Smurfit Kappa Group
SKG reports 20% EBITDA growth
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 Latin America, today announced results for the 3 months and 12 months
ending 31 December, 2007.
2007 Fourth Quarter / Key Financial Performance Measures
EUR m FY 2007 FY 2006 Change Q4 2007 Q4 2006 Change
----------------------------------------------------------------------
Revenue EUR 7,272 EUR 6,970 4% EUR 1,818 EUR 1,749 4%
EBITDA before
exceptional
items and share-
based payments
(1) EUR 1,064 EUR 883 20% EUR 275 EUR 254 8%
EBITDA Margin 1.9 0.6
14.6% 12.7% pts 15.1% 14.5% pts
Operating Profit EUR 562 EUR 230 144% EUR 126 EUR 42 -
Profit/(Loss) EUR 170 (EUR 143) EUR 64 (EUR 43)
before Tax - -
Free Cash Flow
(2) EUR 186 (EUR 29) - EUR 73 EUR 35 109%
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Debt EUR 3,404 EUR 4,882 30%
Net Debt to
EBITDA (LTM) 3.2x 5.5x -
----------------------------------------------------------------------
(1) EBITDA before exceptional items and share-based payments is denoted by
EBITDA throughout the remainder of the management commentary for ease of
reference. A reconciliation of net profit/(loss) for the period to EBITDA before
exceptional items and share-based payments is set out on page 26.
(2) Free cash flow is set out on page 10. The IFRS cash flow is set out on page
15.
Financial Performance Highlights
-- 20% EBITDA growth
EBITDA of EUR 1,064 million represents a 20% year-on-year increase
-- Industry leading EBITDA margins
Full year EBITDA margin increase to 14.6 per cent
-- Strong cash flow generation
Full year free cash flow of EUR 186 million
-- 30% net debt reduction
Net debt to EBITDA of 3.2x - below the bottom end of the IPO range
-- Synergy target exceeded
Merger target of EUR 160 million exceeded ahead of schedule - Increased target
to EUR 180 million
-- Dividend
Final dividend proposed of 16.05 euro cent
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "We are pleased to report
strong earnings growth for 2007. This is the Group's first full year financial
performance since its successful IPO in March, 2007. SKG has delivered EBITDA
growth within the range of expectations set at IPO, industry leading margins and
has exceeded both its leverage and synergy objectives.
This strong performance reflects a generally positive price environment in
Europe, the continuing drive to maximise the benefits of the merger and a strong
contribution from the Group's Latin American businesses.
Despite the uncertain economic outlook, our operations have performed well year
to date in an operating environment where supply and demand are reasonably
balanced. Assuming current market conditions prevail, SKG expects modest EBITDA
growth for 2008 together with continuing strong free cash flow generation."
About Smurfit Kappa Group
Smurfit Kappa Group is a world leader in paper-based packaging with operations
in Europe and Latin America.
Smurfit Kappa Group operates in 22 countries in Europe and is the European
leader in containerboard, solid board, corrugated and solid board packaging and
has a key position in several other packaging and paper market segments,
including graphic board, sack paper and paper sacks. Smurfit Kappa Group also
has a growing presence in Eastern Europe. Smurfit Kappa Group operates in 9
countries in Latin America and is the only pan-regional operator.
Forward Looking Statements
Some statements in this announcement are forward-looking. They represent
expectations for SKG'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 Information
Smurfit Kappa Group +353 1 202 7000 Beech Hill, Clonskeagh
Dublin 4, Ireland
K Capital Source +353 1 631 5500 smurfitkappa@kcapitalsource.com
---------------------------------
2007 Fourth Quarter and Full Year / Performance Overview
SKG's financial outcome for 2007 reflects a good financial performance with
selling price improvements more than offsetting the negative impact of cost
inflation. Underlying revenue growth of 7.6% for the full year of 2007,
primarily reflects significant product price improvements in Europe, but also a
strong performance from the Group's operations in Latin America.
There were a number of factors, however, which impacted SKG's earnings growth in
2007. Strong input costs increases, especially for recovered fibre, combined
with balanced market conditions in Europe, have allowed for three consecutive
recycled containerboard price increases to be implemented through the year.
Higher containerboard prices, while underpinning corrugated pricing momentum,
have generated short-term margin compression within the Group's integrated
system given the time lag involved in ultimately recovering the containerboard
increases through higher box prices. In addition, anticipated price increases
for kraftliner were not sustained due to increased imports from the US into
Europe, which, together with higher wood costs, impacted kraftliner
profitability growth.
On the positive side, overall demand was positive in 2007 despite a slower
growth than expected in the second half of the year. SKG progressively
implemented corrugated price increases in every quarter, totalling over 8% for
the year. Into 2008, SKG expects to continue delivering corrugated price
improvements to recover our paper input costs and some index price recovery has
already occurred early in January.
With the benefit of improving selling prices and a temporary reduction in
recovered paper prices, SKG's EBITDA at EUR 275 million for the fourth quarter
was unchanged from the third quarter. While a slow finish to the year and the
recycled containerboard increase implemented in October negatively impacted
margins on the corrugated side, corrugated pricing strengthened further in the
fourth quarter. SKG's overall EBITDA margin in the fourth quarter of 2007 was
15.1% - unchanged from the third quarter - compared to 14.5% in the fourth
quarter of 2006.
Fourth Quarter, 2007: Year-on-year financial performance
Revenue of EUR 1,818 million in the fourth quarter of 2007 represents a 3.9%
increase on revenue of EUR 1,749 million in the fourth quarter of 2006.
Acquisitions in 2007 added almost EUR 6 million to revenue although currency
moves and disposals and closures had a negative impact. Allowing for
acquisitions and for the negative impact of currency of EUR 19 million and for
the absence in 2007 of operations sold or closed in 2006 or earlier in 2007,
which reduced comparable revenue by EUR 24 million, revenue shows an underlying
increase of EUR 106 million or 6.1% for the fourth quarter.
EBITDA of EUR 275 million increased 8.1% compared to EBITDA of EUR 254 million
in the fourth quarter of 2006. This represents a margin of 15.1% and 14.5%
respectively. Allowing for the impact of currency, acquisitions, disposals and
closures, the underlying increase in EBITDA was 10.6%.
Exceptional items included in operating profit amounted to EUR 19 million,
compared to EUR 117 million in 2006 and these primarily relate to reorganisation
and restructuring costs. Depreciation and amortisation increased on the prior
year by 36%. These items contributed to an operating profit increase of EUR 84
million on the prior period.
Net finance costs decreased on the comparative period by 25%, following the
paydown of debt from the IPO proceeds.
Pre-exceptional profit before tax of EUR 88 million increased by EUR 12 million
on the comparative period. Profit before tax post exceptional items amounted to
EUR 64 million (2006: loss of EUR 43 million).
Full year, 2007: Year-on-year financial performance
Revenue of EUR 7,272 million for the full year 2007 represents a 4.3% increase
on revenue of EUR 6,970 million for the full year 2006. Allowing for the
negative impact of currency of EUR 33 million and for net disposals and closures
of EUR 193 million, revenue shows an underlying increase of EUR 528 million or
7.6% for the full year 2007.
EBITDA of EUR 1,064 million in 2007 increased 20.5% compared to EBITDA of EUR
883 million for 2006. This represents a margin of 14.6% and 12.7% respectively.
Allowing for the overall impact of currency moves and for net disposals and
closures, the underlying growth in EBITDA was 21.7%.
Exceptional items included in operating profit amounted to EUR 56 million,
compared to EUR 250 million in 2006 and these primarily relate to reorganisation
and restructuring costs. Depreciation and amortisation decreased on the prior
year by 6%. These items contributed to an operating profit increase of EUR 332
million on the prior period.
Net finance costs increased on the comparative period by 7%, mainly as a result
of exceptional debt settlement costs of EUR 115 million. Net finance costs
before exceptional items fell, due to the paydown of debt from the IPO proceeds.
Pre-exceptional profit before tax of EUR 341 million increased by EUR 205
million on the comparative period. Profit before tax post exceptional items
amounted to EUR 170 million (2006: loss of EUR 143 million).
2007 Fourth Quarter and Full Year / Capital Structure & Debt Reduction
SKG successfully returned to public equity markets through the completion of an
all primary IPO in March 2007. The Group raised gross proceeds of EUR 1,495
million through a global institutional offering. Proceeds were applied to reduce
debt and optimise SKG's capital structure.
As a result of the IPO and the subsequent refinancing, SKG achieved significant
interest savings in terms of both cash and PIK interest. These savings amounted
to approximately EUR 115 million in 2007 with a full year benefit of EUR 150
million.
