TIDMSKG
30 July 2014: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 6 months ending 30
June 2014.
2014
Second
Quarter
& First
Half
| Key
Financial
Performance
Measures
EURm H1 H1 Change Q2 Q2 Change Q1 Change
2014 2013 2014 2013 2014
Revenue EUR3,947 EUR3,908 1% EUR2,015 EUR2,019 - EUR1,932 4%
EBITDA EUR564 EUR512 10% EUR295 EUR271 9% EUR269 10%
before
Exceptional
Items
and
Share-based
Payment(1)
EBITDA 14.3% 13.1% 14.6% 13.4% 13.9%
margin
Operating EUR363 EUR307 18% EUR194 EUR167 15% EUR169 15%
Profit
before
Exceptional
Items
Profit EUR228 EUR127 79% EUR124 EUR70 78% EUR104 19%
before
Income Tax
Basic EPS 62.3 32.1 94% 33.6 17.7 90% 28.8 17%
(cent)
Pre-exceptional 64.1 43.9 46% 33.3 24.1 38% 30.8 8%
Basic
EPS (cent)
Return on 14.3% 12.0% 13.8%
Capital
Employed(2)
Free Cash EUR135 EUR72 87% EUR76 EUR95 (20%) EUR59 31%
Flow(3)
Net Debt EUR2,676 EUR2,817 (5%) EUR2,640 1%
Net Debt 2.3x 2.7x 2.3x
to
EBITDA
(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 35.
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 18.
Second Quarter & Half Year Key Points
-- Pre-exceptional EPS growth of 46% year-on-year with EBITDA margin
expansion to 14.3% for the first six months
-- Robust capital structure with annualised cash interest reduced to EUR135
million
-- Strong free cash flows supporting the delivery of previously announced
capital allocation decisions
-- Interim dividend increased by 50% to 15.375 cent reflecting confidence
in future performance
-- Recycled and kraftliner containerboard price increases announced
Performance Review and Outlook
Gary McGann, Smurfit Kappa CEO, commented: "In the second
quarter the Group has delivered EPS of EUR0.34, a strong EBITDA
result of EUR295 million and continued EBITDA margin expansion.
This has been achieved in spite of weaker than expected European
containerboard pricing. The results reflect the resilience of SKG's
earnings profile underpinned by its integrated model together with
the benefit of its geographic diversity. The Group's return on
capital employed of 14.3% validates the continued judicious
approach to accretive capital investments and the continuous
delivery on its cost take-out targets.
"As a result of continued demand growth, a fundamentally stable
containerboard supply outlook and consistently high recovered fibre
costs, SKG has announced containerboard price increases from 1
August in recycled containerboard and from 1 September in
kraftliner. These initiatives will provide support to corrugated
pricing, providing scope for further corrugated price recovery into
2015.
"The Group's operations in the Americas are performing well with
volume growth expected to improve through the second half of the
year.
"The Group's particular sales approach to international
customers in both Europe and the Americas is continuing to make an
impact in these markets with customers increasingly seeking a
global and environmentally accredited partner for their packaging
solutions.
"The Group is pleased to confirm a 50% increase in the interim
dividend to 15.375 cent, reflecting confidence in its future
performance.
"The continued delivery of strong free cash flows in the first
half underpins SKG's capacity to drive its medium term capital
allocation initiatives through the cycle. With earnings growth
expected in 2014, alongside considerable cash interest reductions
year-on-year, the Group is increasingly well placed to deploy
capital to enhance returns for shareholders."
About Smurfit Kappa
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
sales revenue of EUR7.9 billion in 2013.
Innovation, service and pro-activity towards customers, using
sustainable resources, is our primary focus. This focus is enhanced
through us 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.
Check out our microsite:
www.openthefuture.infowww.smurfitkappa.com
Contacts
Seamus Murphy FTI Consulting
Smurfit Kappa
T: +353 1 202 71 80 T: +353 1 663 36 80
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2014 Second Quarter & First Half | Performance Overview
The Group's strong earnings performance in the first half
reflects the stability of the business despite short term
volatility in European containerboard prices. Through the delivery
of increasingly innovative packaging solutions to its customers,
organic and acquisition led growth in the Americas and consistent
cost take-out, SKG has fundamentally improved its business model in
recent years. Additional developments such as SKG's extensive,
customer focused differentiation initiatives and the commencement
of a three-year "quick win" capital expenditure programme will
further enhance the Group's earnings capacity.
Growth in European packaging volumes has persisted at low, but
steady levels with 1% growth in box volumes in the year to date.
While volumes shipped in France have decreased year-on-year, this
is more than offset by strong performances in Germany, the UK, and
Spain. Average corrugated pricing has remained steady over the
course of the second quarter and remains 2% higher year-on-year.
Successfully implemented recent containerboard price increase
announcements will support stable and rising corrugated prices into
2015.
In its end market of paper-based packaging solutions, the Group
seeks to constantly differentiate itself. To this end, the Group
has undertaken an extensive, customer focused differentiation
initiative over the last twelve months supported by a company-wide
engagement programme. The process has identified key areas of
opportunity to improve our understanding of the world in which
SKG's customers operate and increasingly offer innovative packaging
solutions based on their specific needs. This will be achieved
through tangible initiatives such as global training programmes for
sales executives, specific customer and market insight training and
the development of a Global Innovation Lab at Schipol Airport in
Amsterdam where we will showcase the Group's innovation and problem
solving capabilities to our customers.
Against the backdrop of a fundamentally strong containerboard
market, the Group has announced its intention to increase the
recycled containerboard price by EUR60 per tonne from 1 August.
Demand for containerboard has been strong with year-on-year growth
of 3.4% reported by CEPI for the year to April, driven by
relatively good market demand. Old Corrugated Containers ('OCC')
prices have also remained at a relatively high level which has
acted as an underpin to pricing during the recent weakness.
In kraftliner, the Group has also announced a price increase of
EUR50 per tonne effective from 1 September in the context of the
positive developments in the recycled containerboard market and the
existence of a tight kraftliner market. The Group's 1.6 million
tonne European kraftliner system provides a significant strategic
advantage as recycling rates reach upper thresholds in Europe and
recovered fibre scarcity continues to be a strategic consideration
for industry participants.
The Group's Americas segment continues to deliver strong
earnings with a 17.2% EBITDA margin in the second quarter.
Operations in Colombia and Mexico reported particularly good
performances with underlying volume increases of 6% and 3%
respectively. Market commentators expect solid growth throughout
the remainder of the year. Despite the continued challenging
economic environment in both Argentina and Venezuela remaining, the
Group is performing well in these markets.
On 3 July, the Group completed the refinancing of its EUR500
million 7.75% senior notes due 2019 with a seven-year bond at a
rate of 3.25%, thereby saving an annualised EUR23 million in
interest costs. This marks the completion of a two-year period in
which the capital structure has been comprehensively repositioned,
with the Group's average interest rate decreasing from 6.9% to 4.1%
and annualised cash interest costs decreasing by EUR100
million.
Since IPO, the Group has transformed from a leveraged to a
corporate credit profile and reduced its net debt by EUR873
million. As a corporate credit with leverage of 2.3 times net debt
to EBITDA and a maturity profile of 5.2 years, SKG is confident
that its financing structure now provides a solid platform to grow
the business and support the delivery of enhanced returns.
