95% drop in Jefferson Smurfit pre-tax profits

PRE-TAX profits at Jefferson Smurfit Group fell by 95% last year to just €12m, compared to €23.8m in 2002.

SFG Funding Plc chief executive officer Gary McGann, said economic weakness, with a significant strengthening of the euro against the dollar, adversely impacted on demand in 2003.

“Managing each of the factors within our control has served to deliver acceptable profitability and strong cash-flow in 2003. We continue to make progress towards the objective of increased sustainable performance and to improve operating margins at each point of the industry cycle.

“We are delivering improved cash-flow in a difficult operating environment. This reflects a continued focus on a market-led, fully integrated packaging system,” he said.

Mr McGann said that while there are initial indications of economic recovery, 2004 is also expected to be challenging, but he believes the company can produce “a solid financial performance in 2004.”

The accounts show that profits fell by almost 200% in the final quarter of last year when the company recorded a loss of €19m compared to €20m profit in 2003.

Net sales for 2003 remained almost static at 4,746 million, up 1%. However, earnings before interest, tax depreciation, amortisation and exceptional items (EBITDA) , increased by 4% to €627m in 2003 over 2002.

The company said it benefited from one-off gains “principally related to property development at the K Club during 2003.”

The decline in profits mainly reflects the net interest charges associated with the group’s leveraged capital structure. Group net interest charges jumped to €297.7m in 2003 from €143m in 2002. Profit before tax also includes net exceptional charges of €29m. Exceptional charges include restructuring costs in our European operations of €35m offset by gains on asset sales of €6m.

Net borrowing at December 2003, was €3,101m (including €28m of capital leases) compared to €3,135m at December 2002 (including €23m of capital leases).

Euro strength year-on-year decreased the value of non-euro debt and resulted in a currency translation gain of €53m and €152m in the quarter and 12 months to December 2003, respectively.