In July 2007, the Group successfully secured approval to amend its senior credit
facilities. The amendment, together with a successful cash tender offer for
SKG's US dollar denominated 9.625% Senior Notes due 2012 and euro denominated
10.125% Senior Notes due 2012, resulted in a further reduction in the Group's
overall cost of debt of approximately EUR 10 million per annum and gives SKG
greater financial flexibility. In the third and fourth quarter, SKG's
significant increase in free cash flow further reduced net debt. At 31 December,
2007, SKG's net debt was EUR 3,404 million which compares to EUR 3,605 million
at 30 June, 2007 and EUR 4,882 million at 31 December, 2006.
In November 2007, Smurfit Kappa Funding plc, a subsidiary of the Group, filed
with the US Securities and Exchange Commission ("SEC") to terminate its duty
under the Securities Exchange Act of 1934 to file reports, thereby relieving it
of the requirement to file annual financial reports (Form 20-F) and other
periodic reports with the SEC. The changes will have no impact on SKG's
quarterly and annual financial reports and will not reduce the current level of
financial disclosure provided by SKG.
In line with the objectives set at IPO, the financial focus of the Group in 2007
has been leverage reduction. At the end of December, SKG delivered a net debt to
EBITDA ratio of just under 3.2x, below the bottom end of the original target
leverage range it set itself at IPO of 3.25x to 4.25x.
Acquisitions and Disposals
In the first half of the year, SKG acquired a small corrugated box plant in
Romania, giving it a market share of 5% in that country. This acquisition
provides SKG with an initial entry to the emerging Romanian market and
represents some progress towards the Group's objective of growth in Eastern
Europe.
In the third quarter, the Group acquired the Plasticos bag-in-box operation in
Spain. This business is being merged with the Group's existing and fast growing
bag-in-box division. Plasticos will provide a platform for further development
of the SKG bag-in-box business in southern Europe. In addition, in order to
expand its geographical offering for bag-in-box, SKG completed a greenfield
expansion at its St Petersburg plant in Russia in the second half of the year.
The Group completed a number of asset and non-core business disposals in 2007,
including some property sales. Total consideration for these disposals was in
excess of EUR 40 million. The Group continues to actively focus on disposing of
non-core and non-strategic assets and expects to make further progress in this
regard in 2008.
Efficient Capacity Management & Capital Expenditure
Following the closure of significant, higher cost capacity during 2006, SKG
closed further capacity during the first half of 2007, with the closure of its
paper mill in Alaincourt, France, removing 90,000 tonnes of the European
recycled containerboard market.
In 2007, SKG also closed two corrugated plants, a solid board machine, and a
solid board packaging operation. Operating cost reduction and further improving
the quality of the Group's existing asset base was the basis for these
disposals.
In line with the Group's policy of optimising its asset base, SKG is examining a
further possible capacity rationalisation initiative in 2008. Further details
will follow in the second quarter report.
Capital expenditure during the fourth quarter was approximately EUR 96 million.
The Group's full year capital expenditure of EUR 324 million equates to 90% of
depreciation, in line with expectations, and approximately 4% of full year net
revenue.
Synergies
The momentum behind the synergy programme continued in 2007, and the run rate at
the end of the year was approximately EUR 166 million. SKG has therefore
achieved its original synergy target of EUR 160 million a year in advance, and
has now increased its full target to EUR 180 million, which is expected to be
achieved by the end of 2008.
Board of Directors
On 7 February, 2008, Mr Paul T. Stecko was co-opted to the Board of SKG as an
independent, non-executive Director. Mr Stecko has served as Chief Executive
Officer of Packaging Corporation of America (PCA) since January 1999 and as
Chairman of PCA since March 1999.
From November 1998 to April 1999, Mr Stecko served as President and Chief
Operating Officer of Tenneco Inc. From January 1997 to November 1998, Mr Stecko
served as Chief Operating Officer of Tenneco. From December 1993 through January
1997, Mr Stecko served as President and Chief Executive Officer of Tenneco
Packaging Inc. Prior to joining Tenneco Packaging, Mr Stecko spent 16 years with
International Paper Company. Mr Stecko is a member of the board of directors of
Tenneco Automotive Inc., State Farm Mutual Insurance Company, and the American
Forest and Paper Association. Mr Stecko was selected as the 2004 CEO of the Year
in the Paper and Packaging industry by Wall Street analysts in an annual survey
conducted by RISI.
Mr Stecko's knowledge of and experience within the sector will contribute
significantly to the SKG Board. Smurfit Kappa Group expects to make further
appointments of independent, non-executive Directors to its Board during the
course of 2008.
Dividend
The Board is recommending a final dividend of 16.05 euro cent per share. It is
proposed to pay the final dividend on 16 May, 2008 to all ordinary shareholders
on the share register at the close of business on 4 April, 2008.
2007 Fourth quarter and Full year / Performance Review
Overall trading in 2007 was significantly ahead of 2006. This reflected balanced
market conditions in recycled containerboard in Europe, together with positive
overall corrugated demand, despite slower growth than expected in the second
half of the year, largely as a result of the poor summer season.
Three price increases in recycled containerboard were implemented in 2007, in
part to recover the continued upward pressure on recovered paper, energy and
other raw material prices. Corrugated prices were progressively increased in
each quarter to reflect higher containerboard prices. However, there is a 3 to 6
months time lag for the full recovery of paper price increases through
corrugated pricing. Therefore, while overall price momentum was good through the
year, SKG experienced some margin pressure within its corrugated system, as box
price increases were progressively implemented to reflect higher input costs.
In Latin America, the Group's operations benefited from a combination of higher
sales volumes and higher average selling prices during the year, which
contributed to increased earnings growth for the region.
Packaging: Europe
While the product price environment in Europe was generally positive in 2007,
strong market conditions for recycled containerboard combined with somewhat
weaker conditions for kraftliner. A more balanced market has allowed recycled
containerboard producers to recover significant increases in input costs, by
implementing several price increases. Two price increases of EUR 30 per tonne
each for recycled containerboard were implemented in the first half of the year,
and a third increase of EUR 20 to EUR 30 per tonne, depending on the countries,
was implemented in October. These increases were primarily intended to recover
further increases in recovered fibre prices, which occurred in March/April and
again in July/August, totalling approximately EUR 35 per tonne increase at the
peak. In November and December however, there were some reductions in recovered
fibre prices as a result of the withdrawal of Chinese buyers from the market.
These were temporary, and prices are under upward pressure again in January,
supporting recycled containerboard prices.
As regards kraftliner, official statistics state that US kraftliner imports
increased 34% year-on-year during the first nine months of 2007. This level of
imports continued during the fourth quarter, reflecting the relative weakness of
the US dollar and slow domestic US demand. As a result of the sharp increase in
US imports, SKG did not achieve the kraftliner price increase planned for April
2007 although average kraftliner selling prices were higher year-on-year
compared to 2006.
SKG's total European kraftliner volumes declined 2% in 2007 compared to 2006.
This primarily reflects fire-related downtime at the Facture mill in the first
quarter, the impact of which was covered by the Group's insurance arrangements.
Excluding the impact of Facture, growth would have been an underlying 3% in
2007, with demand proving to be positive, helped by reverse substitution from
recycled containerboard to kraftliner for specific applications. SKG's European
recycled containerboard volumes, excluding the impact of disposals and closures,
increased 1% year-on-year, in line with corrugated growth.
As an integrated corrugated producer, higher containerboard price increases have
resulted in increasing input costs for SKG's corrugated operations. SKG's
priority has therefore been to implement the necessary corrugated price
increases required to recover input cost increases. In 2007, SKG increased its
corrugated prices by 8.1% on average. Further corrugated price increases are
expected into 2008 to fully recover the October containerboard price increase,
with some index related progress already occurring early in the new year.
Corrugated demand growth varied across Europe in 2007. Strong growth in the UK,
Benelux and Germany in the first nine months of the year was partly offset by
poor summer demand in France, Spain and Italy. In the fourth quarter however,
demand was slower across the region. This was partly related to a long Christmas
closedown.
SKG's European corrugated volumes, excluding the impact of disposals and
closures, increased by approximately 1% in 2007 compared to 2006. SKG's volume
growth compares to an estimated 2% broader market growth in the same period,
with the lower SKG figures reflecting the strong continued push for price
recovery.
Packaging: Latin America
While market conditions vary from country to country, demand growth was
generally strong across the Latin American region, and SKG's operations
continued to report a sharp financial performance in 2007, with good growth in
revenue and earnings year-on-year. In 2007, SKG's containerboard volumes in
Latin America were 2% higher than in 2006, while corrugated volumes increased 4%
year-on-year. The higher growth rate in corrugated reflects our regional
capacity constraint in containerboard.
