severe prolonged downturn in global economic activity. Against this backdrop and after due consideration, the Board has decided it is prudent to no longer pay the interim dividend due for payment on 1 May 2020, which would otherwise become ex-dividend on 9 April. The Board recognises the high degree of importance of dividends to shareholders and, as such, it will consider the appropriateness, quantum and timing of overall dividend payment relating to the financial year ending 30 April 2020 at the time of announcement of the results in July when it expects to have a clearer view of the effects of COVID-19 on the Company’s business, together with additional measures focused on cost mitigation and cash generation.

Miles Roberts, Group Chief Executive, said:

“Trading within the business has been resilient, reflecting our focus on FMCG and e-commerce customers and I am indebted to the ongoing tremendous support received from all our employees especially during this challenging time. We continue to work with our customers and suppliers to ensure delivery of essential supplies and are encouraged by the performance of the business, despite the very challenging environment, but are taking a prudent approach to cost and capital allocation until there is greater certainty in the macro-economic outlook.”

Forthcoming Date

Subject to finalisation with our auditors following recent FRC guidance we expect to announce our results for the year ending 30 April 2020 on 2 July 2020.

A copy of this announcement will be made available at www.dssmith.com. This announcement contains inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. The person responsible for this announcement on behalf of DS Smith Plc is Iain Simm, Group General Counsel and Company Secretary.

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