TIDMSKG
11 February 2015: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 12 months ending 31
December 2014.
2014 Fourth Quarter & Full Year | Key Financial Performance
Measures
EURm FY2014 FY2013 Change Q42014 Q42013 Change Q32014 Change
Revenue EUR8,083 EUR7,957 2% EUR2,108 EUR2,033 4% EUR2,027 4%
EBITDA EUR1,161 EUR1,107 5% EUR295 EUR291 1% EUR302 (2%)
before
Exceptional
Items
and
Share-based
Payment(1)
EBITDA 14.4% 13.9% 14.0% 14.3% 14.9%
margin
Operating EUR771 EUR679 14% EUR212 EUR175 21% EUR197 8%
Profit
before
Exceptional
Items
Profit EUR378 EUR294 29% EUR58 EUR62 (8%) EUR93 (38%)
before
Income Tax
Basic EPS 105.8 82.2 29% 11.6 26.0 (55%) 31.9 (64%)
(cent)
Pre-exceptional 162.5 114.5 42% 47.3 40.0 18% 51.1 (7%)
Basic
EPS (cent)
Return on 15.0% 13.1% 14.5%
Capital
Employed(2)
Free Cash EUR362 EUR365 (1%) EUR19 EUR103 (81%) EUR208 (91%)
Flow(3)
Net Debt EUR2,759 EUR2,621 5% EUR2,578 7%
Net Debt 2.4x 2.4x 2.2x
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 35.
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 21.
Fourth Quarter and Full Year Key Points
-- Pre-exceptional EPS growth of 42%
-- Progressively improving ROCE to 15.0%
-- Completion of over EUR160 million of acquisitions in 2014 in the US,
Dominican Republic and Colombia
-- Resilient European corrugated volume up 2% year-on-year
-- Final dividend increased by 30% from 30.75 cent to 40.00 cent per share
-- Launch today of EUR250 million senior unsecured notes to reduce Senior
Credit Facility
Performance Review and Outlook
Gary McGann, Smurfit Kappa CEO, commented: "The Group's solid
operating performance through 2014 is strong evidence of the
resilience of our integrated and geographically diverse business
model. As a result we are pleased to report higher returns and good
earnings growth year-on-year in 2014, driven by new business wins,
a continued focus on cost efficiencies, judicious capital
investment and accretive acquisitions. Progress against these
measures has increased our ROCE to 15% and supports the Group's
revised ROCE target of an average of 15% through the cycle.
"In Europe, the Group has reported 2% corrugated volume growth
year-on-year for the full year. Pricing in our end corrugated
market improved by 1% year-on-year and was generally stable at this
level throughout the year in spite of a more volatile pricing
environment for recycled containerboard. The implementation of
containerboard price increases in the third quarter, in particular,
provided good support to corrugated prices at their current
level.
"Following the launch of our 'Open the Future' differentiation
initiative in June, we are working with customers on the
re-evaluation of the impact of Smurfit Kappa's expertise on their
business. To this end the Group released a white paper in December
2014 - Marketing on the shelf: exactly how in control are you? -
demonstrating the impact of packaging in the retail environment and
the powerful marketing opportunities presented by SKG to brand
owners in their retail environments. As the next step in this
process, we will formally launch our 'Point of Purchase' strategy
at our Innovation and Capital Markets Day in April, which will
further enunciate the tangible impact of this process on the
business and our customers.
"SKG's businesses in the Americas performed well with volume
growth and good margins in most countries. The Group's larger Latin
American operations in Colombia and Mexico delivered strong
earnings progression during the year and the growth of our US
footprint has enhanced our exposure to the improving US market. In
Venezuela, economic volatility continues to drive currency
uncertainty which impacted our business in 2014. However, to put
our operations there into context, our 2014 Venezuelan earnings
amounted to approximately 7% of Group EBITDA. Consistent with
previous periods the Group has updated its Principal Risks and
Uncertainties disclosure in relation to Venezuela on page 13.
"The Group outperformed its cost take-out target in 2014 with
the delivery of EUR117 million in cost reduction initiatives during
the year. In 2015, the Group expects to continue to further reduce
its cost base by EUR75 million.
"In recent years, the Group has fundamentally repositioned
itself. SKG is now regarded as a corporate credit in the debt
markets following debt paydown of over EUR600 million and annual
cash interest savings of EUR150 million since 2007. The Group will
preserve its solid credit metrics through the cycle while
continuing to enhance the cost, sustainability and structure of its
capital base where appropriate.
"As a consequence of this process of sustained deleveraging, in
February 2014 the Group announced a strategy to deploy its capital
towards growth opportunities through internal investment, an active
M&A focus and increasing returns to shareholders. We have been
steadily delivering against our objectives.
"Firstly, our targeted programme of high return capital
investments will support organic earnings growth into 2015. In this
context, a number of our 'Quick Win' projects, approved in 2014,
will begin to directly boost EBITDA by EUR18 million in 2015.
"The Group's refurbished 250,000 tonne recycled containerboard
mill in Kent, UK, will commence production in the first quarter of
2015 with an estimated 2015 volume of 150,000 tonnes entering the
market commencing in the second quarter. SKG's 80,000 tonne
testliner mill in Viersen, Germany will cease production in the
first quarter as part of a previously announced rationalisation
programme encompassing the mill and four converting plants across
Europe and this programme will be substantially completed within
the first nine months of 2015. In the fourth quarter, the Group
began a process to potentially dispose of its Solidboard operations
in Belgium, the Netherlands and the UK and an exceptional
impairment charge of EUR46 million has been recognised in the
quarter.
"Secondly, the Group has progressed its acquisition agenda in
2014, completing four accretive acquisitions in the higher growth
Americas region totalling over EUR160 million. In each case the
Group expects returns significantly above its cost of capital and
this disciplined approach will continue to underpin our evaluation
of opportunities in 2015.
"Finally, the Group remains committed to driving returns for our
shareholders, and to that end SKG is increasing its ordinary
dividend by 30%. Furthermore, in the absence of accretive
acquisitions the Group will evaluate alternative uses of capital,
including returns of surplus capital to shareholders. However, our
stated preference is to build durable, long-term value through the
continued delivery of accretive acquisitions in our target markets.
Capital allocation decisions will be taken in the context of
staying within the scope of our Ba1 / BB+ credit rating.
"Looking to 2015, assuming no material dis-improvement in
European economic conditions, we expect to grow the business
through continued superior operating performance, high return
internal investments and targeted acquisitions. The Group expects
to deliver earnings growth, stronger free cash flows, and through
the judicious use of capital to continue to improve returns for our
shareholders."
About Smurfit Kappa
Smurfit Kappa is one of the leading providers of paper-based
packaging solutions in the world, with around 42,000 employees in
approximately 350 production sites across 32 countries and with
revenue of EUR8.1 billion in 2014. We are located in 21 countries
in Europe, and 11 in the Americas. We are the only large-scale
pan-regional player in Latin America.
With our pro-active team we relentlessly use our extensive
experience and expertise, supported by our scale, to open up
opportunities for our customers. We collaborate with forward
thinking customers by sharing superior product knowledge, market
understanding and insights in packaging trends to ensure business
success in their markets. We have an unrivalled portfolio of
paper-packaging solutions, which is constantly updated with our
market-leading innovations. This is enhanced through the benefits
of our integration, with optimal paper design, logistics,
timeliness of service, and our packaging plants sourcing most of
their raw materials from our own paper mills. Our products, which
are 100% renewable and produced sustainably, improve the
environmental footprint of our customers.
smurfitkappa.com
Check out our microsite: openthefuture.info
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 Fourth Quarter & Full Year | Performance Overview
The Group delivered a solid fourth quarter operating performance
with good volume growth across the business and an EBITDA result of
EUR295 million. On a full year basis, the Group delivered strong
free cash flows at EUR362 million, and an improving year-on-year
EBITDA margin of 14.4%. The result further underscores the
relatively stable nature of our integrated business model which
supported consistent earnings and free cash flow delivery in spite
of short-term containerboard price volatility in 2014 in Europe and
currency headwinds in our Americas business.
