2008 Q3 Results
Smurfit Kappa Group plc
Notes to the Consolidated Financial Statements (continued)
2008 Third Quarter Results
Interim Management Report
12 November, 2008: 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 9 months ending 30 September, 2008.
2008 Third Quarter & First Nine Months | Key Financial Performance Measures
EURm YTD 2008 YTD 2007 Change Q3 2008 Q3 2007 Change Q2 2008
Change
Revenue EUR5,431 EUR5,454 - EUR1,753 EUR1,829 (4%) EUR1,846
(5%)
EBITDA before Exceptionalsand EUR745 EUR789 (6%) EUR231 EUR275 (16%) EUR257
(10%)
Share-based Payments((1))
EBITDA Margin 13.7% 14.5% - 13.2% 15.1% - 13.9%
-
Basic Earnings Per Share (cent 73.5 23.5 n/a 16.8 38.6 (56%) 38.3
(56%)
per share)
Free Cash Flow((2)) EUR226 EUR113 100% EUR149 EUR150 (1%) EUR76
96%
Net Debt EUR3,192 EUR3,448 (7%) EUR3,285
(3%)
Net Debt to EBITDA (LTM) 3.1x 3.3x 3.1x
(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 25.
(2) Free cash flow is set out on page 7. The IFRS cash flow is set out on page 13.
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "The Group is pleased to report a strong free cash flow performance
ofEUR226 million in the first nine months of 2008, double the levels of the corresponding period in 2007. Net debt was
significantly reduced over the period.
This positive outcome primarily reflects the benefits of the Group's integrated model, the resilience of its
downstream corrugated business, the superior profitability of its growing Latin American operations and its leading
Kraftliner presence across Europe, a market positively influenced by the recent strengthening of the US$.
In the current credit market environment, the Group continues to benefit from its low cost of financing and long
term debt profile with no material maturity in the next four years. The Group also benefits from strong liquidity, with
approximatelyEUR730 million of cash on its balance sheet and unused committed credit lines of approximatelyEUR600
million.
As indicated since its first quarter 2008 report, the Group expects conditions to remain challenging for the
remainder of the year, characterised by the slowdown in corrugated demand and pressure on pricing. Against that
backdrop, the Group is pleased to confirm that it remains on target to deliver the expected level of financial
performance in 2008.
While declining interest rates, a stronger dollar, further capacity rationalisation decisions and increased
financing risk for the announced new capacity are potentially positive factors as we look forward, nonetheless the Group
expects a continuation of tough operating conditions for 2009. In that context, to further increase its cash flow
generation capability and to maximise its debt paydown through the cycle, the Group will progressively reduce its
capital expenditure from current levels."
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 the Group's business, and
involve risks and uncertainties. These forward-looking statements are based on current expectations and projections
about future events. The Group believes that current expectations and assumptions with respect to these forward-looking
statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which
are in some cases beyond the Group's control, actual results or performance may differ materially from those expressed
or implied by such forward-looking statements.
Contacts Information
Smurfit Kappa Group +353 1 202 7000 ir@smurfitkappa.com
Beech Hill, Clonskeagh
Dublin 4, Ireland
K Capital Source +353 1 631 5500 smurfitkappa@kcapitalsource.com
2008 Third Quarter & First Nine Months | Performance Overview
In a tough operating environment, the Group continues to generate strong free cash flow. The Group's free cash flow
generation ofEUR226 million in the first nine months of 2008 doubled compared to the same period in 2007. This
performance reflects the Group's reduced debt servicing costs, tight working capital control and continued efficient
management of its capital expenditure.
As a result of its strong financial management, the Group reduced its net debt byEUR212 million over the first nine
months of the year, a 6% reduction. The Group's net debt to EBITDA was reduced from 3.2x at the end of December 2007 to
3.1x at the end of September 2008, giving it continuing significant headroom compared to its actual covenant level of
4.85x at the end of the third quarter.
The Group's EBITDA ofEUR231 million in the third quarter of 2008 primarily reflects the resilience of its European
corrugated business. The Group also continued to benefit from the sustained strong contribution of its Latin American
operations.
These positive achievements were offset by weakening conditions within the Group's recycled containerboard system,
where materially lower prices combined with higher input costs generated significant margin compression. Following the
sharp containerboard price decline of the second quarter of 2008, prices have somewhat stabilised since August.
While the Group's overall containerboard system remains competitive in the current trading environment, higher cost
producers are likely to be facing severe financial pressure. As a result, downtime across the market has increased in
the third quarter, and some permanent capacity closures have been announced.
The Group's Kraftliner business was adversely impacted by pricing pressure in the first nine months of the year.
This has now stabilised and market conditions are improved following the strengthening of the US$. Price increase
initiatives are currently meeting with some success in certain regions.
In Latin America, despite slowing demand in many markets, our operations continued to perform well, reflecting the
Group's strong positioning across the region. Earnings as reported for the nine months were negatively impacted by the
relative strength of the euro against the local currencies during 2008 although the weakening of the euro in the third
quarter positively impacted the contribution of Latin America to the overall Group earnings.
2008 First Nine months | Financial performance
Revenue ofEUR5.4 billion in the first nine months of 2008 was flat compared to the same period in 2007. However,
allowing for the negative impact of currency ofEUR91 million and net disposals and closures ofEUR28 million, revenue
shows an underlying increase ofEUR96 million, the equivalent of almost 2%.
EBITDA ofEUR745 million in the first nine months of 2008 wasEUR44 million, or 6% lower than in the comparable period
in 2007, mainly reflecting the margin pressure experienced in the Group's containerboard system, primarily in the third
quarter, offset by synergies and cost take-out.
Allowing for the impact of currency, net disposals and closures, the underlying EBITDA decrease would have beenEUR32
million, the equivalent of 4%.
2008 Third Quarter | Financial performance
Revenue ofEUR1,753 million in the third quarter of 2008 represents a 4% decrease, orEUR76 million, compared with
revenue ofEUR1,829 million in the third quarter of 2007. Allowing for the negative impact of currency ofEUR31 million
offset by net acquisitions, disposals and closures ofEUR2 million, revenue shows an underlying decrease ofEUR47 million,
the equivalent of 3%.
AtEUR231 million for the third quarter, EBITDA wasEUR44 million lower than in the same period last year. This
includes a negative currency impact ofEUR5 million. On a comparable basis, EBITDA was lower byEUR39 million, the
equivalent of 14% year-on-year.
