TIDMSKG
Smurfit Kappa Group plc
2014 First Quarter Results
2 May 2014: Smurfit Kappa Group plc ('SKG' or 'the Group'), one
of the world's largest integrated manufacturers of paper-based
packaging products, with operations in Europe and the Americas,
today announced results for the 3 months ending 31 March 2014.
2014 First Quarter | Key Financial Performance Measures
EUR m Q12014 Q12013 Change Q4 Change
2013
Revenue EUR1,932 EUR1,889 2% EUR2,033 (5%)
EBITDA before EUR269 EUR241 12% EUR291 (8%)
Exceptional
Items
and Share-based
Payment (1)
EBITDA Margin 13.9% 12.7% - 14.3% -
Operating Profit EUR169 EUR139 21% EUR175 (3%)
before
Exceptional Items
Profit before EUR104 EUR57 81% EUR62 66%
Income Tax
Basic EPS (cent) 28.8 14.4 100% 26.0 11%
Pre-exceptional Basic 30.8 19.8 56% 40.0 (23%)
EPS (cent)
Return on Capital 13.8% 11.7% - 13.1% -
Employed(2)
Free Cash Flow(3) EUR59 (EUR23) - EUR103 (43%)
Net Debt EUR2,640 EUR2,871 (8%) EUR2,621 1%
Net Debt to EBITDA 2.3x 2.8x - 2.4x -
(LTM)
(1) EBITDA before exceptional items and share-based
payment expense is denoted
by EBITDA throughout the remainder of
the management commentary for ease
of reference. A reconciliation of profit
for the period to EBITDA before
exceptional items and share-based payment
expense is set out on page 29.
(2) LTM pre-exceptional operating profit plus share of
associates' profit/average capital employed.
(3) Free cash flow is set out on page 8. The
IFRS cash flow is set out on page 16.
First Quarter Key points
-- Continued EPS growth year-on-year reflecting higher EBITDA and reduced
interest expense
-- Strong Free Cash Flow in the first quarter supporting committed medium
term capital allocation measures
-- Return on Capital Employed of 13.8%
-- Adoption of the Sicad I rate for our Venezuelan operations in the
first quarter
-- S&P upgrade to BB+ rating reflecting significantly improved credit
metrics
-- Proposed final 2013 dividend of 30.75 cent to be paid on 9 May
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "In terms of
the first quarter, EBITDA growth of 12% and the sharply increased
EPS year-on-year reflects a strong underlying performance in our
Americas business, price improvements in our European packaging
operations, and materially reduced financing costs as a result of
the completion of the significantly more attractive financing
structure for the Group, most of which has been completed in 2013.
This was offset by a number of factors including downtime in our
kraftliner operations at a net cost of approximately EUR8 million
and a further EUR18 million adverse impact arising mainly from the
negative currency translation adjustment as a result of the Group's
decision to translate its Venezuelan operations at the Sicad I
('Complimentary System of Foreign Currency Acquirement') rate which
was VEF 10.7 per US dollar at the end of the first quarter.
In the quarter under review, the Group reported an improved
year-on-year EBITDA margin of 13.9% and an increasingly strong
Return on Capital Employed of 13.8% further underlining SKG's
progress on achieving optimal returns through continued operating
efficiency and judicious capital investment.
European corrugated packaging demand remains reasonable with
quarter-on-quarter growth in Western Europe partially offset by
lower volumes in Eastern Europe. The first quarter was also
impacted by weakening recovered paper costs and an inventory
build-up from the year-end, resulting in recycled containerboard
price decreases which slowed down corrugated price recovery. SKG is
taking approximately 25,000 tonnes of recycled containerboard
downtime in the second quarter. Despite the current circumstances
SKG's integrated model has underpinned relatively good earnings
development in the quarter.
The Americas business is trending strongly with good earnings
progress across most of the markets. The first quarter has
delivered a strong underlying financial performance as a result of
good demand growth and the successful implementation of price
increases in the majority of countries.
Following a number of years of debt paydown, the company has
achieved its desired leverage range and is now focused on
incremental high return capital projects and accretive acquisitions
while sustaining a progressive dividend policy.
To increase the likelihood of success, additional resources have
been applied to sourcing suitable acquisitions. The combination of
efficient management of our current business and the above
mentioned initiatives will deliver earnings growth momentum. In the
context of the current economic environment, the Group continues to
expect to grow its earnings year-on-year."
About Smurfit Kappa Group
Smurfit Kappa is one of the leading producers of paper-based
packaging in the world, with around 41,000 employees in
approximately 350 production sites across 32 countries and with
revenue of EUR8 billion in 2013.
Innovation, service and pro-activity towards customers, using
sustainable resources, is our primary focus. This focus is enhanced
through being an integrated producer, with our packaging plants
sourcing the major part of their raw materials from our own paper
mills. We are the European leader in paper-based packaging,
operating in 21 countries selling products including corrugated,
containerboard, bag-in-box, solidboard and solidboard packaging. We
have a growing base in Eastern Europe in many of these product
areas. We also have a key position in other product/market segments
including graphicboard, MG paper and sack paper. We are the only
large-scale pan-regional player in the Americas, operating in 11
countries in total in North, Central and South America.
Forward Looking Statements
Some statements in this announcement are forward-looking. They
represent expectations for the Group's business, and involve risks
and uncertainties. These forward-looking statements are based on
current expectations and projections about future events. The Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because
they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the Group's control, actual
results or performance may differ materially from those expressed
or implied by such forward-looking statements.
Contacts
Seamus Murphy FTI Consulting
Smurfit Kappa Group
Tel: +353 1 202 71 80 Tel: +353 1 663 36 80
E-mail: ir@smurfitkappa.com E-mail: smurfitkappa@fticonsulting.com
2014 First Quarter | Performance Overview
The Group has successfully delivered a 2% increase in revenues
and a 12% increase in EBITDA in the first quarter year-on-year.
This performance was driven by steady European volumes,
year-on-year box price increases and a strong underlying
performance in the Americas. While there has been a good start to
the year, the expected macroeconomic uplift in Europe has not yet
happened. In addition, the approximately 40,000 tonnes of technical
downtime in the European kraftliner system and the adoption of the
Sicad I exchange rate for the Group's Venezuelan operations
negatively impacted on results in the first quarter.
The Group delivered steady European box volume progression
during the quarter, with volumes returning to the strong levels
reported in the first quarter of 2013. While SKG has no operations
in Ukraine, volumes in Eastern Europe were negatively affected by
political unrest in that region. However, Eastern Europe comprises
only 8% of Group volumes.
European box price increases of 2% have been achieved
year-on-year following a strong pricing environment for recycled
containerboard in 2013. However, it has proven difficult to
progress further price recovery as the momentum in recycled
containerboard pricing slowed in the quarter.
The Group's primary raw material, Old Corrugated Containers
('OCC'), has seen price decreases of EUR5 per tonne to the end of
April. However, pricing of OCC is expected to increase in the
medium term as slowly recovering global economies bolster demand.
Recycled containerboard pricing will benefit from this upward cost
pressure while inventory levels will reduce as a result of
improving demand. In the year to date recycled containerboard
prices have decreased by approximately EUR25 per tonne.