After a slower than expected first quarter the Group delivered
solid European corrugated volumes throughout the year with a 2%
year-on-year increase for the full year. The fourth quarter was
particularly strong with 3% growth year-on-year on both an absolute
and days adjusted basis. Following some increases in the first
quarter, European corrugated prices were stable through the second
and third quarter, with some weakness into the fourth quarter due
to indexed movements and currency headwinds. Overall corrugated
pricing was on average 1% higher in 2014 when compared to 2013.
In spite of somewhat lower exported volumes into China, European
Old Corrugated Container ('OCC') prices have operated in a tight
band since 2012. Currently announced capacity additions in China,
the US and Europe are expected to underpin incremental demand for
OCC, which continues to support the view that OCC prices will trend
upwards.
Throughout the year demand for recycled containerboard in Europe
has been robust and the supply / demand outlook for the market
remains benign. In spite of this, pricing in the grade was
relatively volatile in the first half of the year as higher than
expected inventories weighed on market sentiment. However, positive
containerboard price progression in the second half provided an
important underpin to corrugated prices.
The Group has recorded a charge for exceptional items of EUR110
million within operating profit in the full year 2014. This
included a non-cash exceptional charge of EUR46 million which was
recorded in the fourth quarter due to the impairment of fixed
assets and goodwill associated with a potential disposal of the
Group's Solidboard operations in Belgium, the Netherlands and the
UK.
In spite of a 7% year-on-year increase in US kraftliner imports
to Europe up to November 2014, the European kraftliner market
remained good throughout 2014, achieving a EUR30 per tonne increase
in September. Currency tailwinds are expected to support further
price initiatives in the first quarter of 2015, and SKG has
announced a EUR40 per tonne increase in kraftliner in the
Mediterranean region effective from 15 March.
In the Americas, our absolute corrugated volumes have increased
by almost 7% year-on-year following a number of acquisitions across
the region. Adjusting for these acquisitions, underlying volumes
increased by 3% year-on-year, with particularly strong performances
in Colombia, Chile, and Northern Mexico. In spite of a resilient
underlying performance in Venezuela, the country's weakening
currency has had a negative impact on the Americas' results in 2014
and the economic environment will remain difficult in 2015.
The Group plans to launch a EUR250 million senior unsecured
notes offering today in order to repay a portion of its Senior
Credit Facility. The transaction will further diversify its funding
structure, and improve its debt maturity profile. A further
announcement will be made as appropriate.
As a result of stronger EBITDA and materially lower cash
interest, offset by higher capital expenditure SKG has delivered
free cash flow of EUR362 million in the full year as forecasted.
This has enabled the Group to maintain its net debt to EBITDA at
2.4 times at the year-end whilst completing over EUR160 million of
acquisitions and delivering progressive improvement to its dividend
payments. On a pro-forma basis for acquisitions completed during
the year, the net debt would be closer to 2.3 times EBITDA.
2014 Fourth Quarter | Financial Performance
At EUR2,108 million, revenue in the fourth quarter of 2014 was
4% higher year-on-year. With the contribution from recent
acquisitions together with net negative currency movements and
hyperinflationary adjustments in the Americas, the year-on-year
increase was driven by underlying revenue growth in both Europe and
the Americas. Compared to the third quarter revenues in the fourth
quarter improved by 4%.
EBITDA increased by 1% in the fourth quarter from EUR291 million
in 2013 to EUR295 million in 2014. Allowing for net currency
movements, hyperinflationary adjustments and the additional
contribution from acquisitions during the period, the underlying
year-on-year move was an increase of EUR18 million, the equivalent
of 6%. This was primarily due to higher earnings in Europe offset
by the impact of marginally lower earnings in the Americas and
higher Group centre costs. Compared to the third quarter of 2014,
EBITDA in the fourth quarter decreased by 2%, mainly as a result of
some adverse European pricing movements during the quarter.
An exceptional charge of EUR86 million within operating profit
in the fourth quarter primarily related to two restructuring
initiatives currently underway in 2015. In the first instance, a
non-cash charge of EUR42 million in the quarter related mainly to
the impairment of fixed assets and goodwill associated with the
potential disposal of the Group's Solidboard operations in Belgium,
the Netherlands and the UK. Additionally, the Group incurred EUR42
million in reorganisation and restructuring costs in the quarter
relating to the closure of five European plants (one mill and four
corrugated plants) in 2015, as previously announced.
Pre-exceptional earnings per share increased year-on-year by 18%
to 47.3 cent for the quarter to December 2014 (2013: 40.0
cent).
2014 Full Year | Financial Performance
For the year to December, revenue increased by EUR126 million
from EUR7,957 million in 2013 to EUR8,083 million in 2014. 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. However, allowing for net negative
currency movements, hyperinflation and acquisitions, the underlying
year-on-year move in revenue was an increase of over 4%, with
higher underlying revenue in both Europe and the Americas.
The Group delivered a second year of strong EBITDA growth in
2014 with a 5% increase from EUR1,107 million in 2013 to EUR1,161
million in 2014. As in the case of the quarter, this mainly
represented strong underlying growth partly offset by negative
currency movements. Allowing for net negative currency movements,
hyperinflation and the contribution from acquisitions, the
underlying year-on-year move was an increase of almost 13%. This
was mainly driven by higher earnings in both Europe and the
Americas.
Exceptional items charged within operating profit in the year to
December 2014 amounted to EUR110 million, comprising over EUR46
million in respect of the potential disposal of our Solidboard
operations in Belgium, the Netherlands and the UK, and EUR54
million as part of the Group's previously announced rationalisation
programme encompassing an 80,000 tonne recycled containerboard mill
and four converting plants across Europe. The remainder related to
a currency trading loss of EUR10 million due to the higher cost to
the Venezuelan operations of discharging their non-Bolivar
denominated payables following our adoption in the first quarter of
the Sicad I rate.
Exceptional items charged within operating profit in 2013
amounted to EUR36 million, approximately EUR15 million of which
related to the temporary closure of the Townsend Hook machines in
July. A further EUR18 million of exceptional items related to a
currency trading loss as a result of the devaluation of the
Venezuelan Bolivar in February 2013. The remaining EUR3 million was
in respect of SK Orange County ('SKOC') reorganisation costs and
the consolidation of the Group's two operations in Juarez in
Mexico.
Operating profit after exceptional items for the year was EUR661
million compared to EUR643 million for 2013, an increase of 3%
(increase of 14% before exceptional items).
The Group's net pre-exceptional finance costs were EUR248
million in 2014, down EUR60 million compared to 2013 as a result of
the benefit of re-financing activities. Exceptional finance costs
in the year to December 2014 amounted to EUR48 million comprising
EUR42 million relating to the repayment of the 2019 bonds in July
and an impairment of financial investments of EUR6 million.
Exceptional finance income amounted to EUR11 million and
represented a gain in Venezuela on US dollar denominated
intra-group loans following our adoption of the Sicad I rate in the
first quarter of 2014.
Exceptional finance costs in the year to December 2013 amounted
to EUR51 million and resulted from the early repayment during the
year of the Senior Credit Facility and the EUR500 million 7.25%
bonds due in 2017. Exceptional finance income in 2013 amounted to
EUR8 million which related entirely to the increased value in US
dollar denominated intra-group loans, following the devaluation of
the Venezuelan Bolivar in February 2013.
Profit before income tax of EUR378 million in 2014 compared to a
profit before income tax of EUR294 million in 2013, an increase of
29% year-on-year. The increase was mainly due to higher
profitability and lower finance costs during the year.
In 2014, the tax expense of EUR126 million is EUR28 million
higher than in 2013 primarily due to increased profitability
year-on-year and the impact of tax credits recognised in 2013.
Adjusting for exceptional items the Group's underlying 2014 tax
rate is approximately 27% compared to 28% in 2013.
Pre-exceptional EPS of 162.5 cent for the full year 2014 was 42%
higher than the 114.5 cent reported in 2013. Basic EPS was 105.8
cent for the full year 2014, compared to 82.2 cent for 2013.