Compared to the second quarter of 2008, EBITDA decreased byEUR26 million in the third quarter, the equivalent of
10%. Excluding the impact of currency, disposals and closures, EBITDA decreased byEUR28 million, the equivalent of 11%
quarter-on-quarter.
2008 Third Quarter & First Nine Months | Capital Structure & Debt Reduction
In 2008, the Group continues to concentrate on free cash flow generation and further net debt reduction. At the end
of September 2008, the Group's net debt was belowEUR3.2 billion, down from overEUR3.4 billion at the end of September
2007, a reduction ofEUR255 million, the equivalent of 7%.
In the third quarter, the Group's net debt decreased byEUR93 million, or 3%, reflecting the strong free cash flow of
the business in the period. In the first nine months of the year, the Group's net debt reduction ofEUR212 million
includes theEUR55 million of proceeds for the sale of its 40% associate shareholding in Duropack AG Group in May and
payment ofEUR35 million in respect of its final dividend for 2007.
In April, the Group's debt rating was upgraded by both Standard & Poor's and Fitch to 'BB' from 'BB-' (BB minus),
with a'Stable'outlook. In addition, in June Moody's upgraded its outlook for SKG to'Positive'from'Stable'. These
upgrades reflect the Group's sustained focus on operating efficiency, cash flow generation, debt reduction and a strong
overall debt profile.
In the current environment, the Group continues to benefit from its low cost of financing and long term debt
profile, with no material maturity in the next four years. In addition, the Group benefits from strong liquidity, with
approximatelyEUR730 million of cash on its balance sheet at the end of September 2008, and unused committed credit lines
of approximatelyEUR600 million maturing in December 2012.
The Group is continuing to operate well within its covenants, and is very focused on sustaining its strong free cash
flow generation and net debt reduction through the cycle, as can be seen from its current performance and its
pre-emptive capex reduction actions.
2008 Third Quarter & First Nine Months | Cash Flow
Free cash flow ofEUR226 million for the first nine months of 2008 doubled compared to the same period in 2007. While
pre-exceptional EBITDA was lower, the significant improvement in cash flow primarily reflects lower cash interest and
actively managed capital expenditure, together with the positive impact of working capital inflow.
Capital expenditure during the first nine months of 2008 was approximatelyEUR202 million, which equates to 77% of
depreciation, and compares withEUR228 million in the first nine months of 2007. Part of the capex reduction represents
timing, but the lower expenditure reflects the Group's flexibility and clear focus on maximising cash flow generation
and de-leveraging in the current and expected challenging operating environment.
Cash interest ofEUR182 million in the first nine months of the year was 15% lower than in the same period in 2007,
reflecting the debt reduction following the Group's IPO in March 2007, and the subsequent attractive debt repricing in
July 2007.
Working capital decreased byEUR9 million in the first nine months of 2008, reflecting the Group's tight working
capital control. As a percentage of annualised net sales revenue, working capital ofEUR674 million at September 2008
represented 9.6%, compared to 10.4% at June 2008 and 9.5% at September 2007.
2008 Third Quarter & First Nine Months | Performance Review
Packaging: Europe
Reflecting the overall slowing economic environment in Europe, the Group's corrugated volumes in the nine months to
September decreased by almost 2% year-on-year. This decrease was broadly in line with the trend seen in the first half
of 2008.
In the third quarter, while volumes in August were very slow across Europe, corrugated shipments in July and
September were generally flat year-on-year, benefiting from the Group's unique pan-European offering and its customer
base primarily in the food and beverage sector.
The lower level of demand across the market led to a continued inventory overhang of recycled containerboard despite
ongoing industry market downtime, which generated strong downward pricing momentum for that grade in Europe between
March and July. Prices remained reasonably stable in August and September.
As recycled containerboard prices were decreasing, the Group faced higher average year-on-year input costs in the
first nine months of the year, primarily for energy, labour and raw material. However, after peaking in March, OCC
prices dropped byEUR20 in the second quarter, helped by lower buying demand from Asia. With Chinese producers having now
delayed capacity expansion plans, and with European demand slowing, OCC prices are under significant downward pressure
in the fourth quarter.
With inventory levels across the industry remaining high, the price increase announced in October for recycled
containerboard has not succeeded. While the decrease in OCC prices reduced the magnitude of the margin compression for
all industry players, the Group estimates that a significant number of paper mills are at breakeven or loss making at
current price levels. This is reflected in the increasing number of capacity reduction announcements.
By comparison, the Group's overall containerboard system remains competitive in the current environment supported by
its lower cost base, optimised integrated corrugated plant network and unrelenting focus on cost reduction.
The Group continues to take market related downtime to avoid an increase in its containerboard inventory levels, and
to maintain its working capital at the lowest level in the industry. In the first nine months of the year, the Group has
taken 65,000 tonnes of its previously announced 80,000 tonnes downtime plan, with the remainder to be taken before the
end of the year. In addition, the Group is now planning a further 80,000 tonnes of downtime for the fourth quarter. In
effect, the Group will have reduced its annual recycled containerboard production by over 200,000 tonnes in 2008
(approximately 6.5% of its capacity) through the permanent closure of its Valladolid mill in Spain and market downtime.
Against that backdrop, the Group's relatively strong EBITDA outcome ofEUR231 million in the third quarter reflects
the benefits of its integrated model, supported by the sustained performance of its downstream corrugated business.
Although under further downward pressure, the Group's corrugated pricing held-up relatively well in the third quarter,
declining by less than 1.5% from the peak.
The Group's performance was also supported by its leading position in Kraftliner across Europe. Kraftliner currently
benefits from positive catalysts such as demand growth of 2% in Europe in the first nine months of the year, and the
strengthening US$ reducing the competitiveness of imports from North America. As a result, price increase initiatives
are meeting with some success in certain regions.
On the input cost side of Kraftliner, the increase in wood costs in Scandinavia is easing somewhat, as capacity
closures from Finnish fine paper producers positively impact conditions for wood supply. Furthermore, the Group's wood
needs are well spread between Sweden, France and Austria, with the latter two regions benefiting from more competitive
wood prices, which contribute to the continued profitability of the Group's Kraftliner business.
Packaging: Latin America
While market conditions vary from country to country, our operations in Latin America continued to perform well in
the first nine months of the year, reflecting the Group's strong positioning in the region.
