TIDMSKG
2012 Third Quarter Results
7 November 2012: Smurfit Kappa Group plc ('SKG' or the 'Group')
today announced results for the 3 months and 9 months ending 30
September 2012.
2012 Third Quarter & First Nine Months | Key Financial
Performance Measures
EURm YTD 2012 YTD 2011 change Q3 2012 Q3 2011 change Q2 2012 change
Revenue EUR5,510 EUR5,538 - EUR1,830 EUR1,868 (2%) EUR1,857 (1%)
EBITDA EUR780 EUR771 1% EUR280 EUR264 6% EUR255 10%
before
Exceptional
Items
and
Share-based
Payment(1)
EBITDA 14.2% 13.9% - 15.3% 14.1% - 13.7% -
Margin
Operating EUR486 EUR477 2% EUR181 EUR162 12% EUR156 16%
Profit
before
Exceptional
Items
Profit EUR295 EUR221 33% EUR105 EUR85 24% EUR85 24%
before
Income Tax
Basic EPS 84.9 53.5 59% 33.4 22.2 50% 24.5 36%
(cent)
Pre-exceptional 73.1 69.7 5% 33.4 22.2 50% 24.5 36%
EPS (cent)
Return on 12.7% 12.5% - 12.2% -
Capital
Employed
Free Cash EUR164 EUR195 (16%) EUR118 EUR117 - EUR63 87%
Flow(2)
Net Debt EUR2,640 EUR2,921 (10%) EUR2,785 (5%)
Net Debt 2.6x 2.8x - 2.8x -
to
EBITDA
(LTM)
(1) EBITDA before exceptional items and share-based payment
expense is denoted by EBITDA throughout the remainder of the
management commentary for ease of reference. A reconciliation of
profit for the period to EBITDA before exceptional items and
share-based payment expense is set out on page 28.
(2) Free cash flow is set out on page 8. The IFRS cash flow is
set out on page 17.
Highlights
-- Strong EBITDA outcome of EUR280 million in the third quarter
-- Industry-leading EBITDA margins reflecting SKG's continued focus on
innovative packaging, cost and operating efficiency
-- Two successful bond offerings totalling EUR690 million resulting in
reduced debt servicing costs, improved debt maturity profile
and
further diversification of funding sources
-- Acquisition of Orange County Container Group for US$340 million at
5.1x 2012 EBITDA post synergies
-- Expect year-end EBITDA in line with 2011
Performance Review and Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "SKG is pleased
to report a strong EBITDA outcome of EUR280 million in the third
quarter of 2012. This performance reflects the strength of the
Group's integrated model and the benefits of its operating
efficiency in a generally soft macroeconomic environment. Our
differentiated European offering and extensive market footprint has
underpinned a strong performance in the period. Following a number
of one-off items in the first half of the year, our Latin American
operations improved their overall profitability in the third
quarter, and continue to provide important diversity and growth
opportunities for SKG.
In challenging markets, activity level was satisfactory as a
result of our continued focus on our corrugated customers by
supporting their marketing efforts, providing innovative packaging
solutions and optimising costs throughout their supply chains.
Our business also continues to benefit from the value and
contribution of our market leading kraftliner mill system. This
grade achieved a price increase of EUR50 per tonne during the
quarter, bringing kraftliner price increases to EUR90 per tonne
over the last two quarters. In recycled containerboard, we
announced a EUR100 per tonne price increase which has been
partially implemented to date. With recovered paper costs on a long
term upward trend, we will need further price increases to restore
economic margins.
Against a range of strategic, financial and operating measures,
SKG is also pleased to report meaningful progress in the year to
date. The continued strength of our operating performance has
delivered a net debt reduction of EUR483 million in the last two
years with our Net Debt/EBITDA ratio down to 2.58x at the end of
September 2012.
In September, we completed two consecutive bond offerings which
reduces future interest costs, extends our debt maturity profile
and further diversifies our funding sources.
We recently announced our agreement to acquire Orange County
Container Group, delivering immediate earnings growth for SKG upon
completion, and significantly strengthening our existing position
in the high growth region of northern Mexico.
These actions, which give us a debt profile appropriate to the
industry and the economies in which we operate, together with the
recent increase in the share freefloat to 92% following the
placements by the private equity holders, have combined to address
a number of issues of previous concern to the equity market.
Despite macroeconomic pressure we continue to expect full year
EBITDA in line with that achieved in 2011. The range of steps we
have undertaken in our business positions SKG for performance and
growth, and our objective is to continue to deliver a quality
earnings stream with industry leading EBITDA margins. The
consistent quality of our earnings, together with the relentless
focus on cash flow, will enable us to maintain an appropriate debt
level and a sustained and progressive dividend policy, whilst
continuing to target accretive acquisitions to enhance growth."
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 21 countries in Europe and is the European leader in
containerboard, solidboard, corrugated and solidboard packaging and
has a key position in several other packaging and paper market
segments, including graphicboard and sack paper. Smurfit Kappa
Group also has a growing base in Eastern Europe, a bag-in-box
facility in Canada and operates in 9 countries in Latin America
where it 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
Seamus Murphy FTI Consulting
Smurfit Kappa Group
Tel: +353 1 663 36 80
Tel: +353 1 202 71 80 E-mail: smurfitkappa@fticonsulting.com
E-mail: ir@smurfitkappa.com
2012 Third Quarter & First Nine Months | Performance
Overview
The Group reported revenue of EUR5,510 million for the nine
months to September, down marginally year on year. However, third
quarter EBITDA of EUR280 million, an increase of 6% year on year,
reflects SKG's robust operational performance despite a worsening
macroeconomic environment. Increased EBITDA margins were due to a
combination of continued cost take-out and lower fibre costs,
underpinned by the strengths of its integrated model. In July, the
Group's kraftliner mill in France was forced to temporarily cease
production following the collapse of a black liquor tank. Adjusting
for the impact of lost revenue in this mill, SKG's margin would
have been approximately 14.0% for the nine months compared to the
reported 14.2%.
The Group has an established track record of strong free cash
flow generation and is reporting free cash flow of EUR118 million
in the quarter, a result in line with previous years. Net debt
reduction of EUR112 million achieved in the nine months to
September 2012 reflects the Group's focus on debt pay-down as a
means of unlocking value for equity holders. The Group remains
firmly committed to its stated objective of maintaining leverage
below 3.0x through the cycle.
European box volumes for the year to date remained broadly
unchanged over the same period in 2011, and continue to show
resilience across the region. SKG has maintained its core focus on
margins over volumes, a strategy which continues to impact on sheet
sales which were down 8% in the third quarter. This reduction in
sheet sales (which make up 14% of corrugated sales) has impacted on
total corrugated volumes which remain 2% below 2011 levels.