2014 Fourth Quarter & Full Year | Free Cash Flow
The Group reported free cash flow of EUR362 million in 2014,
broadly in line with the EUR365 million reported in 2013. The
result reflects the benefits of materially higher EBITDA and lower
cash interest costs year-on-year, offset by a working capital
outflow and a EUR69 million increase in capital expenditure.
The 2014 cash interest expense of EUR137 million was 31% lower
than the prior year, primarily due to the full year benefit of the
substantial re-financing activity carried out in 2013 and the
re-financing of the 7.75% bonds due 2019 in July 2014.
The Group's working capital outflow of EUR40 million for the
full year resulted in a working capital balance of EUR562 million
at December 2014, EUR26 million higher year-on-year. However, the
proportional increase in the Group's revenues over the period
resulted in a working capital to sales ratio of 6.7% at the
year-end, broadly in line with the prior year level of 6.6%. This
consistent result reflects the Group's commitment to maintaining
its strong financial disciplines as a means to deliver cash to
support its evolving strategic agenda.
Capital expenditure of EUR438 million for the full year 2014
equated to 120% of depreciation. Although slightly ahead of the
Group's guidance of EUR420 million for the year, it is expected to
return to the guided range of approximately EUR420 million per
annum in 2015 and 2016.
Cash tax payments of EUR107 million in 2014 were EUR5 million
lower year-on-year, reflecting the benefit of tax refunds received
during the year. The Group continues to benefit from the
availability of long-term tax losses in Europe to reduce its cash
tax payments. Cash taxes as a percentage of EBITDA remain low at
approximately 9% for the full year 2014.
2014 Fourth Quarter & Full Year | Capital Structure
During 2014 the Group achieved its stated credit rating target
of Ba1 / BB+ / BB+ with the three major credit rating agencies
following a number of years of sustained deleveraging and
re-financing activities. As a result of its fundamentally
strengthened capital structure, the Group has been able to firmly
re-establish its growth objectives subject to the preservation of
its current credit metrics and the availability of suitable and
accretive acquisitions.
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. Today,
the Group is launching a EUR250 million senior unsecured notes
issue to reduce its Senior Credit Facility and extend its debt
maturity profile. Further details will be announced as
appropriate.
At 31 December 2014, the Group's average interest rate was 3.8%,
with an expected cash interest cost in 2015 of EUR124 million. The
average maturity profile of the Group's debt is 4.8 years, with
approximately 90% maturing in 2018 and beyond. At the end of the
year the Group held cash on its balance sheet of EUR399 million and
had further undrawn credit facilities of approximately EUR502
million.
The Group's strong free cash flow of EUR362 million enabled it
to maintain its net debt to EBITDA at 2.4 times at the end of 2014,
in spite of EUR69 million in incremental capital expenditure
year-on-year, over EUR160 million in acquisitions and a EUR36
million increase in dividends paid in the year. Looking forward,
the Group's integrated operational model and disciplined focus on
driving free cash flow will continue to support the business's
enhanced credit profile while providing the financial flexibility
to pursue growth opportunities as they arise.
2014 Fourth Quarter & Full Year | Dividend Policy
The Group has displayed its commitment to dividend payments
since their reinstatement in 2011 through consecutive significant
increases in 2012 and 2013 of 37% and 50% respectively.
Re-affirming this commitment, and in expectation of continued
earnings growth and strong free cash flow generation in 2015, the
Board is recommending a final dividend of 40 cent per share for
2014, a 30% increase on 2013.
It is proposed to pay the final dividend on 8 May 2015 to all
ordinary shareholders on the share register at the close of
business on 10 April 2015. The interim and final dividends are paid
in October and May in each year in the approximate proportions of
one third to two thirds respectively.
2014 Fourth Quarter & Full Year | Operating Efficiency
Commercial Offering and Innovation
In November 2014, Smurfit Kappa released its first ever white
paper on the topic of Shopper Marketing. Entitled - Marketing on
the shelf: exactly how in control are you? - the report identified
the significant marketing opportunities available to brand owners
in utilising shelf ready and point of purchase marketing to
directly influence shoppers in the retail environment. Up to 76% of
purchasing decisions are made by shoppers at the point of purchase,
and this report has ignited a dialogue with our customers as to how
Smurfit Kappa can unlock value for them, supported by the Group's
innovative technologies such as Shelf-Viewer and 3D Store
Visualiser, and industry expertise.
Building on this white paper and the subsequent engagement with
our customers, the Group will launch its 'Point of Purchase'
strategy at its Innovation and Capital Markets Event in the
Netherlands on 15 and 16 April. The event will also be used to
showcase the Group's most innovative designs and technologies
whilst underscoring the Group's sustainability credentials, an
increasingly impactful competitive advantage with our
customers.
In the fourth quarter, the Group was successful in a number of
international packaging awards notably the 2014 PPI awards in
October and the UK Packaging Awards in December. At the PPI Awards
the Group was recognised for its unique Catcher Board technology
which prevents the migration of mineral hydrocarbons from packaging
into food products. Also at the PPI awards, the Group was awarded
first prize in 'Innovation in Luxury Packaging', for its bag-in-box
design. At the UK Packaging Awards, the Group won two Gold awards
for the 'Resource Efficient Pack of the Year' and 'Supply Chain
Solution of the Year', reflecting our continued focus on
sustainability and supply chain optimisation for our customers.
In December, Smurfit Kappa opened the doors of its latest UK
Experience Centre, in Mold, North Wales. The Centre is equipped
with state-of-the-art technologies and tools, such as a Virtual
Store, Retail Insight Centres, a Shelf Viewer and a full screen
cinema room, and its opening brings to seven the number of such
regional centres in operation across Europe, allowing the company
to offer a localised service that supports businesses based around
these regions. The Group's major customer hub (Global Experience
Centre) located in Schipol Airport in the Netherlands, will be one
of the largest packaging experience centres in the world and is
expected to open in early April.
Cost take-out programme
The Group is pleased to report a continuing cost take-out
performance in the fourth quarter resulting in the delivery of
EUR117 million in incremental cost take-out in 2014, a 17%
outperformance against its original EUR100 million target for the
year. The Group has now achieved EUR714 million in cost savings
since the programme's inception in 2008 and continues to view these
projects as essential in negating inflationary pressures throughout
the supply chain as well as improving its overall financial
performance.
In the latter part of 2014 and into early 2015 we have
experienced a somewhat lower prevailing cost environment and
increasing challenges to maintain the level of a new cost take-out
programme. Notwithstanding that, we are confident of our ability to
achieve the 2015 target of EUR75 million which will maintain the
integrity of our earnings and provide a continuing solid platform
for absolute earnings growth.
Enhanced Capital Expenditure Programme
The Group has made good progress on its three-year programme of
'Quick Win' capital expenditure projects, with almost EUR75 million
of expenditure approved at the end of 2014. The remainder will be
approved over the course of 2015 and 2016 and the projects will
begin to positively impact EBITDA in 2015 by approximately EUR18
million as they enter service. As previously announced the projects
are generally insensitive to volume variations and must satisfy two
key characteristics, a) that their associated internal rates of
return are in excess of 20% and b) that their payback periods are
two years or less.
2014 Fourth Quarter & Full Year | Performance Review
Europe
Fourth quarter EBITDA rose by EUR25 million year-on-year, with
only a modest offsetting impact from currency movements. The
primary driver of the increase year-on-year was higher earnings in
Europe's corrugated operations due to consistently high pricing and
lower average input costs. For the full year the Group's European
segment recorded EBITDA growth of 14% to EUR882 million with net
negative currency movements of EUR7 million partly offset by the
contribution of acquisitions. EBITDA margins decreased somewhat
from the third quarter to 14.3% due to higher recycled
containerboard prices and slightly lower corrugated prices, but
showed good progress year-on-year from 12.8% in the fourth quarter
of 2013.