Although the regional EBITDA in euro terms was negatively impacted by the relative strength of the euro in the first
half, the euro weakened in the third quarter, thereby increasing the contribution of the Latin American operations to
the overall Group.
In the first nine months of 2008, the Group's corrugated volumes in Latin America were 3% lower than in the previous
year, primarily reflecting the slowing overall demand environment in Mexico and Colombia and the farmers'strike in
Argentina.
While the Group's profitability in Mexico was negatively affected by weaker demand and higher input costs in the
first nine months of the year, further price increases contributed to somewhat contain the margin compression. In
September, on the back of the July price increase in the US, the Group implemented a further $60 price increase for
containerboard and boxes in Mexico.
The Group's Colombian operations continued to benefit from positive pricing momentum, which compensated for higher
input costs. Our sack business in the region performed strongly in the nine months of the year, supported by further
volume growth and healthy pricing.
The Group's profitability in Argentina and Venezuela was well ahead of last year, reflecting price improvements
across all grades despite the challenging local conditions.
Specialties: Europe
After a relatively positive performance in the first half of the year, profitability of the specialties division
came under downward pressure in the third quarter, as demand was lower, especially for sacks, while higher input costs
continued to impact the Group's solidboard business. In the first nine months of the year however, the specialties
division continued to report positive EBITDA growth year-on-year.
Demand for sack paper, which was positive in the first half of the year driven by overseas demand, fell sharply in
the third quarter following the widespread collapse in the construction industry. Pricing and volumes for sack paper are
currently under significant downward pressure. While the outlook for this grade is challenging, the sack division
represented no more than 2% of the Group's EBITDA in the first nine months of 2008.
In the solidboard-packaging business, the Group benefited from a stable pricing environment across Europe in the
first nine months of the year, and some volume increase in the Benelux, its main market, following the bankruptcy of a
local competitor. In the third quarter, the Group's solidboard mills continued to be negatively impacted by higher
energy and recovered paper costs however.
The Group's bag-in-box business suffered from lower than expected demand over the summer, but the trend is improving
entering the fourth quarter. The recently acquired Spanish Plasticos operation continued to perform well in the third
quarter, and the Group also is seeing good progress in the Russian bag operation which commenced production in March
this year.
Cost Take-Out programme
To further strengthen the competitiveness of its operations in increasingly challenging times, the Group initiated a
three year cost take out programme in 2008. It is targeted to deliver at leastEUR60 million in 2008, with further
delivery of up toEUR100 million by 2010. This new programme follows on the achievement ofEUR180 million of synergies
between 2005 and 2008, and reflects the Group's anticipation of challenging economic times and the need for a relentless
focus on cost efficiency and total system optimisation.
Summary Cash Flows
Summary cash flows for the third quarter and nine months are set out in the following
table.
3 months to 3 months to 9 months to 9 months to
30-Sept-08 30-Sept-07 30-Sept-08 30-Sept-07
EURMillion EURMillion EURMillion EURMillion
Pre-exceptional EBITDA 231 275 745 789
Exceptional items (4) (11) (4) (25)
Cash interest (60) (62) (182) (213)
Working capital change 92 56 9 (42)
Current provisions - (8) (23) (69)
Capital expenditure (74) (81) (202) (228)
Change in capital creditors 3 2 (16) (46)
Sale of fixed assets 1 4 4 22
Tax paid (28) (20) (58) (45)
Other (12) (5) (47) (30)
Free cash flow 149 150 226 113
Shares issued through IPO, net of - (2) - 1,435
costs
Refinancing costs - (5) - (79)
Sale of businesses and investments - 3 56 11
Investments (15) - (15) (3)
Derivative termination payments 3 (9) - (23)
Dividends (1) - (41) (6)
Total surplus 136 137 226 1,448
Net debt disposed - - - 1
Deferred debt issue costs amortised (3) (6) (11) (43)
Non-cash interest accrued - - - (12)
Currency translation adjustments (40) 26 (3) 40
Decrease in net borrowing 93 157 212 1,434
(1) The summary cash flow is prepared on a different basis to the cash flow statement under IFRS.
The principal difference is that the summary cash flow details movements in net borrowing while the IFRS cash flow
details movement in cash and cash equivalents. In addition, the IFRS cash flow has different sub-headings to those used
in the summary cash flow. A reconciliation of the Free cash flow to Cash generated from operations in the IFRS cash flow
is set out below.
9 months to 9 months to
30-Sept-08 30-Sept-07
EURMillion EURMillion
Free cash flow 226 113
Add back: Cash interest 182 213
Capital expenditure 202 228
Change in capital creditors 16 46
Tax payments 58 45
Less: Sale of fixed assets (4) (22)
Receipt/repayment of capital grants (in"Other") (2) 1
Dividends from associates (in"Other") (4) (3)
Cash flow generated from operations 674 621
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 30 September, 2008 Smurfit Kappa Funding plc ("SK Funding") had outstandingEUR217.5 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
outstandingEUR210.0 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 aEUR398 million amortising A Tranche maturing in 2012, aEUR1,192 million B Tranche maturing in 2013
and aEUR1,191 million C Tranche maturing in 2014. In addition, as at 30 September, 2008, the facility includedEUR875
million in committed lines including aEUR600 million revolving credit facility of which, apart fromEUR17.8 million in
letters of credit issued in support of other liabilities, there were no drawings or amounts borrowed under ancillary
facilities or facilities supported by letters of credit, and aEUR275 million restructuring facility of whichEUR227
million was borrowed.
The following table provides the range of interest rates as of 30 September, 2008 for each of the drawings under the
various Senior Credit Facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Restructuring Facility EUR 6.03% - 6.33%
Term Loan A EUR 6.02% - 6.62%
Term Loan B EUR 6.39% - 7.00%
USD 4.66%
Term Loan C EUR 6.64% - 7.27%
USD 4.91%
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.
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 30 September, 2008 the Group had fixed an
average of 57 % of its interest cost on borrowings over the following twelve months.
Our fixed rate debt comprised mainlyEUR217.5 million 7.75% senior subordinated notes due 2015,
US$200.0 million 7.75% senior subordinated notes due 2015 and US$292.3 million 7.50% senior debentures due 2025. In
addition the Group also hasEUR1,980 million in interest rate swaps with maturity dates ranging from October 2008 to
January 2014.