The Group's corrugated pricing for the third quarter remained
flat, supported by stabilising recovered fibre costs and rising
paper prices. As a result of significant shifts in expectations in
recent years, its packaging products are increasingly being viewed
as merchandising aids and a marketing medium with increased use of
colour, complexity of design and more prominence given to shelf
ready packaging. SKG is seen in the marketplace as partners to its
customers, driving constant innovation and maintaining a service
culture dedicated to their needs.
During the quarter, SKG announced and implemented a EUR50 per
tonne price increase for brown kraftliner. This brings the total
price increase achieved over the last two quarters to EUR90 per
tonne, and is indicative of the current tight supply environment in
Europe and the quality of the grade. US exports to Europe continue
to be at lower levels than 2011 and stability in the European
market, where the top five producers make up 93%, continues to
provide a favourable outlook for SKG, producer of 1.6 million
tonnes annually and the market leader in the grade.
The partial implementation of the announced EUR100 per tonne
price increase has gone some way to addressing the unsustainable
spreads in recycled containerboard. However, we will need further
price increases to return earnings from these grades to a long-term
sustainable economic level, given the upward trend in almost all
input costs. Recovered fibre prices stabilised in the quarter, with
August and September flat month on month and some evidence of
upward momentum in October, indicative of an increase in
international demand.
Latin American margins for the quarter were 17.5%, trending more
in line with their long term average, thereby contributing strongly
to the overall performance of the Group. Increased quarter on
quarter sales revenue was further aided by a relative weakening in
the euro. Mexico and Colombia have performed strongly in EBITDA
terms over the first nine months, and both Venezuela and Argentina
are up quarter on quarter, primarily due to the absence of a number
of one-off items that occurred in quarter two.
As a result of its robust operational performance and sustained
debt pay down SKG is now in a position to take advantage of
hitherto unavailable opportunities. Two bond offerings totalling
EUR690 million were completed during the quarter with the effect of
reducing the Group's future annual interest costs by EUR10 million
and materially improving SKG's debt maturity profile and further
diversifying its funding sources. The first bond comprised US
Dollar and euro tranches at interest rates of 4.875% and 5.125%
respectively, and matures in 2018. The second bond, in the form of
a floating rate note of EUR250 million, matures in 2020 and was
issued at Euribor +3.5%.
In September, SKG announced its acquisition of Orange County
Container Group for US$340 million which will be funded from
existing cash resources. The transaction will deliver EBITDA and
EPS growth and is expected to be immediately earnings accretive
upon completion. Initially identified synergy benefits total US$14
million, and at a multiple of 5.1x 2012 EBITDA the deal is expected
to return double SKG's cost of capital.
As a result of a number of significant share transactions during
the quarter, SKG's freefloat currently stands at 92% of issued
share capital.
2012 Third Quarter | Financial Performance
At EUR1,830 million, sales revenue in the third quarter of 2012
was 1% lower than the EUR1,857 million reported in the second
quarter. Comparable sales decreased by EUR69 million compared to
the third quarter of 2011, with revenue boosted by a net EUR24
million from currency movements and hyperinflationary adjustments,
reflecting the relative weakness of the euro, and by EUR7 million
from acquisitions.
The Group's pre-exceptional EBITDA for the third quarter of 2012
was EUR280 million, 6% higher than the third quarter of 2011,
mainly reflecting earnings growth in Europe. EBITDA increased by
EUR25 million when compared to the second quarter of 2012.
Earnings per share was 33.4 cent for the quarter to September
2012 (2011: 22.2 cent). There were no exceptional items in the
third quarter of 2012 or 2011.
2012 First Nine Months | Financial Performance
Revenue for the nine months fell marginally from EUR5,538
million in 2011 to EUR5,510 million in 2012. As was the case in the
quarter, revenue was boosted by EUR77 million in positive currency
movements and hyperinflationary adjustments and EUR23 million from
acquisitions net of disposals, resulting in a decrease in
comparable sales by EUR128 million year-on-year.
At EUR780 million, the Group's EBITDA for the nine months to
September 2012 was over 1% higher than 2011's EUR771 million.
However, allowing for the positive impact of currency movements,
hyperinflationary adjustments, acquisitions and closures, the
underlying move was a decrease of EUR8 million in EBITDA.
The exceptional gains of EUR28 million included within operating
profit arose in the first quarter. The gains were made up of EUR10
million from the sale of land at SKG's former Valladolid mill in
Spain and EUR18 million relating to the disposal of a company in
Slovakia. This gain primarily relates to the reclassification
(under IFRS) of the cumulative translation differences from the
Group Statement of Comprehensive Income to the Group Income
Statement. Exceptional charges of EUR36 million within operating
profit in 2011 related almost entirely to the closure of its
Nanterre mill.
Earnings per share was 84.9 cent for the nine months 2012 (2011:
53.5 cent). Adjusting for the exceptional gain in 2012 of EUR28
million (2011: exceptional charge of EUR36 million),
pre-exceptional EPS was 73.1 cent (2011: 69.7 cent).
2012 Third Quarter & First Nine Months | Free Cash Flow
Free cash flow amounted to EUR118 million in the third quarter
of 2012 compared to EUR117 million in 2011. Although EBITDA was
EUR16 million higher in 2012 and capital outflows (capital
expenditure plus the change in capital creditors) were lower, the
benefit was largely offset by a reduced working capital inflow and
by higher tax payments. For the nine months to September 2012, free
cash flow was EUR164 million compared to EUR195 million in 2011.
The year-on-year decrease of EUR31 million was driven mainly by
higher capital outflows and higher tax payments, which more than
offset the EUR9 million increase in EBITDA.
Following an increase of EUR97 million in the first half of
2012, working capital decreased by EUR6 million in the third
quarter. The outflow for the nine months to September 2012 was
therefore EUR91 million. This was mainly due to an increase in
debtors which was partly offset by an increase in trade and other
creditors. Working capital amounted to EUR656 million at September
2012, representing 9.0% of annualised sales revenue compared to
8.9% at September 2011. Management maintain a continued strong
focus on cash management at all points of the year.
Capital expenditure amounted to EUR180 million in 2012 and
equated to 69% of depreciation, compared to EUR196 million and 75%
in the first nine months of 2011. For the full year, SKG's capital
expenditure is expected to amount to approximately 90% of
depreciation, slightly ahead of the 2011 level.
Cash interest at EUR180 million for the nine months to September
2012 was EUR3 million lower than in 2011, mainly reflecting reduced
debt levels.
At EUR82 million in the first nine months of 2012, tax payments
were EUR35 million higher than in 2011. This increase was primarily
driven by legislative changes in Europe and higher cash tax
payments in Latin America due to significantly higher profits
generated in 2011 compared to 2010.
2012 Third Quarter & First Nine Months | Capital
Structure
The Group's net debt reduced by a further EUR112 million to
EUR2,640 million in the first nine months, resulting in a net debt
to EBITDA ratio of 2.58x at the end of September comfortably within
our stated objective of remaining below 3.0x throughout the cycle.