2014 First Half | Financial Performance
Revenue for the half year grew by 1% from EUR3,908 million in
2013 to EUR3,947 million in 2014. Underlying growth in both Europe
and the Americas increased revenues by 5%, but was partly offset by
negative currency movements. These movements primarily relate to
the Venezuelan Bolivar following the Group's adoption of the Sicad
I rate in the first quarter of 2014. This has resulted in a change
in the exchange rate used for translating the results of the
Group's Venezuelan operations from the fixed rate of US$ / VEF 6.30
to a variable rate, which stood at US$ / VEF 10.70 at 31 March 2014
and US$ / VEF 10.60 at 30 June 2014.
EBITDA for the first half of 2014 increased by EUR52 million to
EUR564 million with higher comparable earnings in both Europe and
the Americas, as well as lower costs in the Group Centre. Allowing
for net negative currency movements of EUR43 million and a
contribution of EUR2 million from net acquisitions, the underlying
move was an increase of EUR93 million (18%). The Group's margin for
the six months benefited from the relatively strong growth in
EBITDA and increased to 14.3% from 13.1% in 2013. This was also the
case in the second quarter, wherein the EBITDA margin increased to
14.6% from 13.4% in 2013.
Operating profit before exceptional items for the half year was
EUR363 million, compared to EUR307 million for the same period in
2013, an increase of 18%.
Exceptional items charged within the operating profit in the six
months to June 2014 amounted to EUR9 million and related to losses
on the translation of non-Bolivar denominated payables in Venezuela
following the change to the Sicad I rate. Exceptional items of
EUR32 million were charged in the first half of 2013, primarily
comprising a EUR15 million trading currency loss as a result of the
devaluation of the Venezuelan Bolivar in February 2013 and a EUR15
million charge relating to the closure of the Townsend Hook
containerboard machines in July 2013. The remainder of the
exceptional charges in 2013 related to additional reorganisation
costs associated with the acquisition of Smurfit Kappa Orange
Country ('SKOC').
Operating profit after exceptional items for the half year was
EUR354 million, compared to EUR275 million for the same period in
2013, an increase of 29%.
Net finance costs of EUR127 million in 2014 were EUR22 million
lower than the prior year primarily as a result of a reduced
average interest cost.
Including the Group's share of associates' profit of EUR1
million in 2014, profit before income tax was EUR228 million for
the half year 2014 compared to EUR127 million in 2013.
The Group reported an income tax expense of EUR84 million for
the first half of 2014 compared to EUR50 million for the same
period in 2013, largely explained by higher earnings, mainly in
Europe, and the effect of non-recurring tax credits in 2013.
Basic earnings per share was 62.3 cent for the half year 2014
(2013: 32.1 cent), an increase of 94% year-on-year. Adjusting for
exceptional items, pre-exceptional basic EPS was 64.1 cent (2013:
43.9 cent).
2014 Second Quarter & First Half | Free Cash Flow
Free cash flow amounted to EUR135 million in the first half of
2014 compared to EUR72 million in 2013. The increase of EUR63
million reflected higher EBITDA, lower cash interest and lower
exceptional charges, partly offset by higher capital expenditure.
At EUR76 million for the second quarter, the Group's free cash flow
was EUR19 million lower than in 2013 with higher capital outflows
and a larger increase in working capital more than offsetting the
benefit of higher EBITDA and lower cash interest.
Working capital increased by EUR117 million in the first six
months, broadly in line with 2013 levels. This outflow, which arose
primarily in Europe, resulted from an increase in debtors and, to a
lesser extent, stocks partly offset by an increase in creditors.
The working capital increase in the second quarter of 2014
reflected stronger corrugated volume growth than in the first
quarter offset somewhat by weaker containerboard pricing through
the second quarter. At June 2014 working capital amounted to EUR646
million, representing 8.0% of annualised revenue, compared to 8.7%
at the same point in 2013.
Capital expenditure amounted to EUR152 million in the first half
of 2014, approximately 78% of depreciation, compared to 75% in
2013. The Group remains committed to delivering on its increased
capital expenditure programme over the next three years.
Cash interest at EUR79 million in the first six months to June
2014 was EUR29 million lower than in 2013, reflecting the benefit
of SKG's refinancing activities in 2012 and 2013 as well as debt
paydown of EUR141 million year-on-year.
Tax payments in the first half were EUR43 million, EUR6 million
higher than the previous year, reflecting higher payments in the
Americas offset by lower payments in Europe. The tax payments in
the Group's European operations continue to benefit from historical
tax losses and tax credits.
2014 Second Quarter & First Half | Capital Structure
The Group's net debt has decreased by EUR141 million from
EUR2,817 million at June 2013 to EUR2,676 million at June 2014 as a
result of the Group's strong free cash generation during the
period. Net debt to EBITDA has decreased to 2.3 times in June 2014
from 2.7 times in the same period in 2013, and has remained broadly
flat since March 2014 despite a EUR71 million outflow in May
relating to the 2013 final dividend payment.
On 3 July, the Group completed the refinancing of its EUR500
million 7.75% senior notes due 2019 with a seven-year bond at a
rate of 3.25%, the lowest ever bond coupon achieved by SKG. The
associated exceptional finance charges totalling EUR42 million,
composed of cash and non-cash costs, will be included in the
Group's third quarter results. The transaction will save an
annualised EUR23 million in cash interest and marks the completion
of a two-year programme in which over EUR3 billion of debt has been
refinanced. As a result the Group has been fundamentally
repositioned as an unsecured corporate credit with diversified
funding sources and materially lower interest costs.
At June 2014 the average maturity profile of the Group's debt
was 5.2 years, when adjusted for the bond redemption on 3 July,
with approximately 90% maturing in 2018 and beyond. SKG's average
interest rate at the end of the second quarter of 4.1%, when
adjusted for the July bond redemption, compares to an adjusted
average rate of 5.6% at June 2013 and 6.9% at June 2012. The Group
maintains a high degree of financial flexibility with cash on the
balance sheet of EUR383 million at the end of the second quarter
(excluding cash used to redeem the Group's 7.75% senior notes) and
further undrawn credit facilities of approximately EUR481
million.
Dividends
The Board has decided to increase the 2014 interim dividend to
15.375 cent per share, a 50% increase on last year. It is proposed
to pay the interim dividend on 31 October 2014 to shareholders
registered at the close of business on 3 October 2014.
Sustainability
Sustainability and social responsibility are at the heart of how
SKG operates and interacts with stakeholders throughout the regions
and communities in which it does business. This is driven by a
long-term business focus and current opportunities to proactively
build strategic relationships with its customers through the
provision of sustainable and differentiated packaging
solutions.
The Group's vision on sustainability has been translated into a
number of key intermediate and long-term measurable targets which
are audited and reported against on an annual basis. These include
CO2 and overall waste reduction, the achievement of the highest
standards of sustainable sourcing and operational excellence and a
comprehensive code of conduct and community involvement
initiatives. In an increasingly competitive environment, the key to
future success will be to find growth opportunities that are
economically, socially and environmentally balanced.
