SMURFIT KAPPA’S three biggest shareholders are believed to have sold down a portion of their combined 46 per cent holding yesterday, The Irish Times has learned. An announcement on the trading is expected to be made to the stock market this morning.
CVC Capital Partners, Cinven and Madison Dearborn Partners were last night completing a placing of some of their stock with institutional investors in a move that is likely to improve liquidity in Smurfit Kappa’s shares.
The shares were expected to be sold at a discount to Smurfit Kappa’s €8.779 closing price in Dublin yesterday and the trading followed the publication of the company’s full-year results.
Market sources said this was likely to be the first step in a phased reduction by the three groups of their substantial positions in the Irish packaging company. CVC and Cinven own 24.4 per cent of Smurfit Kappa between them, while Madison Dearborn holds 21.5 per cent.
The three private equity groups have all been investors in Smurfit Kappa since the mid-1990s – CVC and Cinven on the Kappa side and Madison Dearborn with the former Jefferson Smurfit.
Smurfit Kappa’s share price has had a strong recent run in spite of closing down 3.5 per cent yesterday. This move allows CVC, Cinven and Madison Dearborn to cash in some of their holdings while still retaining a significant stake in the business.
Smurfit Kappa declined to comment last night.
Smurfit Kappa was formed in 2005 from the merger of the Irish Smurfit and Dutch Kappa packaging groups, and floated with an initial public offering in 2007.
The group yesterday reported growth in profits and revenues in 2010 on the back of increased demand for its main products, corrugated boxes and containerboard.
Revenues last year grew over 10 per cent to €6.67 billion from €6 billion in 2009, while earnings before interest, tax and write-offs were up 22 per cent at €904 million from €741 million.
The group’s operating profits increased by 53 per cent to €409 million in 2010 from €267 million the previous year.
Profits before tax were €103 million compared with a loss of €81 million in 2009. Earnings per share were 22.9 cent in 2010, compared with a loss 55.8 cent in 2009.
The group’s net debt increased to €3.1 billion at the end of 2010 from €3 billion 12 months previously. Chief executive Gary McGann and finance director Ian Curley signalled yesterday the group intended to use cash generated this year to reduce this.
SMURFIT KAPPA: 2010 results
Turnover: €6.7 billion (+10%)
Operating profit: €409 million (+53%)
Pretax profit:€103 million
Earnings per share:22.9c
Dividend per share:n/a
COMMENT
Higher raw material and energy costs left packaging specialist Smurfit Kappa’s results trailing expectations. However, demand remains strong and the company is confident the market will easily absorb price increases that it is introducing this year.
Those increases will pass the extra costs to Smurfit’s customers, allowing it to recover its costs and helping to ensure its cash flow remains strong.
Finance director Ian Curley said yesterday the group intends to use cash flows to continue paying down debts over 2011.
Net debt increased slightly in 2010 to €3.1 billion from €3 billion at the end of 2009.
This was partly due to the asset swap deal in which Smurfit Kappa acquired the UK corrugated board operations of Italian rival, Mondi, and partly the result of adverse currency movements.
Mr Curley said the group intends paying down debt this year. “What we are saying is that you will see significant debt reduction over the course of 2011,” he stressed.
In a statement, chief executive Gary McGann said cash flow should be materially stronger in 2011 and this would result in the group cutting its debts.Smurfit manufactures containerboard and corrugated boxes, which are used for packaging. Prices for containerboard have increased by over €170 a tonne or 62 per cent since late 2009, while corrugated box prices have increased by 14 per cent, according to Barry Dixon, an analyst with Dublin stockbroking firm Davy. He estimates that every 1 per cent increase in box prices adds around €35 million to the group’s earnings.
It has already increased prices by 4 per cent since the start of the year and will raise them by about 20 per cent over the first two quarters of 2011.
Davy yesterday rated the group an "outperform". Its share price fell 3.5 per cent to close at €8.779 in Dublin. BARRY O'HALLORAN
