TIDMSKG
2008 Fourth Quarter Results
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, 2008.
2008 Fourth Quarter | Key Financial Performance Measures
=------------------------------------------------------------------------------------
EUR m FY 2008 FY 2007 Change Q4 2008 Q4 2007 Change Q3 2008 Change
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Revenue EUR7,062 EUR7,272 (3%) EUR1,631 EUR1,818 (10%) EUR1,753 (7%)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
EBITDA EUR941 EUR1,064 (12%) EUR196 EUR275 (29%) EUR231 (16%)
before
Exceptionals
and
Share-based
Payments
(1)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
EBITDA 13.3% 14.6% - 12.0% 15.1% - 13.2% -
Margin
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Operating EUR282 EUR562 (50%) EUR(133) EUR126 - EUR131 -
Profit/(Loss)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Basic (22.8) 74.3 - (96.3) 46.9 - 16.8 -
(Loss)/Earnings
Per Share
(EUR cts)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Pre-exceptional 94.1 150.7 (38%) 6.6 56.5 (88%) 16.8 (61%)
EPS (EUR
cts)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Return on 10.3% 11.3% - - - - - -
Capital
Employed
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Free Cash EUR281 EUR186 51% EUR55 EUR73 (25%) EUR149 (63%)
Flow(2)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Net Debt EUR3,185 EUR3,404 (6%) EUR3,192 (0%)
=------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------
Net Debt 3.4x 3.2x - 3.1x -
to
EBITDA
(LTM)
=------------------------------------------------------------------------------------
(1) EBITDA before exceptional items and share-based
payment expense is denoted by EBITDA
throughout the remainder of the management
commentary for ease of reference.
(2) Free cash flow is set out on page 8. The
IFRS cash flow is set out on page 14.
2008 Financial Overview
-- EBITDA of EUR941 million, a reduction of 12% from 2007.
-- Strong free cash flow generation of EUR281 million, an increase of 51%
over 2007.
-- Continued net debt reduction of EUR219 million, a reduction of 6% in the
year.
-- Impairment charges totalling EUR249 million, comprised of EUR171 million
of goodwill impairment and EUR78 million of fixed asset and investment
write-downs.
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "Against an increasingly difficult market backdrop, the Group is pleased to deliver a relatively strong financial outcome for 2008 in line with market expectations. SKG reported EBITDA of EUR941 million, strong free cash flow of EUR281 million and further net debt reduction of EUR219 million for the year.
This performance reflects the resilience of the Group's integrated model, the EUR75 million of cost savings benefits achieved in 2008 and the continuing benefits of the Group's geographic diversity. Some 60% of the Group's end markets relate to the more defensive food and beverage sectors.
With negative growth forecast for many European economies in 2009, the Group expects a continuation of difficult operating conditions. In that environment, the Group's priority remains one of optimising our integrated model, increasing our cost take-out efforts and maximising our free cash flow generation and net debt reduction. This cash focus is reflected in each of our capital allocation decisions outlined today.
To maintain financial flexibility, the Group will further tighten its capital programmes, with capital expenditure approximating 60% of depreciation in 2009. The Group will also continue and deepen its cost reduction programme in 2009 and 2010, to deliver at least EUR125 million of additional saving benefits, with EUR75 million being targeted for 2009.
The Group is suspending dividend payments in 2009 and will re-evaluate its future dividend policy in light of prevailing market conditions and capital structure. The Group believes there is greater scope to create value through continued net debt reduction in the current environment.
SKG continues to have a very strong liquidity position with circa. EUR720 million cash on its balance sheet, unused credit lines of circa. EUR600 million and no material debt maturity until 2012.
Finally, to crystallise the value of its strong cash position, the Group also announces a EUR100 million cash tender offer to buy back part of its senior bank debt, and reduce both its net debt and debt servicing costs. This step is being taken in response to indications that certain holders of the debt prefer liquidity at current debt trading levels, and the attractiveness of current debt trading levels to SKG."
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.
2008 Fourth Quarter & Full Year | Performance Overview
In an increasingly challenging operating environment, the Group continues to deliver strong free cash flow generation. Despite a lower EBITDA, the Group's free cash flow generation of EUR281 million in 2008 was over 50% higher than in 2007, primarily reflecting the Group's reduced debt servicing costs and tight working capital control.
As a result of its financial and operating management efforts, the Group reduced its net debt by EUR219 million in 2008, a 6% reduction over the 2007 level. The Group's net debt to EBITDA of 3.4x at the end of December 2008 gives it continuing significant headroom compared to its actual covenant level of 4.75x.
The Group's EBITDA of EUR941 million for the full year of 2008, which is in line with the guidance provided early in the year, primarily reflects the resilience of the Group's integrated business model, and a strong commercial focus. The Group's performance in 2008 also benefits from the sustained strong contribution of its Latin American operations, and from the EUR75 million of cost savings generated in the year.
These results were achieved despite the weaker market conditions faced by the Group's recycled containerboard system, where materially lower prices combined with higher average input costs generated significant margin compression.
Following the closure of higher cost capacity over the past 3 years, the Group's performance benefits from a lower cost, competitive containerboard system. At current price levels, high cost containerboard systems are likely to be experiencing serious financial pressure as evidenced by the growing incidence of downtime and mill closure announcements.
Furthermore, to adjust for lower demand and avoid further inventory increases, increasing levels of market-related downtime has been taken throughout the industry in the fourth quarter. The Group has continued to show its leadership in that process, with 95,000 tonnes of downtime taken in the fourth quarter, the equivalent of 13% of its capacity. In total for 2008, the Group has reduced its recycled containerboard output by approximately 230,000 tonnes, the equivalent of 7.5% of its capacity.
In 2009, new recycled containerboard capacity is expected to come on stream in a declining demand environment, and despite some expected relief in input costs, the Group anticipates that sustained pricing pressure will likely force some non-integrated and/or higher cost paper producers to close or idle further capacity.
In Latin America, despite lower demand, the Group's operations continued to perform well in 2008, reflecting its strong positioning across the region. As a result of its sustained performance, Latin America represented approximately 18% of the Group's EBITDA for the full year, although the average strength of the euro in 2008 negatively impacted the contribution of the region to the overall Group earnings.
