Thursday 22 March 2018

Smurfit Kappa in €186m Brazil buy

Tony Smurfit, left, who recently succeeded former CEO Gary McGann, right, pictured at Smurfit Kappa AGM
Tony Smurfit, left, who recently succeeded former CEO Gary McGann, right, pictured at Smurfit Kappa AGM
John Mulligan

John Mulligan

Irish packaging giant Smurfit Kappa has made its first foray into Brazil, cementing its presence in Latin America with the acquisition of two businesses for a total of €186m.

One of the largest paper and packaging groups in the world, Smurfit Kappa has bought privately-owned Industria de Embalagens, and Paema Embalagens. Between them, they operate three recycled container board mills, as well as four corrugated production plants located in the northeast and south of Brazil.

Smurfit Kappa has long been eyeing a potential entry to Brazil. It already has operations in countries such as Venezuela, Argentina, Columbia, Mexico, Ecuador, and Costa Rica.

Smurfit Kappa said the size and the location of the combined operations it has bought in Brazil will enhance its position as the largest pan-regional corrugated packaging supplier in Latin America.

Tony Smurfit, chief executive of Smurfit Kappa, said the purchases will extend the group's reach in a "strategically important market".

The combined Brazilian businesses employ over 1,700 people. Smurfit Kappa expects to generate synergies of €6m between now and the end of 2017 at the firms, primarily through operational improvements and supply chain optimisation. The acquisitions will immediately boost earnings. The cost of the purchases is being funded through existing facilities, including cash resources and credit lines.

Smurfit Kappa generated sales of €8.08bn in 2014, and earnings before interest, tax, depreciation and amortisation (EBITDA) of €1.1bn. Its operations in the Americas delivered €1.9bn in revenue that year, and €305m of EBITDA.

During the first nine months of 2015, Smurfit Kappa's Americas operations posted EBITDA of €217m. That was 2pc lower year-on-year, impacted by the adoption of the Simadi exchange rate for the consolidation of the group's Venezuelan operations. Venezuela effectively devalued its currency against the US dollar earlier in 2015 by introducing the new Simadi free-floating currency platform.

During the first nine months of 2015, Smurfit Kappa's EBITDA in the Americas was down €4m with earnings growth across the region, partly as a result of acquisitions, "more than offset by net negative currency movements of €46m, inclusive of a €52m negative impact in Venezuela", according to the group.

Excluding Venezuela, its Americas business reported a 27pc rise in EBITDA in the period.

"Smurfit Kappa has for some time indicated its desire to enter the Brazilian market but to date acquisition multiples have proven too rich," said analyst Barry Dixon at Davy Stockbrokers.

Irish Independent

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