Tuesday 19 September 2017

Smurfit Kappa shares gain as it plans to raise prices

Pictured at the Smurfit Kappa Group AGM in May were Former Anglo Irish Bank director Gary McGann (right), current Smurfit Kappa Group Chief Executive Officer, with Tony Smurfit, Chief Operations Officer
Pictured at the Smurfit Kappa Group AGM in May were Former Anglo Irish Bank director Gary McGann (right), current Smurfit Kappa Group Chief Executive Officer, with Tony Smurfit, Chief Operations Officer
Sarah McCabe

Sarah McCabe

SHARES in Smurfit Kappa rose to the highest price in six years this morning as the company said it is ready to raise prices.

The Dublin-based company today said it will raise prices from tomorrow and “recover the increased costs in its corrugated pricing with the usual three to six month lag. This in turn will support continued performance and growth into 2014.” Shares rose as much as 3.7pc to €15.05 , the highest since October 2007.

The jump followed newly released quarterly results which showed that sales at the paper and packaging giant jumped in the first half of the year but profits still fell.

Revenues rose 6pc between January and June to €3.9bn but pre-tax profits were down by 31pc to €127m in what the company called a ''current challenging operation environment''.

The company also announced that its new refinancing facility will save it as much as €13m a year.

Growth in Europe was up 2pc compared the same period. Rising input costs and improving circumstances in the European paper industry including, low inventory levels, solid export markets and relatively high operating rates supported higher recycled containerboard prices, allowing the company to announced a price increase of €50 per tonne effective tomorrow. Growth was healthier in the America, up 5pc. “With the successful integration and performance of SKOC, the Group is progressing well with its strategy to expand in the higher growth markets of the Americas” said a company statement. “Positive volume and pricing momentum in Europe combined with stronger performance from the Americas division implies upside to our 2014 forecasts,” said Davy analyst Barry Dixon, awarding the stock an outperform rating.

The €1.38bn refinancing deal involved a new five year €750m unsecured bank loan, as well as the refinancing of a €625m existing credit line. Some 22 banks were involved. Smurfit Kappa called the transaction “a major milestone in the evolution of the group’s capital structure” and said it would reduce reducing interest costs by about €13 million per year. “These transactions provide the Group with greater financial flexibility, including the potential to refinance part of its more expensive bond debt at the appropriate time”.

The group confirmed it will pay an interim dividend of 10.25c, a 37pc increase on last year.

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