News Column

Smurfit Kappa Bolsters Shareholder Return As Profit Rises

July 30, 2014

Steve McGrath

LONDON (Alliance News) - Ireland-based packaging giant Smurfit Kappa Group PLC Wednesday raised its interim dividend and said it was increasingly well placed to boost shareholder returns after it reported a big increase in profit and strong free cash flow.

The company lifted its interim dividend by half to 15.375 euro cents, a move it said reflected its confidence in its future performance.

"With earnings growth expected in 2014, alongside considerable cash interest reductions year-on-year, the group is increasingly well placed to deploy capital to enhance returns for shareholders, Chief Executive Gary McGann said in a statement.

Smurfit Kappa's pretax profit for the three months to end-June was EUR124 million, up from EUR70 million a year earlier, even though revenue was flat at EUR2.02 billion. It boosted its earnings before interest, tax, depreciation and amortisation margin to 14.6%, from 13.4%, as it cut costs and raised prices for some products. For the first half of 2014, pretax profit was EUR228 million, up from EUR127 million a year earlier, even though revenue grew just 1% to EUR3.95 billion.

It said the margin expansion came even though prices for European containerboard were weaker than expected. However, it said it planned to raise prices for containerboard at the start of August and the start of September thanks to continued demand growth. Recycled containerboard prices will go up EUR60 a tonne on August 1 and its kraftliner business will raise prices by EUR50 a tonne on September 1.

Much of Smufit Kappa's growth continued to come from the Americas, and it expects volumes here to continue to improve in the second half of the year.

The company is boosting shareholder returns by cutting debt, interest payments, and improving its balance sheet by improving its return on capital.

Return on capital employed rose to 14.3% in the second quarter, from 12.0% in the second quarter of 2013. After a refinancing of senior notes with a seven-year bond earlier this month, Smurfit's average interest rate decreased from 6.9% to 4.1% and annualised cash interest costs decreased by EUR100 million.

Free cash flow declined to EUR76 million in the second quarter, from EUR95 million a year earlier, but was up to EUR135 million, from EUR72 million, for the first half of the year.

Smurfit Kappa shares were up 0.3% at EUR16.60 Wednesday morning.

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Source: Alliance News

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