2008 Full Year | Financial performance
Revenue of EUR7.1 billion in the full year 2008 represents a 3% decrease on the full year 2007. However, allowing for the impact of currency, acquisitions, disposals and closures, revenue shows an underlying decrease of EUR68 million, the equivalent of less than 1%.
EBITDA of EUR941 million in the full year of 2008 was EUR124 million, or 12% lower than in 2007, mainly reflecting lower corrugated demand and margin pressure experienced in the Group's containerboard system, offset by the completion of its 3-year synergy programme and the contribution of year-one savings from its new 3-year additional cost take-out programme.
Allowing for the impact of currency, acquisitions, disposals and closures, the underlying EBITDA decrease would have been EUR109 million, the equivalent of 10%.
Exceptional items included in operating profit amount to EUR258 million, compared to EUR56 million in 2007 and these primarily relate to the impairment of goodwill and fixed assets and reorganisation and restructuring costs. Depreciation and amortisation decreased on the prior year by 6%. These items contributed to an operating profit of EUR282 million which reflects a decrease of EUR280 million mainly caused by impairments and a decline in EBITDA.
Net finance costs before exceptional items fell by 4% reflecting lower debt. Net finance costs after exceptional items decreased by EUR115 million due to exceptional debt repayment costs in 2007.
The loss before tax amounted to EUR11 million compared to a profit of EUR170 million in 2007.
2008 Fourth Quarter | Financial performance
Revenue of EUR1.6 billion in the fourth quarter of 2008 represents a 10% decrease compared to the fourth quarter of 2007. Allowing for the impact of currency, acquisitions, disposals and closures, revenue shows an underlying decrease of 9%.
At EUR196 million for the fourth quarter, EBITDA was EUR80 million lower than in the same period last year. This includes a negative currency impact of EUR3 million. On a comparable basis, EBITDA was 28% lower year-on-year.
Compared to the third quarter of 2008, EBITDA decreased by EUR36 million in the fourth quarter, the equivalent of 16%. Currency, disposals and closures had a negligible impact on the quarter on quarter variance.
2008 Fourth Quarter & Full Year | Free Cash Flow
Free cash flow of EUR281 million in the full year 2008 was 51% higher than in the full year 2007. While EBITDA was lower, the significant improvement in cash flow primarily reflects lower cash interest together with the positive impact of working capital inflow and lower levels of restructuring costs.
Cash interest of EUR243 million in 2008 was 12% lower than in 2007, reflecting the debt reduction following the Group's IPO in March 2007, the subsequent debt refinancing in July 2007, and the continued net debt reduction throughout the second half of 2007 and in 2008. Lower interest rates are expected to somewhat reduce the Group's cash interest charge in 2009.
Working capital decreased by EUR86 million in 2008, reflecting the Group's tight working capital control. The inflow reflected decreases in debtors and, to a lesser extent, stocks offset by a decrease in creditors. As a percentage of annualised net sales revenue, working capital of EUR527 million at December 2008 represented 8.1%, compared to 9.6% at September 2008 and 9.1% at December 2007.
Due to the phasing of projects and the progression of some large-scale projects, capital expenditure in the fourth quarter of 2008 was higher than the same period in 2007. The full year expenditure of EUR346 million in 2008, which equates to 98% of depreciation, compares with EUR324 million in 2007. With no major pending commitments for 2009, the Group will reduce its expenditure to approximately 60% of depreciation in 2009.
Tax payments for the full year of 2008 amounted to EUR97 million, compared to EUR73 million in 2007, with the increase arising largely from some one-off events. In 2009, the Group expects a cash tax level more in line with 2007 levels.
2008 Fourth Quarter & Full Year | Capital Structure & Debt Reduction
At the end of December 2008, the Group's net debt was just under EUR3.2 billion, down from over EUR3.4 billion at the end of December 2007, a reduction of EUR219 million over the period, the equivalent of 6%. The Group's financial priority continues to be on sustaining positive free cash flow generation and debt reduction through the cycle.
Dividends of EUR70 million were paid to Group shareholders in 2008. The significant net debt reduction delivered in the full year 2008 includes EUR55 million of proceeds from the sale of the Group's 40% associate shareholding in Duropack AG in May. In the fourth quarter, the Group's net debt decreased by EUR7 million, as the strong working capital inflow was counterbalanced by higher capital expenditure as a result of phasing, and the payment of EUR35 million in respect of the Group's interim dividend for 2008.
In the current credit market environment, the Group continues to benefit from its financing package and long-term debt profile, with no material maturity in the next four years. In addition, the Group benefits from strong liquidity, with approximately EUR720 million of cash on its balance sheet at the end of December 2008, and unused committed credit lines of approximately EUR600 million maturing in December 2012.
In view of the challenging economic environment and consistent with its prudent financial approach, the Group is suspending dividend payments in 2009, thereby increasing its debt paydown capability by EUR70 million compared to 2008. The Group will re-evaluate future dividend policy depending on the then prevailing market conditions and capital structure requirements.
Finally, the Group is launching a EUR100 million cash tender offer to buy back part of its senior bank debt. The Group's debt is trading at a discount to par, and the buy-back is therefore expected to reduce the Group's net debt and annual cash interest charge.
Senior debt buy-back process
SKG's ability to purchase its debt at acceptable prices will be subject to there being sufficient sellers of debt at those prices. To facilitate the identification of potential sellers and to ensure all senior lenders are treated equally, SKG has appointed Deutsche Bank to manage a modified Dutch Auction process among the senior lenders.
2008 Full Year | Impairment charge
The Group completed a goodwill impairment test in the fourth quarter of 2008. The test was based on value in use calculations which estimate the recoverable amounts of the Group's cash generating units. The Group recognised an impairment to goodwill of EUR171 million in the fourth quarter of 2008 as a result.
Fixed asset and investment write-downs of approximately EUR78 million were also taken in the fourth quarter of 2008. Fixed asset write-downs approximated EUR66 million, a significant portion of which relate primarily to the Group's sack business which operates in a very challenged economic and industrial environment.
2008 Fourth Quarter & Full Year | Performance Review
Packaging: Europe
The Group's corrugated volumes in 2008 decreased by 3% year-on-year, which compares to an overall market contraction of approximately 2%, reflecting the overall slowing economic environment in Europe. The steeper decline in the Group's deliveries reflects its continued commitment to maximise profitability over volumes.
