TIDMSKG
6 November 2013: Smurfit Kappa Group plc ('SKG' or the 'Group')
today announced results for the 3 months and 9 months ending 30
September 2013.
2013 Third Quarter & First Nine Months | Key Financial
Performance Measures
EURm YTD2013 YTD(1)2012 change Q3 2013 Q3(1)2012 change Q22013 change
Revenue EUR5,924 EUR5,510 8% EUR2,016 EUR1,830 10% EUR2,019 -
EBITDA EUR815 EUR777 5% EUR303 EUR279 9% EUR271 12%
before
Exceptional
Items
and
Share-based
Payment(2)
EBITDA 13.8% 14.1% - 15.0% 15.2% - 13.4% -
Margin
Operating EUR504 EUR483 4% EUR196 EUR180 9% EUR167 17%
Profit
before
Exceptional
Items
Profit EUR231 EUR286 (19%) EUR104 EUR102 2% EUR70 49%
before
Income Tax
Basic EPS 56.1 81.8 (31%) 24.0 32.3 (26%) 17.7 36%
(cent)
Pre-exceptional 74.5 70.0 6% 30.6 32.3 (5%) 24.1 27%
Basic
EPS (cent)
Return on 12.6% 12.6% - 12.0% -
Capital
Employed(3)
Free Cash EUR262 EUR164 60% EUR190 EUR118 61% EUR95 99%
Flow(4)
Net Debt EUR2,630 EUR2,640 - EUR2,817 (7%)
Net Debt 2.5x 2.6x - 2.7x -
to
EBITDA
(LTM)
(1) Comparative figures reflect the restatement to employee benefits
under the revision of IAS 19, as set out in Note 7.
(2) 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 31.
(3) LTM pre-exceptional operating profit plus share of
associates' profit/average capital employed.
(4) Free cash flow is set out on page 8. The
IFRS cash flow is set out on page 18.
Highlights
-- Revenue growth of 10% year-on-year in the third quarter
-- EBITDA of EUR303 million up 9% year-on-year
-- Year to date free cash flow of EUR262 million and net debt to EBITDA of
2.5x at 30 September 2013
-- Acquisition of UK speciality business 'CRP' in October 2013 highlights
increased commitment to innovation and excellence in high end
packaging
-- Redemption of EUR500 million 7.25% Senior Notes effective 4 November
will further reduce cash interest cost by EUR30 million per
annum
improving earnings by 11 cent per share
-- Reflecting good European market conditions, EUR30 per tonne price
increase announced for recycled grades from 1 November
Performance Review and Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "The Group is
pleased to report EBITDA of EUR303 million in the quarter. The
Americas has been a strong contributor to the EBITDA performance in
the third quarter. While Europe's performance has been somewhat
weaker, it is showing sequential improvement with initial
indications of pricing recovery. The Americas provides us with
important geographic diversity of earnings and exposure to higher
growth markets in the region.
Packaging volume growth has remained solid throughout the year,
and European box volumes continue to grow ahead of the general
market. Our volume performance reflects continuing gains in
business areas where we work as a partner to our customers across
their markets: rationalising their supply chains, removing costs
and consistently developing innovative packaging that is both
efficient for transport and an effective retail medium at the point
of sale.
The Group's European containerboard operations are experiencing
solid demand for both recycled and kraftliner grades which is
underpinning recent price increases. Reflecting good market
conditions, the Group announced a recycled containerboard price
increase of EUR30 per tonne for implementation from 1 November. The
benefit from recent paper increases is only achieved in SKG's
integrated system when the price increases are pushed through to
the box prices with the usual time lag.
In addition to the successful acquisition of the UK business CRP
in October, the Group has delivered material progress on a number
of financial initiatives in the quarter. Following the refinancing
of our EUR1.375 billion Senior Credit Facility in July, we recently
completed the redemption of our EUR500 million 7.25% Senior Notes
due 2017. This redemption was funded from a combination of cash and
existing credit facilities. These two transactions have
significantly enhanced the Group's credit profile and reduce cash
interest costs by over EUR43 million per annum.
The Group's objective is to sustain top line growth through
economic pricing, accretive acquisitions and effective capital
investment. SKG will also maintain its focus on delivering cost
efficiencies through the system. Operating performance and on-going
capital management have driven a net debt reduction of EUR187
million for the third quarter with a net debt to EBITDA ratio of
2.50x. SKG is on track to deliver the expected level of EBITDA
growth in 2013. The strength of our capital structure today
together with our expectation of materially improved free cash flow
continues to expand the available range of options to deliver and
to drive value from 2014."
About Smurfit Kappa Group
Smurfit Kappa is one of the leading producers of paper-based
packaging in the world, with around 41,000 employees in
approximately 350 production sites across 32 countries and with
sales revenue of EUR7.3 billion in 2012.
Innovation, service and pro-activity towards customers, using
sustainable resources, is our primary focus. This focus is enhanced
through us being an integrated producer, with our packaging plants
sourcing the major part of their raw materials from our own paper
mills. We are the European leader in paper-based packaging,
operating in 21 countries selling products including corrugated,
containerboard, bag-in-box, solidboard and solidboard packaging. We
have a growing base in Eastern Europe in many of these product
areas. We also have a key position in other product/market segments
including graphicboard, MG paper and sack paper.
We are the only large scale pan regional player in the Americas,
operating in 11 countries in total in North, Central and South
America.
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 1 202 71 80 Tel: +353 1 663 36 80
E-mail: ir@smurfitkappa.com E-mail: smurfitkappa@fticonsulting.com
2013 Third Quarter & First Nine Months | Performance
Overview
In the nine months to September the Group reported revenue of
EUR5,924 million, up almost 8% year-on-year. EBITDA of EUR815
million is EUR38 million or 5% ahead of the same period last year.
EBITDA margins at the end of the first nine months have recovered
to 13.8% partially reflecting the benefit of improved
containerboard pricing in Europe but particularly due to a strong
performance in the Americas.
European corrugated pricing remained broadly unchanged in the
third quarter. Given the rise in input costs, corrugated price
increases will be implemented with the customary lag in order to
recover paper price increases. Our overall European packaging
volumes continue to perform well, with box volumes up 2% in the
year to September on a same day basis. This growth has been
sustained throughout the year despite the continuing macroeconomic
uncertainty.
Box volume growth also reflects the value added element of
packaging and the extensive service support that SKG offers to our
customers which is being increasingly recognised and valued in the
marketplace. Creative, innovative, 'smart' packaging delivers
tangible benefits to our customers in the form of prominence on the
shelf, cost reduction through their supply chain and the provision
of increasingly recognised sustainability credentials.
The successful implementation of a EUR40 per tonne price
increase in August has gone some way to addressing the
unsustainable spreads in recycled containerboard. However, further
price increases are necessary to return earnings from this grade to
a long-term sustainable economic level. Reflecting good market
conditions, the Group has announced a price increase of EUR30 per
tonne effective from 1 November. Recovered fibre prices have
stabilised at a relatively high level in the quarter, with October
flat month-on-month.
The Group continues to benefit from its net long 500,000 tonne
position in kraftliner, following strong pricing in the grade over
the last 18 months. Recent strength in recycled containerboard
pricing is actively bolstering kraftliner pricing and substitution
pressure has substantially lessened as the spread between the two
grades has reverted to historically normal levels. As a result
demand remains good, whilst supply continues to be moderate.
The Americas performed well in the third quarter with a strong
EBITDA of EUR98 million and an EBITDA margin of 19.7%. The region
performed better year-on-year in EBITDA terms driven by a good
performance in Venezuela, underlying corrugated growth of 3% in the
region and the inclusion of SK Orange County ('SKOC') during the
period. SKOC continues to perform well with the successful
implementation of the April containerboard price increase into box
prices.
In Venezuela, there is increased risk that a devaluation may
occur in early 2014 and, consequently, the Group has updated its
Principal Risks and Uncertainties which are set out on page 11,
detailing the potential impact of a devaluation on the Group's net
assets and cash balance.
