Losses before tax at Jefferson Smurfit mounted to €66.72 million in the first three months of the year, as the packaging and paper group endured "extremely challenging" conditions in the European market.

The pretax losses - up from a comparable figure of €3.45 million in the same period last year - came as sales from continuing operations in the quarter declined by 3 per cent year-on-year to €1.04 billion.

Smurfit made no comment on merger talks with Dutch-based group Kappa Packaging in the three-month figures in which it reported an 11 per cent decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to €108 million from €121 million a year earlier.

Such figures strip out the effect of Smurfit's €425 million disposal on January 1st of the Munksjo speciality and pulp paper business in Scandinavia. The group said it expects to conclude the sale of Munksjo's tissue business next month.

"A combination of excess new capacity, below trend line demand growth and a strong currency impact is reflected in a significant reduction to EBITDA," said Smurfit chief executive Gary McGann.

"Despite that, the group continues to deliver against its underlying objective of 'controlling the controllables'."

Smurfit said its difficulties in Europe were offset in part by a strong performance by its Latin-American operations.

However, it said the effect of double-digit growth in Latin America was partially diminished by a 4 per cent "translation impact" due to the weakness of the US dollar.

While Mr McGann warned that there were indications of weakening demand in Mexico, he said the group had confidence in its progress generally in Latin America.

One Dublin-based analyst said there were no huge surprises in the figures because the difficulties in Europe were well-flagged. The analyst was not particularly concerned about the group's losses given the cyclical nature of the business, restructuring costs and debt repayments.

Smurfit's net debt including capital leases at the end of the three months was down 16 per cent on the same period last year at €2.62 billion and down 10 per cent since the start of 2005.

A cash outflow of €33 million in the three months compared to an inflow of €13 million in the same period last year.

"This operating deficit primarily reflects adverse market conditions and lower operating profit year-on-year," the group said.

With operating profits down to €39.96 million from €70.49 million in the same period last year, Smurfit reported refinancing costs of €53 million from a refinancing round last February.