Smurfit Kappa chief urges Government to replace austerity with stimulus

Gary McGann, the chief executive of paper and packaging giant Smurfit Kappa and a former director of Anglo Irish Bank, has called on the Government to ease off on austerity measures and boost the economy "to give people hope". Ireland has "no chance" of recovery otherwise, he said.

Speaking to The Irish Times yesterday following the publication of Smurfit Kappa's half-year results, he called for an infrastructural stimulus programme to boost the domestic economy. "Ireland needs to vary the [fiscal consolidation] strategy, while maintaining credibility," said Mr McGann, who is also a board member of Ibec, the employers' body.

“There needs to be stimulus – Ireland has no chance otherwise. It has to be something that generates sustainable employment, perhaps around infrastructure. It is time to show people some hope. Confidence won’t return otherwise.”

On whether the Government should impose €3.1 billion in austerity measures in the budget, as demanded by the troika and Fiscal Advisory Council, or an adjustment worth 5.1 per cent of gross domestic product, as the bailout states, Mr McGann suggested the savings from the Anglo promissory notes deal should be used to stimulate spending.

“I understand the strategic arguments that Ireland needs to deliver what it promised. The question is what did Ireland promise? It seems to me that the potential is there, while maintaining credibility, to use whatever funds are available to restart economic activity.”

Smurfit Kappa yesterday announced strong results, with half-year revenues up 6 per cent to €3.9 billion. Operating profits were broadly flat, but profits before tax fell 31 per cent after a number of exceptional items. It raised dividend payments by 37 per cent.

Venezuelan devaluation
Mr McGann said the exceptional items included a charge of about €15 million related to the rebuilding of a paper machine in Britain. It also took a €15 million hit, he said, after Venezuela, where it has significant operations, devalued its currency during the period. Softness in the European market was more than made up for by a strong performance in Latin America, with underlying earnings growth of 37 per cent.

Mr McGann also gave an update on the integration of Orange County, a mainly Mexican-based packaging company that it bought last year for €260 million. He said Smurfit Kappa should be able to generate higher-than expected annual cost savings of $32 million annually from SKOC, as Orange County is now called, over the next two years.

More acquisitions were “absolutely” on the agenda, most likely in high-growth markets in areas such as Latin America. He mentioned Brazil as a possibility. He also said there was the potential to more cheaply refinance an expensive €500 million due in November.

David O’Brien, an analyst with Goodbody stockbrokers, said the results reflected “a very solid performance. The key highlight was the strong underlying performance of the Americas division, which is becoming a key differentiating factor for Smurfit Kappa versus more European-focused peers.”

The company’s share price closed yesterday at €15.20, up almost 5 per cent.