Shares in Smurfit Kappa lost almost 4 per cent in a weakening market after the packaging giant reported an 18 per cent rise to €260 million in quarterly profits before tax, finance and exceptional costs. Arthur Beesley, Senior Business Correspondent, reports.

This follows price increases in Europe and higher sales in Latin America. The increased profitability in the three months to June, the group's second fiscal quarter, helped bring its first half pre-exceptional earnings before interest, tax, depreciation and amortisation (EBITDA) 28 per cent higher to €514 million.

Davy stockbrokers said the quarterly profit was marginally ahead of its €259 million forecast but Goodbody said the result was behind its €275 million forecast.

The first-half trading period was marked by the group's return to the stock market last March in an initial public offering (IPO) of stock at €16.50 per share in which it raised €1.495 billion, the bulk of which was used to reduce debt.

Net debt fell to €3.61 billion at the end of June from €4.88 billion at the start of the year. A refinancing in July added €10 million in savings to the group's annual interest bill, bringing the total annual saving since the IPO to €160 million.

Reiterating guidance for 25 per cent EBITDA growth for the full year, chief executive Gary McGann declined to comment yesterday on the likelihood of private equity investors Madison Dearborn, CVC and Cinven selling down their combined stake of more than 50 per cent after the expiry of an 180-day lock-in next month.

Amid renewed volatility in global markets yesterday, the group's share lost 62½ cent in Dublin to close at €15.87½. While citing strong demand-growth and pricing momentum, Mr McGann said the group faced pressure on profit growth and margins in the first half.

EBITDA margins in each quarter of the first half were static at 14.2 per cent and down from 14.5 per cent in the final quarter of 2006. This was due to higher containerboard input costs and competition in the kraftliner unit from US exports into Europe. Recovered paper prices in the containerboard unit were "rapid and higher than anticipated".

Mr McGann said increased costs and paper prices have not fully translated into higher corrugated prices but said these were being "progressively achieved". He expects price improvements for corrugated products in the second fiscal half and in 2008.

Chief finance officer Ian Curley said the group had revised its full-year synergy target upwards by €20 million to €180 million. First-half revenues rose 4 per cent to €3.63 billion but the underlying figure was 6.2 per cent stronger before currency fluctuations and asset disposals and closures. Containerboard revenues rose 5 per cent to €3.15 billion and pre-exceptional operating profits 65 per cent to €302 million.

Tough conditions in the speciality division saw revenues fall 2 per cent to €471 million and pre-exceptional operating profits fall 8 per cent to €24 million.