As a result of a consistent programme of debt paydown over the
past number of years, and the more recent refinancing of the
Group's Senior Credit Facility ('SCF') on an unsecured basis, SKG
has fundamentally re-positioned its capital structure to that of a
corporate credit. On 4 November the Group redeemed its 7.25% Senior
Notes due 2017, using cash and existing credit facilities. This
transaction, combined with the SCF refinancing, substantially
reduces cash interest costs by EUR43 million per annum and further
improves SKG's credit profile.
Following a period of debt paydown, the re-positioning of the
Group's credit profile and the cash generation in the business, SKG
has now got a wider range of capital allocation options. In October
2013, the Group acquired CRP, a speciality business located in the
UK. CRP is a retail ready packaging, litho-laminated, display and
pre-print business that serves the high end value and quality
market and its acquisition will increase the Group's packaging
footprint and capability in the UK. Where value accretive
acquisitions are available, the primary focus of the acquisition
strategy remains on higher growth regions such as Latin America and
Eastern Europe.
2013 Third Quarter | Financial Performance
At EUR2,016 million, revenue in the third quarter of 2013 was
10% higher year-on-year whilst broadly in line with the second
quarter. Underlying revenue increased by EUR143 million compared to
the same period of the prior year, with 2013 revenue boosted by
EUR112 million from acquisitions whilst negatively affected by a
net EUR69 million in relation to currency movements and
hyperinflationary adjustments, reflecting the relative
strengthening of the euro.
The Group's EBITDA for the quarter was EUR303 million, 9% higher
than the third quarter of 2012, reflecting higher underlying
earnings in the Americas year-on-year partially offset by lower
earnings in Europe. EBITDA increased by EUR32 million when compared
to the second quarter of 2013.
Basic earnings per share was 24.0 cent for the quarter to
September 2013 (2012: 32.3 cent). Adjusting for exceptional items
relating mainly to debt cost amortisation, pre-exceptional basic
EPS in the third quarter was 30.6 cent per share. Pre-exceptional
basic EPS in the third quarter 2012 was 32.3 cent with no
exceptional items in the quarter.
2013 First Nine Months | Financial Performance
Revenue for the nine months rose by almost 8% from EUR5,510
million in 2012 to EUR5,924 million in 2013. The underlying move
was an increase of EUR221 million with a revenue boost of EUR332
million in the year to date, negatively affected by currency and
hyperinflationary movements of EUR139 million.
At EUR815 million, the Group's EBITDA for the nine months to
September 2013 was 5%, or EUR38 million, higher than the same
period in 2012. Allowing for the contribution from the newly
acquired SKOC and for currency and hyperinflationary movements, the
underlying increase was EUR4 million with higher EBITDA in the
Americas offset by lower EBITDA in Europe and higher Group centre
costs.
Exceptional charges within operating profit in the year to date
totalled EUR34 million, EUR15 million of which related to the
earlier than scheduled closure of Townsend Hook to facilitate the
re-build of the planned lightweight machine, and a further EUR16
million related to a currency trading loss as a result of the
devaluation of the Venezuelan Bolivar in February 2013. In the same
period in 2012, an exceptional gain of EUR28 million was included
within operating profit 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.
Basic earnings per share was 56.1 cent for the first nine months
of 2013 (2012: 81.8 cent). Adjusting for exceptional items in 2013
pre-exceptional basic EPS was 74.5 cent (2012: 70.0 cent).
2013 Third Quarter & First Nine Months | Free Cash Flow
Free cash flow amounted to EUR190 million in the third quarter
of 2013 compared to EUR118 million in 2012. The increase of EUR72
million was driven mainly by a combination of higher EBITDA and a
larger working capital inflow, partly offset by higher capital
outflows (capital expenditure together with the move in capital
creditors). At EUR262 million, our free cash flow for the nine
months to September was EUR98 million higher than in 2012 with the
increase reflecting higher EBITDA, a lower working capital outflow
and lower cash interest, partly offset by lower proceeds from fixed
asset sales.
Overall working capital has increased by EUR46 million in the
first nine months, with a strong inflow of EUR70 million in the
third quarter offsetting the outflow of EUR116 million to the half
year. The outflow was primarily due to an increase in debtors and,
to a lesser extent, stocks partly offset by an increase in
creditors. The increase in 2013 arose primarily in Europe and
reflected corrugated volume growth and the impact of the recycled
containerboard price increases. At 30 September, working capital
amounted to EUR634 million and represented 7.9% of annualised
revenue compared to 9.0% at the same point in 2012.
Capital expenditure amounted to EUR218 million in the first nine
months to September equalling 79% of depreciation, compared to
EUR180 million and 69% in the first nine months of 2012. The Group
expects to increase capital expenditure to approximately 100% of
depreciation for the full year 2013.
Cash interest at EUR158 million for the nine months to September
2013 was EUR22 million lower than in 2012, reflecting the benefit
of the Group's refinancing activities throughout 2012 and 2013.
At EUR71 million in the first nine months of 2013 tax payments
were EUR11 million lower than in 2012. The reduction in tax
payments were spread relatively evenly between European and
Americas operations. In Europe the absence of asset sales in 2013
contributed to lower cash taxes, whilst in the Americas an increase
in tax payments due to the presence of SKOC for the first time in
2013 was largely offset by lower taxes elsewhere in the region
primarily due to timing.
2013 Third Quarter & First Nine Months | Capital
Structure
As a result of strong free cash flow in the quarter the Group
has reduced net debt by EUR187 million to EUR2,630 million at
September 2013, with a net debt to EBITDA ratio of 2.50 times.
Consistently strong earnings from operations and proactive cash
flow management have enabled the Group to reduce net debt by almost
EUR500 million over the last three years, and fundamentally
re-position its capital structure to that of an unsecured corporate
profile.
Over the course of 2013 SKG has actively addressed aspects of
its capital structure. In January 2013, the Group issued a EUR400
million seven-year bond at 4.125% which was used to re-pay existing
term loans and facilitated the successful EUR1.375 billion SCF
refinancing in July. The new five-year facility comprised a EUR750
million amortising term loan with a margin of 2.25% and a EUR625
million revolving credit facility with a margin of 2.00%, reduced
from 3.75% and 3.25% respectively. Additionally, the Group put in
place a five-year trade receivables securitisation programme of up
to EUR175 million carrying a margin of 1.70%. Finally, on 4
November the Group completed the redemption of its EUR500 million
7.25% Senior Notes due 2017 utilising cash and existing credit
facilities arranged as part of the SCF and trade receivables
securitisation transactions.
As a result of the significant steps taken throughout 2013 the
Group has substantially lowered its cost of capital and reduced its
average interest rate from 6.2% at December 2012 to 5.0% at 30
September (pro forma for the November bond redemption), resulting
in a reduction in cash interest costs of over EUR43 million per
annum. At the same time, SKG's average maturity profile has been
maintained at a satisfactorily high level of 5.4 years at September
2013 on the same adjusted basis, and the Group's improved credit
profile will provide satisfactory access to capital markets
throughout the cycle.
At the end of the third quarter, SKG had EUR694 million of cash
on its balance sheet, available lines of EUR605 million under its
revolving credit facility and EUR150 million under its new EUR175
million securitisation facility. On 4 November 2013, the Group
utilised EUR220 million of its cash resources, EUR125 million of
its revolver and EUR175 million of its securitisation facility
(EUR25 million of which was drawn at the end of September) to fund
the redemption of its 7.25% Senior Notes due 2017. Following the
application of these funds the Group continues to maintain a very
strong liquidity position.
SKG continues to view debt paydown as a value creating use of
cash in the absence of more accretive investment opportunities. The
Group has benefited significantly from capital structure
refinancing since September 2012 and will continue to actively
manage its debt portfolio. Supported by its strong capital
structure and the continuing robust performance of its operations
in driving strong free cash flows, the Group continues to target an
upgrade to BB+ / Ba1 credit ratings.
2013 Third Quarter & First Nine Months | Operating
efficiency
Commercial offering, innovation and sustainability
As the European market leader and the largest pan regional
supplier in the Americas, SKG is uniquely placed to provide our
customers with first class packaging solutions tailored to their
increasingly demanding needs. Reflective of this, the Group's pan
European packaging business continues to experience significant
progress with 4% volume growth in the first nine months of the
year. The Group's service culture supports consistent product
innovation and the provision of tangible added value for our 64,000
customers worldwide, and SKG's ability to drive cost reduction and
retailing impact are increasingly regarded as defining key
differentiators in the marketplace.