Over the last two years, SKG has persevered in its deleveraging
efforts with EUR483 million of net debt reduction. Consistently
strong earnings and free cash flow management sustained this
reduction throughout the period despite challenging macro
conditions.
In the first six months of 2012, the Group undertook amendments
to its senior credit facility which extended the debt maturity
profile, increased its flexibility to refinance and included the
prepayment of EUR330 million of the senior credit facility from
cash on its balance sheet. This was achieved with the support of
over 98% of lenders. Following this success, the Group completed
two bond offerings in the third quarter. The first bond was issued
in two tranches, US$300 million at 4.875% and EUR200 million at
5.125%, both with a maturity of six years. The second offering, in
the form of a floating rate note of EUR250 million, had a coupon of
Euribor +3.5% and a maturity of eight years.
The Group's refinancing activity during the quarter will reduce
its interest cost by approximately EUR10 million per annum, extend
the average maturity profile to 5.7 years (from 4.4 years in
December 2011) and further diversify its funding sources. At the
end of the third quarter, SKG maintained a strong liquidity
position, with EUR1,230 million of cash on its balance sheet
(including cash proceeds from the September bond issues held
pending debt paydown), and undrawn committed credit facilities of
EUR525 million. Of this total, approximately EUR600 million is
derived from the proceeds of its September refinancing activity
which is being applied during the fourth quarter to fully prepay
its 2015 7.75% subordinated notes and part prepay its senior credit
facility.
SKG has now established itself in the debt capital markets as a
crossover corporate credit, with leverage being maintained
comfortably within stated targets and a well-balanced debt maturity
profile with over 90% of maturities in 2016 and beyond. The Group
also benefits from a diversified funding base with an increased
bond content in its debt portfolio and strong liquidity reinforcing
its financial flexibility.
2012 Third Quarter & First Nine Months | Operating
efficiency
Commercial offering, innovation and sustainability
SKG is the market leader in the European packaging market with
an unrivalled product and service offering, the widest geographical
coverage, an unparalleled product range and an experienced
Pan-European Sales team. The Group's diversified and demanding
customer base ensures that innovation is at the forefront of its
agenda, and its state of the art research & development
facilities focus on understanding, measuring and improving
performance throughout the supply chain. SKG's Operational
Excellence teams ensure its operational standards of excellence are
applied throughout the Group.
SKG is consistently recognised in the market as a driver of
product development and was formally recognised during the quarter
with a number of prizes across a range of associations. In July the
Group won five prizes and three gold prizes at the European
Flexographic Industry Association Awards for its designs. The
products, ranging from vintage single malt whisky boxes to Retail
Ready Packaging solutions for rice, displayed SKG's capabilities in
designing innovative, high quality, multi-coloured and practical
products across a wide breadth of industries.
The Group's Bag-in-box division has also received recognition
for its new Pouch-Up product winning the World Packaging
Organisation's Starpack award in September. The Pouch-Up was chosen
for its design, the performance of the film, its ease of use, and
its low carbon footprint.
The value that the Group supplies to its customers is not
confined to its packaging solutions alone. SKG also works with its
customers to drive value throughout its supply chain by way of
increased operational efficiencies and benchmarking their product
across a range of measures. For some of its larger pan-European
customers, the Group commits itself to specific cost take-out
targets, which it has an established track record of meeting and
exceeding. Benchmarking is carried out on two levels; between the
customers' various products throughout different regions to ensure
optimal and uniform product delivery and; between the customers'
products and the wider market segment on the basis of cost and
consumer appeal.
In order to support the Group's packaging customers a number of
significant investments were completed during the quarter with a
specific focus on the higher growth sectors and regions. A EUR12
million investment in the Group's Bag-in-box operations in France
and Italy was finalised adding significantly to current tap and bag
production capacity along with a new R&D laboratory. A further
EUR3 million was spent on a four colour flexo folder gluer in
Brühl, to service its German market.
Investments in the Group's paper system focus on increasing
efficiencies within its operations. SKG increased the energy
capacity of its Nervion mill by 40% with the completion of a EUR20
million investment project on energy generation from biomass. The
project will significantly reduce fossil CO2 emissions as well as
improving the mill's profitability. In Venezuela, the Group
concluded three energy projects totalling approximately EUR3
million to ensure energy self-sufficiency and other cost
reductions.
Cost Take-out Programme
The Group's consistently strong margins, despite inflationary
effects on input costs and stable pricing, is indicative of the
emphasis on operating efficiencies within SKG. The cost take-out
programme is based on a detailed, bottom-up approach and focuses
all levels of management on the key cost areas of raw materials,
wages & salaries and energy, amongst others.
The Group has delivered EUR164 million in savings over the last
21 months with EUR20 million in the third quarter of 2012. Prior to
this a similar three year programme (2008 - 2010) saved EUR306
million.
2012 Third Quarter & First Nine Months | Performance
Review
Europe
European EBITDA increased by 4% year on year in the first nine
months to EUR644 million, in spite of a reduction in revenue over
the same period. Continued savings as a result of cost take-out
initiatives, in combination with lower fibre costs were the main
drivers behind the improved margins. Paper price and other input
cost increases during the period underpinned corrugated pricing
which remained relatively unchanged.
Total corrugated volumes for Europe experienced another quarter
of broad stability whilst declining by 1% in the first nine months
compared to 2011. The principal cause of the decline in volumes
continues to be loss of sheet volumes due to SKG's strategic focus
on price over volume. European box volumes have remained broadly
flat for the nine months to September, and have declined by less
than 1% when comparing the third quarter of 2012 to 2011. Eastern
European countries performed well throughout the period however
with 3% growth in the Polish box market.
The recent successful implementation of the full EUR50 per tonne
price increase for kraftliner underscores the tight supply/demand
dynamics currently prevalent for the grade. The closure of
significant capacity in Europe during the second quarter and the
successful price increase of US$50 per tonne in the US will ensure
a continued tight supply environment for this grade in Europe in
the medium term. US kraft imports to Europe reduced by 14% year on
year for the eight months to August. Wood costs trended downwards
throughout the quarter.
SKG's Facture kraftliner mill re-commenced production during the
quarter after a seven week shut down. The 520,000 tonne mill was
forced to temporarily close due to a black liquor spill in July.
The event is not expected to materially affect results for
2012.
Recycled containerboard prices, under pressure during the second
quarter and early into the third quarter due to declining recovered
paper prices, achieved a EUR30 per tonne price increase in
September. This was required as the spreads between recovered paper
and testliner prices had retreated to an economically unsustainable
level, almost EUR80 per tonne off their 2007 peak. Further
testliner price increases will be necessary as it is widely
acknowledged that recovered paper prices will trend upwards due to
global containerboard capacity growth and recovered fibre supply
constraints. There is already some minor evidence of this upward
movement visible in October.
The Group continues to actively manage its energy costs, with
third quarter costs remaining in line with the third quarter of
2011.
