LOWER prices and overcapacity in the world's paper packaging business led to a 37 per cent drop in pre-tax profit to £126 million, in the six months to June 30th, at Jefferson Smurfit Group. The results are broadly in line with expectations.
Profits fell in all its geographical areas. The volatility in its markets and the subsequent price fall continued in the first six months of this year.
"The speed of the upturn which peaked in 1995 has been matched by a similarly fast downturn," chairman, Dr Michael Smurfit, told shareholders in his interim statement.
"Increased globalisation in the industry "ensured a rapid transfer of lower pricing throughout our operations". The problems were compounded by excess capacity.
Mr Ray Curran, finance director, said that the group had an outstanding performance" compared with its competitors. That, he stressed, is the "only measure" to use to test a management team.
Profit performance tables, released by the group, showed Smurfit had a much better performance than its competitors. Mr Curran also noted that, excluding last year, Smurfit's latest results (excluding exceptional items) were the best ever.
Earnings per share fell from 12.8p to 8.2p. Despite this decline, the interim dividend is being raised by 7 per cent to 1.5p.
Reflecting the problems in the industry, group )sales fell from £1.54 billion to £1.35 billion.
Managed sales, which include a contribution from Jefferson Smurfit Corporation in which the group has a 46.5 per cent stake, went down from £2.86 billion to £2.47 billion.
A geographical breakdown shows a fall in sales from its Irish and British operations from £302.18 million to £285.72 million. Profit before interest and tax dropped from £24.08 million to £18.77 million.
In Ireland, packaging volumes were described as "flat". The hi-tech sector had a quiet six months and the printing and carton businesses reflected this. Cigarette cartons saw buoyant demand and the paper sacks and packaging divisions had a "good" first half.
Asked about the group's plans in 1994 to set up a mill in Ireland, Mr Paddy Wright, president and group chief operations officer, said the plans went to the engineering stage but the group "couldn't really make it work". The purchase of CdP in France "overtook events". The group he added, is "now long on paper".
Against the group trend, Smurfit Finance & Leasing and Smurfit Capital had good performances.
The British corrugated market continued to be over-supplied and volumes were "flat", according to the interim statement. The rebuilding of a new machine at Smurfit Townsend Hook was completed.
Sales in continental Europe fell from £925.0 million to £791.5 million while profit before interest and tax dropped from £95.0 million to £65.1 million. The French mill had lower volumes and profits.
June's levels, however, were higher and volumes at Les Papeteries du Limousin had a "significant" improvement in the second quarter. Also, the rate of fall in paper prices eased considerably in June. The coated woodfree division, Smurfit Condat, traded in "poor market conditions".
Inc Holland, where it has converting operations, results were strong and the company traded ahead of expectations. Trading in Germany was difficult but there was a "strong operating profit" in the graphic board sector.
The paper and corrugated operations were adversely affected in Spain. European sack kraft demand eased in the second quarter.
The results from Jefferson Smurfit Corporation (JS Corp) in which the group has a 46.5 per cent stake, have already been announced.
Noting that reclaimed fibre prices were substantially lower than last year, the group said they partially offset the impact of lower sales prices for packaging products. JS Corp has approved a $54.3 million capital investment programme at the Brewton, Alabama containerboard mill.
Smurfit is in a relatively strong financial position. Gearing amounts to 34 per cent.
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