The seventh annual Sustainability Report was published in June
2014 and provides an extensive review of the Group's sustainability
vision, its quantified targets and its progress against each
measure to date.
Cost Take-out Programme
The Group's strong and improving EBITDA margins at 14.3% in the
year to date are underpinned by the achievement of cost take-out
initiatives throughout the business which primarily offset
inflationary pressures. Almost EUR650 million in costs have been
taken out of the business since 2008 and the Group is committed to
continue the consistent delivery of cost efficiencies in future
periods.
At 30 June, SKG's 2014 cost take-out programme has delivered
cost savings of EUR50 million, predominantly in the areas of raw
material usage with further material savings in the areas of labour
and energy. The Group will deliver at least EUR100 million in cost
take-out for the full year 2014 as previously guided.
2014 Second Quarter & First Half | Regional Performance
Review
Europe
At EUR3,058 million, European revenue in the first six months
increased by 3% year-on-year with an improved underlying
performance in both corrugated and containerboard operations
together with a small contribution from the UK business CRP
acquired in 2013. European EBITDA of EUR421 million in the first
half was EUR50 million higher than the same period in 2013, a 14%
increase. This was primarily driven by a combination of higher
volumes and higher corrugated pricing than the prior year.
The Group's European box volumes have continued to grow at a low
level with 1% growth in box volumes in the quarter and year to
date, with a broadly equal number of shipping days in the year to
date 2014. Total packaging volumes have increased at a slightly
higher level as a result of a 5% increase in sheet volumes in the
first six months of the year. These volumes comprise approximately
13% of European volumes.
The Group's average corrugated prices have edged slightly
upwards throughout the second quarter and maintained the 2%
year-on-year increase achieved in the fourth quarter of 2013 and
early 2014. These price levels will be supported by positive
momentum in containerboard in the second half as producers
implement price increases from 1 August. These increases will give
further scope for corrugated price recovery in 2015.
The Group has announced a recycled containerboard price increase
of EUR60 per tonne from 1 August as a result of a good demand
backdrop and solid progress in lowering excess inventory levels
through the second quarter and into July. Throughout the year
recovered fibre costs have remained at a consistently high level
and the capacity outlook remains fundamentally stable.
From 1 September, the Group has announced a EUR50 per tonne
price increase in kraftliner following a sustained period of robust
demand alongside steady domestic European production and 3% lower
year-on-year import levels to May. The Group's kraftliner
operations deliver consistently high returns and benefit from a
strong position in a market structurally short of almost 1.2
million tonnes.
Energy costs have decreased by 11% year-on-year for the six
months to June 2014 due to falling European gas prices and improved
energy efficiencies throughout SKG's operations. Wood costs have
remained broadly in line with 2013 levels with good woodchip
availability in Scandinavia and Austria and some positive currency
effects in our Swedish operations.
The Americas
The Americas has performed well in the year to date with strong
underlying performances in the majority of the countries in which
the Group operates. However, the segment reported revenue of EUR889
million and EBITDA of EUR155 million in the first half of 2014,
representing year-on-year decreases of 7% and 4% respectively. This
primarily reflects the negative effect of adopting the Sicad I
exchange rate for SKG's Venezuelan operations, while the Group's
key operations, particularly Mexico and Colombia, performed well
with strong volume and margin expansion.
SKG's Argentinean operations reported lower volumes in the first
half as a result of a continuing challenging economic backdrop and
poorer than expected citric harvests. However, the Group has
remained focused on achieving price increases and extensive cost
efficiencies in order to offset economic headwinds.
In Colombia, volumes in the first half have increased by an
underlying 6% year-on-year as a result of strong demand growth and
some market share gains while the newly acquired Corrumed
corrugated plant has further consolidated SKG's position as market
leader. This has been achieved in conjunction with price increases
across the Group's entire product offering over the period which
has contributed to a materially improved EBITDA margin at the end
of the six months to June 2014.
The Group's SKOC business continues to perform well with higher
year-on-year EBITDA at the half year. The SKOC Mexican volumes in
the year to date were 14% higher than the same period in 2013 and
are clearly benefiting from increased activity along the border
region with the US. The completion of "bottom-slicing" with a
particular focus on the lower margin sheet business, has led to an
overall flat volume performance for SKOC for the first half
compared to 2013. However, the focus on pricing has resulted in a
2% increase in EBITDA margin and the Group expects a stronger
second half performance as a result of underlying demand growth and
improved productivity.
SKG's Mexican operations reported a 1% underlying increase in
volumes in the first six months of 2014 excluding the SKOC Mexican
volumes. The Group experienced some temporary decreases in
corrugated volumes from large customers in the second quarter.
However, this is expected to reverse and the business is well
positioned for a strong second half to the year.
The Venezuelan market remains a difficult operating environment
for multinationals. However the Group continues to operate its
business well in the country with slight volume increases
year-on-year in spite of some intermittent raw material shortages.
Positively, the authorities have been more accommodating in
providing US dollars to satisfy raw material and spare parts needs
in 2014.
Summary Cash Flow
Summary cash flows(1) for the second quarter and six months are
set out in the following table.
3 months to 3 months to 6 months to 6 months to
30-Jun-14 30-Jun-13 30-Jun-14 30-Jun-13
EURm EURm EURm EURm
Pre-exceptional 295 271 564 512
EBITDA
Exceptional items - (4) (9) (17)
Cash interest (39) (54) (79) (108)
expense
Working capital (59) (18) (117) (116)
change
Current (1) (2) (2) (5)
provisions
Capital (86) (68) (152) (137)
expenditure
Change in capital (12) (4) (11) 3
creditors
Tax paid (17) (21) (43) (37)
Sale of fixed 1 1 4 1
assets
Other (6) (6) (20) (24)
Free cash flow 76 95 135 72
Share issues - 1 2 4
Purchase of - - (13) (15)
own shares
Sale 1 - 1 -
of businesses
and investments
Purchase of (19) (2) (19) (5)
businesses
and investments
Dividends (73) (50) (74) (50)
Net (15) 44 32 6
cash
(outflow)/inflow
Net debt acquired - - - (1)
Deferred debt (2) (3) (5) (12)
issue
costs amortised
Currency (19) 13 (82) (18)
translation
adjustments
(Increase)/decrease (36) 54 (55) (25)
in net debt
(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.
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Free cash 135 72
flow
Add Cash interest 79 108
back:
Capital expenditure (net of change in capital creditors) 163 134
Tax payments 43 37
Financing activities - 3
Less: Sale of fixed assets (4) (1)
Profit on sale of assets and businesses - non exceptional (2) (3)
Receipt of capital grants - (1)
Dividends received from associates (1) (1)
Non-cash financing activities (1) (1)
Cash generated from 412 347
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 30 June 2014, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR146.3 million and STGGBP64.1 variable
funding notes issued under the EUR240 million accounts receivable
securitisation programme maturing in June 2019 (which replaced 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 (redeemed on 3 July
2014), EUR400 million 4.125% senior notes due 2020, EUR250 million
senior floating rate notes due 2020 and EUR500 million 3.25% senior
notes due 2021. Smurfit Kappa Acquisitions and certain subsidiaries
are also party to a senior credit facility. At 30 June 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 30 June 2014, the facility
included a EUR625 million revolving credit facility of which EUR125
million was drawn in revolver loans, with a further EUR19 million
in operational facilities including letters of credit drawn under
various ancillary facilities.
