DS Smith pre-tax profits soar 75% on price rises as demand slumps

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DS Smith, one of the world’s largest cardboard box makers, has suffered the first decline in demand for its packaging in over a decade, as the rising cost of living hits spending on online shopping from the US to Europe.

The FTSE 100 group, which produces packaging for Amazon and other online retailers, said on Thursday that customers bought 6 per cent fewer boxes in the year to April, based on the total area of cardboard sold.

Chief executive Miles Roberts said that “certainly for the last 15 years, it was the first time we’ve had a negative like-for-like volume position”.

“During Covid, we saw demand pick up really strongly, as customers built their stock holdings,” he added. “In the second half of the year, we saw quite a bit of de-stocking . . . It’s really as a response to the new economic conditions.”

The figures are the latest sign of how quickly a cost of living crisis has reversed a period of explosive ecommerce growth, when Covid-19 lockdowns prompted consumers to splurge on everything from games consoles to home gyms.

The heightened demand for boxes to transport these goods transformed the outlook for DS Smith and its peers, drawing investors to the unglamorous business of cardboard-box manufacturing.

But after soaring more than 40 per cent between the start of the pandemic and 2021, shares in DS Smith have since dropped to pre-Covid levels. The share prices of UK-listed rivals Smurfit Kappa and Mondi have also whipsawed.

Like other large businesses, however, these groups have overcome declining demand and rising costs with inflation-busting price rises.

DS Smith said revenues rose 14 per cent to £8.2bn in the year to April, largely thanks to price increases that delivered a £1.2bn boost. Profits before tax rose 75 per cent to £661mn.

Roberts said DS Smith, which recently opened factories in Poland and Italy, has also invested in more modern and productive machines, which helped boost profitability despite rising labour and energy costs. 

While investing in new facilities, DS Smith has cut costs by selling older factories, including one in Kent amid concerns over the economic impact of Brexit. Roberts said the group was also shutting down a number of recycling depots in the UK.

Despite continuing to see “a challenging time for the consumer”, Roberts hopes demand for boxes will rise again, pointing to easing inflation and energy costs in Europe and the US. 

He also expects that a transition away from plastic packaging, which lawmakers globally are targeting, will continue to drive demand in the long term.

“We think that the end consumer, and indeed our customers, want more fibre-based, fully recycled packaging,” he said. “Our big [customers] have really far-reaching, extensive environmental policies and the common feature in all of those is reducing plastic.”