In Mexico, SKG experienced positive corrugated volume growth in the first half
of the year. In the second half, growth was slower due to the US economic
slowdown and related impact on Mexican finished goods' exports. Domestic demand
continued to hold up however, and SKG implemented corrugated price increases in
the market. As a result, SKG's overall profitability in 2007 was materially
ahead of 2006.
SKG's Colombian business continues to experience high volumes, strong pricing
and good profits, in the context of the strong local economy.
In Venezuela, despite a high labour cost adjustment over the third quarter,
SKG's operations in the country benefited from the vibrant economic growth in
2007, and report good progress year-on-year.
Following a difficult start to the year in Argentina where increases in labour
and energy affected profitability, SKG operations recovered strongly in the
second half, as price recovery was achieved.
SKG is hosting an investor day - "Latin America Focus" - for investors and
analysts on 19 February, 2008, in New York. This day will allow attendees to
better understand the strength of SKG's business in this emerging region, the
quality of its management and its potential business growth opportunities.
Specialties: Europe
The Group's specialties business comprises those European mills which produce
grades of paper other than containerboard, together with the related converting
operations. These principally comprise the Group's solidboard mills, boxboard
and paper sack businesses and the bag-in-box operations.
In 2007, the financial performance of SKG's specialties business improved
compared to 2006, with a 13% increase of EBITDA year-on-year, primarily
reflecting SKG's strong focus on restoring acceptable end product pricing.
However, the performance of the solidboard business continues to be
significantly impacted by rising recovered paper costs due to higher fibre
content than in containerboard. While board prices have increased year-on-year,
further price initiatives are required on the converting side to fully recover
the higher input costs.
The sack paper market remains very strong, driven by a positive supply/demand
dynamic. As a result, SKG recently announced a further price increase of EUR 60
per tonne which is being implemented in the first quarter of 2008. As SKG is 50%
integrated in sack paper, this increase should have a positive effect on the
division's earnings. Getting the prices through to the converting operations
proved to be a more challenging exercise in 2007, with oversupply and intense
competition in many markets. However, price increases have been negotiated for
2008.
SKG's bag-in-box business reported strong growth in 2007, despite lower volumes
than expected in the third quarter following poor wine consumption in the summer
months. To support its growth, SKG concluded two expansion projects in 2007: the
acquisition of the Plasticos business in Spain, which will provide a platform
for further development of the Group's bag-in-box footprint in southern Europe,
together with a greenfield bag-in-box facility at its existing St Petersburg
corrugated plant in Russia.
Fourth Quarter, 2007: Cash Flows & Capital Structure
Free cash flow in the fourth quarter of 2007 was EUR 73 million compared to EUR
35 million in the same period in 2006. The improved cash flow reflected the
increased profits generated by the Group in 2007, even allowing for the
significant exceptional items booked in 2006 but unpaid at the year-end and the
non-cash impairment of fixed assets (both of which are added back in the cash
flow). The benefit of the increased profits in 2007 was partly offset by a lower
working capital inflow than in 2006.
The working capital inflow in the fourth quarter of 2007 was EUR 17 million
compared to EUR 33 million in 2006. This followed increased input pricing, both
of finished goods and raw materials, and a strong third quarter inflow.
Capital expenditure at EUR 96 million in the fourth quarter of 2007 represented
approximately 99% of depreciation compared to 166% in 2006. The relatively high
level of expenditure in 2006 largely reflected the phasing of projects during
the year with capital expenditure for the full year representing 98% of
depreciation.
At EUR 28 million, tax payments were significantly higher in the fourth quarter
of 2007 than in 2006. This reflected both the phasing of payments and the higher
level of cash tax for the full year. This was driven primarily by an overall
improvement in the profitability of our operations year-on-year in countries
such as Germany where we have a significant presence.
Financing and investment activity in the fourth quarter of 2007 resulted in a
net outflow of EUR 40 million, after which the net cash inflow for the Group was
EUR 33 million. The main outflows were a EUR 22 million repayment of derivatives
and investment expenditure of EUR 11 million primarily in respect of the Spanish
Bag-in-Box business, Plasticos. The EUR 5 million of refinancing costs paid in
the quarter related to the amendment to our bond indenture. Including disposal
proceeds of EUR 9 million, the net cash inflow in the fourth quarter in 2006 was
EUR 44 million.
The net cash inflow of EUR 33 million in the fourth quarter of 2007 was
increased by positive currency translation adjustments of EUR 14 million,
reflecting the relative strength of the euro, while reduced by EUR 4 million in
respect of the amortisation of debt issuance costs. The currency adjustment on
our net borrowing was very much lower than in the past given the reduction in
our exposure, particularly to the U.S. dollar, following the repayment of the
majority of our unhedged dollar denominated debt with the proceeds of the IPO.
The overall result was a reduction of EUR 44 million in net borrowing during the
fourth quarter of 2007, compared to EUR 97 million in the same period in 2006.
Full year, 2007: Cash Flows & Capital Structure
Free cash flow for the year to December 2007 was a net inflow of EUR 186
million, compared to a net outflow of EUR 29 million in the same period in 2006.
This progression reflects the improvement in profitability year-on-year, taking
into account a significant reduction in exceptional costs and once off
refinancing costs. Although these items increased the loss before tax in 2006,
they are added back to reach the free cash flow figure for the year. The
improvement in profitability was partly offset by a negative movement in the
level of capital creditors and increased outflows in current provisions.
Conversely, year-on-year the working capital outflow was reduced.
The working capital outflow for the year was EUR 25 million compared to an
outflow of EUR 75 million in 2006. The change on the prior year's level of
working capital was due to a significant increase in debtors at the year end
2006. In total, working capital at 31 December 2007 amounted to EUR 665 million
compared to EUR 625 million at December 2006, with the increase reflecting
mainly the impact of higher pricing and inventory volumes. Year-on-year, the
largest increase was in inventories as a result of both pricing and stock
levels. The stock increase is primarily related to stock builds for planned
maintenance downtime in 2008. Working capital at 31 December 2007 represented
9.1% of annualised fourth quarter sales revenue compared to 9.5% at 30 September
2007 and 8.9% at 31 December 2006.
Capital expenditure for the year of EUR 324 million represented 90% of
depreciation compared to expenditure in 2006, which at EUR 345 million
represented 98% of depreciation. The change in capital creditors of EUR 36
million occurred primarily in the first quarter of 2007 and was in essence the
reversal of the inflow in 2006.
The current provisions outflow for the year to December 2007 was EUR 80 million
compared to EUR 23 million in 2006. This outflow related principally to the
restructuring and reorganisation costs provided in 2006. The improved
profitability in 2007 resulted in a significant increase in tax payments.
Primarily as a result of the IPO in March, cash flows from financing and
investment activity amounted to EUR 1,295 for the year to December 2007, with
the proceeds of the share issue of EUR 1,495 million partially offset by costs
of the IPO of EUR 62 million and those relating to the subsequent refinancing of
borrowings of EUR 84 million (including EUR 5 million in respect of the
amendment of our bond indenture in the fourth quarter).
Excluding the IPO, cash flows from financing and investment activity amounted to
an outflow of EUR 54 million. Of this amount the repayment of derivatives
accounted for EUR 45 million, which included derivatives terminated as a result
of debt paydown and cash flows arising on maturing currency swaps. Investment
expenditure mainly related to the purchase of Plasticos and the investment in
Europack Carton in Romania. The total cash outlay for the year was a net EUR 14
million. Disposal proceeds of EUR 11 million in 2007 related mainly to Jonsac,
Recycling Ireland and our tubes and core business in Mexico, with a deferred
element of the consideration in relation to our Voghera mill in Italy, which was
sold in 2005, also included.
The net cash inflow for the year was EUR 1,481 million compared to an outflow of
EUR 60 million in 2006. The surplus for 2007 was increased by a positive
currency movement on borrowing of EUR 54 million while offset by EUR 47 million
in respect of the amortisation of debt issue costs, EUR 30 million of which was
accelerated by the paydown of debt, and EUR 12 million of non-cash interest
accrued. Following the reduction in our debt level, particularly U.S. dollar
debt, the currency adjustment on net borrowing was significantly lower than what
it was in 2006.
Net borrowing amounted to EUR 3,404 million at 31 December 2007 compared to EUR
3,448 million at 30 September 2007. As the improvement in the profitability of
the Group's operations over the year, leverage (EBITDA to net borrowing ratio)
has decreased from 3.7x at March to 3.6x at June, 3.3x at September and 3.2x at
December 2007.
Summary Cash Flows(1)
Summary cash flows for the fourth quarter and full year are set out
in the following table.
