Smurfit Kappa’s (SKG) profits at the half-year have been held in check by rising input costs, or more accurately, by the lag in passing them through to customers. The paper packaging group recorded a 4 per cent fall in cash profit to €569m (£509m) with the underlying margin contracting by 120 basis points to 13.4 per cent. The decline in reported cash profit was further impacted by a one-off pension gain of €12m in the corresponding period in 2016, although chief executive Tony Smurfit said trading was conducted “against a backdrop of continued and unprecedented recovered fibre cost inflation of approximately €75m year on year”.
The cash margin did pick up through the second quarter as the group began to increase corrugated prices in Europe and the Americas. Absolute volumes have been on the rise but pricing pressures persist, so management confirmed that further corrugated price increases are now necessary on top of those already pencilled in through to the first quarter of 2018.
Although cash profit was under pressure, a reduction in working capital outflows meant that free cash flow was up nearly a third on the 2016 comparative to €46m. The group completed investments of €177m across its regions, equivalent to 88 per cent of the depreciation rate, although the relative proportion increased significantly in the second quarter.
Goodbody Stockbrokers forecasts adjusted cash profit of €1.24bn for the December year-end, leading to EPS of 202.3¢, against €1.22bn and 203¢ in 2016.
| SMURFIT KAPPA (SKG) | ||||
| ORD PRICE: | 2,335p | MARKET VALUE: | £5.53bn | |
| TOUCH: | 2,334-2,336p | 12-MONTH HIGH: | 2,441p | LOW: 1,664p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 989¢* | NET DEBT: | 120% | |
| Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
| 30 Jun | (€bn) | profit (€m) | share (¢) | per share (¢) |
| 2016 | 4.05 | 312 | 90.8 | 22.0 |
| 2017 | 4.22 | 245 | 74.3 | 23.1 |
| % change | +4 | -21 | -18 | +5 |
| Ex-div: | 28 Sep | |||
| Payment: | 27 Oct | |||
| £1=€1.118 *Includes intangible assets of €2.46bn, or 1,024¢ a share | ||||