Latin America
Latin America reported revenue of EUR1,032 million in the first
nine months, representing 19% of the Group's overall revenue.
EBITDA of EUR160 million in the period was 10% lower than in 2011,
primarily reflecting somewhat lower demand and a number of one-off
events in the first half of the year. As anticipated, margins have
significantly improved on a sequential basis and, at 17.5% in the
third quarter, the region's margin has returned to its normalised
range of 16% - 21%. This recovery was due to the absence of
one-offs, continued pricing progress throughout the region and
focused cost take-out actions.
The Group's Mexican EBITDA increased by 6% year-on-year in
dollar terms in the first nine months, illustrating the benefits of
capital investment and the Group's internal cost take-out efforts.
The success of the paper price increase in the US is expected to
provide a boost to pricing initiatives in the domestic Mexican
market.
In Argentina, in an increasingly challenging economic
environment, quarter on quarter volume performance improved by 4%.
However, lengthy strike actions in one of its packaging plants in
the first half have caused Argentina's corrugated volumes to be
materially lower in 2012 year to date.
Similarly, SKG's Venezuelan business has improved sequential
quarterly volumes by 17%. This was achieved as a direct result of
the absence of a number of items affecting production in the second
quarter, which included scheduled mill downtime and some industrial
relations issues. Continued inflationary pressure continues to be
offset by operating efficiency measures.
In Colombia, stable corrugated demand and continued progress on
pricing delivered an improved EBITDA outcome in the first nine
months. Reduced interest rates in the country maintained stable
exchange rates for the period.
The region's return to its historically consistent and robust
margin levels affirm SKG's belief that the Latin American business
is integral to the long term strategic goals of the Group providing
geographic diversity and opportunities for future growth.
Summary Cash
Flow(1)
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-Sep-12 30-Sep-11 30-Sep-12 30-Sep-11
EURm EURm EURm EURm
Pre-exceptional EBITDA 280 264 780 771
Exceptional items - (5) - (5)
Cash interest expense (60) (61) (180) (183)
Working capital change 6 28 (91) (91)
Current provisions (2) (1) (8) (7)
Capital expenditure (54) (80) (180) (196)
Change in capital (8) 9 (37) (6)
creditors
Tax paid (35) (25) (82) (47)
Sale of fixed assets 2 1 13 2
Other (11) (13) (51) (43)
Free cash flow 118 117 164 195
Share issues 8 - 13 8
Ordinary shares - - (13) -
purchased
- own shares
Sale of businesses - - 1 (4)
and investments
Purchase - - (7) (1)
of investments
Dividends (1) (1) (38) (4)
Derivative termination - - (1) (1)
payments
Net cash inflow 125 116 119 193
Net 1 - 1 -
cash acquired/disposed
Deferred debt issue (4) (4) (14) (12)
costs amortised
Currency translation 23 (30) 6 8
adjustments
Decrease in net debt 145 82 112 189
(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 debt while the
IFRS cash flow details movements 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-Sep-12 30-Sep-11
EURm EURm
Free cash 164 195
flow
Add Cash interest 180 183
back:
Capital expenditure (net of change in capital creditors) 217 202
Tax payments 82 47
Less: Sale of fixed assets (13) (2)
Profit on sale of assets and businesses - non exceptional (4) (7)
Receipt of capital grants (in "Other") - (1)
Dividends received from associates (in "Other") (1) (1)
Non-cash financing activities (12) (4)
Cash generated from 613 612
operations
Capital Resources
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the revolving credit facility. The
Group's primary uses of cash are for debt service and capital
expenditure.
At 30 September 2012 Smurfit Kappa Funding plc 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 EUR202 million variable funding notes issued under the
EUR250 million accounts receivable securitisation program maturing
in November 2015.
Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125%
senior secured notes due 2018, US$300 million 4.875% senior secured
notes due 2018 and EUR250 million senior secured floating rate
notes due 2020. In addition, Smurfit Kappa Acquisitions had
outstanding EUR500 million 7.25% senior secured notes due 2017 and
EUR500 million 7.75% senior secured notes due 2019. Smurfit Kappa
Acquisitions and certain subsidiaries are also party to a senior
credit facility. The senior credit facility comprises a EUR649
million Tranche B maturing in 2016 and a EUR673 million Tranche C
maturing in 2017. In addition, as at 30 September 2012, the
facility includes a EUR525 million revolving credit facility of
which there was EUR0.3 million drawn under facilities supported by
letters of credit.
The following table provides the range of interest rates as of
30 September 2012 for each of the drawings under the various senior
credit facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term Loan B EUR 3.741% - 4.270%
USD 4.085%
Term Loan C EUR 3.967% - 4.520%
USD 4.335%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
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 2012
the Group had fixed an average of 75% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised mainly EUR500 million
7.25% senior secured notes due 2017, EUR500 million 7.75% senior
secured notes due 2019, EUR200 million 5.125% senior secured notes
due 2018, US$300 million 4.875% senior secured notes due 2018
(US$50 million swapped to floating), 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 EUR1,010
million in interest rate swaps with maturity dates ranging from
October 2012 to July 2014.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR interest rates for these borrowings increase by one percent,
the Group's interest expense would increase, and income before
taxes would decrease, by approximately EUR10 million over the
following twelve months. Interest income on its cash balances would
increase by approximately EUR6 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-Sep-12 9 months to 30-Sep-11
Pre-exceptional 2012 Exceptional 2012 Total 2012 Pre-exceptional 2011 Exceptional 2011 Total 2011
EURm EURm EURm EURm EURm EURm
Revenue 5,510 - 5,510 5,538 - 5,538
Cost of (3,917) - (3,917) (3,979) (13) (3,992)
sales
Gross 1,593 - 1,593 1,559 (13) 1,546
profit
Distribution (434) - (434) (416) - (416)
costs
Administrative (698) - (698) (668) - (668)
expenses
Other 25 28 53 2 - 2
operating
income
Other - - - - (23) (23)
operating
expenses
Operating 486 28 514 477 (36) 441
profit
Finance (292) - (292) (296) - (296)
costs
Finance 71 - 71 72 - 72
income
Profit on - - - 2 - 2
disposal
of
associate
Share 2 - 2 2 - 2
of
associates'
profit
(after
tax)
Profit 267 28 295 257 (36) 221
before
income tax
Income tax (98) (98)
expense
Profit for 197 123
the
financial
period
Attributable
to:
Owners 189 119
of the
Parent
Non-controlling 8 4
interests
Profit for 197 123
the
financial
period
Earnings
per
share
Basic 84.9 53.5
earnings
per
share -
cent
Diluted 83.1 52.6
earnings
per share
- cent
Group Income Statement - Third Quarter
Unaudited Unaudited
3 months to 30-Sep-12 3 months to 30-Sep-11
Pre-exceptional 2012 Exceptional 2012 Total 2012 Pre-exceptional 2011 Exceptional 2011 Total 2011
EURm EURm EURm EURm EURm EURm
Revenue 1,830 - 1,830 1,868 - 1,868
