Saturday 20 January 2018

Smurfit Kappa sticks to debt-reduction and earnings forecasts

John Mulligan

Irish packaging giant Smurfit Kappa has stuck to debt-reduction and earnings forecasts for the current financial year despite slowing demand for its products, many of which end up on supermarket shelves across Europe.

The company said it still expected to reduce net-debt levels to €2.85bn by its year end, having cut them by €82m to €2.92m at the end of September.

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the current year are also likely to be in line with investor expectations, said Smurfit Kappa chief executive Gary McGann. Analysts have pencilled in an earnings figure for the period of just over €1bn.

Mr McGann has previously alluded to Smurfit Kappa's geographic diversity as one of the reasons why he believed the group was better insulated against global economic shocks.

The company is the largest manufacturer of cardboard boxes in Europe, while it also has a strong presence in Latin America.

For the third quarter, Smurfit Kappa reported yesterday that group revenue had risen 10pc to €1.87bn, while EBITDA was 9pc higher at €264m.

Mr McGann said that while box demand had risen during the third quarter, it done so at a slower pace than in the first half of the year.

He added that the group's EBITDA margin of 14.1pc reported for the period reflected increased efficiencies, a recovery in box prices and a "sustained strong performance" in the Latin American business. He acknowledged, however, that demand was softening.

While Smurfit Kappa has seen prices for its products rise over the past nine months, pricing for corrugated packaging is likely to start falling in the first quarter of 2012.

Davy Stockbrokers' analyst Barry Dixon described the quarterly results from Smurfit Kappa in light of tough economic conditions as "impressive".

He also said that continuing strong cash generation by the group, coupled with the decline in its debt to EBITDA ratio, probably increases the likelihood of Smurfit Kappa next year taking steps to refinance some of its debt that's due to mature in 2013 and 2014.

Shares in Smurfit Kappa closed unchanged yesterday at €5.00, having earlier shed close to 7pc.

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