Europac May Beat 2011 Estimates on Higher Prices, More Capacity

Papeles y Cartones de Europa SA (PAC), Iberia’s second-largest maker of paper used for packaging, said an increase in margins, capacity and prices for recycled-paper products may help it beat analyst estimates for 2011 profit.

Strong demand for paper and cardboard for packaging, as well as higher profit from energy generation, may help keep earnings climbing from last year, Fernando Aranguren, Europac’s resources director, said in a telephone interview.

The company, based in Madrid, may offset higher raw- material costs with a further increase in recycled paper prices this year, the executive said. Europac’s energy division will advance this year as its plants operate at full capacity, Aranguren said.

“The economic context is difficult, but the paper industry is stable thanks to a strong demand and we’ll be able to continue recovering margins this year,” Aranguren said. “Expectations for 2011 are good.”

Full-year net income may climb 39 percent to 36.8 million euros ($51.8 million) and earnings before interest, taxes, depreciation and amortization may advance 24 percent to 117.7 million euros, according to the average of analyst estimates compiled by Bloomberg.

“Those estimates are perfectly reachable and could even be beaten depending on how the year goes,” Aranguren said. Higher profit could lead to increased dividends next year as well. The company didn’t pay a dividend last year.

Higher Ebitda Margin

Europac, which traces its roots back to 1890, will increase its Ebitda margin again this year, Aranguren said, adding it won’t yet reach 2007 levels because of higher costs. Raw- material charges have risen about 10 euros per ton during the last few weeks, the 51-year-old executive said.

Ebitda was 25 percent of sales four years ago, shrinking to 8.3 percent in 2009. The company had a 15 percent Ebitda margin last year.

The current position of the industry is “suitable for an increase in prices” for recycled paper, Aranguren said, noting strong demand and inventories at “historic low levels.”

The company increased recycled paper prices by 60 euros a ton effective Feb. 1. Prices for kraftliner paper, which is made with wood pulp, will probably remain flat this year, he said.

Europac, which sells its products in 27 countries in Europe and Africa, competes with companies including Sociedad Anomina Industrias Celulosa Aragonesa, the No. 1 producer of paper for packaging in Iberia, and Dublin-based Smurfit Kappa Group Plc (SKG), Europe’s largest maker of cardboard boxes.

Competitors’ Pricing

Smurfit Kappa Chief Financial Officer Ian Curley said on Feb. 9 that the company may raise prices in the second and third quarters to cover increased input costs. Svenska Cellulosa AB, Europe’s biggest tissue maker, will raise newsprint paper prices at least 20 percent this year, Chief Executive Officer Jan Johansson said Jan. 27.

Europac, which has 22 manufacturing plants in Spain, Portugal and France, is always looking for acquisition opportunities, Aranguren said. Europac has no plans to buy a business or enter new markets in the short term as it wants to focus on existing operations, he added.

“The cardboard industry continues to be susceptible to consolidation and we’re always seeing opportunities,” Aranguren said. “It’s also in the interest of the company to grow in the area of raw materials of used paper.”

The company will boost annual production capacity for recycled paper this year by about 30,000 tons from 560,000 tons last year, he said.

Ebitda from power generation may climb to as much as 35 million euros from 25.8 million euros in 2010, Aranguren said. Europac aims to cut its debt to Ebitda ratio to less than 2.5 times, he said.

“The company has changed a lot” after “acquisitions in France during the last two years that have changed the structure and production capacity of the group,” and in 2010 it set up a new gas-fired plant in Spain and one in Portugal, increasing energy capacity, Aranguren said. The company’s present structure “has nothing to do with that of two-and-a-half years ago.”

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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