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 approximatelyEUR19 million over the following twelve months. Interest income on our cash
balances would increase by approximatelyEUR7 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-Nine Months
Unaudited
Unaudited
9 Months to 30-Sept-08
9 Months to 30-Sept-07
Pre-Exceptional 2008 Exceptional 2008 Total 2008 Pre-Exceptional
2007 Exceptional 2007 Total 2007
EUR'000 EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
Revenue 5,431,319 - 5,431,319
5,453,862 - 5,453,862
Cost of sales (3,865,985) (10,950) (3,876,935)
(3,894,212) (6,075) (3,900,287)
Gross profit 1,565,334 (10,950) 1,554,384
1,559,650 (6,075) 1,553,575
Distribution costs (440,822) - (440,822)
(443,616) - (443,616)
Administrative expenses (683,073) - (683,073)
(690,714) - (690,714)
Other operating income 1,264 - 1,264
47,585 7,538 55,123
Other operating expenses - (17,318) (17,318)
- (38,642) (38,642)
Operating profit 442,703 (28,268) 414,435
472,905 (37,179) 435,726
Finance costs (327,337) - (327,337)
(377,423) (109,970) (487,393)
Finance income 123,112 - 123,112
148,192 - 148,192
Loss on disposal of associate - (6,905) (6,905)
- - -
Share of associates' profit 2,746 - 2,746
9,744 - 9,744
(after tax)
Profit before income tax 241,224 (35,173) 206,051
253,418 (147,149) 106,269
Income tax expense (27,080)
(49,060)
Profit for the financial 178,971
57,209
period
Attributable to:
Equity holders of the Company 160,315
45,003
Minority interest 18,656
12,206
Profit for the financial 178,971
57,209
period
Earnings per share:
Basic earnings per share (cent per share) 73.5
23.5
Diluted earnings per share (cent per share) 73.4
22.4
Group Income Statement-Third Quarter
Unaudited
Unaudited
3 Months to 30-Sept-08
3 Months to 30-Sept-07
Pre-Exceptional 2008 Exceptional 2008 Total 2008 Pre-Exceptional
2007 Exceptional 2007 Total 2007
EUR'000 EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
Revenue 1,753,313 - 1,753,313
1,829,123 - 1,829,123
Cost of sales (1,258,262) - (1,258,262)
(1,299,684) (1,413) (1,301,097)
Gross profit 495,051 - 495,051
529,439 (1,413) 528,026
Distribution costs (144,766) - (144,766)
(145,375) - (145,375)
Administrative expenses (219,679) - (219,679)
(222,488) - (222,488)
Other operating income 419 - 419
11,349 1,668 13,017
Other operating expenses - - -
- (2,073) (2,073)
Operating profit 131,025 - 131,025
172,925 (1,818) 171,107
Finance costs (86,353) - (86,353)
(123,769) (6,734) (130,503)
Finance income 16,161 - 16,161
61,690 - 61,690
Share of associates' profit 195 - 195
3,505 - 3,505
(after tax)
Profit before income tax 61,028 - 61,028
114,351 (8,552) 105,799
Income tax expense (12,168)
(16,732)
Profit for the financial 48,860
89,067
period
Attributable to:
Equity holders of the Company 36,712
84,098
Minority interest 12,148
4,969
Profit for the financial 48,860
89,067
period
Earnings per share:
Basic earnings per share (cent per share) 16.8
38.6
Diluted earnings per share (cent per share) 16.6
37.5
Group Statement of Recognised Income and Expense
Unaudited Unaudited
9 months to 9 months to
30-Sept-08 30-Sept-07
EUR'000 EUR'000
Restated
Items of income and expense recognised directly within equity:
Foreign currency translation adjustments (16,123) (37,199)
Defined benefit pension schemes
- Actuarial (loss)/gain (36,639) 73,616
- Movement in deferred tax 7,275 (18,998)
Effective portion of changes in fair value of cash flow hedges:
-movement out of reserve (11,517) (6,735)
-new fair value adjustments into reserve 9,685 5,885
Net change in fair value of available-for-sale financial assets (412) 610
Net income and expense recognised directly within equity (47,731) 17,179
Profit for the financial period 178,971 57,209
Total recognised income and expense for the financial period 131,240 74,388
Attributable to:
Equity holders of the Company 108,595 63,041
Minority interest 22,645 11,347
131,240 74,388
Effects of changes in accounting policy:
Attributable to: (189)
Equity holders of the Company -
Minority interest (189)
Group Balance Sheet
Unaudited Unaudited Audited
30-Sept-08 30-Sept-07 31-Dec-07
EUR'000 EUR'000 EUR'000
Restated Restated
Assets
Non-current assets
Property, plant and equipment 3,149,715 3,295,493 3,251,479
Goodwill and intangible assets 2,376,778 2,437,528 2,416,785
Biological assets 77,958 76,150 74,758
Investment in associates 15,876 79,173 79,307
Available-for-sale financial assets 42,878 43,436 43,511
Trade and other receivables 4,695 4,533 6,716
Derivative financial instruments 5,795 6,953 4,301
Deferred income tax assets 361,908 301,174 340,875
6,035,603 6,244,440 6,217,732
Current assets
Inventories 685,818 696,788 682,169
Biological assets 6,901 6,813 6,862
Trade and other receivables 1,403,328 1,468,294 1,379,105
Derivative financial instruments 25,411 25,895 28,261
Restricted cash 19,548 14,984 13,096
Cash and cash equivalents 708,952 403,716 401,622
2,849,958 2,616,490 2,511,115
Non-current assets held for sale 10,960 5,000 15,999
Total assets 8,896,521 8,865,930 8,744,846
Equity
Capital and reserves attributable to the equity holders of the
Company
Equity share capital 229 229 228
Capital and other reserves 2,524,278 2,575,425 2,538,047
Retained earnings (390,175) (564,252) (486,126)
Total equity attributable to equity 2,134,332 2,011,402 2,052,149
holders of the Company
Minority interest 140,013 141,488 137,443
Total equity 2,274,345 2,152,890 2,189,592
Liabilities
Non-current liabilities
Borrowings 3,782,871 3,708,989 3,667,618
Deferred income - 1,960 -
Employee benefits 490,252 478,843 482,497
Derivative financial instruments 1,821 - -
Deferred income tax liabilities 502,769 535,816 530,102
Non-current taxes payable 24,989 6,485 19,704
Provisions for liabilities and 60,332 82,931 77,698
charges
Capital grants 14,223 12,647 14,176
Other payables 4,244 - 8,535
4,881,501 4,827,671 4,800,330
Current liabilities
Borrowings 137,989 157,474 150,976
Trade and other payables 1,420,282 1,477,360 1,402,687
Current income tax liabilities 29,456 65,438 25,650
Derivative financial instruments 103,915 128,869 121,058
Provisions for liabilities and 49,033 56,228 54,553
charges
1,740,675 1,885,369 1,754,924
Total liabilities 6,622,176 6,713,040 6,555,254
Total equity and liabilities 8,896,521 8,865,930 8,744,846
Group Cash Flow Statement
Unaudited Unaudited
9 months to 9 months to
30-Sept-08 30-Sept-07
EUR'000 EUR'000
Cash flows from operating activities
Profit for the financial period 178,971 57,209
Adjustment for
Income tax expense 27,080 49,060
Profit on sale of assets and businesses-continuing operations - (7,538)
