Smurfit Kappa raises dividend by 20% on record earnings

Shares in group climb by as much as 3.6% in Dublin to €25.78

Smurfit Kappa’s net debt fell to €2.94bn  at the end of December from more than €3bn   a year earlier. Photograph: iStock

Smurfit Kappa’s net debt fell to €2.94bn at the end of December from more than €3bn a year earlier. Photograph: iStock

 

Paper packaging giant Smurfit Kappa announced a 20 per cent dividend increase for 2016 to 57.6 cent per share after the group posted record earnings for the year. It also signalled plans to push through price increases for its final product cardboard boxes.

Shares in the group rose by as much as 3.6 per cent in Dublin to €25.78, its highest level since late 2015, and giving it a market value of €6 billion.

Earnings before profit, tax, depreciation and amortisation (ebitda) rose 5 per cent to €1.24 billion to meet analysts’ expectations, and outstrip a 1 per cent increase in revenue to €8.16 billion.

“The final dividend reflects our confidence in the business that sustains it,” chief financial officer Ken Bowles told The Irish Times.

Smurfit Kappa announced plans last month to increase the price of recycled containerboard, which is uses to make cardboard boxes, in line with a number of European rivals.

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Analysts at US investment bank Jefferies estimate that the group purchases 5.5 million tonnes annually of recycled cardboard. Recycled cardboard box prices rose 10 per cent last year, and have continued to rise so far in 2017, according to Mr Bowles.

He said Smurfit Kappa was likely to start pushing through price increases for cardboard boxes by the end of the first half of the year.

While Mr Bowles said it was too early to give an earnings forecast for the current year, he said “the vista looks good for 2017 and even beyond that”.

Smurfit Kappa’s shares entered the FTSE 100 index in December after the group transferred its primary listing to the UK from Dublin during the year.

The group’s net debt fell to €2.94 billion at the end of December from more than €3 billion a year earlier, with its debt burden declining to 2.4 times ebitda from 2.6 times. Mr Bowles said the ratio should fall to 2.2 by the end of this year.

Broken down by region, the company’s underlying European cardboard box sales increased 2 per cent in volume, while they rose 20 per cent in the Americas, driven by acquisitions in the region and strong growth in the three major markets of the US, Mexico and Colombia.

While chief executive Tony Smurfit expressed the view weeks before Donal Trump was elected US president that the then Republican candidate may dampen the group’s appetite for deals in that market, Mr Bowles said that it continued to assess that market for takeover candidates. However, he did say that valuations of would-be targets in the US, where it carried out three small deals early last year, “are still quite toppy”.

Mr Smurfit told analysts on a subsequent conference call that the group remained “very comfortable” with its Mexican business, where it is number two in the market, in spite of the US president’s threats to levy a hefty tax on Mexican-made goods entering the US.

The chief executive said it was hard to imagine “that a Republican Congress and Senate would perhaps put up trade barriers as that is not in the nature of Republicans – they’re generally for free trade.”