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Corporate strategy: US-Mexico market strength aids Smurfit Kappa Orange County Container integration

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Corporate strategy: US-Mexico market strength aids Smurfit Kappa Orange County Container integration

May 03, 2013 - 11:56

SAN FRANCISCO, May 3, 2013 (PPI Pulp & Paper Week) -Europe's Smurfit Kappa Group (SKG) said integration with its SK Orange County business in North America is ahead of expectations, with original synergy estimates doubled to $28 million.

The company completed the acquisition of Orange County Container Group in December for $340 million, including a recycled containerboard mill in Texas and 10 converting plants in the US and northern Mexico, adding to SKG's existing operations there. It was SKG's first significant acquisition since the Kappa merger in 2005.

In its first quarter 2013 financial report, SKG said the 290,000 tonnes/yr paper mill in Dallas continues to benefit from the consolidated and disciplined US market dynamics with US paper prices increasing $100/ton in the last eight months. Recovered fiber costs have increased by less than $30/ton in this period "and these superior spreads are expected to be maintained by the industry," the company said.

"Corrugated price increases have been implemented in both the Mexican and US parts of the business following the third quarter price hike, and the current pricing initiative will have a further beneficial effect on the Group's corrugated pricing in the region," SKG added.

Over $9 million of SK Orange County synergy target will be delivered in 2013 compared to $6 million in the original pro-forma calculation.

SKG said its Mexican operations performed well in the quarter with stable EBITDA year-on-year despite higher material and converting costs. Corrugated volumes increased 6% in the first quarter compared to the same period of 2012 as a result of a series of high profile business wins with multinational customers. A fire in the Cerro Gordo mill necessitated a two and a half day shut in March, and negatively impacted the quarter. However, the business benefited from a strong performance in the Group's main containerboard machine in Mexico City which had been shut for installation of the shoe press during the first quarter of 2012.

SKG reported its total revenues were up 4% to Euro 1.89 billion while operating profit declined 6% to Euro 139 million.

A Euro 40/tonne recycled paper price increase in Europe during the quarter supports corrugated pricing while input costs including OCC continue to move upwards, SKG added.

Paper price increases and a good inventory position across Europe are creating an environment for corrugated price recovery in the second half of 2013.