TIDMSKG
5 November 2014: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 9 months ending 30
September 2014.
2014 Third Quarter & First Nine Months | Key Financial
Performance Measures
EURm YTD 2014 YTD 2013 Change Q3 2014 Q3 2013 Change Q2 2014 Change
Revenue EUR5,975 EUR5,924 1% EUR2,027 EUR2,016 1% EUR2,015 1%
EBITDA EUR866 EUR815 6% EUR302 EUR303 - EUR295 2%
before
Exceptional
Items
and
Share-based
Payment(1)
EBITDA 14.5% 13.8% 14.9% 15.0% 14.6%
margin
Operating EUR560 EUR504 11% EUR197 EUR196 - EUR194 2%
Profit
before
Exceptional
Items
Profit EUR321 EUR231 39% EUR93 EUR104 (11%) EUR124 (25%)
before
Income Tax
Basic EPS 94.2 56.1 68% 31.9 24.0 33% 33.6 (5%)
(cent)
Pre-exceptional 115.2 74.5 55% 51.1 30.6 67% 33.3 53%
Basic
EPS (cent)
Return on 14.5% 12.6% 14.3%
Capital
Employed(2)
Free Cash EUR343 EUR262 31% EUR208 EUR190 9% EUR76 171%
Flow(3)
Net Debt EUR2,578 EUR2,630 (2%) EUR2,676 (4%)
Net Debt 2.2x 2.5x 2.3x
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 34.
2) LTM pre-exceptional operating profit plus share of
associates' profit/average capital employed.
3) Free cash flow is set out on page 10. The
IFRS cash flow is set out on page 20.
Third Quarter & First Nine Months Key Points
-- Year to date pre-exceptional EPS growth of 55% reflecting a good
operational performance and lower financing costs
-- Continued growth in return on capital employed ('ROCE') to 14.5%
-- Strong free cash flow continues to support growth and lower leverage
of 2.2 times net debt to EBITDA
-- Implementation of price increase of EUR30 per tonne in both testliner
and kraftliner
-- Corrugated volume growth of 2% year-on-year to September 2014
-- Immediately accretive acquisition of Bates Container for US$158
million completed in October 2014
-- SKG to deliver 2014 EBITDA results in line with market expectations
Performance Review and Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "In the first
nine months of 2014 Smurfit Kappa has delivered year-on-year
earnings growth with EBITDA of EUR866 million, an increase of 6%,
and pre-exceptional EPS of 115.2 cent, an increase of 55%. These
results reflect the continuing benefits of the Group's integrated
business model, the strength of its international portfolio of
businesses, the consistent delivery on cost reduction initiatives
and a fundamentally improved capital structure. As a consequence,
ROCE, which is a key performance measure for the Group, continued
to improve to 14.5% in the quarter.
"In spite of a somewhat weaker macroeconomic backdrop in the
third quarter the Group continued to see demand growth in Europe
through the period, and delivered a strong performance in the
region supported by pricing actions and continuing cost take-out
initiatives. The implementation of both recycled and virgin
containerboard price increases during the quarter is underpinning
corrugated pricing.
"As part of its ongoing focus on controlling operating costs and
improving operational efficiency, the Group has commenced a process
of engagement with its Works Councils and Trade Unions regarding
the rationalisation or closure of four corrugated facilities and a
recycled containerboard mill in Europe. This action will incur an
estimated total charge of EUR50 million in 2014, EUR15 million of
which has been included in the third quarter results.
"In the Americas, SKG's business continues to operate well with
organic volume growth across most countries in the quarter.
Colombia and Mexico had a strong performance, while Venezuela
remains challenging due to high inflation and a weakening
currency.
"Acquisitions, including Bates Container in the US, Corrumed in
Colombia and Rierba in the Dominican Republic, were completed in
2014 for a total consideration of approximately EUR155 million,
reflecting the Group's objective of further integrating Smurfit
Kappa Orange County's ('SKOC') Forney mill and of pursuing
acquisitions in growth regions such as Colombia and the Dominican
Republic.
"Despite macroeconomic concerns, the Group expects to deliver
2014 EBITDA growth in line with market expectations.
"Following a period of debt paydown SKG is substantially better
positioned today than at any other point in its recent history,
with a well invested asset base and an optimal capital structure.
The full year contribution of recently acquired businesses, a
substantially reduced interest expense and the Group's unrelenting
focus on operating efficiency will deliver and drive value. Going
forward, this presents a broad range of strategic and financial
options, and the capacity to deliver an improved financial
performance at all points of the industry cycle."
About Smurfit Kappa
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 EUR7.9 billion in 2013.
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.
Check out our microsite: www.openthefuture.info
www.smurfitkappa.com
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
T: +353 1 202 71 80 T: +353 1 663 36 80
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2014 Third Quarter & First Nine Months | Performance
Overview
During the third quarter the Group delivered a good operational
performance with an EBITDA margin of 14.9% and free cash flow of
EUR208 million. The European packaging operations, in particular,
have performed well with positive price and volume momentum in the
quarter underpinned by the continued focus on driving incremental
operational efficiencies through targeted rationalisations and
effective capital investment.
The Group continues to deliver good corrugated volume
progression in its European business with 2% growth on a
days-adjusted basis for both the third quarter and first nine
months of 2014. Although operating conditions in France remain
challenging, volumes across the majority of the Group's core
markets continue to show year-on-year improvement with good gains
in the larger markets of Germany, the UK, Spain, Italy and
Scandinavia. Volumes have remained steady in October.
Following some increases in corrugated pricing in the first
quarter, the Group has seen some marginal price decreases in the
third quarter, resulting in a net corrugated price increase
year-on-year at September of 1%.
In August 2014, the Group implemented a price increase of EUR30
per tonne in recycled containerboard, reflecting the solid
supply/demand balance prevailing in the European market. Given that
announced recycled capacity additions to 2017 can be offset by
moderate growth, the supply/demand outlook for the sector is
relatively benign. Old Corrugated Container ('OCC') prices have
been flat through the period at EUR114 per tonne.
The European market for kraftliner has remained relatively tight
for much of 2014, and strong demand has continued into the latter
part of the year. Against this backdrop, and aided by positive
pricing momentum in the recycled containerboard market, the Group
has achieved EUR30 per tonne of its announced EUR50 per tonne price
increase in September. As Europe's largest producer of kraftliner,
with a net long position of 500,000 tonnes, the Group will
immediately benefit from the higher price environment.
A stronger US dollar compared to the euro is generally a net
positive for the Group, providing a more supportive environment for
the Group's export-driven customer base in Europe. The dollar
strength also negatively impacts the competitiveness of US
kraftliner imports into Southern European countries.
SKG's Americas business is continuing to deliver a good
underlying performance with volume growth of 7% in the quarter and
3% in the year to date. In the Group's major markets, Colombia and
Mexico are performing strongly in volume terms with a record level
of shipments in the year to date in Colombia on a like-for-like
basis. The Group recently completed the acquisition of three
corrugated and converting facilities in the US and one in the
Dominican Republic, which follows the acquisition of a converting
facility in Colombia in May.
While the Group's Venezuelan business is operating well, the
worsening economic situation and the consequent weakening of the
country's currency, have had a negative impact on the Americas'
results.
Strong free cash flow of EUR343 million in the year to date has
facilitated a number of accretive bolt-on acquisitions, a
materially higher year-on-year dividend payment and continued net
debt reduction to 2.2 times EBITDA at September 2014.
