Smurfit Kappa meets 2010 expectation despite paper price hike

10-Feb-2011 - Last updated on 10-Feb-2011 at 11:44 GMT

Paper-based packaging giant Smurfit Kappa has met 2010 profit expectations despite major increases in raw material costs over the course of the year.

Revenue for the full year recovered 10 per cent to €6,667m supported by accelerating growth rates in the final quarter. And operating profit also increased sharply, rising from €267m in 2009 to €409m last year.

Gary McGann, Smurfit Kappa CEO, said the results reflect “an ongoing focus on driving operating efficiency, better than expected demand in the period, and further progress on pricing recovery, both in Europe and in Latin America.”

Tough 2009

The results come in the context of a challenging 2009 that saw revenue drop 14 per cent as the result of a “significant collapse in market demand and pricing”.

Now the demand situation has improved, even in the stagnant economies of Europe where Smurfit Kappa said Q4 growth was strongest in Germany, the UK and the Benelux countries.

Pricing has undergone a marked improvement as well. In a statement, Smurfit Kappa revealed that the European packaging business benefited from a corrugated pricing recovery of over 16 per cent from the low point in September 2009.

Raw material prices

Set against the improved pricing is increased pressure on the cost front. While the European packaging and paper group said its energy costs were stable in 2010, raw material costs were significantly higher.

Wood costs were 13 per cent higher in 2010 and recovered paper prices more than doubled compared to 2009 levels.

In Q4 and early 2011, Smurfit Kappa said it was continuing to see upward pressure on almost all its costs.

But looking forward, the company said demand remains strong and prices are continuing to recover. In this content and with the benefit of ongoing cost control initiatives, which has already resulted in the closure of a site in Slovenia and cut backs in other countries, Smurfit Kappa expects to deliver further performance improvement and earnings growth in 2011.

McGann said: “The group currently expects its free cash flow generation to be materially stronger in 2011 which should translate into significant debt paydown, and enhance the available range of strategic and financial options.”

Net debt in Q4 stood at €3110m – 2 per cent higher than a year ago.