TIDMSKG
4 November 2015: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 9 months ending 30
September 2015.
2015 Third Quarter & First Nine Months | Key Financial
Performance Measures
EURm YTD2015 YTD2014 Change Q32015 Q32014 Change Q22015 Change
Revenue EUR6,020 EUR5,975 1% EUR2,024 EUR2,027 - EUR2,034 -
EBITDA EUR855 EUR866 (1%) EUR305 EUR302 1% EUR285 7%
before
Exceptional
Items
and
Share-based
Payment(1)
EBITDA 14.2% 14.5% 15.0% 14.9% 14.0%
margin
Operating EUR551 EUR560 (2%) EUR202 EUR197 3% EUR183 10%
Profit
before
Exceptional
Items
Profit EUR408 EUR321 27% EUR165 EUR93 77% EUR145 14%
before
Income Tax
Basic EPS 119.7 94.2 27% 46.4 31.9 45% 42.3 10%
(cent)
Pre-exceptional 138.0 115.2 20% 49.2 51.1 (4%) 44.6 10%
Basic
EPS (cent)
Return on 15.0% 14.5% 14.6%
Capital
Employed(2)
Free Cash EUR236 EUR343 (31%) EUR162 EUR208 (22%) EUR49 226%
Flow(3)
Net Debt EUR2,953 EUR2,578 15% EUR3,100 (5%)
Net Debt 2.6x 2.2x 2.7x
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 32.
2) LTM pre-exceptional operating profit plus share of
associates' profit/average capital employed.
3) Free cash flow is set out on page 9. The
IFRS cash flow is set out on page 18.
Third Quarter & First Nine Months Key Points
-- Year to date Group corrugated volume growth of 6% year-on-year with 3%
organic growth in Europe
-- Sequential EBITDA increase of 7% with EBITDA margins improving to 15%
in the third quarter
-- Pre-exceptional Basic EPS growth of 20% year to date
-- Increased Return on Capital Employed of 15%, in line with our target
-- Strong free cash flows reducing net debt and strengthening the Group's
strategic flexibility
-- Based on current operating conditions, 2015 EBITDA is expected to be
in line with market expectations
Performance Review and Outlook
Tony Smurfit, Smurfit Kappa Group CEO, commented: "We are
pleased to report sequential EBITDA growth of 7% and an improvement
in EBITDA margins to 15% in the third quarter of 2015. This
performance reflects improved demand throughout the year alongside
the continued development of our business through effective
investment in our asset base, ongoing integration of acquisitions
and consistent delivery against cost efficiency objectives.
Although the reported EBITDA of EUR855 million in the year to date
has been significantly impacted by the adoption of the variable
Sistema Marginal de Divisas ('Simadi') rate for the consolidation
of our Venezuelan operations, our business when excluding Venezuela
is performing well and delivered EBITDA growth of 5% year-on-year.
Our constant focus on cost reduction and disciplined capital
investment will continue to support our target metric of an average
ROCE of 15% through the cycle.
"The Group's corrugated packaging volumes grew by over 6% in the
year to date and over 5% in the quarter as a result of acquisitions
in both Europe and the Americas combined with good organic growth.
There was some evidence of a slower rate of growth in Europe in the
third quarter when compared to the second quarter. However, organic
growth remains at a solid level, supported by our drive to enhance
the value proposition delivered to our customers. Overall demand
levels remain good, and as a consequence the European
containerboard market remains well balanced. The industry's solid
fundamental outlook and the containerboard price increases
implemented in July will support our current focus on driving
corrugated price recovery.
"In the Americas, our business has operated well with margins
improving through the year despite currency headwinds. Over 80% of
our business in the region is across the three more developed
markets of the US, Mexico and Colombia. We will continue to invest
in this region where we can identify earnings value enhancing
opportunities, as evidenced by our recent acquisition of Sound
Packaging in the US in October 2015.
"The Group's capacity to deliver strong free cash flows expands
our range of strategic and financial options. Our capital
investment projects are progressing well across all our operating
units and our UK mill re-build is now on track. We will continue to
deploy capital to grow the business through internal investment and
acquisitions where we can exceed our ROCE target of 15%, and to
focus on driving higher capital returns for our shareholders.