Cost of (1,294) - (1,294) (1,342) - (1,342)
sales
Gross 536 - 536 526 - 526
profit
Distribution (144) - (144) (134) - (134)
costs
Administrative (235) - (235) (231) - (231)
expenses
Other 24 - 24 1 - 1
operating
income
Operating 181 - 181 162 - 162
profit
Finance (96) - (96) (100) - (100)
costs
Finance 20 - 20 22 - 22
income
Share - - - 1 - 1
of
associates'
profit
(after
tax)
Profit 105 - 105 85 - 85
before
income tax
Income tax (25) (30)
expense
Profit for 80 55
the
financial
period
Attributable
to:
Owners 75 50
of the
Parent
Non-controlling 5 5
interests
Profit for 80 55
the
financial
period
Earnings
per
share
Basic 33.4 22.2
earnings
per
share -
cent
Diluted 32.7 22.0
earnings
per share
- cent
Group Statement of Comprehensive Income - Nine Months
Unaudited Unaudited
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Profit for the financial period 197 123
Other comprehensive income:
Foreign currency translation adjustments:
- Arising in the period 91 (53)
- Currency translation adjustment recycled (17) -
to Group Income Statement on disposal
Defined benefit pension plans
including payroll tax:
- Actuarial loss (145) (13)
- Movement in deferred tax 24 1
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 17 16
- New fair value adjustments into reserve (6) (10)
- Movement in deferred tax (1) (1)
Total other comprehensive expense (37) (60)
Total comprehensive income 160 63
for the financial period
Attributable to:
Owners of the Parent 142 61
Non-controlling interests 18 2
160 63
Group Statement of Comprehensive Income - Third Quarter
Unaudited Unaudited
3 months to 3 months to
30-Sep-12 30-Sep-11
EURm EURm
Profit for the financial period 80 55
Other comprehensive income:
Foreign currency translation adjustments 4 1
Defined benefit pension plans
including payroll tax:
- Actuarial (loss)/gain (71) 26
- Movement in deferred tax 14 (4)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 6 5
- New fair value adjustments into reserve (1) (21)
- Movement in deferred tax - 2
Total other comprehensive (expense)/income (48) 9
Total comprehensive income 32 64
for the financial period
Attributable to:
Owners of the Parent 33 57
Non-controlling interests (1) 7
32 64
Group Balance Sheet
Unaudited Unaudited Audited
30-Sep-12 30-Sep-11 31-Dec-11
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 2,958 2,922 2,973
Goodwill and intangible assets 2,253 2,192 2,210
Available-for-sale financial assets 32 32 32
Investment in associates 16 14 14
Biological assets 123 90 114
Trade and other receivables 4 6 5
Derivative financial instruments 7 - 6
Deferred income tax assets 162 91 177
5,555 5,347 5,531
Current assets
Inventories 698 720 690
Biological assets 11 10 10
Trade and other receivables 1,472 1,406 1,326
Derivative financial instruments 9 7 7
Restricted cash 11 11 12
Cash and cash equivalents 1,219 681 845
3,420 2,835 2,890
Total assets 8,975 8,182 8,421
EQUITY
Capital and reserves attributable
to the owners of the Parent
Equity share capital - - -
Capital and other reserves 2,430 2,288 2,336
Retained earnings (264) (392) (341)
Total equity attributable to 2,166 1,896 1,995
the owners of the Parent
Non-controlling interests 209 177 191
Total equity 2,375 2,073 2,186
LIABILITIES
Non-current liabilities
Borrowings 3,193 3,450 3,450
Employee benefits 775 584 655
Derivative financial instruments 70 92 54
Deferred income tax liabilities 208 179 210
Non-current income tax liabilities 12 8 10
Provisions for liabilities and charges 59 45 55
Capital grants 12 13 13
Other payables 8 7 10
4,337 4,378 4,457
Current liabilities
Borrowings 677 163 159
Trade and other payables 1,518 1,466 1,504
Current income tax liabilities 21 42 36
Derivative financial instruments 35 33 59
Provisions for liabilities and charges 12 27 20
2,263 1,731 1,778
Total liabilities 6,600 6,109 6,235
Total equity and liabilities 8,975 8,182 8,421
Group Statement of Changes in Equity
Capital and other reserves
Equity share capital Share premium Own Reverse acquisition reserve Cash flow hedging reserve Foreign currency translation reserve Share-based payment Retained earnings Total equity attributable to Non-controlling interests Total equity
shares reserve the owners of the Parent
Unaudited EURm EURm EURm EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 2012 - 1,945 - 575 (35) (228) 79 (341) 1,995 191 2,186
Profit for the financial period - - - - - - - 189 189 8 197
Other comprehensive income:
Foreign currency translation - - - - - 64 - - 64 10 74
adjustments
Defined benefit pension plans - - - - - - - (121) (121) - (121)
including payroll tax
Effective portion of changes in - - - - 10 - - - 10 - 10
fair value of cash flow hedges
Total comprehensive income - - - - 10 64 - 68 142 18 160
for the financial period
Shares issued - 13 - - - - - - 13 - 13
Shares acquired by Deferred - - (13) - - - - - (13) - (13)
Share Awards Trust
Hyperinflation adjustment - - - - - - - 42 42 5 47
Dividends paid - - - - - - - (33) (33) (5) (38)
Share-based payment - - - - - - 20 - 20 - 20
At 30 September 2012 - 1,958 (13) 575 (25) (164) 99 (264) 2,166 209 2,375
Group Statement of Changes in Equity (continued)
Capital and other reserves
Equity share capital Share premium Reverse acquisition reserve Cash flow hedging reserve Foreign currency translation reserve Share-based payment Retained earnings Total equity attributable to Non-controlling interests Total equity
reserve the owners of the Parent
Unaudited EURm EURm EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 2011 - 1,937 575 (45) (216) 64 (552) 1,763 173 1,936
Profit for the financial period - - - - - - 119 119 4 123
Other comprehensive income:
Foreign currency translation - - - - (51) - - (51) (2) (53)
adjustments
Defined benefit pension plans - - - - - - (12) (12) - (12)
including payroll tax
Effective portion of changes in - - - 5 - - - 5 - 5
fair value of cash flow hedges
Total comprehensive - - - 5 (51) - 107 61 2 63
income/(expense)
for the financial period
Shares issued - 8 - - - - - 8 - 8
Hyperinflation adjustment - - - - - - 53 53 6 59
Dividends paid - - - - - - - - (4) (4)
Share-based payment - - - - - 11 - 11 - 11
At 30 September 2011 - 1,945 575 (40) (267) 75 (392) 1,896 177 2,073
Group Cash Flow Statement
Unaudited Unaudited
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Cash flows from operating activities
Profit for the financial period 197 123
Adjustment for
Income tax expense 98 98
Profit on sale of assets and businesses (29) (5)
Amortisation of capital grants (1) (2)
Impairment of property, plant and equipment - 13
Equity settled share-based payment expense 20 11
Amortisation of intangible assets 15 22
Share of associates' profit (after tax) (2) (2)
Profit on disposal of associate - (2)
Depreciation charge 243 248
Net finance costs 221 224
Change in inventories 5 (91)
Change in biological assets 16 13
Change in trade and other receivables (123) (137)
Change in trade and other payables 13 135
Change in provisions (13) 2
Change in employee benefits (51) (40)
Foreign currency translation adjustment - 1
Other 4 1
Cash generated from operations 613 612
Interest paid (169) (172)
Income taxes paid:
Overseas corporation tax (net (82) (47)
of tax refunds) paid
Net cash inflow from operating activities 362 393
Cash flows from investing activities
Interest received 5 5
Purchase of property, plant and equipment (211) (198)
and biological assets
Purchase of intangible assets (5) (3)
Receipt of capital grants - 1