Following some substitution into high quality recycled
containerboard in 2013 the European kraftliner market has become
more stable. However, at this time conditions are not strong enough
to justify the price increase that was sought in April. Demand is
currently reasonable, supported by the regulatory requirement for
virgin fibre packaging in the food and agriculture sectors, and the
inability of recycled grades to fully match kraftliner in terms of
strength and print quality. Kraftliner remains a fundamental
component of the sustainable fibre system. SKG's strong position as
the European market leader with approximately 1.6 million tonnes of
production per annum provides SKG with a strategic advantage and
offers diversification, security of supply and potential for higher
returns through the cycle.
As noted in its fourth quarter results release the Group has
been assessing the most appropriate rate at which to consolidate
its Venezuelan operations. The Group has concluded that the Sicad I
rate is the most appropriate rate to consolidate its Venezuelan
operations and has adopted that rate as at 31 March 2014. The Sicad
I rate as at 31 March 2014 was VEF 10.7 per US dollar. The
application of the Sicad I rate has resulted in a reduction in the
Group's net assets of approximately EUR172 million and its cash
balances of EUR69 million. During the quarter the underlying
Venezuelan operations continued to operate well with some volume
growth in the business.
The overall Americas segment continues to perform strongly with
average volume growth of 3% year-on-year, which will strengthen as
the year progresses. The Group's Colombian business had a strong
quarter with a 10% increase in corrugated volumes year-on-year and
solid price recovery as the local economy returned to growth. The
Group will complete the acquisition of a local corrugated packaging
business "Corrumed" in the second quarter. Similarly, Mexico's
improving economy drove a 3% increase in SKG's underlying volumes.
In spite of a 23% devaluation of the Argentinian Peso, the Group's
operations in the country performed better year-on-year with
improved cost and price efficiencies. Smurfit Kappa Orange County
('SKOC') reported a 22% increase in EBITDA year-on-year due to
strong volume growth of 7% at improved price levels and the further
flow of integration benefits to the business.
Reflecting SKG's continued focus on cash, the Group's working
capital to sales ratio was 7.3% in the first quarter 2014. This
compares favourably to a quarter one average of 9.3% between 2008
and 2013. The Group's net debt to EBITDA ratio at 2.3 times remains
well within the target range of between two to three times and the
average debt maturity profile at 4.9 years provides security of
funding at historically low rates.
Supported by a robust integrated business model, an increasingly
innovative market offering, an enhanced capital structure and
proven financial discipline, the Group expects to deliver strong
free cash flow generation, which will provide SKG with the capacity
to deliver long-term value for shareholders through 2014 and
beyond.
2014 First Quarter | Financial Performance
At EUR1,932 million, revenue was 2% higher year-on-year in the
first quarter of 2014 with an increase of EUR43 million from
EUR1,889 million in 2013. Underlying revenue increased by EUR139
million compared to the same period last year, with 2014 revenue
including acquisitions of EUR7 million offset by net negative
currency movements and hyperinflation adjustments of EUR103
million.
The Group's first quarter EBITDA of EUR269 million, was EUR28
million higher than the first quarter of 2013, a 12% increase.
Allowing for net currency movements and hyperinflation adjustments
of EUR17 million and the contribution from recent acquisitions, the
underlying year-on-year increase was EUR44 million. The negative
currency movements arose mainly in Venezuela as a result of the
change to the Sicad I rate.
Exceptional charges of EUR9 million in the first quarter's 2014
operating profit related to losses on the translation of
non-Bolivar denominated payables in Venezuela following the change
to the Sicad I rate. Exceptional charges of EUR13 million were
included in the first quarter's 2013 operating profit, EUR12
million of which related to losses on the translation of
non-Bolivar denominated payables following the official devaluation
of the Venezuelan Bolivar in February 2013. The remainder of the
exceptional charges in 2013 related to additional SKOC
reorganisation costs.
The Group's basic EPS increased by 100% in the first quarter of
2014 to 28.8 cent compared to 14.4 cent in 2013. This was primarily
driven by an improved EBITDA performance coupled with lower costs
of financing year-on-year. On a pre-exceptional basis, SKG's EPS
for the first quarter of 2014 increased to 30.8 cent compared to
19.8 cent in the same period in 2013, a 56% increase
year-on-year.
2014 First Quarter | Free Cash Flow
The Group reported a free cash inflow of EUR59 million in the
first quarter of 2014, compared to an outflow of EUR23 million in
the first quarter of 2013. This improvement of EUR82 million was
primarily driven by higher EBITDA, lower cash interest and a lower
working capital outflow in the quarter.
Capital expenditure of EUR66 million in the first quarter of
2014 equated to 71% of depreciation, compared to 76% in the first
quarter of 2013. For the full year 2014, the Group will maintain
its underlying capital expenditure at 100% of depreciation with
additional expenditure of approximately EUR50 million per annum for
three years on short payback projects. As previously announced,
this additional expenditure will provide incremental EBITDA in
excess of EUR70 million per annum exiting 2016.
In the first quarter there was a working capital outflow of
EUR57 million, compared to EUR98 million in the same period of
2013. This reflects the benefits of the Group's consistent focus on
working capital discipline and the development of integrated
inventory and distribution management systems across its global
network of facilities. The Group reported a working capital to
sales ratio of 7.3% in the first quarter of 2014, compared to 9.3%
for the first quarter of 2013.
Cash interest of EUR39 million in the first quarter of 2014 was
EUR15 million lower than the first quarter of 2013, reflecting the
significantly reduced financing costs secured through multiple
refinancing transactions in 2012 and 2013.
Tax payments of EUR26 million in the first quarter of 2014 were
EUR10 million higher than in the same period of 2013 primarily due
to higher cash tax payments in the Americas.
2014 First Quarter | Capital Structure
The Group's first quarter net debt remained largely unchanged
compared with the prior period, rising EUR19 million to EUR2,640
million. This increase is net of the reduction of EUR69 million in
cash balances as a result of the adoption of the Sicad I exchange
rate. It reflects steady operational performance and consistent
cash flow management. The decrease of EUR231 million year-on-year
reflects SKG's significant debt paydown in the last twelve months,
further strengthening the Group's gearing which is now increasingly
robust relative to its peers. At the end of the quarter the Group's
net debt to EBITDA ratio was 2.3 times comfortably within its
objective of remaining within two to three times EBITDA through the
cycle.
On 28 February, S&P upgraded the Group's credit rating to
BB+ from BB. This reflected the Group's consistently strong
operating performance and materially improved credit metrics. The
Group's capital structure is within its stated range and supports
its growth objectives. The Group continues to maintain an active
approach to capital structure management with the objective of
accessing the market at the most opportune times to achieve
long-term interest cost reductions and diversification of
funding.
The Group's average debt maturity profile at the end of March
2014 was 4.9 years, compared to 5.6 years at the end of the first
quarter 2013. In spite of the redemption of the 2017 EUR500 million
bond in November 2013 the Group's cash balances remain strong, with
undrawn credit facilities of approximately EUR482 million and
approximately EUR440 million of cash on its balance sheet at the
end of the first quarter.