"Based on current operating conditions, the Group expects to
deliver a full year EBITDA result in line with market expectations.
This result reflects the resilience of Smurfit Kappa's integrated
and geographically diversified business model, and the good
underlying level of growth in the business."
About Smurfit Kappa
Smurfit Kappa is one of the leading providers of paper-based
packaging solutions in the world, with around 43,000 employees in
approximately 350 production sites across 33 countries and with
revenue of EUR8.1 billion in 2014. We are located in 21 countries
in Europe, and 12 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.
Check out our micrositeopenthefuture.info. Follow us on Twitter
at @smurfitkappa and on LinkedIn at 'Smurfit Kappa'.
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
2015 Third Quarter & First Nine Months | Performance
Overview
During the third quarter the Group's EBITDA margin improved
sequentially to 15%, as a result of good operational performances
across most countries and a continued focus on cost reduction. This
solid margin performance despite consistently high input costs
underscores the capacity of the Group to absorb short term price
volatility and generate consistent returns. This has been
demonstrated through the industry cycles and is a product of the
Group's integrated business model and geographic
diversification.
In Europe, organic volumes grew by 2% in the third quarter with
most markets reporting robust levels of growth year-on-year. The
Group's operations in Eastern Europe grew strongly in the third
quarter with double digit growth, while its operations in the
larger western European markets continued to grow well with 5% in
Iberia and 2% in Germany. France was the only large country not to
report higher volumes in the quarter.
The Group's average corrugated pricing in Europe in the third
quarter was maintained at a steady level both sequentially and
year-on-year. However, higher input costs since the second quarter
of the year provide a platform for corrugated price recovery into
2016.
The Group's differentiation programme is gaining tangible
traction with our customers as it demonstrates its ability to add
value across their businesses. A key element within this has been
our roll-out of Experience Centres across Europe, which provide the
facilities, technologies and environment to engage our customers
and address their increasingly complex needs. Our Global Experience
Centre ('GEC') in Amsterdam continues to attract customers to our
business and to the benefits of transacting with SKG, and it has
recorded over 1,000 customer visits since its opening in April
2015. The Group is in the process of rolling out a series of
targeted B2B marketing projects across a number of specific
industries and global markets, with the aim of generating tangible
market quantified leads. The projects will include high impact
direct marketing campaigns coupled with webinar and social media
campaigns, and the insights gained will be applied across our
global network.
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In July 2015, a price increase of EUR30 per tonne was
implemented in European recycled containerboard as a result of the
supportive supply/demand balance in the market which has prevailed
through much of the year alongside significant increases in Old
Corrugated Container ('OCC') prices in the year to date.
The European market for kraftliner has similarly remained tight
throughout 2015. Good demand, as evidenced by an increase of 6% in
SKG's internal shipments in the first nine months of the year, has
been more than sufficient to absorb 7% higher levels of imports
from the US in the year to July and the EUR20 per tonne price
increase achieved in June has further improved profitability in the
grade. SKG's 1.6 million tonne kraftliner system in Europe is well
placed to benefit from these solid fundamentals.
In the Americas, total corrugated volumes increased by 18% in
both the quarter and the year to date, with volume growth in every
country except Venezuela in the nine months to September. While the
Group's Mexican and Colombian businesses are performing strongly in
their local currencies, their consolidated results continue to be
impacted by currency headwinds. Overall, the region reported a
higher EBITDA margin of 17.5% in the third quarter, reflecting good
pricing progress and a solid operational performance. The recently
acquired businesses in the US, Central America and Dominican
Republic are performing well and the Group will achieve its synergy
targets, further enhancing margins over time.
As expected, the Group delivered strong free cash flow in the
third quarter amounting to EUR162 million. As a consequence, net
debt to EBITDA at 2.6 times has been comfortably maintained within
the target range of 2.0 to 3.0 times through the cycle following
materially higher capital outflows in the year to date. Looking
forward, the Group is focused on continuing to drive its earning
capacity, which in turn will support it's delivery of high return
capital investment, accretive acquisitions and dividend growth
while maintaining an efficient capital structure.