In June 2014, the Group launched its 'Open the future' brand
strategy. Based on extensive research this customer-centred
strategy differentiates our business from other industry players
and provides a long-term platform for more effective communication
and business enhancement. Initiatives emerging from this strategy
include the creation of our Global Experience Centre at Schipol
Airport, Amsterdam, which will showcase our customer support tools
which are being developed in the context of our market insights and
innovation activities. This centre will open in the first half of
2015 with smaller country versions also being progressively
developed. Other initiatives include the development of key
partnerships to extend our expertise in areas like supply-chain
management and consumer behaviour at the point of purchase.
2014 Third Quarter | Financial Performance
Revenue in the third quarter of 2014 increased marginally
year-on-year to EUR2,027 million. The underlying growth of over 3%
was largely offset by the continuation of negative currency
movements in the Americas, primarily due to the weakened Venezuelan
Bolivar which closed the quarter at US$ / VEF 12.0.
EBITDA of EUR302 million in the quarter was broadly in line with
the prior year with an underlying increase in earnings,
particularly in Europe, offset by negative currency movements
mainly in the Americas. Specifically, the Group recorded net
negative currency and hyperinflationary movements of EUR32 million
offset by acquisition contributions of EUR1 million resulting in an
underlying increase of EUR30 million, equating to a 10%
year-on-year increase.
Basic earnings per share was 31.9 cent for the third quarter of
2014 (2013: 24.0 cent), an increase of 33% year-on-year. Adjusting
for exceptional items, pre-exceptional basic EPS was 51.1 cent
(2013: 30.6 cent), a 67% increase year-on-year.
2014 First Nine Months | Financial Performance
For the nine months to September, revenue increased by EUR51
million (1%) from EUR5,924 million in 2013 to EUR5,975 million in
2014. As in the case of the quarter, the increase was the
combination of higher revenue in Europe partly offset by lower
revenue in the Americas, as a result of significant negative
currency movements - primarily the Venezuelan Bolivar.
EBITDA for the nine months to September also increased by EUR51
million, from EUR815 million in 2013 to EUR866 million in 2014.
Allowing for net negative currency movements, hyperinflation and
the contribution from acquisitions, the underlying year-on-year
move was an increase of EUR123 million (equating to 15%), with
higher earnings in both Europe and the Americas and lower Group
centre costs. The Group's margin for the nine months benefited from
the relatively strong growth in European EBITDA and increased to
14.5% from 13.8% in 2013.
Exceptional items charged within operating profit in the nine
months to September 2014 amounted to EUR24 million. This includes a
charge in the third quarter of EUR15 million related to the
impairment of assets in the plants included in the previously
mentioned consultation process. Additionally, a EUR9 million charge
was recognised in the first quarter of 2014 relating to losses on
the translation of non-Bolivar denominated payables in Venezuela
following the change to the Sicad I rate.
Exceptional items of EUR34 million were charged in the same
period of 2013, primarily comprising a EUR16 million trading
currency loss as a result of the devaluation of the Venezuelan
Bolivar in February 2013 and a EUR15 million charge relating to the
closure of the Townsend Hook containerboard machines in July 2013.
The remainder of the exceptional charges in 2013 related to
additional reorganisation costs associated with the acquisition of
SKOC.
Basic earnings per share was 94.2 cent for the first nine months
of 2014 (2013: 56.1 cent), an increase of 68% year-on-year.
Adjusting for exceptional items, pre-exceptional basic EPS was
115.2 cent (2013: 74.5 cent), an increase of 55% year-on-year.
2014 Third Quarter & First Nine Months | Free Cash Flow
Free cash flow amounted to EUR343 million in the first nine
months of 2014 compared to EUR262 million in 2013. The increase of
EUR81 million reflected higher EBITDA, lower cash interest and
lower exceptional charges, partly offset by higher capital
expenditure. The Group reported strong free cash flow of EUR208
million in the third quarter, an increase of 9% on the third
quarter of 2013 and 171% on the second quarter of 2014. The
variance year-on-year was due to lower cash interest and tax
payments due to timing differences, offset by higher capital
expenditure.
Working capital increased by EUR48 million in the first nine
months, broadly in line with 2013 levels. This outflow, which
primarily took place in Europe, resulted from an increase in
debtors and, to a lesser extent, stocks partly offset by an
increase in creditors. The working capital inflow in the third
quarter of 2014 of EUR68 million was in line with that of 2013 and
partly offset the outflow in the half-year to June. At September
2014 working capital amounted to EUR591 million, representing 7.3%
of annualised revenue, compared to 7.7% at the same point in
2013.
Capital expenditure amounted to EUR253 million in the nine
months to September 2014, approximately 86% of depreciation,
compared to 79% in 2013. Capital expenditure in excess of EUR400
million is expected by the year-end in line with the previously
advised strategy of upscaling our capital expenditure
programme.
Cash interest at EUR108 million in the first nine months of
2014, was EUR50 million lower than in 2013.
The Group made tax payments of EUR65 million in the year to
September, EUR6 million lower than the previous year.
2014 Third Quarter & First Nine Months | Capital
Structure
The Group's strong free cash flow of EUR208 million in the third
quarter supported a further reduction of EUR98 million in net debt
to EUR2,578 million at September 2014, the Group's lowest level
since its Initial Public Offering in 2007. Net debt to EBITDA has
decreased to 2.2 times at the end of September from 2.5 times at
the same point in 2013.
On 3 July, the Group completed the refinancing of its EUR500
million 7.75% senior notes due 2019 with a seven-year bond at a
rate of 3.25%, the lowest ever bond coupon achieved by SKG. The
transaction will save an annualised EUR23 million in cash interest
costs, while resulting in associated exceptional finance charges
totalling EUR41 million, composed of cash and non-cash costs, which
have been included in the Group's third quarter results.
SKG's steady programme of debt paydown and refinancing
activities has resulted in a fundamentally strengthened capital
structure through lower financing costs, longer dated debt
maturities and diversified funding sources. At 30 September 2014,
the Group's average interest rate was 3.7%, with an expected cash
interest cost in 2015 of EUR130 million. The average maturity
profile of the Group's debt is 5.0 years, with 90% maturing in 2018
and beyond. Non-bank debt, made up of unsecured corporate bonds and
securitisations, now comprise 70% of the Group's gross debt.
At the end of the third quarter the Group held cash on its
balance sheet of EUR566 million and had further undrawn credit
facilities of approximately EUR481 million. SKG's significant
financial flexibility is further supported by consistent, strong
free cash flows which continue to drive the Group's strategic
agenda.
2014 Third Quarter & First Nine Months | Operating
Efficiency
Commercial Offering and Innovation
Smurfit Kappa has continued with its extensive customer-focused
differentiation initiative. Its global brand strategy was publicly
launched in June 2014, with the announcement of the Group's
commitment to 'Open the future' for its customers. To achieve this,
the Group has continued with the development of its Global
Experience Centre at Schiphol Airport, Amsterdam, due for
completion in the first quarter of 2015. The initiative will be
further enhanced by the opening of local Experience Centres
throughout Europe and the Americas, which will act as satellites to
the central hub in the Netherlands. The Group has opened six
centres to date, with the most recent in Italy in September.