Cost Take-out Programme
The Group announced the initiation of a further EUR100 million
cost take-out programme for 2014 as part of its full year results
in February 2014. This programme, as in prior years, is aimed at
tackling inflationary pressures in the business' core cost areas
such as raw materials usage, energy efficiency and labour costs.
Ancillary projects such as facility lay-out, process design and
waste management are also undertaken to identify and minimise
overheads where possible.
In the first quarter of 2014, SKG has delivered EUR32 million of
cost take-out initiatives and is pleased to confirm its full year
expectation of EUR100 million.
2014 First Quarter | Commercial Offering and Innovation
SKG has developed a future-thinking, commercial approach to
innovation, collaborating with customers to create new market
opportunities.
SKG brings its customers the best of its experience, including
excellence and expertise from within the packaging industry but
also fresh perspectives from backgrounds as diverse as aeronautical
engineering and computer game design. The Group has more than 750
designers, hundreds of technical staff, engineers and project
managers across 32 countries, and its comprehensive range of
bespoke Innotools gives its customers direct access to shared
information to inspire new packaging solutions. The Group's
InnoBook contains more than 5,500 of its most successful designs
and is growing daily.
SKG roots its creative innovations in the science and experience
of how packaging behaves in the supply chain and in the
marketplace. Analysing more than 15 million packages globally each
year, the Group provides its customers with unrivalled data to make
informed decisions. SKG's facilities test and evaluate every part
of the packaging lifecycle, integral to its drive to ensure
defect-free production. Within the Group's corrugated operations
all quality feedback is collected and assessed via a fully
integrated application called ZOOM! and boxes are camera-inspected
during production using innovative Vision technology.
SKG uses the science of virtual reality to replicate the shopper
environment and bring new packaging designs to store faster and
more effectively than ever before. The Group's 3D Store Visualiser
allows customers to create a real-life shopper experience, viewing
the proposed designs in a virtual store. Earlier this year the
Group launched an exclusive partnership with "Eyesee", which has
developed unique tracking technology to test hundreds of customers'
visual reactions to new packaging designs online. Within weeks the
Group is able to test new packaging within retail environments
created in the 3D Store Visualiser with representative groups of
shoppers, analysing product appeal, consistency and emotional
response. Combining science and creativity in this way allows SKG
to make it right before making it real, optimising its total
consumer impact before formal launch, and ultimately saving
customers time and money through innovation.
SKG's largest customers are supporting its drive to
revolutionise packaging development within the industry, working
together to create more innovative, sustainable and cost-effective
solutions, to the benefit of their business, their brands and their
customers.
Sustainability
SKG sees sustainability as a key business driver providing
challenges and business opportunities. It is therefore one of its
key platforms for differentiation in a competitive market. In 2013
the Group again broadened its commitment to, and delivered proof
of, its dedication to sustainability by continuing to invest in the
environment, adding measurable long-term commitments to its
existing commitments and by achieving two of its existing long-term
commitments several years ahead of schedule.
The Group's 2014 Sustainability Report will be published in June
2014 and will be available on the Group's website at
www.smurfitkappa.com.
2014 First Quarter | Regional Performance Review
Europe
The Group's European business reported a 12% year-on-year
increase in EBITDA to EUR199 million in the first quarter,
reflecting improved pricing across both containerboard and
corrugated operations. The improved performance is evident in the
segment's EBITDA margin which increased to 13.2% in the first
quarter 2014 from 12.2% in the same period in 2013. This result was
achieved in spite of approximately 40,000 tonnes of maintenance
downtime being taken in the Group's kraftliner operations in the
quarter, with an approximate net impact on EBITDA of EUR8
million.
European corrugated prices increased by 1% during the quarter,
bringing total increases achieved as part of the current corrugated
price recovery initiative to 2%. Following evidence of
containerboard pricing weakness in the first quarter, the
previously stated target of 5% became more difficult to achieve in
spite of steady demand throughout the period.
Following a prolonged period of stability through 2013 European
OCC prices have shown some recent signs of weakening with a
decrease of EUR5 per tonne in April. Chinese demand for imports of
recovered fibre has decreased by 5% year-on-year in the first
quarter of 2014. However, total imports rose by 4% in March
year-on-year and in excess of five million tonnes of containerboard
capacity will be added in China over the course of the year, which
will require incremental imports of recovered fibre due to
insufficient domestic supplies. Demand for OCC in Europe remains
good, and the US is becoming an increasingly large consumer of OCC
with a number of recycled facilities coming on line or being
announced in the last twelve months.
The Group's recycled containerboard operations operated very
well in the first quarter benefiting from strong uptime, stable
recovered paper costs and higher sales prices. However, the
industry began to experience pricing weakness in March and April of
an aggregated EUR25 per tonne. This was due to relatively high
inventory levels caused by increased production at the mills over
the Christmas / New Year period and the impact in the market of the
introduction of new capacity in the first quarter.
In kraftliner, the steady decline in pricing abated in March
2014 when prices stabilised. Demand conditions were not strong
enough to achieve the announced price increase of EUR50 per tonne
from 1 April. However, prices are stable at current levels. The
strong market fundamentals in the grade remain unchanged with
steady demand complemented by a European market structurally short
by over one million tonnes per annum. The recently announced
conversion of Stora Enso's Varkaus mill to kraftliner will not
impact the market until 2016. Despite consistent speculation to the
contrary, US imports to Europe were down by 20% year-on-year for
the last twelve months and this has contributed to the maintenance
of a solid market for the grade in the year to date.
Markets for the Group's European sack paper improved in the
quarter, with volume growth year-on-year. The Group's Machine
Glazed ('MG') paper mill in Spain also experienced good growth, and
SKG is announcing an expansion of its MG capacity in this mill,
replacing a 60,000 tonne containerboard machine with 30,000 tonnes
of new MG capacity, building on its existing leading market
position in this attractive specialty grade. The Group's bag-in-box
operations are also continuing to experience strong volume growth,
and are on track to begin operating a new EUR28 million bag and tap
facility in Spain by the third quarter of 2014 in order to respond
to continuing demand growth.
The Americas
In the first quarter, the Americas underlying performance was
strong with average volume growth of 3% and generally good pricing
dynamics across the region. The segment reported EBITDA of EUR75
million during the period, a 13% increase year-on-year, and macro
environments are improving in the Group's main markets of Colombia,
Mexico and the US. Compared to the fourth quarter 2013, EBITDA has
decreased by 24% primarily due to the adoption of the Sicad I rate
for translation of the Group's Venezuelan operations. This rate is
expected to vary over time in line with the published rate.
The Colombian economy is performing well in 2014 with local
industries regaining competitiveness as the currency weakened
throughout the first quarter. SKG's operations have benefited as a
result, with a 10% improvement in corrugated volumes year-on-year
and solid pricing progression compensating for some price weakness
in the second half of 2013. Furthermore, the country's cost
take-out programme and recent capital expenditure projects are
proceeding to plan, with a threefold increase in cost take-out
year-on-year and key capital projects performing in line with
expectations.
