Paper and packaging group Smurfit Kappa today reported pre-tax losses of €11.5m for 2008, following a profit of €170m in 2007. The 2008 figure was impacted by exceptional charges of almost €258m, linked to writedowns in the value of assets and restructuring costs.

Revenue for the year dropped by 3% to €7 billion, while operating profits dipped 50% at €282m. Earnings before interest, tax, depreciation and amortisation (EBITDA) were down 12% at €941m, hit by lower prices for its products and higher costs. Smurfit Kappa said that its performance in Latin America remained strong.

The company announced it was suspending dividend payments in 2009, and was planning a further €125m of cost savings over the next two years. It said it expected difficult trading conditions to continue, as negative growth was forecast for many European economies.

Gary McGann, Smurfit Kappa Group CEO, commented: "Against an increasingly difficult market backdrop, the Group is pleased to deliver a relatively strong financial outcome for 2008 in line with market expectations. SKG reported EBITDA of €941 million, strong free cash flow of €281 million and further net debt reduction of €219 million for the year.

This performance reflects the resilience of the Group’s integrated model, the €75 million of cost savings benefits achieved in 2008 and the continuing benefits of the Group’s geographic diversity. Some 60% of the Group’s end markets relate to the more defensive food and beverage sectors.

With negative growth forecast for many European economies in 2009, the Group expects a continuation of difficult operating conditions. In that environment, the Group’s priority remains one of optimising our integrated model, increasing our cost take-out efforts and maximising our free cash flow generation and net debt reduction. This cash focus is reflected in each of our capital allocation decisions outlined today.

To maintain financial flexibility, the Group will further tighten its capital programmes, with capital expenditure approximating 60% of depreciation in 2009. The Group will also continue and deepen its cost reduction programme in 2009 and 2010, to deliver at least €125 million of additional saving benefits, with €75 million being targeted for 2009.

The Group is suspending dividend payments in 2009 and will re-evaluate its future dividend policy in light of prevailing market conditions and capital structure. The Group believes there is greater scope to create value through continued net debt reduction in the current environment.

SKG continues to have a very strong liquidity position with circa. €720 million cash on its balance sheet, unused credit lines of circa. €600 million and no material debt maturity until 2012.

Finally, to crystallise the value of its strong cash position, the Group also announces a €100 million cash tender offer to buy back part of its senior bank debt, and reduce both its net debt and debt servicing costs. This step is being taken in response to indications that certain holders of the debt prefer liquidity at current debt trading levels, and the attractiveness of current debt trading levels to SKG.”

Results detail.