In October the Group was recognised as Sweden's best packaging
supplier at the Packaging Industry Awards, winning the top prize in
the Packaging Converter category, and took first prize at the
Scanstar awards. Scanstar is arranged by the Scandinavian Packaging
Association, a coordinating body for the five Nordic countries'
national packaging organisations. The Group has also been nominated
for nine awards at the 2013 PPI Awards, many of which have an
environmental and sustainability dimension, demonstrating our
commitment to sustainability and social responsibility to each of
our stakeholders.
In 2013, the Group increased the proportion of capital
expenditure attributed to growth targeted customer facing
investments, in the expectation of improving prospects across our
markets. Positioning itself ahead of the market, the Group is
investing throughout its packaging system with a focus on
increasing colour and executing complex designs, whilst reducing
costs. SKG's EUR28 million greenfield bag-in-box plant in Ibi,
Spain, is currently on schedule for completion in the third quarter
of 2014 and will significantly enhance the Group's delivery
capabilities in this high growth, profitable market.
The Group is progressing well with its mill renovations in
Townsend Hook (UK) and Roermond (the Netherlands) having completed
the re-build of its Hoya recycled containerboard mill (Germany) in
June. These two remaining projects with costs of EUR114 million and
EUR39 million respectively and completion dates of fourth quarter
of 2014 and first quarter of 2016, will greatly enhance the Group's
lightweight capabilities whilst materially reducing on-going
operating costs.
Innovation Day 2013 and launch of the 3D Store Visualiser
On 26 September the Group hosted 175 customers at its fourth
European Innovations Day in the Netherlands. The event is an
important opportunity for SKG to showcase its premier designs and
innovative packaging solutions from around the Group with
Innovation and Sustainability awards adjudicated by our customers
and sustainability experts. A similar event was held in Mexico City
on 3 October which was attended by 60 customers from throughout the
Americas region.
The European event was also used to formally launch SKG's new 3D
Store Visualiser which allows access to thousands of
interchangeable optimisation scenarios, pictures, movies and live
demos of customer specific packaging challenges on the shelf. The
ability to study consumer behaviour in this controlled environment
is a step further in Smurfit Kappa´s leadership in researching the
optimisation of packaging design for our customers.
Cost Take-out Programme
The Group is progressing well against its 2013 cost take-out
targets and confirms its expectations to deliver EUR100 million of
cost take-out for the full year. Incremental cost take-out of EUR27
million was reported in the third quarter, bringing the year to
date balance to EUR73 million.
Widely recognised as the only solution in combating inflation in
input costs, the cost reduction programme has been a constant
feature of SKG's operational strategy since 2005. In the area of
raw materials specifically, the Group has launched a series of
projects targeting waste reduction throughout the corrugated plant
network, whilst progressing with a flour based starch substitution
project in its Roermond recycled containerboard mill in the
Netherlands, which will substantially reduce Group starch
costs.
2013 Third Quarter & First Nine Months | Regional
Performance Review
Europe
European revenue in the third quarter rose by EUR45 million
year-on-year as a result of higher containerboard pricing and in
spite of negative currency movements and somewhat weaker corrugated
pricing year-on-year. Containerboard price increases, against the
backdrop of stable OCC prices, provided a basis for some EBITDA
margin improvement in Europe with margins increasing quarter on
quarter to 13.8%, but still lower than the prior year. Compression
in corrugated margins in the quarter was due to the usual time lag
in passing through price increases.
Shipments for Europe benefited from an additional working day in
the third quarter. On a same day basis total corrugated volumes
still increased by almost 2% in the quarter. Within this, the
Group's Polish, UK and Benelux corrugated operations performed
strongly with adjusted volume growth of 10%, 7% and 4%
respectively. In the year to September like-for-like box volumes
have increased by 2% as a result of a mix of market share gains
across the region and continued pan European business growth of 4%
year-on-year. Sheet volumes, which account for less than 13% of
total corrugated volumes, decreased by approximately 2% compared to
the same period last year.
The industry successfully implemented a EUR40 per tonne recycled
containerboard price increase in August following a sustained
period of low margins and unacceptable returns. However, the market
remained tight with European testliner inventories at the start of
October at 473,000 tonnes, operating rates persisting at a high
level and improved demand and a second round of price increases
currently underway. SKG has announced a EUR30 per tonne increase
effective from 1 November and is confident of a successful result
given the supportive fundamentals in the grade.
Recovered fibre prices remained stable in the quarter and at a
consistently high level throughout 2013. Industry commentators
continue to believe that prices will trend upwards in coming years
as global demand exceeds collection. This has been supported by
events in 2013 to date, with a one million short ton addition to US
recycled containerboard capacity, steady demand in Europe and a net
increase in recycled containerboard capacity of approximately
600,000 tonnes in China outpacing growth in collection rates.
In kraftliner, the market has been performing well since the
start of 2012 as a result of the closure of 7% of European
production capacity and a decline in US imports year-on-year.
Following price increases of EUR90 per tonne over the period, the
grade came under some substitution pressure as a result of the
increased spread to recycled containerboard. However, rising prices
for testliner have reduced this spread to a more typical historical
level of approximately EUR150 per tonne, at which level demand for
the grade is robust. SKG is the European market leading producer of
kraftliner with a net long 500,000 tonne position.
The Americas
In the Americas, revenue increased by EUR141 million and EBITDA
by EUR35 million as a result of strong underlying volume and
revenue growth throughout the region, in particular Venezuela, and
the inclusion of the additional contribution from SKOC. An EBITDA
margin of 19.7% is reported in the third quarter and 17.9% reported
in the first nine months, within the historic range of margins for
the region.
Colombian demand continues to show signs of recovery and
corrugated volumes have grown by 2% within the market year to date,
with strong growth in the country's flower market. Pricing was
slightly lower year-on-year due to short term competitive
pressures. However, the successful resolution of the farmers strike
in August and second quarter GDP figures which were 4% higher on
the prior year indicate an improving business environment for the
remainder of the year.
Mexico's operations have performed well in the first nine months
with 2% higher corrugated volumes in the year to date, improved
pricing on 2012 levels and the delivery of synergy benefits between
SK Mexico and SKOC operations. Within the country's containerboard
operations specifically, performance is ahead of the prior year as
a result of improved volumes and the benefit of improving Mexican
containerboard pricing.
In spite of Venezuela continuing to experience significant
inflationary pressures, and shortages of basic goods, the business
is performing well in the year to date, due to its strong position
in this market, and a lack of one off issues which affected the
corrugated operations in 2012.
In Argentina the domestic market continues to experience low
growth levels and challenging economic conditions. However, SKG's
operations are performing satisfactorily, with year-on-year
corrugated volume growth of 10% in the first nine months and
progress in corrugated pricing despite relatively static
containerboard pricing over the same period.
SKOC has performed very well over the course of the year and
synergies are progressing in line with the Group's increased
expectations. In packaging the business is focused on gaining share
in the higher value added box market at the expense of sheet
volumes in order to add more value and enhance margins. Further
initiatives underway include labour cost reduction, process
automation, distribution optimisation and constant fibre usage
reduction. The Forney recycled mill continues to run well and
containerboard volumes year to date have increased by 4% on 2012
levels. Containerboard pricing has benefited from the improved
conditions in the US containerboard market.
The region continues to provide access to higher growth markets
in spite of some economic headwinds in recent months, and the Group
has stated its intention to seek to grow its operations in the
region to at least 30% of revenue by 2015. This fundamental
re-alignment of the Group will be carried out through measured
acquisitions in targeted geographies, and consistent organic
growth. This is made possible by SKG's unique position as the only
large scale pan regional supplier in the region and its ability to
leverage its global resources to drive future growth in the
region.
Summary Cash Flow
Summary cash flows(1) for the third quarter and nine months are
set out in the following table.
