Smurfit-Kappa suspends dividend

IRISH headquartered packaging group Smurfit-Kappa (SKG) has made a loss of €11 million for 2008 and has said that it will suspend dividend payments to shareholders in light of what management referred to as “an increasingly difficult market backdrop”.

The Dublin-based group — one of the largest players in the international paper and packaging industry, with operations across Europe and Latin America — also reported a 3% drop in full-year revenue to just over €7.06 billion and a 12% fall in earnings before interest, tax, depreciation and amortisation (EBITDA) — excluding exceptional items — to €941m.

SKG chief executive Gary McGann called the performance “relatively strong” given the worsening economic and market conditions and added they were in line with market expectations. He also pointed to the group’s achievement of reducing its net debt by €281m to €3.2bn.

Cost savings of “at least” €125m are being targeted before the end of 2010, with €75m expected to be realised this year. The business expects to have no material debt maturity until 2012.

SKG said that it will re-evaluate its future dividend policy “in light of prevailing market conditions and capital structure”.

“The group believes there is greater scope to create value through continued net debt reduction in the current environment,” the company said yesterday.

“This performance reflects the resilience of the group’s integrated model, the €75m of cost savings benefits achieved in 2008 and the continuing benefits of our geographic diversity. Some 60% of our end markets relate to the more defensive food and beverage sectors,” remarked Mr McGann. He expects current difficult operating conditions to continue this year.

“The group’s priority remains optimising our integrated model, increasing our cost take-out efforts and maximising our free cash flow generation and net debt reduction,” Mr McGann added.

In a research note, Davy Stockbrokers said it was now cutting its EBITDA forecasts for SKG by 10%-12% for this year and next; to €751m and €687m, respectively.

“This is based on a 10% decline in corrugated volumes and an 8% fall in prices in 2009, with further declines in 2010,” it said, before adding that the stock “continues to look excellent value”.

SKGs share price was largely unmoved yesterday, at €1.68.