Smurfit Kappa sees greenshoots after demand collapse in 2009

By Rory Harrington

- Last updated on GMT

Related tags Cent Corrugated fiberboard Paperboard Europe Smurfit kappa group

Smurfit Kappa Group (SKG) announced its revenue dropped by 14 per cent to €6.1bn in 2009 after a “significant collapse in market demand and pricing” during the year.

But the company said that an upturn in demand at the tailend of 2009 had so far been carried into 2010.

SKG, the world’s largest producer of paper-based packaging, also saw its EBITDA plummet 21 per cent for the full year. The firm’s balance sheet was also hit by charges of €58m - made up of restructuring and closure costs of its site in Slovakia, as well as cuts at facilities in Ireland and France. However, the group said its performance in Latin America was “strong”.

CEO Gary McGann said: "The Group is reporting a full year EBITDA outcome of €741 million and a resilient margin of 12.2 per cent for 2009. In the context of a significant collapse in market demand and pricing, this outcome demonstrates the benefits of the Group’s ongoing attention to cost and operating efficiency, and a sustained contribution from its Latin American operations which delivered strong profitability and earnings growth in 2009.”

The firm said it had faced a “challenging operating environment"​ as demand plummeted in Europe in the first nine months of 2009. Its Q4 year-on-year volumes also fell - although November and December saw two per cent growth, said the company.

Its full year corrugated deliveries in Europe fell by eight per cent compared to 2008. While demand stabilised at a low level in Q3 and picked up in the last two months of the year, its Q4 deliveries were still two per cent lower compared to the same period 12 month earlier.

Recycled containerboard inventory levels in the region fell 30 per cent between March and September – despite the simultaneous introduction of capacity in Eastern Europe. However, since September, prices had risen €90 per tonne – an equivalent of 40 per cent –on rising inventory levels and increasing input cost pressures.

The company warned that despite the decision to increase its tariff by €60 per ton in January, further price rises in recycled containerboard were likely because of the higher cost of recovered fibre. This will have a knock on effect for corrugated box prices as the company said it planned to recover higher input costs by increasing those tariffs.

McGann acknowledged that higher raw material costs had hit the company’s margins but said these had been largely offset by “further cost reduction actions and the commencement of the increase in SKG’s European corrugated and kraftliner pricing.”

He added that demand had increased in the last two months of 2009 and the improvement had continued into this year.

“The sustainability of the recovery is dependent on continuing supply side discipline in the European market, bearing in mind the start-up of a new containerboard machine in the second quarter of 2010,”​ he added.

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