Smurfit Kappa sees decent growth after third quarter

Smurfit Kappa Group updated the market on its trading for the nine months ended 30 September on Wednesday, reporting 7% growth in group underlying revenue year-on-year.

The FTSE 100 packaging giant said it saw group pre-exceptional EBITDA growth of 27% year-on-year to €1.13bn, with its EBITDA margin at 16.9% - a 290 basis point improvement over the same period in 2017.

Its net debt-to-EBITDA ratio was 2.1x, with the board saying its full-year outcome would be “materially better” than in 2017.

It said the Smurfit Kappa Group had continued to deliver a “very strong” performance, having implemented commercial initiatives and experienced continued demand growth across most markets.

The outcome reflected corrugated price recovery initiatives, the continued benefit of its capital investment programmes and lower average recovered fibre costs, largely offset by higher energy, labour, logistics and other raw material costs, together with a negative currency translation impact.

On a regional basis, Smurfit Kappa said its Europe operations reported continued year-on-year EBITDA margin expansion, with corrugated demand in line with expectations.

The group reportedly expected further corrugated price recovery through the latter part of 2018.

It completed the €460m acquisition of Reparenco during the third quarter, with the integration said to be progressing well.

The board said it was also pleased to announce the agreement to acquire a “high quality” integrated packaging operation in Serbia, continuing to expand the group’s geographic footprint.

In the Americas, Smurfit Kappa reported continued volume growth with further margin expansion on a year-on-year basis.

Its expectation was for continued improved performance in the Americas.

As it communicated in September, as a result of the loss of control over Smurfit Kappa Carton de Venezuela, the group had deconsolidated its Venezuelan operations, resulting in a write down of net assets of €66m.

As required under International Accounting Standard 21, currency was recycled on deconsolidation, which resulted in a non-cash exceptional charge to the consolidated income statement of €1.2bn, with a corresponding credit of €1.2bn to the consolidated statement of comprehensive income.

The board said that had no impact on the net assets or total equity of the group, and represented the transfer of negative currency reserves, generated by previous devaluations of the bolivar fuerte, from the foreign currency translation reserve into the retained earnings reserve.

More: Boardroom veteran Irial Finan to chair Smurfit Kappa

“As we start the fourth quarter, we see continued demand growth and further corrugated price recovery,” said group chief executive officer Tony Smurfit.

“Smurfit Kappa continues to lead the industry, delivering innovative and value added packaging solutions for our customers.

“In a world increasingly focused on the environment, demand for sustainable packaging solutions will only add to the existing strong secular drivers of corrugated use.”

In May, the company stated that it expected 2018 to be materially better than 2017.

“SKG is on track to deliver a materially better outcome in 2018 with our key performance measures showing significant and continuing improvement.”