The Argentinian market remains challenging, with a 23%
devaluation in the first quarter impacting earnings while inflation
in the country is having a detrimental impact on consumer spending.
However, against that backdrop the Group's operations are
performing well with cost and pricing efficiencies mitigating the
impact of the devaluation and relatively high inflation.
The Group's Mexican operations delivered a 4% year-on-year
improvement in EBITDA following higher volumes and prices in the
quarter. Underlying corrugated volumes increased by 3% year-on-year
and containerboard pricing is steady at the higher rate achieved in
the fourth quarter 2013. Mexican operations were negatively
impacted by higher energy costs as a result of poor weather
conditions in the US. However, this was offset by a small land sale
and improved cost take-out action.
SKG's underlying Venezuelan operations are performing well in
spite of a continuing difficult operating environment, and
relations with the Government authorities are making some positive
progress. Corrugated volumes have progressed well year-on-year and
cost reduction actions are supporting earnings performance.
SKOC has continued to perform strongly in 2014 with a 22%
year-on-year increase in EBITDA. Corrugated volumes in the Mexican
business improved sharply, up 20% in the period, while the US
business has continued to focus on the "bottom-slicing" of lower
margin sheet and box volumes. The 305,000 ton mill in Forney, Texas
was hindered somewhat by the impact of the extreme cold weather on
operating efficiency in January. However, it benefited from
favourable OCC pricing.
The America's segment provides important geographic diversity to
the Group's operations and remains a key target for acquisitions as
SKG seeks to grow its earnings and exposure to these higher growth
markets.
Summary Cash Flow
Summary cash flows(1) for the first quarter are set out in the
following table.
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Pre-exceptional EBITDA 269 241
Exceptional items (9) (13)
Cash interest expense (39) (54)
Working capital change (57) (98)
Current provisions (1) (3)
Capital expenditure (66) (69)
Change in capital creditors 1 7
Tax paid (26) (16)
Sale of fixed assets 2 -
Other (15) (18)
Free cash flow 59 (23)
Share issues 2 3
Purchase of own shares (13) (15)
Purchase of investments - (3)
Dividends (1) -
Net cash inflow/(outflow) 47 (38)
Net debt acquired - (1)
Deferred debt issue costs amortised (2) (9)
Currency translation adjustments (64) (31)
Increase in net debt (19) (79)
(1) The summary cash flow is prepared on a different
basis to the Consolidated Statement of
Cash Flows under IFRS ('IFRS cash flow').
The principal differences are as follows:
(a) The summary cash flow details movements in net debt. The IFRS
cash flow details movements in cash and cash equivalents.
(b) Free cash flow reconciles to cash generated from
operations in the IFRS cash flow as shown below.
(c) The IFRS cash flow has different sub-headings
to those used in the summary cash flow.
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Free cash 59 (23)
flow
Add Cash interest 39 54
back:
Capital expenditure (net of change in capital creditors) 65 62
Tax payments 26 16
Less: Sale of fixed assets (2) -
Profit on sale of assets and businesses - non-exceptional (1) (2)
Non-cash financing activities - (1)
Cash generated from 186 106
operations
Capital Resources
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the revolving credit facility. The
Group's primary uses of cash are for funding day to day operations,
capital expenditure, debt service, dividends and other investment
activity including acquisitions.
At 31 March 2014, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR138.4 million and STGGBP60.7 variable
funding notes issued under the EUR250 million accounts receivable
securitisation programme maturing in November 2015, together with
EUR175 million variable funding notes issued under the EUR175
million accounts receivable securitisation programme maturing in
April 2018.
Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018,
EUR500 million 7.75% senior notes due 2019, EUR400 million 4.125%
senior notes due 2020 and EUR250 million senior floating rate notes
due 2020. Smurfit Kappa Acquisitions and certain subsidiaries are
also party to a senior credit facility. At 31 March 2014, the
Group's senior credit facility comprised term drawings of EUR700.9
million and US$64.4 million under the amortising Term A facility
maturing in 2018. In addition, as at 31 March 2014, the facility
included a EUR625 million revolving credit facility of which EUR125
million was drawn in revolver loans with a further EUR18 million in
operational facilities including letters of credit drawn under
various ancillary facilities.
The following table provides the range of interest rates as of
31 March 2014 for each of the drawings under the various senior
credit facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term A Facility EUR 2.216% - 2.313%
USD 2.154%
Revolving Credit Facility EUR 2.050%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
On 24 July 2013, the Group successfully completed a new
five-year unsecured EUR1,375 million refinancing of its senior
credit facility comprising a EUR750 million term loan with a
current margin of 2.00% and a EUR625 million revolving credit
facility with a current margin of 1.75%. The term loan is repayable
EUR125 million on 24 July 2016, EUR125 million 24 July 2017 with
the balance of EUR500 million repayable on the maturity date. In
connection with the refinancing, the collateral securing the
obligations under the Group's various outstanding senior notes and
debentures was also released and the senior notes and debentures
are therefore now unsecured. The new unsecured senior credit
facility is supported by substantially the same guarantee
arrangements as the old senior credit facility. The existing senior
notes and debentures likewise continue to have substantially
similar guarantee arrangements as supported those instruments prior
to the refinancing.
In addition, on 3 July 2013, the Group put in place a new
five-year trade receivables securitisation programme of up to
EUR175 million utilising the Group's receivables in Austria,
Belgium, Italy and the Netherlands. The programme, which has been
arranged by Rabobank and carries a margin of 1.70%, complements the
Group's existing EUR250 million securitisation programme.
On 4 November 2013, the Group completed the redemption of its
EUR500 million 7.25% senior notes due 2017, utilising cash and
existing credit facilities arranged as part of the senior credit
facility and trade receivables securitisation transactions.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding
activities and its operations in different foreign currencies.
Interest rate risk exposure is managed by achieving an appropriate
balance of fixed and variable rate funding. As at 31 March 2014,
the Group had fixed an average of 68% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised mainly EUR500 million
7.75% senior notes due 2019, EUR200 million 5.125% senior notes due
2018, US$300 million 4.875% senior notes due 2018 (US$50 million
swapped to floating), EUR400 million 4.125% senior notes due 2020
and US$292.3 million 7.50% senior debentures due 2025. In addition
the Group also had EUR899 million in interest rate swaps with
maturity dates ranging from April 2014 to January 2021.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR interest rates for these borrowings increase by one percent,
the Group's interest expense would increase, and income before
taxes would decrease, by approximately EUR11 million over the
following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR4 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the
management process throughout the Group. Risks are identified,
evaluated and appropriate risk management strategies are
implemented at each level.
The key business risks are identified by the senior management
team. The Board in conjunction with senior management identifies
major business risks faced by the Group and determines the
appropriate course of action to manage these risks.
The principal risks and uncertainties faced by the Group were
outlined in its 2013 annual report which is available on its
website www.smurfitkappa.com.
The principal risks and uncertainties remain substantially the
same for the near term except for the following:
-- The Group is exposed to currency exchange rate fluctuations and in
addition, to exchange controls in Venezuela. Currently,
Venezuela
operates a number of alternative exchange mechanisms, the
official
rate (VEF 6.3 per US dollar) ('Official rate'), Sicad I and
Sicad II.
