Smurfit Kappa reinstates dividend

Packaging group Smurfit Kappa will reinstate its dividend following a two-year hiatus after successfully lowering its debt and on the back of an improved outlook.

Europe’s leading containerboard and corrugated packaging producer group sliced €358m off its €2.75bn debt pile during 2011, and posted a 12% rise in earnings.

“We’re reinstating that dividend as promised at the first opportunity when... the business is strong enough and the outlook good enough to be able to sustain dividends on a progressive basis,” Smurfit chief executive Gary McGann told Reuters following the results yesterday.

The group set its payout at 15 cents a share, pushing the share price ahead by almost 10% yesterday.

Smurfit cancelled its dividend in early 2009 as it headed into a difficult economic environment saddled with debt.

The group yesterday said it was seeking the consent of its lenders to extend debt maturities. “While macro-economic risks remain... we expect to continue delivering strong free cash flow through the cycle.”

Smurfit said earnings before interest, tax, depreciation and amortisation (ebitda) rose 12% to €1.02bn in 2011, in line with expectations.

Fourth-quarter ebitda was €245m against a consensus of €235m, according to a poll of 13 analysts supplied by the company.

“A better-than-expected performance on profits and cash-flow facilitated a very attractive re-financing proposal which, we believe, the market did not think could happen,” said Barry Dixon at Davy Research.

“It is still too early to amend earnings forecasts, until the success or otherwise of the latest containerboard price increases can be assessed,” he added.”

Moody’s said it had placed Smurfit’s ratings under review for a possible upgrade.

Mr McGann said higher input costs and recently announced price increases would lead to short-term margin compression. However, this would support better corrugated pricing in the medium term.

The company said in November it expected to meet market expectations after a strong performance in Latin America during the year, but some concerns remained over the group’s outlook for Europe and a fall in paper prices.

The group, whose rivals include DS Smith, Stora Enso and Mondi, slashed costs when demand started falling during the global downturn.

Consolidation in the sector is also widely expected, with DS Smith agreeing to buy the recycled packaging operations of Svenska Cellulosa Aktiebolaget for €1.6bn last month.