Despite lower deliveries and significant market-related downtime in its paper system, the Group's EBITDA outcome of EUR196 million in the fourth quarter reflects the benefits of its integrated model, supported by the sustained performance of its downstream corrugated business. While under pressure, the Group's corrugated pricing held-up relatively well through 2008 reflecting the calibre of its customer base and the Group's focus on quality and service.
The Group's performance in 2008 also reflects the sustained overall competitiveness of its recycled containerboard system despite significant margin compression throughout the year, characterised by lower pricing and higher average input costs. In the current challenging operating environment, the Group benefits from its continually improving cost base, following the permanent closure of 20% of its less efficient capacity since 2005. The Group also benefits from its optimised integrated corrugated plant network.
By comparison, the Group estimates that a significant percentage of the European recycled containerboard capacity is loss making at current price levels. This is reflected in the slow but increasing number of announcements of permanent capacity closures and the increasing levels of market-related downtime that has arisen in the fourth quarter and early in 2009.
Although the Group operates a relatively low cost system and is a net buyer of recycled containerboard, it took approximately 160,000 tonnes of downtime, and permanently closed down another paper machine in Spain in July, removing an additional 70,000 tonnes from the market in 2008. As a result of the significant capacity removal, the Group's recycled containerboard inventories reduced by 13% in 2008, despite the lower level of demand and are at a relatively healthy level going into 2009.
Against the difficult market conditions, the Group's performance in 2008 also reflects its leading market position in kraftliner across Europe. Despite pressure from US imports in the first half of 2008, prices for the premium kraftliner grades showed reasonable resilience throughout 2008, and volumes grew by 1% in the year. The Group expects kraftliner prices to remain less volatile than other containerboard grades through the industry cycle, notwithstanding continued American imports.
Packaging: Latin America
In 2008, the Group's corrugated volumes in Latin America were 5% lower than in the previous year, primarily reflecting the impact of the US recession on the export and domestic activity in Mexico, and the impact of the farmers' strike in Argentina which reduced activity in the country for a significant period.
Against that backdrop and excluding currency effects, the Group's Latin American operations delivered unchanged EBITDA in 2008 compared to 2007. This performance reflects the Group's strong position in the region, and the diversified portfolio of markets and businesses.
While the Group's profitability in Mexico was negatively affected by weaker demand and higher input costs, price improvements contributed to reducing the margin compression. In September, on the back of the July paper price increase in the US, the Group implemented a further $60 price increase for containerboard and boxes in Mexico. Prices are under some pressure in the New Year due to soft demand, although the weaker Mexican Peso defends the domestic market against cheaper imports and supports current pricing levels.
The Group's Colombian operations benefited from positive pricing momentum in 2008, but profitability was negatively impacted by higher input costs, especially for energy. On the positive side, the weakening Colombian Peso is increasing the profitability of the Group's printing & writing paper exports. Furthermore, our Latin American sack business, despite a 4% decline in volumes, continued to perform strongly in 2008, supported by healthy pricing momentum.
The Group's businesses in Argentina, Venezuela and the Dominican Republic performed satisfactorily despite the challenging local conditions.
Specialties: Europe
After delivering EBITDA growth in the first nine months of the year, profitability of the Specialties division came under pressure in the fourth quarter, as demand was significantly lower across most grades. In 2008, the Specialties division represented approximately 10% of the Group's EBITDA, broadly in line with 2007.
The positive environment for sack paper experienced in the first half of 2008, primarily driven by exports, dis-improved sharply in the second half as the collapse in the construction industry became widespread. In the second half of 2008, the Group's sack paper volumes declined by 23% compared to the second half of 2007. This collapse was compounded by a double-digit fall in the price of sack paper in the fourth quarter. This trend is continuing into 2009. While the outlook for this grade remains extremely challenging, the sack division represents approximately 2% of the Group's EBITDA.
In the first nine months of 2008, the Group's solidboard business was negatively impacted by higher average input costs on the mill side, especially for fibre and energy. This was offset by the benefits of a relatively stable pricing environment across Europe on the converting side, and some volume increase in the Benelux following the bankruptcy of a local competitor. This trend reversed in the fourth quarter, with the mills positively influenced by lower fibre costs, while lower demand and pricing pressure impacted the converting operations. In volatile trading conditions, the Group's solidboard earnings again benefited from its integrated operating model.
Although affected by the overall economic slowdown, the Group's Bag-in-Box business continued to show volume and earnings growth in 2008.
Cost Take-Out programme
To further strengthen the competitiveness of its operations in increasingly challenging times, the Group initiated a new three year cost take out programme in 2008, which delivered approximately EUR75 million of savings in the year.
Savings in 2008 included EUR14 million of labour cost reduction, primarily reflecting lower headcount. Cost take out in 2008 also included EUR9 million of energy savings and EUR30 million in raw materials savings, primarily through the reduction of process waste materials in our corrugated operations, and optimised width utilisation on our paper machines. The balance of the 2008 savings was mainly generated through optimisation of our distribution network and various purchasing initiatives.
The Group is continuing its cost reduction programme, and expects to deliver at least EUR125 million of additional saving benefits between 2009 and 2010, with EUR75 million being targeted for 2009.
Board of Directors
In the first half of 2008, three independent, non-executive Directors were appointed to the Board: Paul Stecko on 7 February, Rosemary Thorne on 20 March, and Thomas Brodin on 2 April.
On 22 December, 2008 Liam O'Mahony was appointed Chairman of the Board in place of Sean Fitzpatrick who resigned on 19 December, 2008.
Liam O'Mahony joined the Board in March 2007 and has served as the Company's Senior Independent Director since then. Nicanor Restrepo who joined the board in March 2007 has been appointed Senior Independent Director in place of Liam O'Mahony.
Dividend
The 2008 interim dividend of 16.05 euro cent per share was paid to shareholders in October 2008. To maximise cash available for debt paydown in light of the challenging economic outlook, the Group does not propose to pay dividends in 2009. Future dividend policy will be considered relative to prevailing market conditions and capital structure.
