DS Smith Plc

4-16 Artillery Row
London
SW1P 1RZ
United Kingdom
Telephone: 44 20 7932 5000
Fax: 44 20 7932 5003
Web site: http://www.dssmith.uk.com

Public Company
Incorporated: 1940
Employees: 10,879
Sales: £1.48 billion ($2.51 billion) (2003)
Stock Exchanges: London
Ticker Symbol: SMDS
NAIC: 424120 Stationery and Office Supplies Merchant Wholesalers; 322121 Paper (Except Newsprint) Mills; 322130 Paperboard Mills; 322211 Corrugated and Solid Fiber Box Manufacturing; 551112 Offices of Other Holding Companies

DS Smith Plc has wrapped up leading European positions in its two primary lines of business: packaging (paper-based and plastics) and wholesale office supplies and products. Packaging is the London-based company's largest division, representing 64 percent of its nearly £1.5 billion in 2003 revenues. Corrugated and paper production alone accounted for more than half of the group's total sales. The company operates six paper mills in the United Kingdom, two mills in France, and a mill in Turkey; three-quarters of DS Smith's production is of the corrugated case type, complemented by a range of specialty papers for the packaging and other markets. DS Smith is the leading producer of corrugated packaging in the United Kingdom and France, while subsidiary St. Regis is the leading U.K. producer of recycled paper. A vertically integrated group, DS Smith also produces transit packaging, decorative and point-ofsale packaging, and industrial and heavy duty packaging products. At the other end of the spectrum, the company is also the United Kingdom's largest collector and recycler of commercial waste paper, used as raw product for much of the group's production. DS Smith's Plastics division is one of the world's leading producers of "bag-in-box" packaging, as well as thermoformed transit packaging. Representing 13 percent of total group sales, the plastics division operates worldwide from sites in the United Kingdom, France, the United States, Germany, Spain, Italy, Belgium, Poland, the Dominican Republic, Israel, Australia, and New Zealand. Since the 1990s, DS Smith has moved to reduce its reliance on the highly cyclical paper sector by expanding into the wholesale office supply market. The group is Europe's leading supplier of wholesale office products, through its Spicers Ltd. subsidiary, which operates 20 distribution centers in the United Kingdom, France, Germany, Ireland, and Spain, as well as the Plein Ciel wholesale office supply store chain in France. DS Smith is listed on the London Stock Exchange.

Cigarette Carton Maker in the 1940s

DS Smith was founded in London by David Solomon Smith in 1940. Known as David S. Smith Ltd. for most of its history, the company has specialized from the start in providing packaging services to a number of clients, including Creamola Food Products, Cerebos, Helena Rubenstein, and other consumer products producers. Yet the company was to become most closely identified as a producer of cigarette cartons, notably for British-American Tobacco and Imperial Tobacco. In 1949, the group's growing operations enabled it to build a new plant in Neath, Glamorganshire, South Wales. That plant was expanded in 1969, at which time it became one of England's most modern packaging plants.

In 1960, the company, by then joined by Smith's son, also named David Smith, made its first public offering. The group remained quite tiny however, and at the end of the 1970s sales remained under £8.5 million per year. By the beginning of the 1980s, the company had begun to feel the worst effects of the recession that gripped the United Kingdom, and sales quickly slumped—slipping under £5 million in the early years of the decade.

Smith's difficulties—and its plummeting share price—brought it to the attention of Richard Brewster, then finance director at Giltspur, which itself had been recently acquired by Unigate. Putting up his own savings, and arranging additional bank financing, Brewster bought up a 10 percent stake in David S. Smith in 1983. At the same time, Brewster orchestrated the buyout of another 20 percent in the company by an investor group. Brewster then took over as company CEO and began steering the group on a new course.

Brewster immediately recognized that David S. Smith's future lay in gaining scale. The company went shopping, and in 1984 found its first acquisition target, Western Board Mills, also located in South Wales. In November 1984, that group's chairman agreed to sell his stake of more than 51 percent to Smith; by the beginning of 1985, David S. Smith had completed the acquisition. The purchase not only extended the company's production by adding Western's specialty as a maker of boxes for ladies' shoes, but also added nearly £2 million in annual sales and at the same time bringing a treasury of some £6 million.

Smith quickly became more attractive to banks, which agreed to back its continued acquisition drive. In 1985, the company completed its next important acquisition, Abbey Corrugated, paying more than £15 million. The purchase of Abbey Corrugated in particular enabled the group to enter the corrugated paper manufacturing sector. By the end of that year, the company's sales had once again topped £8 million.

