FIONA REDDAN
Revenues rose by 8 per cent to €7.9 billion at Smurfit Kappa in 2013, as the paper and packaging group benefited from a lift in sales in the Americas and continued progress in its efforts to restructure its debt profile.
Earnings (EBITDA) grew by 9 per cent to €1.1 billion and the group reported a return on capital employed of over 13 per cent. Pre-tax profits fell by 8 per cent to €294 million. Smurfit Kappa will pay a final dividend of 30.75 cent for 2013, up by 50 per cent on 2012, “ reflecting confidence in the business”.
"With a weaker though improving year-on-year performance in Europe, the Americas has been a strong source of earnings growth in 2013 and continues to provide the group with geographic diversity and exposure to higher growth markets," said Gary McGann, Smurfit Kappa Group CEO.
In the fourth quarter of 2013, earnings rose to €291 million, slightly behind forecasts, on revenue of €2 billion. Pre-tax profits soared by 91 per cent to €62 million.
European corrugated packaging operations showed good growth in 2013, with box volumes up 2 per cent year-on-year and the group is progressing with box price increases through the fourth quarter and into 2014.
“The good volume result was achieved despite low macroeconomic growth and reflects organic growth with our customers and specific market share wins,” Mr McGann said.
Improved containerboard demand coupled with stable supply side conditions and a steady old corrugated containers (‘OCC’) market supported a recovery in testliner prices although the group noted that despite increasing testliner pricing, margins have still not adequately recovered due to consistently higher input costs.
In the Americas region, operations performed well, with reported volume growth of over 2 per cent year-on-year in spite of some economic difficulties, although the group pointed to some potential risk in Venezuela.
During 2013 the group completed its main financial restructuring activity, moving from being a leveraged company to achieving a corporate credit profile. “As a consequence, the profile of the group has fundamentally changed and the progress made offers the company a wide range of strategic and financial options,” said Mr McGann. The group’s full year 2013 net debt / EBITDA ratio stood at 2.37 times, as debt reduction was made possible by the group’s strong free cash flow generated through “a robust operational performance and decisive capital allocation”.
“Debt paydown and re-financing activities undertaken to date have resulted in a € 120 million reduction in annualised cash interest since the IPO and boosts available free cash flow.”
Barry Dixon, an analyst with Davy Stockbrokers, said that this change in capital allocation strategy is the most beneficial from a shareholder perspective. “For a long time, the company used its strong cash generation to pay down debt. Now that the balance sheet has been repaired, shareholders should really start to get the benefit of the cash. Most immediately, this is apparent from the 50 per cent increase in the dividend,” he said.
Smurfit Kappa hopes to expand its operations in the high growth regions of the Americas and Eastern Europe through “accretive acquisitions, together with innovation and differentiation initiatives already underway in our current business”.
Looking to 2014, based on the current macro-economic outlook, the group expects to achieve continued earnings growth, and Smurfit Kappa will look to “further optimise its integrated European operations and to increase its unique Americas exposure through the use of its strong balance sheet and its proven management”.
