Smurfit Kappa shares jump as dividend hiked on record earnings

Smurfit Kappa shares soared on Wednesday, after the cardboard-box maker said it planned to hike its final 2019 dividend by 12 per cent as it reported solid earnings growth on the back of ongoing growth in online shopping and rising demand for sustainable packaging.

Earnings before interest, tax, depreciation and amortisation (ebitda) rose by 7 per cent to a record €1.65 billion. This far outpaced a 1 per cent increase in sales to €9.05 billion, amid lower paper packaging prices globally.

Shares in the company jumped as much as 8.7 per cent to €34.86 in Dublin, with Goodbody Stockbrokers analyst David O’Brien saying that the final planned dividend payout of 80.9c per share was ahead of his expectations.

“There has been a shift in recent years and consumers, governments and retailers are just a few of the stakeholders driving the awareness around sustainable packaging in a way that we’ve never seen before,” group chief financial officer Ken Bowles said on a call with analysts.

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Smurfit Kappa, which announced a €1.6 billion, four-year investment and deals programme in early 2018, said that its business has been strengthened since then by the purchase of Dutch paper and recycling business Reparenco and further acquisitions in France, Bulgaria and Serbia.

"These acquisitions significantly enhance our business and further expand our geographic reach. As with previous mergers and acquisitions, the new teams have integrated well and further strengthen the depth and quality of the group," said chief executive Tony Smurfit.

Smurfit Kappa's keenly followed ebitda margin edged up to 19 per cent in Europe from 18.3 per cent a year earlier, with demand growth for its products ahead of the wider market, while its margin for the Americas rose to 17.5 per cent from 15.7 per cent.

European projects

"Our three main countries of Colombia, Mexico and the US had strong financial performances with demand in Colombia particularly strong," Smurfit Kappa said of its performance in the region.

Smurfit Kappa said it will complete a number of major European paper projects this year and continue to invest in its corrugated division “to capitalise on the many opportunities and secular trends”.

Last August, the company’s Italian unit was fined €124 million as authorities in that country had found that 50 paper and packaging groups had engaged in anti-competitive practices. The company reiterated on Wednesday that it plans to appeal the decision “on both administrative and substantive grounds”.

“This process may take a number of years,” it said, adding that it is “committed to the highest standards of conduct in its business and does not tolerate any actions that are inconsistent with its values”.

The group swung into a net profit of €484 million from a loss of €639 million for the previous year, which had been the result of the company taking a €1.27 billion charge against its former Venezuelan unit, which was seized by Caracas government in August 2018.

Still, the net figure was dented last year by a €46 million goodwill impairment against assets in Brazil, a market it entered in early 2016 through acquisition. “Management has reassessed the expected future business performance in the country as a result of the continuing difficult economic conditions and consequently the projected cash flows are lower, giving rise to an impairment charge,” it said.

Net debt at the group stood at €3.48 billion at the end of December, standing at 2.1 times ebitda, up marginally from 2 a year earlier.