• Smurfit Kappa released a strong Q3 21A trading update this morning: Q3 21A revenue increased by 22% y/y, while EBITDA increased by 16% y/y and by 16% q/q to EUR 454mn. Accordingly, the Q3 21A EBITDA margin was 17.4%.
  • Strong corrugated growth for the nine months ended 30 September: In Europe (74% of EBITDA), volumes increased by 9% y/y and by 11% y/y in the Americas (26% of EBITDA). SKG is effectively sold out across their integrated paper and corrugated system. In comparison to 2019, volumes are up by 9% in Europe and 10% in the Americas, highlighting the step change the industry is experiencing.   
  • Pricing continues to improve: Corrugated pricing increased by 7% q/q vs. 5% for Q2/Q1. 
  • Cost inflation led by energy costs and PfR: SKG continues to expect the PfR cost headwind for FY 21E to be c. EUR 450mn (H1 21A: 192mn & H2 21E: EUR 258mn). Despite SKG’s energy hedging programme, a cost headwind of
    EUR 80mn is now expected in H2 21E (H1 21A: 30mn). Previous guidance was EUR 70mn.
  • FY 21E CapEx on track for EUR 750-800mn: SKG currently has c.EUR 600mn in projects approved, which will benefit earnings fully in FY 23E. In their corrugated business, they have approved 48 new converting machines and six new corrugators across Europe and the Americas. The Verzuolo mill acquisition was completed in early October. This adds 600ktpa (500ktpa: back end of FY 22E and to reach 600kt with further CapEx) of paper into their integrated system and provides security if supply for their box plants next year. SKG also approved two major paper projects in Germany and Mexico.
  • SKG maintains guidance for significant FY 21E EBITDA growth: Despite unexpected sharp increases in energy, SKG has maintained its guidance for FY 21E. Current run rate for October 2021, implies a strong finish to the year with October “stronger y/y by a decent margin”. Order books are full despite SKG having added capacity this year.
  • SKG continues to have a positive outlook for European containerboard dynamics: Companies remain worried about supply chains. European containerboard inventories remain tight and SKG see a strong outlook for 2022, where there will not be a lot of new capacity added. Reference was made to concerns around previous worries of oversupply, which has not materialised and to the contrary supply has been critically short this year. Assuming normal demand in 2022, SKG expects the market to remain tight, while with new capacity to be added in 2023/24, it will take time to see how this capacity will be absorbed into the market. “Unless you have a dark view, European containerboard will remain tight for the foreseeable future”.

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