3 months 3 months 12 months 12 months
to to to to
31-Dec-07 31-Dec-06 31-Dec-07 31-Dec-06
EUR EUR EUR EUR
Million Million Million Million
---------------------------------------------------------------------
Profit/(loss) before tax -
subsidiaries 60 (45) 157 (149)
Exceptional items 7 25 13 134
Impairment of fixed assets - 27 6 31
Depreciation and depletion 97 82 360 353
Amortisation of intangible
assets 13 10 45 42
Reduction in goodwill 16 - 16 -
Non cash interest expense
(incl. fv of derivatives) (1) - 46 11
Refinancing costs 5 - 84 -
Share-based payments 4 2 25 8
Working capital change 17 33 (25) (75)
Current provisions (11) (5) (80) (23)
Capital expenditure (96) (136) (324) (345)
Change in capital creditors 10 45 (36) 36
Sale of fixed assets 7 12 29 25
Tax paid (28) (7) (73) (42)
Dividends from associates 1 1 4 5
Other (28) (9) (61) (40)
---------------------------------------------------------------------
Free cash flow 73 35 186 (29)
Investments (11) - (14) (34)
Sale of businesses and
investments - 9 11 15
Shares issued through IPO - - 1,495 -
Costs of IPO (2) - (62) -
Repayment of derivatives (22) - (45) -
Share issues 1 - 1 -
Dividends paid to minorities (1) - (7) (7)
Acquisition costs and fees - - - (5)
Refinancing costs (5) - (84) -
---------------------------------------------------------------------
Net cash inflow/(outflow) 33 44 1,481 (60)
Net cash/(debt)
acquired/disposed 1 1 2 1
EU disposals inter-company
debt repaid - 28 - 28
Deferred debt issue costs
amortised (4) (4) (47) (19)
Non-cash interest accrued - (14) (12) (51)
Currency movement on US$
debt - 17 - 48
Currency translation
adjustments 14 25 54 65
---------------------------------------------------------------------
Decrease in net borrowing EUR 44 EUR 97 EUR 1,478 EUR 12
---------------------------------------------------------------------
(1) The summary cash flow is prepared on a different basis to the cash flow
statement under IFRS.
The principal differences are as follows:
a) The summary cash flow details movements in net borrowing. The IFRS cash flow
details movement in cash and cash equivalents.
b) Free cash flow reconciles to operating cash flows in the IFRS cash flow
adjusted for capital expenditure, sale of fixed assets and certain interest
expense.
c) The IFRS cash flow has different sub-headings to those used in the summary
cash flow.
Capital Resources
The Group's primary sources of liquidity are cash flow from operations and
borrowings under the revolving credit and restructuring facilities. The Group's
primary uses of cash are for debt service and capital expenditure.
At 31 December, 2007 Smurfit Kappa Funding plc ("SK Funding") had outstanding
EUR 217.5 million 7.75% senior subordinated notes due 2015 and US$200 million
7.75% senior subordinated notes due 2015. In addition Smurfit Kappa Treasury
Funding Limited had outstanding US$292.3 million 7.50% senior debentures due
2025 and the Group had outstanding EUR 210 million floating rate notes issued
under an accounts receivable securitisation program maturing in 2011.
Smurfit Kappa Acquisitions and certain subsidiaries are party to a Senior Credit
Facility. The senior credit facility comprises a EUR 422 million amortising A
Tranche maturing in 2012, a EUR 1,187 million B Tranche maturing in 2013 and a
EUR 1,186 C Tranche maturing in 2014. In addition, as at 31 December, 2007, the
facility included EUR 875 million in committed lines including a EUR 600 million
revolving credit facility of which there were no drawings or amounts borrowed
under ancillary facilities or facilities supported by letters of credit, and a
EUR 275 million restructuring facility of which EUR 103 million was borrowed.
The following table provides the range of interest rates as of 31 December, 2007
for each of the drawings under the various Senior Credit Facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Restructuring Facility EUR 6.25% - 6.44%
Term Loan A EUR 6.16% - 6.45%
Term Loan B EUR 6.31% - 6.82%
USD 7.12%
Term Loan C EUR 6.56% - 7.07%
USD 7.37%
Borrowings under the revolving credit facility are available to fund the Group's
working capital requirements, capital expenditures and other general corporate
purposes and will terminate in December 2012.
On 20 March, 2007 SKG plc received gross proceeds from an initial public
offering of its shares of EUR 1.495 billion. The net proceeds of the offering
have been used to repay certain indebtedness of the subsidiaries of SKG plc,
including SK Funding, together with costs of the initial public offering and
costs associated with refinancing and debt repayment.
On 21 March, 2007 SKG plc paid off its shareholder PIK obligation of EUR 99.6
million.
On 14 February, 2007 Smurfit Kappa Holdings plc ("SK Holdings") launched a
tender offer for its 11.5% senior PIK notes due 2015 (the "PIK notes"). On 21
March, 2007 90% of the PIK notes were tendered in the tender offer. The
settlement amount including the tender premium was EUR 380.4 million. On 21
March, 2007 SK Holdings issued a call notice on the remaining outstanding PIK
notes which was finally settled on 20 April, 2007 at a settlement amount
including a premium of EUR 42.7 million.
On 14 February, 2007 SK Funding launched a tender offer for EUR 219 million of
its 10.125% euro senior notes due in October 2012 and US$470 million of its
9.625% Dollar senior notes also due in October 2012. On 21 March, 2007 the
tender offers for EUR 219 million of the 10.125% euro senior notes and US$470
million of the 9.625% Dollar senior notes were settled. The total settlements
including tender premium were EUR 236.3 million and US$501.9 million
respectively. On 22 March, 2007 SK Funding launched a further tender offer for
EUR 98 million of its 10.125% senior euro notes due in October 2012 and US$208
million of 9.625% Dollar senior bonds due in October 2012. These tenders were
settled on 24 April, 2007. The total settlements including tender premium on the
second tender were EUR 105.2 million and US$221.4 million respectively.
Following these tenders the remaining obligations were EUR 33 million under the
10.125% euro senior notes and US$72 million under the 9.625% Dollar senior
notes. On 19 July, 2007 SK Funding launched a tender offer for all of the
remaining 10.125% euro and 9.625% US Dollar senior notes. This tender closed on
16 August, 2007, resulting in the repayment of EUR 29 million of the euro senior
notes and US$72 million of the Dollar senior notes. The repayment was funded by
a drawdown under tranches B and C of the senior credit facility. On 2 November,
2007 the remaining EUR 3.68 million euro senior notes and US$0.06 million Dollar
senior notes were redeemed in full.
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. At 31
December, 2007 the Group had fixed an average of 60% of its interest cost on
borrowings over the following twelve months.
Our fixed rate debt comprised mainly EUR 217.5 million 7.75% senior subordinated
notes due 2015, US$200 million 7.75% senior subordinated notes due 2015 and
US$292 million 7.50% senior debentures due 2025. In addition the Group also has
EUR 1,780 million in interest rate swaps with maturity dates ranging from
October 2008 to June 2010.
Our earnings are affected by changes in short-term interest rates as a result of
our floating rate borrowings. If LIBOR interest rates for these borrowings
increase by one percent, our interest expense would increase, and income before
taxes would decrease, by approximately EUR 16 million over the following twelve
months. Interest income on our cash balances would increase by approximately EUR
4 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.