This strategy has strengthened the Group's ability to
communicate with current and potential customers, while providing a
framework to develop strategic partnerships that will be of benefit
to our customers. One such example has been the Group's partnership
with supply-chain engineers ESTL, which facilitates the development
of innovative and cost-effective packaging by brand owners, using a
combination of our supply-chain optimisation tools and ESTL's
rigorous transportation tests. The result ensures products arrive
safely without unnecessary over-packing, reducing costs and
improving efficiencies. A separate successful collaboration with
eye-tracking company EyeSee gives brand owners immediate access to
shopper insights, by way of focus groups, indicating how they view
shelf-ready packaging in-store.
As part of our communications plan a dedicated microsite,
openthefuture.info, has been launched outlining how SKG opens up
opportunities with customers, with stories from around the globe.
In the quarter, the Group launched its first advertising campaign
around "Open the future", which was rolled out across Europe and
the Americas.
Tools to manage the global brand identity have been developed to
drive greater consistency, coherence and efficiency of our
communications in all markets. In addition, initiatives have also
been developed to support greater employee engagement at all levels
in the organisation as well as the implementation of dedicated
leadership programmes. There has been increased integration between
our sales and insights programmes, with training underway to build
a unique customer-facing offering. Customer research, combined with
our insights programme, has resulted in product and service
developments with a focus on opening more opportunities for
customers and potential customers in 2015.
Enhanced Capital Expenditure Programme
In February 2014 the Group announced an enhanced programme of
capital expenditure which would result in total annual internal
investments of approximately EUR420 million. Included in this
programme is a EUR150 million basket of "Quick Win" projects to be
delivered over the three-year period to 2016, which will provide
incremental EBITDA of EUR75 million from 2017 onwards and will be
phased in over the period. To date 47 individual "Quick Win"
projects have commenced with a related expenditure of EUR61
million.
The Group is continuing to invest in its high performing asset
base. In that context it is currently undertaking two significant
projects in its European mill system which will be completed over
the next 18 months. In the UK, the Group will commence production
at its redeveloped Townsend Hook mill in the first quarter of 2015.
The project, which involves a total cost of GBP98 million, will
deliver 250,000 tonnes of containerboard to our integrated UK
operations over a two-year period, greatly enhancing the
profitability of the Group's UK packaging business. In the
Netherlands, the first phase of the upgrade to PM1 in SKG's
Roermond mill is currently in progress with the expected date of
completion being April 2016 and with an expected total cost of
EUR40 million. The project will further increase the level of the
Group's lightweight containerboard production and will continue the
programme of efficiency improvements throughout the mill.
As previously advised, the Group will cease production of 65,000
tonnes of containerboard in its Navarra mill in Spain replacing it
with 30,000 tonnes of higher value machine glazed paper - a grade
in which the mill is already competing successfully on a global
basis.
Rationalisation Programme
The Group has commenced a process of engagement with its Works
Councils and Trade Unions regarding the rationalisation or closure
of a number of plants in Europe in order to maintain the
competitiveness of the business. The plants involved in the process
are the 80,000 tonne Viersen recycled containerboard mill and four
converting plants in France (Ponts et Marais), Sweden (Nybro) and
the North of Germany (Osnabreuck and Hamburg). The closure of a
converting plant in Italy has already taken place earlier in the
quarter.
The process will incur an estimated total charge of EUR50
million, of which EUR15 million was incurred in the third quarter,
with the balance expected in the fourth quarter.
SKG is optimising and driving its geographically diversified
integrated business model through a combination of rationalisations
and investments as appropriate. This series of measures will
further strengthen the quality of its customer offerings, the
integration of its European operations and will reinforce the
Group's value proposition to each of its stakeholder groups.
Cost Take-out Programme
The Group is progressing well with its 2014 cost take-out
programme and is confident of delivering slightly ahead of its
stated year-end target of EUR100 million. In the year to September
the programme has generated cost savings of EUR88 million which, as
in prior periods, is aimed at counteracting inflationary pressures
by improving cost efficiencies in core cost areas such as raw
materials usage, energy efficiency and labour costs.
Sustainability
During the quarter, the Group was included in both the FTSE4Good
Global Index and the FTSE4Good Europe Index following an extensive
application process. The FTSE4Good Index Series measures the
performance of companies demonstrating strong Environmental, Social
and Governance ('ESG') practices, and the successful application is
further evidence of the Group's commitment to the highest standards
of sustainable production and good governance throughout its global
operations.
Capital Markets Day 2015
The Group will host a joint Innovation and Capital Markets Event
in the Netherlands on 15 & 16 April 2015. This event will
commence on 15 April with an innovation exhibition and awards
dinner attended by customers, and will provide attendees with the
opportunity to assess the Group's newest packaging designs and
production processes. This will be followed by a morning with
senior management in the Group's new Global Experience Centre at
Schipol Airport on 16 April.
Investor Relations App Launch
On 3 November, the Group launched its new Investor Relations
App, which provides an easy to use, customisable central resource
of financial and operational information for investors and
analysts. The self-contained web app has been optimised for all
devices using the latest HTML5 technology, and will allow users
quick and easy access to a range of materials including results
information, market analyses and bespoke investor analyst tools.
The app is accessible at investorapp.smurfitkappa.com/.
2014 Third Quarter & First Nine Months | Regional
Performance Review
Europe
European revenue in the first nine months increased by over 3%
to EUR4,615 million with a solid performance throughout the third
quarter in spite of weaker containerboard pricing earlier in the
year. Furthermore, EBITDA margin progression year-on-year reflects
the benefits of the integrated model employed in the region, which
continues to deliver production and distribution efficiencies and
high quality earnings through the cycle despite short-term
containerboard pricing fluctuations.
Notwithstanding increased concern about the European business
environment, the Group saw good volumes throughout the quarter with
2% overall volume growth year-on-year. In the nine months to
September, the Group saw a continuation of previously reported
trends, with a 1% increase in box shipments on a days-adjusted
basis, and a 6% increase in sheet volumes. Volumes have remained
steady in October.
Following some downward pressure in the quarter due primarily to
adjustments in indexed price agreements following lower
containerboard prices in the first half, the Group's average
European corrugated prices decreased by 1% in the third quarter.
However, the containerboard price increases achieved in the quarter
are expected to provide solid support to corrugated prices.
Following a period of inventory build in the first half of the
year, European recycled containerboard inventory levels decreased
to 496,000 tonnes at September 2014 as a result of good demand
levels and industry downtime during the third quarter. Against this
backdrop the Group implemented a EUR30 per tonne price increase on
recycled containerboard in August.
Prices for OCC have continued to remain reasonably steady in
Europe throughout the period despite a 6% reduction in the year to
September in global exports of recovered fibre to most parts of
China. The current price level is supported by incremental demand
in the US and Europe, and some supply reductions through higher
quality thresholds and newsprint capacity closures offsetting
distinctly weaker Chinese import activity.
The Group successfully increased its kraftliner prices by EUR30
per tonne in September which will be an immediate boost to
profitability due to SKG's 500,000 tonne long position in the
grade. The Group has seen 5% higher imports from the US in the year
to August. However, market conditions have remained tight through
2014 and the current price level is also well supported by higher
testliner price levels. The strengthening US dollar relative to the
euro will negatively impact on the competitiveness of US kraftliner
imports.
