Smurfit Kappa fights back as Venezuela seizes unit temporarily

Government alleges packaging manufacturer is abusing market dominance

A restaurant in Caracas displays a price in bolívars and sovereign bolívars. The IMF predicted inflation in Venezuela would reach a million per cent by the end of the year. Photograph: Federico Parra/AFP/Getty Images

A restaurant in Caracas displays a price in bolívars and sovereign bolívars. The IMF predicted inflation in Venezuela would reach a million per cent by the end of the year. Photograph: Federico Parra/AFP/Getty Images

 

Smurfit Kappa has defended itself after the Venezuelan government took temporary control of the Irish cardboard boxmaker’s subsidiary in the South American country, which is in economic freefall and recording hyperinflation.

Local reports have said that the government seized Smurfit Kappa Carton de Venezuela for three months, amid complaints about prices that the company is charging for packaging products in an alleged abuse of its dominant market position.

Meanwhile, sources close to Smurfit Kappa said on Thursday that there is no basis to claims from union officials, contained in a Reuters report, that the company gave employees paid holidays in July rather than keep them at work. Salaries in Venezuela are so low and inflation is running at such a level that workers in the country are widely relying on factory canteens to get enough to eat.

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“Following two days of inspections by the Venezuelan government at the group’s subsidiary, Smurfit Kappa Carton de Venezuela (SKCV), a number of allegations have been made against SKCV. The group entirely refutes these allegations and believes them to be without merit,” Smurfit Kappa said in a statement on Thursday.

“The group has operated in Venezuela since 1986 to the highest business and ethical standards. Smurfit Kappa will continue to monitor the situation closely.”

A spokesman for Smurfit Kappa declined to comment on the specific allegations that have been made by Venezuelan authorities.

Venezuela on Monday devalued its currency, the bolívar, by 95 per cent, in a desperate bid to curb hyperinflation in the country, which is running at an annual rate of 80,000 per cent and predicted by the International Monetary Fund to hit one million per cent before the year is out.

With prices doubling every four weeks so far in 2018, life has become intolerable for millions of Venezuelans, with many going hungry or fleeing the country. The internet has become awash this week with images of products such as chickens, carrots and toilet paper that are dwarfed by the stacks of Venezuelan bank notes required to to buy the items.

Assets

Smurfit Kappa, which employs about 1,900 people in Venezuela, a market it entered in 1986, has repeatedly affirmed its commitment to the economically-stricken country, even as local authorities have seized some of the company’s assets in the past decade. However, a slew of other multinationals, including Kellogg’s, General Mills and General Motors have abandoned assets in the country or sold them off cheaply, rather than continue to do business in the country.

Smurfit Kappa, led by chief executive Tony Smurfit, said in its latest financial report, published earlier this month, that its shipments of corrugated cardboard from Venezuela slumped 18 per cent in the first six months of this year.

“However, the group’s operations continue to perform in extremely difficult circumstances and we continue to export paper to other SKG [Smurfit Kappa Group] operations in the region,” the report said. “The macro situation remains uncertainty.”

Venezuela accounted for less than 1 per cent of the group’s €724 million of earnings before interest, tax, depreciation and amortisation (ebitda) in the first half, down from 2 per cent for the corresponding period last year. The value of its Venezuelan assets fell to €57 million in June from €128 million in December.

The report added: “The nationalisation of foreign owned companies or assets by the Venezuelan government remains a risk. Market value compensation is either negotiated or arbitrated under applicable laws or treaties in these cases. However, the amount and timing of such compensation is necessarily uncertain.”