Group Income Statement - Full Year
12 Months to 31-Dec-07
Pre-
Exceptional Exceptional
2007 2007 Total 2007
EUR '000 EUR '000 EUR '000
---------------------------------------------------------------
Continuing operations
Revenue 7,271,657 - 7,271,657
Cost of sales (5,236,787) (6,433) (5,243,220)
----------------------------------------
Gross profit 2,034,870 (6,433) 2,028,437
Distribution costs (583,542) - (583,542)
Administrative
expenses (882,086) - (882,086)
Other operating
income 48,489 12,513 61,002
Other operating
expenses - (61,797) (61,797)
----------------------------------------
Operating profit 617,731 (55,717) 562,014
Finance costs (492,158) (115,427) (607,585)
Finance income 202,961 - 202,961
Share of associates'
profit (after tax) 12,513 - 12,513
----------------------------------------
Profit/(loss) before
income tax 341,047 (171,144) 169,903
Income tax expense (3,503)
----------------------------------------
Profit/(loss) for the
financial period EUR 166,400
========================================
Attributable to:
Equity holders of the
Company 147,169
Minority interest 19,231
----------------------------------------
Profit/(loss) for the
financial period EUR 166,400
========================================
Earnings per share:
Continuing:
Basic earnings per
share (cent per
share) 74.3
Diluted earnings per
share (cent per
share) 71.7
============
12 Months to 31-Dec-06
Pre-
Exceptional Exceptional
2006 2006 Total 2006
EUR '000 EUR '000 EUR '000
-------------------------------------------------------------
Continuing operations
Revenue 6,969,642 - 6,969,642
Cost of sales (5,009,582) (31,299) (5,040,881)
----------------------------------------
Gross profit 1,960,060 (31,299) 1,928,761
Distribution costs (597,284) - (597,284)
Administrative
expenses (884,925) - (884,925)
Other operating
income 1,972 - 1,972
Other operating
expenses - (218,285) (218,285)
----------------------------------------
Operating profit 479,823 (249,584) 230,239
Finance costs (569,440) (29,905) (599,345)
Finance income 219,636 - 219,636
Share of associates'
profit (after tax) 6,360 - 6,360
----------------------------------------
Profit/(loss) before
income tax 136,379 (279,489) (143,110)
Income tax expense (10,505)
----------------------------------------
Profit/(loss) for the
financial period EUR (153,615)
========================================
Attributable to:
Equity holders of the
Company (170,134)
Minority interest 16,519
----------------------------------------
Profit/(loss) for the
financial period EUR (153,615)
========================================
Earnings per share:
Continuing:
Basic earnings per
share (cent per
share) (134.8)
Diluted earnings per
share (cent per
share) (134.8)
=============
Group Statement of Recognised Income and Expense
2007 2006
EUR '000 EUR '000
-------------------------------------------------------- -------------
Items of income and expense recognised
directly within equity:
Foreign currency translation adjustments (92,101) (45,511)
Defined benefit pension schemes
- Actuarial gain/(loss) 50,494 87,701
- Movement in deferred tax (15,992) (15,514)
Effective portion of changes in fair value
of cash flow hedges:
- movement out of reserve (11,818) 2,351
- new fair value adjustments into
reserve 11,121 23,427
- Movement in deferred tax (25) (1,184)
Net change in fair value of available-for-
sale financial assets 564 11
------------- -------------
Net income and expense recognised directly
within equity (57,757) 51,281
Profit/(loss) for the financial year 166,400 (153,615)
------------- -------------
Total recognised income and expense for the
financial year EUR 108,643 EUR (102,334)
============= =============
Attributable to:
Equity holders of the Company 100,458 (107,553)
Minority interest 8,185 5,219
------------- -------------
EUR 108,643 EUR (102,334)
============= =============
Group Balance Sheet
2007 2006
EUR '000 EUR '000
----------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 3,251,479 3,381,981
Goodwill and intangible assets 2,416,785 2,485,147
Available-for-sale financial assets 43,511 44,413
Investment in associates 79,307 76,668
Biological assets 74,758 68,042
Trade and other receivables 6,716 14,260
Derivative financial instruments 4,301 10,668
Deferred income tax assets 340,415 302,215
----------------------------
6,217,272 6,383,394
----------------------------
Current assets
Inventories 682,169 630,168
Biological assets 6,862 7,856
Trade and other receivables 1,379,105 1,337,416
Derivative financial instruments 28,261 16,819
Restricted cash 13,096 10,317
Cash and cash equivalents 401,622 360,385
----------------------------
2,511,115 2,362,961
Non-current assets held for sale 15,999 5,000
----------------------------
Total assets EUR 8,744,386 EUR 8,751,355
============================
Equity
Capital and reserves attributable to the
equity holders of the Company
Equity share capital 228 136
Capital and other reserves 2,538,047 1,158,748
Retained earnings (485,053) (663,706)
----------------------------
Total equity attributable to equity
holders of the Company 2,053,222 495,178
Minority interest 137,443 136,343
----------------------------
Total equity 2,190,665 631,521
============================
Liabilities
Non-current liabilities
Borrowings 3,667,618 5,092,371
Employee benefits 480,964 584,594
Deferred income tax liabilities 530,102 543,845
Non-current taxes payable 19,704 29,477
Provisions for liabilities and charges 77,698 92,204
Capital grants 14,176 13,869
Other payables 8,535 -
----------------------------
4,798,797 6,356,360
----------------------------
Current liabilities
Borrowings 150,976 160,661
Trade and other payables 1,402,687 1,356,615
Current income tax liabilities 25,650 14,135
Derivative financial instruments 121,058 127,167
Provisions for liabilities and charges 54,553 104,896
----------------------------
1,754,924 1,763,474
----------------------------
Total liabilities 6,553,721 8,119,834
----------------------------
Total equity and liabilities EUR 8,744,386 EUR 8,751,355
============================
Group Cash Flow Statement
2007 2006
EUR '000 EUR '000
----------------------------------------------------------------------
Cash flows from operating activities
Profit/(loss) for the financial year 166,400 (153,615)
Adjustment for
Income tax expense 3,503 10,505
Profit on sale of assets and businesses -
continuing operations (12,513) 22,856
Amortisation of government grants (2,157) (1,972)
Impairment of property, plant and equipment 6,433 31,299
Equity settled share-based payment transactions 24,741 8,084
Amortisation of intangibles 45,304 42,445
Reduction in goodwill 16,068 -
Share of profit of associates (12,513) (6,360)
Depreciation charge 357,225 357,549
Net finance costs 404,624 379,709
Change in inventories (68,645) (807)
Change in biological assets 3,053 (5,105)
Change in trade and other receivables (55,438) (61,333)
Change in trade and other payables 100,265 9,996
Change in provisions (62,347) 55,234
Change in employee benefits (55,294) (36,094)
Foreign currency translation adjustments 678 (4,759)
-----------------------
Cash generated from operations 859,387 647,632
Interest paid (409,871) (349,876)
Income taxes paid:
Irish corporation tax paid (4,296) (2,651)
Overseas corporation tax (net of tax refunds)
paid (69,175) (38,879)
-----------------------
Net cash inflow from operating activities 376,045 256,226
-----------------------
Cash flows from investing activities
Interest received 28,612 13,318
Business disposals 10,720 42,438
Purchase of property, plant & equipment and
biological assets (349,744) (295,213)
Purchase of intangible assets (6,796) (10,117)
Receipt of capital grants 2,424 783
Purchase of available-for-sale financial assets (106) (1,507)
(Increase) / decrease in restricted cash (2,779) 759,342
Disposal of property, plant and equipment 28,529 25,224
Disposal of investments - 1,129
Dividends received from associates 3,617 5,087
Investments in /disposals of associates 408 1,598
Purchase of subsidiaries and minorities (12,013) (22,300)
Deferred and contingent acquisition
consideration paid (14) (33,573)
-----------------------
Net cash (outflow)/inflow from investing
activities (297,142) 486,209
-----------------------
Cash flow from financing activities
Proceeds from issue of new ordinary shares 1,496,244 -
Costs associated with issuing new shares (62,208) -
(Decrease) / increase in interest-bearing
borrowings 91,853 136,070
Repayment of finance lease liabilities (20,256) (17,741)
Repayments of interest-bearing borrowings (1,464,927) (738,203)
Repayment of derivatives (45,186) -
Deferred debt issuance costs (8,213) -
Dividends paid to minority interests (7,282) (7,175)
-----------------------
Net cash (outflow) from financing activities (19,975) (627,049)
-----------------------
Increase in cash and cash equivalent 58,928 115,386
=======================
Reconciliation of opening to closing cash and
cash equivalents
Cash and cash equivalents at 1 January 321,494 214,358
Currency translation adjustment (5,032) (8,250)
Increase in cash and cash equivalents 58,928 115,386
-----------------------
Cash and cash equivalents at 31 December EUR 375,390 EUR 321,494
=======================
Smurfit Kappa Group plc
Notes to the Consolidated Financial Statements (continued)
1. General information
Smurfit Kappa Group plc ('SKG plc') ('the Company') and its subsidiaries
(together 'the Group') manufacture, distribute and sell containerboard,
corrugated containers and other paper-based packaging products such as
solidboard and graphicboard.
On 14 March 2007, the Company, formed in January 2007 as the ultimate holding
company for the Group, completed an initial public offering, with the placing to
institutional investors of 78,787,879 new ordinary shares in SKG plc (the
"Ordinary Shares"). This offering, together with the issue of an additional
11,818,181 ordinary shares, generated gross proceeds of EUR 1,495 million, which
were used to repay certain debt obligations of the Group and to repay the
shareholder PIK note issued in connection with the Group's 2005 Kappa Packaging
merger.
Trading in the shares on the Irish Stock Exchange and the London Stock Exchange
commenced on 20 March 2007. The additional shares were issued on admission by
Deutsche Bank acting as stabilising manager under an over-allocation option
representing shares up to a maximum of 15% of the total number of shares in the
initial public offering.
