6th May 2016 08:51
LONDON (Alliance News) - Irish corrugated packaging company Smurfit Kappa Group PLC delivered higher first quarter pretax profit and revenue on Friday ahead of its potential inclusion in the FTSE 100 at the next quarterly review.
At the end of April, Smurfit transferred its primary listing to London, having previous held its primary listing in Dublin, meaning it will become eligible for inclusion in the FTSE indices at the next quarterly review, due in June. Shares in the company also moved to be denominated in sterling rather than euros.
On Friday, with its shares up 1.9% to 1,856.00 pence, Smurfit's market capitalisation was around GBP4.36 billion. At present, that would not be enough to make Smurfit large enough for automatic FTSE 100 inclusion but would make it the second-largest company in the FTSE 250 behind recent FTSE 100 drop-out Hikma Pharmaceuticals PLC.
Should Smurfit be included in the FTSE 250, it would join packaging industry peer DS Smith PLC, while inclusion in the blue-chip index would sit Smurfit alongside Anglo-South African group Mondi PLC.
Ahead of Smurfit taking its place in the FTSE indices, however, the group on Friday said first quarter pretax profit grew 31% year-on-year to EUR128.0 million from EUR98.0 million a year earlier. The sharp rise in profit was primarily down to the group booking lower one-off costs, following the costs it had taken in relation to its Venezuelan business in the first quarter of 2015.
Revenue grew 2.0% in the quarter, up to EUR2.00 billion from EUR1.96 billion, as group packaging volume growth hit 5.0% in the quarter, helped by acquisitions but backed by solid underlying growth.
European volume growth hit 2.0% in the quarter, with pricing flat against the fourth quarter of 2015, while volume growth in its Americas operations was 26%, helped by the weaker comparatives from the Venezuelan issues a year earlier, contributions from acquisitions, and structural improvements in Smurfit's US business.
"We continue to see good levels of demand for packaging across almost all of the markets in which we operate," said Chief Executive Tony Smurfit. "Assuming broad industry conditions prevail, we expect good earnings growth in 2016."
The CEO said Smurfit is focused on integrating the more than EUR380.0 million worth of acquisitions it made in 2015 and said it has capacity to make further bolt-on deals. In 2015, those deals included Smurfit spending EUR186.0 million on Brazilian packaging companies Industria de Embalagens Santana and Paema Embalagens and GBP43.5 million on UK print and display business Inspirepac.
The group also plans to spend EUR450.0 million a year under its capital investment programme to boost its existing operations.
In Europe, Smurfit said solid demand growth and increased pricing on old corrugated containers is set to provide support for pricing through the balance of 2016. The recycled containerboard market has remained relatively robust in the first quarter, despite higher inventory levels which have now started to return to more normal levels.
Smurfit also announced a EUR40.00 per tonne rise for European brown kraftliner grades in April, coming into effect from June 15. Smurfit said market demand for this trade remains strong, and this should support the price increase during the seasonally more difficult summer months.
For its Americas business, Smurfit said first-quarter volume growth stripping out the acquisition contribution and the effect of the Venezuelan market was 3.0% year-on-year. Growth remained strong on Mexico, with corrugated shipments up 6.0% in the first quarter, while margins and earnings were robust in Colombia and Argentina.
Smurfit said the economic situation in Venezuela deteriorated further in the first quarter, but it remains committed to its operations there. In late 2013, the Venezuelan government took temporary control of Smurfit's operations, and the group has since been focused on improving the efficiency of the business to cope with the rough economic and political situation.
Elsewhere, Smurfit said it continued to progress its cost cuts in the first quarter, taking out EUR15.0 million in annual costs and sticking to its target to remove EUR75.0 million in yearly costs by the end of 2016.
By Sam Unsted; [email protected]; @SamUAtAlliance
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