Smurfit Kappa rises 2.3% on expected Ebitda growth

SHARES IN Irish-listed packaging group Smurfit Kappa closed up 2.3 per cent in Dublin yesterday after the company indicated that it expects “meaningful overall Ebitda [earnings before finance costs] growth in 2010”.

The company said it “experienced a return to positive volume growth in the last two months of 2009, and continues to see improving order books into 2010”.

Smurfit Kappa said box volumes rose by 2 per cent year-on-year in November and December after a difficult first half of 2009.

It was also able to raise its prices in the fourth quarter, which helped to offset higher raw material costs.

Speaking to The Irish Times, Smurfit chief executive Gary McGann said it was "too early to guide" on its exact Ebitda out-turn this year.

“We just don’t know . . . We are cautious,” he added.

The consensus 2010 Ebitda forecast from analysts for Smurfit is for 12 per cent year-on-year growth to €830 million.

This might well be upgraded following the release yesterday of fourth-quarter and full-year results.

These showed that Smurfit Kappa’s operating profit declined by 5 per cent for the year to €267 million, while revenues were 14 per cent lower at just more than €6 billion.

Its pretax loss rose to €52 million last year from €11 million in 2008.

Smurfit’s Ebitda for 2009 was some 21 per cent lower at €741 million. “The lower earnings primarily reflect reduced demand and lower pricing, somewhat offset by the continuing benefits from the group’s cost-reduction and operating-efficiency programmes.”

Its operating margin declined to 12.2 per cent last year from 13.3 per cent in 2008. Mr McGann described this as a “resilient” performance.

He said that he was hopeful of recovering increases in price inputs but that this might take up to six months to achieve.

Smurfit’s business model largely tracks economic performance.

“My sense is that in western Europe [gross domestic product growth will be] about 1 per cent [in 2010]. Overall [around the world], about 2 to 2½ per cent.”

Smurfit Kappa’s net debt closed 2009 at €3.05 billion, down 4 per cent on a year earlier.

The company last year concluded a €1 billion bond offering, extended its debt maturity profile and increased its “covenant headroom” for the next three years.

Its next major maturity debt date is December 2013.

“Our objective is to continue to reduce our debt,” Mr McGann said.

Smurfit Kappa achieved free cash flow of €172 million last year, down from €281 million in 2008.

“That’s still an impressive figure [€172 million] given the economic backdrop,” he added.