Amortisation of capital grants (1,263) (1,129)
Impairment of property, plant and equipment 10,950 6,075
Equity settled share-based payment transactions 8,430 21,353
Amortisation of intangible assets 33,240 31,824
Share of profit of associates & loss on disposal of associate 4,159 (9,744)
Depreciation charge 257,011 261,565
Net finance costs 204,225 339,201
Change in inventories (6,332) (78,501)
Change in biological assets 4,078 1,433
Change in trade and other receivables (15,405) (143,856)
Change in trade and other payables 30,287 180,420
Change in provisions (24,660) (53,026)
Change in employee benefits (33,457) (33,811)
Foreign currency translation adjustments (3,746) 402
Cash generated from operations 673,568 620,937
Interest paid (205,333) (323,812)
Income taxes paid:
Irish corporation tax paid (10,560) (1,652)
Overseas corporation tax (net of tax refunds) paid (47,209) (42,945)
Net cash inflow from operating activities 410,466 252,528
Cash flows from investing activities
Interest received 27,496 18,228
Business disposals 1,154 10,547
Purchase of property, plant & equipment and biological assets (211,648) (270,756)
Purchase of intangible assets (6,446) -
Receipt/(repayment) of capital grants 1,353 (62)
Purchase of available-for-sale financial assets (6) (5)
Increase in restricted cash (6,453) (4,667)
Disposal of property, plant and equipment 4,244 22,114
Disposal of investments 217 17
Dividends received from associates 4,433 3,366
Disposals of associates 54,969 893
Purchase of subsidiaries and minorities (15,100) (3,181)
Deferred and contingent acquisition consideration paid - (14)
Net cash outflow from investing activities (145,787) (223,520)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 158 1,495,255
Costs associated with issuing new shares - (60,242)
Increase /(decrease) in interest-bearing borrowings 109,359 (1,350,408)
Repayment of finance lease liabilities (10,997) (16,650)
Derivative termination payments 27 (23,205)
Deferred debt issue costs - (8,213)
Dividends paid to shareholders (35,000) -
Dividends paid to minority interests (5,833) (6,437)
Net cash inflow from financing activities 57,714 30,100
Increase in cash and cash equivalents 322,393 59,108
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 375,390 321,494
Currency translation adjustment (477) (3,142)
Increase in cash and cash equivalents 322,393 59,108
Cash and cash equivalents at 30 September 697,306 377,460
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. The Company is a public limited company incorporated and tax resident in Ireland with its registered
office at Beech Hill, Clonskeagh, Dublin 4, Ireland.
On 14 March, 2007 SKG plc completed an IPO with the placing to institutional investors of 78,787,879 new ordinary
shares. This offering, together with the issue of an additional 11,818,181 ordinary shares, generated gross proceeds
ofEUR1,495 million. The additional shares were issued on admission by Deutsche Bank acting as stabilising manager under
an over-allocation option and represent the permitted maximum 15% of the total number of shares in the IPO. The issue
proceeds, net of costs, 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 acquisition of Kappa Packaging. Trading in the shares on the Irish Stock
Exchange and the London Stock Exchange commenced on 20 March, 2007.
2. Basis of Preparation
The 2007 consolidated financial statements of SKG plc have been prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union ('EU'), International Financial Reporting Interpretations
Committee ('IFRIC') interpretations as adopted by the EU, and with those parts of the Companies Acts applicable to
companies reporting under IFRS. IFRS is comprised of standards and interpretations approved by the International
Accounting Standards Board (IASB) and International Accounting Standards and interpretations approved by the predecessor
International Accounting Standards Committee that have been subsequently approved by the IASB and remain in effect.
The financial information presented in this report has been prepared to comply with the requirement to publish
an"Interim management statement"for the third quarter, in accordance with the Transparency Regulations which were signed
into Irish law on 13 June, 2007. The Transparency Regulations do not require Interim management statements to be
prepared in accordance with International Accounting Standard 34-"Interim Financial Information"("IAS 34"). Accordingly
the Group has not prepared this financial information in accordance with IAS 34.
The financial information has been prepared on a consistent basis with the Group's accounting policies with the
exception of the application of IFRIC 14. Full details of the accounting policies adopted by the Group are contained in
the financial statements included in the Group's annual report for the year ended 31 December 2007 which is available on
the Group's website www.smurfitkappa.com. The accounting policies and methods of computation and presentation adopted in
the preparation of the group financial information are consistent with those applied in the annual report for the
financial year ended 31 December, 2007 and are described in those financial statements; with the exception of the
application of IFRIC 14.
The Group adopted IFRIC 14,'IAS19-The limit on a defined benefit asset, minimum funding requirements and their
interaction'from 1 January, 2008. IFRIC 14 provides general guidance on how to assess the limit in IAS 19 Employee
Benefits, on the amount of a surplus that can be recognised as an asset. It also explains how the pension's asset or
liability may be affected when there is a statutory or contractual minimum funding requirement. The Group has applied
IFRIC 14 from 1 January, 2008. On adoption, in accordance with IFRIC 14, the Group defined benefit pension liability
increased by approximatelyEUR1,533,000 with an increase ofEUR460,000 in deferred income tax assets. The resulting effect
on equity ofEUR1,073,000 is shown as an adjustment to the opening balance of retained earnings.
In addition to IFRIC 14, the following new standards, amendments to standards or interpretations are mandatory for
the first time for the financial year beginning 1 January, 2008, but are not currently relevant to the group:
? IFRIC 12, Service concession arrangements
? IFRIC 13, Customer Loyalty Programmes
The financial information includes all adjustments that management considers necessary for a fair presentation of
such financial information. All such adjustments are of a normal recurring nature.
