Smurfit Kappa sees challenging market in 2008

By Jonathan Saul

DUBLIN (Reuters) - Smurfit Kappa (SKG.I) expects business conditions to stay challenging this year but the Irish paper packaging maker will meet market expectations, sending its shares 12 percent higher on Monday.

The group, one of the world's biggest makers of paper and cardboard packaging (SKG.L), reported a 1 percent drop in second quarter core profit compared with the same period a year ago due to the negative impact of currency factors.

Smurfit Kappa said energy costs remained high while there was downward price pressure on products such as kraftliner container board.

"As anticipated early this year, the group expects conditions to remain challenging for the remainder of 2008, characterised by a slowdown in corrugated demand growth and broad-based cost inflation," Chief Executive Gary McGann said.

McGann said despite the tougher environment, the group was well positioned to "outperform its peers and deliver strong returns".

"We believe that the group's strong customer focus, geographic spread, increasingly efficient operating platform, strengthened financial capacity and continued capital restraint will deliver current market expectations for 2008," McGann said.

Earnings before interest, tax, depreciation and amortisation (EBITDA) reached 1.064 billion euros in 2007.

McGann said analysts' consensus for full-year EBITDA in 2008 was forecast "north" of 940 million euros (734 million pounds).