Saturday 1 November 2014

Smurfit ups its dividend by 50pc as 
profits grow

Published 31/07/2014 | 02:30

Gary McGann

Packaging giant Smurfit Kappa has raised its interim dividend by 50pc after delivering a 9pc rise in earnings to €295m during the second quarter.

It said revenue for the period was flat at just over €2bn, but that earnings per share soared 90pc to 33.6 cent year-on-year in the second quarter as its margins strengthened.

Speaking to the Irish Independent, Smurfit Kappa chief executive Gary McGann said that the environment in Europe for the company is "a little bit better and trending better".

Smurfit Kappa is the biggest packaging group in Europe, but also has extensive operations in the Americas.

"Europe is going to be a quite low-growth environment for some time to come," said Mr McGann on the general economic climate.

However, he said that while Ireland accounts for just 2pc of Smurfit Kappa's business, there is "definitely some progress" in its operations here.

Smurfit Kappa's second quarter results were in line with market expectations, with its shares rising over 2pc in early trading before edging lower towards midday.

The company said that its capital structure has now been "comprehensively repositioned" with its average interest rate falling from 6.9pc to 4.1pc and annualised cash interest costs falling by €100m.

It added that it's "increasingly well-placed to deploy capital to enhance shareholder returns".

Mr McGann said that Smurfit Kappa is now generating a 3pc dividend yield, strengthening its investment proposal.

He said that the amount of cash the company generates, coupled with its new capital structure, enable it to target capital investment on projects that may have previously been postponed. It also means the group has about €300m a year available to spend on accretive mergers and acquisitions, if such opportunities become available.

He also said he wasn't overly concerned with events in Argentina, which is headed for its second bond default in 13 years. Argentina is one of the South American countries in which Smurfit Kappa has operations.

"I wouldn't discount it altogether but it's a short-term blip for us," he said. "And in some ways it brings the whole issue to a head."

He pointed out that while Smurfit Kappa's Argentina business produces packaging for the domestic market there, a big part of the operation is focused on the manufacture of packaging used for exports.

He said that Smurfit Kappa's geographic diversity continued to help insulate from country-specific economic fallout.

Mr McGann also said he wasn't overly concerned at how events in Ukraine could impact gas prices further down the line. Smurfit Kappa reduced its energy costs by 11pc in the first six months of the year due to lower gas prices and improved efficiencies.

He said the company has 80pc of energy costs for 2014 already hedged.

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