The financial information presented does not constitute full group accounts within the meaning of Regulation 40(1)
of the European Communities (Companies: Group Accounts) Regulations, 1992 of Ireland insofar as such group accounts
would have to comply with all of the disclosure and other requirements of those Regulations. Full group accounts for the
year ended 31 December, 2007 have been filed with the Irish Registrar of Companies. The audit report on those group
accounts was unqualified.
The Group's auditors have not reviewed the financial information contained in this report.
3. Segmental Analyses
9 months to 30-Sept-08 9 months to
30-Sept-07
Packaging Specialties Total Packaging Specialties
Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
EUR'000
Third party revenue (external) EUR4,700,762 EUR730,557 EUR5,431,319 EUR4,734,419 EUR719,443
EUR5,453,862
Segment results-pre 426,735 46,213 472,948 466,410 44,122
510,532
exceptional items
Exceptional items (28,268) - (28,268) (20,642) (6,215)
(26,857)
398,467 46,213 444,680 445,768 37,907
483,675
Unallocated centre costs-pre (30,245)
(37,627)
exceptional items
Group centre exceptional items -
(10,322)
Operating profit 414,435
435,726
Share of associates' profit 2,746 - 2,746 9,744 -
9,744
(after tax)
Loss on disposal of associate (6,905) - (6,905) - -
-
Finance costs (327,337)
(487,393)
Finance income 123,112
148,192
Profit before income tax 206,051
106,269
3 months to 30-Sept-08 3 months to
30-Sept-07
Packaging Specialties Total Packaging Specialties
Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
EUR'000
Third party revenue (external) EUR1,510,388 EUR242,925 EUR1,753,313 EUR1,580,555 EUR248,568
EUR1,829,123
Segment results-pre 123,226 15,219 138,445 164,543 20,317
184,860
exceptional items
Exceptional items - - - (2,643) 1,069
(1,574)
123,226 15,219 138,445 161,900 21,386
183,286
Unallocated centre costs-pre (7,420)
(11,935)
exceptional items
Group centre exceptional items -
(244)
Operating profit 131,025
171,107
Share of associates' profit 195 - 195 2,176 1,329
3,505
(after tax)
Finance costs (86,353)
(130,503)
Finance income 16,161
61,690
Profit before income tax 61,028
105,799
4. Exceptional Items
The following items are regarded as exceptional in 9 months to 9 months to 30-Sept-07
nature: 30-Sept-08
EUR'000 EUR'000
Reorganisation and restructuring costs (17,318) (38,642)
Impairment of property, plant and equipment (10,950) (6,075)
Net income on sale of assets and operations - 7,538
Total exceptional items included in operating costs (28,268) (37,179)
Total exceptional items included in finance costs - (109,970
Loss on disposal of associate (6,905) -
The reorganisation and restructuring costs and impairment of property, plant and equipment in 2008, relate entirely
to the announced closure of our Valladolid recycled containerboard mill in Spain.
The loss on disposal of associate resulted from the sale of the Group's principal associate Duropack AG.
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.
In 2007 the impairment charge ofEUR6.1 million resulted mainly from the closure of the containerboard mill in
France.
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.
Exceptional finance costs ofEUR110 million arose in 2007 following our use of the proceeds from the IPO to pay down
debt. These costs comprise refinancing costs ofEUR79 million and the non-cash accelerated amortisation of debt costs
ofEUR31 million.
5. Other Operating Income
Other operating income in 2007 includes insurance proceeds ofEUR46 million in respect of a fire in the Group's mill
in Facture, France. The costs of the fire and related downtime were included in the appropriate cost headings within
operating profit.
6. Finance Costs and Finance Income
9 Months to 9 Months to
30-Sep-08 30-Sep-07
EUR'000 EUR'000
Finance costs
Interest payable on bank loans and overdrafts 157,166 152,922
Interest payable on finance leases and hire purchase contracts 4,110 4,936
Interest payable on other borrowings 47,411 85,983
Amortisation of deferred debt issue costs 11,318 11,744
Impairment loss on available-for-sale financial assets 1,419 54
Unwinding of discount element of provisions 1,577 121
Foreign currency translation loss on debt 25,551 10,224
Fair value loss on derivatives 1,858 38,220
Interest cost on employee benefit plan liabilities 76,927 73,219
Total finance cost 327,337 377,423
Finance income
Other interest receivable 27,167 18,230
Foreign currency translation gain on debt 10,704 44,392
Fair value gain on commodity derivatives 55 3,219
Fair value gain on other derivatives 18,740 16,364
Expected return on employee benefit plan assets 66,446 65,987
Total finance income 123,112 148,192
Net finance cost 204,225 229,231
7. Income Tax Expense
Income tax expense recognised in the Group Income Statement
9 Months to 9 Months to
30-Sep-08 30-Sep-07
EUR'000 EUR'000
Current taxation
Europe 41,077 48,795
United States and Canada 166 (1,678)
Latin America 23,416 24,965
64,659 72,082
Deferred taxation (37,579) (23,022)
Total income tax expense charged to P&L 27,080 49,060
Current tax is analysed as follows:
Ireland 9,457 8,750
Foreign 55,202 63,332
64,659 72,082
Income tax recognised directly in equity
9 Months to 9 Months to
30-Sep-08 30-Sep-07
EUR'000 EUR'000
Arising on actuarial gains on defined benefit plans (7,275) 18,998
A net credit ofEUR1.6 million is included in the 2008 current tax charge for exceptional items.
Interim period income tax is accrued based on the estimated 2008 annual effective income tax rate of 20%.
The increase in the deferred tax credit for the period ended 30 September 2008 arose primarily due to the
recognition of tax losses and movement in other timing differences.
8. Employee Post Retirement Schemes
The table below sets out the components of the defined benefit expense for the period:
9 Months to 9 Months to
30-Sep-08 30-Sep-07
EUR'000 EUR'000
Current service cost 32,011 38,994
Past service cost 936 345
Gain on settlements and curtailments (444) (4,978)
Actuarial gains and losses arising on long-term employee benefits 1,571 (234)
other than defined benefit schemes
34,074 34,127
Expected return on scheme assets (66,446) (65,988)
Interest cost on scheme liabilities 76,926 72,965
Net financial expense 10,480 6,977
Defined benefit expense 44,554 41,104
Included in cost of sales and distribution and administrative expenses is a total defined benefit expense
ofEUR34,074,000 for the first nine months (2007:EUR34,127,000). Expected Return on Scheme Assets ofEUR66,446,000 for the
first nine months (2007:EUR65,988,000) is included in Finance Income and Interest Cost on Scheme Liabilities
ofEUR76,926,000 for the first nine months (2007:EUR72,965,000) is included in Finance Expense in the Group Income
Statement.
