Smurfit Kappa braced for ‘more closures’ as profit drops 18%

The packaging and paper group reported a 14% drop in revenues during the three months to 30 September to EUR 1.5bn (£1.36bn), but said that demand for its products had generally been stable and cashflow strong.

Gross profit for the quarter fell by 18% to EUR 407m.

Gary McGann, Smurfit Kappa Group chief executive said that while the market was more positive, a consumer-led recovery and a return to growth in demand had yet to materialise.

He continued that capacity reductions had led the sector to a two-year inventory low at the end of September, that together with high input cost had forced the company to announce a number of containerboard price increases.

“Despite higher containerboard prices, further less-efficient capacity closures are expected in the industry, given the continued trend in input costs, especially for recovered fibre,” said McGann.

But he added the firm was pleased with its cashflow situation. “Improved EBITDA margins outline the benefits of our integrated business model, our effective cost take-out actions and the strong contribution of our Latin American business,” he said.

European corrugated volumes were 7% lower than in the same quarter of 2008, an improvement on the start of the year. During the quarter Smurfit Kappa announced it would rationalise an Irish corrugated plant and cease production at a mill in Slovakia in March.

The Stuvoro mill will close due to excess market capacity, unfavourable exchange rates and, in Smurfit Kappa’s view, unwarranted subsidies for new capacity, but the firm’s high performance fluting needs will continue to be mainly served from its own operations.

Overall, the group has taken more than 250,000 tonnes of downtime in its European containerboard operations in the first nine months of the year.

SMURFIT KAPPA Q3 RESULTS
(EURm)

Revenue 1,515 (1,753 in 2008)
Gross profit 407.6 (495)
Operating profit 46.3 (131)
EBITDA 192 (231)
Loss for financial period 40.2 (46.9 profit)

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