The Americas
The third quarter results in the Americas include particularly
strong volume progression in the larger markets of Colombia and
Mexico. The operating environment for the Americas business
reflects structural improvements in the domestic economies as well
as a generally improving business environment as the US economy
strengthens. Some currency weakness in the region, particularly in
Venezuela, impacted profitability in the quarter resulting in a
year to date EBITDA margin of 16.3%. However, strong market growth
trends, improving integration with our large international customer
base and accretive acquisitions will continue to support the
business's expansion in the region.
The Group's Colombian operations reported a record corrugated
volume performance in the year to date, with an increase of 11%
year-on-year adjusting for the acquisition of the Corrumed business
in the second quarter. Recent relative currency weakness in the
period is generally supportive of pricing and current inflation at
3% is deemed appropriate to sustain a good rate of growth.
In September, the acquisition of Rierba established SKG as the
number one paper-based packaging producer in the Dominican
Republic.
In Argentina, the business reported lower volumes in the third
quarter against an economic backdrop that remains challenging. The
focus of management is on maintaining profitability through the
implementation of equitable price increases and cost reduction
projects where appropriate. The business remains a relatively small
part of the Group.
The Group's Mexican business reported good EBITDA progression in
the first nine months of the year due primarily to lower converting
costs and higher sales prices. The market has been somewhat slower
than expected in returning to good levels of growth, but economic
indicators continue to suggest a continued, but gradual
recovery.
In the US and Mexico, the Group's SKOC operations continue to
integrate into the existing SKG operations. The business reported
strong demand growth in the US border region, in which the Group
has a number of converting facilities, but bottom-slicing
initiatives completed in the first half and lower than expected
volumes with key customers due to timing and weather issues have
negatively impacted the smaller US packaging business.
The acquisition of Bates Container completed in October for
US$158 million will fundamentally strengthen the business,
completing the integration of the 350,000 tonne recycled
containerboard mill in Dallas and improving the Group's operational
footprint in the region. The business was acquired at a post
synergy EV/EBITDA multiple of 5.25 times with total expected
synergies of US$11.5 million, the majority of which will be
delivered in the first year.
SKG's Venezuelan operations have continued to deliver a robust
operational performance despite a difficult operating environment.
The weakening currency relative to the euro during the quarter has
had a negative impact on the consolidation of the business's
earnings.
Summary Cash Flow
Summary cash flows() 1for 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-14 30-Sep-13 30-Sep-14 30-Sep-13
EURm EURm EURm EURm
Pre-exceptional 302 303 866 815
EBITDA
Exceptional 1 (7) (8) (24)
items
Cash (29) (50) (108) (158)
interest
expense
Working 68 70 (48) (46)
capital
change
Current - (1) (1) (6)
provisions
Capital (100) (81) (253) (218)
expenditure
Change in 5 3 (6) 6
capital
creditors
Tax paid (22) (34) (65) (71)
Sale of 1 1 4 2
fixed
assets
Other (18) (14) (38) (38)
Free cash 208 190 343 262
flow
Share - 1 2 5
issues
Purchase - - (13) (15)
of
own shares
Sale - - 1 -
of
businesses
and
investments
Purchase (11) - (30) (5)
of
businesses
and
investments
Dividends (1) (1) (76) (51)
Early (35) - (35) -
repayment
of bonds
Net cash 161 190 192 196
inflow
Net debt - - - (1)
acquired
Deferred (9) (19) (14) (31)
debt
issue
costs
amortised
Currency (54) 16 (135) (2)
translation
adjustments
Decrease 98 187 43 162
in
net debt
(1) The summary cash flow is prepared on a different basis to the Consolidated Statement of Cash Flows under IFRS ('IFRS cash flow'). The principal differences are as follows:
(a) The summary cash flow details movements in net debt. The IFRS cash flow details movements in cash and cash equivalents.
(b) Free cash flow reconciles to cash generated from operations in the IFRS cash flow as shown below.
(c) The IFRS cash flow has different sub-headings to those used in the summary cash flow.
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Free cash 343 262
flow
Add Cash interest 108 158
back:
Capital expenditure (net of change in capital creditors) 259 212
Tax payments 65 71
Financing activities 1 2
Less: Sale of fixed assets (4) (2)
Profit on sale of assets and businesses - non exceptional (4) (4)
Receipt of capital grants (1) (1)
Dividends received from associates (1) (1)
Non-cash financing activities - (4)
Cash generated from 766 693
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 funding day to day operations,
capital expenditure, debt service, dividends and other investment
activity including acquisitions.
At 30 September 2014, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR158.2 million and STGGBP65 variable
funding notes issued under the EUR240 million accounts receivable
securitisation programme maturing in June 2019 (which replaced the
EUR250 million accounts receivable securitisation programme
maturing in November 2015), together with EUR175 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, EUR250 million senior
floating rate notes due 2020 and EUR500 million 3.25% senior notes
due 2021. Smurfit Kappa Acquisitions and certain subsidiaries are
also party to a senior credit facility. At 30 September 2014, the
Group's senior credit facility comprised term drawings of EUR700.9
million and US$64.4 million under the amortising Term A facility
maturing in 2018. In addition, as at 30 September 2014, the
facility included a EUR625 million revolving credit facility of
which EUR125 million was drawn in revolver loans, with a further
EUR19 million in operational facilities including letters of credit
drawn under various ancillary facilities.
The following table provides the range of interest rates as of
30 September 2014 for each of the drawings under the various senior
credit facility loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term A Facility EUR 2.006% - 2.209%
USD 2.154%
Revolving Credit Facility EUR 1.756%
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 completed a new five-year unsecured
EUR1,375 million refinancing of its senior credit facility
comprising a EUR750 million term loan with a current margin of
2.00% and a EUR625 million revolving credit facility with a current
margin of 1.75%. The term loan is repayable EUR125 million on 24
July 2016, EUR125 million on 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.
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 carries a margin of 1.70%.
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.
On 28 May 2014 the Group priced EUR500 million of seven-year
euro denominated senior unsecured notes at a coupon of 3.25%.
Following the issue of an early redemption notice the net proceeds
together with cash balances of EUR37.5 million were used to redeem
the Group's higher cost 2019 7.75% EUR500 million bonds on 3 July
2014.
Capital Resources (continued)
On 25 June 2014 the Group completed a new five-year trade
receivables securitisation programme of up to EUR240 million
maturing in 2019 utilising the Group's receivables in France, the
United Kingdom and Germany. The new programme, which has a margin
of 1.40%, was used to refinance a similar facility maturing in 2015
which had a margin of 1.50%.
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
2014, the Group had fixed an average of 63% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised 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, EUR500 million 3.25% senior notes due 2021 and
US$292.3 million 7.50% senior debentures due 2025. In addition the
Group had EUR349 million in interest rate swaps with maturity dates
ranging from October 2018 to January 2021.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR/EURIBOR interest rates for these borrowings increase by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR13 million over
the following twelve months. Interest income on the Group's 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.
