Potential US$800m deal: DS Smith looks to sell plastics division to focus on “fiber-based model”

Potential US$800m deal: DS Smith looks to sell plastics division to focus on “fiber-based model”

07 Dec 2018 --- British packaging group DS Smith is looking for a buyer for its plastics division, a move which was initially announced in October. Goldman Sachs is organizing the potential deal, which has been predicted to be worth US$800 million, Reuters reports. The company plans to focus on its fiber-based model – cardboard packaging – for the FMCG sector, a DS Smith spokesperson tells PackagingInsights.  

The plastics division represents 5 percent of the business and makes up 6 percent of its total revenue, the spokesperson continues, and largely focuses on industrial bag-in-box type products for transporting large volumes of liquids. Thanks to this, the company has not felt the backlash from the rising anti-plastic sentiment – particularly single-use plastics, the spokesperson notes.

DS Smith’s plastics division performed well during the first half of this year, rising 2 percent from the previous year although higher polymer prices and the lag in price recovery had hurt short-term profitability.

Strong half-year results to 31 October 2018
DS Smith’s half-year results to 31 October, released yesterday, showed increased margins driving strong growth, with strong and consistent FMCG and e-commerce focus. Its steady growth has been bolstered by the renewed focus on environmental issues in the packaging industry, the company notes.

The company’s multinational customers are over 90 percent FMCG and e-commerce.

Structural industry growth drivers for 2019 are forecast to be e-commerce growth, retail channel proliferation and an increasing focus on sustainability. The company reports that it is in “pole position” to capitalize on scaling across Europe and into the US, invest in innovation and end-to-end packaging solutions and customer consolidation of suppliers.

It noted positive progress on its acquisition of Spanish competitor Europac, a US$2.2 billion deal announced this summer and to be completed at the end of Q4, and which marked DS Smith’s largest acquisition yet. A primary focus for 2019 will be integrating the company.  

“We have a highly resilient business with our short paper business model focused on value-added packaging for our FMCG customers. We continue to see strong customer support for our innovative sustainable packaging, responding to the dynamic retail environment. We expect good ongoing volume and market share growth and view the future with confidence,” says Miles Roberts, DS Smith CEO, in a Pre-Close Trading Statement Conference Call held yesterday. 

New US customers for this year include Unilever, Volvo, Mondelez, and John Deere.

The growth of e-commerce is facilitating growth and enhancing investments across the packaging industry. For example, Berlin Packaging, a hybrid packaging supplier of plastic, glass and metal, has secured an investment of US$500 million from Oak Hill Capital Partners and Canada Pension Plan Investment Board (CPPIB), to facilitate the next stage of its growth, with e-commerce flagged as a focus. 

After Smurfit Kappa agreed a deal to acquire Dutch paper and recycling company, Reparenco, having resisted a takeover bid from US-based International Paper, and expanded its Southeast European footprint with a US$151 million acquisition of FHB and Avala Ada, there are sure signs that Western European paper suppliers are looking to consolidate amid a growing market. 

By Laxmi Haigh

To contact our editorial team please email us at editorial@cnsmedia.com

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