2015 Third Quarter | Financial Performance
Revenue in the third quarter decreased by EUR3 million from
EUR2,027 million in 2014 to EUR2,024 million in 2015. Higher
revenues in Europe were more than offset by a reduction in the
Americas, primarily due to the adoption of the Simadi exchange rate
in Venezuela. The underlying year-on-year move in revenue, when
adjusted for net negative currency movements and net acquisitions,
was an increase of EUR71 million, the equivalent of over 3%.
EBITDA for the third quarter of 2015 was EUR305 million, EUR3
million higher than the same period in 2014, with earnings growth
in the Americas partly offset by lower earnings in Europe and
higher Group Centre costs. Allowing for currency movements and net
acquisitions, the underlying year-on-year move in EBITDA was an
increase of EUR12 million, or 4%, with higher earnings in the
Americas partly offset by slightly lower earnings in Europe and
higher Group Centre costs. The increase in Group Centre costs is
primarily due to a EUR7 million charge in respect of an insurance
loss relating to a fire at the Group's Fustelpack plant in Italy,
which has been reflected in the third quarter charge.
Exceptional items charged within operating profit in the third
quarter amounted to EUR7 million, EUR5 million of which represented
the adjustment for hyperinflation on the currency trading loss
incurred in the first quarter in Venezuela. Exceptional items
charged within operating profit in 2014 amounted to EUR15 million
and related to the impairment of assets in the plants included in
the programme of plant rationalisations on-going through 2015.
Basic earnings per share was 46.4 cent for the third quarter of
2015 (2014: 31.9 cent), an increase of 45% year-on-year. Adjusting
for exceptional items, pre-exceptional basic EPS was 49.2 cent
(2014: 51.1 cent), a decrease of 4% year-on-year.
2015 First Nine Months | Financial Performance
Reported revenue for the nine months to September increased by
EUR45 million from EUR5,975 million in 2014 to EUR6,020 million in
2015 with higher revenue in Europe partly offset by a reduction in
the Americas, primarily due to the adoption of the Simadi exchange
rate. As in the case of the quarter, the underlying year-on-year
move in revenue, when adjusted for net negative currency movements
and net acquisitions, was an increase of EUR162 million, the
equivalent of almost 3%.
EBITDA for the nine months to September was EUR11 million lower
at EUR855 million with lower earnings in Europe and the Americas
and higher Group Centre costs. Allowing for currency movements and
net acquisitions, the underlying year-on-year move in EBITDA was an
increase of EUR17 million. EBITDA in the Americas was EUR4 million
lower year-on-year with earnings growth across the region, partly
as a result of acquisitions, more than offset by net negative
currency movements of EUR46 million, inclusive of a EUR52 million
negative impact in Venezuela. Acquisitions increased EBITDA in the
Americas by EUR22 million while the contribution from our recent
acquisitions in Europe was more than offset by the impact of the
disposal of the solidboard operations in the Netherlands, Belgium
and the United Kingdom. The net impact of currency in Europe was
negligible.
The Group has also been impacted in the year to date by a number
of one-off operational issues, particularly the start-up losses
associated with the Group's 240,000 tonne recycled containerboard
mill in Townsend Hook in the United Kingdom and run-down losses
relating to the Group's 2015 European plant rationalisation
programme. The programme was announced in the third quarter of 2014
and comprises the closure of the Group's 80,000 tonne Viersen mill
in Germany in February 2015, and four corrugated plants across
Germany, France and Sweden during the year.
Exceptional items charged within operating profit in the first
nine months of 2015 amounted to EUR54 million, EUR42 million of
which represented the higher cost to the Venezuelan operations of
discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate in March 2015. The remaining EUR12
million charge represented the further impairment of the solidboard
operations held for sale of EUR8 million, reported within cost of
sales in the first quarter, and a loss of EUR4 million booked
mainly in the second quarter on their disposal.
Exceptional items charged within operating profit in the same
period of 2014 amounted to EUR24 million. This included a charge in
the third quarter of EUR15 million which related to the impairment
of assets in the plants included in the previously mentioned
rationalisation process. Additionally, a EUR9 million charge was
booked in relation to losses on the translation of non-Bolivar
denominated payables in Venezuela following the change to the Sicad
I rate in the first quarter of 2014.
