Packaging business DS Smith posts profit rise despite cost increases

Packaging business DS Smith has ended the year with a jump in profit, despite being affected by “significant cost increases”.

The company has reported a pre-tax profit of £378 million over the year to April, representing a 71% increase against the previous year.

Revenue also jumped by 26% by constant currency, to £7.24 billion from the previous year.

Miles Roberts, group chief executive, told the PA news agency that DS Smith has witnessed “reasonable growth” and demand in recent months.

However, he added that it has also experienced “significant cost increases” due to increasing gas and energy prices, with the average price of a box increasing by 20% over the last year.

Mr Roberts said: “We are a heavy user of energy. We have a variety of different energy sources like biogas, refuse from domestic households and we also use gas, and the prices have gone up hugely, and then for diesel and distribution, we are seeing very significant cost increases.

“We’ve done a lot of work to try and mitigate those costs, but after we’ve done all that, the average cost for a box has increased by 20% over the last year, more in some countries – like the UK – but across the patch, it’s up 20%.”

Research firm Cornwall Insight reported on Tuesday that the energy price cap could reach nearly £3,000 in Britain at the beginning of October, with the planned increase possibly being more than £1,000.

Inflation, which currently stands at 9%, also continues to plague consumers and businesses alike.

Supply chain issues have also hit DS Smith, with Russia’s invasion of Ukraine having a significant impact.

“We use a huge amount of starch to make paper and starch comes from corn and wheat. Russia’s invasion of Ukraine has caused a number of restrictions,” Mr Roberts said.

“Also all the sanctions against Russia means that we can’t use any wood that comes from Russia and of course, wood from Russia makes things like palettes for the distribution system.”

The company has said it expects corrugated box volume growth to be between 2% and 4%, which is below “record volume growth” of 5.4% experienced the previous year.

However, Mr Roberts said the average volume growth for the last 10 years stands at roughly 2.5%.

The chief executive added that the UK makes up just over 10% of its market, so whilst the UK has proved to be more challenging, other markets look promising.

For example, despite the boom in e-commerce experienced during the pandemic years falling back, he said it still remains “above pre-Covid levels” and in European countries including Spain, France and Italy, however, growth in e-commerce still remains strong.

The company also hope that its sustainability efforts, including making fibre-based products over plastic ones, will grow in favour among customers over the next financial year and beyond.