Summary Cash Flows
Summary cash flows for the fourth quarter and twelve
months are set out in the following table.
3 months to 3 months to 12 months to 12 months to
31-Dec-08 31-Dec-07 31-Dec-08 31-Dec-07
EUR Million EUR Million EUR Million EUR Million
Pre-exceptional 196 275 941 1,064
EBITDA
Exceptional items (2) (11) (6) (36)
Cash interest (61) (62) (243) (275)
Working capital 77 17 86 (25)
change
Current (13) (11) (36) (80)
provisions
Capital (144) (96) (346) (324)
expenditure
Change in capital 45 10 29 (36)
creditors
Sale of fixed 6 7 10 29
assets
Tax paid (39) (28) (97) (73)
Other (10) (28) (57) (58)
Free cash flow 55 73 281 186
Shares issued - (2) - 1,433
through
IPO, net of costs
Refinancing costs - (5) - (84)
Sale 1 - 57 11
of businesses
and investments
Investments (5) (11) (20) (14)
Derivative 2 (21) 2 (44)
termination
receipts/(payments)
Dividends (36) (1) (77) (7)
Total surplus 17 33 243 1,481
Net debt disposed - 1 - 2
Deferred debt (4) (4) (15) (47)
issue
costs amortised
Non-cash interest - - - (12)
accrued
Currency (6) 14 (9) 54
translation
adjustments
Decrease in net 7 44 219 1,478
borrowing
(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.
12 months to 12 months to
31-Dec-08 31-Dec-07
EUR Million EUR Million
Free cash 281 186
flow
Add Cash interest 243 275
back:
Capital expenditure 346 324
Change in capital creditors (29) 36
Tax payments 97 73
Less: Sale of fixed assets (10) (29)
Profit on sale of assets and businesses - non exceptional (15) (4)
Receipt of capital grants (in "Other") (1) (2)
Dividends from associates (in "Other") (5) (4)
Cash flow generated 907 855
from operations
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, 2008 Smurfit Kappa Funding plc ("SK Funding") had outstanding EUR217.5 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 EUR210 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 EUR405 million amortising A Tranche maturing in 2012, a EUR1,289 million B Tranche maturing in 2013 and a EUR1,288 million C Tranche maturing in 2014. In addition, as at 31 December, 2008, the facility included a EUR600 million revolving credit facility of which there were EUR16.4 million in letters of credit issued in support of other liabilities and EUR0.09 million drawn under facilities supported by letters of credit.
On 1 December, 2008 our total drawings of EUR227 million under the restructuring facility converted into EUR37 million Tranche A and EUR95 million under each of Tranche B and C of the Senior Credit Facility. The unutilised portion of the restructuring facility was cancelled on conversion.
The following table provides the range of interest rates as of 31 December, 2008 for each of the drawings under the various Senior Credit Facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term Loan A EUR 4.34% - 5.11%
Term Loan B EUR 4.62% - 7.22%
USD 6.16%
Term Loan C EUR 4.82% - 7.47%
USD 6.41%
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 31 December, 2008 the Group had fixed an average of 55% of its interest cost on borrowings over the following twelve months.
Our fixed rate debt comprised mainly EUR217.5 million 7.75% senior subordinated notes due 2015, US$200 million 7.75% senior subordinated notes due 2015 and US$292.3 million 7.50% senior debentures due 2025. In addition the Group also has EUR1,750 million in interest rate swaps with maturity dates ranging from February 2009 to February 2014.
Our earnings are affected by changes in short-term interest rates as a result of our floating rate borrowings. If variable interest rates for these borrowings increase by one percent, our interest expense would increase, and income before taxes would decrease, by approximately EUR19 million over the following twelve months. Interest income on our cash balances would increase by approximately EUR7 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
- Twelve
Months
Unaudited Audited
12 Months to 31-Dec-08 12 Months to 31-Dec-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 7,061,880 - 7,061,880 7,271,657 - 7,271,657
Cost of (5,058,487) (236,986) (5,295,473) (5,236,787) (6,433) (5,243,220)
sales
Gross 2,003,393 (236,986) 1,766,407 2,034,870 (6,433) 2,028,437
profit
Distribution (577,550) - (577,550) (583,542) - (583,542)
costs
Administrative (890,029) - (890,029) (882,086) - (882,086)
expenses
Other 3,995 - 3,995 48,489 12,513 61,002
operating
income
Other - (20,963) (20,963) - (61,797) (61,797)
operating
expenses
Operating 539,809 (257,949) 281,860 617,731 (55,717) 562,014
profit
Finance (463,771) (12,000) (475,771) (492,158) (115,427) (607,585)
costs
Finance 186,599 - 186,599 202,961 - 202,961
income
Loss - (6,905) (6,905) - - -
on
disposal
of
associate
Share 2,731 - 2,731 12,513 - 12,513
of
associates'
profit
(after
tax)
(Loss)/profit 265,368 (276,854) (11,486) 341,047 (171,144) 169,903
before
income tax
Income tax (20,568) (3,503)
expense
(Loss)/profit (32,054) 166,400
for the
financial
year
Attributable
to:
Equity (49,656) 147,169
holders
of
the
Company
Minority 17,602 19,231
interest
(Loss)/profit (32,054) 166,400
for the
financial
year
Earnings
per
share:
Basic (22.8) 74.3
(loss)/earnings
per
share
(cent
per share)
Diluted (22.8) 71.7
(loss)/earnings
per
share
(cent
per
share)
Group
Income
Statement
- Fourth
Quarter
Unaudited Unaudited
3 Months to 31-Dec-08 3 Months to 31-Dec-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 1,630,561 - 1,630,561 1,817,795 - 1,817,795
Cost of (1,192,502) (226,036) (1,418,538) (1,342,575) (358) (1,342,933)
sales
Gross 438,059 (226,036) 212,023 475,220 (358) 474,862
profit
Distribution (136,728) - (136,728) (139,926) - (139,926)
costs
Administrative (206,956) - (206,956) (191,372) - (191,372)
expenses
Other 2,731 - 2,731 904 4,975 5,879
operating
income
Other - (3,645) (3,645) - (23,155) (23,155)
operating
expenses
Operating 97,106 (229,681) (132,575) 144,826 (18,538) 126,288
(loss)/profit
Finance (136,434) (12,000) (148,434) (114,735) (5,457) (120,192)
costs
Finance 63,487 - 63,487 54,769 - 54,769
income
Share (15) - (15) 2,769 - 2,769
of
associates'
(loss)/profit
(after
tax)
(Loss)/profit 24,144 (241,681) (217,537) 87,629 (23,995) 63,634
before
income tax
Income tax 6,512 45,557
expense
(Loss)/profit (211,025) 109,191
for the
financial
period
Attributable
to:
Equity (209,971) 102,166
holders
of
the
Company
Minority (1,054) 7,025
interest
(Loss)/profit (211,025) 109,191
for the
financial
period
Earnings
per
share:
Basic (96.3) 46.9
(loss)/earnings
per
share
(cent
per share)
Diluted (96.3) 45.6
(loss)/earnings
per
share(cent
per share)
Group Statement of Recognised Income and Expense
Unaudited Audited