Basic earnings per share was 119.7 cent for the first nine
months of 2015 (2014: 94.2 cent), an increase of 27% year-on-year.
Adjusting for exceptional items, pre-exceptional basic EPS was
138.0 cent (2014: 115.2 cent), an increase of 20% year-on-year.
2015 Third Quarter & First Nine Months | Free Cash Flow
Free cash flow amounted to EUR236 million in the first nine
months of 2015 compared to EUR343 million in 2014. The year-on-year
decrease resulted mainly from higher outflows for exceptional
items, working capital, capital expenditure and tax with an
offsetting saving in cash interest. Included in the year to date is
an incremental outflow of EUR51 million in respect of exceptional
items and restructuring charges associated with our European
rationalisation programme. The rationalisation programme will be
completed in 2015, in line with the plan outlined in our third
quarter 2014 press release.
In the third quarter, the Group reported a good free cash flow
of EUR162 million, a decrease of 22% on the third quarter of 2014
and an increase of 226% on the second quarter of 2015. The variance
year-on-year was driven primarily by higher capital expenditure and
tax payments, with an outflow of EUR10 million relating to the
European rationalisation programme.
Working capital increased by EUR64 million in the first nine
months, compared to an increase of EUR48 million in 2014. This
outflow resulted from an increase in debtors and stocks, as a
result of higher revenues and rising containerboard prices, partly
offset by an increase in creditors. At September 2015 working
capital amounted to EUR570 million, EUR21 million lower than at the
same point in 2014, and represented 7.0% of annualised revenue,
compared to 7.3% at the same point in 2014.
Capital expenditure amounted to EUR287 million in the nine
months to September 2015, approximately 105% of depreciation,
compared to 86% in 2014.
Cash interest at EUR91 million in the first nine months of 2015,
was EUR17 million lower than in 2014, reflecting the Group's
substantially lower long-term funding costs despite a higher net
debt position year-on-year.
The Group made tax payments of EUR102 million in the year to
September, EUR37 million higher than 2014 reflecting the impact of
higher profitability and the timing of payments between years.
2015 Third Quarter & First Nine Months | Capital
Structure
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The Group's free cash flow of EUR162 million in the third
quarter was a key driver of the reduction in net debt of EUR147
million in the quarter to EUR2,953 million, and the ratio of net
debt to EBITDA of 2.6 times at September 2015. In comparison to the
same period in 2014, net debt increased by EUR375 million
year-on-year reflecting acquisitions of over EUR300 million in the
last twelve months alongside a higher level of capital expenditure
and a negative currency movement of EUR136 million, primarily as a
result of the adoption of the Simadi rate for our Venezuelan
operations and the strong US dollar. The Group's capital structure
continues to provide considerable financial and strategic
flexibility subject to the stated leverage range of 2.0 to 3.0
times through the cycle and SKG's Ba1 / BB+ credit rating.
During the first quarter, the Group undertook two transactions,
which combined have further reduced our annual cash interest by
EUR3 million and extended our average maturity profile. In
February, the Group issued a EUR250 million ten-year bond at a
coupon of 2.75%, the proceeds of which were used to prepay term
debt under its senior credit facility. This successful bond
financing enabled the Group to amend and extend its senior credit
facility in March at a reduced level of EUR1.1 billion, extend the
maturity date to March 2020 and reduce the margin by 0.65%.
SKG's steady programme of debt paydown and refinancing
activities has fundamentally strengthened its capital structure. At
the end of the quarter, the Group's average interest rate was 3.7%,
down from over 6% as recently as 2012 while the Group's cash
interest cost in 2015 is expected to be EUR125 million compared to
EUR235 million in 2012. The average maturity profile of the Group's
debt is 4.9 years, with the earliest bond maturity dates in
September 2018. At the end of the third quarter the Group held cash
on its balance sheet of EUR271 million and had further undrawn
committed credit facilities of approximately EUR510 million.
