Saturday 16 December 2017

Smurfit Kappa in the market for large M&A deals says CFO

Smurfit Kappa. Photo: Bloomberg News
Smurfit Kappa. Photo: Bloomberg News
John Mulligan

John Mulligan

Packaging giant Smurfit Kappa is in advanced stages of a number of potential bolt-on acquisitions, but also on the lookout for a larger deal to complement its global business, according to chief financial officer Ken Bowles.

"There are a few bits that are quite advanced at this stage and might come off in the second-half," Mr Bowles told the Irish Independent.

"The pipeline remains reasonably active in Europe and the Americas. Currently, we're looking at modestly-sized bolt-ons, but we're also looking for some bigger stuff to fill out the system."

Smurfit Kappa currently has a 2.5 times debt to Ebitda (earnings before interest, tax, depreciation and amortisation) ratio, which it could comfortably raise to three times.

"In reality, we've the ability to do very large acquisitions," said Mr Bowles. "We're not stressed from the ratings agencies. If you're doing any large scale acquisitions, you'll always look at the combination of all-debt or debt and equity." He said a large acquisition wouldn't test its current rating position.

Releasing second-quarter results yesterday, Smurfit Kappa posted better-than-expected figures. Its reported Ebitda in the period was down 6pc at €292m, but was only marginally lower when adjusted for a €12m exceptional gain in the second quarter of 2016. The company's sector also poses a number of challenges at the moment, such as rising input costs.

Revenue in the second quarter was 3pc higher at €2.1bn.

It saw a strong performance in Europe and the Americas, aside from Venezuela, where Mr Bowles said the company is keeping a close eye on developments in the stricken country. Smurfit Kappa employs about 1,500 people there.

Mr Bowles said that the company remains agnostic in terms of whether or not it makes acquisitions during an upward or downward cycle in the industry.

"You've seen multiples (paid for businesses in the sector) tick up to 11 or 12 times, but if you look back over our track record, we've never gone to those kinds of levels in terms of acquisitions," he said.

"But you always have to be conscious of it in terms of where you're buying assets in the cycle and that becomes a value discussion with your partner. Equally, their risk is that they wait too long."

Mr Bowles said that in Venezuela, which is being rocked by political and social instability, the company's corrugated shipments tumbled 53pc in the first half of the year as domestic demand slumped.

The operation accounted for 1.6pc of the €569m group Ebitda in the first half of 2017.

The chief financial officer added that the Venezuelan operation also manufactures paper for export, which secures dollar payments that mean working capital requirements and wage costs in the country can be met.

"The system is kept going by our ability to export that paper to our sister companies in Latin America," he said.

The value of its net assets in Venezuela fell to €77m at the end of June from €91m at the end of 2016.

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