Smurfit knocked by squeeze on margins

SHARES in Jefferson Smurfit slumped 28p to 229p after the Irish paper and packaging group disappointed the market with a 20 per cent decline in the first half.

Taxable profits slipped from Ir pounds 75.2m to Ir pounds 60.3m (pounds 64m) for the half-year to 30 July, on a 7 per cent jump in sales to Ir pounds 654m.

The results reflect a sharp contraction of profit margins because of fierce competititon and overcapacity during a deep recession.

Smurfit's North American businesses declined from an Ir pounds 1m operating profit to an Ir pounds 4m loss, due to weak demand for newsprint, which experienced a 16 per cent sales decline due to price-cutting.

Although sales rose by 6 per cent in paperboard and packaging, while prices were up 9 per cent, margins continued to suffer because of even higher costs. Operating profits from continental Europe dropped from Ir pounds 22.5m to Ir pounds 16.5m. However, Latin America improved its contribution to Ir pounds 31m (Ir pounds 30.1m).

Interest income almost halved to Ir pounds 2.8m, despite an increase in net cash from Ir pounds 233m to Ir pounds 239m. But Smurfit said it would incur an Ir pounds 11m extarordinary charge in the second half, arising from the early retirement of some debt.

Fully diluted earnings per share fell from 23.4p to 18.1p. The company is paying a second interim dividend of 1.23p and envisages a final of 2.5p, which will push up the total by 5.7 per cent.