Fitch Rates Smurfit Westrock's Proposed Senior Unsecured Debt at 'BBB+'

Fitch Ratings has assigned Smurfit Westrock Financing DAC's and Smurfit Kappa Treasury Unlimited Company's proposed issuance of senior unsecured debt long-term ratings of 'BBB+', in line with the group's other senior unsecured debt.

The dollar- and euro-denominated notes, to be issued by Smurfit Westrock Financing DAC and Smurfit Kappa Treasury Unlimited Company respectively, will be used to refinance Smurfit Westrock plc's upcoming 2027 debt maturities and for general corporate purposes, including the repayment of other debt. This new debt will rank equally with other senior unsecured debt within the group.

Merger Created Global Market Leader: The formation of Smurfit Westrock from the merger of Smurfit Kappa Group plc (SKG) and Westrock Company has delivered a clear global leader within the fibre packaging sector with combined revenues of USD30 billion and Fitch-adjusted EBITDA of USD4.8 billion expected for 2025. The combined group benefits from an enhanced market position within its key geographies and additional product diversification. The merger has enhanced supply chains and extended vertical integration.

Complementary Product Focus: The combined group has a leading corrugated packaging focus in North America and Europe. Westrock leads the North American market in corrugated packaging and produced over USD10 billion in revenue from this segment in 2023. This complements SKG's leading packaging position (mostly from corrugated packaging) in Europe with sales of nearly EUR9 billion in 2023.

Fitch views Smurfit Westrock's exposure to corrugated packaging positively, due to strong long-term demand prospects. The remaining consumer packaging, paper-based packaging products and bag-in-box products from both entities will enhance market positioning while complementing existing corrugated packaging.

Vertical Integration Benefits: Smurfit Westrock has high raw material self-sufficiency, providing strong operational control across its value chain, including recycling, sourcing and production (mills and box plants) across all products. The leadership in sustainable packaging strengthens this position. Fitch believes successful integration of Westrock's operations will drive long-term revenue growth, particularly in the Americas, by leveraging its paper production capacity.

Strong Business Model: The highly integrated business model provides margin stability and supply chain security during periods of supply chain disruptions, high inflation, and temporary volume volatility. This will be enhanced by synergies and cost savings. Fitch expects synergies of USD360 million by 2026 (not including the additional cost savings of similar scale identified after the merger), resulting in an increasing EBITDA margin close to 18% in 2028.

Conservative Capital Structure Commitment: Fitch views Smurfit Westrock's financial policy, with a net leverage target of under 2.0x as achievable and supportive of the rating. We expect Smurfit Westrock to adhere to this financial policy. We forecast EBITDA net leverage of below 2x by end-2027 and 1.6x by end-2028, down from 2.6x expected at end-2025.

FCF Improvement to Support Deleveraging: We expect free cash flow (FCF) to be only marginally positive in 2025 given gradual volumes/pricing recovery, high capex, increased interest costs and dividend payout. However, we forecast the FCF margin will increase to 2.1% in 2026 and 2.8% in 2027. Fitch estimates that the company will generate about USD2.7 billion FCF in 2026-2028, supporting management's target to deleverage to net 2.0x.

Strong Long-Term Demand: We expect normalised mid-single-digit revenue growth in 2025-2028. Underlying demand may not sharply increase in 2025, but better pricing discipline and limited capacity expansion should enhance profitability. The enhanced geographical diversification and product offering will help manage demand imbalances. The growing importance of packaging recyclability benefits Smurfit Westrock, with plastic substitution providing a long-term driver, as paper packaging meets criteria, like durability and convenience.

Smurfit Westrock's strong market position is bolstered by continuing investment and acquisitions in its core European and Americas markets. It is also exposed to favourable long-term market dynamics supporting growth in more easily recyclable substrates (including fibre). Smurfit Westrock's closest Fitch-rated peers are Amcor plc (BBB+/Stable) and Stora Enso Oyj (BBB-/Stable). Both peers have weaker geographical diversification but a wider product offering.