Yet Smith's growth spurt had only just begun. In 1986, the company paid £83 million for the St. Regis Paper Company. Originally part of the U.S.-based St. Regis paper group, the U.K. operation had been spun off at its parent's hostile takeover by Champion Consolidated in 1984. The addition of St. Regis extended Davis S. Smith's operations into the paper sector, while making it a major player in the United Kingdom's packaging sector. St. Regis also brought Smith into the heavy duty corrugated case market, through its stake in the Tri-Wall Europe partnership set up with Weyerhauser in the 1960s.

Two years later, the company confirmed its intention of becoming the United Kingdom's leading packaging player through its acquisition of Kemsley Paper mill in 1988. That purchase, for £11 million, also enabled the company to shift toward developing a vertically integrated business.

Acquisitions had formed part of Brewster's successful strategy in the 1980s, while the company continued to invest in its organic growth as well. Yet the company attributed a large part of its success to its hands-off management style, allowing existing management of its acquired subsidiaries to continue acting more or less autonomously.

As Brewster himself described his philosophy in Packaging Week: "We have grown by improving our existing businesses and by acquiring companies which complement our strategy. We always look for companies with something special to offer, such as technological supremacy, the potential for greater capacity or specialist products. In addition, we try to identify good quality management." Brewster continued: "All our acquisitions have been on a friendly rather than a hostile basis. This usually results in skilled management and staff remaining with the group and encourages a future workforce to be both loyal and enthusiastic."

Diversified in the 1990s

Smith bought out full control of Tri-Wall Europe in 1990, paying Weyerhauser $12 million. The purchase also gave the group control of Tri-Wall's brands, including the Tri-Wall and Uni-Pak trademarks. While Tri-Wall remained close to the group's hereditary core, Brewster had already begun to lead the company into a new era of diversification.

In 1989, the company acquired Waddington & Duval, a plastics-based packaging group with a specialty in so-called "bag-in-box" tap technologies. That acquisition cost the company £2 million, but was followed by a larger entry into the plastics packaging market, when the company paid £12 million to acquire Corrugated Products, and its subsidiary, CP Plastics, which also focused on the bag-in-box packaging sector. Rounding out the group's range of plastics acquisitions was the purchase of British Sisalkraft, which specialized in plastic film wrap.

Brewster left the group in the early 1990s to pursue new challenges. Following his departure, the company embarked on a new phase in its expansion, taking a two-pronged approach: on the one hand the group targeted growth on the European continent and elsewhere, and on the other continued diversification in an effort to reduce its reliance on the cyclical paper and packaging markets.

Smith's first foreign move came in 1991 with the £170 million acquisition of French packaging group Kaysersberg, which was especially strong in heavy duty corrugated packaging, but also gave the company a foothold in the European plastic packaging sector. The Kaysersberg group gave the company three manufacturing plants in France, and a sales presence in Germany as well.

Smith quickly reinforced both its French operations—through the acquisition of Paris-based Cartonnerie Chouanard, merged into Kaysersberg—and its new position in Germany, with the purchase of Sieger Plastics. That company, with manufacturing plants in Im Grossen Tal and Duren, helped extend Smith's bag-in-box capacity onto the European continent.

Company Perspectives:

DS Smith Plc is an international Group focused on two major activities—Packaging and Office Products.

We hold strong positions in many of the markets in which we operate: the leading UK producer of recycled paper board; the largest UK collector and merchant of recovered paper; a leading manufacturer of corrugated packaging in the UK and France; a leading worldwide supplier of baginbox packaging; the leading European wholesaler of office supplies; the largest UK manufacturer of envelopes, books and pads.

Throughout the 1990s, David S. Smith continued building up its international operations, establishing a manufacturing presence in the United States, Spain, Italy, Belgium, Poland, the Dominican Republic, Israel, Australia, and New Zealand by the beginning of the 2000s. Yet the company had also put into place the second prong of its expansion strategy.

In 1993, Smith moved into new territory with the purchase of U.K.-based Spicers wholesale office products group. Paying £93 million, Smith instantly became a leader in that market in the United Kingdom, before extending its operations onto the European continent through a network of distribution facilities in Germany, Spain, France, and elsewhere. In 1996, the company strengthened its position in the office supplies market by adding a manufacturing component as well, in the form of John Dickinson. For £17 million, Smith now became one of the U.K. leaders in the production of envelopes, notebooks, and pads.

In addition to its external expansion, Smith also invested in its organic growth. These efforts included spending some £110 million in upgrading its main paper production facility at Kemsley, completed in 1996, building a new corrugated production plant in Fordham in 1998, and expanding its Tri-Wall factory in Monmouth. The company also expanded its continental European operations, opening facilities in Poland and Italy.

Like much of the packaging sector, David S. Smith weathered some difficult years at the end of the 1990s, in part because of the strength of the pound against European currencies. In order to provide a buffer for itself, the company, which had already acquired Formative Engineering in the United States, returned to that country, paying £17million to acquire Packaging Systems LLC, which used the trade name Papak, in 2000.

