Smurfit Kappa reinstates final dividend despite profit fall

Corrugated packaging company Smurfit Kappa reinstated its final dividend on Wednesday despite posting a drop in first-half profit and revenue as the coronavirus pandemic dented demand.

In the six months to the end of June, pre-tax profit fell 16% to €383m on revenue of €4.2bn, down 9% on the same period a year ago. Smurfit said the result "reflects the negative impact of Covid-19 on demand, the adverse impact of currency, and the fall in box prices".

Earnings before interest, tax, depreciation and amortisation declined 13% to €735m.

Smurfit said box demand in Europe was up 2% in the first quarter but down 2% in the second as it took a hit from the pandemic. In the Americas, meanwhile, after a strong start to the year, volumes in the region were "heavily impacted" by Covid-19 in the second quarter, leading to a 2.6% decline in volumes for the first half.

The company, which announced in April that it was withdrawing its recommendation to pay a final dividend of 80.9 cents a share due to the macro uncertainty brought about the pandemic, has now decided to pay that dividend.

"This decision underscores the board’s belief in the inherent strengths of the SKG business, its balance sheet, free cash flow generation and its long-term prospects and our recognition of the importance of dividends to shareholders," it said.

At 1250 BST, the shares were up 4.8% at 2,600.46p.

Russ Mould, investment director at AJ Bell, said: "The decision to pay a first-half dividend of €0.8090 means the packaging play Smurfit Kappa becomes the second FTSE 100 firm to return to the dividend list, after Land Securities’ statement that it intends to do so in the autumn, and the eleventh overall.

"Shareholders in Smurfit Kappa will be delighted at the return of their income stream, which reflects the relative resilience of the packaging business, helped by the rise and rise of online shopping and also management’s swift actions to manage costs, which resulted in a year-on-year increase in cash flow."