The following table provides the range of interest rates as of
30 June 2014 for each of the drawings under the various senior
credit facility loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term A Facility EUR 2.103% - 2.345%
USD 2.152%
Revolving Credit Facility EUR 1.853% - 2.095%
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 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 on 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.
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 carries a margin of 1.70%.
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.
On 28 May 2014 the Group priced EUR500 million of seven-year
euro denominated senior unsecured notes at a coupon of 3.25%.
Following the issue of an early redemption notice the net proceeds
together with cash balances of EUR37.5 million were used to redeem
the Group's higher cost 2019 7.75% EUR500 million bonds on 3 July
2014.
On 25 June 2014 the Group completed a new five-year trade
receivables securitisation programme of up to EUR240 million
maturing in 2019 utilising the Group's receivables in France, the
United Kingdom and Germany. The new programme, which has a margin
of 1.40%, was used to refinance a similar facility maturing in 2015
which had a margin of 1.50%.
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 30 June 2014, the
Group had fixed an average of 63% 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 (replaced in July 2014 with EUR500
million 3.25% senior notes due 2021), 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 had EUR749 million in interest rate swaps with
maturity dates ranging from July 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/EURIBOR interest rates for these borrowings increase by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR13 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 our 2013 annual report on pages 43-44. The annual
report is available on our website www.smurfitkappa.com. In
addition, the risk relating to our Venezuelan operations was
updated in our 2014 first quarter press release. The principal
risks and uncertainties for the remaining six months of the
financial year are summarised below.
-- If the current economic climate were to deteriorate and result in an
increased economic slowdown which was sustained over any
significant
length of time, or the sovereign debt crisis (including its
impact on
the euro) were to reoccur, it could adversely affect the
Group's
financial position and results of operations.
-- The cyclical nature of the packaging industry could result in
overcapacity and consequently threaten the Group's pricing
structure.
-- If operations at any of the Group's facilities (in particular its key
mills) were interrupted for any significant length of time it
could
adversely affect the Group's financial position and results
of
operations.
-- Price fluctuations in raw materials and energy costs could adversely
affect the Group's manufacturing costs.
-- The Group is exposed to currency exchange rate fluctuations and
currency exchange controls in Venezuela and Argentina.
-- The Group may not be able to attract and retain suitably qualified
employees as required for its business.
-- The Group is subject to a growing number of environmental laws and
regulations, and the cost of compliance or the failure to comply
with
current and future laws and regulations may negatively affect
the
Group's business.
-- The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
-- The Group is exposed to potential risks in relation to its Venezuelan
operations which are set out as follows:
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 Sistema Complementario de
Administración de Divisas ('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 11.0 per US dollar and it is expected that this
rate
is likely to vary over time. As set out on page 32, the
Group
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.
The Board regularly monitors all of the above risks and
appropriate actions are taken to mitigate those risks or address
their potential adverse consequences.
Consolidated Income Statement - Six Months
6 months to 6 months to 30-Jun-13
30-Jun-14
Unaudited Unaudited
Pre-exceptional2014 Exceptional2014 Total2014 Pre-exceptional2013 Exceptional2013 Total2013
EURm EURm EURm EURm EURm EURm
Revenue 3,947 - 3,947 3,908 - 3,908
Cost of sales (2,768) - (2,768) (2,786) (9) (2,795)
Gross profit 1,179 - 1,179 1,122 (9) 1,113
Distribution (307) - (307) (311) - (311)
costs
Administrative (510) - (510) (505) - (505)
expenses
Other operating 1 - 1 1 - 1
income
Other operating - (9) (9) - (23) (23)
expenses
Operating 363 (9) 354 307 (32) 275
profit
Finance costs (140) - (140) (158) (6) (164)
Finance income 8 5 13 9 6 15
Share 1 - 1 1 - 1
of associates'
profit (after
tax)
Profit before 232 (4) 228 159 (32) 127
income tax
Income tax (84) (50)
expense
Profit for the 144 77
financial
period
Attributable
to:
Owners of the 142 73
parent
Non-controlling 2 4
interests
Profit for the 144 77
financial
period
Earnings per
share
Basic earnings 62.3 32.1
per
share - cent
Diluted 61.9 31.8
earnings
per share
- cent
Consolidated Income Statement - Second Quarter
3 months to 3 months to 30-Jun-13
30-Jun-14
Unaudited Unaudited
Pre-exceptional2014 Exceptional2014 Total2014 Pre-exceptional2013 Exceptional2013 Total2013
EURm EURm EURm EURm EURm EURm
Revenue 2,015 - 2,015 2,019 - 2,019
Cost of sales (1,408) - (1,408) (1,423) (9) (1,432)
Gross profit 607 - 607 596 (9) 587
Distribution (156) - (156) (159) - (159)
costs
Administrative (258) - (258) (270) - (270)
expenses
Other operating 1 - 1 - - -
income
Other operating - - - - (10) (10)
expenses
Operating 194 - 194 167 (19) 148
profit
Finance costs (77) - (77) (88) - (88)
Finance income 6 - 6 8 1 9
Share 1 - 1 1 - 1
of associates'
profit (after
tax)
Profit before 124 - 124 88 (18) 70
income tax
Income tax (46) (26)
expense
Profit for the 78 44
financial
period
Attributable
to:
Owners of the 77 41
parent
Non-controlling 1 3
interests
Profit for the 78 44
financial
period
Earnings per
share
Basic earnings 33.6 17.7
per
share - cent
Diluted 33.4 17.5
earnings
per share
- cent
Consolidated Statement of Comprehensive Income - Six Months
6 months to 6 months to
30-Jun-14 30-Jun-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 144 77
Other comprehensive income:
Items that may subsequently be
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (210) (212)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 10 14
- New fair value adjustments into reserve (24) (4)
- Movement in deferred tax - (1)
(224) (203)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (47) (8)
- Movement in deferred tax 7 2
(40) (6)
Total other comprehensive expense (264) (209)
Total comprehensive expense (120) (132)
for the financial period
Attributable to:
Owners of the parent (104) (109)
Non-controlling interests (16) (23)
Total comprehensive expense (120) (132)
for the financial period
Consolidated Statement of Comprehensive Income - Second
Quarter
3 months to 3 months to
30-Jun-14 30-Jun-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 78 44
Other comprehensive income:
Items that may subsequently be
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period 24 (98)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 6 9
- New fair value adjustments into reserve (15) (12)
15 (101)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (26) (50)
- Movement in deferred tax 4 11
(22) (39)
Total other comprehensive expense (7) (140)
Total comprehensive income/(expense) 71 (96)
for the financial period
Attributable to:
Owners of the parent 62 (89)
Non-controlling interests 9 (7)
Total comprehensive income/(expense) 71 (96)
for the financial period
Consolidated Balance Sheet
*Restated
30-Jun-14 30-Jun-13 31-Dec-13
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 2,957 2,974 3,022
Goodwill and intangible assets 2,297 2,312 2,326
Available-for-sale financial assets 27 33 27
Investment in associates 16 16 16
Biological assets 96 111 107
Trade and other receivables 4 5 5
Derivative financial instruments - - 1
Deferred income tax assets 191 201 203
5,588 5,652 5,707
Current assets
Inventories 712 732 712
Biological assets 10 10 10
Trade and other receivables 1,503 1,548 1,344
Derivative financial instruments 1 7 4
Restricted cash 18 9 8
Cash and cash equivalents 897 462 447
3,141 2,768 2,525
Total assets 8,729 8,420 8,232
EQUITY
Capital and reserves attributable
to the owners of the parent
Equity share capital - - -
Share premium 1,981 1,976 1,979
Other reserves (4) 265 208
Retained earnings 234 (56) 121
Total equity attributable to 2,211 2,185 2,308
the owners of the parent
Non-controlling interests 192 196 199
Total equity 2,403 2,381 2,507
LIABILITIES
Non-current liabilities
Borrowings 3,032 3,211 3,009
Employee benefits 743 724 713
Derivative financial instruments 69 54 59
Deferred income tax liabilities 189 241 214
Non-current income tax liabilities 22 14 17
Provisions for liabilities and charges 41 44 42
Capital grants 11 12 12
Other payables 8 8 9
4,115 4,308 4,075
Current liabilities
Borrowings 559 77 67
Trade and other payables 1,573 1,580 1,525
Current income tax liabilities 31 14 11
Derivative financial instruments 36 39 33
Provisions for liabilities and charges 12 21 14
2,211 1,731 1,650
Total liabilities 6,326 6,039 5,725
Total equity and liabilities 8,729 8,420 8,232
*Details of restatement are set out in Note 17.
Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Equitysharecapital Sharepremium Otherreserves Retainedearnings Total Non-controllinginterests Totalequity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2014 - 1,979 208 121 2,308 199 2,507
Profit for the - - - 142 142 2 144
financial
period
Other comprehensive
income
Foreign currency - - (192) - (192) (18) (210)
translation
adjustments
Defined benefit - - - (40) (40) - (40)
pension plans
Effective portion - - (14) - (14) - (14)
of changes in
fair value of cash
flow hedges
Total comprehensive - - (206) 102 (104) (16) (120)
(expense)/income
for the financial
period
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 82 82 10 92
adjustment
Dividends paid - - - (71) (71) (3) (74)
Share-based payment - - 7 - 7 - 7
Shares acquired by - - (13) - (13) - (13)
SKG Employee Trust
Acquired - - - - - 2 2
non-controlling
interest
At 30 June 2014 - 1,981 (4) 234 2,211 192 2,403
At 1 January 2013 - 1,972 444 (159) 2,257 212 2,469
Profit for the - - - 73 73 4 77
financial
period
Other comprehensive
income
Foreign currency - - (185) - (185) (27) (212)
translation
adjustments
Defined benefit - - - (6) (6) - (6)
pension plans
Effective portion - - 9 - 9 - 9
of changes in
fair value of cash
flow hedges
Total comprehensive - - (176) 67 (109) (23) (132)
(expense)/income
for the financial
period
Shares issued - 4 - - 4 - 4
Hyperinflation - - - 83 83 10 93
adjustment
Dividends paid - - - (47) (47) (3) (50)
Share-based payment - - 12 - 12 - 12
Shares acquired by - - (15) - (15) - (15)
SKG Employee Trust
At 30 June 2013 - 1,976 265 (56) 2,185 196 2,381
An analysis of the movements in Other reserves is provided in
Note 15.
Consolidated Statement of Cash Flows
6 months to 6 months to
30-Jun-14 30-Jun-13
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 228 127
Net finance costs 127 149
Depreciation charge 163 170
Impairment of assets - 9
Amortisation of intangible assets 14 12
Amortisation of capital grants (1) (1)
Share-based payment expense 7 12
Profit on purchase/sale of (2) (3)
assets and businesses
Share of associates' profit (after tax) (1) (1)
Net movement in working capital (117) (114)
Change in biological assets 17 11
Change in employee benefits (26) (28)
and other provisions
Other 3 4
Cash generated from operations 412 347
Interest paid (79) (114)
Income taxes paid:
Overseas corporation tax (net (43) (37)
of tax refunds) paid
Net cash inflow from operating activities 290 196
Cash flows from investing activities
Interest received 2 2
Additions to property, plant and (157) (131)
equipment and biological assets
Additions to intangible assets (6) (3)
Receipt of capital grants - 1
Disposal of available-for-sale 1 -
financial assets
(Increase)/decrease in restricted cash (10) 5
Disposal of property, plant and equipment 5 4
Dividends received from associates 1 1
Purchase of subsidiaries and (18) (2)
non-controlling interests
Deferred consideration paid (1) (4)
Net cash outflow from investing activities (183) (127)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 2 4
Proceeds from bond issue 500 400
Purchase of own shares (13) (15)
Increase in interest-bearing borrowings 20 28
Payment of finance leases (1) (3)
Repayment of borrowings - (382)
Deferred debt issue costs (7) (9)
Dividends paid to shareholders (71) (47)
Dividends paid to non-controlling interests (3) (3)
Net cash inflow/(outflow) from 427 (27)
financing activities
Increase in cash and cash equivalents 534 42
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 424 423
Currency translation adjustment (75) (22)
Increase in cash and cash equivalents 534 42
Cash and cash equivalents at 30 June 883 443
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 condensed Group interim financial statements included in
this report have been prepared in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007, the related Transparency
Rules of the Irish Financial Services Regulatory Authority and with
International Accounting Standard 34, Interim Financial Reporting
('IAS 34') as adopted by the European Union. Certain quarterly
information and the balance sheet as at 30 June 2013 have been
included in this report; this information is supplementary and not
required by IAS 34. This report should be read in conjunction with
the consolidated financial statements for the year ended 31
December 2013 included in the Group's 2013 annual report 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 condensed Group
interim financial statements 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 Group is a highly integrated paper and paperboard
manufacturer with leading market positions, quality assets and
broad geographic reach. The financial position of the Group, its
cash generation, capital resources and liquidity continue to
provide a stable financing platform. Having made enquiries, the
Directors have a reasonable expectation that the Company, and the
Group as a whole, have adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
half year financial statements.
The condensed Group interim financial statements include all
adjustments that management considers necessary for a fair
presentation of such financial information. All such adjustments
are of a normal recurring nature. Certain tables in this interim
statement may not add precisely due to rounding.
The Group's auditors have not audited or reviewed the condensed
Group interim financial statements contained in this report.
The condensed Group interim financial statements presented do
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.
Segment profit is measured based on earnings before interest,
tax, depreciation, amortisation, exceptional items and share-based
payment expense ('EBITDA before exceptional items').