By then, as signs of an upturn in the European economy firmed, the company announced its interest in spending as much as £200 million on a new round of acquisitions. That process began in 2001 when the company spent £21 million buying up part of food giant Danisco's corrugated packaging operations. That year, also, Smith, through Spicers, took a major position in the French wholesale office supplies market when it bought that country's leading Plein Ciel, giving it a national network of cash-and-carry stores as well.

Smith paused to change its name, to DS Smith Plc, in 2001. The company then continued its expansion, forming an Australasian 50–50 joint venture with that region's AEP, called Rapak Asia Pacific. The company took full control of the joint venture at mid-2003, however. By then, Smith had already paid £17.5 million to acquire Germany's Zewathener GmbH in 2002, a bag-in-box specialist. In 2002, also, Smith opened its first Spicers distribution center in Spain, in Barcelona, in 2002.

By the end of 2003, Smith had grown into a global leader, posting annual sales of nearly £1.5 billion with operations worldwide. The company showed no immediate sign of slowing down its growth. In October 2003, for example, Smith purchased the northern England-based manufacturing operations of MacFarlane Group for some £900,000. DS Smith appeared prepared to package more growth in the future.

Key Dates:

1940:

David Solomon Smith launches a business providing lithographed cartons.

1949:

Company opens factory in Neath, Glamorgan, South Wales.

1960:

David S. Smith Ltd. is incorporated.

1969:

Company completes expansion of Neath plant, making it one of most modern packaging plants in the country.

1983:

Richard Brewster buys stake in company and becomes CEO.

1984:

Company acquires Western Board Mills, which specializes in boxes for ladies' shoes.

1985:

Company acquires Abbey Corrugated, entering heavy duty corrugated sector.

1986:

Company acquires St. Regis Paper, adding papermaking facilities.

1988:

Company acquires Kemsley Paper Mill.

1989:

Plastics packaging sector is entered with acquisition of Waddington & Duval and Corrugated Products.

1991:

Expansion onto European continent occurs with acquisitions of Kaysersberg Packaging and Cartonneri Chouanard in France and Siegers in Germany.

1993:

Company diversifies into office supplies market with acquisition of Spicers wholesale office supply group.

1996:

Company enters office supplies manufacturing with acquisition of John Dickinson in the United Kingdom.

2000:

Company acquires U.S.-based Packaging Systems LLC and its Rapak trademark.

2001:

Company forms Rapak Asia joint venture with AEP in Australia and New Zealand; acquires Plein Ciel wholesale office supplies network in France; changes name to DS Smith Plc.

2002:

Germany's Zewathener is acquired.

2003:

Company acquires northern England-based manufacturing operations of MacFarlane Group.

Principal Subsidiaries

AA Griggs & Co. Ltd; Cartón Plástico s.a. (Spain); Ç opikas AS (Turkey); David S. Smith America Inc. (U.S.A.); Demes Logistics GmbH & Co KG (Germany); DS Smith (UK) Limited; DS Smith Packaging; DS Smith Packaging Poland SA; DS Smith Plastics; DSS Rapak Inc. (U.S.A.); Ducaplast SAS (France); DW Plastics NV (Belgium); John Dickinson Stationery Ltd.; Kaysersberg Packaging SAS (France); Kaysersberg Packaging SA; Rapak Asia Pacific (Aust) Pty Ltd (Australia; 50%); Spicers Ltd.; St Regis Paper Company Ltd; StePac L.A. Ltd (Israel; 55%); Toscana Ondulati SpA (Italy; 65%); Zewathener GmbH (Germany).

Principal Competitors

REXAM PLC; Linpac Group Ltd.; Cinram UK Ltd.; S.C.A. Packaging Ltd.; CarnaudMetalbox PLC; British Polythene Industries PLC; Surface Specialties PLC; Autobar Group Ltd.; Avon Rubber PLC; Lawson Mardon; MY Holdings PLC; Field Group PLC.

Further Reading

"DS Smith Suffers Poor Market," Print Week, December 18, 2003, p. 7.

Duckers, John, "It's a Wrap As Rival in US Bagged," Birmingham Post, June 29, 2000, p. 26.

Gimbel, Florian, "DS Smith May Spend £100m on Acquisitions," Financial Times, December 6, 2001, p. 28.

Grimond, Magnus, "European Rivals Muscle in on Smith," Independent, July 17, 1997, p. 24.

Kipphoff, John, "'Strong Action' by DS Smith Fails to Offset Fall in Demand," Financial Times, June 28, 2002, p. 24.

Murphy, Mary, "Perfect Marriage," Packaging Week, January 31, 1990, p. S12.

"Smith Sets Its Sights on the Continent," Packaging Week, January 8, 1992, p. 15.

—M.L. Cohen