Contrary to general market expectations, in January 2014 the
Government announced that it would not be devaluing the Official
rate
but access to the Official rate would only be available to
certain
priority sectors. Those not in these priority sectors would
access
dollars through the Complimentary System of Foreign Currency
Acquirement ('Sicad'). The Group is awaiting clarification on
whether
it will be part of the priority sector, the non-priority sector
or
both sectors. The most recent Sicad I rate is VEF 10.0 per US
dollar
and it is expected that this rate is likely to vary over time.
As set
out on page 27 the Group has changed the rate at which it
consolidates
its Venezuelan operations ('SKCV') from the Official rate to the
Sicad
I rate as at 31 March 2014 (VEF 10.7 per US dollar). In March
2014 a
new foreign exchange trading platform began operation (Sicad II)
which
permits foreign exchange barter transactions in the private
sector
with the most recent Sicad II rate being VEF 50.0 per US dollar
and
this rate is also likely to vary over time. In this multiple
foreign
exchange rate system there is a risk that the Sicad I rate
will
devalue further resulting in re-measurement of the local
currency
denominated net monetary assets and the local earnings and
increase
the cost of importing goods required to run the business.
-- The Venezuelan government have also announced that companies can only
seek price increases if they have clearance that their margins
are
within certain guidelines. SKCV is operating within these
guidelines.
There is a risk that if SKCV cannot implement price increases in
a
timely manner to cover the cost of its increasing raw material
and
labour costs as a result of inflation and the devaluing currency
it
would have an adverse effect on its results of operations. In
this
volatile environment the Group continues to closely monitor
developments, assess evolving business risks and actively manage
its
investments.
Consolidated Income Statement - First Quarter
3 months to 31-Mar-14 3 months to 31-Mar-13
Unaudited Unaudited
Pre- Exceptional Total Pre- Exceptional Total
exceptional 2014 2014 exceptional 2013 2013
2014 2013
EURm EURm EURm EURm EURm EURm
Revenue 1,932 - 1,932 1,889 - 1,889
Cost of (1,359) - (1,359) (1,363) - (1,363)
sales
Gross 573 - 573 526 - 526
profit
Distribution (152) - (152) (152) - (152)
costs
Administrative (252) - (252) (235) - (235)
expenses
Other - (9) (9) - (13) (13)
operating
expenses
Operating 169 (9) 160 139 (13) 126
profit
Finance (63) - (63) (79) (6) (85)
costs
Finance 2 5 7 10 6 16
income
Profit 108 (4) 104 70 (13) 57
before
income tax
Income tax (38) (24)
expense
Profit for 66 33
the
financial
period
Attributable
to:
Owners 65 33
of the
parent
Non-controlling 1 -
interests
Profit for 66 33
the
financial
period
Earnings
per
share
Basic 28.8 14.4
earnings
per
share -
cent
Diluted 28.6 14.3
earnings
per share
- cent
Consolidated Statement of Comprehensive Income - First
Quarter
3 months to 3 months to
31-Mar-14 31-Mar-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 66 33
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (234) (114)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 4 5
- New fair value adjustments into reserve (9) 8
- Movement in deferred tax - (1)
(239) (102)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (21) 42
- Movement in deferred tax 3 (9)
(18) 33
Total other comprehensive expense (257) (69)
Total comprehensive expense (191) (36)
for the financial period
Attributable to:
Owners of the parent (166) (20)
Non-controlling interests (25) (16)
Total comprehensive expense (191) (36)
for the financial period
Consolidated Balance Sheet
Restated*
31-Mar-14 31-Mar-13 31-Dec-13
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 2,906 3,041 3,022
Goodwill and intangible assets 2,273 2,321 2,326
Available-for-sale financial assets 27 33 27
Investment in associates 16 17 16
Biological assets 92 120 107
Trade and other receivables 5 5 5
Derivative financial instruments - 1 1
Deferred income tax assets 197 173 203
5,516 5,711 5,707
Current assets
Inventories 707 735 712
Biological assets 9 2 10
Trade and other receivables 1,435 1,524 1,344
Derivative financial instruments 1 10 4
Restricted cash 15 8 8
Cash and cash equivalents 425 502 447
2,592 2,781 2,525
Total assets 8,108 8,492 8,232
EQUITY
Capital and reserves attributable
to the owners of the parent
Equity share capital - - -
Share premium 1,981 1,975 1,979
Other reserves (11) 349 208
Retained earnings 192 (69) 121
Total equity attributable to 2,162 2,255 2,308
the owners of the parent
Non-controlling interests 176 199 199
Total equity 2,338 2,454 2,507
LIABILITIES
Non-current liabilities
Borrowings 3,016 3,214 3,009
Employee benefits 716 681 713
Derivative financial instruments 65 44 59
Deferred income tax liabilities 182 218 214
Non-current income tax liabilities 20 16 17
Provisions for liabilities and charges 41 44 42
Capital grants 11 12 12
Other payables 7 8 9
4,058 4,237 4,075
Current liabilities
Borrowings 64 167 67
Trade and other payables 1,581 1,564 1,525
Current income tax liabilities 20 15 11
Derivative financial instruments 36 39 33
Provisions for liabilities and charges 11 16 14
1,712 1,801 1,650
Total liabilities 5,770 6,038 5,725
Total equity and liabilities 8,108 8,492 8,232
*Details of restatement are set out in Note 15.
Consolidated Statement of Changes in Equity
Attributable to the owners of the parent Non- Total
controlling equity
interests
Equity Share Other Retained Total
share premium reserves earnings
capital
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At - 1,979 208 121 2,308 199 2,507
1 January
2014
Profit for - - - 65 65 1 66
the
financial
period
Other
comprehensive
income
Foreign - - (208) - (208) (26) (234)
currency
translation
adjustments
Defined - - - (18) (18) - (18)
benefit
pension
plans
Effective - - (5) - (5) - (5)
portion
of changes
in
fair value
of cash
flow hedges
Total - - (213) 47 (166) (25) (191)
comprehensive
(expense)/income
for
the
financial
period
Shares - 2 - - 2 - 2
issued
Hyperinflation - - - 24 24 3 27
adjustment
Dividends - - - - - (1) (1)
paid
Share-based - - 7 - 7 - 7
payment
Shares - - (13) - (13) - (13)
acquired
by
SKG
Employee
Trust
At 31 March - 1,981 (11) 192 2,162 176 2,338
2014
At - 1,972 444 (159) 2,257 212 2,469
1 January
2013
Profit for - - - 33 33 - 33
the
financial
period
Other
comprehensive
income
Foreign - - (98) - (98) (16) (114)
currency
translation
adjustments
Defined - - - 33 33 - 33
benefit
pension
plans
Effective - - 12 - 12 - 12
portion
of changes
in
fair value
of cash
flow hedges
Total - - (86) 66 (20) (16) (36)
comprehensive
(expense)/income
for
the
financial
period
Shares - 3 - - 3 - 3
issued
Hyperinflation - - - 24 24 3 27
adjustment
Share-based - - 6 - 6 - 6
payment
Shares - - (15) - (15) - (15)
acquired
by
SKG
Employee
Trust
At 31 March - 1,975 349 (69) 2,255 199 2,454
2013
An analysis
of the
movements
in Other
reserves is
provided
in Note
13.
