PAPER AND packaging group Smurfit Kappa has seen profit before exceptional and share-based payments slip 1 per cent to €257 million in the second quarter, but were still ahead of analysts' estimates of €240-€245 million.

Revenue for the three months to June 30th last stood at €1.85 billion, a rise of 1 per cent, while operating profit before exceptional items was 2 per cent weaker at €156 million.

However, pre-tax profits almost doubled to €83 million compared to the second quarter of 2007.

At nearly €3.7 billion, first-half revenues for the year were up more than 1 per cent on the same period in 2007, while earnings before exceptional items remained flat at €514 million.

Operating profit before exceptional items rose by 4 per cent to €312 million in the first six months, while profit before tax stood at €145 million.

The company said it would pay an interim dividend of 16.05 cents a share.

The main financial focus of the group in 2008 was on further net debt reduction, it said. At the end of June 2008, Smurfit Kappa's net debt was below €3.3 billion, down from more than €3.6 billion at the end of June 2007, a 9 per cent decrease year-on-year.

Goodbody stockbrokers, in a note to clients, said: "Overall, the results are better than expected and compare very favourably with what has been reported by its peer group."

Despite warning that conditions would remain challenging, chief executive Gary McGann said that full-year guidance for the year would be maintained.

"As anticipated early this year, the group expects conditions to remain challenging for the remainder of 2008, characterised by a slowdown in corrugated demand growth and broad-based cost inflation," Mr McGann said.

"Notwithstanding that, we believe that the group's strong customer focus, geographic spread, increasingly efficient operating platform, strengthened financial capacity and continued capital restraint will deliver current market expectations for 2008.

"As can be seen from our first half results, the group is well positioned to outperform its peers and deliver strong returns across all metrics through the cycle."

Smurfit Kappa said the first-half result reflected a good performance in its corrugated business.

In the first quarter, further corrugated price increases brought the total of price increases since the trough of December 2005 to above 18 per cent, it said. Corrugated pricing remained stable in the second quarter.

However, the corrugated performance was offset by materially weakening conditions within recycled containerboard, with prices declining.

"The performance of the European packaging business was better than expected despite flat box prices and lower volumes. Lower raw material costs and better cost management con- tributed to the outperformance," said Davy analyst Barry Dixon.

While its operations in Latin America continued to perform well in the first half, Smurfit Kappa said earnings were negatively affected as a result of the relative strength of the euro.

In the first half of 2008, the group's corrugated volumes in Latin America were 2 per cent lower than in the previous year.