12 months to 12 months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Restated
Items of income and expense recognised
directly within equity:
Foreign currency translation adjustments (165,218) (92,101)
Defined benefit pension schemes
- Actuarial (loss)/gain (84,057) 49,242
- Movement in deferred tax 15,542 (15,616)
Effective portion of changes in fair
value of cash flow hedges:
- movement out of reserve (15,356) (11,818)
- new fair value adjustments into reserve (31,833) 11,121
- movement in deferred tax 4,614 (25)
Net change in fair value of available-for-sale (799) 564
financial assets
Net income and expense recognised (277,107) (58,633)
directly within equity
(Loss)/profit for the financial year (32,054) 166,400
Total recognised income and expense (309,161) 107,767
for the financial year
Attributable to:
Equity holders of the Company (331,098) 99,430
Minority interest 21,937 8,337
(309,161) 107,767
Effects of changes in accounting policy:
Attributable to:
Equity holders of the Company (876)
Minority interest -
(876)
Group Balance Sheet
Unaudited Audited
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Restated
Assets
Non-current assets
Property, plant and equipment 3,038,207 3,251,479
Goodwill and intangible assets 2,154,212 2,416,785
Available-for-sale financial assets 30,651 43,511
Investment in associates 14,038 79,307
Biological assets 78,166 74,758
Trade and other receivables 4,098 6,716
Derivative financial instruments 153 4,301
Deferred income tax assets 228,061 257,234
5,547,586 6,134,091
Current assets
Inventories 623,185 682,169
Biological assets 8,122 6,862
Trade and other receivables 1,210,631 1,379,105
Derivative financial instruments 14,681 28,261
Restricted cash 19,408 13,096
Cash and cash equivalents 699,554 401,622
2,575,581 2,511,115
Non-current assets held for sale 10,482 15,999
Total assets 8,133,649 8,661,205
Equity
Capital and reserves attributable to
the equity holders of the Company
Equity share capital 229 228
Capital and other reserves 2,329,613 2,538,047
Retained earnings (679,224) (486,126)
Total equity attributable to equity 1,650,618 2,052,149
holders of the Company
Minority interest 144,723 137,443
Total equity 1,795,341 2,189,592
Liabilities
Non-current liabilities
Borrowings 3,751,361 3,667,618
Employee benefits 516,665 482,497
Derivative financial instruments 19,227 -
Deferred income tax liabilities 324,563 446,461
Non-current taxes payable 18,538 19,704
Provisions for liabilities and charges 48,343 77,698
Capital grants 13,026 14,176
Other payables 3,591 8,535
4,695,314 4,716,689
Current liabilities
Borrowings 152,193 150,976
Trade and other payables 1,311,012 1,402,687
Current income tax liabilities 24,926 25,650
Derivative financial instruments 108,907 121,058
Provisions for liabilities and charges 45,956 54,553
1,642,994 1,754,924
Total liabilities 6,338,308 6,471,613
Total equity and liabilities 8,133,649 8,661,205
Group Cash Flow Statement
Unaudited Audited
12 months to 12 months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Cash flows from operating activities
(Loss)/profit for the financial year (32,054) 166,400
Adjustment for
Income tax expense 20,568 3,503
Profit on sale of assets and businesses (15,249) (16,933)
Amortisation of capital grants (1,575) (2,157)
Impairment of property, 65,986 6,433
plant and equipment
Equity settled share-based payment expense 4,373 24,741
Amortisation of intangible assets 44,656 45,304
Impairment of goodwill 171,000 -
Reduction in goodwill - 16,068
Share of profit of associates & 4,174 (12,513)
loss on disposal of associate
Depreciation charge 344,482 357,225
Net finance costs 289,172 404,624
Change in inventories 35,353 (68,645)
Change in biological assets 7,216 3,053
Change in trade and other receivables 136,006 (55,438)
Change in trade and other payables (83,523) 100,265
Change in provisions (34,647) (62,347)
Change in employee benefits (49,629) (55,294)
Foreign currency translation adjustments 900 678
Cash generated from operations 907,209 854,967
Interest paid (283,126) (409,871)
Income taxes paid:
Irish corporation tax paid (14,204) (4,296)
Overseas corporation tax (net (82,403) (69,175)
of tax refunds) paid
Net cash inflow from operating activities 527,476 371,625
Cash flows from investing activities
Interest received 36,212 28,612
Business disposals 2,675 10,720
Purchase of property, plant & equipment (308,022) (349,744)
and biological assets
Purchase of intangible assets (9,418) (6,796)
Receipt of capital grants 560 2,424
Purchase of available-for-sale (311) (106)
financial assets
Increase in restricted cash (6,313) (2,779)
Disposal of property, plant and equipment 24,225 32,949
Disposal of investments 274 -
Dividends received from associates 4,528 3,617
Disposals of/investments in associates 54,973 408
Purchase of subsidiaries and minorities (15,437) (12,013)
Deferred and contingent acquisition (4,217) (14)
consideration paid
Net cash (outflow) from (220,271) (292,722)
investing activities
Cash flows from financing activities
Proceeds from issue of new ordinary shares 120 1,496,244
Costs associated with issuing new shares - (62,208)
Increase in interest-bearing borrowings 152,324 91,853
Repayment of finance lease liabilities (14,008) (20,256)
Repayment of interest-bearing borrowings (57,273) (1,464,927)
Derivative termination receipts/(payments) 2,576 (45,186)
Deferred debt issue costs (306) (8,213)
Dividends paid to shareholders (70,000) -
Dividends paid to minority interests (6,695) (7,282)
Net cash inflow/(outflow) from 6,738 (19,975)
financing activities
Increase in cash and cash equivalents 313,943 58,928
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 375,390 321,494
Currency translation adjustment (6,641) (5,032)
Increase in cash and cash equivalents 313,943 58,928
Cash and cash equivalents at 31 December 682,692 375,390
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 of EUR1,495 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 consolidated financial statements of SKG plc are 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 has been prepared in accordance with the Listing Rules of the Irish Stock Exchange and with the Group's accounting policies. Full details of the accounting policies adopted by the Group are contained in the financial statements included in the Group's annual report for the year ended 31 December, 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 as 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 approximately EUR1,533,000 with an increase of EUR460,000 in deferred income tax assets. The resulting effect on equity of EUR1,073,000 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.
