Paper-packaging giant Smurfit Kappa expects to incur input costs of almost €400m this year, amid rising price inflation.

“Outside of labour, the biggest cost we would have is for recovered fiber, which is what we use to make paper that then goes into our boxes. For the first six months of the year that was €192m higher than last year,” Ken Bowles, chief financial officer at Smurfit Kappa, said.

“It will be a similar number again for the second half, so year-on-year it’s like an input costs headwind of close on €400m.”

To date the company has been able to recover the additional costs through box price increases, which it started to get through in the second quarter of this year.

“That will progress as we move though the second half of this year and into 2022,” Mr Bowles said.

The company on Wednesday said it is buying Verzuolo, a containerboard business in Northern Italy, for a cash consideration of €360m.

Smurfit Kappa made the announcement as it reported revenue of €4.68bn for the first half of this year, an 11pc increase on the same period last year.

The listed business saw earnings before interest, taxation, depreciation, and amortisation (ebitda) increase 6pc to €781m.

The group’s ebitda margin was down slightly year-on-year to 16.77pc, according to interim results.

Operating profit before exceptional items increased 6pc year-on-year to €477m in the six months to June 30.

Tony Smurfit, group CEO, said: “As a result of our past and current capital investments in our integrated business model, we have, for the most part, been able to fulfil our customers’ needs during this period of exceptionally strong demand.”

“It has also been a period of significant input cost pressures, which we have and will continue to recover through corrugated price increases,” he added.

The Verzuolo mill, which Smurfit Kappa is purchasing, was newly constructed in 2002 and converted into a 600,000 tonne capacity recycled containerboard machine in 2019.

Smurfit Kappa said the acquisition is “highly complementary” to its existing business and is strategically positioned to serve both the Southern European region and other markets.

The purchase will be funded from the group’s existing resources.

The company said the acquisition will deliver “significant synergistic benefits including technical and production optimisation, and increased containerboard integration within the group.”

Smurfit Kappa has no specific budget for M&A “we have a balance sheet that can do just about anything,” Mr Bowles said.

On the back of the company’s performance in the first half of this year the board is recommending a 5pc increase in the interim dividend.

Commenting on the results, David O’Brien, analyst at Goodbody, said: “On first glance we envisage upgrading financial year 2021 ebidta forecasts by circa 4pc excluding acquisition contribution.” “Smurfit Kappa remains our top pick in the sector with structurally improved margins and returns coupled with strong secular growth prospects,” he added.

Shares in the company were up 1.5pc in Wednesday afternoon trading in Dublin.