Moody’s welcomes Smurfit Kappa’s Brazilian acquisitions

Ratings agency Moody’s has welcomed the acquisition deals Smurfit Kappa closed over the last few months.

Smurfit Kappa Corrugated packaging

Last week the corrugated giant announced that it had acquired two privately owned Brazilian integrated paper-based packaging companies, Industria de Embalagens Santana and Paema Embalagens for approximately €186m.

Moody’s said the transaction is credit positive because it will expand Smurfit’s geographical footprint and further strengthen its presence in Latin America.

Growth rates in Latin America are higher than Smurfit’s stronghold market of Western Europe, where it still generates around 76% of sales. Smurfit’s Latin American operations are, on average, more profitable on an operating profit basis.

“In purchasing Industria de Embalagens Santana and Paema Embalagens, SKG [Smurfit Kappa] has acquired four corrugated facilities and three recycled containerboard mills with a total capacity of 210,000 tonnes,” said Matthias Volkmer, vice president – senior analyst at Moody’s. “SKG said the acquired businesses will be earnings accretive immediately. SKG financed the acquisitions with a mix of cash on balance sheet and debt drawn from its existing committed credit facilities. As of 30 September 2015, SKG reported cash on hand of €263m and undrawn committed credit facilities of €510m, which is sufficient to cover the €186m purchase price and run the business.”

Smurfit Kappa generated revenues of €8.1bn in the last 12 months ended September 2015.