3.Segmental Analyses
12 months to 31-Dec-08 12 months to 31-Dec-07
Packaging Specialties Total Packaging Specialties Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Third 6,121,609 940,271 7,061,880 6,313,553 958,104 7,271,657
party
revenue
(external)
Segment 529,578 47,153 576,731 598,781 55,582 654,363
results-pre
exceptional
items
Exceptional (222,988) (34,961) (257,949) (23,825) (4,965) (28,790)
items
306,590 12,192 318,782 574,956 50,617 625,573
Unallocated (36,922) (36,632)
centre
costs-pre
exceptional
items
Group - (26,927)
centre
exceptional
items
Operating 281,860 562,014
profit
Share 2,731 - 2,731 12,513 - 12,513
of
associates'
profit
(after
tax)
Loss (6,905) - (6,905) - - -
on
disposal
of
associate
Finance (475,771) (607,585)
costs
Finance 186,599 202,961
income
(Loss)/profit (11,486) 169,903
before
income
tax
3 months to 31-Dec-08 3 months to 31-Dec-07
Packaging Specialties Total Packaging Specialties Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Third 1,420,847 209,714 1,630,561 1,579,134 238,661 1,817,795
party
revenue
(external)
Segment 102,843 940 103,783 132,371 11,460 143,831
results-pre
exceptional
items
Exceptional (194,720) (34,961) (229,681) (3,183) 1,250 (1,933)
items
(91,877) (34,021) (125,898) 129,188 12,710 141,898
Unallocated (6,677) 995
centre
costs-pre
exceptional
items
Group - (16,605)
centre
exceptional
items
Operating (132,575) 126,288
profit
Share (15) - (15) 2,769 - 2,769
of
associates'
(loss)/profit
(after
tax)
Finance (148,434) (120,192)
costs
Finance 63,487 54,769
income
(Loss)/profit (217,537) 63,634
before
income
tax
4.Exceptional Items
The following items are regarded 12 months to 12 months to
as exceptional in nature: 31-Dec-08 31-Dec-07
EUR'000 EUR'000
Reorganisation and restructuring costs (20,963) (61,797)
Impairment of property, plant and equipment (65,986) (6,433)
Goodwill impairment (171,000) -
Net income on sale of assets and operations - 12,513
Total exceptional items included (257,949) (55,717)
in operating costs
Total exceptional items included (12,000) (115,427)
in finance costs
Loss on disposal of associate (6,905) -
The reorganisation and restructuring costs in 2008, relate to the announced closure of our Valladolid recycled containerboard mill which was permanently closed in July 2008 and our Iuretta sack plant, both in Spain. The reorganisation and restructuring costs in 2007 included the termination costs related to the closure 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 2008, the impairment of property, plant and equipment amounts to EUR66 million, a portion of which relates to the Group's sack business and to the Valladolid mill in Spain. In 2007 the impairment charge of EUR6 million resulted mainly from the closure of the containerboard mill in France.
In 2008, following the completion of our full impairment review, EUR171 million goodwill impairment was booked.
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.
The exceptional finance cost of EUR12 million in 2008 relates to the impairment of available-for-sale financial assets. Exceptional finance costs of EUR115 million arose in 2007 following our use of the proceeds from the IPO to pay down debt. These costs comprise refinancing costs of EUR85 million and the non-cash accelerated amortisation of debt costs of EUR30 million.
The loss on disposal of associate resulted from the sale of the Group's principal associate Duropack AG.
5.Other Operating Income
Other operating income in 2007 includes insurance proceeds of EUR46 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
12 Months to 12 Months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Finance costs
Interest payable on bank 209,869 206,193
loans and overdrafts
Interest payable on finance leases 5,749 7,217
and hire purchase contracts
Interest payable on other borrowings 78,301 117,825
Finance costs associated - 115,427
with debt restructuring
Impairment loss on available-for-sale 12,017 447
financial assets
Other finance costs 1,864 -
Unwinding of discount element of provisions 870 921
Foreign currency translation loss on debt 50,630 23,049
Fair value loss on commodity derivatives 3,701 -
Fair value loss on other derivatives 10,698 40,158
Interest cost on employee 102,072 96,348
benefit plan liabilities
Total finance cost 475,771 607,585
Finance income
Other interest receivable 36,213 28,612
Foreign currency translation gain on debt 28,074 80,447
Fair value gain on commodity derivatives - 4,081
Fair value gain on other derivatives 34,134 2,434
Expected return on employee 88,178 87,387
benefit plan assets
Total finance income 186,599 202,961
Net finance cost 289,172 404,624
7.Income Tax Expense
Income tax expense recognised in
the Group Income Statement
12 Months to 12 Months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Current taxation
Europe 46,743 47,764
United States and Canada 169 (1,715)
Latin America 42,441 25,316
89,353 71,365
Deferred taxation (68,785) (67,862)
20,568 3,503
Current tax is analysed as follows:
Ireland 10,167 11,018
Foreign 79,186 60,347
89,353 71,365
Income tax recognised directly in equity
12 Months to 12 Months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Arising on actuarial gains/(losses) (15,542) 15,616
on defined benefit plans
Arising on qualifying derivative (4,614) 25
cash flow hedges
(20,156) 15,641
A net credit of EUR2.4 million in respect of current tax and EUR19.6 million in respect of deferred tax is included in the 2008 tax charge for exceptional items.
