Smurfit Kappa revenue climbs in 2018 as demand rises

Paper and packaging group Smurfit Kappa beat market projections in the third quarter for core earnings as it confirmed that full year results would be "materially better" than last year.

The company also announced on Wednesday that it has agreed to acquire a paper mill and corrugated plant in Serbia for €133 million from Kappa Star Group.

Smurfit Kappa said FHB and Avala Ada were “well invested” businesses, with a “leading market position in Serbia and solid positions in adjacent countries”.

In addition, Smurfit Kappa said former Coca-Cola executive Irial Finan has been appointed as chairman designate to succeed Liam O’Mahony after its annual general meeting next May. Mr Finan joined the Smurfit Kappa board in 2012, and previously spent 36 years in various roles with Coca-Cola.

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In terms of its results, revenue has risen 7 per cent in the first nine months of the year as demand for Smurfit Kappa's packaging products increased across most markets, "with our key performance measures showing significant and continuing improvement", chief executive Tony Smurfit jnr said.

Group pre-exceptional earnings before interest, taxation, depreciation and amortisation grew 27 per cent year-on-year to €1.13 billion, with Ebidta (earnings before interest, tax, depreciation and amortisation) margin at 16.9 per cent.

Corrugated demand

The company said the results reflected corrugated price recovery initiatives, its capital investment programme paying off, and lower average recovered fibre costs. This was offset in part by by higher energy, labour, logistics and other raw material costs, along with the negative impact of foreign exchange rates.

In Europe, corrugated demand was in line with expectations and there was continued year-on-year Ebitda margin expansion. During the period, Smurfit Kappa completed the €460 million acquisition of Reparenco. Integration of the business was proceeding well, the group said.

The Americas region saw continued volume growth with further margin expansion on a year-on-year basis.

It also included a writedown of net assets of €66 million, following the loss of control over Smurfit Kappa Carton de Venezuela (SKCV), and the deconsolidation of the operations. The move came after the Caracas government seized SKCV for 90 days, charging the company with price speculation and destabilising the economy. Two Smurfit managers were also detained.

Looking ahead to the rest of the year, the groups said it anticipated further recovery in corrugated prices .

Analysts at Davy said the recent sell-off in the stock looked overdone.

“It will be interesting to see if the company reiterates its guidance of 2.5-3 per cent growth in volumes for the full year. It also expects further progress on corrugated pricing. This implies an increase in the previously guided 6-8 per cent range,” analysts wrote in a note.

Smurfit is Europe’s largest cardboard box maker. The company currently employs around 45,000 in 33 countries. The group had revenues of €8.6 billion last year.