2015 Third Quarter & First Nine Months | Operating
Efficiency
Cost Take-out Programme
The Group is confident of delivering in line with its full year
cost take-out target of EUR75 million. In the year to September the
programme has generated cost savings of EUR55 million, with
significant operational efficiencies achieved across key cost areas
such as raw materials usage, energy efficiency and labour
costs.
It is imperative to consistently address inflation pressures in
order to support the Group's earnings growth. Each year the
programme adopts a bottom up approach, achieving savings through
continuous incremental improvements at an individual plant level
across our 350 plus facilities worldwide.
Enhanced Capital Expenditure ('Quick Win') Programme
At September 2015 the Group is more than halfway through its
three-year programme of high return capital investments. As
previously reported, the programme will feature over 100 unique
projects, with a total expenditure of EUR150 million over the
three-year period from 2014 to 2016, and is almost exclusively
focused on driving further operational efficiencies in the
business' fixed cost base minimising exposure to adverse market
dynamics.
While individually the majority of projects are reasonably
small, in aggregate they are expected to generate an incremental
EBITDA of EUR75 million in 2017 and onwards as they come online. By
the end of 2015, the programme is expected to deliver incremental
EBITDA of EUR18 million.
2015 Third Quarter & First Nine Months | Regional
Performance Review
Europe
European revenue in the first nine months increased by 2% to
EUR4,707 million with a solid performance throughout the third
quarter despite increased macro-economic uncertainty. Against that
macro backdrop, continued good demand levels in the quarter reflect
the resilience of the Group's end market in corrugated packaging.
The Group's capacity to deliver improving EBITDA margins at 15.1%
in the quarter in an environment of significantly higher input
costs is evidence of the strength of the Group's integrated
business model.
European corrugated packaging demand has been good in the year
to date at a 4% higher level than 2014, and 3% when adjusted for
acquisitions. The slight reduction in year-on-year growth to 3%
during the third quarter is in line with expectations as the Group
had delivered strong volume growth in the second half of 2014.
Within this, demand for the higher value box volumes, which make up
87% of European volumes, has actually strengthened slightly on the
second quarter and increased year-on-year by over 4% in the third
quarter. In contrast, the Group's more commodity priced sheet
volumes decreased by 8% in the quarter.
Average corrugated prices in the third quarter remained stable
both sequentially and year-on-year. In line with the usual time
lag, containerboard price increases implemented in the third
quarter are expected to support corrugated price recovery into
2016.
The average price for OCC rose steadily by EUR25 per tonne
through the year to a peak in August, and has since moderated
slightly. This steady price increase was driven by robust demand
both in Europe and from Chinese buyers, who have imported 12% more
from Europe year-on-year to July. In recent months, this export led
demand has eased somewhat resulting in a weaker domestic price
environment. However, continued high levels of demand for high
quality OCC is expected to provide a solid underpin to prices at
their current level, which in turn is expected to support current
testliner prices.
The European recycled containerboard market is fundamentally
well balanced, with good demand a constant feature through 2015 and
a limited amount of new supply expected to enter the market until
the second half of 2016. Inventories have been at a low level for
much of the year, and as a result a EUR30 per tonne price increase
was achieved in July. This will in turn provide a platform for
further corrugated price recovery over time.
The market for kraftliner in Europe has also been well balanced
through 2015, with approximately 40,000 additional tonnes imported
from the US in the year to July offset by good demand for the
grade. While concerns surround the introduction of capacity into
the market in 2016, the industry successfully implemented a EUR20
per tonne price increase in June and expects continued demand
growth at least in line with corrugated growth. SKG will remove
65,000 tonnes from the market in the first quarter of 2016 as it
converts its containerboard machine in Navarra, Spain to Machine
Glazed ('MG') paper - a grade in which the mill is already
competing successfully on a global basis.
The Americas
The Group's Americas segment continued to deliver strong volume
progression in the third quarter with 18% growth year-on-year as a
result of a series of acquisitions in the last twelve months and
broad based organic growth across the region. The segment's EBITDA
result at EUR217 million in the year to date, is 2% lower
year-on-year and continues to reflect the negative impact of the
adoption of the Simadi rate for the consolidation of the Group's
Venezuelan operations. However, excluding Venezuela, the segment's
EBITDA increased by 27% and 13% when excluding both Venezuela and
acquisitions, with pricing and cost reduction being successfully
implemented to recover higher input costs and offset currency
headwinds.