Decrease/(increase) in restricted cash 1 (4)
Disposal of property, plant and equipment 17 9
Disposal of associates - 4
Dividends received from associates 1 1
Purchase of subsidiaries and (11) (1)
non-controlling interests
Deferred consideration 5 (8)
Net cash outflow from investing activities (198) (194)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 13 8
Ordinary shares purchased - own shares (13) -
Increase/(decrease) in interest-bearing 272 (11)
borrowings
Repayment of finance lease liabilities (6) (7)
Derivative termination payments (1) (1)
Deferred debt issue costs (23) -
Dividends paid to shareholders (33) -
Dividends paid to non-controlling interests (5) (4)
Net cash inflow/(outflow) from 204 (15)
financing activities
Increase in cash and cash equivalents 368 184
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 825 481
Currency translation adjustment 9 (3)
Increase in cash and cash equivalents 368 184
Cash and cash equivalents at 30 September 1,202 662
1.General Information
Smurfit Kappa Group plc ('SKG plc') ('the Company') ('the
Parent') 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 whose shares are publicly
traded. It is incorporated and tax resident in Ireland. The address
of its registered office is Beech Hill, Clonskeagh, Dublin 4,
Ireland.
2.Basis of Preparation
The annual consolidated financial statements of SKG plc are
prepared in accordance with International Financial Reporting
Standards ('IFRS') issued by the International Accounting Standards
Board ('IASB') and adopted by the European Union ('EU'); and, in
accordance with Irish law. The financial information presented in
this report has been prepared to comply with the requirement to
publish an 'Interim management statement' during the second six
months of the financial year, in accordance with the Transparency
Regulations. The Transparency Regulations do not require Interim
management statements to be prepared in accordance with
International Accounting Standard 34 - 'Interim Financial
Information' ('IAS 34'). Accordingly the Group has not prepared
this financial information in accordance with IAS 34.
The financial information has been prepared in accordance with
the Group's accounting policies. Full details of the accounting
policies adopted by the Group are contained in the financial
statements included in the Group's Annual Report for the year ended
31 December 2011 which is available on the Group's website
www.smurfitkappa.com. The accounting policies and methods of
computation and presentation adopted in the preparation of the
Group financial information are consistent with those described and
applied in the Annual Report for the financial year ended 31
December 2011. No new standards, amendments or interpretations
which became effective in 2012 have a material effect on the Group
financial statements.
The condensed interim Group financial information includes all
adjustments that management considers necessary for a fair
presentation of such financial information. All such adjustments
are of a normal recurring nature. Some tables in this interim
statement may not add correctly due to rounding.
The condensed interim Group 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 2011 have been filed with the Irish Registrar of
Companies. The audit report on those Group accounts was
unqualified.
3.Segmental Analyses
With effect from 1 September 2011 the Group reorganised the way
in which its European businesses are managed. As part of this
reorganisation for commercial reasons, the businesses which
previously formed part of the Specialties segment were
operationally merged with its existing Packaging Europe segment
(now referred to as 'Europe') and are now managed on a combined
basis to make decisions about the allocation of resources and in
assessing performance. After this date, the Group ceased to produce
financial information for Specialties as the financial information
of all of its plants is now combined with the other Europe segment
plants.
As a result, the Group has now two segments on the basis of
which performance is assessed and resources are allocated: 1)
Europe and 2) Latin America and segmental information is presented
below on this basis. Prior year segmental information has been
restated to conform to the current year segment presentation.
The Europe segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Latin America segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries.
Inter-segment revenue is not material. No operating segments have
been aggregated for disclosure purposes.
Segment disclosures are based on operating segments identified
under IFRS 8. Segment profit is measured based on earnings before
interest, tax, depreciation, amortisation, exceptional items and
share-based payment expense ('EBITDA before exceptional items').
Segmental assets consist primarily of property, plant and
equipment, biological assets, goodwill and intangible assets,
inventories, trade and other receivables, deferred income tax
assets and cash and cash equivalents.
9 months to 30-Sep-12 9 months to 30-Sep-11
Europe Latin America Total Europe Latin America Total
EURm EURm EURm EURm EURm EURm
Revenue
and
Results
Revenue 4,478 1,032 5,510 4,594 944 5,538
EBITDA 644 160 804 618 177 795
before
exceptional
items
Segment 28 - 28 (23) - (23)
exceptional
items
EBITDA 672 160 832 595 177 772
after
exceptional
items
Unallocated (24) (24)
centre
costs
Share-based (20) (11)
payment
expense
Depreciation (259) (261)
and
depletion
(net)
Amortisation (15) (22)
Impairment - (13)
of assets
Finance (292) (296)
costs
Finance 71 72
income
Profit on - 2
disposal
of
associate
Share 2 2
of
associates'
profit
(after
tax)
Profit 295 221
before
income tax
Income tax (98) (98)
expense
Profit for 197 123
the
financial
period
Assets
Segment 6,199 1,626 7,825 6,167 1,387 7,554
assets
Investment 2 14 16 1 13 14
in
associates
Group 1,134 614
centre
assets
Total 8,975 8,182
assets
3.Segmental Analyses (continued)
3 months to 30-Sep-12 3 months to 30-Sep-11
Europe Latin America Total Europe Latin America Total
EURm EURm EURm EURm EURm EURm
Revenue
and
Results
Revenue 1,474 356 1,830 1,530 338 1,868
EBITDA 226 63 289 208 66 274
before
exceptional
items
Segment - - - - - -
exceptional
items
EBITDA 226 63 289 208 66 274
after
exceptional
items
Unallocated (9) (10)
centre
costs
Share-based (6) (7)
payment
expense
Depreciation (88) (87)
and
depletion
(net)
Amortisation (5) (8)
Finance (96) (100)
costs
Finance 20 22
income
Share - 1
of
associates'
profit
(after
tax)
Profit 105 85
before
income tax
Income tax (25) (30)
expense
Profit for 80 55
the
financial
period
4.Exceptional Items
9 months to 9 months to
The following items are regarded 30-Sep-12 30-Sep-11
as exceptional in nature:
EURm EURm
Impairment loss on property, plant and equipment - (13)
Reorganisation and restructuring costs - (23)
Disposal of assets and operations 28 -
Exceptional items included in operating profit 28 (36)
Exceptional gains of EUR28 million in the first nine months
comprised EUR10 million in respect of the sale of land at SKG's
former Valladolid mill in Spain (operation closed in 2008),
together with EUR18 million relating to the disposal of a company
in Slovakia. This gain primarily relates to the reclassification
(under IFRS) of the cumulative translation differences from the
Group Statement of Comprehensive Income to the Group Income
Statement.
