Coronavirus: Smurfit Kappa shelves €193m dividend

Cardboard box-making giant Smurfit Kappa Group (SKG) has scrapped its plans to pay a €193 million final dividend on last year's earnings, joining a slew of companies globally that have put shareholder payouts on hold as coronavirus rips through economies globally.

While the group saw its European business volumes grow by 3 per cent and demand in the Americas expand by 3.5 per cent in the first quarter, earnings before interest, tax, depreciation and amortisation fell 10 per cent from the same period last year to €380 million, as its profit margin dipped. It will make a decision on the size and timing of a dividend for 2020 later in the year.

About 65 per cent of the group’s business is directly related to packaging for fast-moving consumer goods, where demand remains robust globally despite much of the western world being in lockdown.

"Aside from panic buying in the first couple of weeks, I think everyone is fairly confident about how the supply chain of food has gone," chief executive Tony Smurfit told analysts on a call. "There is obviously a shift in people consuming more in their homes. That in itself will require more packaging."

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Smurfit Kappa said that all of its facilities continued to operate during the first quarter, with the experience of managers in its business in Italy, initially the country worst hit by Covid-19, helping it to introduce group-wide measures to protect employees.

“The scale and geographic reach of our operations has also ensured that our extensive and diverse customer base has been able to deliver its essential and critical supplies,” Mr Smurfit said.

“We are an integral part of today’s vital supply chains, whether it is ensuring that retailers remain supplied with food and other basic goods or ensuring that critical pharmaceutical and medical supplies and devices reach hospitals and other health care facilities where they are needed to fight this pandemic.”

While Smurfit Kappa’s business has been benefiting in recent times from a massive increase in online retailing, the chief executive said he hasn’t noticed a particular uptick in e-commerce activity as a result of coronavirus.

Mr Smurfit also said that collection of used cardboard boxes for recycling has been disrupted by Covid-19, which may lead to an increase in the price of this raw material.

Heightened focus

“During these uncertain times, we have a heightened focus on cost reduction while maintaining our market-leading innovation and sustainability offering,” said chief executive Tony Smurfit. “While the full extent and effects of the macro and economic risks brought on by Covid-19 are unclear, SKG remains very well positioned both financially and operationally.”

At the end of the first quarter, Smurfit Kappa had liquidity of over €1.5 billion, average debt maturities of over five years, and no bond maturity until 2024.

“We are rigorously managing our working capital and we currently estimate that capital expenditure for 2020 will reduce from previous guidance of €615 million, to be in the range of €500-550 million,” it said. Capital expenditure amounted to €730 million in 2019.

Mr Smurfit said that the group’s vertically integrated business structure has helped it ensure it can meet customers’ packaging needs, which should boost its market shares over the medium term.

“What’s become really apparent to all of our people is how appreciative customers are [about] the security of supply we’re giving them,” he said.

Goodbody Stockbrokers analyst David O’Brien said: “We believe Smurfit Kappa is the best placed in the sector to weather the current uncertainty given its business mix, cash generation capabilities and balance sheet strength. Nonetheless it is clear the operating environment will be challenging near term.”