In Argentina, the business reported higher volumes in the third
quarter against a difficult economic backdrop. Nevertheless, the
operations in the country which remain a relatively small part of
the Group, have performed well.
The Group's Colombian operations delivered 6% corrugated volume
growth in the year to September, and while price increases are
being implemented, they have been materially offset by further
currency weakness to this point. Inflation rates in the country,
while historically high at approximately 5%, remain supportive of
business growth and the country's manufacturing sector continues to
see the positive impact of the currency depreciation as imported
consumables are increasingly supplanted by domestically produced
goods and export levels increase.
The Group's Mexican operations reported good EBITDA progression
in the first nine months of the year in local currency terms, but
has been impacted by currency headwinds throughout the year. As a
result, the business is actively seeking price increases to offset
higher raw material costs. Volumes in the third quarter were good
with 3% growth year-on-year despite lower activity from some key
customers.
In the US, the Group's Californian operations are showing early
indications of an improved level of demand with a good performance
in September, while the on-going integration of the Bates and Brian
Thomas corrugated businesses in Texas is continuing as expected.
These acquisitions in the fourth quarter of 2014 have added
important geographic diversity to the US operations and expanded
the business' footprint, enabling the Group to further integrate
its 350,000 tonne recycled mill in the state.
In October, the Group announced that it has agreed to acquire
Sound Packaging, a corrugated sheet and box plant located in
Phoenix, Arizona. The transaction will be completed in the fourth
quarter of 2015, and will strengthen the Group's footprint across
the Southern US.
SKG's Venezuelan operations have continued to deliver a robust
operational performance despite a difficult operating environment.
However, following the decision to adopt the Simadi rate for the
consolidation of the business' earnings, the operations have been
reduced to approximately 1% of the Group's EBITDA.
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SKG has built a strong network of businesses across the US and
Latin America, and today, 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.
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-15 30-Sep-14 30-Sep-15 30-Sep-14
EURm EURm EURm EURm
Pre-exceptional 305 302 855 866
EBITDA
Exceptional (5) 1 (40) (8)
items
Cash interest (32) (29) (91) (108)
expense
Working 55 68 (64) (48)
capital
change
Current (10) - (20) (1)
provisions
Capital (118) (100) (287) (253)
expenditure
Change in 15 5 8 (6)
capital
creditors
Tax paid (39) (22) (102) (65)
Sale of fixed - 1 5 4
assets
Other (9) (18) (28) (38)
Free cash flow 162 208 236 343
Share issues 1 - 2 2
Purchase of - - (15) (13)
own shares
Sale (1) - 29 1
of businesses
and
investments
Purchase of (19) (11) (181) (30)
businesses
and
investments
Dividends (1) (1) (98) (76)
Early - (35) - (35)
repayment
of bonds
Derivative - - (2) -
termination
payments
Net 142 161 (29) 192
cash
inflow/(outflow)
Net debt (8) - (21) -
acquired
Deferred debt (2) (9) (8) (14)
issue
costs
amortised
Currency 15 (54) (136) (135)
translation
adjustments
Decrease/(increase) 147 98 (194) 43
in net debt
(1) The summary cash flow is prepared on a different
basis to the Condensed 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-15 30-Sep-14
EURm EURm
Free cash 236 343
flow
Add Cash interest 91 108
back:
Capital expenditure (net of change in capital creditors) 279 259
Tax payments 102 65
Financing activities - 1
Less: Sale of fixed assets (5) (4)
Profit on sale of assets and businesses - non exceptional (2) (4)
Receipt of capital grants (2) (1)
Dividends received from associates (1) (1)
Non-cash financing activities (1) -
Cash generated from 697 766
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 2015, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR157.8 million and STGGBP57.2 million
variable funding notes issued under the EUR240 million accounts
receivable securitisation programme maturing in June 2019, 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, EUR500 million 3.25% senior notes due
2021 and EUR250 million 2.75% senior notes due 2025. Smurfit Kappa
Acquisitions and certain subsidiaries are also party to a senior
credit facility. At 30 September 2015, the Group's senior credit
facility comprised term drawings of EUR450.9 million and US$56.1
million under the amortising Term A facility maturing in 2020. In
addition, as at 30 September 2015, the facility included a EUR625
million revolving credit facility of which EUR105 million was drawn
in revolver loans, with a further EUR10 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 2015 for each of the drawings under the various senior
credit facility loans.