6 months to 30-Jun-14 6 months to 30-Jun-13
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
Results
Revenue 3,058 889 3,947 2,956 952 3,908
EBITDA before 421 155 576 371 161 532
exceptional
items
Segment - (9) (9) (6) (17) (23)
exceptional
items
EBITDA after 421 146 567 365 144 509
exceptional
items
Unallocated (12) (20)
centre
costs
Share-based (7) (12)
payment
expense
Depreciation (180) (181)
and
depletion (net)
Amortisation (14) (12)
Impairment - (9)
of assets
Finance costs (140) (164)
Finance income 13 15
Share 1 1
of associates'
profit (after
tax)
Profit before 228 127
income tax
Income tax (84) (50)
expense
Profit for the 144 77
financial
period
3.Segmental Analyses (continued)
3 months to 30-Jun-14 3 months to 30-Jun-13
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
Results
Revenue 1,550 465 2,015 1,499 520 2,019
EBITDA before 222 80 302 193 96 289
exceptional
items
Segment - - - (6) (4) (10)
exceptional
items
EBITDA after 222 80 302 187 92 279
exceptional
items
Unallocated (7) (18)
centre
costs
Share-based - (7)
payment
expense
Depreciation (94) (91)
and
depletion (net)
Amortisation (7) (6)
Impairment - (9)
of assets
Finance costs (77) (88)
Finance income 6 9
Share 1 1
of associates'
profit (after
tax)
Profit before 124 70
income tax
Income tax (46) (26)
expense
Profit for the 78 44
financial
period
4.Exceptional Items
6 months to 6 months to
The following items are regarded 30-Jun-14 30-Jun-13
as exceptional in nature:
EURm EURm
Currency trading loss on change 9 15
in Venezuelan translation rate
Impairment loss on property, - 9
plant and equipment
Reorganisation and restructuring costs - 8
Exceptional items included 9 32
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 six
months to June 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 six months to June 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 six
months to June 2013 amounted to EUR32 million, EUR15 million of
which related to the temporary closure of the Townsend Hook mill in
the UK (comprising an impairment charge of EUR9 million and
reorganisation and restructuring costs of EUR6 million). A further
EUR2 million of reorganisation costs related to the restructuring
of SKOC and the consolidation of the Group's two plants in Juarez,
Mexico, into one plant. A currency trading loss of EUR15 million
was recorded as a result of the devaluation of the Venezuelan
Bolivar in February 2013, comprising EUR12 million booked in the
first quarter and an adjustment of EUR3 million in the second
quarter for hyperinflation and re-translation. The original loss
reflected the higher cost to the Venezuelan operations of
discharging its non-Bolivar denominated net payables following the
devaluation.
Exceptional finance costs in the six months to June 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 from the
proceeds of January's EUR400 million bond issue.
5.Finance Costs and Income
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 26 41
Interest payable on other borrowings 60 76
Exceptional finance costs associated - 6
with debt restructuring
Foreign currency translation loss on debt 5 4
Fair value loss on derivatives 2 1
not designated as hedges
Net interest cost on net pension liability 13 13
Net monetary loss - hyperinflation 34 23
Total finance costs 140 164
Finance income:
Other interest receivable (2) (2)
Gain on sale of financial asset (1) -
Foreign currency translation gain on debt (3) (3)
Exceptional foreign currency translation gain (5) (6)
Fair value gain on derivatives (2) (4)
not designated as hedges
Total finance income (13) (15)
Net finance costs 127 149
On 3 July, the Group completed the refinancing of its EUR500
million 7.75% senior notes due 2019 with a seven-year bond at a
rate of 3.25%. The associated exceptional finance charges totalling
EUR42 million, composed of cash and non-cash costs, will be
included in the Group's third quarter results.
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Current tax:
Europe 43 15
The Americas 29 28
72 43
Deferred tax 12 7
Income tax expense 84 50
Current tax is analysed as follows:
Ireland 2 1
Foreign 70 42
72 43
Income tax recognised in the Consolidated Statement of
Comprehensive Income
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Arising on actuarial loss (7) (2)
on defined benefit plans
Arising on qualifying derivative - 1
cash flow hedges
(7) (1)
The tax expense in the first six months is EUR34 million more
than in the comparable period. This is largely explained by higher
earnings, mainly in Europe, and the effect of tax benefits recorded
in 2013 that did not occur in 2014. The deferred tax includes a tax
expense associated with using previously recognised tax losses.
However, in 2013 the deferred tax also includes additional tax
credits for previously unrecognised losses which did not arise in
2014.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Current service cost 25 26
Past service cost 1 -
Net interest cost on net pension liability 13 13
Defined benefit cost 39 39
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR26 million (2013: EUR26
million). Net interest cost on net pension liability of EUR13
million (2013: EUR13 million) is included in finance costs in the
Consolidated Income Statement.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
30-Jun-14 31-Dec-13
EURm EURm
Present value of funded or partially (1,993) (1,851)
funded obligations
Fair value of plan assets 1,753 1,625
Deficit in funded or partially funded plans (240) (226)
Present value of wholly unfunded obligations (503) (487)
Net pension liability (743) (713)
The employee benefits provision has increased from EUR713
million at 31 December 2013 to EUR743 million at 30 June 2014,
mainly as a result of lower Eurozone corporate bond yields.
8.Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to owners of the parent by the weighted average number
of ordinary shares in issue during the period.
6 months to 6 months to
30-Jun-14 30-Jun-13
Profit attributable to owners 142 73
of the parent (EUR million)
Weighted average number of ordinary 228 228
shares in issue (million)
Basic earnings per share (cent) 62.3 32.1
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.
6 months to 6 months to
30-Jun-14 30-Jun-13
Profit attributable to owners 142 73
of the parent (EUR million)
Weighted average number of ordinary 228 228
shares in issue (million)
Potential dilutive ordinary 1 2
shares assumed (million)
Diluted weighted average ordinary 229 230
shares (million)
Diluted earnings per share (cent) 61.9 31.8
Pre-exceptional
6 months to 6 months to
30-Jun-14 30-Jun-13
Profit attributable to owners 142 73
of the parent (EUR million)
Exceptional items included in profit before 4 32
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) - (5)
Pre-exceptional profit attributable to 146 100
owners of the parent (EUR million)
Weighted average number of ordinary 228 228
shares in issue (million)
Pre-exceptional basic earnings 64.1 43.9
per share (cent)
Diluted weighted average ordinary 229 230
shares (million)
Pre-exceptional diluted earnings 63.6 43.5
per share (cent)
9.Dividends
During the period, the final dividend for 2013 of 30.75 cent per
share was paid to the holders of ordinary shares. The Board has
decided to pay an interim dividend of 15.375 cent per share for
2014 and it is proposed to pay this dividend on 31 October 2014 to
all ordinary shareholders on the share register at the close of
business on 3 October 2014.
