Packaging boss issues warning over rising cost of raw materials

The boss of Smurfit Kappa, one of the world’s largest paper-based packaging companies, issued a warning over the rising cost of raw materials on Wednesday.

Chief executive Tony Smurfit said profits of the FTSE 100 company in 2020 had been hit by increasing prices for waste paper and other commodities and may curb earnings this year.

“Our raw materials have gone through the roof. There isn’t a single free tonne of paper in the world at the moment and that’s obviously pushing up prices.”

He added that “the main negative issue we have to counteract” will be these prices, propelled higher by growing demand for ecommerce.

Input prices have also shot up as people have recycled less during the pandemic. “There is more paper being thrown away and less being collected” for recycling, Smurfit said.

However, the company has been boosted by the demand for packaging because of the online spending boom, which has been prompted by lockdown restrictions.

“People just will be ordering more online and the next generation is going to be anti-waste,” he said. “A lot of things are working in our favour and our product is in the right space.”

Smurfit’s comments come as the company reported earnings before interest, taxes, depreciation and amortisation for 2020 of €1.51bn, down 9 per cent year on year, but ahead of its target range of €1.46bn to €1.48bn.

Revenues fell by 6 per cent year on year to €8.5bn, although strong demand in Europe and the Americas in the fourth quarter offset rising input costs.

Shares in the company rose by 3 per cent to £36.34 on the back of the news by early afternoon in London.

The packaging company announced it had “repaid all specific government support schemes related to the pandemic” and that it would increase its dividend by 8 per cent to 87.4 euro cents per share.

Smurfit said his company was focused on “chasing growth” and would be investing up to €1.4bn in new machinery over the next three years in response to the surge in demand for home deliveries.

“We have so many opportunities, we just don’t know what to do with them all,” he said.

Although the company trumpets the sustainable nature of its products, he conceded there was more that could be done to cut down on waste packaging.

“To be frank, corrugated waste is bad too . . . if you get a small pair of glasses in a huge box, we need to get rid of that.”