In volume terms, the Group's packaging operations delivered a
good performance over the course of the year with a 2% increase in
corrugated shipments in the full year and a 3% increase in the
fourth quarter. Box shipments for the full year increased by over
1% and sheet volumes increased by 6% as the Group began to see an
improvement in the profitability of this business. In Europe, box
shipments accounted for 87% of corrugated volumes.
The Group's Pan-European business continues to perform strongly
and is the current main beneficiary of the Group's differentiation
efforts. Volumes for the full year increased by 3%, a solid
outperformance compared to our general volumes and compared to the
market.
Average prices for corrugated packaging increased by 1% for the
full year 2014 compared to 2013 primarily as a result of positive
recycled containerboard momentum entering 2014 and the operation's
capacity to maintain resilient price levels in spite of input price
erosion. In the fourth quarter corrugated prices decreased slightly
with some negative currency movements in Sweden and Russia.
However, these are relatively small parts of the overall
operations.
Due to the integrated nature of the Group's business, OCC
remains its primary raw material and, more broadly, an important
base driver of corrugated pricing in Europe. As a result, OCC
pricing can be an important leading indicator for recycled
containerboard and corrugated prices in periods of price
instability. In 2014, European prices in the grade have remained
within a tight range in spite of lower demand from Chinese players
for the full year. This is indicative of good demand in Europe and
the US and an increasing focus on higher quality materials, which
is expected to support higher OCC prices over the medium-term. SKG
maintains contractual agreements for approximately 75% of its
recovered fibre requirements each year and is at the forefront of
the industry in the area of quality control of fibre receipts at
its mills.
The European recycled containerboard market continues to display
a positive medium-term supply / demand balance with good demand
driven by improving corrugated consumption, and an unchanged supply
outlook to 2017. Assuming all announced containerboard capacity
additions commence production as scheduled, the market is still
expected to maintain operating rates above 90% which has
historically supported a positive pricing environment. During 2014,
higher than expected inventories led to some price instability in
the first half. However, due to continuing strong fundamentals
price stability was restored and the market's near-term outlook
remains stable.
The Group's refurbished 250,000 tonne lightweight machine at
Townsend Hook, in the UK, will commence production trials in the
first quarter of 2015, with approximately 150,000 tonnes of
saleable production in 2015, commencing in the second quarter. Also
in the first quarter, the Group will cease production at its 80,000
tonne recycled containerboard mill in Viersen, Germany, as part of
its previously announced rationalisation programme.
In kraftliner, the Group performed well in 2014 with good volume
progression year-on-year and lower than expected wood costs.
However, prices in the grade decreased by approximately 5%
year-on-year following some weakness through the latter stages of
2013 and into early 2014, partly offset by a recovery of EUR30 per
tonne in September 2014. Following two years of consecutive
decreases in the levels of US imports to Europe in 2012 and 2013,
the import levels increased by 7% year-on-year to November. This
trend appears to be weakening towards the end of the year as demand
in the US domestic market recovers and the US dollar
strengthened.
During the year, the Group's global Bag-in-box operations
performed very well, with double digit growth year-on-year in both
bags and taps. The improved performance was driven by a stronger
market demand coupled with the Group's enhanced capacity following
the commencement of production at our new EUR28 million facility in
Ibi, Spain, in July which is already performing ahead of
expectations.
The Americas
The Americas segment delivered a strong underlying performance
with absolute corrugated volume growth of 7% in the full year 2014
and 3% when adjusted for acquisitions. EBITDA decreased
year-on-year by 15% mainly as a result of currency headwinds. The
majority of these negative currency movements were due to the
Group's adoption of the SICAD I rate in the first quarter and its
subsequent weakening in the third quarter. With a considerably
better growth outlook than in developed markets, improving the
Group's exposure to the region remains a key strategic objective
for SKG, and good progress was made in 2014 with over EUR160
million of acquisitions in the region. For the full year 2014, the
Americas accounted for approximately 24% of the Group's revenue and
26% of the Group's EBITDA.
The Group's SKOC operations grew strongly in volume terms
year-on-year with a second consecutive year of double digit growth
in its corrugated plants on the US/Mexican border. SKG's
Californian corrugated operations saw a negative volume impact in
the year, mainly as a result of a persistent drought which
particularly affected some key agricultural customers. The
acquisition of four converting facilities in the fourth quarter has
more than doubled the Group's exposure to the improving US
corrugated packaging market and is expected to deliver good volume,
margin progression and increased integration through 2015.
In Argentina, SKG's operations delivered good EBITDA and margin
progression year-on-year in spite of a significant devaluation in
the first quarter. This was achieved through extensive cost
take-out through our supply chain in the country and strategic
selling initiatives in our end packaging market. While the
operating environment is expected to remain challenging into 2015,
the Group expects further EBITDA progression supported by a
continued emphasis on delivering cost efficiencies.
The Group's Colombian operations delivered a strong volume
performance with an absolute increase of 18% year-on-year. This
included almost 10% of underlying volume growth as a result of a
strong market growth and market share gains, with the remainder
comprising the impact of acquisitions and an exceptional boost
provided by election activities in the country. The weakened
currency in the second half, while slightly impacting profitability
in the period provides a competitive platform for economic growth
in Colombia.
The Mexican central market has been slower to return to growth
than expected, but the Group is well positioned to capitalise on a
general improvement in the economy following targeted investments
in its converting capacities in recent years. The previously
announced re-build of the Group's testliner machine in Mexico City
will deliver an incremental 100,000 tonnes per annum when
complete.
In Venezuela the Group's operations continue to perform well
with a resilient underlying performance in 2014. However, the
country's weakening currency throughout the year has had a negative
impact on profitability while the economic outlook remains
difficult for 2015.
Summary Cash Flow
Summary cash flows(1) for the fourth quarter and twelve
months are set out in the following table.
3 months to 3 months to 12 months to 12 months to
31-Dec-14 31-Dec-13 31-Dec-14 31-Dec-13
EURm EURm EURm EURm
Pre-exceptional 295 291 1,161 1,107
EBITDA
Exceptional items (4) (2) (12) (27)
Cash interest (29) (39) (137) (197)
expense
Working capital 8 74 (40) 28
change
Current (1) - (2) (6)
provisions
Capital (185) (151) (438) (369)
expenditure
Change in capital (2) 4 (8) 10
creditors
Tax paid (42) (41) (107) (112)
Sale of fixed - 1 5 3
assets
Other (21) (34) (60) (72)
Free cash flow 19 103 362 365
Share issues - 2 2 7
Purchase of - - (13) (15)
own shares
Sale - - 1 -
of businesses
and investments
Purchase of (121) (21) (151) (26)
businesses
and investments
Dividends (37) (25) (112) (76)
Derivative (13) (16) (13) (16)
termination
payments
Early repayment - (23) (35) (23)
of bonds
Net (152) 20 41 216
cash
(outflow)/inflow
Net debt acquired - (7) - (8)
Deferred debt (2) (9) (16) (40)
issue
costs amortised
Currency (27) 5 (163) 3
translation
adjustments
(Increase)/decrease (181) 9 (138) 171
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.
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Free cash 362 365
flow
Add Cash interest 137 197
back:
Capital expenditure (net of change in capital creditors) 446 359
Tax payments 107 112
Financing activities 1 3
Less: Sale of fixed assets (5) (3)
Profit on sale of assets and businesses - non exceptional (4) (5)
Receipt of capital grants (3) (2)
Dividends received from associates (1) (1)
Non-cash financing activities - (7)
Cash generated from 1,040 1,018
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 31 December 2014, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR149.9 million and STGGBP68.7 million
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 31 December 2014, the
Group's senior credit facility comprised term drawings of EUR700.9
million and US$60.8 million under the amortising Term A facility
maturing in 2018. In addition, as at 31 December 2014, the facility
included a EUR625 million revolving credit facility of which EUR105
million was drawn in revolver loans, with a further EUR18 million
in operational facilities including letters of credit drawn under
various ancillary facilities.
