The company has taken on an ambitious and thorough plan to get to the top of its game. Miles Roberts, group chief executive said: "2011/12 has been a pivotal year for DS Smith. Building on the success of the previous year we further improved the operational and financial performance of the business, with substantial improvements in revenue, growth, profitability, and returns on capital. Alongside our organic growth and business improvement we also significantly re-shaped the group in line with our strategic aim to become the leader in recycled packaging for consumer goods.
Capacity idling coming?
The company is using its past successes with acquisitions as a firm basis to take the SCA purchase forward. Roberts adds: "The full year benefits from our 2010 Otor acquisition are ahead of our original plans, and the integration of the business has been well received by our customers across Europe. For the year 2012/13 we have much more to accomplish with the planned completion and integration of the SCA Packaging acquisition, which will transform our pan-European market position."
In the background pricing is having an unmistakable impact on future consolidation according to managing director of packaging and recruitment consultancy Know It All, Raj Bhardwaj. He thinks that despite the market might of the top five containerboard players (who now have 50% of the market), additional recycled capacity coming on stream and economic weakness in the Eurozone means they cannot command sustainable prices at the moment. "Uncompetitive paper mills are being closed across Europe and I expect other capacity to be idled by the big boys with the understandable aim of bringing about a better supply-demand balance."
Bhardwaj feels that against this backdrop Smurfit Kappa's recent success regarding the case to overturn Euro 83 million ($100 million) of European funding to Propapier to back up the Euro 600 million ($726 million) already spent on a new containerboard mill could herald another consolidation. "With paper prices in a difficult place right now, having to find Euro 83 million plus legal costs estimated at Euro 14 million ($17 million) can't be a barrel of laughs for Propapier. My analysis suggests that they are a good candidate for an acquisition...if I were Smurfit Kappa I'd be making an approach to Propapier's owner and stakeholder banks."
What now for the smaller players?
If the big boys have got bigger, what does this mean for the rest of the UK and European smaller players? Rather than reeling at the thought of being squeezed, the smaller independent corrugators and sheetfeeders are standing up to the mark.
Packaging consultancy Packology works with a number of corrugated companies. Managing director Doug Johnston feels that while the smaller corrugated companies are powerless to the consolidation going on, they are by- in- large making sure their own houses are in order. "There is huge potential if you are an independent corrugated sheet plant operator as you can make your own decisions because the process is perceived as being, from an external perspective, a much smaller one and there isn't a huge chain of command."
In an industry that is never still, Johnston feels other surprises are bound to be around the corner. "There has been some big shocks in the past 6-7 years and evidence of continual significant changes. The biggest being Mondi Packaging - it doesn't exist anymore; SCA has sold a significant percentage of its sheetfed division and Western Corrugated closed practically overnight."
Johnston also cites the 2009-2011 raw material crisis being the ultimate survival of the fittest. "Those that came out of it are as sleek as they can be. The good companies continue to be good, and those that aren't are vulnerable to take-over."
With regards to DS Smith, Johnston questions whether they can grow much more "You have to admire Miles Roberts the CEO when he said he would ‘double it, and double it again' - he certainly is doing that."