10.Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Six months ended
30 June 2014
Opening net book amount 1,107 1,915 3,022
Reclassifications 18 (22) (4)
Additions 2 135 137
Acquisitions 8 5 13
Depreciation charge (23) (140) (163)
for the period
Retirements and (2) (1) (3)
disposals
Hyperinflation 20 16 36
adjustment
Foreign currency (43) (38) (81)
translation
adjustment
At 30 June 2014 1,087 1,870 2,957
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 (51) (295) (346)
for the year
Impairments (2) (7) (9)
Retirements and (1) (2) (3)
disposals
Hyperinflation 41 43 84
adjustment
Foreign currency (61) (85) (146)
translation
adjustment
At 31 December 2013 1,107 1,915 3,022
11.Net Movement in Working Capital
6 months to 6 months to
30-Jun-14 30-Jun-13
EURm EURm
Change in inventories (20) (28)
Change in trade and other receivables (189) (178)
Change in trade and other payables 92 92
Net movement in working capital (117) (114)
12.Analysis of Net Debt
30-Jun-14 31-Dec-13
EURm EURm
Unsecured senior credit facility:
Revolving credit facility(1)- interest at 119 119
relevant interbank rate + 1.75%(7)
Facility A term loan(2)- interest at 741 740
relevant interbank rate + 2.00%(7)
US$292.3 million 7.50% senior debentures 215 213
due 2025 (including accrued interest)
Bank loans and overdrafts 59 67
Cash (915) (455)
2018 receivables securitisation 173 173
variable funding notes
2019 receivables securitisation 224 203
variable funding notes(3)
2018 senior notes (including accrued interest)(4) 417 414
EUR500 million 7.75% senior notes due 2019 496 495
(including accrued interest)(5)
EUR400 million 4.125% senior notes due 401 401
2020 (including accrued interest)
EUR250 million senior floating rate notes due 248 247
2020 (including accrued interest)(6)
EUR500 million 3.25% senior notes due 2021 493 -
(including accrued interest)(5)
Net debt before finance leases 2,671 2,617
Finance leases 5 4
Net debt including leases 2,676 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 - EUR19 million.
(2) Facility A term loan ('Facility A') due to be repaid
in certain instalments from 2016 to 2018.
(3) In June 2014, the 2015 securitisation programme was refinanced
with a securitisation programme maturing in 2019.
(4) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(5) On 28 May 2014 the Group priced EUR500 million
of seven-year euro denominated senior
unsecured notes at a coupon of 3.25%. Following
the issue of an early redemption
notice, the net proceeds, together with
cash balances of EUR37.5 million, were
used to redeem the Group's 2019 7.75%
EUR500 million bonds on 3 July 2014.
(6) Interest at EURIBOR + 3.5%.
(7) 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.Fair Value Hierarchy
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 30 June 2014:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Available-for-sale financial assets:
Listed 1 - - 1
Unlisted - 7 19 26
Derivative financial instruments:
Assets at fair value - 1 - 1
through Consolidated
Income Statement
Derivative financial instruments:
Liabilities at fair value through - (47) - (47)
Consolidated Income Statement
Derivatives used for hedging - (58) - (58)
1 (97) 19 (77)
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 31 December
2013:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Available-for-sale financial assets:
Listed 1 - - 1
Unlisted - 7 19 26
Derivative financial instruments:
Assets at fair value - 4 - 4
through Consolidated
Income Statement
Derivatives used for hedging - 1 - 1
Derivative financial instruments:
Liabilities at fair value through - (46) - (46)
Consolidated Income Statement
Derivatives used for hedging - (46) - (46)
1 (80) 19 (60)
The fair value of the level 2 derivative financial instruments
set out above has been measured using observable market inputs as
defined under IFRS 13, Fair Value Measurement. All are plain
derivative instruments, valued with reference to observable foreign
exchange rates, interest rates or broker prices. The Group uses
discounted cash flow analysis for various available-for-sale
financial assets that are not traded in active markets. There has
been no movement to the level 3 financial instruments from 31
December 2013 to 30 June 2014.
There has been no transfers between level 1 and level 2 during
the period.
14.Fair Value
The following table sets out the fair value of the Group's
principal financial assets and liabilities. The determination of
these fair values is based on the descriptions set out within Note
2 to the consolidated financial statements of the Group's 2013
annual report.
30-Jun-14 31-Dec-13
Carrying value Fair value Carrying value Fair value
EURm EURm EURm EURm
Trade and other 1,400 1,400 1,263 1,263
receivables(1)
Available-for-sale 27 27 27 27
financial
assets(2)
Cash 897 897 447 447
and
cash
equivalents(3)
Derivative 1 1 5 5
assets(4)
Restricted cash 18 18 8 8
2,343 2,343 1,750 1,750
Trade and other 1,268 1,268 1,231 1,231
payables(1)
Senior credit 860 860 859 859
facility(5)
2018 173 173 173 173
receivables
securitisation(3)
2019 224 224 203 203
receivables
securitisation(3)(7)
Bank 59 59 67 67
overdrafts(3)
2025 215 248 213 235
debentures(6)
2018 notes(6) 417 451 414 442
2019 notes(6) 496 529 495 543
(8)
2020 fixed rate 401 427 401 418
notes(6)
2020 floating 248 266 247 263
rate
notes(6)
2021 fixed rate 493 491 - -
notes(6) (8)
4,854 4,996 4,303 4,434
Finance leases 5 5 4 4
4,859 5,001 4,307 4,438
Derivative 105 105 92 92
liabilities(4)
4,964 5,106 4,399 4,530
Total net (2,621) (2,763) (2,649) (2,780)
position
(1) The fair value of trade and other receivables and
payables is estimated as the present value
of future cash flows, discounted at the market
rate of interest at the reporting date.
(2) The fair value of listed available-for-sale financial
assets is determined by reference
to their bid price at the reporting date.
Unlisted available-for-sale financial
assets are valued using recognised valuation
techniques for the underlying security
including discounted cash flows and similar
unlisted equity valuation models.
(3) The carrying amount reported in the Consolidated
Balance Sheet is estimated
to approximate to fair value because of the short-term maturity
of these instruments and, in the case
of the receivables securitisation,
the variable nature of the facility and repricing dates.
(4) The fair value of forward foreign currency
and energy contracts is based on their
listed market price if available. If a listed
market price is not available,
then fair value is estimated by discounting
the difference between the contractual
forward price and the current forward
price for the residual maturity
of the contract using a risk-free interest
rate (based on government bonds). The
fair value of interest rate swaps is
based on discounting estimated future
cash flows based on the terms and maturity
of each contract and using market
interest rates for a similar instrument at the measurement date.
(5) The fair value of the unsecured senior credit facility is
estimated to approximate the carrying amount reported
in the Consolidated Balance Sheet because of the variable
nature of the facility and repricing dates.
(6) Fair value is based on broker prices at the balance sheet date.
(7) In June 2014, the 2015 securitisation programme was refinanced
with a securitisation programme maturing in 2019.
(8) On 28 May 2014 the Group priced EUR500 million
of seven-year euro denominated senior
unsecured notes at a coupon of 3.25%. Following
the issue of an early redemption
notice the net proceeds, together with
cash balances of EUR37.5 million were
used to redeem the Group's 2019 7.75%
EUR500 million bonds on 3 July 2014.
