• Strong performance in a tough year, with FY 20A EBITDA beating guidance: EBITDA margin down 54% y/y to 17.7% (2nd highest in the history of the group), mainly due to weaker paper and box pricing. FY DPS was increased by 8% y/y. FCF up 23% y/y to EUR 547mn and net debt/EBITDA of 1.6x (helped by the EUR 660m equity raise in November last year).
  • Record containerboard production in Europe (76% of EBITDA): FY EBITDA declined by 11% to EUR 1.28bn, with margin compression of 120 bps y/y mainly due to lower box pricing and paper prices. Box demand was up 2% (0% in H1 and 3% in H2), supported by a very strong Q4, which saw margins expand h/h. Performance was strong in Scandinavia, Spain, Portugal, UK and Eastern Europe.
  • SKG is the only significant Pan-American player (26% of EBITDA): Columbia, Mexico and the US account for c.90% of earnings. SKG believes the Americas are still somewhat behind Europe in terms of structural drivers from e-commerce and sustainability. Their own e-commerce growth in Brazil and Mexico was up 70% and 150%, respectively. EBITDA was up 3% y/y with robust margin expansion of 220bps. (H2 was materially stronger) supported by box volume growth of 2% y/y.
  • M&A likely to focus on downstream: Currently, they are happy with their paper capacity; however, if demand exceeds expectations, they will relook at accelerating some of their plans by either buying an asset or building their own.
  • EUR 660mn equity raise (8% if issued share capital) driven by “an abundance of opportunities”: Investing EUR 1.2-1.4bn in structural drivers of growth during FY 21-23E. The net debt/EBITDA target was lowered from 1.75-2.50x to 1.5-2.0x.
  • Cost inflation to provide underpin for paper and box prices: Recovered fibre and energy are the key drivers for cost inflation currently. Wastepaper prices and energy at current prices provide cost headwinds to SKG of EUR 200mn and EUR 35mn, respectively. c.60% of European box supply is integrated, with 40% non-integrated.
  • OCC prices have been increasing on the back of accelerating box spend and reduced collections also contributing to containerboard tightness: The downside of increased corrugated going to homes has meant lower collection rates. Accordingly, SKG have setup their own recovered paper system in Germany and are likely to roll out slowly across Europe.
  • Demand outlook robust on back of e-commerce and sustainability: They believe demand will remain robust as there is a lot of pent-up demand. Q4 demand was extremely strong, supported by home spend, which generally uses more corrugated. Negatives have included drinks businesses, where away from home and bars has been hit hard. When these recovers, it should offset reduction from at-home spend.
  • The outlook for Smurfit Kappa “has never been better” and the current year has started well: The containerboard market is they tightest the have seen it in 34 years. A price increase of EUR 50/t went through for kraftliner from 1 Feb and another EUR 50/t for testliner from 1 March. Paper (kraft and test) markets are “very, very tight” around the world. They expect containerboard tightness to continue at least for the foreseeable future unless there is a negative shock to global growth.

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