Smurfit Kappa's Townsend Hook facility in UK

Paper and packaging group Smurfit Kappa today posted a 73% drop in pre-tax profits for the first six months of 2009. Pre-tax profits fell from €145m to €39m as revenues dipped by 18% to €3 billion from €3.67 billion.

SK said its operating profits fell by 46% to €170m from €312m in difficult marketing conditions. Basic earnings per share fell 88% to 6.7 cent from 56.7 cent in the first half of 2008.

The manufacturer said the increasing number of capacity closures across the industry since the start of the year demonstrates the level of stress for higher cost and non-integrated producers.

Gary McGann, Smurfit Kappa Group CEO, commented: "SKG is pleased to report a comparatively strong EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization - - an approximate measure of a company's operating cash flow) margin of 12.1% in the first half of the year, with a 12.3% margin in quarter two. The increasing number of capacity closures across the industry since the beginning of the year demonstrates the level of stress for higher cost and non-integrated producers. Against a backdrop of difficult business conditions, the resilience of SKG’s integrated operating model complemented the benefits of our continued cost reductions and ongoing actions to rationalise our less-efficient capacity.

 Compared to the first quarter of the year, the Group’s small EBITDA growth for the 3 months to June 2009 primarily reflects lower energy costs, the increasing benefit of our cost reduction programmes and some seasonal pick-up in demand, offset by downward pressure on pricing. While there is growing evidence that the rate of demand decline levelled off in quarter two, as yet tangible signs of economic recovery are limited despite the improvement in confidence indicators."

Robert Eason, an analyst at Goodbody commented: "Smurfit Kappa has reported Q2 EBITDa of €184m for the three months to the end of June. This is slightly ahead of our forecasts of €176m and at the top-end of the consensus range of €164m to €185m and represents a c.29% decline yoy (-30% in Q1). While underlying market conditions remain difficult, the key takeaway from the release is that Smurfit Kappa has announced a €60/tonne price increase for all brown containerboard grades with effect from 1st September. This is despite extra capacity coming in stream in the coming 12 months and reflects rising costs (particularly OCC) and significant capacity shutdown/downtime in the ytd, which has resulted in lower inventories. On the outlook, management expects demand to remain stable at current levels, while raw material costs are on an increasing trend. These will be mitigated somewhat by the ongoing focus on costs and the announced price increase. All of this is in line with our forecasts and, therefore, we do not envisage making any material changes to our FY09 EBITDA forecast of €690m. This implies a decline of 23% in H2 versus -29% in H1."

 Results detail