Smurfit Kappa sees ‘material’ earnings rise after early surge

Smurfit Kappa, which has resisted two takeover proposals from a US suitor in recent months, said on Friday that its full-year earnings will be "materially better" than the €1.24 billion posted last year amid strong demand for cardboard boxes in a growing economy and as the costs of a key raw material has declined.

The comments come as the paper packaging giant reported a 22 per cent increase in earnings before interest, tax, depreciation and amortisation (ebitda) to €340 million. Underlying revenue for the period, which excludes the impact of acquisitions, currency movements and hyperinflation in some markets, increased by 7 per cent.

The results were helped by a €17 million drop year on year in the price of fibre from recycled corrugated cardboard boxes used to make much of the group’s new packaging. However, this was partially offset by negative currency effects, mainly a fall in the value of the dollar versus the euro.

Good demand

"Trading in the second quarter remains very encouraging with good demand across most reasons, continued corrugated price recovery and lower sequential recovered fibre costs," said Smurfit Kappa chief executive Tony Smurfit. "We are very excited about our prospects in the short, medium and long-term and expect our 2018 ebitda to be materially better than 2017."

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The strong results may embolden Smurfit Kappa's board resolve to remain independent, after it rejected two takeover approaches from International Paper (IP) since late February.

Having committed earlier this year to spending €1.6 billion in the business and on acquisitions over the next four years, the company expects to invest over €600 million on capital expenditure this year.

Group chairman Liam O’Mahony reiterated at the company’s annual general meeting in Dublin on Friday that IP’s most recent cash-and-stock proposal at the end of March, which is currently worth about €9 billion, “entirely fail to value the Group’s true intrinsic business worth and prospects”.

Mr Smurfit told journalists after the meeting that IP’s approaches have taken up more of management time than “regular business” in recent months.