2. Basis of Preparation
Following admission to the Official List of the Irish Stock Exchange and the
Financial Services Authority in accordance with European Union Regulations, the
Company is required to prepare statutory consolidated financial statements for
the year ended 31 December 2007 and subsequent years in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the EU,
International Financial Reporting Interpretations Committee ("IFRIC")
interpretations adopted by the EU, and with those parts of the Companies Acts
applicable to companies reporting under IFRS.
In connection with the Company's application for admission, the Company was
required by item 20.1 of Annex 1 to the Prospectus Regulations 2005 to prepare
and present in its prospectus the last three years audited historical financial
information in a form consistent with the accounting policies to be adopted in
the Company's 2007 financial statements. Accordingly, the directors of the
Company prepared financial information for the Group at the transition date of
1 January 2004 and for each of the years ended 31 December 2004, 2005 and 2006,
on the basis expected to be applicable, in so far as was then currently known,
for the financial statements to be prepared for the year ended 31 December 2007,
except where otherwise required or permitted by IFRS 1 First-time adoption of
International Financial Reporting Standards.
On 31 January 2007, the Group previously headed by Smurfit Kappa Investments
Limited (formerly known as Smurfit Kappa Group Limited) ("SKIL") underwent a
reorganisation in advance of the Group's IPO. The shareholders of SKIL exchanged
their shares of SKIL for an identical number of newly issued shares of Smurfit
Kappa Group plc, a newly incorporated company. Notwithstanding the change in the
legal parent of the Group, this transaction has been accounted for as a reverse
acquisition, and the financial information has been prepared on the basis of the
new legal parent having been acquired by the existing Group. As a result, the
Group did not restate the assets and liabilities of SKIL to their fair values.
These assets and liabilities continue to be carried at the amounts they were
recorded at prior to the above transaction, and consequently no goodwill arises
on the transaction.
The financial information presented in this report has been prepared in
accordance with the Listing Rules of the Irish Stock Exchange and the accounting
policies that the Group have adopted for 2007. These accounting policies are
consistent with the Group's accounting policies included in the prospectus. Full
details of the accounting policies adopted by the Group on implementation of
IFRS were published in its prospectus dated 13 March 2007, which is available on
the Group's website www.smurfitkappa.com.
3. Use of Estimates
Estimates and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, rarely equal the related actual
results. The key estimates and assumptions that have a significant impact on the
financial statements are as follows:
-- estimation of recoverable amount of goodwill and intangible assets
-- estimates in relation to income taxes
-- fair value of derivatives and other financial instruments
-- valuation of available-for-sale financial assets
-- measurement of defined benefit obligations.
-- provisions
-- share-based payments
-- estimation of useful lives for fixed assets
4. Segmental Analyses
12 months to 31-Dec-07
PackagingSpecialties Total
EUR '000 EUR '000 EUR '000
----------------------------------------------------------
Third party revenue EUR EUR
(external) 6,313,553EUR 958,104 7,271,657
=================================
Segment results-pre
exceptionals 598,781 55,582 654,363
Exceptional items (23,825) (4,965) (28,790)
---------------------------------
Segment results-post
exceptionals 574,956 50,617 625,573
Unallocated centre
costs-pre exceptionals (36,632)
Group centre
exceptional items (26,927)
-----------
Operating profit 562,014
Share of associates'
profit/(loss) (after
tax) 12,513 - 12,513
Finance costs (607,585)
Finance income 202,961
-----------
Profit/(loss) before
income tax EUR 169,903
===========
12 months to 31-Dec-06
PackagingSpecialties Total
EUR '000 EUR '000 EUR '000
--------------------------------------------------------
Third party revenue EUR EUR
(external) 5,998,830EUR 970,812 6,969,642
=================================
Segment results-pre
exceptionals 465,058 49,352 514,410
Exceptional items (199,511) (49,427) (248,938)
---------------------------------
Segment results-post
exceptionals 265,547 (75) 265,472
Unallocated centre
costs-pre exceptionals (34,587)
Group centre
exceptional items (646)
-----------
Operating profit 230,239
Share of associates'
profit/(loss) (after
tax) 7,907 (1,547) 6,360
Finance costs (599,345)
Finance income 219,636
-----------
Profit/(loss) before EUR
income tax (143,110)
===========
5. Employee Post Retirement Schemes - Defined Benefit Expense
The table below sets out the components of the defined benefit expense for the
period:
12 Months 12 Months
to to
31-Dec-07 31-Dec-06
----------------------
EUR '000 EUR '000
Current service cost 50,255 51,995
Past service cost 4,706 3,823
(Gain) on settlements and curtailments (5,109) (4,189)
Actuarial gains and losses arising on long-term
employee benefits other than defined benefit
schemes (3,518) 1,130
----------------------
46,334 52,759
----------------------
Expected return on scheme assets (87,387) (80,684)
Interest cost on scheme liabilities 96,348 89,939
----------------------
Other financial expense 8,961 9,255
----------------------
Defined benefit expense EUR 55,295 EUR 62,014
----------------------
The disclosures above reflect the requirements of IAS 19 - Employee Benefits.
Included in cost of sales and net operating expenses is a defined benefit
expense of EUR 46,334,000 and EUR 52,759,000 for 2007 and 2006 respectively.
Expected Return on Scheme Assets of EUR 87,387,000 (2006: EUR 80,684,000) is
included in Finance Income and Interest Cost on Scheme Liabilities of EUR
96,348,000 (2006: EUR 89,939,000) is included in Finance Expense in the Group
Income Statement.
6. Other Operating Income
Other operating income includes insurance proceeds of EUR 46 million in respect
of a fire in the Group's mill in Facture, France. The costs of the fire and
related downtime are included in the appropriate cost headings within operating
profit.
7. Exceptional Items
The following items are regarded as
exceptional in nature: 2007 2006
EUR '000 EUR '000
----------------------------------------------------------------------
Reorganisation and restructuring costs (61,797) (174,540)
Settlement of Dominican Republic legal
case - (20,279)
Net income/(loss) on sale of assets and
operations 12,513 (22,856)
Impairment loss on property, plant and
equipment (6,433) (31,299)
Other impairments - (610)
----------------------------------------------------------------------
Total exceptional items included in
operating costs EUR (55,717) EUR (249,584)
----------------------------------------------------------------------
Total exceptional items included in
finance costs EUR (115,427) EUR (29,905)
----------------------------------------------------------------------
Following the completion of the merger with Kappa Packaging ("Kappa") in
December 2005, the Group undertook a significant restructuring programme with
the objective of fully integrating the combined operations of the Jefferson
Smurfit Group and Kappa Packaging in order to achieve planned synergy benefits.
This programme involved the restructuring of our European paper mills and
converting plants and rationalisation of our head office function.
Reorganisation and restructuring costs comprise redundancy payments and other
closure costs in both 2007 and 2006.
The reorganisation and restructuring costs in 2007, include the termination
costs on closures of a containerboard mill in France, a cartons plant and a
small sheet plant in Ireland and a solid board packaging plant in Norway.
Reorganisation and restructuring costs also include a payment to the former
Chairman of the Group of EUR 9 million as a result of the Separation Agreements
entered into at the time of the IPO, costs of EUR 10 million in respect of the
termination of certain long-term contracts and EUR 4 million in respect of
once-off costs relating to our compliance program.
The paper mill restructuring programme in 2006 included the closure of five
high-cost containerboard mills; four in France and one in Germany. The Group's
corrugated converting plants in Europe were restructured to optimise the
enlarged system and make it more efficient. The programme resulted in the
closure of four plants; two in France and two in the UK.
As a result of the restructuring programme significant synergies have been
achieved throughout the Group, including paper mill rationalisation, machine
specialisation, paper logistics and integration, corrugated system optimisation,
purchasing savings and central and administrative overhead reductions.
In 2007 an impairment charge of EUR 6.4 million is reflected in the Packaging
segment and resulted from the closure of the containerboard mill in France. In
2006, an impairment charge amounting to EUR 22.1 million was recognised in the
Packaging segment in relation to a number of entities predominantly located in
the Eurozone, which results primarily from the restructuring programme. An
impairment charge of EUR 9.2 million was also reflected in the Specialties
segment and resulted from the restructuring of certain operations in the
Netherlands and the resulting impact on recoverable amounts of underlying
property, plant and equipment.
Net income on sale of assets and operations in 2007 included gains on the sale
of land and buildings in Spain, Italy, the UK and Venezuela. We also sold a
small sack plant in Sweden and a small solid board operation in Mexico. The net
gains arising on these disposals, net of other gains and losses, gave rise to
the overall gain of EUR 12.5 million above. During 2006, the Group completed the
disposal of eight facilities as required under the European Union approval of
the merger with Kappa comprising of operations in the Netherlands, Sweden and
Denmark. Losses arising on these disposals, net of other less significant gains
and losses, gave rise to the overall loss of EUR 22.9 million above.