In June 2011, SKG closed its recycling containerboard mill in
Nanterre, France. This resulted in an impairment loss on property,
plant and equipment of EUR13 million and reorganisation and
restructuring costs of EUR22 million. The remaining EUR1 million of
reorganisation and restructuring costs related to the continuing
rationalisation of the Group's corrugated operations in
Ireland.
5.Finance Costs and Income
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 97 101
Interest payable on finance leases 1 1
and hire purchase contracts
Interest payable on other borrowings 102 98
Unwinding discount element of provisions 1 1
Foreign currency translation loss on debt 5 6
Fair value loss on derivatives 1 5
not designated as hedges
Interest cost on employee 76 75
benefit plan liabilities
Net monetary loss - hyperinflation 9 9
Total finance costs 292 296
Finance income:
Other interest receivable (5) (5)
Foreign currency translation gain on debt (4) (8)
Fair value gain on derivatives (2) (2)
not designated as hedges
Expected return on employee (60) (57)
benefit plan assets
Total finance income (71) (72)
Net finance costs 221 224
6.Income Tax Expense
Income tax expense recognised in
the Group Income Statement
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Current taxation:
Europe 40 31
Latin America 28 56
68 87
Deferred taxation 30 11
Income tax expense 98 98
Current tax is analysed as follows:
Ireland 3 3
Foreign 65 84
68 87
Income tax recognised in the Group Statement of Comprehensive
Income
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Arising on actuarial gains/losses on defined (24) (1)
benefit plans including payroll tax
Arising on qualifying derivative 1 1
cash flow hedges
(23) -
Income tax expense of EUR98 million for the nine months to
September 2012 is in line with the previous year.
The increase of EUR9 million in current taxation in Europe
includes the effects of legislative changes and additional tax
expense in some countries as a result of increased profit.
The taxation expense in 2011 for Latin America includes a EUR23
million tax expense arising from the implementation of a new equity
tax law in Colombia, effective on 1 January 2011, which although
payable over four years, was required to be expensed in quarter one
2011.
The movement in deferred tax relates primarily to the effects of
using previously recognised tax losses on improving income, a
non-cash write down due to a reduction in tax rates and the
non-recurring reduction in tax risk provisions for tax audit
matters in 2011.
7.Employee Post Retirement Schemes - Defined Benefit Expense
The table below sets out the components of the defined benefit
expense for the period:
9 months to 9 months to
30-Sep-12 30-Sep-11
EURm EURm
Current service cost 22 20
Past service cost - 2
Gain on curtailment (12) -
10 22
Expected return on plan assets (60) (57)
Interest cost on plan liabilities 76 75
Net financial expense 16 18
Defined benefit expense 26 40
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit expense of EUR10 million for the
first nine months of 2012 (2011: EUR22 million). The gain on
curtailment of EUR12 million was due to the restructuring of the UK
pension scheme in the second quarter. Expected return on plan
assets of EUR60 million (2011: EUR57 million) is included in
finance income and interest cost on plan liabilities of EUR76
million (2011: EUR75 million) is included in finance costs in the
Group Income Statement.
The amounts recognised in the Group Balance Sheet were as
follows:
30-Sep-12 31-Dec-11
EURm EURm
Present value of funded or partially (1,891) (1,715)
funded obligations
Fair value of plan assets 1,587 1,486
Deficit in funded or partially funded plans (304) (229)
Present value of wholly unfunded obligations (471) (426)
Net employee benefit liabilities (775) (655)
The employee benefits provision has increased from EUR655
million at 31 December 2011 to EUR775 million at 30 September 2012.
The main reason for this is the increase in liabilities due to the
lower Eurozone and Sterling AA Corporate bond yields.
8.Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to the owners of the Parent by the weighted average
number of ordinary shares in issue during the period.
9 months to 9 months to
30-Sep-12 30-Sep-11
Profit attributable to the owners 189 119
of the Parent (EUR million)
Weighted average number of ordinary 223 221
shares in issue (million)
Basic earnings per share - cent 84.9 53.5
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares which comprise
convertible shares issued under the management equity plans and
matching shares issued under the Deferred Annual Bonus Plan.
9 months to 9 months to
30-Sep-12 30-Sep-11
Profit attributable to the owners 189 119
of the Parent (EUR million)
Weighted average number of ordinary 223 221
shares in issue (million)
Dilutive potential ordinary 5 4
shares assumed (million)
Diluted weighted average ordinary 228 225
shares (million)
Diluted earnings per share - cent 83.1 52.6
Pre-exceptional
9 months to 9 months to
30-Sep-12 30-Sep-11
Profit attributable to the owners 189 119
of the Parent (EUR million)
Exceptional items included in operating (28) 36
profit (Note 4) (EUR million)
Taxation on exceptional items (EUR million) 2 -
Pre-exceptional profit attributable to 163 155
the owners of the Parent (EUR million)
Weighted average number of ordinary 223 221
shares in issue (million)
Pre-exceptional earnings per share - cent 73.1 69.7
9.Dividends
During the period, the final dividend for 2011 of 15 cent per
share was paid to the holders of ordinary shares. In October, an
interim dividend for 2012 of 7.5 cent per share was paid to the
holders of ordinary shares.