The following table provides the range of interest rates as of
31 December 2014 for each of the drawings under the various senior
credit facility loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term A Facility EUR 2.022% - 2.088%
USD 2.162%
Revolving Credit Facility EUR 1.774%
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 entered into a new five-year trade
receivables securitisation programme of up to EUR240 million
maturing in 2019 (which amended, restated and extended a EUR250
million facility maturing in 2015 which had a margin of 1.5%)
utilising the Group's receivables in France, the United Kingdom and
Germany. The new programme has a margin of 1.40%.
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 31 December 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 EUR4 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 smurfitkappa.com. The principal risks
and uncertainties for the financial year are summarised below:
-- If the current economic climate were to deteriorate and result in an
increased economic slowdown which was sustained over any
significant
length of time, or the sovereign debt crisis (including its
impact on
the euro) were to reoccur, it could adversely affect the
Group's
financial position and results of operations.
-- The cyclical nature of the packaging industry could result in
overcapacity and consequently threaten the Group's pricing
structure.
-- If operations at any of the Group's facilities (in particular its key
mills) were interrupted for any significant length of time it
could
adversely affect the Group's financial position and results
of
operations.
-- Price fluctuations in raw materials and energy costs could adversely
affect the Group's manufacturing costs.
-- The Group may not be able to attract and retain suitably qualified
employees as required for its business.
-- The Group is subject to a growing number of environmental laws and
regulations, and the cost of compliance or the failure to comply
with
current and future laws and regulations may negatively affect
the
Group's business.
-- The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
-- The Group is exposed to currency exchange rate fluctuations and
currency exchange controls in Argentina.
-- The Group is exposed to potential risks in relation to its Venezuelan
operations which are set out as follows:
The Group is exposed to currency exchange rate fluctuations and
in
addition, to exchange controls in Venezuela. In 2014
Venezuela
operated 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 33, 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 52.1 per US
dollar
and this rate is also likely to vary over time. The Group
believes
that Sicad I is the most appropriate rate for accounting and
consolidation, as it believes that this is the rate at which
the
Group will extract economic benefit, and adopted it for
translation from 31 March 2014. In February 2015 the
government
announced that they would be modifying the exchange mechanisms
by
unifying Sicad I and Sicad II ('Sicad') and bringing in a
third
rate to offset the parallel market rate. They further
announced
that the initial Sicad rate would be VEF 12.0 per US dollar.
In this multiple foreign exchange rate system there is a risk
that
the Sicad rate will devalue 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. In 2014 the Group's operations in Venezuela
represented approximately 7% of the Group's EBITDA and the
Group
estimates that in 2015 assuming the Sicad rate remains at
its
current exchange rate of VEF12.0 per US dollar it would be
within
a range of 5% to 7% of the Group's EBITDA. In addition at 31
December 2014 the Group's net assets in Venezuela were
EUR425
million and its cash balances were EUR84 million. Were the
Sicad
rate to deteriorate during 2015 this would have an adverse
effect
on the Group's results of operations and financial position.
For
example, had Sicad been VEF 52.1 per US dollar at 31
December
2014, the historic Sicad II rate, this would have reduced
the
Groups operations in Venezuela to approximately 2% of the
Group's
pre-exceptional EBITDA. In addition, the effect on the
Group's
balance sheet would have been to reduce its net assets by
approximately EUR327 million and its cash balances by
approximately
EUR64 million.
In 2013, the Venezuelan government announced that companies
could
only seek price increases if they had clearance that their
margins
were within certain guidelines. SKCV is operating within
these
guidelines. There is a risk that if SKCV cannot implement
price
increases in a timely manner to cover the cost of its
increasing
raw material and labour costs as a result of inflation and
the
devaluing currency it would have an adverse effect on its
results
of operations. In this volatile environment the Group continues
to
closely monitor developments, assess evolving business risks
and
actively manage its investments.
The Board regularly monitors all of the above risks and
appropriate actions are taken to mitigate those risks or address
their potential adverse consequences.
Consolidated Income Statement - Twelve Months
12 months to 12 months to 31-Dec-13
31-Dec-14
Unaudited Audited
Pre-exceptional2014 Exceptional2014 Total2014 Pre-exceptional2013 Exceptional2013 Total2013
EURm EURm EURm EURm EURm EURm
Revenue 8,083 - 8,083 7,957 - 7,957
Cost of sales (5,642) (58) (5,700) (5,649) (9) (5,658)
Gross profit 2,441 (58) 2,383 2,308 (9) 2,299
Distribution (630) - (630) (619) - (619)
costs
Administrative (1,042) - (1,042) (1,012) - (1,012)
expenses
Other operating 2 - 2 2 - 2
income
Other operating - (52) (52) - (27) (27)
expenses
Operating 771 (110) 661 679 (36) 643
profit
Finance costs (284) (48) (332) (329) (51) (380)
Finance income 36 11 47 21 8 29
Share 2 - 2 2 - 2
of associates'
profit (after
tax)
Profit before 525 (147) 378 373 (79) 294
income tax
Income tax (126) (98)
expense
Profit for the 252 196
financial year
Attributable
to:
Owners of the 241 188
parent
Non-controlling 11 8
interests
Profit for the 252 196
financial year
Earnings per
share
Basic earnings 105.8 82.2
per
share - cent
Diluted 102.6 80.8
earnings
per share
- cent
Consolidated Income Statement - Fourth Quarter
3 months to 3 months to 31-Dec-13
31-Dec-14
Unaudited Unaudited
Pre-exceptional2014 Exceptional2014 Total2014 Pre-exceptional2013 Exceptional2013 Total2013
EURm EURm EURm EURm EURm EURm
Revenue 2,108 - 2,108 2,033 - 2,033
Cost of sales (1,460) (42) (1,502) (1,453) - (1,453)
Gross profit 648 (42) 606 580 - 580
Distribution (161) - (161) (151) - (151)
costs
Administrative (276) - (276) (255) - (255)
expenses
Other operating 1 - 1 1 - 1
income
Other operating - (44) (44) - (2) (2)
expenses
Operating 212 (86) 126 175 (2) 173
profit
Finance costs (78) (7) (85) (88) (29) (117)
Finance income 14 2 16 5 1 6
Share 1 - 1 - - -
of associates'
profit (after
tax)
Profit before 149 (91) 58 92 (30) 62
income tax
Income tax (24) (3)
expense
Profit for the 34 59
financial
period
Attributable
to:
Owners of the 26 59
parent
Non-controlling 8 -
interests
Profit for the 34 59
financial
period
Earnings per
share
Basic earnings 11.6 26.0
per
share - cent
Diluted 11.3 25.7
earnings
per share
- cent
Consolidated Statement of Comprehensive Income - Twelve
Months
12 months to 12 months to
31-Dec-14 31-Dec-13
Unaudited Audited
EURm EURm
Profit for the financial year 252 196
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the year (265) (293)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 10 17
- New fair value adjustments into reserve (29) (4)
- Movement in deferred tax 1 (2)
(283) (282)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (227) (4)
- Movement in deferred tax 49 2
(178) (2)
Total other comprehensive expense (461) (284)
Total comprehensive expense (209) (88)
for the financial year
Attributable to:
Owners of the parent (188) (61)
Non-controlling interests (21) (27)
Total comprehensive expense (209) (88)
for the financial year
Consolidated Statement of Comprehensive Income - Fourth
Quarter
3 months to 3 months to
31-Dec-14 31-Dec-13