The amounts recognised in the balance sheet were as follows:
30-Sept-08 30-Sept-07 31-Dec-07
EUR'000 EUR'000 EUR'000
Present value of funded obligations (1,355,641) (1,489,482) (1,498,547)
Fair value of plan assets 1,238,848 1,418,191 1,411,223
Present value of unfunded obligations (373,459) (407,552) (395,173)
Liability in the balance sheet (490,252) (478,843) (482,497)
The adoption of IFRIC 14,'IAS19-The limit on a defined benefit asset, minimum funding requirements and their
interaction'resulted in the following adjustments to the comparative figures:
30-Sept-07 31-Dec-07
EUR'000 EUR'000
Liability in the balance sheet-As previously stated 478,293 480,964
Impact of adoption of IFRIC 14 550 1,533
Liability in the balance sheet-restated 478,843 482,497
The above impact of the adoption of IFRIC 14 is reflected as a movement in the Statement of Recognised Income and
Expense.
The employee benefits provision has increased fromEUR432 million at 30 June 2008 toEUR490 million at 30 September
2008. The rise in provision was mainly as a result of asset losses of someEUR67 million over the quarter.
9. 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.
3 Months to 3 Months to 9 Months to 9 Months to
30-Sept-08 30-Sept-07 30-Sept-08 30-Sept-07
Profit attributable to equity 36,712 84,098 160,315 45,003
holders of the Company (EUR'000)
Weighted average number of ordinary 218,023 217,768 218,013 191,528
shares in issue ('000)((1))
Basic earnings per share (cent per 16.8 38.6 73.5 23.5
share)
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.
3 Months to 3 Months to 9 Months to 9 Months to
30-Sept-08 30-Sept-07 30-Sept-08 30-Sept-07
Profit attributable to equity 36,712 84,098 160,315 45,003
holders of the Company (EUR'000)
Weighted average number of ordinary 218,023 217,768 218,013 191,528
shares in issue ('000)((1))
Potential dilutive ordinary shares 2,847 6,672 329 9,167
assumed
Diluted weighted average ordinary 220,870 224,440 218,342 200,695
shares
Diluted earnings per share (cent 16.6 37.5 73.4 22.4
per share)
(1) Average of ordinary shares in issue pre and post the IPO. Ordinary shares in issue at 30 September 2008 amounted
to 218,022,794.
10. Dividends
In May, the final dividend for 2007 of 16.05 cent per share was paid to the holders of ordinary shares. In October
an interim dividend for 2008 of 16.05 cent per share was paid to the holders of ordinary shares.
11. Property, Plant and Equipment
Land and Buildings Plant and Equipment Total
EUR'000 EUR'000 EUR'000
Nine months ended 30 September 2008
Opening net book amount 1,176,694 2,074,785 3,251,479
Reclassification 12,330 (12,330) -
Additions 5,457 180,528 185,985
Depreciation charge for the period (36,990) (220,021) (257,011)
Impairment losses recognised in profit (1,233) (9,717) (10,950)
and loss
Retirements and disposals (1,642) (3,243) (4,885)
Foreign currency translation (2,178) (12,725) (14,903)
adjustment
At 30 September 2008 1,152,438 1,997,277 3,149,715
11. Property, Plant and Equipment-(continued)
Land and Buildings Plant and Equipment Total
EUR'000 EUR'000 EUR'000
Year ended 31 December 2007
Opening net book amount 1,215,877 2,166,104 3,381,981
Reclassification 34,382 (34,941) (559)
Acquisitions 772 6,783 7,555
Additions 14,547 288,742 303,289
Transfer to assets held for sale (9,123) (1,026) (10,149)
Depreciation charge for the year (51,406) (305,819) (357,225)
Impairment losses recognised in profit (225) (6,208) (6,433)
and loss
Retirements and disposals (10,703) (7,934) (18,637)
Foreign currency translation (17,427) (30,916) (48,343)
adjustment
At 31 December 2007 1,176,694 2,074,785 3,251,479
12. Investment in Associates
9 Months to 12 Months to
30-Sept-08 31-Dec-2007
EUR'000 EUR'000
At 1 January 79,307 76,668
Share of (loss)/profit for the period (4,159) 12,513
Dividends received from associates (4,433) (3,617)
Disposals (54,973) (3,810)
Transfer to subsidiaries - (2,000)
Reclassification - 631
Foreign currency translation adjustment 134 (1,078)
At 30 September EUR15,876 EUR79,307
13. Share-based Payment
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 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.
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 ofEUR0.001 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.
13. Share-based Payment-(continued)
As of 30 September 2008, SKG plc had a total of 15,310,509 convertible shares in issue in total, 10,114,029 under
the 2002 Plan, as amended and 5,196,480 under the 2007 SIP.
A summary of the activity under the 2002 Plan, as amended, for the period from 31 December, 2007 to
30 September, 2008 is presented below.
Shares 000's Class of Convertible shares
D A1 A2 A3 Total
Balance December 2007 8,399.8 583.7 583.7 583.6 10,150.8
Vested into D 599.7 (583.7) (8.0) (8.0) -
Converted into Ordinary shares (36.8) - - - (36.8)
Balance September 2008 8,962.7 - 575.7 575.6 10,114.0
Exercisable September 2008 8,962.7 - - - 8,962.7
The exercise price for all D convertible shares other than those derived from Class H convertibles at 30 September,
2008 wasEUR4.28. The exercise price for D convertible shares derived from Class H convertibles wasEUR5.69 at 30
September, 2008. The weighted average remaining contractual life of all the awards issued under the 2002 Plan, as
amended, at 30 September, 2008 was 4.24 years.
A summary of the activity under the 2007 SIP, for the period from 31 December, 2007 to 30 September, 2008 is
presented below:
Shares 000's Class of Convertible shares
New B New C Total
Balance December 2007 1,374.6 1,374.6 2,749.2
Exercisable December 2007 - - -
March 2008 Allotted 1,223.6 1,223.6 2,447.3
Balance September 2008 2,598.2 2,598.2 5,196.5
Exercisable September 2008 - - -
As at 30 September, 2008 the weighted average exercise price for all New B and New C convertible shares upon
conversion would beEUR13.68. The weighted average remaining contractual life of all the awards issued under the 2007 SIP
at 30 September, 2008 was 9.03 years.