8.Employee Post Retirement Schemes
The table below sets out the components of the defined benefit expense for the year:
12 Months to 12 Months to
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Current service cost 42,686 50,255
Past service cost 3,312 4,706
(Gain) on settlements and curtailments (524) (5,109)
Actuarial gains and losses arising (2,142) (3,518)
on long-term employee
benefits other than defined benefit schemes
43,332 46,334
Expected return on scheme assets (88,178) (87,387)
Interest cost on scheme liabilities 102,072 96,348
Net financial expense 13,894 8,961
Defined benefit expense 57,226 55,295
The disclosures above reflect the requirements of IAS 19 - Employee Benefits. Included in cost of sales and distribution and administrative expenses is a total defined benefit expense of EUR43,332,000 for the year (2007: EUR46,334,000). Expected Return on Scheme Assets of EUR88,178,000 (2007: EUR87,387,000) is included in Finance Income for the year and Interest Cost on Scheme Liabilities of EUR102,072,000 (2007: EUR96,348,000) is included in Finance Expense for the year in the Group Income Statement.
The amounts recognised in the balance sheet were as follows:
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Present value of funded obligations 1,210,486 1,498,547
Fair value of plan assets (1,080,129) (1,411,223)
Present value of unfunded obligations 386,308 395,173
Liability in the balance sheet 516,665 482,497
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:
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Liability in the balance sheet 513,793 480,964
- 2007 previously stated
Impact of adoption of IFRIC 14 2,872 1,533
Liability in the balance sheet - 2007 restated 516,665 482,497
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 from EUR482 million at 31 December, 2007 to EUR517 million at 31 December, 2008. The rise in the provision was as a result of the significant asset losses being partially compensated by an increase in AA corporate bond yields, a fall in expected inflation, favourable pension plan experience and weaker Sterling - all of which reduced pension liabilities.
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 12 Months to 12 Months to
31-Dec-08 31-Dec-07 31-Dec-08 31-Dec-07(1)
(Loss)/profit (209,971) 102,166 (49,656) 147,169
attributable
to equity
holders of the
Company
(EUR'000)
Weighted average 218,023 217,952 218,015 198,188
number
of ordinary
shares in issue
('000)
Basic (96.3) 46.9 (22.8) 74.3
(loss)/earnings
per
share (cent
per 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 12 Months to 12 Months to
31-Dec-08(2) 31-Dec-07 31-Dec-08(2) 31-Dec-07(1)
(Loss)/profit (209,971) 102,166 (49,656) 147,169
attributable
to equity
holders of the
Company
(EUR'000)
Weighted average 218,023 217,952 218,015 198,188
number
of ordinary
shares in issue
('000)
Potential dilutive - 6,194 - 7,141
ordinary
shares assumed
Diluted weighted 218,023 224,146 218,015 205,329
average
ordinary shares
Diluted (96.3) 45.6 (22.8) 71.7
(loss)/earnings
per
share (cent
per share)
(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 2008 as the inclusion of the
dilutive impact of the convertible shares would
have the effect of reducing the loss per share.
10.Property, Plant and Equipment
Land and Buildings Plant and Equipment Total
EUR'000 EUR'000 EUR'000
Year ended 31
December
2008
Opening net book 1,176,694 2,074,785 3,251,479
amount
Reclassification 28,867 (30,594) (1,727)
Additions 10,019 312,900 322,919
Depreciation (49,719) (294,763) (344,482)
charge
for the period
Impairment losses (12,977) (53,009) (65,986)
recognised
in profit and loss
Retirements and (2,728) (2,908) (5,636)
disposals
Foreign currency (41,967) (76,393) (118,360)
translation
adjustment
At 31 December 1,108,189 1,930,018 3,038,207
2008
Year ended 31
December
2007
Opening net book 1,215,877 2,166,104 3,381,981
amount
Reclassification 34,382 (34,941) (559)
Acquisitions 772 6,783 7,555
Additions 14,547 288,742 303,289
Transfer to assets (9,123) (1,026) (10,149)
held for sale
Depreciation (51,406) (305,819) (357,225)
charge
for the year
Impairment losses (225) (6,208) (6,433)
recognised
in profit and loss
Retirements and (10,703) (7,934) (18,637)
disposals
Foreign currency (17,427) (30,916) (48,343)
translation
adjustment
At 31 December 1,176,694 2,074,785 3,251,479
2007
11.Investment in Associates
12 Months to 12 Months to
31-Dec-08 31-Dec-2007
EUR'000 EUR'000
At 1 January 79,307 76,668
Share of profit for the period 2,731 12,513
Loss on disposal of associate (6,905) -
Dividends received from associates (4,528) (3,617)
Disposals (55,418) (3,810)
Transfer to subsidiaries - (2,000)
Reclassification - 631
Foreign currency translation adjustment (1,149) (1,078)
At 31 December 14,038 79,307
12.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 of EUR0.001 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, 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 credit of EUR2.4 million is included in the 2008 share-based payment expense, reversing elements of the charge already booked up to the year ended 31 December, 2007 since the grants were made. This relates to grants where we believe that certain performance criteria will not be met.
A summary of the activity under the 2002 Plan, as amended, for the period from 31 December, 2007 to 31 December, 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 672.0 (583.7) (44.2) (44.1) -
Converted into Ordinary shares (36.8) - - - (36.8)
Balance December 2008 9,035.0 - 539.5 539.5 10,114.0
Exercisable December 2008 9,035.0 - - - 9,035.0
The weighted average exercise price for all D convertible shares at 31 December, 2008 was EUR4.59. The weighted average remaining contractual life of all the awards issued under the 2002 Plan, as amended, at 31 December, 2008 was 3.98 years.
A summary of the activity under the 2007 SIP, for the period from 31 December, 2007 to 31 December, 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 December 2008 2,598.2 2,598.2 5,196.5
Exercisable December 2008 - - -
As at 31 December, 2008 the weighted average exercise price for all New B and New C convertible shares upon conversion would be EUR13.68. The weighted average remaining contractual life of all the awards issued under the 2007 SIP at 31 December, 2008 was 8.77 years.