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 2014 interim report on page 11. 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 exchange controls in Venezuela. Currently,
Venezuela operates a number of alternative exchange mechanisms, the
official CENCOEX rate (VEF 6.3 per US dollar) ('Official rate'),
Sicad I and Sicad II. Contrary to general market expectations, in
January 2014 the Government announced that it would not be
devaluing the Official rate but access to the Official rate would
only be available to certain priority sectors. Those not in these
priority sectors would access dollars through the Sistema
Complementario de Administración de Divisas ('Sicad'). The Group is
awaiting clarification on whether it will be part of the priority
sector, the non-priority sector or both sectors. The most recent
Sicad I rate is VEF 12.0 per US dollar and it is expected that this
rate is likely to vary over time. As set out on page 32, the Group
changed the rate at which it consolidates its Venezuelan operations
('SKCV') from the Official rate to the Sicad I rate as at 31 March
2014 (VEF 10.7 per US dollar). In March 2014 a new foreign exchange
trading platform began operation (Sicad II) which permits foreign
exchange barter transactions in the private sector with the most
recent Sicad II rate being VEF 50.0 per US dollar and this rate is
also likely to vary over time. In this multiple foreign exchange
rate system there is a risk that the Sicad I rate will devalue
further resulting in re-measurement of the local currency
denominated net monetary assets and the local earnings and increase
the cost of importing goods required to run the business.
Consolidated Income Statement - Nine Months
9 months to 30-Sep-14 9 months to 30-Sep-13
Unaudited Unaudited
Pre-exceptional 2014 Exceptional 2014 Total 2014 Pre-exceptional 2013 Exceptional 2013 Total 2013
EURm EURm EURm EURm EURm EURm
Revenue 5,975 - 5,975 5,924 - 5,924
Cost of (4,181) (15) (4,196) (4,196) (9) (4,205)
sales
Gross 1,794 (15) 1,779 1,728 (9) 1,719
profit
Distribution (468) - (468) (468) - (468)
costs
Administrative (767) - (767) (758) - (758)
expenses
Other 1 - 1 2 - 2
operating
income
Other - (9) (9) - (25) (25)
operating
expenses
Operating 560 (24) 536 504 (34) 470
profit
Finance (206) (41) (247) (241) (22) (263)
costs
Finance 22 9 31 15 7 22
income
Share 1 - 1 2 - 2
of
associates'
profit
(after
tax)
Profit 377 (56) 321 280 (49) 231
before
income tax
Income tax (103) (95)
expense
Profit for 218 136
the
financial
period
Attributable
to:
Owners 215 128
of the
parent
Non-controlling 3 8
interests
Profit for 218 136
the
financial
period
Earnings
per
share
Basic 94.2 56.1
earnings
per
share -
cent
Diluted 93.6 55.6
earnings
per share
- cent
Consolidated Income Statement - Third Quarter
3 months to 30-Sep-14 3 months to 30-Sep-13
Unaudited Unaudited
Pre-exceptional 2014 Exceptional 2014 Total 2014 Pre-exceptional 2013 Exceptional 2013 Total 2013
EURm EURm EURm EURm EURm EURm
Revenue 2,027 - 2,027 2,016 - 2,016
Cost of (1,413) (15) (1,428) (1,411) - (1,411)
sales
Gross 614 (15) 599 605 - 605
profit
Distribution (161) - (161) (157) - (157)
costs
Administrative (256) - (256) (252) - (252)
expenses
Other - - - - (1) (1)
operating
expenses
Operating 197 (15) 182 196 (1) 195
profit
Finance (66) (41) (107) (83) (16) (99)
costs
Finance 14 4 18 7 - 7
income
Share - - - 1 - 1
of
associates'
profit
(after
tax)
Profit 145 (52) 93 121 (17) 104
before
income tax
Income tax (18) (45)
expense
Profit for 75 59
the
financial
period
Attributable
to:
Owners 73 55
of the
parent
Non-controlling 2 4
interests
Profit for 75 59
the
financial
period
Earnings
per
share
Basic 31.9 24.0
earnings
per
share -
cent
Diluted 31.7 23.8
earnings
per share
- cent
Consolidated Statement of Comprehensive Income - Nine Months
9 months to 9 months to
30-Sep-14 30-Sep-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 218 136
Other comprehensive income:
Items that may subsequently be
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (182) (243)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 10 13
- New fair value adjustments into reserve (25) (2)
- Movement in deferred tax - (2)
(197) (234)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (92) (22)
- Movement in deferred tax 13 2
(79) (20)
Total other comprehensive expense (276) (254)
Total comprehensive expense (58) (118)
for the financial period
Attributable to:
Owners of the parent (44) (94)
Non-controlling interests (14) (24)
Total comprehensive expense (58) (118)
for the financial period
Consolidated Statement of Comprehensive Income - Third
Quarter
3 months to 3 months to
30-Sep-14 30-Sep-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 75 59
Other comprehensive income:
Items that may subsequently be
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period 27 (31)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve - (1)
- New fair value adjustments into reserve (1) 2
- Movement in deferred tax - (1)
26 (31)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (45) (14)
- Movement in deferred tax 6 -
(39) (14)
Total other comprehensive expense (13) (45)
Total comprehensive income 62 14
for the financial period
Attributable to:
Owners of the parent 60 15
Non-controlling interests 2 (1)
Total comprehensive income 62 14
for the financial period
Consolidated Balance Sheet
*Restated
30-Sep-14 30-Sep-13 31-Dec-13
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 2,996 2,965 3,022
Goodwill and intangible assets 2,329 2,310 2,326
Available-for-sale financial assets 27 33 27
Investment in associates 17 16 16
Biological assets 95 109 107
Trade and other receivables 11 5 5
Derivative financial instruments - - 1
Deferred income tax assets 203 179 203
5,678 5,617 5,707
Current assets
Inventories 724 716 712
Biological assets 10 10 10
Trade and other receivables 1,501 1,497 1,344
Derivative financial instruments 1 7 4
Restricted cash 11 10 8
Cash and cash equivalents 555 684 447
2,802 2,924 2,525
Total assets 8,480 8,541 8,232
EQUITY
Capital and reserves attributable
to the owners of the parent
Equity share capital - - -
Share premium 1,981 1,977 1,979
Other reserves 29 246 208
Retained earnings 310 15 121
Total equity attributable to 2,320 2,238 2,308
the owners of the parent
Non-controlling interests 197 197 199
Total equity 2,517 2,435 2,507
LIABILITIES
Non-current liabilities
Borrowings 3,096 3,235 3,009
Employee benefits 774 736 713
Derivative financial instruments 40 68 59
Deferred income tax liabilities 188 225 214
Non-current income tax liabilities 25 15 17
Provisions for liabilities and charges 50 49 42
Capital grants 11 11 12
Other payables 9 10 9
4,193 4,349 4,075
Current liabilities
Borrowings 48 89 67
Trade and other payables 1,645 1,598 1,525
Current income tax liabilities 33 19 11
Derivative financial instruments 30 37 33
Provisions for liabilities and charges 14 14 14
1,770 1,757 1,650
Total liabilities 5,963 6,106 5,725
Total equity and liabilities 8,480 8,541 8,232
*Details of restatement are
set out in Note 15.
Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Equity share capital Share premium Other reserves Retained earnings Total Non-controlling Total equity
interests
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At - 1,979 208 121 2,308 199 2,507
1 January
2014
Profit for - - - 215 215 3 218
the
financial
period
Other
comprehensive
income
Foreign - - (165) - (165) (17) (182)
currency
translation
adjustments
Defined - - - (79) (79) - (79)
benefit
pension
plans
Effective - - (15) - (15) - (15)
portion
of changes
in
fair value
of cash
flow hedges
Total - - (180) 136 (44) (14) (58)
comprehensive
(expense)/income
for
the
financial
period
Shares - 2 - - 2 - 2
issued
Hyperinflation - - - 124 124 15 139
adjustment
Dividends - - - (71) (71) (5) (76)
paid
Share-based - - 14 - 14 - 14
payment
Shares - - (13) - (13) - (13)
acquired
by
SKG
Employee
Trust
Acquired - - - - - 2 2
non-controlling
interest
At - 1,981 29 310 2,320 197 2,517
30
September
2014
At - 1,972 444 (159) 2,257 212 2,469
1 January
2013
Profit for - - - 128 128 8 136
the
financial
period
Other
comprehensive
income
Foreign - - (211) - (211) (32) (243)
currency
translation
adjustments
Defined - - - (20) (20) - (20)
benefit
pension
plans
Effective - - 9 - 9 - 9
portion
of changes
in
fair value
of cash
flow hedges
Total - - (202) 108 (94) (24) (118)
comprehensive
(expense)/income
for
the
financial
period
Shares - 5 - - 5 - 5
issued
Hyperinflation - - - 113 113 13 126
adjustment
Dividends - - - (47) (47) (4) (51)
paid
Share-based - - 19 - 19 - 19
payment
Shares - - (15) - (15) - (15)
acquired
by
SKG
Employee
Trust
At - 1,977 246 15 2,238 197 2,435
30
September
2013
An analysis
of the
movements
in Other
reserves is
provided
in Note
13.
Consolidated Statement of Cash Flows
9 months to 9 months to
30-Sep-14 30-Sep-13
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 321 231
Net finance costs 216 241
Depreciation charge 246 256
Impairment of property, plant and equipment 15 9
Amortisation of intangible assets 20 17
Amortisation of capital grants (1) (2)
Share-based payment expense 14 19
Profit on purchase/sale of (4) (5)
assets and businesses
Share of associates' profit (after tax) (1) (2)
Net movement in working capital (47) (47)
Change in biological assets 26 19
Change in employee benefits (47) (39)
and other provisions
Other 8 (4)
Cash generated from operations 766 693
Interest paid (167) (170)
Income taxes paid:
Irish corporation tax (net (1) (2)
of tax refunds) paid
Overseas corporation tax (net (64) (69)
of tax refunds) paid
Net cash inflow from operating activities 534 452
Cash flows from investing activities
Interest received 4 4
Additions to property, plant and (249) (207)
equipment and biological assets
Additions to intangible assets (10) (5)
Receipt of capital grants 1 1
Disposal of available-for-sale 1 -
financial assets
(Increase)/decrease in restricted cash (4) 5
Disposal of property, plant and equipment 8 6
Dividends received from associates 1 1
Purchase of subsidiaries and (29) (2)
non-controlling interests
Deferred consideration paid (1) (4)
Net cash outflow from investing activities (278) (201)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 2 5
Proceeds from bond issue 500 400
Purchase of own shares (13) (15)
Increase in other interest-bearing 25 85
borrowings
Payment of finance leases (1) (4)
Repayment of borrowings (484) (382)
Deferred debt issue costs (9) (24)
Dividends paid to shareholders (71) (47)
Dividends paid to non-controlling interests (5) (4)
Net cash (outflow)/inflow from (56) 14
financing activities
Increase in cash and cash equivalents 200 265
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 424 423
Currency translation adjustment (83) (26)
Increase in cash and cash equivalents 200 265
Cash and cash equivalents at 30 September 541 662
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 and adopted by the European Union; and, in accordance with
Irish law.
The condensed Group interim 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 Reporting, ('IAS 34').
Accordingly the Group has not prepared this financial information
in accordance with IAS 34.
The condensed Group interim 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 2013 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 condensed Group interim financial
information are consistent with those described and applied in the
Annual Report for the financial year ended 31 December 2013.
There are a number of changes to IFRS issued and effective from
1 January 2014 which include IFRS 10, Consolidated Financial
Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of
Interests in Other Entities, IAS 27, Separate Financial Statements,
and IAS 28, Investments in Associates and Joint Ventures. They do
not have an effect on the condensed Group interim financial
information included in this report.
The condensed Group interim 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. Certain tables in this report may
not add precisely due to rounding.
The condensed Group interim 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 2013 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 responsible for assessing performance, allocating
resources and making strategic decisions. The Group has identified
two reportable operating segments: 1) Europe and 2) The
Americas.
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 Smurfit Kappa Orange County ('SKOC').
Inter-segment revenue is not material. No operating segments have
been aggregated for disclosure purposes.
Segment profit is measured based on earnings before interest,
tax, depreciation, amortisation, exceptional items and share-based
payment expense ('EBITDA before exceptional items').
9 months to 30-Sep-14 9 months to 30-Sep-13
Europe The Americas Total Europe The Americas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
Results
Revenue 4,615 1,360 5,975 4,475 1,449 5,924
EBITDA 665 221 886 580 259 839
before
exceptional
items
Segment - (9) (9) (6) (19) (25)
exceptional
items
EBITDA 665 212 877 574 240 814
after
exceptional
items
Unallocated (20) (24)
centre
costs
Share-based (14) (19)
payment
expense
Depreciation (272) (275)
and
depletion
(net)
Amortisation (20) (17)
Impairment (15) (9)
of
assets
Finance (247) (263)
costs
Finance 31 22
income
Share 1 2
of
associates'
profit
(after
tax)
Profit 321 231
before
income
tax
Income (103) (95)
tax
expense
Profit 218 136
for
the
financial
period
3.Segmental Analyses (continued)
3 months to 30-Sep-14 3 months to 30-Sep-13
Europe The Americas Total Europe The Americas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
Results
Revenue 1,556 471 2,027 1,519 497 2,016
EBITDA 244 66 310 209 98 307
before
exceptional
items
Segment - - - - (1) (1)
exceptional
items
EBITDA 244 66 310 209 97 306
after
exceptional
items
Unallocated (8) (4)
centre
costs
Share-based (7) (7)
payment
expense
Depreciation (92) (94)
and
depletion
(net)
Amortisation (6) (6)
Impairment (15) -
of
assets
Finance (107) (99)
costs
Finance 18 7
income
Share - 1
of
associates'
profit
(after
tax)
Profit 93 104
before
income
tax
Income (18) (45)
tax
expense
Profit 75 59
for
the
financial
period
4.Exceptional Items
9 months to 9 months to
The following items are regarded 30-Sep-14 30-Sep-13
as exceptional in nature:
EURm EURm
Currency trading loss on change 9 16
in Venezuelan translation rate
Impairment loss on property, 15 9
plant and equipment
Reorganisation and restructuring costs - 9
Exceptional items included 24 34
in operating profit
Exceptional finance costs 41 22
Exceptional finance income (9) (7)
Exceptional items included 32 15
in net finance costs
Exceptional items charged within operating profit in the nine
months to September 2014 amounted to EUR24 million, EUR15 million
of which related to the impairment of the assets in five plants
which may be subject to closure in the fourth quarter. The currency
trading loss of EUR9 million related to losses on the translation
of non-Bolivar denominated payables following the Group's decision
to translate Venezuelan operations at the Sicad I rate. The
translation loss reflected the higher cost to its Venezuelan
operations of discharging these payables.