Unaudited Unaudited
EURm EURm
Profit for the financial period 34 59
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (83) (50)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve - 4
- New fair value adjustments into reserve (4) (2)
- Movement in deferred tax 1 -
(86) (48)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (135) 18
- Movement in deferred tax 36 -
(99) 18
Total other comprehensive expense (185) (30)
Total comprehensive (expense)/income (151) 29
for the financial period
Attributable to:
Owners of the parent (144) 32
Non-controlling interests (7) (3)
Total comprehensive (expense)/income (151) 29
for the financial period
Consolidated Balance Sheet
31-Dec-14 31-Dec-13
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,033 3,022
Goodwill and intangible assets 2,407 2,326
Available-for-sale financial assets 21 27
Investment in associates 17 16
Biological assets 130 107
Trade and other receivables 12 5
Derivative financial instruments 2 1
Deferred income tax assets 237 203
5,859 5,707
Current assets
Inventories 701 712
Biological assets 9 10
Trade and other receivables 1,422 1,344
Derivative financial instruments 3 4
Restricted cash 12 8
Cash and cash equivalents 387 447
2,534 2,525
Assets classified as held for sale 92 -
2,626 2,525
Total assets 8,485 8,232
EQUITY
Capital and reserves attributable
to the owners of the parent
Equity share capital - -
Share premium 1,981 1,979
Other reserves (30) 208
Retained earnings 271 121
Total equity attributable to 2,222 2,308
the owners of the parent
Non-controlling interests 197 199
Total equity 2,419 2,507
LIABILITIES
Non-current liabilities
Borrowings 3,093 3,009
Employee benefits 893 713
Derivative financial instruments 23 59
Deferred income tax liabilities 183 214
Non-current income tax liabilities 28 17
Provisions for liabilities and charges 47 42
Capital grants 12 12
Other payables 10 9
4,289 4,075
Current liabilities
Borrowings 65 67
Trade and other payables 1,573 1,525
Current income tax liabilities 12 11
Derivative financial instruments 27 33
Provisions for liabilities and charges 57 14
1,734 1,650
Liabilities associated with assets 43 -
classified as held for sale
1,777 1,650
Total liabilities 6,066 5,725
Total equity and liabilities 8,485 8,232
Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Equitysharecapital Sharepremium Otherreserves Retainedearnings Total Non-controllinginterests Totalequity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2014 - 1,979 208 121 2,308 199 2,507
Profit for the - - - 241 241 11 252
financial year
Other comprehensive
income
Foreign currency - - (233) - (233) (32) (265)
translation
adjustments
Defined benefit - - - (178) (178) - (178)
pension plans
Effective portion - - (18) - (18) - (18)
of changes in
fair value of cash
flow hedges
Total comprehensive - - (251) 63 (188) (21) (209)
(expense)/income
for the financial year
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 194 194 22 216
adjustment
Dividends paid - - - (107) (107) (5) (112)
Share-based payment - - 26 - 26 - 26
Shares acquired by - - (13) - (13) - (13)
SKG Employee Trust
Acquired - - - - - 2 2
non-controlling
interest
At 31 December 2014 - 1,981 (30) 271 2,222 197 2,419
Audited
At 1 January 2013 - 1,972 444 (159) 2,257 212 2,469
Profit for the - - - 188 188 8 196
financial year
Other comprehensive
income
Foreign currency - - (258) - (258) (35) (293)
translation
adjustments
Defined benefit - - - (2) (2) - (2)
pension plans
Effective portion - - 11 - 11 - 11
of changes in
fair value of cash
flow hedges
Total comprehensive - - (247) 186 (61) (27) (88)
(expense)/income
for the financial year
Shares issued - 7 - - 7 - 7
Hyperinflation - - - 164 164 20 184
adjustment
Dividends paid - - - (70) (70) (6) (76)
Share-based payment - - 26 - 26 - 26
Shares acquired by - - (15) - (15) - (15)
SKG Employee Trust
At 31 December 2013 - 1,979 208 121 2,308 199 2,507
An analysis of the movements in Other reserves is provided in
Note 13.
Consolidated Statement of Cash Flows
12 months to 12 months to
31-Dec-14 31-Dec-13
Unaudited Audited
EURm EURm
Cash flows from operating activities
Profit before income tax 378 294
Net finance costs 285 351
Depreciation charge 340 346
Impairment of property, plant and equipment 39 9
Impairment of goodwill 19 -
Amortisation of intangible assets 26 26
Amortisation of capital grants (2) (2)
Share-based payment expense 26 26
Profit on purchase/sale of (4) (6)
assets and businesses
Share of associates' profit (after tax) (2) (2)
Net movement in working capital (37) 24
Change in biological assets (2) 30
Change in employee benefits (30) (62)
and other provisions
Other 4 (16)
Cash generated from operations 1,040 1,018
Interest paid (197) (267)
Income taxes paid:
Irish corporation tax (net (1) (2)
of tax refunds) paid
Overseas corporation tax (net (106) (110)
of tax refunds) paid
Net cash inflow from operating activities 736 639
Cash flows from investing activities
Interest received 6 5
Additions to property, plant and (430) (349)
equipment and biological assets
Additions to intangible assets (16) (9)
Receipt of capital grants 3 2
Disposal of financial assets 1 -
(Increase)/decrease in restricted cash (5) 6
Disposal of property, plant and equipment 9 8
Dividends received from associates 1 1
Purchase of subsidiaries and (149) (25)
non-controlling interests
Deferred consideration paid (1) (5)
Net cash outflow from investing activities (581) (366)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 2 7
Proceeds from bond issue 500 400
Proceeds from other debt issues - 1,050
Purchase of own shares (13) (15)
Increase in other interest-bearing 27 16
borrowings
Payment of finance leases (2) (6)
Repayment of borrowings (507) (1,577)
Derivative termination payments (13) (16)
Deferred debt issue costs (10) (28)
Dividends paid to shareholders (107) (70)
Dividends paid to non-controlling interests (5) (6)
Net cash outflow from financing activities (128) (245)
Increase in cash and cash equivalents 27 28
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 424 423
Currency translation adjustment (90) (27)
Increase in cash and cash equivalents 27 28
Cash and cash equivalents at 31 December 361 424
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 consolidated financial statements of the Group 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 in this report has been prepared in
accordance with the Listing Rules of the Irish Stock Exchange and
with Group accounting policies. Full details of the accounting
policies adopted by the Group are contained in the consolidated
financial statements included in the Group's annual report for the
year ended 31 December 2013 which is available on the Group's
website; 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 year ended 31 December
2013.
There are a number of changes to IFRS issued and effective for
the Group from 1 January 2014. These 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. However, they do not have a material effect on the
Group's reported financial position or performance or they are not
currently relevant for the Group.
The financial information includes all adjustments that
management considers necessary for a fair presentation of such
financial information. All such adjustments are of a normal
recurring nature. Some tables in the financial information may not
add precisely due to rounding.
The financial information presented in this preliminary release
does not constitute 'full group accounts' under 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. The preliminary release was approved by the Board of
Directors. The annual report and accounts will be approved by the
Board of Directors and reported on by the auditors in due course.
The annual accounts reported on by the auditors will not contain
quarterly information. Accordingly, the financial information is
unaudited. Full Group accounts for the year ended 31 December 2013
received an unqualified audit report and have been filed with the
Irish Registrar of Companies.
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').
