Smurfit Kappa increases dividend as it records ecommerce boom

Smurfit Kappa said on Wednesday it plans to hike its final dividend by 8 per cent after the cardboard box-maker delivered better-than-expected earnings in 2020, helped by a surge in demand for packaging in the final three months of the year as Covid-19 drove its ecommerce activity.

Earnings before interest, tax, depreciation and amortisation (ebitda) fell by 9 per cent last year to €1.51 billion, but managed to beat a forecast given in November that the figure would in between €1.46 billion and €1.48 billion. The result reflects the fall in box prices and the impact of the Covid-19 pandemic earlier in the year.

The planned final dividend of 87.4c per share will amount to a €226 million payout to shareholders.

"As we enter 2021, while there will always be challenges, I can confidently say that our business today has never been in better shape," chief executive Tony Smurfit told analysts on a call. "While there is no certainty about the impact and duration of Covid-19, the current year has started well."

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The company said that both Europe and the Americas had experienced "strong demand in the fourth quarter, offsetting significantly higher input costs". This has been driven by rising prices for recycled cardboard, which the company uses to make new boxes, and energy costs.

Although the pandemic has fuelled ecommerce and sales of groceries have remained robust globally, cafes and restaurants have been severely hit.

Online shopping

“Strong demand for packaging has been driven by the ongoing trend towards online shopping and the higher consumption of physical goods over services in 2020 due to Covid,” said Richard Flood, an investment manager with Brewin Dolphin Ireland.

Shares in Smurfit Kappa rose 2.4 per cent to €41.22 in Dublin.

The box-maker raised €660 million in a share sale in November as it sought to accelerate investment projects to take advantage of a surge in ecommerce and a shift across the consumer goods industry towards sustainable packaging.

“SKG [Smurfit Kappa Group] is now increasingly well positioned to take advantage of these opportunities, from a position of enhanced financial strength,” Mr Smurfit said. Net debt dropped by 32 per cent to €2.38 billion as a result of the capital raise.

The company booked an exceptional charge of €35 million in the fourth quarter to cover the cost of a restructuring programme to “further increase our operating efficiency and effectiveness through new ways of working”, it said.

“Driven by strong secular trends such as ecommerce and sustainability, the outlook for our industry is increasingly positive,” Mr Smurfit said. “The inherent strength of our business, together with the recent capital raise, provides us with an unrivalled platform to accelerate our vision and the group’s next phase of growth and development.”

Smurfit Kappa said it had repaid money it received from various Government support schemes resulting from Covid-19, which it previously described as “not material” in size.