Borrowing arrangement Currency Interest Rate
Term A Facility EUR 1.491% - 1.585%
USD 1.796%
Revolving Credit Facility EUR 1.246%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
In February 2015 the Group issued EUR250 million of ten-year
euro denominated senior notes at a coupon of 2.75%, the proceeds of
which were used to prepay term debt under the senior credit
facility.
Following the success of the bond financing, in March 2015 the
Group completed a transaction to amend and extend the reduced
senior credit facility which incorporated an extension of the
maturity date to March 2020, together with a significant margin
reduction. Under the new terms the amortising Term A facility is
repayable EUR83.3 million on 13 March 2018 (previously EUR125
million on 24 July 2016), EUR83.3 million on 13 March 2019
(previously EUR125 million on 24 July 2017) and EUR333.4 million on
13 March 2020 (previously EUR500 million on 24 July 2018). The
maturity of the EUR625 million Revolving Credit Facility was
extended to 13 March 2020 from 24 July 2018.
Effective on the date of the amendment, the margins applicable
to the senior credit facility were reduced by 0.65% to the
following:
Net debt/EBITDA ratio Revolving CreditFacility Term AFacility
Greater than 3.00 : 1 1.85% 2.10%
3.00 : 1 or less but 1.35% 1.60%
more than 2.50 : 1
2.50 : 1 or less but 1.10% 1.35%
more than 2.00 : 1
2.00 : 1 or less 0.85% 1.10%
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
2015, the Group had fixed an average of 70% 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, EUR250
million 2.75% senior notes due 2025 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 EUR11 million over
the following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR3 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
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The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Condensed
Consolidated
Income
Statement
- Nine
Months
9 months to 30-Sep-15 9 months to 30-Sep-14
Unaudited Unaudited
Pre-exceptional2015 Exceptional2015 Total2015 Pre-exceptional2014 Exceptional2014 Total2014
EURm EURm EURm EURm EURm EURm
Revenue 6,020 - 6,020 5,975 - 5,975
Cost of (4,220) (8) (4,228) (4,181) (15) (4,196)
sales
Gross 1,800 (8) 1,792 1,794 (15) 1,779
profit
Distribution (482) - (482) (468) - (468)
costs
Administrative (768) - (768) (767) - (767)
expenses
Other 1 - 1 1 - 1
operating
income
Other - (46) (46) - (9) (9)
operating
expenses
Operating 551 (54) 497 560 (24) 536
profit
Finance (128) (2) (130) (206) (41) (247)
costs
Finance 26 12 38 22 9 31
income
Share 3 - 3 1 - 1
of
associates'
profit(after
tax)
Profit 452 (44) 408 377 (56) 321
before
income tax
Income tax (126) (103)
expense
Profit for 282 218
the
financial
period
Attributable
to:
Owners 277 215
of the
parent
Non-controlling 5 3
interests
Profit for 282 218
the
financial
period
Earnings
per
share
Basic 119.7 94.2
earnings
per
share -
cent
Diluted 118.2 93.6
earnings
per share
- cent
Condensed
Consolidated
Income
Statement
- Third
Quarter
3 months to 30-Sep-15 3 months to 30-Sep-14
Unaudited Unaudited
Pre-exceptional2015 Exceptional2015 Total2015 Pre-exceptional2014 Exceptional2014 Total2014
EURm EURm EURm EURm EURm EURm
Revenue 2,024 - 2,024 2,027 - 2,027
Cost of (1,417) (1) (1,418) (1,413) (15) (1,428)
sales
Gross 607 (1) 606 614 (15) 599
profit
Distribution (161) - (161) (161) - (161)
costs
Administrative (244) - (244) (256) - (256)
expenses
Other - (6) (6) - - -
operating
expenses
Operating 202 (7) 195 197 (15) 182
profit
Finance (42) - (42) (66) (41) (107)
costs
Finance 10 - 10 14 4 18
income
Share 2 - 2 - - -
of
associates'
profit
(after
tax)
Profit 172 (7) 165 145 (52) 93
before
income tax
Income tax (53) (18)
expense
Profit for 112 75
the
financial
