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Smurfit chief says expansion into US unlikely

Smurfit Kappa chief executive Gary McGann has said the packaging group is unlikely to explore acquisition opportunities in North America and it will probably continue to focus on regions such as Latin America and central Europe as it steers itself back into a position to expand its operational footprint in the medium-term.

Speaking to the Irish Independent yesterday as Smurfit Kappa reported a 22pc rise in pre-exceptional earnings before interest, tax, depreciation and amortisation (EBITDA) to €904m for 2010, Mr McGann again said that the company would also look at reintroducing a dividend only when it can do so in a "meaningful and progressive" way.

The company, which is the largest European manufacturer of packaging such as corrugated cardboard boxes, halted its dividend payment in 2009.

Revenue last year rose 10pc to €6.67bn, while in the fourth quarter it was 14pc higher at €1.75bn.

The pre-exceptional EBITDA figure for 2010 was above the 20pc growth that had been previously guided by the company, but its net debt level rose 2pc by the year end to €3.11bn.

Net debt fell by €13m in the fourth quarter but that was below the €76m reduction that had been forecast by Davy Stockbrokers.

Net debt is forecast by the company to fall to about €2.8bn at the end of this year, while EBITDA could rise to nearly €1.17bn this year, according to Davy.

Mr McGann said that additional input costs in the fourth quarter had "camouflaged a better performance than people were reading".

Input costs for everything from chemicals, electricity and starch to waste paper rose during the year, but Smurfit Kappa's EBITDA margin in the full-year rose to 13.5pc from 12.2pc in 2009 on the back of robust demand and price increases.

Mr McGann said that within Europe demand for the types of packaging that eventually finds its way on to supermarket shelves had been strong across all geographies.

He also pointed out that higher input costs reflected solid underlying economic activity.

"The underlying cost pressures do herald a good environment," he said. Volume sales of boxes in Germany were 5pc higher year-on-year in 2010, while in the UK they were up 10pc, and in France and Switzerland up 2pc and 5pc respectively. Ireland accounts for just 2pc of Smurfit Kappa's corrugated packaging business.

Mr McGann said that in terms of possible acquisitions that "every few years" the company tries to do something "meaningful", but pointed out that the North American market is very consolidated, but conceding that US investors have traditionally applied higher multiples to the packaging business than their European peers.

Shares in Smurfit Kappa declined 5.5pc yesterday to €8.60.


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