July 2013: Smurfit Kappa

Ian Hyland, publisher, Business & Finance presents Gary McGann, group CEO, SKG and the management team of SKG with the July 2013, Company of the Month award.

Smurfit Kappa continues to perform strongly with shares in the company rising significantly.

Shares in the Smurfit Kappa Group (SKG) – the largest paper packaging producer in Europe – rose to the highest price in six years in July as the company’s second-quarter results beat analyst expectations and drove shares in the Irish group up more than 4%.

On a number of occasions the share price rose to over €15, reaching the highest price rise since 2007. Shares in the company have climbed from just under €6 a year ago. The share increase also came as the company said it was raising its interim dividend by 37%.

Gary McGann, Smurfit Kappa Group CEO, commented: “Smurfit Kappa Group is pleased to report first half revenue growth of 6% and strong EBITDA of €512mn. The strong result has been achieved through improved pricing, continued cost take-out and enhanced efficiency programmes. In spite of the recessionary conditions in Europe, the Group delivered like-for-like box volume growth in Europe of over 2% year-on-year and 5% volume growth in the Americas, excluding box volumes of SKOC.”

SKG’s ability to win new business in the current challenging operating environment is evidence of the Group’s strong value proposition. In July, the Group announced the development of a unique 3D tool entitled ‘Virtual Store’ to enhance the understanding of shopper behaviour. This will translate into real benefits for retail ready packaging design.

With the successful integration and performance of SKOC (Smurfit Kappa Orange County – its most recent Mexican/US acquisition), the Group is progressing well with its strategy to expand in the higher growth markets of the Americas. Packaging volumes in the region have grown by 5% year to date and EBITDA margins are recovering to their previous relatively high levels, assisted by the absence of the significant one-off issues which affected the business in 2012. The accretive acquisition of SKOC reflects the Group’s ability to identify, acquire, and integrate complementary businesses.

The continued focus on increased geographic diversity, together with the integrated model, is underpinning the consistency of SKG’s earnings irrespective of economic circumstances.

In July, the Group successfully completed a new €1,375mn refinancing of its senior credit facility on a lower margin unsecured basis comprising a €750mn term loan with a margin of 2.25% and a €625mn revolving credit facility with a margin of 2.00%. This transaction represents a major milestone in the evolution of the Group’s capital structure and concludes the successful re-positioning of SKG’s debt profile from leveraged to corporate, whilst reducing interest costs by approximately €13mn per annum. In addition, SKG has put in place a new trade receivables securitisation programme of up to €175mn. These transactions provide the Group with greater financial flexibility, including the potential to refinance part of its more expensive bond debt at the appropriate time.

Smurfit Kappa Group plc (SKG). SKG is one of the world’s leading paper-based packaging companies and employs over 40,000 employees in over 350 plants worldwide. Smurfit Kappa was born in 2005 when Jefferson Smurfit Group merged with Dutch rival Kappa Packaging BV. The merger joined Europe’s first and third-biggest paper packaging companies, making Smurfit Kappa twice as big as its nearest competitor in Europe.

In 2007, Smurfit Kappa Group successfully listed on the Dublin and London Stock Exchanges, with the largest ever industry IPO.