Paper and packaging group Smurfit Kappa has reported pre-tax profits of €90m for the first three months of this year, more than double the €43m in the same period last year.
Sales were up 2% to €1.83 billion, helped by high prices for its corrugated products and what the company described as "reasonable" demand. There was a strong performance from its Latin American businesses, though its impact was lessened by the euro's strength.
Chief executive Gary McGann warned that Smurfit Kappa's margins would come under pressure in the rest of 2008, due to a slowdown in corrugated demand, a weak US dollar and continuing cost inflation.
Operating profits before one-off items rose 11% to €156m, with profits at the pre-tax level helped by lower interest costs.
Operating margins were down marginally to 14% in its first quarter, but net debt was reduced to €3.37 billion.
Gary McGann, commented: "The Group is pleased to report a positive EBITDA (Earnings before interest, taxes, depreciation and amortization) outcome and a strong cash flow performance for the three month period to 31 March, 2008. We are also pleased to report continued progress against our leverage objectives. Net debt has been reduced within the quarter. SKG's net debt to EBITDA multiple is now below the bottom end of our stated range.
During the quarter, business conditions in Europe reflected continued corrugated price recovery and broad-based cost inflation. Our Latin American businesses, which operate in high-growth markets, continue to make a significant contribution to the Group's overall performance.
SKG anticipates that a combination of factors will contribute to greater than expected margin pressure throughout the remainder of 2008. These factors include a slowdown in demand growth for corrugated, continued weakness of the value of the US$ and further cost inflation. SKG recently announced the permanent closure of 130,000 tonnes of less efficient containerboard capacity and up to 80,000 tonnes of market-related downtime in 2008. These actions will maximize the ongoing efficiency of our mill system and address an increase in inventory levels of recycled containerboard.
While SKG will continue to review the cost profile of our mills against integration requirements, broader market demand and industry inventory levels, as a result of actions to date, we have an increasingly efficient mill system and remain short of recycled paper production capacity.
In 2008 and beyond, we will continue to exercise restraint in our capital programmes, base production decisions on a realistic assessment of demand, and participate selectively in consolidation opportunities presented by current market conditions. SKG will also seek to opportunistically increase its geographic reach and exposure to higher growth markets.”
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