Consolidated Statement of Cash Flows
3 months to 3 months to
31-Mar-14 31-Mar-13
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 104 57
Net finance costs 56 69
Depreciation charge 80 83
Amortisation of intangible assets 7 5
Amortisation of capital grants - (1)
Share-based payment expense 7 6
Profit on purchase/sale of (1) (2)
assets and businesses
Net movement in working capital (57) (99)
Change in biological assets 6 8
Change in employee benefits (17) (23)
and other provisions
Other 1 3
Cash generated from operations 186 106
Interest paid (35) (44)
Income taxes paid:
Overseas corporation tax (net (26) (16)
of tax refunds) paid
Net cash inflow from operating activities 125 46
Cash flows from investing activities
Interest received 1 1
Additions to property, plant and (63) (60)
equipment and biological assets
Additions to intangible assets (2) (2)
(Increase)/decrease in restricted cash (8) 6
Disposal of property, plant and equipment 3 1
Purchase of subsidiaries and - (2)
non-controlling interests
Deferred consideration paid - (2)
Net cash outflow from investing activities (69) (58)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 2 3
Proceeds from bond issuance - 400
Purchase of own shares (13) (15)
Increase in interest-bearing borrowings 4 16
Payment of finance leases (1) (1)
Repayment of borrowings - (310)
Deferred debt issue costs - (6)
Dividends paid to non-controlling interests (1) -
Net cash (outflow)/inflow from (9) 87
financing activities
Increase in cash and cash equivalents 47 75
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 424 423
Currency translation adjustment (63) (20)
Increase in cash and cash equivalents 47 75
Cash and cash equivalents at 31 March 408 478
An analysis of the Net Movement in Working
Capital is provided in Note 11.
1.General Information
Smurfit Kappa Group plc ('SKG plc' or 'the Company') and its
subsidiaries (together 'SKG' or 'the Group') manufacture,
distribute and sell containerboard, corrugated containers and other
paper-based packaging products such as solidboard and graphicboard.
The Company is a public limited company whose shares are publicly
traded. It is incorporated and tax resident in Ireland. The address
of its registered office is Beech Hill, Clonskeagh, Dublin 4,
Ireland.
2.Basis of Preparation
The consolidated financial statements of the Group are prepared
in accordance with International Financial Reporting Standards
('IFRS') issued by the International Accounting Standards Board
('IASB') and adopted by the European Union ('EU'); and, in
accordance with Irish law.
The financial information presented in this report has been
prepared to comply with the requirement to publish an 'Interim
management statement' for the first quarter, in accordance with the
Transparency Regulations. The Transparency Regulations do not
require Interim management statements to be prepared in accordance
with International Accounting Standard 34 - 'Interim Financial
Information' ('IAS 34'). Accordingly the Group has not prepared
this financial information in accordance with IAS 34.
The financial information has been prepared in accordance with
the Group's accounting policies. Full details of the accounting
policies adopted by the Group are contained in the financial
statements included in the Group's Annual Report for the year ended
31 December 2013 which is available on the Group's website
www.smurfitkappa.com. The accounting policies and methods of
computation and presentation adopted in the preparation of the
Group financial information are consistent with those described and
applied in the Annual Report for the financial year ended 31
December 2013.
There are a number of changes to IFRS issued and effective from
1 January 2014 which include IFRS 10, Consolidated Financial
Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of
Interests in Other Entities,IAS 27, Separate Financial Statements,
and IAS 28, Investments in Associates and Joint Ventures. They do
not have an effect on the condensed interim Group financial
information included in this report.
The condensed interim Group financial information includes all
adjustments that management considers necessary for a fair
presentation of such financial information. All such adjustments
are of a normal recurring nature. Some tables in this report may
not add correctly due to rounding.
The condensed interim Group financial information does not
constitute full group accounts within the meaning of Regulation
40(1) of the European Communities (Companies: Group Accounts)
Regulations, 1992 of Ireland insofar as such group accounts would
have to comply with all of the disclosure and other requirements of
those Regulations. Full Group accounts for the year ended 31
December 2013 will be filed with the Irish Registrar of Companies
in due course. The audit report on those Group accounts was
unqualified.
3.Segmental Analyses
The Group has determined reportable operating segments based on
the manner in which reports are reviewed by the chief operating
decision maker ('CODM'). The CODM is determined to be the executive
management team responsible for assessing performance, allocating
resources and making strategic decisions. The Group has identified
two reportable operating segments: 1) Europe and 2) The
Americas.
The Europe segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Americas segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries
and the operations of Smurfit Kappa Orange County ('SKOC').
Inter-segment revenue is not material. No operating segments have
been aggregated for disclosure purposes.
3.Segmental Analyses (continued)
Segment profit is measured based on earnings before interest,
tax, depreciation, amortisation and share-based payment expense
('EBITDA before exceptional items').
3 months to 31-Mar-14 3 months to 31-Mar-13
Europe The Total Europe The Total
Americas Americas
EURm EURm EURm EURm EURm EURm
Revenue and Results
Revenue 1,508 424 1,932 1,457 432 1,889
EBITDA before 199 75 274 177 66 243
exceptional
items
Segment exceptional - (9) (9) - (13) (13)
items
EBITDA after 199 66 265 177 53 230
exceptional
items
Unallocated centre (5) (2)
costs
Share-based payment (7) (6)
expense
Depreciation and (86) (91)
depletion (net)
Amortisation (7) (5)
Finance costs (63) (85)
Finance income 7 16
Profit before 104 57
income tax
Income tax expense (38) (24)
Profit for the 66 33
financial
period
4.Exceptional Items
3 months to 3 months to
The following items are regarded 31-Mar-14 31-Mar-13
as exceptional in nature:
EURm EURm
Currency trading loss on change 9 12
in Venezuelan translation rate
Reorganisation and restructuring costs - 1
Exceptional items included 9 13
in operating profit
Exceptional finance costs - 6
Exceptional finance income (5) (6)
Exceptional items included (5) -
in net finance costs
Exceptional items charged within operating profit in the first
quarter of 2014 amounted to EUR9 million and related to losses on
the translation of non-Bolivar denominated payables following the
Group's decision to translate its Venezuelan operations at the
Sicad I rate. The translation loss reflected the higher cost to its
Venezuelan operations of discharging these payables.
Exceptional finance income in the first quarter of 2014
comprised a gain of EUR5 million in Venezuela on the retranslation
of the US dollar denominated intra-group loans to the Sicad I
rate.
Exceptional items charged within operating profit in the first
quarter of 2013 amounted to EUR13 million, over EUR12 million of
which related to losses on the translation of non-Bolivar
denominated payables following the devaluation of the Venezuelan
Bolivar in February of that year. The translation loss reflected
the higher cost to the Group's Venezuelan operations of discharging
these payables. The remainder of less than EUR1 million was in
respect of SKOC reorganisation and restructuring costs.