12 months to 31-Dec-14 12 months to 31-Dec-13
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
Results
Revenue 6,136 1,947 8,083 5,967 1,990 7,957
EBITDA before 882 305 1,187 772 357 1,129
exceptional
items
Segment (42) (10) (52) (6) (21) (27)
exceptional
items
EBITDA after 840 295 1,135 766 336 1,102
exceptional
items
Unallocated (26) (22)
centre
costs
Share-based (26) (26)
payment
expense
Depreciation (338) (376)
and
depletion (net)
Amortisation (26) (26)
Impairment (58) (9)
of assets
Finance costs (332) (380)
Finance income 47 29
Share 2 2
of associates'
profit (after
tax)
Profit before 378 294
income tax
Income tax (126) (98)
expense
Profit for the 252 196
financial year
3.Segmental Analyses (continued)
3 months to 31-Dec-14 3 months to 31-Dec-13
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
Results
Revenue 1,521 587 2,108 1,492 541 2,033
EBITDA before 217 84 301 192 98 290
exceptional
items
Segment (42) (2) (44) - (2) (2)
exceptional
items
EBITDA after 175 82 257 192 96 288
exceptional
items
Unallocated (6) 1
centre
costs
Share-based (12) (6)
payment
expense
Depreciation (65) (101)
and
depletion (net)
Amortisation (6) (9)
Impairment (42) -
of assets
Finance costs (85) (117)
Finance income 16 6
Share 1 -
of associates'
profit (after
tax)
Profit before 58 62
income tax
Income tax (24) (3)
expense
Profit for the 34 59
financial
period
4.Exceptional Items
12 months to 12 months to
The following items are regarded 31-Dec-14 31-Dec-13
as exceptional in nature:
EURm EURm
Impairment of goodwill 19 -
Impairment of property, 39 9
plant and equipment
Currency trading loss on change 10 18
in Venezuelan translation rate
Reorganisation and restructuring costs 42 9
Exceptional items included 110 36
in operating profit
Exceptional finance costs 48 51
Exceptional finance income (11) (8)
Exceptional items included 37 43
in net finance costs
Exceptional items charged within operating profit in 2014
amounted to EUR110 million, of which EUR46 million related to our
Solidboard packaging operations in Belgium, the Netherlands and the
UK. The charge of EUR46 million comprised an impairment of plant
and equipment of EUR27 million and a goodwill impairment of EUR19
million. The remaining impairment charge of EUR12 million relates
to one mill and four corrugated plants in Europe which we plan to
close during the course of 2015. The reorganisation and
restructuring costs were mainly in respect of the planned plant
closures. The currency trading loss of EUR10 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 2014 of EUR48 million comprised
EUR42 million relating to the repayment of the 2019 bonds in July
and an impairment loss of EUR6 million in respect of one of the
Group's unlisted investments. The total of EUR42 million comprised
a redemption premium of EUR33 million and EUR7 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 2014 amounted to EUR11 million and
represented a gain of EUR7 million in Venezuela on their US dollar
denominated intra-group loans following our adoption in the first
quarter of the Sicad I rate and EUR4 million for an adjustment of
the original charge for hyperinflation and re-translation at the
year-end exchange rate.
Exceptional items charged within operating profit in 2013
amounted to EUR36 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 EUR18 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 EUR6 million for hyperinflation and re-translation at
the 31 December 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 2013 comprised a charge of EUR51
million. EUR22 million was in respect of the accelerated
amortisation of debt issue costs relating to the senior credit
facility and EUR29 million in respect of the EUR500 million 7.25%
bonds due in 2017, following their early repayment. In the first
quarter, a charge of EUR6 million was booked following the
repayment of part of the senior credit facility from the proceeds
of January's EUR400 million bond issue with the balance being
booked in the third quarter as a result of the repayment of the
remainder of the facility, following its refinancing. The EUR29
million booked in the fourth quarter related entirely to the
repayment of the 2017 bonds in November and was comprised of the
redemption premium of EUR19 million, the accelerated unwinding of
the unamortised discount of EUR4 million, and EUR6 million in
respect of the accelerated amortisation of debt issue costs.
Exceptional finance income in 2013 amounted to EUR8 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 EUR2 million due to its subsequent
adjustment for hyperinflation and re-translation.
5.Finance Costs and Income
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 45 67
Interest payable on finance leases - 1
and hire purchase contracts
Interest payable on other borrowings 107 147
Exceptional finance costs associated 42 51
with debt restructuring
Unwinding discount element of provisions 1 1
Impairment of financial investments - 5
Exceptional finance costs associated with 6 -
impairment of financial investments
Foreign currency translation loss on debt 23 6
Fair value loss on derivatives 3 8
not designated as hedges
Net interest cost on net pension liability 27 27
Net monetary loss - hyperinflation 78 67
Total finance costs 332 380
Finance income:
Other interest receivable (6) (5)
Gain on sale of financial asset (1) -
Foreign currency translation gain on debt (11) (14)
Exceptional foreign currency translation gain (11) (8)
Fair value gain on derivatives (18) (2)
not designated as hedges
Total finance income (47) (29)
Net finance costs 285 351
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Current tax:
Europe 67 50
The Americas 58 72
125 122
Deferred tax 1 (24)
Income tax expense 126 98
Current tax is analysed as follows:
Ireland 3 6
Foreign 122 116
125 122
Income tax credit recognised in the Consolidated Statement of
Comprehensive Income
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Arising on actuarial loss (49) (2)
on defined benefit plans
Arising on qualifying derivative (1) 2
cash flow hedges
(50) -
The tax expense in 2014 is EUR28 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 EUR32 million which is offset by a EUR4 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. The tax effect of exceptional items in
2014 was EUR18 million compared to EUR5 million in 2013.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the year:
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Current service cost 51 53
Past service cost (5) 3
Gain on curtailment (3) -
Gain on settlement (8) (2)
Actuarial loss arising from other 4 1
long term employee benefits
Net interest cost on net pension liability 27 27
Defined benefit cost 66 82
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR39 million (2013: EUR55
million). Net interest cost on net pension liability of EUR27
million (2013: EUR27 million) is included in finance costs in the
Consolidated Income Statement.
The gain on settlement of EUR8 million was mainly due to a
release of reserves in the Irish defined benefit plan as a result
of an enhanced transfer value exercise for deferred pensioners.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
31-Dec-14 31-Dec-13
EURm EURm
Present value of funded or partially (2,226) (1,851)
funded obligations
Fair value of plan assets 1,889 1,625
Deficit in funded or partially funded plans (337) (226)
Present value of wholly unfunded obligations (556) (487)
Net pension liability (893) (713)
The employee benefits provision has increased from EUR713
million at 31 December 2013 to EUR893 million at 31 December 2014,
mainly as a result of significantly lower Eurozone and Sterling
corporate bond yields which fell by 1.75% in the Eurozone and 1.00%
in the Sterling area.
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 year.
12 months to 12 months to
31-Dec-14 31-Dec-13
Profit attributable to owners 241 188
of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Basic earnings per share (cent) 105.8 82.2
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares which comprise
convertible shares issued under the management equity plan and both
deferred shares held in trust and matching shares issued under the
Deferred Annual Bonus Plan.
12 months to 12 months to
31-Dec-14 31-Dec-13
Profit attributable to owners 241 188
of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Potential dilutive ordinary 7 4
shares assumed (million)
Diluted weighted average ordinary 235 233
shares (million)
Diluted earnings per share (cent) 102.6 80.8
Pre-exceptional
12 months to 12 months to
31-Dec-14 31-Dec-13
Profit attributable to owners 241 188
of the parent (EUR million)
Exceptional items included in profit before 147 79
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) (18) (5)
Pre-exceptional profit attributable to 370 262
owners of the parent (EUR million)
Weighted average number of ordinary 228 229
shares in issue (million)
Pre-exceptional basic earnings 162.5 114.5
per share (cent)
Diluted weighted average ordinary 235 233
shares (million)
Pre-exceptional diluted earnings 157.6 112.7
per share (cent)
9.Dividends
During the year, 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.
The Board is recommending a final dividend of approximately 40
cent per share for 2014 subject to the approval of the shareholders
at the AGM. It is proposed to pay the final dividend on 8 May 2015
to all ordinary shareholders on the share register at the close of
business on 10 April 2015. The interim and final dividends are paid
in October and May in each year in the approximate proportions of
one third to two thirds respectively.
