SKG Q1 2013 Results
Smurfit Kappa Group plc has today announced results for the 3 months ending 31 March 2013
First Quarter Highlights
Improving corrugated demand and paper price increases should support corrugated price increases in the second half of 2013
SK Orange County (‘SKOC’) integration and performance ahead of expectations. Synergy estimates doubled to US$28 million
EBITDA margins in the Americas return to their historical range
Proposed final 2012 dividend of 20.5 cent to be paid on 10 May
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: “The Group is pleased to report year-on-year revenue growth of 4% in the first quarter. Despite a number of one-off costs, EBITDA for the first quarter remained strong at €241 million. SKG’s performance reflects the previously guided margin compression in Europe following OCC and recycled paper price increases which are not yet reflected in corrugated pricing.
A €40 per tonne recycled paper price increase in Europe during the quarter supports corrugated pricing. Input costs including OCC continue to move upwards. Paper price increases and a good inventory position across Europe are creating an environment for corrugated price recovery in the second half of 2013.
The performance of SKOC and the progress of its integration into the Group has exceeded our original expectations. We have doubled our synergy expectations from US$14 million to US$28 million. Over US$9 million of this synergy target will be delivered in 2013 compared to US$6 million in the original pro-forma calculation. Additionally, the trading performance of the business has been significantly helped by the implementation of two paper price increases in the United States within an eight month period, with consequent increases in corrugated prices in the US and Mexican markets.
The overall performance of the Americas segment has resulted in the region returning towards its historic EBITDA margin range. Our objective is to increase our exposure to higher growth markets such as the Americas. In the period the region delivered over 27% of Group EBITDA.
As part of our previously announced strategic investment in the Townsend Hook mill in the UK, we are accelerating the closure of the two existing paper machines at the mill. They have a combined capacity of 250,000 tonnes and are expected to close on 1 July 2013, after the completion of a consultation process with all employees, instead of 2014 as originally planned. We are bringing forward the closure in order to extend the training period for our workforce, advance the start-up of the new paper machine and increase the pace of the expected ramp up. The approximate £100 million (€114 million) investment involves the rebuilding of the machine acquired from the Cadidavid liquidator in 2011 into one 250,000 tonne modern lightweight machine which will now be operational by the fourth quarter of 2014 rather than the first quarter of 2015. This investment will significantly increase productivity and lower costs in our UK business.
SKG’s integrated operations and an unrelenting focus on efficiency continue to deliver a consistent and quality earnings stream. This, in turn, has contributed to a substantially improved capital structure with net debt reduction of €190 million in the past 24 months. Our net debt to EBITDA multiple is and will remain within our stated range of 3.0x through an industry cycle. The strength of our business today has increased the available range of strategic and financial options to drive value.