Exceptional finance costs in the nine months to September 2014
of EUR41 million arose as a result of the repayment of the 2019
bonds. The charge comprised a redemption premium of EUR33 million
and over EUR6 million and EUR2 million respectively for the
accelerated amortisation of the debt issue costs relating to the
bonds and the accelerated unwinding of the original discount.
Exceptional finance income in the nine months to September 2014
amounted to EUR9 million and represented a gain of EUR7 million in
Venezuela on the retranslation of the US dollar denominated
intra-group loans to the Sicad I rate and an additional EUR2
million due to its subsequent adjustment for hyperinflation and
re-translation.
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 EUR3 million of reorganisation costs related to
the restructuring of SKOC and 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.
Exceptional finance costs in the nine months to 30 September
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.
5.Finance Costs and Income
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 35 56
Interest payable on other borrowings 83 114
Exceptional finance costs associated 41 22
with debt restructuring
Unwinding discount element of provision 1 1
Foreign currency translation loss on debt 17 4
Fair value loss on derivatives 2 5
not designated as hedges
Net interest cost on net pension liability 20 20
Net monetary loss - hyperinflation 48 41
Total finance costs 247 263
Finance income:
Other interest receivable (4) (4)
Gain on sale of financial asset (1) -
Foreign currency translation gain on debt (3) (8)
Exceptional foreign currency translation gain (9) (7)
Fair value gain on derivatives (14) (3)
not designated as hedges
Total finance income (31) (22)
Net finance costs 216 241
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Current tax:
Europe 59 36
The Americas 41 49
100 85
Deferred tax 3 10
Income tax expense 103 95
Current tax is analysed as follows:
Ireland 2 4
Foreign 98 81
100 85
Income tax recognised in the Consolidated Statement of
Comprehensive Income
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Arising on actuarial loss (13) (2)
on defined benefit plans
Arising on qualifying derivative - 2
cash flow hedges
(13) -
The tax expense in the first nine months is EUR8 million higher
than in the comparable period. This is largely explained by higher
earnings and the geographical mix of those earnings. The income tax
expense in Europe is higher by EUR21 million which is offset by a
EUR13 million reduction in the Americas.
The movement in the deferred tax expense includes the impact of
non-recurring benefits on previously unrecognised losses in 2013.
This is offset by positive benefits in the Americas from timing
differences and planning, together with a positive effect in Europe
arising from the fact that the Group has fully utilised its losses
in Sweden in 2013. In 2014 the tax expense for Sweden is therefore
recorded in current tax. There also is a higher tax benefit in 2014
associated with exceptional items.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Current service cost 37 39
Past service cost (4) 1
Gain on settlement (6) -
Net interest cost on net pension liability 20 20
Defined benefit cost 47 60
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR27 million (2013: EUR40
million). Net interest cost on net pension liability of EUR20
million (2013: EUR20 million) is included in finance costs in the
Consolidated Income Statement.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
30-Sep-14 31-Dec-13
EURm EURm
Present value of funded or partially (2,074) (1,851)
funded obligations
Fair value of plan assets 1,816 1,625
Deficit in funded or partially funded plans (258) (226)
Present value of wholly unfunded obligations (516) (487)
Net pension liability (774) (713)
The employee benefits provision has increased from EUR713
million at 31 December 2013 to EUR774 million at 30 September 2014,
mainly as a result of lower Eurozone and Sterling corporate bond
yields.
8.Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to 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-14 30-Sep-13
Profit attributable to owners 215 128
of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Basic earnings per share (cent) 94.2 56.1
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 to 9 months to
30-Sep-14 30-Sep-13
Profit attributable to owners 215 128
of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Potential dilutive ordinary 1 2
shares assumed (million)
Diluted weighted average ordinary 229 231
shares (million)
Diluted earnings per share (cent) 93.6 55.6
Pre-exceptional
9 months to 9 months to
30-Sep-14 30-Sep-13
Profit attributable to owners 215 128
of the parent (EUR million)
Exceptional items included in profit before 56 49
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) (9) (7)
Pre-exceptional profit attributable to 262 170
owners of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Pre-exceptional basic earnings 115.2 74.5
per share (cent)
Diluted weighted average ordinary 229 231
shares (million)
Pre-exceptional diluted earnings 114.5 73.8
per share (cent)
9.Dividends
In May, the final dividend for 2013 of 30.75 cent per share was
paid to the holders of ordinary shares. In October, an interim
dividend for 2014 of 15.375 cent per share was paid to the holders
of ordinary shares.
10.Property, Plant and Equipment
Land and buildings Plant and equipment Total
EURm EURm EURm
Nine months ended 30
September 2014
Opening net book amount 1,107 1,915 3,022
Reclassifications 25 (28) (3)
Additions 2 226 228
Acquisitions - 22 22
Depreciation charge (35) (211) (246)
for the period
Impairments (9) (6) (15)
Retirements and (3) (1) (4)
disposals
Hyperinflation 29 24 53
adjustment
Foreign currency (38) (23) (61)
translation
adjustment
At 30 September 2014 1,078 1,918 2,996
Year ended 31 December 2013
Opening net book amount 1,125 1,979 3,104
Reclassifications 48 (55) (7)
Additions 8 330 338
Acquisitions - 7 7
Depreciation charge for the year (51) (295) (346)
Impairments (2) (7) (9)
Retirements and disposals (1) (2) (3)
Hyperinflation adjustment 41 43 84
Foreign currency translation adjustment (61) (85) (146)
At 31 December 2013 1,107 1,915 3,022
11.Net Movement in Working Capital
9 months to 9 months to
30-Sep-14 30-Sep-13
EURm EURm
Change in inventories (25) (19)
Change in trade and other receivables (182) (130)
Change in trade and other payables 160 102
Net movement in working capital (47) (47)
12.Analysis of Net Debt
30-Sep-14 31-Dec-13
EURm EURm
Unsecured senior credit facility:
Revolving credit facility(1)- interest at 120 119
relevant interbank rate + 1.75%(7)
Facility A term loan(2)- interest at 746 740
relevant interbank rate + 2%(7)
U US$292.3 million 7.50% senior debentures 237 213
due 2025 (including accrued interest)
Bank loans and overdrafts 50 67
Cash (566) (455)
2018 receivables securitisation 173 173
variable funding notes
2019 receivables securitisation 239 203
variable funding notes(3)
2018 senior notes (including accrued interest)(4) 431 414
EUR500 million 7.75% senior notes due 2019 - 495
(including accrued interest)(5)
EUR400 million 4.125% senior notes due 397 401
2020 (including accrued interest)
EUR250 million senior floating rate notes due 248 247
2020 (including accrued interest)(6)
EUR500 million 3.25% senior notes due 2021 498 -
(including accrued interest)(5)
Net debt before finance leases 2,573 2,617
Finance leases 5 4
Net debt including leases 2,578 2,621
(1) Revolving credit facility ('RCF') of EUR625 million (available under
the unsecured senior credit facility) to be repaid in 2018.
(a) Revolver loans - EUR125 million (b) loans and overdrafts
drawn under ancillary facilities - nil and (c) other
operational facilities including letters of credit
drawn under ancillary facilities - EUR19 million.
(2) Facility A term loan ('Facility A') due to be repaid
in certain instalments from 2016 to 2018.
(3) In June 2014, the 2015 securitisation programme was refinanced
with a securitisation programme maturing in 2019.