14. Reconciliation of Movements in Total Equity
Attributable Minority interests Total equity
to equity holders
of the Company
EUR'000 EUR'000 EUR'000
31 December 2007, as 2,053,222 137,443 2,190,665
previously reported
Adjustment in respect of the (1,073) - (1,073)
implementation of IFRIC
14((1))
31 December 2007, as adjusted 2,052,149 137,443 2,189,592
Total recognised income and 108,595 22,645 131,240
expense
Share premium on shares issued 158 - 158
Share-based payment expense 8,430 - 8,430
Purchase of minorities - (14,242) (14,242)
Dividend paid to shareholders (35,000) - (35,000)
Dividends paid to minorities - (5,833) (5,833)
At 30 September 2008 2,134,332 140,013 2,274,345
1 January 2007, as previously 495,178 136,343 631,521
reported
Adjustment in respect of the (197) - (197)
implementation of IFRIC 14
1 January 2007, as adjusted 494,981 136,343 631,324
Total recognised gains and 99,430 8,337 107,767
losses
Shares issued 1,432,997 - 1,432,997
Share-based payment expense 24,741 - 24,741
Purchase of minorities - (1,462) (1,462)
Dividends paid to minorities - (5,775) (5,775)
At 31 December 2007 2,052,149 (137,443) 2,189,592
(1) IFRIC 14 provides guidance on how to assess the limit in IAS 19 Employee Benefits, on the amount of a surplus
that can be recognised as an asset. It also explains how the pension's asset or liability may be affected when there is
a statutory or contractual minimum funding requirement. The Group has applied IFRIC 14 from 1 January 2008. On adoption,
in accordance with IFRIC 14, the Group defined benefit pension liability increased byEUR1,533,000 with an increase
ofEUR460,000 in deferred income tax assets. The resulting effect on equity ofEUR1,073,000 is shown as an adjustment to
the opening balance of retained earnings on 1 January 2008, with a corresponding reduction ofEUR197,000 at 1 January
2007.
15. Analysis of Net Debt
30-Sept-08
31-Dec-07
EUR'000
EUR'000
Senior credit facility:
Revolving credit facility((1))-interest at relevant interbank rate + (9,106)
(10,746)
1.5%
Restructuring facility((2))-interest at relevant interbank rate + 227,000
103,200
1.5% until conversion to Term Loan
Tranche A Term loan((3a))-interest at relevant interbank rate + 1.5% 397,642
422,214
Tranche B Term loan((3b))-interest at relevant interbank rate + 1,191,857
1,187,045
1.875%
Tranche C Term loan((3c))-interest at relevant interbank rate + 1,190,619
1,186,147
2.125%
Yankee bonds (including accrued interest)((4)) 208,380
198,674
Bank loans and overdrafts/(cash) (603,882)
(324,946)
2011 Receivables securitisation floating rate notes (including accrued interest)((5)) 206,633
205,815
2,809,143
2,967,403
2015 Cash pay subordinated notes (including accrued interest)((6)) 350,855
352,985
Net debt before finance leases 3,159,998
3,320,388
Finance leases 60,573
72,786
Net debt including leases - Smurfit Kappa Funding plc 3,220,571
3,393,174
Balance of revolving credit facility reclassified to debtors 9,106
10,746
Net debt after reclassification - Smurfit Kappa Funding plc 3,229,677
3,403,920
Net (cash) in parents of Smurfit Kappa Funding plc (37,317)
(44)
Net Debt including leases - Smurfit Kappa Group plc 3,192,360
3,403,876
(1) Revolving credit facility ofEUR600 million (available under the senior credit
facility) to be repaid in full in 2012
(Revolver Loans = Nil, drawn under ancillary facilities and facilities
supported by letters of credit - Nil, letters of credit issued in support of
other liabilities-EUR17.8 million)
(2) Restructuring credit facility ofEUR275 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) EUR217.5 million 7.75% senior subordinated notes due 2015 and US$200.0
million 7.75% senior subordinated notes due 2015
Supplemental Financial Information
Reconciliation of net income to EBITDA, before exceptional items & share-based payment expense
9 months to 9 months to 3 months to 3 months to
30-Sept-08 30-Sept -07 30-Sept-08 30-Sept -07
EUR'000 EUR'000 EUR'000 EUR'000
Profit for the financial 160,315 45,003 36,712 84,098
period
Equity minority interests 18,656 12,206 12,148 4,969
Income tax expense 27,080 49,060 12,168 16,732
Share of associates' operating (2,746) (9,744) (195) (3,505)
income
Profit on sale of assets and - (7,538) - (1,668)
operations-subsidiaries
Loss on disposal of associates 6,905 - - -
Reorganisation and 17,318 38,642 - 2,073
restructuring costs
Impairment of fixed assets 10,950 6,075 - 1,413
Total net interest 204,225 339,201 70,192 68,813
Share-based payment expense 8,430 21,353 2,380 4,457
Depreciation, depletion (net) 294,329 294,822 97,880 98,006
and amortisation
EBITDA before exceptional 745,462 789,080 231,285 275,388
items and share-based payment
expense
EURMillion Q2, 2007 Q3, 2007 Q4, 2007 FY 2007 Q1, 2008 Q2, 2008 Q3,
2008
Group and third party revenue 2,650 2,689 2,656 10,624 2,702 2,713
2,570
Third party revenue 1,831 1,829 1,818 7,272 1,832 1,846
1,753
EBITDA before exceptional 260 275 275 1,064 257 257
231
items and share-based payment
expense
EBITDA margin 14.2% 15.1% 15.1% 14.6% 14.0% 13.9%
13.2%
Operating profit 134 171 126 562 127 156
131
Profit before tax 43 106 64 170 62 83
61
Free cash flow 3 150 73 186 1 76
149
Basic earnings per share (cent 14.4 38.6 46.9 74.3 18.4 38.3
16.8
per share)
Weighted average number of 217,702 217,768 217,952 198,188 217,994 218,022
218,023
shares used in EPS calculation
Net debt 3,605 3,448 3,404 3,404 3,373 3,285
3,192
Net debt to EBITDA (LTM) 3.62 3.30 3.20 3.20 3.16 3.09
3.13
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