10.Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Year ended 31 December
2014
Opening net book amount 1,107 1,915 3,022
Reclassifications 44 (49) (5)
Assets classified (20) (19) (39)
as held for sale
Additions 9 391 400
Acquisitions 1 49 50
Depreciation charge (48) (292) (340)
for the year
Impairments (5) (34) (39)
Retirements and (3) (1) (4)
disposals
Hyperinflation 45 39 84
adjustment
Foreign currency (51) (45) (96)
translation
adjustment
At 31 December 2014 1,079 1,954 3,033
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 (51) (295) (346)
for the year
Impairments (2) (7) (9)
Retirements and (1) (2) (3)
disposals
Hyperinflation 41 43 84
adjustment
Foreign currency (61) (85) (146)
translation
adjustment
At 31 December 2013 1,107 1,915 3,022
11.Net Movement in Working Capital
12 months to 12 months to
31-Dec-14 31-Dec-13
EURm EURm
Change in inventories (32) (23)
Change in trade and other receivables (113) 5
Change in trade and other payables 108 42
Net movement in working capital (37) 24
12.Analysis of Net Debt
31-Dec-14 31-Dec-13
EURm EURm
Unsecured senior credit facility:
Revolving credit facility(1)- interest at 100 119
relevant interbank rate + 1.75%(7)
Facility A term loan(2)- interest at 745 740
relevant interbank rate + 2%(7)
U US$292.3 million 7.50% senior debentures 242 213
due 2025 (including accrued interest)
Bank loans and overdrafts 65 67
Cash (399) (455)
2018 receivables securitisation 173 173
variable funding notes
2019 receivables securitisation 236 203
variable funding notes(3)
2018 senior notes (including accrued interest)(4) 446 414
EUR500 million 7.75% senior notes due 2019 - 495
(including accrued interest)(5)
EUR400 million 4.125% senior notes due 402 401
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 494 -
(including accrued interest)(5)
Net debt before finance leases 2,752 2,617
Finance leases 7 4
Net debt including leases 2,759 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 - EUR105 million (b) loans and overdrafts
drawn under ancillary facilities - nil and (c) other
operational facilities including letters of credit
drawn under ancillary facilities - EUR18 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:
Reverseacquisitionreserve Cash flowhedgingreserve Foreigncurrencytranslationreserve Share-basedpaymentreserve Ownshares Available-for-salereserve
Total
EURm EURm EURm EURm EURm EURm EURm
At 1 January 2014 575 (15) (456) 131 (28) 1 208
Other comprehensive income
Foreign currency translation - - (233) - - - (233)
adjustments
Effective portion of changes in - (18) - - - - (18)
fair value of cash flow hedges
Total other comprehensive - (18) (233) - - - (251)
expense
Share-based payment - - - 26 - - 26
Shares acquired by - - - - (13) - (13)
SKG Employee Trust
Shares granted to participants - - - (1) 1 - -
of the SKG Employee Trust
At 31 December 2014 575 (33) (689) 156 (40) 1 (30)
At 1 January 2013 575 (26) (198) 105 (13) 1 444
Other comprehensive income
Foreign currency translation - - (258) - - - (258)
adjustments
Effective portion of changes in - 11 - - - - 11
fair value of cash flow hedges
Total other comprehensive - 11 (258) - - - (247)
income/(expense)
Share-based payment - - - 26 - - 26
Shares acquired by - - - - (15) - (15)
SKG Employee Trust
At 31 December 2013 575 (15) (456) 131 (28) 1 208
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 November 2014. The level of and movement in the price
index in the twelve months to December 2014 is estimated as
follows:
31-Dec-14 31-Dec-13
Index at year-end 834.5 498.1
Movement in year 67.5% 56.2%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR88 million increase
(2013: EUR81 million increase), pre-exceptional EBITDA EUR1 million
increase (2013: EUR19 million increase) and profit after taxation
EUR117 million decrease (2013: EUR91 million decrease). In 2014, a
net monetary loss of EUR78 million (2013: EUR67 million loss) was
recorded in the Consolidated Income Statement. The impact on our
net assets and our total equity is an increase of EUR106 million
(2013: EUR104 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 2014 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, as it believes that this is the rate
at which the Group will extract economic benefit, 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 31
December 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$
1.21.
In February 2015 the government announced that they would be
modifying the exchange mechanisms by unifying Sicad I and Sicad II
('Sicad') and bringing in a third rate to offset the parallel
market rate. They further announced that the initial Sicad rate
would be VEF 12.0 per US dollar.
In this multiple foreign exchange rate system there is a risk
that the Sicad rate will devalue 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. In 2014 the Group's operations in Venezuela
represented approximately 7% of the Group's EBITDA and the Group
estimates that in 2015 assuming the Sicad rate remains at its
current exchange rate of VEF12.0 per US dollar it would be within a
range of 5% to 7% of the Group's EBITDA. In addition at 31 December
2014 the Group's net assets in Venezuela were EUR425 million and
its cash balances were EUR84 million. Were the Sicad rate to
deteriorate during 2015 this would have an adverse effect on the
Group's results of operations and financial position. For example,
had Sicad been VEF 52.1 per US dollar at 31 December 2014, the
historic Sicad II rate, this would have reduced the Groups
operations in Venezuela to approximately 2% of the Group's
pre-exceptional EBITDA. In addition, the effect on the Group's
balance sheet would have been to reduce its net assets by
approximately EUR327 million and its cash balances by approximately
EUR64 million.
14.Venezuela (continued)
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 6% (2013: 7%) of its total assets and 18% (2013: 16%)
of its net assets. Cumulative foreign translation losses arising on
its net investment in these operations amounting to EUR535 million
(2013: EUR353 million) are included in the foreign exchange
translation reserve.
15.Business Combinations
The four acquisitions completed by the Group during the year,
together with percentages acquired and completion dates were as
follows:
* Colombia, (66%, 1 May 2014), certain assets of Corrumed
S.A.;
* Dominican Republic, (100%, 4 September 2014), certain assets
of Cartonera Rierba S.A.;
* Brian Thomas, (100%, 24 October 2014), a sheet plant located
in Texas, in the United States; and
* Bates Container LLC ('Bates'), (100%, 24 October 2014), four
packaging plants located in Texas, in the United States.
The initial assignment of fair values to identifiable net assets
acquired has been performed on a provisional basis in respect of
these acquisitions and any amendments to these fair values will be
made within the allowed measurement period permitted by IFRS 3.
The carrying amounts of the Bates assets and liabilities
acquired determined in accordance with IFRS, together with the
adjustments made to those carrying values to arrive at their fair
values, were as follows:
Bates Container LLC Book value Fair valueadjustments Fair Value
EURm EURm EURm
Non-current assets 14 56 70
Current assets 20 1 21
Non-current liabilities - (2) (2)
Current liabilities (11) - (11)
Net assets acquired 23 55 78
Goodwill 45
Consideration 123
Settled by:
Cash 118
Contingent consideration 5
123
As part of the acquisition of Bates, acquisition-related costs
of EUR1 million were incurred and are included within
administrative expenses in the Consolidated Income Statement.
The acquisitions of Corrumed, Rierba and Brian Thomas are
considered to be immaterial to the Group.
No contingent liabilities were recognised on the acquisitions
completed during the year.
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 12 months to 12 months to
31-Dec-14 31-Dec-13 31-Dec-14 31-Dec-13
EURm EURm EURm EURm
Profit for the 34 59 252 196
financial
period
Income tax 24 3 126 98
expense
Currency trading 2 2 10 18
loss on change
in Venezuelan
translation
rate
Reorganisation 42 - 42 9
and
restructuring
costs
Impairment 42 - 58 9
of assets
Share (1) - (2) (2)
of associates'
profit (after
tax)
Net finance costs 69 111 285 351
Share-based 12 6 26 26
payment
expense
Depreciation, 71 110 364 402
depletion
(net)
and amortisation
EBITDA 295 291 1,161 1,107
Supplementary Historical Financial Information
EURm FY, 2013 Q1, 2014 Q2, 2014 Q3, 2014 Q4, 2014 FY, 2014
Group and 13,030 3,217 3,289 3,341 3,459 13,306
third
party
revenue
Third 7,957 1,932 2,015 2,027 2,108 8,083
party
revenue
EBITDA 1,107 269 295 302 295 1,161
EBITDA 13.9% 13.9% 14.6% 14.9% 14.0% 14.4%
margin
Operating 643 160 194 182 126 661
profit
Profit 294 104 124 93 58 378
before
income tax
Free cash 365 59 76 208 19 362
flow
Basic 82.2 28.8 33.6 31.9 11.6 105.8
earnings
per
share -
cent
Weighted 229 227 228 228 228 228
average
number
of shares
used
in
EPS
calculation
(million)
Net debt 2,621 2,640 2,676 2,578 2,759 2,759
Net debt 2.37 2.33 2.31 2.23 2.38 2.38
to
EBITDA
(LTM)
This information is provided by Business Wire
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