15.Other Reserves
Other reserves included in the Consolidated Statement of Changes
in Equity are comprised of the following:
Reverseacquisitionreserve Cash flowhedgingreserve Foreigncurrencytranslationreserve Share-basedpaymentreserve Ownshares Available-for-salereserve
Total
EURm EURm EURm EURm EURm EURm EURm
At 1 January 2014 575 (15) (456) 131 (28) 1 208
Other comprehensive income
Foreign currency translation - - (192) - - - (192)
adjustments
Effective portion of changes in - (14) - - - - (14)
fair value of cash flow hedges
Total other comprehensive - (14) (192) - - - (206)
expense
Share-based payment - - - 7 - - 7
Shares acquired by - - - - (13) - (13)
SKG Employee Trust
Shares granted to participants - - - (1) 1 - -
of the SKG Employee Trust
At 30 June 2014 575 (29) (648) 137 (40) 1 (4)
At 1 January 2013 575 (26) (198) 105 (13) 1 444
Other comprehensive income
Foreign currency translation - - (185) - - - (185)
adjustments
Effective portion of changes in - 9 - - - - 9
fair value of cash flow hedges
Total other comprehensive - 9 (185) - - - (176)
income/(expense)
Share-based payment - - - 12 - - 12
Shares acquired by - - - - (15) - (15)
SKG Employee Trust
At 30 June 2013 575 (17) (383) 117 (28) 1 265
16.Venezuela
Hyperinflation
As discussed more fully in the 2013 annual report, Venezuela
became hyperinflationary during 2009 when its cumulative inflation
rate for the previous 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
June 2014 and 2013 are as follows:
30-Jun-14 30-Jun-13
Index at period end 647.5 398.6
Movement in period 30.0% 25.0%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR14 million decrease
(2013: EUR14 million increase), pre-exceptional EBITDA EUR7 million
decrease (2013: EUR2 million decrease) and profit after taxation
EUR55 million decrease (2013: EUR44 million decrease). In 2014, a
net monetary loss of EUR34 million (2013: EUR23 million loss) was
recorded in the Consolidated Income Statement. The impact on our
net assets and our total equity is an increase of EUR47 million
(2013: EUR52 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 continues to assess 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 and adopted it for translation from 31
March 2014. The change from the official rate of VEF 6.3 to VEF
10.7 (the SICAD I rate prevailing at date of adoption) reduced our
cash by approximately EUR69 million and our net assets by EUR172
million at that time.
On this basis, in accordance with IFRS, the financial statements
of the Group's operations in Venezuela were translated at 30 June
2014 using the prevailing Sicad I rate of VEF 10.6 per US dollar
and the closing euro/US dollar rate of EUR1= US$ 1.37.
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 IFRS 10.
In 2014, the Group's operations in Venezuela represented
approximately 5% (2013: 6%) of its total assets and 13% (2013: 15%)
of its net assets. In addition, cumulative foreign translation
losses arising on its net investment in these operations amounting
to EUR534 million (2013: EUR336 million) are included in the
foreign exchange translation reserve.
17.Restatement of Prior Periods
IFRS 3, Business Combinations
As required under IFRS 3, Business Combinations, the
Consolidated Balance Sheet at 30 June 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
Previouslyreported IFRS 3Adjustments Restated
EURm EURm EURm
Consolidated Balance
Sheet
At 30 June 2013
Non-current assets
Property, plant 2,946 28 2,974
and equipment
Goodwill and 2,302 10 2,312
intangible
assets
Deferred income 199 2 201
tax assets
Current assets
Inventories 744 (12) 732
Non-current
liabilities
Deferred income tax 217 24 241
liabilities
Other payables 7 1 8
Current liabilities
Trade and other 1,578 2 1,580
payables
Provisions for 20 1 21
liabilities
and charges
Initial goodwill arising on the SKOC acquisition was EUR88
million. The completion of the fair value exercise at the end of
2013 resulted in a EUR36 million reduction of this goodwill, giving
a final amount of EUR52 million.
18.Related Party Transactions
Details of related party transactions in respect of the year
ended 31 December 2013 are contained in Note 30 to the consolidated
financial statements of the Group's 2013 annual report. The Group
continued to enter into transactions in the normal course of
business with its associates and other related parties during the
period. There were no transactions with related parties in the
first half of 2014 or changes to transactions with related parties
disclosed in the 2013 consolidated financial statements that had a
material effect on the financial position or the performance of the
Group.
19.Board Approval
The interim report was approved by the Board of Directors on 29
July 2014.
20.Distribution of the Interim Report
The 2014 interim report is available on the Group's website
www.smurfitkappa.com.
Responsibility Statement in Respect of the Six Months Ended 30
June 2014
The Directors, whose names and functions are listed on pages 34
and 35 in the Group's 2013 annual report, are responsible for
preparing this interim management report and the condensed Group
interim financial statements in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007, the related Transparency
Rules of the Irish Financial Services Regulatory Authority and with
IAS 34, Interim Financial Reporting as adopted by the European
Union.
The Directors confirm that, to the best of their knowledge:
-- The condensed Group interim financial statements for the half year
ended 30 June 2014 have been prepared in accordance with the
international accounting standard applicable to interim
financial
reporting, IAS 34, adopted pursuant to the procedure provided
for
under Article 6 of the Regulation (EC) No. 1606/2002 of the
European
Parliament and of the Council of 19 July 2002;
-- the interim management report includes a fair review of the important
events that have occurred during the first six months of the
financial
year, and their impact on the condensed Group interim
financial
statements for the half year ended 30 June 2014, and a
description of
the principal risks and uncertainties for the remaining six
months;
-- the interim management report includes a fair review of related party
transactions that have occurred during the first six months of
the
current financial year and that have materially affected the
financial
position or the performance of the Group during that period, and
any
changes in the related party transactions described in the last
annual
report that could have a material effect on the financial
position or
performance of the Group in the first six months of the
current
financial year.
Signed on behalf of the Board
G.W. McGann, Director and Chief Executive Officer
I.J. Curley, Director and Chief Financial Officer
29 July 2014
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 6 months to 6 months to
30-Jun-14 30-Jun-13 30-Jun-14 30-Jun-13
EURm EURm EURm EURm
Profit for the 78 44 144 77
financial
period
Income tax expense 46 26 84 50
Currency trading - 3 9 15
loss on change
in Venezuelan
translation
rate
Impairment loss - 9 - 9
on property,
plant
and equipment
Reorganisation and - 7 - 8
restructuring
costs
Share (1) (1) (1) (1)
of associates'
profit (after tax)
Net finance costs 71 79 127 149
Share-based - 7 7 12
payment
expense
Depreciation, 101 97 194 193
depletion
(net)
and amortisation
EBITDA 295 271 564 512
Supplementary
Historical
Financial
Information
EURm Q2, 2013 Q3, 2013 Q4, 2013 FY, 2013 Q1, 2014 Q2, 2014
Group and 3,285 3,319 3,346 13,030 3,217 3,289
third
party
revenue
Third 2,019 2,016 2,033 7,957 1,932 2,015
party
revenue
EBITDA 271 303 291 1,107 269 295
EBITDA 13.4% 15.0% 14.3% 13.9% 13.9% 14.6%
margin
Operating 148 195 173 643 160 194
profit
Profit 70 104 62 294 104 124
before
income tax
Free cash 95 190 103 365 59 76
flow
Basic 17.7 24.0 26.0 82.2 28.8 33.6
earnings
per
share -
cent
Weighted 229 229 229 229 227 228
average
number
of shares
used
in
EPS
calculation
(million)
Net debt 2,817 2,630 2,621 2,621 2,640 2,676
Net debt 2.74 2.50 2.37 2.37 2.33 2.31
to
EBITDA
(LTM)
This information is provided by Business Wire
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