3 months to30-Sep-13EURm Restated3 months to30-Sep-12EURm 9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Pre-exceptional EBITDA 303 279 815 777
Exceptional items (7) - (24) -
Cash interest expense (50) (60) (158) (180)
Working capital change 70 6 (46) (91)
Current provisions (1) (2) (6) (8)
Capital expenditure (81) (54) (218) (180)
Change in capital creditors 3 (8) 6 (37)
Tax paid (34) (35) (71) (82)
Sale of fixed assets 1 2 2 13
Other (14) (10) (38) (48)
Free cash flow 190 118 262 164
Share issues 1 8 5 13
Purchase of own shares - - (15) (13)
Sale of businesses - - - 1
and investments
Purchase of investments - - (5) (7)
Dividends (1) (1) (51) (38)
Derivative termination - - - (1)
payments
Net cash inflow 190 125 196 119
Net - 1 (1) 1
debt/cash acquired/disposed
Deferred debt issue (19) (4) (31) (14)
costs amortised
Currency translation 16 23 (2) 6
adjustments
Decrease in net debt 187 145 162 112
(1) The summary cash flow is prepared on a different basis to the
Consolidated Statement of Cash Flows 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 low is set out below.
9 months to30-Sep-13EURm 9 months to30-Sep-12EURm
Free cash flow 262 164
Add back: Cash interest 158 180
Capital expenditure (net of change in capital creditors) 212 217
Tax payments 71 82
Financing activities 2 -
Less: Sale of fixed assets (2) (13)
Profit on sale of assets and businesses - non exceptional (4) (4)
Dividends received from associates (1) (1)
Receipt of capital grants (1) -
Non-cash financing activities (4) (12)
Cash generated from operations 693 613
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 2013, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR200 million variable funding notes issued
under the EUR250 million accounts receivable securitisation
programme maturing in November 2015, together with EUR25 million
variable funding notes issued under the EUR175 million accounts
receivable securitisation programme maturing in April 2018.
Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018,
EUR400 million 4.125% senior notes due 2020 and EUR250 million
senior floating rate notes due 2020. In addition, Smurfit Kappa
Acquisitions had outstanding EUR500 million 7.25% senior notes due
2017 and EUR500 million 7.75% senior notes due 2019. Smurfit Kappa
Acquisitions and certain subsidiaries are also party to a senior
credit facility. At 30 September 2013, the Group's senior credit
facility comprised a EUR741 million amortising Term A facility
maturing in 2018. In addition, as at 30 September 2013, the
facility included a EUR625 million revolving credit facility which
was substantially undrawn apart from EUR19.9 million under various
ancillary facilities and letters of credit.
The following table provides the range of interest rates as of
30 September 2013 for each of the drawings under the various senior
credit facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term A Facility EUR 2.378% - 2.475%
USD 2.496%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
On 24 July 2013, the Group successfully completed a new
five-year unsecured EUR1,375 million refinancing of its senior
credit facility comprising a EUR750 million term loan with a margin
of 2.25% and a EUR625 million revolving credit facility with a
margin of 2.00%. The term loan is repayable EUR125 million on 24
July 2016, EUR125 million 24 July 2017 with the balance of EUR500
million repayable on the maturity date. In connection with the
refinancing, the collateral securing the obligations under the
Group's various outstanding senior notes and debentures was also
released and the senior notes and debentures are therefore now
unsecured. The new unsecured senior credit facility is supported by
substantially the same guarantee arrangements as the old senior
credit facility. The existing senior notes and debentures likewise
continue to have substantially similar guarantee arrangements as
supported those instruments prior to the refinancing.
In addition, on 3 July 2013, the Group put in place a new
five-year trade receivables securitisation programme of up to
EUR175 million utilising the Group's receivables in Austria,
Belgium, Italy and the Netherlands. The programme, which has been
arranged by Rabobank and carries a margin of 1.70%, complements the
Group's existing EUR250 million securitisation programme.
On 4 November 2013, the Group completed the redemption of its
EUR500 million 7.25% senior notes due 2017, utilising cash and
existing credit facilities arranged as part of the senior credit
facility and trade receivables securitisation transactions.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding
activities and its operations in different foreign currencies.
Interest rate risk exposure is managed by achieving an appropriate
balance of fixed and variable rate funding. As at 30 September
2013, the Group had fixed an average of 76% of its interest cost on
borrowings over the following twelve months. This reduces to 64%
pro forma for the redemption of the EUR500 million 7.25% senior
notes due 2017.
The Group's fixed rate debt comprised mainly EUR500 million
7.25% senior notes due 2017, EUR500 million 7.75% senior notes due
2019, EUR200 million 5.125% senior notes due 2018, US$300 million
4.875% senior notes due 2018 (US$50 million swapped to floating),
EUR400 million 4.125% senior notes due 2020 and US$292.3 million
7.50% senior debentures due 2025. In addition the Group also has
EUR610 million in interest rate swaps with maturity dates ranging
from January 2014 to July 2014.
Market Risk and Risk Management Policies (continued)
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 the Group's 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.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the
management process throughout the Group. Risks are identified,
evaluated and appropriate risk management strategies are
implemented at each level.
The key business risks are identified by the senior management
team. The Board in conjunction with senior management identifies
major business risks faced by the Group and determines the
appropriate course of action to manage these risks.
The principal risks and uncertainties faced by the Group were
outlined in our 2013 interim report on page 17. The interim report
is available on our website www.smurfitkappa.com.
The principal risks and uncertainties remain substantially the
same for the near term except for the following:
-- The Group is exposed to currency exchange rate fluctuations and in
addition, to currency exchange controls in Venezuela and
Argentina. In
February 2013, the Venezuelan government announced the
devaluation of
its currency, the Bolivar Fuerte, from VEF 4.3 per US dollar to
VEF
6.3 per US dollar. As a result of the continuing political
and
economic environment in Venezuela, most economic commentators
believe
that there is a risk that a further devaluation to approximately
VEF
10.0 per US dollar may occur in the early months of 2014. If
the
Venezuelan Bolivar were to be devalued to an exchange rate of
VEF 10.0
per US dollar, the estimated effect on the Group's balance sheet
as at
30 September 2013 would be to record a reduction in its net
assets of
approximately EUR133 million in relation to these operations and
to
record a reduction in its cash balances of EUR55 million.