10.Property, Plant and Equipment
Land and Plant and Total
buildings equipment
EURm EURm EURm
Nine months ended 30 September 2012
Opening net book amount 1,115 1,858 2,973
Reclassification 8 (12) (4)
Additions 11 148 159
Acquisitions 1 1 2
Depreciation charge for the period (36) (207) (243)
Retirements and disposals (5) (1) (6)
Hyperinflation adjustment 11 11 22
Foreign currency translation adjustment 20 35 55
At 30 September 2012 1,125 1,833 2,958
Year ended 31 December 2011
Opening net book amount 1,128 1,880 3,008
Reclassification 19 (25) (6)
Additions 4 282 286
Acquisitions 2 7 9
Depreciation charge for the year (50) (296) (346)
Impairments (5) (10) (15)
Retirements and disposals (2) (1) (3)
Hyperinflation adjustment 21 23 44
Foreign currency translation adjustment (2) (2) (4)
At 31 December 2011 1,115 1,858 2,973
11.Analysis of Net Debt
30-Sep-12 31-Dec-11
EURm EURm
Senior credit facility
Revolving credit facility(1)- interest at relevant (8) (6)
interbank rate + 3.25% on RCF(10)
Tranche A term loan(2a)- interest at - 94
relevant interbank rate + 2.5%
Tranche B term loan(2b)- interest at relevant 649 822
interbank rate + 3.625%(10)
Tranche C term loan(2c)- interest at relevant 673 819
interbank rate + 3.875%(10)
US Yankee bonds (including accrued interest)(3) 231 226
Bank loans and overdrafts 70 71
Cash (1,230) (857)
2015 receivables securitisation 199 206
variable funding notes(4)
2015 cash pay subordinated notes 370 376
(including accrued interest)(5)
2017 senior secured notes (including 501 490
accrued interest)(6)
2018 senior secured notes (including 422 -
accrued interest)(7)
2019 senior secured notes (including 502 492
accrued interest)(8)
2020 senior secured floating rate notes 245 -
(including accrued interest)(9)
Net debt before finance leases 2,624 2,733
Finance leases 8 13
Net debt including leases 2,632 2,746
Balance of revolving credit facility 8 6
reclassified to debtors
Net debt after reclassification 2,640 2,752
(1) Revolving credit facility ('RCF') of EUR525 million
(available under the senior credit facility) to be repaid in full
in 2016.
(Revolver loans - nil, drawn under ancillary facilities and
facilities supported by letters of credit - EUR0.3 million)
(2a) Tranche A term loan prepaid in April 2012
(2b) Tranche B term loan due to be repaid in full in 2016
(maturity date extended from 2013 on 1 March 2012)
EUR47.5 million prepaid in September 2012. EUR101.2 million to
be prepaid in Q4 2012.
(2c) Tranche C term loan due to be repaid in full in 2017
(maturity date extended from 2014 on 1 March 2012)
EUR30.8 million prepaid in September 2012. EUR120.5 million to
be prepaid in Q4 2012.
(3) US$292.3 million 7.50% senior debentures due 2025
(4) Receivables securitisation variable funding notes due
2015
(5) EUR217.5 million 7.75% senior subordinated notes due 2015
and US$200 million 7.75% senior subordinated notes due 2015.
Prepaid in full in October 2012.
(6) EUR500 million 7.25% senior secured notes due 2017
(7) EUR200 million 5.125% senior secured notes due 2018, US$300
million 4.875% senior secured notes due 2018
(8) EUR500 million 7.75% senior secured notes due 2019
(9) EUR250 million senior secured floating rate notes due 2020.
Interest at EURIBOR + 3.5%.
(10) The margins applicable to the senior credit facility are
determined as follows:
Net debt/EBITDA ratio RCF Tranche B Tranche C
Greater than 4.0 : 1 4.000% 3.875% 4.125%
4.0 : 1 or less but more than 3.5 : 1 3.750% 3.625% 3.875%
3.5 : 1 or less but more than 3.0 : 1 3.500% 3.625% 3.875%
3.0 : 1 or less but more than 2.5 : 1 3.250% 3.625% 3.875%
2.5 : 1 or less 3.125% 3.500% 3.750%
The increase in the Group's cash position during the third
quarter reflects the issuance of EUR200 million 5.125% senior
secured notes due 2018, US$300 million 4.875% senior secured notes
due 2018 and EUR250 million senior secured floating rate notes due
2020 in September 2012. The net proceeds of these bond issues were
used to repay the subordinated notes due 2015 in full and to
partially repay the tranche B and tranche C term loans. This
follows the voluntary early debt repayment of EUR330 million made
in the second quarter.
12.Venezuela
Hyperinflation
As discussed more fully in the 2011 annual report, Venezuela
became hyperinflationary during 2009 when its cumulative inflation
rate for the past three years exceeded 100%. As a result, the Group
applied the hyperinflationary accounting requirements of IAS 29 -
Financial Reporting in Hyperinflationary Economies to its
Venezuelan operations at 31 December 2009 and for all subsequent
accounting periods.
The index used to reflect current values is derived from a
combination of Banco Central de Venezuela's National Consumer Price
Index from its initial publication in December 2007 and the
Consumer Price Index for the metropolitan area of Caracas for
earlier periods. The level of and movement in the price index at
September 2012 and 2011 are as follows:
30-Sep-12 30-Sep-11
Index at period end 296.1 250.9
Movement in period 11.5% 20.5%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Group Income Statement
is impacted as follows: Revenue EUR10 million increase (2011: EUR34
million increase), pre-exceptional EBITDA EUR4 million decrease
(2011: EUR3 million increase) and profit after taxation EUR31
million decrease (2011: EUR24 million decrease). In 2012, a net
monetary loss of EUR9 million (2011: EUR9 million loss) was
recorded in the Group Income Statement. The impact on the Group's
net assets and total equity is an increase of EUR17 million (2011:
EUR32 million increase).
Supplemental Financial Information
EBITDA before exceptional items and share-based payment expense
is denoted by EBITDA in the following schedules for ease of
reference.
Reconciliation of Profit to EBITDA
3 months to 3 months to 9 months to 9 months to
30-Sep-12 30-Sep-11 30-Sep-12 30-Sep-11
EURm EURm EURm EURm
Profit for the 80 55 197 123
financial
period
Income tax expense 25 30 98 98
Impairment loss - - - 13
on property,
plant
and equipment
Reorganisation and - - - 23
restructuring
costs
Disposal of assets - - (28) -
and operations
Profit on disposal - - - (2)
of associate
Share - (1) (2) (2)
of associates'
profit (after tax)
Net finance costs 76 78 221 224
Share-based 6 7 20 11
payment
expense
Depreciation, 93 95 274 283
depletion
(net)
and amortisation
EBITDA 280 264 780 771
Supplemental Historical Financial Information
EURm Q3, 2011 Q4, 2011 FY, 2011 Q1, 2012 Q2, 2012 Q3, 2012
Group and 3,109 2,919 12,108 2,950 3,050 2,944
third
party
revenue
Third 1,868 1,819 7,357 1,823 1,857 1,830
party
revenue
EBITDA 264 245 1,015 246 255 280
EBITDA 14.1% 13.4% 13.8% 13.5% 13.7% 15.3%
margin
Operating 162 149 590 177 156 181
profit
Profit 85 77 299 105 85 105
before
income tax
Free cash 117 199 394 (16) 63 118
flow
Basic 22.2 39.4 93.0 27.1 24.5 33.4
earnings
per
share -
cent
Weighted 222 222 222 222 223 223
average
number
of shares
used
in
EPS
calculation
(million)
Net debt 2,921 2,752 2,752 2,775 2,785 2,640
Net debt 2.84 2.71 2.71 2.73 2.76 2.58
to
EBITDA
(LTM)
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