Smurfit Westrock remains firmly positioned with stronger margins than the broader industry, and after the merger it is number one globally among packaging companies by revenue at USD30.9 billion, versus the Amcor/Berry Global Group, Inc entity USD24 billion and Stora Enso's USD10 billion. Stora Enso's FCF margins are heavily affected by lower EBITDA margins and high capex in 2023-2024, the latter partly from the conversion of a paper mill in Finland, leading to higher debt and leverage. Sappi Limited (BB+/Stable) is also converting its paper mills into packaging production lines to shift away from a declining paper industry.

Smurfit Westrock's high exposure to non-cyclical sectors and limited volatility of EBITDA margins compared with Stora and Sappi also contribute to its FCF sustainability. Additional merger-related costs, production capacity optimisation and synergy costs, high combined capex and working-capital changes will temporarily affect FCF margin improvement (2025 FCF margin at 0%), but we expect it to recover to 2.8% in 2027 and 3.3% in 2028.

- Revenue growth of 42% in 2025 due to full-year run rate contribution from Westrock, followed by 5% in 2026 and 4% in 2027

- Improved pricing, cost synergies and consolidation of Westrock resulting in EBITDA margins of around 16% in 2025, 17% in 2026, 17.5% in 2027 and 18% in 2028

- Capex at 7.7% of revenue in 2025 and 7% in 2026-2028

- Yearly dividend payments at an average of 25% of net income

- No further M&As to 2028

- Cash interest and tax paid in line with management's guidance

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- A change in market conditions or financial policies, leading to Fitch-defined EBITDA net leverage above 3.0x on a sustained basis

- FCF margin below 2.5% on a sustained basis

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- EBITDA net leverage sustained below 2.0x

- Resilient FCF margin above 4%

- Consistent EBITDA margin above 20%

At 30 September 2025, Smurfit Westrock had USD615 million Fitch-adjusted cash and equivalents and an undrawn USD4.5 billion revolving credit facility due 2029. We forecast FCF margins of 0% in 2025, 1.9% in 2026, 2.7% in 2027 and 3.3% in 2028, supporting strong liquidity.

Smurfit WestRock is a leading manufacturer of paper-based packaging products with operations across 40 countries and six continents. It is the European and North American leader in corrugated packaging and consumer packaging, selling mainly to producers of fast-moving consumer goods.

Smurfit Westrock plc has an ESG Relevance Score of '4' [+] for Exposure to Social Impacts due to the benefit from the ongoing consumer preference shift to paper and cardboard packaging, away from plastic packaging, and customer demand for more sustainable packaging solutions. In addition, Smurfit WestRock benefits from ongoing growth of e-commerce that requires specific packaging, which has a positive impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Smurfit Kappa Treasury Unlimited Company

----senior unsecured; Long Term Rating; New Rating; BBB+

Smurfit Westrock Financing Designated Activity Company

----senior unsecured; Long Term Rating; New Rating; BBB+

Contacts:

Primary Rating Analyst

Piotr Szpakowski,

Director

+48 22 103 3046

piotr.szpakowski@fitchratings.com

Fitch Ratings Ireland Limited spolka z ograniczona odpowiedzialnoscia oddzial w Polsce

Marszalkowska 107, 00-110

Warsaw

Secondary Rating Analyst

Natasha Newby,

Senior Analyst

+44 16 1504 6706

natasha.newby@fitchratings.com

Committee Chairperson

Richard Barrow,

Senior Director

+44 20 3530 1256

richard.barrow@fitchratings.com

MEDIA RELATIONS: Tahmina Pinnington-Mannan, London, Tel: +44 20 3530 1128, Email: tahmina.pinnington-mannan@thefitchgroup.com

Additional information is available on www.fitchratings.com

Applicable Model

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.2.0 (1)

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