The Spanish paper and cardboard industry is something like an expanding galaxy through which many small companies orbit. The market continues to grow thanks to electronic commerce, which calls for boxes and packaging, and the replacement of plastic with other more sustainable materials. In this particular business universe, five groups have each managed to achieve market shares of between 12% and 15% and continue to stalk a very atomized market, full of small companies destined to consolidate. The British group DS Smith is one of those leaders in Spain, whose rapid growth has occurred precisely through acquisitions and strong investments.
The company, listed on the FTSE 100 of the London Stock Exchange and with annual revenues of nearly 10 billion euros, has been buying companies in Spain since 2014 to take positions in the market, but it was in 2018 when it made the big leap, with its takeover bid for Europac for almost 1.7 billion euros. The operation allowed it to position itself as the leader in the Peninsula, with a production of 740,000 tons of corrugated cardboard per year. In Spain, it employs 1,682 people in two paper factories, 21 packaging plants and three warehouses.
“We have invested more than 200 million in eight years to lead the sector,” says the general director of DS Smith in Iberia, Ignacio Montfort. The great effort has already ended and now “the growth is organic,” explains the manager, who does not stop citing the potential of the paper and cardboard market. E-commerce and the consequent need for boxes is no longer growing at rates of 20%, but it is doing so at a non-negligible rate of 8% while large stores increasingly rely on cardboard for their packaging. The ecological transition has turned this material into a winning product thanks to the ease of recycling it.
Although DS Smith does not now have its checkbook open and investment funds have reduced the buying appetite, Montfort assumes that the paper and cardboard production business is doomed to concentrate, among other things because many small companies cannot afford the necessary investments. “Customers are getting bigger and they want suppliers at their level,” so “there will be a trickle of companies that decide not to continue or sell themselves.”
This trend may be relevant in Catalonia, where “there is a very significant number of packaging companies due to their historical industrial activity.” Many of them, he indicates, are of family origin and must face a generational change. In short, “there is a market with potential for consolidation and it is possible that sales and mergers will continue to be seen,” he says.
The company does not stop making significant investments and this year it is allocating them mainly to an 11 million euro project for the expansion of the Galician Cartogal plant. “It will increase both the surface area of the factory and its production and storage capacity,” says Montfort. These investments, together with “solid customer relationships,” provide “confidence for the future.”
For the manager, cardboard production and packaging are a good thermometer of the progress of the Spanish economy. It correlates to the millimeter with consumption and business activity, and the good news is that things are going, he says, better than the big statistics indicate. “There is an improvement in the summer here” and “in dynamism, Spain surpasses that of the surrounding economies,” he assures.
Inflation has also affected paper and cardboard producers, who have had to negotiate with customers to partially absorb the increase in costs. DS Smith has cogeneration plants and has accused the sharp rise in gas prices after the invasion of Ukraine, to which are added the increases in the price of paper, which is traded as a raw material internationally. Prices seem to be returning to “normal,” he says.
However, the company's concern now has more to do with legislation and, especially, with the “plastic lobby.” Monfort assures that plastic manufacturers are achieving regulatory successes at the European level: “There is a fight between plastic and cardboard to see which is more sustainable.”
To counteract this trend, DS Smith prides itself on managing 550,000 tons of materials each in the wheel of the circular economy. Part of the investors, he recalls, also focus on innovation.
On an international level, DS Smith has just presented the results for the first half of its fiscal year, with an operating profit of 365 million pounds (425 million euros), 12% lower than the same period of the previous year.