Exceptional finance costs in the first quarter of 2013 comprised
an offsetting charge of EUR6 million in respect of the accelerated
amortisation of deferred debt issue costs and a gain of EUR6
million in Venezuela on the value of US dollar denominated
intra-group loans, following the devaluation of the Bolivar. The
accelerated amortisation of deferred debt issue costs arose from
the repayment of part of the senior credit facility.
5.Finance Cost and Income
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Finance cost:
Interest payable on bank loans and overdrafts 13 21
Interest payable on other borrowings 29 37
Exceptional finance costs associated - 6
with debt restructuring
Foreign currency translation loss on debt 3 8
Fair value loss on derivatives 1 -
not designated as hedges
Net interest cost on net pension liability 7 7
Net monetary loss - hyperinflation 10 6
Total finance cost 63 85
Finance income:
Other interest receivable (1) (1)
Foreign currency translation gain on debt (1) -
Exceptional foreign currency translation gain (5) (6)
Fair value gain on derivatives - (9)
not designated as hedges
Total finance income (7) (16)
Net finance cost 56 69
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Current tax:
Europe 25 8
The Americas 16 15
41 23
Deferred tax (3) 1
Income tax expense 38 24
Current tax is analysed as follows:
Ireland 2 1
Foreign 39 22
41 23
Income tax recognised in the Consolidated Statement of
Comprehensive Income
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Arising on actuarial (loss)/gain (3) 9
on defined benefit plans
Arising on qualifying derivative - 1
cash flow hedges
(3) 10
The EUR14 million increase in the income tax expense compared to
2013 is predominately explained by an increase in earnings and a
change to the geographical mix of those earnings, as well as by a
non-reoccurring tax benefit in Italy in 2013.
There is no income tax expense associated with exceptional items
in 2014, compared to a EUR1 million credit in 2013.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Current service cost 12 13
Past service cost 1 -
Net interest cost on net pension liability 7 7
Defined benefit cost 20 20
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR13 million (2013: EUR13
million). Net interest cost on net pension liability of EUR7
million (2013: EUR7 million) is included in finance costs in the
Consolidated Income Statement.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
31-Mar-14 31-Dec-13
EURm EURm
Present value of funded or partially (1,905) (1,851)
funded obligations
Fair value of plan assets 1,677 1,625
Deficit in funded or partially funded plans (228) (226)
Present value of wholly unfunded obligations (488) (487)
Net pension liability (716) (713)
The employee benefits provision has increased from EUR713
million at 31 December 2013 to EUR716 million at 31 March 2014.
8.Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the parent by the weighted average
number of ordinary shares in issue during the period.
3 months to 3 months to
31-Mar-14 31-Mar-13
Profit attributable to the owners 65 33
of the parent (EUR million)
Weighted average number of ordinary 227 228
shares in issue (million)
Basic earnings per share (cent) 28.8 14.4
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares which comprise
convertible shares issued under the management equity plans.
3 months to 3 months to
31-Mar-14 31-Mar-13
Profit attributable to the owners 65 33
of the parent (EUR million)
Weighted average number of ordinary 227 228
shares in issue (million)
Potential dilutive ordinary 2 2
shares assumed (million)
Diluted weighted average ordinary 229 230
shares (million)
Diluted earnings per share (cent) 28.6 14.3
Pre-exceptional
3 months to 3 months to
31-Mar-14 31-Mar-13
Profit attributable to the owners 65 33
of the parent (EUR million)
Exceptional items included in profit before 4 13
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) - (1)
Pre-exceptional profit attributable to 69 45
the owners of the parent (EUR million)
Weighted average number of ordinary 227 228
shares in issue (million)
Pre-exceptional basic earnings 30.8 19.8
per share (cent)
Diluted weighted average ordinary 229 230
shares (million)
Pre-exceptional diluted earnings 30.5 19.6
per share (cent)
9.Dividends
The Board has recommended a final dividend of 30.75 cent per
share for 2013 payable on 9 May 2014 subject to the approval of the
shareholders at the AGM.
10.Property, Plant and Equipment
Land and Plant and Total
buildings equipment
EURm EURm EURm
Three months ended 31 March 2014
Opening net book amount 1,107 1,915 3,022
Reclassifications 4 (7) (3)
Additions 1 59 60
Depreciation charge for the period (12) (68) (80)
Retirements and disposals (2) - (2)
Hyperinflation adjustment 5 3 8
Foreign currency translation adjustment (49) (50) (99)
At 31 March 2014 1,054 1,852 2,906
Year ended 31 December 2013
Opening net book amount 1,125 1,979 3,104
Reclassifications 48 (55) (7)
Additions 8 330 338
Acquisitions - 7 7
Depreciation charge for the year (51) (295) (346)
Impairments (2) (7) (9)
Retirements and disposals (1) (2) (3)
Hyperinflation adjustment 41 43 84
Foreign currency translation adjustment (61) (85) (146)
At 31 December 2013 1,107 1,915 3,022
11.Net Movement in Working Capital
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Change in inventories (19) (17)
Change in trade and other receivables (133) (133)
Change in trade and other payables 95 51
Net movement in working capital (57) (99)
12.Analysis of Net Debt
31-Mar-14 31-Dec-13
EURm EURm
Unsecured senior credit facility:
Revolving credit facility(1)- interest 119 119
at relevant interbank rate +1.75%(5)
Facility A term loan(2)- interest at 740 740
relevant interbank rate + 2.00%(5)
US$292.3 million 7.50% senior debentures 217 213
due 2025 (including accrued interest)
Bank loans and overdrafts 58 67
Cash (440) (455)
2015 receivables securitisation 210 203
variable funding notes
2018 receivables securitisation 173 173
variable funding notes
2018 senior notes (including accrued interest)(3) 409 414
EUR500 million 7.75% senior notes due 505 495
2019 (including accrued interest)
EUR400 million 4.125% senior notes due 397 401
2020 (including accrued interest)
EUR250 million senior floating rate notes due 248 247
2020 (including accrued interest)(4)
Net debt before finance leases 2,636 2,617
Finance leases 4 4
Net debt including leases 2,640 2,621
(1) Revolving credit facility ('RCF') of EUR625 million
(available under the unsecured senior
credit facility) to be repaid in 2018. (a)
Revolver loans - EUR125 million, (b) loans
and overdrafts drawn under ancillary facilities-
nil and (c) other operational facilities
including letters of credit drawn under
ancillary facilities - EUR18 million.
(2) Facility A term loan ('Facility A') due to be repaid
in certain instalments from 2016 to 2018.
(3) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(4) Interest at EURIBOR + 3.5%.