In 2006, the Group was subject to a long running court action in relation the
ownership of its corrugated container plant in the Dominican Republic. Following
the completion of court proceedings in 2006, the Group incurred settlement costs
of EUR 20.3 million. The settlement includes the transfer of title to certain
assets and payment of cash consideration in three tranches in January 2007, 2008
and 2009, all of which was expensed in 2006.. The Group has retained ownership
of the plant and equipment and the goodwill of the business.
Exceptional finance costs of EUR 115 million arose in 2007 following our use of
the proceeds from the IPO to pay down debt. These costs comprise refinancing
costs of EUR 85 million and the non-cash accelerated amortisation of debt costs
of EUR 30 million. The exceptional finance cost of EUR 30 million in 2006
related mainly to the impairment of available-for-sale financial assets.
8. Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit or loss
attributable to equity holders of the Company by the weighted average number of
ordinary shares in issue during the year.
2007 2006
EUR '000 EUR '000
----------------------------------------------------------------------
Profit / (loss) attributable to equity holders of
the Company 147,169(170,134)
Weighted average number of ordinary shares in issue
('000) (1) 198,188 126,242
Basic earnings per share (cent per share) 74.3 (134.8)
----------------------------------------------------------------------
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 Plan.
2007 2006(2)
EUR '000 EUR '000
----------------------------------------------------------------------
Profit / (loss) attributable to equity holders of
the Company 147,169(170,134)
Weighted average number of ordinary shares in
issue ('000) (1) 198,188 126,242
Potential dilutive ordinary shares assumed 7,140 -
---------------------
Diluted weighted average ordinary shares 205,329 126,242
---------------------
Diluted earnings per share (cent per share) 71.7 (134.8)
----------------------------------------------------------------------
(1) Average of ordinary shares in issue pre and post the IPO. Ordinary shares in
issue at 31 December, 2007 amounted to 217,985,995.
(2) There is no difference between basic and diluted loss per share in 2006 as
the inclusion of the dilutive impact of the convertible shares would have the
effect of reducing the loss per share.
9. Reconciliation of Movements in Shareholder's Funds
12 months to 12 months to
31-Dec-2007 31-Dec-2006
EUR '000 EUR '000
----------------------------------------------------------------------
At beginning of period 631,521 729,869
Total recognised gains and losses 108,643 (102,334)
Shares issued 92 -
Share premium on shares issued 1,432,905 -
Share-based payment expense 24,741 8,084
Purchase of minorities (1,462) (14)
Dividends paid to minorities (5,775) (4,084)
----------------------------------------------------------------------
At end of period EUR 2,190,665 EUR 631,521
======================================================================
10. Analysis of Net Debt
31-Dec-07 31-Dec-06
EUR '000 EUR '000
--------------------
Senior credit facility:
Revolving credit facility (1) - interest at
relevant interbank rate + 1.5% (10,746) (6,982)
Restructuring facility (2) - interest at relevant
interbank rate + 1.5% until conversion to Term
Loan 103,200 103,200
Tranche A Term loan (3a) - interest at relevant
interbank rate + 1.5% 422,214 442,492
Tranche B Term loan (3b) - interest at relevant
interbank rate + 1.875% 1,187,045 1,142,998
Tranche C Term loan (3c) - interest at relevant
interbank rate + 2.125% 1,186,147 1,142,547
Yankee bonds (including accrued interest) (4) 198,674 219,764
Bank loans and overdrafts / (cash) (324,946) (246,715)
2011 Receivables securitisation floating rate
notes (including accrued interest) (5) 205,815 204,656
--------------------
2,967,403 3,001,960
2012 Bonds (including accrued interest) (6) - 922,218
2015 Cash pay subordinated notes (including
accrued interest) (7) 352,985 368,299
--------------------
Net Debt before finance leases 3,320,388 4,292,477
Finance leases 72,786 91,281
--------------------
Net Debt including leases - Smurfit Kappa Funding
plc 3,393,174 4,383,758
Balance of revolving credit facility reclassified
to debtors 10,746 6,982
Deferred debt issuance costs other - (1,994)
--------------------
Net Debt after reclassification - Smurfit Kappa
Funding plc 3,403,920 4,388,746
2015 Senior PIK Notes - Smurfit Kappa Holdings plc
( including accrued interest) (8) - 396,344
Smurfit Finance Luxembourg Sarl PIK (9) - 97,700
SKG plc, SK Investments Ltd, SK Holdings plc, SK
Corporation Ltd & Smurfit Finance Lux cash (44) (460)
--------------------
Net Debt including leases - Smurfit Kappa Group EUR EUR
plc 3,403,876 4,882,330
====================
(1) Revolving credit facility of EUR 600 million (available under the
senior credit facility) to be repaid in full in 2012
(Revolver Loans = EUR 0m, Drawn under Ancillary facilities and
facilities supported by letters of credit = EUR 0m)
(2) Restructuring credit facility of EUR 275 million (available under
the senior credit facility)
(3a) Term Loan A due to be repaid in certain instalments up to 2012
(3b) Term Loan B due to be repaid in full in 2013
(3c) Term Loan C due to be repaid in full in 2014
(4) 7.50% senior debentures due 2025 of $292.3 million
(5) Receivables securitisation floating rate notes mature September
2011
(6) 10.125% senior notes due 2012 and 9.625% senior notes due 2012
(7) EUR 217.5 million 7.75% senior subordinated notes due 2015 and
US$200.0 million 7.75% senior subordinated notes due 2015
(8) 11.5% Senior PIK Notes due 2015
(9) 9% Shareholder PIK
11. Convertible Equity
In March 2007 upon the IPO becoming effective, all of the then class A, E, F and
H convertible shares and 80% of the class B convertible shares vested and were
converted into D convertible shares. The class C, class G and 20% of the class B
convertible shares did not vest and were re-designated as A1, A2 and A3
convertible shares.
The A1, A2 and A3 convertible shares will automatically convert on a one-to-one
basis into D convertible shares on the first, second and third anniversaries
respectively of the IPO, provided their holder remains an employee of the Group
at the relevant anniversary. The D convertible shares resulting from these
conversions are convertible on a one-to-one basis into ordinary shares, at the
instance of the holder, upon the payment by the holder of the agreed conversion
price. The life of the D convertible shares arising from the vesting of these
new classes of convertible share ends on 20 March, 2014.
Subject to certain conditions the convertible shares may become vested at the
discretion of the board of directors of SKG plc at any time. The plans provide
for equity settlement only, no cash settlement alternative is available.
In March 2007, SKG plc adopted the 2007 Share Incentive Plan (the "2007 SIP").
Incentive awards under the 2007 SIP are in the form of New Class B and New Class
C convertible shares issued in equal proportions to participants at a nominal
value of EUR 0.001 per share. On satisfaction of specified performance criteria
the New B and New C convertible shares will automatically convert on a
one-to-one basis into D convertible shares. The D convertibles may be converted
by the holder into ordinary shares upon payment of the agreed conversion price.
The conversion price for each D convertible share is the market value of an
ordinary share on the date the participant was invited to subscribe less the
nominal subscription price. Each award has a life of ten years from the date of
issuance of the New Class B and New Class C convertible shares.
As of 31 December, 2007, SKG plc had a total of 12,900,028 convertible shares in
issue in total, 10,150,828 under the 2002 Plan, as amended and 2,749,200 under
the 2007 SIP.
A summary of the activity under the 2002 Plan, as amended, for the period since
allotment to 31 December, 2007 is presented below.
Shares 000's Class of Convertible shares
-------------------------------------------------
A B C D E F
-------------------------------------------------------------
Balance
Dec. 2006 126.6 413.2 206.6 286.6 2,923.5 2,923.5
-------------------------------------------------------------
Vested into
D (126.6) (330.6) -8,367.0(2,923.5)(2,923.5)
Converted
into A1, A2
& A3 - (82.6) (206.6) - - -
Converted
into
Ordinary
shares - - -(253.8) - -
Balance
Dec. 2007 - - -8,399.8 - -
Exercisable
Dec. 2007 - - -8,399.8 - -
-------------------------------------------------------------
Shares 000's Class of Convertible shares
------------------------------------------
G H A1 A2 A3 Total
------------------------------------------------------
Balance
Dec. 2006 1,461.7 2,062.9 - - - 10,404.6
------------------------------------------------------
Vested into
D -(2,062.9) - - - -
Converted
into A1, A2
& A3 (1,461.7) -583.7583.7583.6 -
Converted
into
Ordinary
shares - - - - - (253.8)
Balance
Dec. 2007 - -583.7583.7583.6 10,150.8
Exercisable
Dec. 2007 - - - - - 8,399.8
------------------------------------------------------
The exercise price for all D convertible shares other than those derived from
Class H convertibles at 31 December, 2007 was EUR 4.28. The exercise price for D
convertible shares derived from Class H convertibles was EUR 5.69 at 31
December, 2007. The weighted average remaining contractual life of all the
awards issued under the 2002 Plan, as amended, at 31 December, 2007 was 4.98
years.
