Smurfit Kappa Group has reported a loss of €152 million for the six months to June. The packaging group - which was formed through the merger last December of Jefferson Smurfit and Kappa Packaging - had sales of €3.5 billion during the period.

The company said its earnings before interest, tax, depreciation and amortisation (EBITDA) were €382 million in the first six months. However, interest costs of €169 million and depreciation cost of €219 million, combined with an restructuring charge of €112 million, resulted in the loss for the period.

No directly comparable figures are available for the first half of 2005 as the group did not exist. However, Smurfit Kappa yesterday published hypothetical figures for the performance of the combined group in 2005.

These indicated that sales were flat year-on-year but earnings - as measured by EBITDA - fell by 9 per cent post-merger from €422 million. This equates to a decline in margins from 12 per cent to 10.9 per cent blamed on rising raw material and energy costs.

The group said yesterday that industry conditions in Europe - where it is a market leader in some sectors - were improving. This was put down to rising prices, better than expected demand and in the impact of rationalisation in the industry.

This had resulted in a significant improvement in the second quarter of the year, with EBITDA ahead 22 per cent on the first quarter, according to chief executive Gary McGann.

"Year-on-year, however SKG's financial performance does not yet show a corresponding improvement," he said.

Mr McGann defended the decision to merge the two groups despite the poor year-on-year performance to date. "SKG's scale, structure, focus and asset quality is significantly better that it was for either entity on a standalone basis," he said.

The benefits of the merger, in particular in terms of reducing capacity or "affirmative industry action" as he termed it, would become "increasingly apparent towards the latter half of 2006 and beyond". The group will also start to see the benefit in the second half of savings of €160 million envisioned in the merger.

"SKG is uniquely positioned to capitalise upon the benefits of a balanced market in developed economies and sustainable growth opportunities in Latin America and Eastern Europe," said Mr McGann.

He said the company would look at further reductions in the capacity of its European operations but it "is now increasingly apparent that the European market is progressively coming into balance".

SKG closed five European plants producing 270,000 tonnes of packaging a year during the second quarter of 2006. It has announced plans to close European plants accounting for almost another 300,000 tonnes of print and packaging products.

The group recorded "broad-based growth" in Latin America, its other significant market. "Our mill system, in this region, is now operating at close to capacity and projects are in progress to address this," said Mr McGann.

Net debt stood at €5.1 billion at the end of the first half, while total assets were €8.55 billion.