Smurfit Kappa third-quarter profit slides 16%

Paper and packaging group Smurfit Kappa has seen its profit before exceptional and share-based payments drop 16 per cent to €231 million in the third quarter.

Revenues for the three months to September 30th last were down 4 per cent at €1.75 billion and during the first nine months were flat at €5.43 billion.

On a pre-tax basis profits for the quarter stood at €61 million, down from €105 million compared with the same period in 2007.

Smurfit Kappa manufactures packaging products and operates ten packaging plants in Ireland. It has operations in 22 European countries and in nine Latin America countries.

At 9.30am in Dublin its shares were trading up 2.5 per cent at €2.05.

The company said in an interim management statement its free cash flow in the third quarter at €149 million.
This reflects the resilience of the groups corrugated business, the profitability of its growing Latin American operations and its Kraftliner presence in Europe, chief executive Gary McGann said.

The Kraftliner business had been hit by pricing pressures over the year to date although this had stabilised following the strengthening of the dollar, the company said.

Smurfit Kappa was benefiting from low financing costs and had no material debt maturity in the next four years, according to Mr McCann. Over the 12 months to the end of September 2008 net debt was reduced to €3.2 billion, down €255 million or 7 per cent.

Mr McCann said he expected trading conditions to remain challenging for the remainder of the year and into 2009 due to a slowdown in corrugated demand and pricing pressures.

As a result the group plans to increase cash flow and concentrate on reducing its net debt which stood at €3.19 billion at the end of September. He said the group had strong liquidity with approximately €730 million of cash and unused credit lines of approximately €600 million. The group said it remains on target to meet full-year targets.

Basic earnings declined 56 per cent to 16.8 cents a share compared to a year earlier.

In a note to clients Davy’s Stockbrokers said the results were broadly in line with forecasts. “As expected, volumes and prices for European corrugated boxes were weaker in the period.”

Corrugated demand was down 2 per cent year-on-year and prices were 1.5 per cent lower. To avoid over supply the group is planning to take out 80,000 tonnes capacity in the quarter, brining to 200,000 tonnes the reduction in recycled container board volumes this year. This accounts for 6.5 per cent of capacity.

Smurfit Kappa added its specialties business had been negatively affected by a sharp decline in sack demand due to the construction slowdown.