Wednesday 21 March 2018

Smurfit Kappa keen to use cash for buyouts

Smurfit Kappa chief executive Gary McGann
Smurfit Kappa chief executive Gary McGann
John Mulligan

John Mulligan

The chief executive of packaging giant Smurfit Kappa, Gary McGann, has said the company remains keen on using strong cash generation to fuel acquisitions rather than handing money straight over to shareholders in order to generate value.

Speaking to the Irish Independent as the company reported better than expected fourth quarter results, Mr McGann also said that despite the overall challenging economic backdrop in Europe, businesses are doing well on the ground and will be helped by a weaker euro.

Smurfit Kappa posted €295m in earnings before interest, tax, depreciation and amortisation (EBITDA) in the three months to the end of December, up 1pc year-on-year. Revenue for the period was up 4pc at €2.1bn.

For the full year, revenue was 2pc higher at €8.08bn, while EBITDA was up 5pc at €1.16bn.

The fourth quarter results were better than anticipated by analysts.

The company increased its final dividend by 30pc to 40 cent.

The company also announced that it is undertaking a sale of €250m in euro-denominated senior notes, with the proceeds earmarked for reducing term loan borrowings under a senior facilities agreement.

Smurfit Kappa has been steadily increasing its footprint in the United States in recent years, buying two companies there since 2012.

It paid $340m (then €260m) to buy California-headquartered Orange County Container Group.

Last year, it bought Texas-based Bates Container for up to $157.5m (€123m at the time).

"We're not going to overpay and we're not going to do anything silly," said Mr McGann, confirming that the company has a number of acquisition targets on its radar.

"Our very strong view - and also that of value investors - is that we as a company can deliver more sustainable shareholder value by doing good acquisitions", he said.

Mr McGann also said the group wants to avoid "Dutch auction-style" bidding wars for assets, and that the acquisitions are also important from the point of view of adding to the group talent pool.

Smurfit Kappa has 350 production sites in 32 countries and employs 42,000 people.

It said its operations throughout the Americas performed well, particularly in Colombia, Chile and northern Mexico.

"In spite of a resilient underlying performance in Venezuela, the country's weakening currency has had a negative impact on the Americas' results in 2015 and the economic environment will remain difficult in 2015," noted the company.

It said its operations in Europe had a slow start to 2014, but posted a "particularly strong" fourth quarter.

Shares in Smurfit Kappa were trading about 1pc higher at lunchtime yesterday, at €22.72 in Dublin.

Analyst Barry Dixon at Davy Stockbrokers said that the capacity for cash generation by the company isn't reflected in the stock's valuation and that it continues to trade at a "significant discount" to the sector.

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business