Company of the Month July 2018: Smurfit Kappa Group expands in Europe

Smurfit Kappa Group expands in key European area, is lauded for its sustainability efforts and announces an innovative new paper product, seeing it awarded Business & Finance‘s Company of the Month for July 2018.

After successfully batting away a takeover bid from from rival International Paper (IP) of the US earlier this year, Group CEO Tony Smurfit has much to be please about as the year rolls on. The month of July began with sealing the deal on the acquisition of Netherlands-based paper and recycling business Reparenco for €460 million—a major step forward in its medium-term strategy to increase capacity for recycled container board in Europe. Smurfit Kappa Group (SKG) said it expected to see savings of more than €30 million with the integration of the recycling firm into the SKG businesses.

Pre-synergies, the acquisition represents a transaction multiple of over six times Reparenco’s 2018 expected full year earnings before interest, taxation, depreciation, and amortisation (EBITDA) of €72m. Including synergies, the acquisition multiple represents just under than 4.5 times EBITDA.

Pre-tax profit for first half of 2018 increase from €245 million to €416 million

Commenting on the announcement that Smurfit Kappa Group’s pre-tax profits for the first half of 2018 have significantly increased following the unsuccessful takeover bid from IP, Tony Smurfit said:

SKG is pleased to deliver significant improvement against our key performance measures. With an increase in EBITDA of over 27% to €724 million and an EBITDA margin of 16.4% our first half performance reflects the quality of our assets, geographic reach and market positions. SKG’s integrated business model and a performance-led culture continue to drive demonstrably superior returns.

Tony Smurfit, CEO, Smurfit Kappa Group

After announcing the deal in May, SKG announced in June that it would borrow €600 million from investors through a bond issue to cover the cost of the acquisition. The funds will also be used to repay some existing debt.

Speaking about the deal, Smurfit Kappa chief executive of Europe, Saverio Mayer said, 

“We are very pleased to complete the acquisition of Reparenco and to welcome their 315 employees to Smurfit Kappa. There is a strong cultural fit between our businesses and we are excited about the potential for Reparenco within the Smurfit Kappa integrated system.”

Increased capacity

Reparenco operates a two-machine paper mill with a capacity of 675,000 tonnes together with a 750,000 tonne recovered-fibre operation. The new facility will add 405,000 tonnes of recycled containerboard capacity to SKG’s system. The group said the 750,000 tonne recycling operation increased security and quality of raw material supply, and quality of products.

SKG says Reparanco is “ideally situated” in the heart of its European operating region where demand is strong due to growth in e-commerce requiring packaging for shipping, and the increased substitution of paper-based packaging for plastic.

Smurfit Kappa Group paper mill.

Environmental plaudits

For the sixth consecutive year, SKG has been recognised for its environmental efforts, being listed once again on the Euronext Vigeo Eiris Index, which is composed of the 120 highest-ranking listed companies for corporate social responsibility performance. Companies are judged on their sustainability programme by a team of analysts which reviews up to 330 indicators 

In SKG’s annual Sustainable Development Report, which was launched earlier this year, the company revealed several key sustainability achievements, providing a detailed and transparent update on its Environmental, Social and Governance (ESG) performance in five strategic areas of focus: Climate Change, Forest, Water, Waste, and People. It also invested €5 million in social and scientific projects to benefit the communities in which it operates. 

“We are delighted to have been listed on this prestigious index again. For Smurfit Kappa, sustainability is not only about mitigating climate change and reducing inefficiency, it is also about taking a sustainable approach to every aspect of our business,” Steven Stoffer, Group VP Development at Smurfit Kappa.

“With a growing number of investors and funds incorporating ESG criteria into their investment decisions, it’s vital for us to provide this assurance. Many of our customers also expect their business partners to have a genuine commitment to corporate social responsibility and this is something that Smurfit Kappa has won several supplier awards for.”

Innovative new product development

July also saw the announcement of innovations to come, as a new range of multi-purpose paper is set to be launched later in the year. The development of the new paper product follows on from SKG’s investment in state-of-the-art printing machines, and will work with UV and water-based digital print as well as the more traditional printers, allowing customers to fully avail of its potential. 

‘Today’s consumers want both quality and customised print and Smurfit Kappa’s ShelfSmart technology has proven that well-designed, customised graphic design boosts sales across all sales channels,’ the group said in a statement.

Lars Henriksson, VP product development at Smurfit Kappa’s Paper Division said that Smurfit has embraced digital printing in order to offer its customers “the right graphic design with the right flexibility and quality”.

“This new range of paper has performed very well in our beta programme tests and looks very promising. It will be another step forward on our journey towards digitalising the paper-based packaging industry,” he said.