Smurfit shares rise on results

SHARES IN Smurfit Kappa rose by 2 per cent yesterday after the company posted half-year results ahead of market expectations and reaffirmed its guidance for the year.

The packaging group, which supplies packaging to some of the world’s biggest companies across Europe and Latin America, reported a jump of 40 per cent in pretax profit to €190 million for the first half of the year, with revenues 2 per cent higher at €3.68 billion. Earnings before interest,tax, depreciation and amortisation (ebitda) came in at €500 million. This was slightly down on the €507 million recorded the previous year, but ahead of most analysts’ expectations, as Smurfit withstood the tough economic backdrop of dampened demand and pressure on pricing.

The company’s European division – which represents about 80 per cent of revenues – remained “stable” in the second quarter, the company said.

Chief executive Gary McGann said the company’s presence in 21 European countries ensured significant diversification, while its presence in the more resilient food, drink and health sector sheltered Smurfit from some market pressures.

“Cost reduction also helped to drive efficiencies. We have take a half a billion of costs out of the business since 2008, while our integrated system has allowed the economic optimisation of our supply chain.”

Smurfit’s pan-European sales, which includes sales to companies such as Unilever, Nestlé, and Proctor and Gamble, rose by 6 per cent in the first half. Ebidta at its Latin American division, a focus of growth for the company over the last few years, was 13 per cent lower than in 2011 and behind analysts’ expectations, due to a combination of weaker volumes and a number of one-off events such as a prolonged strike in packaging plants in Argentina and maintenance downtime in Venezuela.

Mr McGann said Latin America was still a central part of the business and would continue to be “a focus for growth”.

While the net debt position of the company – which historically carried high levels of debt – was affected by the decision to pay a dividend this year, Smurfit had a net debt to ebitda ratio of 2.8 at the end of June, well within stated targets, according to the company. The group has also reduced its net debt by €500 million over the last two years, it said.

Earlier this year Smurfit successfully refinanced group debt, extending loans due to be repaid in full in 2013 and 2014 to 2016 and 2017 respectively.

Commenting on Smurfit’s recent announcement of a €100 per tonne increase in containerboard prices, Barry Dixon of Davy Stockbroker noted that the price increase was more likely to “stick” because other players in the market were also increasing their prices.

Analysts welcomed the results. Davy Stockbroker maintained its “outperform” rating on the stock, while Goodbody reiterated its “buy” recommendation. Smurfit Kappa closed in Dublin at €6.17.