ackaging giant DS Smith called on the government to deliver a free trade Brexit deal as its manufacturer clients, from carmakers to food firms fretted about potential higher prices.
“A free trade deal is what they promised and that’s what we need them to deliver,” said chief executive Miles Roberts.
“Our clients are really concerned about facing tariffs of perhaps 40% on some products. It’s a really big problem for everyone.”
DS Smith is seen as a barometer for the economy as it supplies cardboard packaging to practically every industry.
Demand from its manufacturer clients was hit hard during Covid as factories locked down or reduced output as demand dried up.
However, the surge in e-commerce led by Amazon was so great that it outweighed the fall in sales of boxes to industry. This year, DS Smith expects to have doubled its e-commerce box sales by £200 million to around £400 million.
Thanks to internet shopping, DS Smith saw second quarter volumes bounce back from the first quarter’s fall and November and December have been up around 6% on the year.
“What was remarkable was that e-commerce demand continued to grow even when lockdowns ended,” said Roberts. “People have just totally changed their behaviour.”
He predicted Christmas would see 1 billion boxes sent to people’s homes, with DS Smith making the lion’s share.
Despite the volume increase in the half year, revenues fell 10% to £2.89 billion and profits 35% to £230 million as the price of paper and cardboard on commodities markets fell, meaning it had to cut prices to the tune of £149 million.
DS Smith resumed paying its dividend, with a 4p interim payment.
Prices have recently started bouncing back along with other commodities, so volume increases will now boost profits more, Roberts said.
Also hitting DS Smith margins was the side-effect of Covid that recycled fibre, which it uses to make its packaging, massively increased in price because recycling volumes plummeted.
This was largely due to people failing to recycle while working from home.
Local authority collections for domestic rubbish are far less efficient than for offices and factories, so much of the packaging delivered to people’s homes goes into landfill or gets incinerated.