A summary of the activity under the 2007 SIP, for the period ended 31 December,
2007 is presented below:
Shares 000's Class of Convertible shares
----------------------------------
New B New C Total
April 2007 Allotted 424.2 424.2 848.4
May 2007 Allotted 950.4 950.4 1,900.8
Balance December 2007 1,374.6 1,374.6 2,749.2
Exercisable December 2007 - - -
The exercise price for all New B and New C convertible shares upon vesting at 31
December, 2007 was EUR 18.28. The weighted average remaining contractual life of
all the awards issued under the 2007 SIP at 31 December, 2007 was 9.32 years.
12. Transactions with Key Management Personnel
In June 2007, a cash amount totalling approximately EUR 5.8 million was awarded
to the Executive Directors and the Company Secretary by the major shareholders
Madison Dearborn Capital Partners and Smurfit Kappa Feeder G.P. Limited and is
payable directly by those shareholders. The award was made in connection with
the successful flotation of the company.
13. Statutory Accounts
The financial statements prepared in accordance with International Financial
Reporting Standards included in this report do not comprise "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 the disclosure and other requirements of
those Regulations. The preliminary release was approved by the board of
directors. The annual report and financial statements will be approved by the
board of directors and reported on by the auditors in due course. Accordingly,
the financial information is unaudited. Full group accounts for the year ended
31 December, 2006 have received an unqualified audit report and have been filed
with the Irish Registrar of Companies.
Supplemental Financial Information
Group Income Statement - Fourth Quarter
3 Months to 31-Dec-07
Pre-
Exceptional Exceptional
2007 2007 Total 2007
EUR '000 EUR '000 EUR '000
----------------------------------------------------------------
Continuing operations
Revenue 1,817,795 - 1,817,795
Cost of sales (1,342,575) (358) (1,342,933)
---------------------------------------
Gross profit 475,220 (358) 474,862
Distribution costs (139,926) - (139,926)
Administrative expenses (191,372) - (191,372)
Other operating income 904 4,975 5,879
Other operating
expenses - (23,155) (23,155)
---------------------------------------
Operating profit 144,826 (18,538) 126,288
Finance costs (114,735) (5,457) (120,192)
Finance income 54,769 - 54,769
Share of associates'
profit (after tax) 2,769 - 2,769
---------------------------------------
Profit/(loss) before
income tax 87,629 (23,995) 63,634
Income tax expense 45,557
---------------------------------------
Profit/(loss) for the
financial period EUR 109,191
=======================================
Attributable to:
Equity holders of the
Company 102,166
Minority interest 7,025
---------------------------------------
Profit/(loss) for the
financial period EUR 109,191
=======================================
3 Months to 31-Dec-06
Pre-
Exceptional Exceptional
2006 2006 Total 2006
EUR '000 EUR '000 EUR '000
--------------------------------------------------------------
Continuing operations
Revenue 1,749,206 - 1,749,206
Cost of sales (1,248,339) (27,458) (1,275,797)
---------------------------------------
Gross profit 500,867 (27,458) 473,409
Distribution costs (138,116) - (138,116)
Administrative expenses (204,099) - (204,099)
Other operating income 511 (7,259) (6,748)
Other operating
expenses - (82,271) (82,271)
---------------------------------------
Operating profit 159,163 (116,988) 42,175
Finance costs (131,200) (1,905) (133,105)
Finance income 45,728 - 45,728
Share of associates'
profit (after tax) 2,014 - 2,014
---------------------------------------
Profit/(loss) before
income tax 75,705 (118,893) (43,188)
Income tax expense (5,883)
---------------------------------------
Profit/(loss) for the
financial period EUR (49,071)
=======================================
Attributable to:
Equity holders of the
Company (55,266)
Minority interest 6,195
---------------------------------------
Profit/(loss) for the
financial period EUR (49,071)
=======================================
Segmental Analyses - Fourth Quarter
3 months to 31-Dec-07
PackagingSpecialties Total
EUR '000 EUR '000 EUR '000
----------------------------------------------------------
Third party revenue EUR EUR
(external) 1,579,134EUR 238,661 1,817,795
=================================
Segment results-pre
exceptionals 132,371 11,460 143,831
Exceptional items (3,183) 1,250 (1,933)
---------------------------------
Segment results-post
exceptionals 129,188 12,710 141,898
Unallocated centre
costs-pre exceptionals 995
Group centre
exceptional items (16,605)
-----------
Operating profit 126,288
Share of associates'
profit/(loss) (after
tax) 2,769 - 2,769
Finance costs (120,192)
Finance income 54,769
-----------
Profit/(loss) before
income tax EUR 63,634
===========
3 months to 31-Dec-06
PackagingSpecialties Total
EUR '000 EUR '000 EUR '000
----------------------------------------------------------
Third party revenue EUR
(external) 1,522,742EUR 226,464EUR 1,749,206
===================================
Segment results-pre
exceptionals 164,407 7,119 171,526
Exceptional items (69,020) (47,179) (116,199)
-----------------------------------
Segment results-post
exceptionals 95,387 (40,060) 55,327
Unallocated centre
costs-pre exceptionals (12,363)
Group centre
exceptional items (789)
-------------
Operating profit 42,175
Share of associates'
profit/(loss) (after
tax) 2,772 (758) 2,014
Finance costs (133,105)
Finance income 45,728
-------------
Profit/(loss) before
income tax EUR (43,188)
=============
Reconciliation of net income to EBITDA, before exceptional items and
share-based payments
3 months3 months12 months 12 months
to to to to
31-Dec- 31-Dec-
07 06 31-Dec-0731-Dec-06
EUR '000EUR '000 EUR '000 EUR '000
----------------------------------------------------------------------
Profit/(loss) for the financial
period 109,191(49,071) 166,400(153,615)
Income tax expense (45,557) 5,883 3,503 10,505
Share of associates' operating
income (2,769) (2,014) (12,513) (6,360)
(Income)/loss on sale of assets and
operations -subsidiaries (4,975) 30,115 (12,513) 22,856
Reorganisation and restructuring
costs 23,155 59,415 61,797 195,429
Total net interest 65,423 87,377 404,624 379,709
Depreciation, depletion (net) and
amortisation 126,829 93,188 421,650 395,521
Share-based payments 3,388 2,096 24,741 8,084
Impairment of fixed assets 358 27,458 6,433 31,299
----------------------------------------------------------------------
EBITDA before exceptional items and EUR EUR EUR EUR
share-based payments 275,043 254,447 1,064,122 883,428
----------------------------------------------------------------------
Employee Post Retirement Schemes - Defined Benefit Expense
The table below sets out the components of the defined benefit expense for the
quarter:
3 Months to 3 Months to
31-Dec-07 31-Dec-06
-------------------------
EUR '000 EUR '000
Current service cost 11,261 10,524
Past service cost 4,362 3,249
(Gain) on settlements and curtailments (131) (725)
Actuarial gains and losses arising on long-
term employee benefits other than defined
benefit schemes (3,283) 182
-------------------------
12,209 13,230
-------------------------
Expected return on scheme assets (21,399) (20,268)
Interest cost on scheme liabilities 23,383 22,453
-------------------------
Other financial expense 1,984 2,185
-------------------------
Defined benefit expense EUR 14,193 EUR 15,415
-------------------------
The disclosures above reflect the requirements of IAS 19 - Employee Benefits.
Included in cost of sales and net operating expenses is a defined benefit
expense of EUR 12,209,000 and EUR 13,230,000 for the fourth quarter of 2007 and
2006 respectively. Expected Return on Scheme Assets of EUR 21,399,000 (2006: EUR
20,268,000) is included in Finance Income and Interest Cost on Scheme
Liabilities of EUR 23,383,000 (2006: EUR 22,453,000) is included in Finance
Expense in the Group Income Statement.
Smurfit Kappa (LSE:SKG)
Graphique Historique de l'Action
De Sept 2024 à Oct 2024
Smurfit Kappa (LSE:SKG)
Graphique Historique de l'Action
De Oct 2023 à Oct 2024
