Smurfit Kappa earnings fall 21pc
Revenues also down 14pc to €6bn -- but group says results still better than expected
Published 11/02/2010 | 05:00
SMURFIT Kappa turned in a better-than-expected 21pc drop in full-year earnings and confirmed that last year marked the low point in the paper packaging cycle.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for Europe's largest cardboard box maker fell to €741m from €941m for 2008, as revenues dropped 14pc to €6bn.
Still, the group managed to shave 4pc off its keenly eyed net debt mountain, leaving it at just more than €3bn, as it continued to use strong cash flow to lower its net borrowings.
Analysts were also encouraged as Smurfit, led by chief executive Gary McGann, raised the target of its three-year costing programme from €250m to €300m -- to be achieved by the end of this year.
"We now expect to take out €90m of costs this year," Mr McGann told the Irish Independent.
While European corrugated box volumes decline throughout the first three-quarters of the year, Smurfit noted that they picked up 2pc year-on-year in the final two months.
Having pushed through a €90-a-tonne price increase for containerboard, which is used to produce corrugated boxes, Mr McGann said that the group had begun to pass on price increases again for its end product for the first time since early 2007.
In the meantime, the fourth quarter last year saw higher raw material costs compress group margins.
"It's going to be tough when we're still in recession, but we are only looking to recover our own increased costs, built up over the past few years," the chief executive said.
Davy analyst Barry Dixon noted that Smurfit management "is also confident that the additional €60-a-tonne increase in containerboard prices announced since Christmas will also be successfully implemented, which will put further upward pressure on box prices in the second half of the year."
Smurfit warned that the sustainability of a recovery "is dependent on continuing supply-side discipline in the European market", as new capacity comes on stream in the second quarter.
While EBITDA across the group's Latin American operations jumped 15pc, hyperinflation in Venezuela resulted in the group taking a €25m depreciation charge on its assets in that country.
A devaluation of the Venezuelan currency in early January will reduce Smurfit's cash balances by about €30m in 2010, the group said.
"While the devaluation is also expected to negatively impact the country's contribution to the group's earnings in 2010, it should be largely offset by pricing and volume growth in other businesses in the Latin American region," it added. NCB Stockbrokers said its current forecast for Smurfit's EBITDA to rise 13.5pc this year to €840m "looks readily attainable" and that the group could end up beating this figure.
"However, given the continued input cost pressures, the drag from Venezuela and the prevailing economic uncertainties, we are not changing our forecasts at this point," the broker's analysts, Tommy Conway and Conor Harnett, said in a note to clients.