(4) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(5) On 28 May 2014 the Group priced EUR500 million
of seven-year euro denominated senior
unsecured notes at a coupon of 3.25%. Following
the issue of an early redemption
notice the net proceeds, together with
cash balances of EUR37.5 million,were
used to redeem the Group's 2019 7.75%
EUR500 million bonds on 3 July 2014.
(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 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:
Reverse Cash flow Foreign Share- Own shares Available-
acquisition hedging reserve currency based for-sale Total
reserve translation payment reserve
reserve reserve
EURm EURm EURm EURm EURm EURm EURm
At 575 (15) (456) 131 (28) 1 208
1 January
2014
Other
comprehensive
income
Foreign - - (165) - - - (165)
currency
translation
adjustments
Effective - (15) - - - - (15)
portion
of changes
in
fair value
of cash
flow hedges
Total - (15) (165) - - - (180)
other
comprehensive
expense
Share-based - - - 14 - - 14
payment
Shares - - - - (13) - (13)
acquired
by
SKG
Employee
Trust
Shares - - - (1) 1 - -
granted
to
participants
of the SKG
Employee
Trust
At 575 (30) (621) 144 (40) 1 29
30 September
2014
At 575 (26) (198) 105 (13) 1 444
1 January
2013
Other
comprehensive
income
Foreign - - (211) - - - (211)
currency
translation
adjustments
Effective - 9 - - - - 9
portion
of changes
in
fair value
of cash
flow hedges
Total - 9 (211) - - - (202)
other
comprehensive
income/(expense)
Share-based - - - 19 - - 19
payment
Shares - - - - (15) - (15)
acquired
by
SKG
Employee
Trust
At 575 (17) (409) 124 (28) 1 246
30 September
2013
14.Venezuela
Hyperinflation
As discussed more fully in the 2013 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 an estimate derived
from the most recent published Banco Central de Venezuela's
National Consumer Price Index. The most recent index published
relates to August. The level of and movement in the price index at
September 2014 is estimated as follows:
30-Sep-14 30-Sep-13
Index at period end 719.5 442.3
Movement in period 44.4% 38.7%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR6 million increase
(2013: EUR28 million increase), pre-exceptional EBITDA EUR9 million
decrease (2013: EUR5 million increase) and profit after taxation
EUR79 million decrease (2013: EUR62 million decrease). In 2014, a
net monetary loss of EUR48 million (2013: EUR41 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
(2013: EUR70 million increase).
Exchange Control and Devaluation
As a result of Venezuela operating a number of alternative
currency exchange mechanisms (CENCOEX (formerly known as CADIVI),
Sicad I and Sicad II) the Group continues to assess the appropriate
rate at which to consolidate the results of its Venezuelan
operations. With the introduction of Sicad I and Sicad II,
Venezuela has now become a multiple rate foreign exchange system
with three different official rates. One, the official CENCOEX rate
of VEF 6.3 per US dollar ('Official rate') is a fixed rate for
basic/essential goods. The two remaining rates are variable, Sicad
I for goods excluded from CENCOEX and the Sicad II rate for SMEs
and private individuals.
As a result of the January announcements by the Venezuelan
government that there will be no official devaluation for at least
two years Sicad I is now intended to offer an alternative currency
exchange mechanism to foreign firms operating in Venezuela.
The Group believes that Sicad I is the more appropriate rate for
accounting and consolidation and adopted it for translation from 31
March 2014. The change from the official rate of VEF 6.3 to VEF
10.7 (the SICAD I rate prevailing at date of adoption) reduced our
cash by approximately EUR69 million and our net assets by EUR172
million at that time.
On this basis, in accordance with IFRS, the financial statements
of the Group's operations in Venezuela were translated at 30
September 2014 using the prevailing Sicad I rate of VEF 12.0 per US
dollar and the closing euro/US dollar rate of 1 euro = US$
1.26.
Control
The nationalisation of foreign owned companies or assets by the
Venezuelan government remains a risk. Market value compensation is
either negotiated or arbitrated under applicable laws or treaties
in these cases. However, the amount and timing of such compensation
is necessarily uncertain.
The Group continues to control operations in Venezuela and, as a
result, continues to consolidate all of the results and net assets
of these operations at the period end in accordance with the
requirement of IFRS 10.
In 2014, the Group's operations in Venezuela represented
approximately 5% (2013: 6%) of its total assets and 13% (2013: 15%)
of its net assets. Cumulative foreign translation losses arising on
its net investment in these operations amounting to EUR545 million
(2013: EUR346 million) are included in the foreign exchange
translation reserve.
15.Restatement of Prior Periods
IFRS 3, Business Combinations
As required under IFRS 3, Business Combinations, the
Consolidated Balance Sheet at 30 September 2013 has been restated
for final adjustments to the provisional fair values of the SKOC
acquisition on 30 November 2012. The effects on previously reported
financial information are shown in the table below.
Impact on Financial Statements
Previously reported IFRS 3 Adjustments Restated
EURm EURm EURm
Consolidated Balance
Sheet
At 30 September 2013
Non-current assets
Property, plant 2,937 28 2,965
and equipment
Goodwill and 2,300 10 2,310
intangible
assets
Deferred income 177 2 179
tax assets
Current assets
Inventories 728 (12) 716
Non-current
liabilities
Deferred income tax 201 24 225
liabilities
Other payables 9 1 10
Current liabilities
Trade and other 1,596 2 1,598
payables
Provisions for 13 1 14
liabilities
and charges
Initial goodwill arising on the SKOC acquisition was EUR88
million. The completion of the fair value exercise at the end of
2013 resulted in a EUR36 million reduction of this goodwill, giving
a final amount of EUR52 million.
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 to 3 months to 9 months to 9 months to
30-Sep-14 30-Sep-13 30-Sep-14 30-Sep-13
EURm EURm EURm EURm
Profit for 75 59 218 136
the
financial
period
Income tax 18 45 103 95
expense
Currency - 1 9 16
trading
loss on
change
in Venezuelan
translation
rate
Impairment 15 - 15 9
loss
on property,
plant
and equipment
Reorganisation - - - 9
and
restructuring
costs
Share - (1) (1) (2)
of
associates'
profit (after
tax)
Net finance 89 92 216 241
costs
Share-based 7 7 14 19
payment
expense
Depreciation, 98 100 292 292
depletion
(net)
and
amortisation
EBITDA 302 303 866 815
Supplementary Historical Financial Information
EURm Q3, 2013 Q4, 2013 FY, 2013 Q1, 2014 Q2, 2014 Q3, 2014
Group 3,319 3,346 13,030 3,217 3,289 3,341
and
third
party
revenue
Third 2,016 2,033 7,957 1,932 2,015 2,027
party
revenue
EBITDA 303 291 1,107 269 295 302
EBITDA 15.0% 14.3% 13.9% 13.9% 14.6% 14.9%
margin
Operating 195 173 643 160 194 182
profit
Profit 104 62 294 104 124 93
before
income
tax
Free 190 103 365 59 76 208
cash
flow
Basic 24.0 26.0 82.2 28.8 33.6 31.9
earnings
per
share
-
cent
Weighted 229 229 229 227 228 228
average
number
of
shares
used
in
EPS
calculation
(million)
Net 2,630 2,621 2,621 2,640 2,676 2,578
debt
Net 2.50 2.37 2.37 2.33 2.31 2.23
debt
to
EBITDA
(LTM)
This information is provided by Business Wire
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