Smurfit Kappa Group 2006 First Quarter Results

Business Wire, May 30, 2006

DUBLIN, Ireland -- Smurfit Kappa Funding plc (formerly known as JSG Funding plc), incorporating Kappa Packaging ('SKG' or 'the Group'), today announced results for the 3 months ending March 31, 2006.

Smurfit Kappa Group was formed on December 1, 2005 with the merger of the operations of Jefferson Smurfit Group ('JSG') and Kappa Packaging ('Kappa'). The combination of JSG and Kappa creates a strong focused player in paper-based packaging, with compelling strategic, operational and geographic fit. SKG combines JSG's previous strong positions in Western and Southern Europe with those of Kappa in Northern and Eastern Europe. SKG is now a world leader in corrugated, a clear European leader in containerboard and has market leading positions, in both containerboard and corrugated, in Latin America. SKG's well invested asset base, together with an extensive geographic presence across Europe, significantly enhances the Group's ability to serve current and prospective customers.

2006 first quarter results represent the first reporting period for SKG which combines the full three month results for JSG and Kappa. As the merger was completed on December 1, 2005, the reported financial performance of SKG for the fourth quarter of 2005 only included the results of Kappa Packaging for the month of December. Therefore, for the purposes of comparison year-on-year, pro forma results of the combined group for the first and fourth quarter of 2005 are included in the table below.

Pro forma                     Pro forma
                 1Q '06    1Q '05  Change      1Q '06    4Q '05 Change
                 EUR  M    EUR  M       %      EUR  M    EUR  M      %
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Net Sales        1,748     1,675       4%      1,748     1,697      3%

EBITDA (a)         172       195    (12%)        172       203   (15%)
                     .
EBITDA Margin (a)  9.8%     11.6%   (16%)        9.8%     12.0%  (18%)

(a) Pre-exceptional EBITDA of subsidiaries only.

The reported financial performance of SKG, which includes the results of Kappa Packaging for December 2005 and for the first quarter of 2006, are set out below.

1Q '06  1Q '05 Change     1Q '06   4Q '05  Change
                     EUR  M  EUR  M      %     EUR  M   EUR  M       %
----------------------------------------------------------------------

Net Sales            1,748   1,052     66%     1,748    1,244      41%

EBITDA (a)             172     109     58%       172      143      20%
                         .
EBITDA Margin (a)      9.8%   10.3%   (5%)       9.8%    11.5%   (15%)

(a) Pre-exceptional EBITDA of subsidiaries only.
----------------------------------------------------------------------

Free cash flow         (90)    (33)   171%       (90)      31   (389%)

Net debt at period
 end
(including capital
 leases)             4,644   2,621     77%     4,644    4,530       3%

2006 First Quarter Review

The first quarter of 2006, the first full operating quarter for Smurfit Kappa Group, was a difficult quarter. The economic environment in Europe continued to show indications of improvement and underpinned product price increases in both kraftliner and recycled paper. European paper price increases were announced and substantially implemented during the first quarter. However, these price increases primarily reflected efforts to recover the continuing increase in input costs, principally energy. While paper price increases in containerboard are broadly positive, price increases in corrugated cases are key for an integrated producer such as SKG. Price increases in corrugated, to recover paper price increases, are now being implemented. The time lag in recovering paper increases in corrugated, however, is resulting in a severe margin squeeze in the corrugated business. Our specialty businesses in Europe experienced a similar increase in input costs during the quarter. We are seeking to implement price increases across our system to recover these cost increases and achieve acceptable margin levels. Overall, therefore, the rising cost environment continued to seriously impact our business adversely during the first quarter.

In Latin America, SKG reported continued strong growth in the region in the first quarter. Mexico, the Group's largest country of operation in the region, reported strong growth in profitability while Venezuela and Colombia reported good volume growth and satisfactory earnings for the quarter. Argentina was modestly weaker year-on-year during the first quarter, reflecting a competitive marketplace and a slow down in demand.

First Quarter, 2006: Year on year financial performance

Including pro forma financial information for Kappa Packaging for the first quarter of 2005, net sales of EUR 1,748 million in the first quarter of 2006, represent a 4% increase on pro-forma net sales of EUR 1,675 million in the first quarter of 2005. EBITDA, before exceptional items, of EUR 172 million decreased 12% compared to pro forma EBITDA of EUR 195 million in the first quarter of 2005. This represents a margin of net sales of 9.8% and 11.6% respectively.