Consolidated Income Statement - Nine Months
Restated
9 months to 30-Sep-13 9 months to 30-Sep-12
Unaudited Unaudited
Pre-exceptional2013EURm Exceptional2013EURm Total2013EURm Pre-exceptional2012EURm Exceptional2012EURm Total2012EURm
Revenue 5,924 - 5,924 5,510 - 5,510
Cost of sales (4,196) (9) (4,205) (3,919) - (3,919)
Gross profit 1,728 (9) 1,719 1,591 - 1,591
Distribution costs (468) - (468) (434) - (434)
Administrative (758) - (758) (699) - (699)
expenses
Other operating 2 - 2 25 28 53
income
Other operating - (25) (25) - - -
expenses
Operating profit 504 (34) 470 483 28 511
Finance costs (241) (22) (263) (238) - (238)
Finance income 15 7 22 11 - 11
Share 2 - 2 2 - 2
of associates'
profit (after tax)
Profit before 280 (49) 231 258 28 286
income tax
Income tax expense (95) (96)
Profit for the 136 190
financial
period
Attributable to:
Owners of the 128 182
parent
Non-controlling 8 8
interests
Profit for the 136 190
financial
period
Earnings per share
Basic earnings per 56.1 81.8
share - cent
Diluted earnings 55.6 80.0
per share - cent
Consolidated Income Statement - Third Quarter
Restated
3 months to 30-Sep-13 3 months to 30-Sep-12
Unaudited Unaudited
Pre-exceptional 2013EURm Exceptional2013EURm Total2013EURm Pre-exceptional 2012EURm Exceptional2012EURm Total2012EURm
Revenue 2,016 - 2,016 1,830 - 1,830
Cost of sales (1,411) - (1,411) (1,295) - (1,295)
Gross profit 605 - 605 535 - 535
Distribution costs (157) - (157) (144) - (144)
Administrative (252) - (252) (235) - (235)
expenses
Other operating - - - 24 - 24
income
Other operating - (1) (1) - - -
expenses
Operating profit 196 (1) 195 180 - 180
Finance costs (83) (16) (99) (80) - (80)
Finance income 7 - 7 2 - 2
Share 1 - 1 - - -
of associates'
profit (after tax)
Profit before 121 (17) 104 102 - 102
income tax
Income tax expense (45) (24)
Profit for the 59 78
financial
period
Attributable to:
Owners of the 55 73
parent
Non-controlling 4 5
interests
Profit for the 59 78
financial
period
Earnings per share
Basic earnings per 24.0 32.3
share - cent
Diluted earnings 23.8 31.6
per share - cent
Consolidated Statement of Comprehensive Income - Nine Months
9 9
months months
to30-Sep-13UnauditedEURm to30-Sep-12UnauditedEURm
Profit for the 136 190
financial
period
Other comprehensive
income:
Items that may
subsequently
be
reclassified to
profit or loss
Foreign currency
translation
adjustments:
- Arising in (243) 91
the period
- Recycled to - (17)
Consolidated
Income Statement
on disposal of
subsidiary
Effective portion of
changes in fair
value of cash
flow hedges:
- Movement out 13 17
of reserve
- New fair value (2) (6)
adjustments
into reserve
- Movement in (2) (1)
deferred tax
(234) 84
Items which will not
be subsequently
reclassified to profit
or loss
Defined benefit
pension plans:
- Actuarial loss (22) (136)
- Movement in 2 22
deferred tax
(20) (114)
Total (254) (30)
other comprehensive
expense
Total comprehensive (118) 160
(expense)/income
for the financial
period
Attributable to:
Owners of the parent (94) 142
Non-controlling (24) 18
interests
Total comprehensive (118) 160
(expense)/income
for the financial
period
Consolidated Statement of Comprehensive Income - Third
Quarter
3 months to30-Sep-13UnauditedEURm Restated3 months to30-Sep-12UnauditedEURm
Profit for the financial period 59 78
Other comprehensive income:
Items that may subsequently be
reclassified to profit or loss
Foreign currency translation
adjustments:
- Arising in the period (31) 4
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve (1) 6
- New fair value adjustments 2 (1)
into reserve
- Movement in deferred tax (1) -
(31) 9
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (14) (68)
- Movement in deferred tax - 13
(14) (55)
Total other comprehensive expense (45) (46)
Total comprehensive income 14 32
for the financial period
Attributable to:
Owners of the parent 15 33
Non-controlling interests (1) (1)
Total comprehensive income 14 32
for the financial period
Consolidated Balance Sheet
30-Sep-13UnauditedEURm Restated30-Sep-12UnauditedEURm Restated31-Dec-12UnauditedEURm
ASSETS
Non-current assets
Property, plant 2,937 2,958 3,076
and equipment
Goodwill and intangible 2,300 2,253 2,336
assets
Available-for-sale 33 32 33
financial assets
Investment in 16 16 16
associates
Biological assets 109 123 127
Trade and other 5 4 4
receivables
Derivative financial - 7 1
instruments
Deferred income 177 162 191
tax assets
5,577 5,555 5,784
Current assets
Inventories 728 698 745
Biological assets 10 11 6
Trade and other 1,497 1,472 1,422
receivables
Derivative financial 7 9 10
instruments
Restricted cash 10 11 15
Cash and cash 684 1,219 447
equivalents
2,936 3,420 2,645
Total assets 8,513 8,975 8,429
EQUITY
Capital and reserves
attributable
to the owners of
the parent
Equity share capital - - -
Share premium 1,977 1,958 1,972
Other reserves 246 472 444
Retained earnings 15 (263) (159)
Total equity attributable 2,238 2,167 2,257
to
the owners of
the parent
Non-controlling 197 209 212
interests
Total equity 2,435 2,376 2,469
LIABILITIES
Non-current liabilities
Borrowings 3,235 3,193 3,188
Employee benefits 736 776 738
Derivative financial 68 70 65
instruments
Deferred income tax 201 208 211
liabilities
Non-current income 15 12 15
tax liabilities
Provisions for 49 57 57
liabilities
and charges
Capital grants 11 12 12
Other payables 9 8 9
4,324 4,336 4,295
Current liabilities
Borrowings 89 677 66
Trade and other 1,596 1,518 1,534
payables
Current income tax 19 21 4
liabilities
Derivative financial 37 35 43
instruments
Provisions for 13 12 18
liabilities
and charges
1,754 2,263 1,665
Total liabilities 6,078 6,599 5,960
Total equity and 8,513 8,975 8,429
liabilities
Consolidated Statement of Changes in Equity
Restated
Attributable to the owners of the parent Non-controllinginterests TotalequityEURm
EURm
EquitysharecapitalEURm SharepremiumEURm OtherreservesEURm RetainedearningsEURm TotalEURm
Unaudited
At 1 January 2013 - 1,972 444 (159) 2,257 212 2,469
Profit for the - - - 128 128 8 136
financial
period
Other comprehensive
income
Foreign currency - - (211) - (211) (32) (243)
translation
adjustments
Defined benefit - - - (20) (20) - (20)
pension plans
Effective portion - - 9 - 9 - 9
of changes in
fair value of cash
flow hedges
Total comprehensive - - (202) 108 (94) (24) (118)
(expense)/income
for the financial
period
Shares issued - 5 - - 5 - 5
Hyperinflation - - - 113 113 13 126
adjustment
Dividends paid - - - (47) (47) (4) (51)
Share-based payment - - 19 - 19 - 19
Shares acquired by - - (15) - (15) - (15)
SKG Employee Trust
At 30 September - 1,977 246 15 2,238 197 2,435
2013
At 1 January 2012 - 1,945 391 (340) 1,996 191 2,187
Profit for the - - - 182 182 8 190
financial
period
Other comprehensive
income
Foreign currency - - 64 - 64 10 74
translation
adjustments
Defined benefit - - - (114) (114) - (114)
pension plans
Effective portion - - 10 - 10 - 10
of changes in
fair value of cash
flow hedges
Total comprehensive - - 74 68 142 18 160
income
for the financial
period
Shares issued - 13 - - 13 - 13
Hyperinflation - - - 42 42 5 47
adjustment
Dividends paid - - - (33) (33) (5) (38)
Share-based payment - - 20 - 20 - 20
Shares acquired by - - (13) - (13) - (13)
SKG Employee Trust
At 30 September - 1,958 472 (263) 2,167 209 2,376
2012
An analysis of the
movements in Other
Reserves is
provided
in Note 13.
Consolidated Statement of Cash Flows
9 months to30-Sep-13UnauditedEURm Restated9 months to
30-Sep-12UnauditedEURm
Cash flows from operating
activities
Profit before income tax 231 286
Net finance costs 241 227
Depreciation charge 256 243
Impairment of assets 9 -
Amortisation of intangible 17 15
assets
Amortisation of (2) (1)
capital grants
Share-based payment expense 19 20
Profit on purchase/sale of (5) (29)
assets and businesses
Share of associates' (2) (2)
profit (after tax)
Net movement in working (47) (105)
capital
Change in biological assets 19 16
Change in employee benefits (39) (61)
and other provisions
Other (4) 4
Cash generated from 693 613
operations
Interest paid (143) (169)
Income taxes paid:
Irish corporation tax paid (2) -
Overseas corporation (69) (82)
tax (net
of tax refunds) paid
Net cash inflow from 479 362
operating activities
Cash flows from investing
activities
Interest received 4 5
Additions to property, (207) (211)
plant and
equipment and biological
assets
Additions to intangible (5) (5)
assets
Receipt of capital grants 1 -
Decrease in restricted cash 5 1
Disposal of property, 6 17
plant and equipment
Dividends received 1 1
from associates
Purchase of subsidiaries and (3) (5)
non-controlling interests
Deferred consideration paid (3) (1)
Net cash outflow from (201) (198)
investing activities
Cash flows from financing
activities
Proceeds from issue of 5 13
new ordinary shares
Proceeds from bond issuance 400 688
Purchase of own shares (15) (13)
Increase in interest-bearing 67 -
borrowings
Payment of finance leases (4) (6)
Repayment of borrowings (391) (416)
Derivative termination - (1)
payments
Deferred debt issue costs (24) (23)
Dividends paid to (47) (33)
shareholders
Dividends paid to (4) (5)
non-controlling
interests
Net cash (outflow)/inflow (13) 204
from
financing activities
Increase in cash and 265 368
cash equivalents
Reconciliation of opening
to closing
cash and cash equivalents
Cash and cash equivalents 423 825
at 1 January
Currency translation (26) 9
adjustment
Increase in cash and 265 368
cash equivalents
Cash and cash equivalents 662 1,202
at 30 September
An analysis of the Net Movement in Working Capital is provided
in Note 11.
