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Smurfit Kappa reports 35% rise in pre-tax profits

May 4, 2012 Comments Off Print Print

Paper giant Smurfit Kappa has reported a 35% rise in pre-tax profits for the three months ending 31 March, despite country-specific challenges in Latin America

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The paper and corrugated giant published its first quarter results this morning [4 May]. Pre-tax profits rose to €105m from €78m the same time last year.

It said it expects to deliver an earnings performance for the year which will be broadly in line with 2011.

The company said that revenues rose 1% to €1.823 million in the first three months of the year, while operating profits jumped 20% to €177m from €147m.

Latin America

Smurfit Kappa said that with the challenging Venezuelan market, demand declined in the first quarter of 2012. Continuing high inflation in the country was offset by the Group’s operating efficiency actions, as well as some necessary price recovery. The firm is planning downtime in its Venezuelan mill system during the second quarter of 2012.

Strike

The firm also encountered problems in Argentina. The volumes and profitability of the Argentinian operation in the first quarter were negatively impacted by a prolonged strike in one of its packaging plants. Negotiations are continuing in an effort to resolve the dispute, the firm said.

Paper and box prices were significantly higher year-on-year, somewhat compensating for the high inflation level prevailing in the country, Smurfit Kappa said.

In a statement, Smurfit Kappa said: “Despite some country-specific challenges from time to time, the Group believes that the geographic diversity of its business in the Latin American region, together with the proven ability of its local management to drive the business forward, will allow it to continue to deliver a strong performance through the cycle.

“Latin America remains a key target region for SKG’s future growth.”

Downward pressure on box prices

Elsewhere, the company said it saw significant increases in output costs and downward pressure on box prices during the first quarter.

It said it implemented price increases for its testliner and kraftliner products during the first quarter and into April which should underpin some box price recovery in the second half of the year.

”For the full year 2012, subject to macro-economic volatility and normal business risk, we expect to deliver an EBITDA performance broadly similar to that achieved in 2011,” commented Smurfit Kappa chief executive Gary McGann.

He added: ”This will in turn support good free cash flow generation and further de-leveraging, thereby continuing to expand our available range of strategic and financial options.

“This strong performance expectation is underpinned by our leadership position in packaging innovation and sustainability, our efficient integrated operating system, and our continued financial discipline at all levels of the company.”

Europe

In relation to Europe Smurfit Kappa said that on the cost side, OCC prices increased by approximately €35 per tonne through the first quarter, reflecting renewed Chinese demand.

Energy and distribution costs also increased. Lower inventories combined with a steep rise in input costs generated broad-based support for paper price increases.

As a result, European recycled containerboard prices have increased by approximately €80 per tonne between February and April, the equivalent of a 20% increase.

Despite that increase, in April the spread between OCC and testliner prices remained approximately €60 per tonne lower than at the 2007 peak, thereby clearly highlighting the challenges faced by less efficient capacity in the industry, according to the firm.

In that context, the closure of three small recycled containerboard mills was announced in Europe since the beginning of 2012 (representing a combined 185,000 tonnes of capacity), Smurfit Kappa said.

Smurfit Kappa Q1 2012

Q1 2012                   Q1 2011

Revenue            €1.823 million      €1.803m

Pre-tax profit €105m                       €78m

 

abc1

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