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Weak containerboard supply and rising costs hit Smurfit Kappa earnings

Company News

Weak containerboard supply and rising costs hit Smurfit Kappa earnings

Wed, 02 August 2017
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Weak containerboard supply and rising costs hit Smurfit Kappa earnings

(ShareCast News) - Smurfit Kappa saw its revenue improve 5% in its first half to €4.23bn, it reported on Wednesday, although EBITDA was off 4% at €569m.
The FTSE 100 corrugated packaging company's EBITDA margin fell to 13.4% for the six months to 30 June, compared to 14.6% in the same period a year before.

Its operating profit, before exceptional items, was down 8% at €358m.

"We are pleased to report a good set of results for the first half which were achieved against a backdrop of continued and unprecedented recovered fibre cost inflation of approximately €75m year-on-year," said group chief executive Tony Smurfit.

"We are in the process of recovering these input costs as we move through the remainder of 2017 and into 2018.

"The group reported sequentially improved EBITDA margins at 13.9% with both Europe and the Americas delivering improvement as a result of corrugated price recovery."

Smurfit Kappa's profit before income tax fell dramatically, sliding 21% to €245m, with basic earnings per share off 18% at 74.3 euro cents and pre-exceptional basic earnings per share down 12% at 75 cents.

Free cash flow was up 31% at €46m.

"In the first half, global containerboard supply has been very tight, and remains so," Tony Smurfit explained.

"As a result of our integrated system which gives security of supply in both kraftliner and testliner, SKG continues to meet its customers' supply needs, a competitive strength valued by both local and multinational customers."

Smurfit said the business continued to attract new customers as a result of that changed dynamic.

"We maintain our focus on investing in our asset base both organically and through acquisition to ensure we have sufficient mill and conversion capacities to meet and exceed our customer requirements."

In Europe, the company reportedly saw a "strong demand environment" in the second quarter, leading to a first half increase in absolute corrugated volumes of over 2.5% with growth of 5% for the second quarter on a days-adjusted basis.

In the Americas, the group reported "strong" volume growth in Colombia, Mexico and Brazil while Argentina and Venezuela remained "challenging".

"As a result of the containerboard price increases in the first half of the year, we began, in the second quarter, increasing corrugated prices in Europe and the Americas and these increases will be progressively implemented throughout the remainder of the year and into the first quarter of 2018," Tony Smurfit said.

"However, shortage of supply and unabated input cost pressures in both regions have necessitated further containerboard price increase announcements for implementation in the third quarter."

He said that would require a further round of corrugated price increases in the fourth quarter and beyond.

During the first half, the company completed investments of €177m across its regions, and it now expected to spend more than €400m by year end.

The firm said the group continued to develop and improve its operations across all its business areas.

"Growth and cost reduction investments allied with our track record of earnings enhancing acquisitions will continue to improve the prospects for the group," added Smurfit.

"While recovered fibre cost pressures present short-term challenges, SKG is better positioned today than at any other point in our recent history."

The CEO said the group's capital structure, its asset base and its integrated business model continued to strengthen.

"This will enhance our ability to translate today's market conditions into improved earnings in 2017 and beyond."