1.General Information
Smurfit Kappa Group plc ('SKG plc' or 'the Company') and its
subsidiaries (together 'SKG' or 'the Group') manufacture,
distribute and sell containerboard, corrugated containers and other
paper-based packaging products such as solidboard and graphicboard.
The Company is a public limited company whose shares are publicly
traded. It is incorporated and tax resident in Ireland. The address
of its registered office is Beech Hill, Clonskeagh, Dublin 4,
Ireland.
2.Basis of Preparation
The 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 in accordance with the Transparency Regulations
requirement to publish an interim management statement during the
second six months of the financial year. 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 2012 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 2012 with the exception of the standards described
below.
IAS 19 Revised
The IASB has issued a number of amendments to IAS 19, Employee
Benefits, which became effective for the Group from 1 January 2013.
The main effect on the Group financial statements stems from the
removal of the concept of expected return on plan assets. As a
result the expected return on plan assets is now calculated using
the same discount rate as that used to determine the present value
of plan liabilities. The difference between the implied return and
the actual return on assets is recognised in other comprehensive
income. As required, the amendments have been applied
retrospectively in accordance with IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. The effects of the
restatement of prior period financial information are detailed in
Note 7.
Amendments to IAS 1
The amended IAS 1, Presentation of Financial Statements,
requires the grouping of items of other comprehensive income that
may be reclassified to profit or loss at a future point in time
separately from those items which will never be reclassified. The
revised standard, which has been adopted by the Group with effect
from 1 January 2013, affects presentation only and does not impact
the Group's financial position or performance.
There are a number of other changes to IFRS issued and effective
from 1 January 2013 which include IFRS 10, Consolidated Financial
Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of
Interests in Other Entities, IFRS 13, Fair Value Measurement, IAS
27, Separate Financial Statements, and IAS 28, Investments in
Associates and Joint Ventures. They either do not have an effect on
the consolidated financial statements or they are not currently
relevant for the Group.
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 report may
not add precisely due to rounding.
2.Basis of Preparation (continued)
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 2012 have been filed with the Irish Registrar of
Companies. The audit report on those Group accounts was
unqualified.
3.Segmental Analyses
The Group has determined reportable operating segments based on
the manner in which reports are reviewed by the chief operating
decision maker ('CODM'). The CODM is determined to be the executive
management team in assessing performance, allocating resources and
making strategic decisions. Prior to the acquisition of Orange
County Container Group ('OCCG'), the two business segments
identified were Europe and Latin America. Because of the high level
of integration between OCCG and our existing operations in Mexico,
OCCG was included with our existing Latin American operations which
were renamed as the Americas. OCCG has been renamed as Smurfit
Kappa Orange County ('SKOC').
The Europe segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Americas segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries
and the operations of SKOC. 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').
Segment 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. Group centre assets are comprised primarily
of available-for-sale financial assets, derivative financial
assets, deferred income tax assets, cash and cash equivalents and
restricted cash.
9 months to 30-Sep-13 Restated9 months to 30-Sep-12
EuropeEURm TheAmericasEURm TotalEURm EuropeEURm TheAmericasEURm TotalEURm
Revenue
and
Results
Revenue 4,475 1,449 5,924 4,478 1,032 5,510
EBITDA 580 259 839 641 160 801
before
exceptional
items
Segment (6) (19) (25) 28 - 28
exceptional
items
EBITDA 574 240 814 669 160 829
after
exceptional
items
Unallocated (24) (24)
centre
costs
Share-based (19) (20)
payment
expense
Depreciation (275) (259)
and
depletion
(net)
Amortisation (17) (15)
Impairment (9) -
of assets
Finance (263) (238)
costs
Finance 22 11
income
Share 2 2
of
associates'
profit
(after
tax)
Profit 231 286
before
income tax
Income tax (95) (96)
expense
Profit for 136 190
the
financial
period
Assets
Segment 6,091 1,845 7,936 6,199 1,626 7,825
assets
Investments 2 14 16 2 14 16
in
associates
Group 561 1,134
centre
assets
Total 8,513 8,975
assets
3.Segmental Analyses (continued)
3 months to 30-Sep-13 Restated3 months to 30-Sep-12
EuropeEURm TheAmericasEURm TotalEURm EuropeEURm TheAmericasEURm TotalEURm
Revenue
and
Results
Revenue 1,519 497 2,016 1,474 356 1,830
EBITDA 209 98 307 225 63 288
before
exceptional
items
Segment - (1) (1) - - -
exceptional
items
EBITDA 209 97 306 225 63 288
after
exceptional
items
Unallocated (4) (9)
centre
costs
Share-based (7) (6)
payment
expense
Depreciation (94) (88)
and
depletion
(net)
Amortisation (6) (5)
Finance (99) (80)
costs
Finance 7 2
income
Share 1 -
of
associates'
profit
(after
tax)
Profit 104 102
before
income tax
Income tax (45) (24)
expense
Profit for 59 78
the
financial
period
4.Exceptional Items
The following items 9 months to30-Sep-13EURm 9 months to30-Sep-12EURm
are regarded
as exceptional
in nature:
Gain on disposal - 28
of assets
and operations
Currency trading loss (16) -
on Venezuelan
Bolivar devaluation
Impairment loss (9) -
on property,
plant and equipment
Reorganisation and (7) -
restructuring
costs
Business acquisition (2) -
costs
Exceptional items (34) 28
included
in operating profit
Exceptional finance (22) -
cost
Exceptional finance 7 -
income
Exceptional items (15) -
included
in net finance costs
Exceptional items charged within operating profit in the nine
months to 30 September 2013 amounted to EUR34 million, EUR15
million of which related to the temporary closure of the Townsend
Hook mill in the UK (comprising an impairment charge of EUR9
million and reorganisation and restructuring costs of EUR6
million). A further EUR1 million of reorganisation costs related to
the consolidation of the Group's two plants in Juarez, Mexico, into
one plant. A currency trading loss of EUR16 million was recorded as
a result of the devaluation of the Venezuelan Bolivar in February
2013, comprising EUR12 million booked in the first quarter and an
adjustment of EUR4 million for hyperinflation and re-translation at
the 30 September exchange rate. The original loss reflected the
higher cost to the Venezuelan operations of discharging its
non-Bolivar denominated net payables following the devaluation.
Business acquisition costs of EUR2 million related to the
acquisition of SKOC.
4.Exceptional Items (continued)
Exceptional finance costs in the nine months to 30September 2013
comprised a charge of EUR22 million in respect of the accelerated
amortisation of debt issue costs relating to the senior credit
facility, following its early repayment. In the first quarter, a
charge of EUR6 million was booked following the repayment of part
of the facility from the proceeds of January's EUR400 million bond
issue. A further charge of EUR16 million was booked in the third
quarter as a result of the repayment of the remainder of the
facility, following its refinancing.
Exceptional finance income in the nine months to 30 September
2013 amounted to EUR7 million and comprised a gain of EUR6 million
in Venezuela on the value of US dollar denominated intra-group
loans following the devaluation of the Bolivar and an additional
EUR1 million due to its subsequent adjustment for hyperinflation
and re-translation.
In 2012, the Group reported an exceptional gain of EUR28 million
in relation to the disposal of assets and operations. This
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 related to the reclassification
(under IFRS) of the cumulative translation differences from the
Consolidated Statement of Comprehensive Income to the Consolidated
Income Statement.
