Smurfit Kappa shares fall 10%

SHARES in paper and packaging giant Smurfit Kappa Group (SKG) plunged almost 10% yesterday after it warned of pressure on its profit margins this year.

Gary McGann, SKG’s chief executive, said he expects a fall in earnings before interest, tax, depreciation and amortisation (EBITDA) of up to 10% compared to last year.

The company yesterday posted pre-tax profits of €90 million for the first three months of the year, more than double its 2007 first-quarter profits.

It said in a statement its first-quarter results were boosted by its Latin American businesses “which operate in high-growth markets” and “continue to make a significant contribution to the group’s overall performance”.

EBITDA for the first-quarter, excluding exceptional items, grew €3m year-on-year to €257m. Sales for the quarter rose 2% to €1.83 billion.

The company said it expected a slowdown in demand for some of its products, the weak dollar and cost inflation to hit profits for the rest of this year.

The gloomy outlook from the company sent its shares down, wiping almost €190m off its market value and had brokers slashing their forecasts for this year and next.

NCB Stockbrokers cut its 2008 full-year EBITDA forecast to €900m from an earlier forecast of €1.08bn and its 2009 EBITDA estimate was slashed by €90m to €850m.

The company said that it is on course to achieve savings of €180m from the continued integration of the Smurfit and Kappa divisions and that it also cuts its net debt position by €187m to €3.3bn. It said it continues to review the efficiency of its plants, having closed 130,000 tonnes of “less efficient” container-board capacity.

“In 2008 and beyond, we will continue to exercise restraint in our capital programmes, base production decisions on a realistic assessment of demand and participate selectively in consolidation opportunities presented by current market conditions,” it said.