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Despite e-commerce boom, a leading cardboard maker’s profits fall

Victoria Craig Jun 22, 2021
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The drop in profit has to do with fewer corporate clients needing cardboard products during COVID-19. Sean Gallup/Getty Images
COVID-19

Despite e-commerce boom, a leading cardboard maker’s profits fall

Victoria Craig Jun 22, 2021
Heard on:
The drop in profit has to do with fewer corporate clients needing cardboard products during COVID-19. Sean Gallup/Getty Images
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COPY

You’d think a pandemic-induced boom in online shopping would lead to a bumper year for packaging manufacturers. And you’d be partly right.

But for DS Smith, one of the world’s biggest cardboard makers, rocketing demand from individual customers in the latest fiscal year wasn’t enough to offset a drop in corporate clients that were forced to halt operations due to COVID-19.

The London-based company booked a 1% decline in full-year revenue, alongside a 38% drop in profit. That’s despite record growth in the second half of the year as economies began to reopen.

Still, Chief Executive Miles Roberts said that even as the company continues to contend with more expensive commodity paper prices, things are looking up. He spoke with the BBC’s Victoria Craig on the global edition of “Marketplace Morning Report.” Below is an edited transcript of their conversation.

Miles Roberts: The first quarter was down in volumes. But every other quarter were showing good, positive growth. So looking into the current year, we started with even higher volumes, we gained market share, and we’re seeing some very healthy improvements in the prices of our products as well. So we do expect to see a very significant improvement in profitability, really built on the support we’ve given our customers over the last 12 months.

Victoria Craig: So, are you seeing corporate customers come back? Because obviously individual sales from people like you and me sort of helped in the first part of last year. Are you seeing corporate customers come back now?

Roberts: Absolutely. Look, you know, we make packaging, we specialize in e-commerce and food and drink customers. We’ve seen consumers switching to buy e-commerce, and that’s really a drove of volumes. And that’s in Europe, and in the U.S. That switch to online shopping, the resilience of the fast-moving consumer goods sector really put us in a good state. So whilst the group grew at over 8%, in the second half, our U.S. business was actually well ahead of that.

Craig: Today is Day 2 of the shopping Bonanza known as Amazon Prime Day. The company is your biggest customer. So how do you prepare for a global shopping event, particularly given that prices for your raw materials, paper, have become more expensive over the last several months?

Roberts: The whole retail space is a very vibrant space. And I have to say e-commerce genuinely is more vibrant than bricks and mortar. There are more events, more special days — you’ve got Singles Day, you’ve got Valentine’s Day, you’ve got Christmas Day. You’ve got — there are so many events, and, for us, we have to plan in advance for these events, we build stock so it can be [deployed] immediately. The order delivery times can be extremely short. But I’ll be honest with you, it’s very challenging, but we like it.

Craig: You talk about building stock of cardboard. But, you know, all the online shopping that we’ve all been doing over the last year or so has resulted in shortages of cardboard in many places. How big of a problem is that for you even despite all of the efforts to recycle those used boxes?

Roberts: It has caused the price of some of the raw material, which is the old fiber, to increase. Because a lot of the fiber now is in pieces in people’s garages, it’s in people’s backyards, rather than being in the retailer where we used to pick up directly from the retailer. So we’re having to work with local authorities, with governments, and saying, “We need to improve the recyclability of product from the home.” Having different segregation of materials: paper separate from tins, separate from glass. We need to be able to collect that more regularly because there have been some short-term supply difficulties. But we need to recycle more, because if we don’t, then it ends up going to landfill. We need to work to bring it back, make new material for them to provide in the packaging that consumers need for the future. So there’s a challenge for all of us there. We’re working hard to solve it, but, I’ll be honest, we have more work to do there, and we will advance with that.

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