Pointing to the uncertain global economic environment that it would be hit by any severe prolonged downturn in global economic activity, the 5.4p interim dividend due for payment on 1 May was shelved, saving £74mln, with management promising to consider the “appropriateness, quantum and timing” of a potential final dividend when results are released in July.
The FTSE 100 cardboard packaging maker said business had “remained resilient” since its last update in early March, with all its factories operational throughout the outbreak with enhanced safety and hygiene standards, as virtually all governments have classed the sector as a critical for the supply of packaging for food and essential products.
DS Smith, which had £2.4bn of net debt at the October half year, said it currently has £1.4bn of undrawn facilities and £445mln of cash on the balance sheet.
Coronavirus lockdowns in various countries have has a “main impact” on the group in Italy, France and Spain, but there has been “less effect” in Germany, Benelux, UK and Scandinavia, with Eastern Europe seeing no meaningful effect to date and North America “relatively robust”.
Demand has improved since the second half of its financial year began on a like-for-like basis, the group said, with supplies into the grocery sector “very busy” and e-commerce “strong in most categories but increasingly in everyday essential products”.
The industrial sector, where the company generates 21% of sales, has been “heavily affected”, however.
Other measures to preserve cash include stopping discretionary expenditure, controlling working capital and capital expenditure more tightly and the executive directors have pledged to waive their rights to any annual bonus for the current year.
In response to COVID-19, DS Smith has worked closely with food retailers across Europe to design, develop, and produce new boxes, designed to supply emergency provision boxes to the most vulnerable in need.— DS Smith (@dssmithgroup) March 31, 2020
Read more at: https://t.co/URlcz1KFxg pic.twitter.com/zlyMTTW7Oh
Shares in the group spiked initially on Wednesday before falling 2% to 284.3p.
Analysts at Peel Hunt said it was a "solid" update, saying its forecast is for underlying profit of £681mln for the year looked intact, noting that 70% of group sales are FMCG-related and 50% of group sales are food-related.
"DS Smith has been caught up in a debate around growth and other issues, such as factoring. The crisis will highlight the company's resilience and we therefore maintain our buy recommendation," they added.