Paper giant Smurfit Kappa turned a pretax loss of €61.76 million on sales of €1.75 billion in the three months to March as rising energy costs contributed to "difficult" trading conditions for the newly-merged group.

With margins falling as a result of these rising costs, there was no mention in the group's maiden set of financial results of the initial public offering expected by some in the market.

Formed last December when Jefferson Smurfit joined with Kappa Packaging, the group said a rising cost environment had a negative impact on its business.

Comparable figures for the previous quarters were not strictly available as the merger was executed only on December 1st. However, the group put figures for the two companies together to illustrate how they performed on a pro-forma basis in previous quarters.

These indicative figures suggest that net sales in the quarter rose by 4 per cent compared with the €1.68 billion first-quarter figure for 2005. Net sales rose 3 per cent when compared with fourth-quarter sales of €1.7 billion in 2005.

The group had €172 million in earnings before interest, tax, depreciation and amortisation (Ebitda) in the first quarter this year. This was down 12 per cent from the comparable pro-forma figure of €195 million in the same quarter last year and down 15 per cent from the comparable pro-forma figure of €203 million in the previous quarter.

The Ebitda margin of 9.8 per cent in latest quarter was down from 11.6 per cent in the same quarter last year and down from 12 per cent in the previous quarter.

The group implemented price increases in its European market during the period, but said these mainly reflected rising energy costs.

A time lag in the introduction of increases for corrugated packaging resulted in a "severe margin squeeze" in that unit, while rising costs were also a feature of speciality business. Containerboard price rises were "broadly positive".

"We are seeking to implement price increases across our system to recover these cost increases and achieve acceptable margin levels. Overall, therefore, the rising cost environment continued to seriously impact our business adversely during the first quarter." The group will scale back 200,000 tonnes in "uneconomic capacity" at unspecified locations in the second half of the year.

Smurfit has not operated a paper production plant in Ireland since it closed its mill in Clonskeagh, Dublin, last year.