13.Reconciliation of Movements in Total Equity
Attributable to Minority Total equity
equity holders interests
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 (1,073) - (1,073)
the implementation
of IFRIC 14(1)
31 December 2007, as adjusted 2,052,149 137,443 2,189,592
Total recognised income (331,098) 21,937 (309,161)
and expense
Other movements (4,926) 4,926 -
Shares issued 120 - 120
Share-based payment expense 4,373 - 4,373
Purchase of minorities - (12,888) (12,888)
Dividend paid to shareholders (70,000) - (70,000)
Dividends paid to minorities - (6,695) (6,695)
At 31 December 2008 1,650,618 144,723 1,795,341
31 December 2006, as 495,178 136,343 631,521
previously reported
Adjustment in respect of (197) - (197)
the implementation
of IFRIC 14(1)
31 December 2006, as adjusted 494,981 136,343 631,324
Total recognised 99,430 8,337 107,767
gains and 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 by EUR1,533,000
with an increase of EUR460,000 in deferred income
tax assets. The resulting effect on
equity of EUR1,073,000 is shown as an adjustment
to the opening balance of retained earnings
on 1 January, 2008 with a corresponding reduction
of EUR197,000 at 1 January, 2007.
14.Analysis of Net Debt
31-Dec-08 31-Dec-07
EUR'000 EUR'000
Senior credit facility:
Revolving credit facility(1)- interest (8,506) (10,746)
at relevant interbank rate + 1.5%
Restructuring facility(2)- interest - 103,200
at relevant interbank
rate + 1.5% until conversion to Term Loan
Tranche A Term loan(3a)- interest at 405,410 422,214
relevant interbank rate + 1.5%
Tranche B Term loan(3b)- interest at 1,289,194 1,187,045
relevant interbank rate + 1.875%
Tranche C Term loan(3c)- interest at 1,287,839 1,186,147
relevant interbank rate + 2.125%
Yankee bonds (including accrued interest)(4) 210,246 198,674
Bank loans and overdrafts/(cash) (628,899) (324,946)
2011 Receivables securitisation floating rate 206,882 205,815
notes (including accrued interest)(5)
2,762,166 2,967,403
2015 Cash pay subordinated notes 361,982 352,985
(including accrued interest)(6)
Net debt before finance leases 3,124,148 3,320,388
Finance leases 54,369 72,786
Net debt including leases - 3,178,517 3,393,174
Smurfit Kappa Funding plc
Balance of revolving credit facility 8,506 10,746
reclassified to debtors
Net debt after reclassification 3,187,023 3,403,920
- Smurfit Kappa Funding plc
Net (cash) in parents of Smurfit (2,431) (44)
Kappa Funding plc
Net Debt including leases - 3,184,592 3,403,876
Smurfit Kappa Group plc
(1) Revolving credit facility of EUR600 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
- EUR0.09 million, letters of credit issued in support
of other liabilities - EUR16.4 million)
(2) Restructuring credit facility of EUR275
million (available under the senior
credit facility), converted to Term A, B and C on 1 December 2008
(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
15.Statutory Accounts
The financial information prepared included in this preliminary release 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 accounts will be approved by the Board of Directors and reported on by the auditors in due course. The annual accounts reported on by the auditors will not contain quarterly information. Accordingly, the financial information is unaudited. Full group accounts for the year ended 31 December, 2007 have received an unqualified audit report and have been filed with the Irish Registrar of Companies.
Supplemental Financial Information
Reconciliation of
net income to
EBITDA, before
exceptional
items
& share-based
payment expense
12 months to 12 months to 3 months to 3 months to
31-Dec-08 31-Dec -07 31-Dec-08 31-Dec -07
EUR'000 EUR'000 EUR'000 EUR'000
(Loss)/profit (49,656) 147,169 (209,971) 102,166
for the
financial period
Equity minority 17,602 19,231 (1,054) 7,025
interests
Income tax 20,568 3,503 (6,512) (45,557)
expense
Share (2,731) (12,513) 15 (2,769)
of associates'
operating
(profit)/loss
Loss on disposal 6,905 - - -
of associates
Profit on sale - (12,513) - (4,975)
of assets and
operations
-subsidiaries
Reorganisation 20,963 61,797 3,645 23,155
and
restructuring
costs
Impairment 236,986 6,433 226,036 358
of assets
Total net 289,172 404,624 84,947 65,423
interest
Share-based 4,373 24,741 (4,057) 3,388
payment
expense
Depreciation, 396,354 421,650 102,025 126,829
depletion
(net)
and amortisation
EBITDA before 940,536 1,064,122 195,074 275,043
exceptional
items and
share-based
payment
expense
EUR Million Q3, 2007 Q4, 2007 Q1, 2008 Q2, 2008 Q3, 2008 Q4, 2008
Group and 2,689 2,656 2,702 2,713 2,570 2,384
third
party
revenue
Third 1,829 1,818 1,832 1,846 1,753 1,631
party
revenue
EBITDA 275 275 257 257 231 196
before
exceptional
items and
share-based
payment
expense
EBITDA 15.1% 15.1% 14.0% 13.9% 13.2% 12.0%
margin
Operating 171 126 127 156 131 (133)
profit/(loss)
Profit/(loss) 106 64 62 83 61 (218)
before tax
Free cash 150 73 1 76 149 55
flow
Basic 38.6 46.9 18.4 38.3 16.8 (96.3)
(loss)/earnings
per share
(EUR cts)
Weighted 217,768 217,952 217,994 218,022 218,023 218,023
average
number of
shares
used
in
EPS
calculation
Net debt 3,448 3,404 3,373 3,285 3,192 3,185
Net debt 3.30 3.20 3.16 3.09 3.13 3.39
to
EBITDA
(LTM)
=----------------------------------------------------------------------
Contacts Information
=----------------------------------------------------------------------
Smurfit Kappa Group +353 1 202 7000 ir@smurfitkappa.com
=----------------------------------------------------------------------
K Capital Source +353 1 631 5500 smurfitkappa@kcapitalsource.com
=----------------------------------------------------------------------
Smurfit Kappa (LSE:SKG)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
Smurfit Kappa (LSE:SKG)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024