(5) The margins applicable to the unsecured senior
credit facility are determined as follows:
Net debt/EBITDA ratio RCF Facility A
Greater than 3.0 : 1 2.50% 2.75%
3.0 : 1 or less but more than 2.5 : 1 2.00% 2.25%
2.5 : 1 or less but more than 2.0 : 1 1.75% 2.00%
2.0 : 1 or less 1.50% 1.75%
13.Other Reserves
Other reserves included in the Consolidated Statement of Changes
in Equity are comprised of the following:
Reverse Cash flow Foreign Share- Own Available
acquisition hedging currency based shares -for-sale Total
reserve reserve translation payment reserve
reserve reserve
EURm EURm EURm EURm EURm EURm EURm
At 575 (15) (456) 131 (28) 1 208
1 January
2014
Other
comprehensive
income
Foreign - - (208) - - - (208)
currency
translation
adjustments
Effective - (5) - - - - (5)
portion
of changes
in
fair value
of cash
flow hedges
Total - (5) (208) - - - (213)
other
comprehensive
expense
Share-based - - - 7 - - 7
payment
Shares - - - - (13) - (13)
acquired
by
SKG
Employee
Trust
Shares - - - (1) 1 - -
granted
to
participants
of the SKG
Employee
Trust
At 31 March 575 (20) (664) 137 (40) 1 (11)
2014
At 575 (26) (198) 105 (13) 1 444
1 January
2013
Other
comprehensive
income
Foreign - - (98) - - - (98)
currency
translation
adjustments
Effective - 12 - - - - 12
portion
of changes
in
fair value
of cash
flow hedges
Total - 12 (98) - - - (86)
other
comprehensive
income/(expense)
Share-based - - - 6 - - 6
payment
Shares - - - - (15) - (15)
acquired
by
SKG
Employee
Trust
At 31 March 575 (14) (296) 111 (28) 1 349
2013
14.Venezuela
Hyperinflation
As discussed more fully in the 2013 annual report, Venezuela
became hyperinflationary during 2009 when its cumulative inflation
rate for the past three years exceeded 100%. As a result, the Group
applied the hyperinflationary accounting requirements of IAS 29 -
Financial Reporting in Hyperinflationary Economies to its
Venezuelan operations at 31 December 2009 and for all subsequent
accounting periods.
The index used to reflect current values is derived from a
combination of Banco Central de Venezuela's National Consumer Price
Index from its initial publication in December 2007 and the
Consumer Price Index for the metropolitan area of Caracas for
earlier periods. The level of and movement in the price index at
March 2014 and 2013 are as follows:
31-Mar-14 31-Mar-13
Index at period end 548.3 344.1
Movement in period 10.0% 7.9%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR37 million decrease
(2013: EUR8 million decrease), pre-exceptional EBITDA EUR5 million
decrease (2013: EUR4 million decrease) and profit after taxation
EUR18 million decrease (2013: EUR15 million decrease). In 2014, a
net monetary loss of EUR10 million (2013: EUR6 million loss) was
recorded in the Consolidated Income Statement. The impact on the
Group's net assets and its total equity is an increase of EUR13
million (2013: EUR14 million increase).
Exchange Control and Devaluation
As a result of Venezuela operating a number of alternative
currency exchange mechanisms (CENCOEX (formerly known as CADIVI),
Sicad I and Sicad II) the Group has been assessing the appropriate
rate at which to consolidate the results of its Venezuelan
operations. With the introduction of Sicad I and Sicad II,
Venezuela has now become a multiple rate foreign exchange system
with three different official rates. One, the official CENCOEX rate
of VEF 6.3 per US dollar ('Official rate') is a fixed rate for
basic/essential goods. The two remaining rates are variable, Sicad
I for goods excluded from CENCOEX and the Sicad II rate for SMEs
and private individuals.
As a result of the January announcements by the Venezuelan
government that there will be no official devaluation for at least
two years, Sicad I is now intended to offer an alternative currency
exchange mechanism to foreign firms operating in Venezuela.
The Group believes that Sicad I is the more appropriate rate for
accounting and consolidation. On this basis, in accordance with
IFRS, the financial statements of the Group's operations in
Venezuela were translated using the prevailing Sicad I rate of VEF
10.7 per US dollar and the closing euro/US dollar rate of EUR1 /
US$1.38. The change from the Official rate of VEF 6.3 to VEF 10.7
(the rate prevailing at the end of the quarter) reduced the Group's
cash by approximately EUR69 million and its net assets by EUR172
million.
Control
The nationalisation of foreign owned companies or assets by the
Venezuelan government remains a risk. Market value compensation is
either negotiated or arbitrated under applicable laws or treaties
in these cases. However, the amount and timing of such compensation
is necessarily uncertain.
The Group continues to control operations in Venezuela and, as a
result, continues to consolidate all of the results and net assets
of these operations at the period end in accordance with the
requirement of IAS 27.
In 2014, the Group's operations in Venezuela represented
approximately 4% (2013: 5%) of its total assets and 11% (2013: 14%)
of its net assets. In addition, cumulative foreign translation
losses arising on its net investment in these operations amounting
to EUR539 million (2013: EUR330 million) are included in the
foreign exchange translation reserve.
15.Restatement of Prior Periods
IFRS 3, Business Combinations
As required under IFRS 3, Business Combinations, the
Consolidated Balance Sheet at 31 March 2013 has been restated for
final adjustments to the provisional fair values of the SKOC
acquisition on 30 November 2012. The effects on previously reported
financial information are shown in the table below.
Impact on Financial Statements
Previously IFRS 3 Restated
reported Adjustments
EURm EURm EURm
Consolidated Balance Sheet
At 31 March 2013
Non-current assets
Property, plant and equipment 3,013 28 3,041
Goodwill and intangible assets 2,311 10 2,321
Deferred income tax assets 171 2 173
Current assets
Inventories 747 (12) 735
Non-current liabilities
Deferred income tax liabilities 194 24 218
Other payables 7 1 8
Current liabilities
Trade and other payables 1,562 2 1,564
Provisions for liabilities 15 1 16
and charges
Supplementary Financial Information
EBITDA before exceptional items and share-based payment expense
is denoted by EBITDA in the following schedules for ease of
reference.
Reconciliation of Profit to EBITDA
3 months to 3 months to
31-Mar-14 31-Mar-13
EURm EURm
Profit for the financial period 66 33
Income tax expense 38 24
Currency trading loss on change 9 12
in Venezuelan translation rate
Reorganisation and restructuring costs - 1
Net finance costs 56 69
Share-based payment expense 7 6
Depreciation, depletion (net) and amortisation 93 96
EBITDA 269 241
Supplementary
Historical
Financial
Information
EURm Q1, 2013 Q2, 2013 Q3, 2013 Q4, 2013 FY, 2013 Q1, 2014
Group and 3,080 3,285 3,319 3,346 13,030 3,217
third
party
revenue
Third 1,889 2,019 2,016 2,033 7,957 1,932
party
revenue
EBITDA 241 271 303 291 1,107 269
EBITDA 12.7% 13.4% 15.0% 14.3% 13.9% 13.9%
margin
Operating 126 148 195 173 643 160
profit
Profit 57 70 104 62 294 104
before
income tax
Free cash (23) 95 190 103 365 59
flow
Basic 14.4 17.7 24.0 26.0 82.2 28.8
earnings
per
share -
cent
Weighted 228 229 229 229 229 227
average
number
of shares
used
in
EPS
calculation
(million)
Net debt 2,871 2,817 2,630 2,621 2,621 2,640
Net debt 2.84 2.74 2.50 2.37 2.37 2.33
to
EBITDA
(LTM)
This information is provided by Business Wire
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