By Padraic Halpin
DUBLIN – Smurfit Kappa said on Wednesday price inflation is here to stay after Europe’s largest paper packaging producer offset a doubling of waste paper costs and jumps in everything from glue to pallets by increasing prices in the first half of 2021.
The Irish group raised its prices by about 5% quarter-on-quarter from April to June and expects that kind of rate to continue through the second half and into the first quarter of 2022, Chief Executive Tony Smurfit said.
That helped boost first-half earnings before interest, taxes, depreciation, and amortisation (EBITDA) by 6% year-on-year with a relatively small drop in EBITDA margin to 16.7% from 17.5% a year ago.
First half EBITDA of 781 million euros ($922.2 million) was 8% lower than the record 847 million reported in the first six months of 2019.
The group said it expected strong and accelerated earnings growth through the remainder of 2021.
Smurfit Kappa’s share price, up 25% year-to-date, was 1.2% higher at 0830 GMT.
“It’s very hard to see that inflation is not here to stay. Since the end of last year I’ve been saying we’re seeing very significant increases and it’s hard to see that they’re temporary because there is still so much demand out there,” Smurfit told Reuters in a telephone interview.
“We’re effectively sold out in our product ranges across the world and we don’t have any capacity frankly.”
For that reason, Smurfit said he could not overstate the strategic value of Wednesday’s 360 million euro acquisition of a 600,000 tonne capacity recycled containerboard mill in Northern Italy, with the company struggling for paper supply in Italy and nearby France and Germany.
Smurfit is just one of a slew of major companies reeling from the impact of the high prices of raw materials, increased labour expenses and supply-chain woes that are raising product prices as demand rebounds with a reopening of economies.
Asked if there was a limit on the box maker’s ability to pass costs on, Smurfit said its customers, who include Procter & Gamble, Unilever and Nestle, were more concerned about security of supply at the moment.
The group, which has also had to meet exceptional demand for packaging used in e-commerce due to the COVID-19 pandemic, said it has “for the most part” been able to fulfil customer needs.
“From time to time because we don’t have the paper or the drivers or the starch, we’re struggling to keep up with demand and that’s in June and July,” Smurfit said, referring to the usually quieter months of the year.
($1 = 0.8469 euros)