Smurfit Kappa Group Reports First Quarter 2016 Results

May 6, 2016 - Smurfit Kappa Group today reported results for the first quarter 2016.

 

First Quarter Key Points

2016 First Quarter | Performance Overview

In the quarter, the Group delivered a 6% increase in EBITDA and an 8% increase in pre-exceptional operating profit year-on-year. The Group also reported ROCE of 15.3% and its third consecutive first quarter of positive free cash flow reflecting its consistent focus on capital management and the benefit of incremental earnings from its programme of capital investment.

 

In Europe, the Group's corrugated packaging operations reported a solid quarter with a 2% year-on-year increase in underlying box volumes when adjusted for days, and sequentially flat corrugated pricing in local currency terms. Good demand growth and increased pricing for Old Corrugated Containers ('OCC') is expected to provide a support to containerboard and corrugated pricing for the remainder of the year.

In the first quarter of 2016, OCC prices were 13% higher year-on-year reflecting robust levels of global demand. Chinese imports of OCC remain a solid underpin to demand with a 6% year-on-year increase in January following a year in which the country grew their OCC imports by 7%. However, incremental European demand will be the more important driver of increasing tightness in the grade in coming years, particularly in markets already short of fibre such as Germany and the Netherlands.

In recycled containerboard, the market has remained relatively stable through the first quarter despite higher inventory levels year-on-year, which are now returning to more balanced levels. The Group is the largest producer of recycled containerboard in Europe with approximately three million tonnes of production per annum, but remains a net buyer of approximately 700,000 tonnes per annum for its market facing corrugated operations. Through a series of completed and on-going capital investment projects, SKG's focus is to ensure its containerboard network remains the most efficient, lowest cost system in Europe.

Following a period of supply driven pricing pressure in the year to April, the Group announced a €40 per tonne price increase for its European brown kraftliner grades effective 15 June 2016. Market demand for the grade remains strong and this is expected to support the price increase through the seasonally tighter summer months. SKG's 1.6 million tonnes of kraftliner production per annum is a distinct competitive advantage for the Group in providing corrugated customers with a complete product offering, while maintaining a net long position of 500,000 tonnes per annum in the grade.

In the Americas, the Group's operations delivered a strong result in the first quarter with corrugated volume growth of 26% and a recovery in EBITDA margin to 17%. Adjusting for acquisitions and Venezuela, volume growth in the first quarter was over 3% year-on-year. Within this, Mexico has maintained its strong growth rate from the fourth quarter, with corrugated shipments 6% higher year-on-year in the first quarter. The US business is showing structural improvement and the integration of multiple acquisitions is progressing well.

Other markets such as Colombia and Argentina are performing well in volume and EBITDA margin terms, while the Group's new operations in Brazil are outperforming the market with 4% volume growth year-onyear.

The delivery of a positive free cash flow result despite a working capital outflow and substantially increased capital expenditure illustrates the significantly strengthened position of the Group today. The Group's leverage, at 2.5 times net debt to EBITDA is expected to continue to reduce as EBITDA from acquisitions incrementally contribute over the course of the year and the Group continues to generate strong free cash flows.

 

Performance Review and Outlook

Tony Smurfit, Smurfit Kappa CEO, commented: “Solid year-on-year earnings progression in the first quarter of 2016 with 6% EBITDA growth was driven by an improved operating performance and the positive impact of acquisitions completed in 2015. Our well invested, geographically diversified and vertically integrated operations will continue to provide us with a resilient platform to drive earnings and free cash flows.

“We continue to see good levels of demand for packaging across almost all of the markets in which we operate. During the quarter, currencies had a distorting effect which on a like-for-like basis had a negative translation effect of almost €10 million on EBITDA. In addition, the rebuilds of our Roermond and Sanguesa mills adversely impacted profitability in the quarter. However, both projects will enhance our European system's cost position and commercial offering.

“Following the completion of over €380 million of acquisitions in 2015, the Group's focus is on the successful integration of these businesses through 2016 with the capacity for further bolt-on acquisitions. Our capital investment programme of over €450 million per annum supports our objective to deliver higher quality packaging and merchandising solutions to our global customers, while continually driving operational efficiencies through our integrated system.

“Assuming broad industry conditions prevail, we expect good earnings growth in 2016.”

Smurfit Kappa is one of the leading providers of paper-based packaging solutions in the world, with approximately 370 production sites across 34 countries. To learn more, please visit: www.smurfitkappa.com.

 

SOURCE: Paperage.com