5.Finance Cost and Income
9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Finance cost:
Interest payable on bank 56 97
loans and overdrafts
Interest payable on - 1
finance leases
and hire purchase contracts
Interest payable on 114 102
other borrowings
Exceptional finance 22 -
costs associated
with debt restructuring
Unwinding discount element 1 1
of provision
Foreign currency translation 4 5
loss on debt
Fair value loss 5 1
on derivatives
not designated as hedges
Net interest cost on net 20 22
pension liability
Net monetary loss 41 9
- hyperinflation
Total finance cost 263 238
Finance income:
Other interest receivable (4) (5)
Foreign currency translation (8) (4)
gain on debt
Exceptional foreign currency (7) -
translation gain
Fair value gain (3) (2)
on derivatives
not designated as hedges
Total finance income (22) (11)
Net finance cost 241 227
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Current tax:
Europe 36 40
The Americas 49 28
85 68
Deferred tax 10 28
Income tax expense 95 96
Current tax is analysed
as follows:
Ireland 4 3
Foreign 81 65
85 68
Income tax recognised in the Consolidated Statement of
Comprehensive Income
9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Arising on actuarial loss (2) (22)
on defined benefit plans
Arising on qualifying 2 1
derivative
cash flow hedges
- (21)
While the income tax expense is broadly unchanged in total
year-on-year, there are a number of underlying offsetting items
including a change in the geographical mix of earnings and the
presence of SKOC in 2013 only. In 2013 there have been lower asset
sales and increased exceptional expense which have contributed to
lower taxable profits compared to 2012. The deferred tax expense
also includes a net credit from the additional recognition of
accumulated tax losses.
There is a tax credit associated with exceptional items in 2013
of EUR7 million compared to a EUR2 million tax expense in 2012.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Current service cost 39 25
Past service cost 1 -
Gain on curtailment - (12)
Net interest cost on net 20 22
pension liability
Defined benefit cost 60 35
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR40 million (2012: EUR13
million). Net interest cost on net pension liability of EUR20
million (2012: EUR22 million) is included in finance costs in the
Consolidated Income Statement.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
30-Sep-13EURm Restated31-Dec-12EURm
Present value of funded or partially (1,835) (1,832)
funded obligations
Fair value of plan assets 1,597 1,598
Deficit in funded or partially (238) (234)
funded plans
Present value of wholly (498) (504)
unfunded obligations
Net pension liability (736) (738)
The employee benefits provision has decreased from EUR738
million at 31 December 2012 to EUR736 million at 30 September
2013.
Restatement of prior periods in accordance with IAS 19
The Group adopted IAS 19 (as revised) from 1 January 2013. In
accordance with the previous version of IAS 19, the Consolidated
Income Statement included an interest cost based on present value
calculations of projected pension payments and finance income based
on the expected rates of income generated by plan assets. Generally
the rate of expected income on plan assets exceeded the discount
rate used in calculating the interest cost. Under the revised
standard the interest cost and expected return on plan assets have
been replaced with a net interest amount and the rate of return on
plan assets is calculated using the same discount rate as that used
to determine the present value of plan liabilities. The difference
between the lower rate of return on plan assets and the actual
return on assets is recognised in other comprehensive income,
largely offsetting the higher net interest cost in the income
statement. There are other minor changes which the Group have
allowed for but they do not have a material effect on the financial
statements.
The revised standard has been applied retrospectively in
accordance with the transitional provisions of the standard,
resulting in the adjustment of prior year financial information.
The effects of adoption on previously reported financial
information are shown in the following table.
7.Employee Benefits - Defined Benefit Plans (continued)
PreviouslyreportedEURm AdjustmentsEURm RestatedEURm
As at 1 January
2012
Employee 655 1 656
benefits
- non-current
liabilities
Provisions for
liabilities
and charges -
non-current
liabilities 55 (2) 53
Deferred income 177 - 177
tax assets
Retained (341) 1 (340)
earnings
As at and for
the year
ended 31
December
2012
Employee 737 1 738
benefits
- non-current
liabilities
Provisions for 59 (2) 57
liabilities
and charges
- non-current
liabilities
Deferred income 191 - 191
tax assets
Retained (160) 1 (159)
earnings
Cost of sales (5,238) (2) (5,240)
Administrative (938) (2) (940)
expenses
Finance costs (399) 71 (328)
Finance income 93 (79) 14
Profit before 331 (12) 319
income tax
Income tax (71) 3 (68)
expense
Profit for the 260 (9) 251
financial year
Attributable 249 (9) 240
to owners
of the parent
Basic earnings 111.2 (4.3) 106.9
per
share - cent
Diluted 108.3 (4.1) 104.2
earnings
per share
- cent
Other
comprehensive
income
Defined benefit
pension plans:
- Actuarial (108) 12 (96)
loss
- Movement in 19 (3) 16
deferred tax
As at and
for the
nine months
ended
30 September
2012
Employee 775 1 776
benefits
- non-current
liabilities
Provisions for 59 (2) 57
liabilities
and charges
- non-current
liabilities
Deferred income 162 - 162
tax assets
Retained (264) 1 (263)
earnings
Cost of sales (3,917) (2) (3,919)
Administrative (698) (1) (699)
expenses
Finance costs (292) 54 (238)
Finance income 71 (60) 11
Profit before 295 (9) 286
income tax
Income tax (98) 2 (96)
expense
Profit for the 197 (7) 190
financial
period
Attributable 189 (7) 182
to owners
of the parent
Basic earnings 84.9 (3.1) 81.8
per
share - cent
Diluted 83.1 (3.1) 80.0
earnings
per share
- cent
Other
comprehensive
income
Defined benefit
pension plans:
- Actuarial (145) 9 (136)
loss
- Movement in 24 (2) 22
deferred tax
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 to30-Sep-13 Restated9 months to30-Sep-12
Profit attributable 128 182
to the owners
of the parent (EUR million)
Weighted average number 229 223
of ordinary
shares in issue (million)
Basic earnings per 56.1 81.8
share (cent)
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.
9 months to30-Sep-13 Restated9 months to30-Sep-12
Profit attributable 128 182
to the owners
of the parent (EUR million)
Weighted average number 229 223
of ordinary
shares in issue (million)
Potential dilutive ordinary 2 5
shares assumed (million)
Diluted weighted 231 228
average ordinary
shares (million)
Diluted earnings 55.6 80.0
per share (cent)
Pre-exceptional
9 months to30-Sep-13 Restated9 months to30-Sep-12
Profit attributable 128 182
to the owners
of the parent (EUR million)
Exceptional items included 49 (28)
in profit before
income tax (Note
4) (EUR million)
Income tax on exceptional (7) 2
items (EUR million)
Pre-exceptional profit 170 156
attributable to
the owners of the parent
(EUR million)
Weighted average number 229 223
of ordinary
shares in issue (million)
Pre-exceptional 74.5 70.0
basic earnings
per share (cent)
Diluted weighted 231 228
average ordinary
shares (million)
Pre-exceptional diluted 73.8 68.5
earnings
per share (cent)
9.Dividends
In May, the final dividend for 2012 of 20.5 cent per share was
paid to the holders of ordinary shares. In October, an interim
dividend for 2013 of 10.25 cent per share was paid to the holders
of ordinary shares.
