Smurfit Kappa targets debt reduction

PAPER and packaging giant, Smurfit Kappa Group (SKG) is set to focus further on debt reduction after knocking nearly €50m off its net debt during the first quarter of the year.

The Dublin-headquartered group’s first quarter results, published yesterday, saw it record a €78m pre-tax profit for the first three months of 2011; a turnaround from a marginal loss of €3m for the same period in 2009. Group revenue for the quarter was up by 3% — on a year-on-year basis — to just over €1.8 billion. Operating profit, before exceptional items, was up by 5% year-on-year and 69% quarter-by-quarter, at €148m, while pre-exceptional EBITDA (earnings before interest, tax, depreciation and amortisation) rose by 32% on the preceding quarter (but slipped by 5% on an annualised basis) to €243m. The group’s net debt now stands at €3.06bn; €49m having been repaid during the quarter in a far better than expected paydown. Basic earnings per share, however, came in at 15.6c, up on a 7c loss for the last three months of 2010, but down by as much as 48% on an annualised basis.

On a quarter-by-quarter basis, SKG’s revenues were up by 18% — €54m higher in the first quarter of this year than in the final quarter of last.

Management attributed the good showing, during the period, to a mix of price recovery and good demand growth. However, group chief executive, Gary McGann, also warned of the potential need for further price increases for SKG’s products.

“Entering the second quarter, while demand remains good, input costs have risen further, which if sustained will require additional price increases,” he said.

“Higher end-product prices, together with our continuing focus on operating efficiency and strong financial discipline should deliver earnings growth and meaningful debt paydown in 2011,” Mr McGann added.

Market reaction to the results was predictably upbeat; Bloxham Stockbrokers calling it a strong performance, with EBITDA growth ahead of expectations and positive free cash flow generation being achieved. Bloxham has also upped its EBITDA forecast for SKG, for the full year, from €1.14bn to €1.15bn.