10.Property, Plant and Equipment
Land andbuildingsEURm Plant TotalEURm
andequipmentEURm
Nine months
ended 30
September 2013
Opening net book 1,119 1,957 3,076
amount
Reclassifications 29 (37) (8)
Additions 5 193 198
Acquisitions - 1 1
Depreciation (37) (219) (256)
charge
for the period
Impairments (2) (7) (9)
Retirements and (1) (1) (2)
disposals
Hyperinflation 28 28 56
adjustment
Foreign currency (52) (67) (119)
translation
adjustment
At 30 September 1,089 1,848 2,937
2013
Year ended 31
December
2012
Opening net book 1,115 1,858 2,973
amount
Reclassifications 10 (15) (5)
Additions 13 247 260
Acquisitions 1 118 119
Depreciation (44) (288) (332)
charge
for the year
Retirements and (5) (2) (7)
disposals
Hyperinflation 17 19 36
adjustment
Foreign currency 12 20 32
translation
adjustment
At 31 December 1,119 1,957 3,076
2012
11.Net Movement in Working Capital
9 months to30-Sep-13EURm 9 months to30-Sep-12EURm
Change (19) 5
in inventories
Change in trade (130) (123)
and
other receivables
Change in trade 102 13
and
other payables
Net movement (47) (105)
in working
capital
12.Analysis of Net Debt
30-Sep-13EURm 31-Dec-12EURm
Senior credit facility:
Revolving credit facility(1)- interest - (7)
at relevant interbank rate + 3.25%
Tranche B term loan(2a)- interest at - 550
relevant interbank rate + 3.625%
Tranche C term loan(2b)- interest at - 556
relevant interbank rate + 3.875%
Unsecured senior credit facility:
Revolving credit facility B(3)- interest (7) -
at relevant interbank rate + 2%(7)
Term facility A(4)- interest at relevant 741 -
interbank rate + 2.25%(7)
US$292.3 million 7.50% senior debentures 221 222
due 2025 (including accrued interest)
Bank loans and overdrafts 74 65
Cash (694) (462)
2015 receivables securitisation 198 197
variable funding notes
2018 receivables securitisation 23 -
variable funding notes
EUR500 million 7.25% senior notes due 503 492
2017 (including accrued interest)
2018 senior notes (including 413 423
accrued interest)(5)
EUR500 million 7.75% senior notes due 504 494
2019 (including accrued interest)
EUR400 million 4.125% senior notes due 396 -
2020 (including accrued interest)
EUR250 million senior floating rate notes due 247 247
2020 (including accrued interest)(6)
Net debt before finance leases 2,619 2,777
Finance leases 4 8
Net debt including leases 2,623 2,785
Balance of revolving credit facility 7 7
reclassified to debtors
Net debt after reclassification 2,630 2,792
(1) Revolving credit facility ('RCF') of EUR525 million (available
under the senior credit facility) to be repaid in 2016.
This was repaid on 24 July 2013.
(2a) Tranche B term loan due to be repaid in 2016.
EUR193.9 million prepaid January - April 2013.
The remaining loans were fully repaid
on 24 July 2013 from the proceeds of the
unsecured senior credit facility.
(2b) Tranche C term loan due to be repaid in full in 2017.
EUR197.1 million prepaid January - April 2013.
The remaining loans were fully repaid
on 24 July 2013 from the proceeds of the
unsecured senior credit facility.
(3) Revolving credit facility B ('RCF
B') of EUR625 million (available
under the unsecured senior credit
facility) to be repaid in 2018.
(a) Revolver loans - nil, (b) drawn under ancillary facilities
and facilities supported by letters of
credit - nil and (c) other operational facilities
including letters of credit EUR19.9 million.
(4) Facility A term loan ('Facility A') due to be repaid
in certain instalments from 2016 to 2018.
(5) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(6) Interest at EURIBOR + 3.5%.
(7) The margins applicable to the unsecured senior
credit facility are determined as follows:
Net debt/EBITDA ratio RCF B Facility A
Greater than 3.0 : 1 2.50% 2.75%
3.0 : 1 or less but more than 2.5 : 1 2.00% 2.25%
2.5 : 1 or less but more than 2.0 : 1 1.75% 2.00%
2.0 : 1 or less 1.50% 1.75%
13.Other Reserves
Other reserves included in the Consolidated Statement of Changes
in Equity are comprised of the following:
ReverseacquisitionreserveEURm CashflowhedgingreserveEURm ForeigncurrencytranslationreserveEURm Share-basedpaymentreserveEURm OwnsharesEURm Available-for-salereserveEURm TotalEURm
At 1 January 2013 575 (26) (198) 105 (13) 1 444
Other comprehensive income
Foreign currency translation - - (211) - - - (211)
adjustments
Effective portion of changes in - 9 - - - - 9
fair value of cash flow hedges
Total other comprehensive - 9 (211) - - - (202)
income/(expense)
Share-based payment - - - 19 - - 19
Shares acquired by - - - - (15) - (15)
SKG Employee Trust
At 30 September 2013 575 (17) (409) 124 (28) 1 246
At 1 January 2012 575 (35) (228) 79 - - 391
Other comprehensive income
Foreign currency translation - - 64 - - - 64
adjustments
Effective portion of changes in - 10 - - - - 10
fair value of cash flow hedges
Total other comprehensive income - 10 64 - - - 74
Share-based payment - - - 20 - - 20
Shares acquired by - - - - (13) - (13)
SKG Employee Trust
At 30 September 2012 575 (25) (164) 99 (13) - 472
14.Venezuela
Hyperinflation
As discussed more fully in the Group's 2012 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 2013 and 2012 are as follows:
30-Sep-13 30-Sep-12
Index at period end 442.3 296.1
Movement in period 38.7% 11.5%
14.Venezuela (continued)
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR28 million increase
(2012: EUR10 million increase), pre-exceptional EBITDA EUR5 million
increase (2012: EUR4 million decrease) and profit after taxation
EUR62 million decrease (2012: EUR31 million decrease). In 2013, a
net monetary loss of EUR41 million (2012: EUR9 million loss) was
recorded in the Consolidated Income Statement. The impact on our
net assets and our total equity is an increase of EUR70 million
(2012: EUR17 million increase).
Devaluation
On 8 February 2013, the Venezuelan government announced the
devaluation of its currency, the Bolivar Fuerte and the termination
of the SITME transaction system. The official exchange rate was
changed from VEF 4.3 per US dollar to VEF 6.3 per US dollar. As a
result of the devaluation the Group recorded a reduction in net
assets of approximately EUR142 million in relation to these
operations and a reduction in the euro value of the Group's cash
balances of EUR28 million.
As a result of the continuing political and economic environment
in Venezuela, most economic commentators believe that there is a
risk that a further devaluation to approximately VEF 10.0 per US
dollar may occur in the early months of 2014. If the Venezuelan
Bolivar were to be devalued to an exchange rate of VEF 10.0 per US
dollar, the estimated effect on the Group's balance sheet as at 30
September 2013 would be to record a reduction in its net assets of
approximately EUR133 million in relation to these operations and to
record a reduction in its cash balances of EUR55 million.
15.Post Balance Sheet Events
On 4 November 2013, the Group completed the redemption of its
EUR500 million 7.25% senior notes due 2017, utilising cash and
existing credit facilities arranged as part of the senior credit
facility and trade receivables securitisation transactions.
Supplementary Financial Information
EBITDA before exceptional items and share-based payment expense
is denoted by EBITDA in the following schedules for ease of
reference.
Reconciliation of Profit to EBITDA
3 months to30-Sep-13EURm Restated3 months to30-Sep-12EURm 9 months to30-Sep-13EURm Restated9 months to30-Sep-12EURm
Profit for the financial 59 78 136 190
period
Income tax expense 45 24 95 96
Gain on disposal of assets - - - (28)
and operations
Currency trading loss 1 - 16 -
on Venezuelan
Bolivar devaluation
Impairment loss on property, - - 9 -
plant and equipment
Reorganisation and - - 7 -
restructuring
costs
Business acquisition costs - - 2 -
Share of associates' (1) - (2) (2)
profit (after tax)
Net finance costs 92 78 241 227
Share-based payment expense 7 6 19 20
Depreciation, depletion 100 93 292 274
(net) and amortisation
EBITDA 303 279 815 777
Supplementary Historical Financial Information
Restated
EURm Q3, 2012 Q4, 2012 FY, 2012 Q1, 2013 Q2, 2013 Q3, 2013
Group 2,944 2,951 11,896 3,080 3,285 3,319
and
third
party
revenue
Third 1,830 1,824 7,335 1,889 2,019 2,016
party
revenue
EBITDA 279 239 1,016 241 271 303
EBITDA 15.2% 13.1% 13.8% 12.7% 13.4% 15.0%
margin
Operating 180 119 630 126 148 195
profit
Profit 102 33 319 57 70 104
before
income
tax
Free 118 118 282 (23) 95 190
cash
flow
Basic 32.3 25.2 106.9 14.4 17.7 24.0
earnings
per
share
-
cent
Weighted 223 226 224 228 229 229
average
number
of
shares
used
in
EPS
calculation
(million)
Net 2,640 2,792 2,792 2,871 2,817 2,630
debt
Net 2.59 2.75 2.75 2.84 2.74 2.50
debt
to
EBITDA
(LTM)
This information is provided by Business Wire
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