period
Attributable
to:
Owners 108 73
of the
parent
Non-controlling 4 2
interests
Profit for 112 75
the
financial
period
Earnings
per
share
Basic 46.4 31.9
earnings
per
share -
cent
Diluted 45.8 31.7
earnings
per share
- cent
Condensed Consolidated Statement
of Comprehensive
Income - Nine Months
9 months to 9 months to
30-Sep-15 30-Sep-14
Unaudited Unaudited
EURm EURm
Profit for the financial period 282 218
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (505) (182)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 8 10
- New fair value adjustments into reserve 2 (25)
(495) (197)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial gain/(loss) 43 (92)
- Movement in deferred tax (4) 13
39 (79)
Total other comprehensive expense (456) (276)
Total comprehensive expense (174) (58)
for the financial period
Attributable to:
Owners of the parent (112) (44)
Non-controlling interests (62) (14)
Total comprehensive expense (174) (58)
for the financial period
Condensed Consolidated Statement
of Comprehensive
Income - Third Quarter
3 months to 3 months to
30-Sep-15 30-Sep-14
Unaudited Unaudited
EURm EURm
Profit for the financial period 112 75
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (117) 27
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 3 -
- New fair value adjustments into reserve (3) (1)
(117) 26
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (47) (45)
- Movement in deferred tax 10 6
(37) (39)
Total other comprehensive expense (154) (13)
Total comprehensive (expense)/income (42) 62
for the financial period
Attributable to:
Owners of the parent (24) 60
Non-controlling interests (18) 2
Total comprehensive (expense)/income (42) 62
for the financial period
Condensed Consolidated
Balance Sheet
30-Sep-15 30-Sep-14 31-Dec-14
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 2,963 2,996 3,033
Goodwill and intangible assets 2,353 2,329 2,407
Available-for-sale 21 27 21
financial assets
Investment in associates 18 17 17
Biological assets 81 95 130
Trade and other receivables 27 11 12
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Derivative financial instruments 35 - 2
Deferred income tax assets 204 203 237
5,702 5,678 5,859
Current assets
Inventories 726 724 701
Biological assets 8 10 9
Trade and other receivables 1,516 1,501 1,422
Derivative financial instruments 5 1 3
Restricted cash 8 11 12
Cash and cash equivalents 263 555 387
2,526 2,802 2,534
Assets classified - - 92
as held for sale
2,526 2,802 2,626
Total assets 8,228 8,480 8,485
EQUITY
Capital and reserves attributable
to the owners of the parent
Equity share capital - - -
Share premium 1,983 1,981 1,981
Other reserves (446) 29 (30)
Retained earnings 509 310 271
Total equity attributable to 2,046 2,320 2,222
the owners of the parent
Non-controlling interests 135 197 197
Total equity 2,181 2,517 2,419
LIABILITIES
Non-current liabilities
Borrowings 3,138 3,096 3,093
Employee benefits 821 774 893
Derivative financial instruments 17 40 23
Deferred income tax liabilities 133 188 183
Non-current income 22 25 28
tax liabilities
Provisions for liabilities 46 50 47
and charges
Capital grants 13 11 12
Other payables 6 9 10
4,196 4,193 4,289
Current liabilities
Borrowings 86 48 65
Trade and other payables 1,699 1,645 1,573
Current income tax liabilities 23 33 12
Derivative financial instruments 10 30 27
Provisions for liabilities 33 14 57
and charges
1,851 1,770 1,734
Liabilities associated - - 43
with assets
classified as held for sale
1,851 1,770 1,777
Total liabilities 6,047 5,963 6,066
Total equity and liabilities 8,228 8,480 8,485
Condensed 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 2015 - 1,981 (30) 271 2,222 197 2,419
Profit for the - - - 277 277 5 282
financial
period
Other comprehensive
income
Foreign currency - - (438) - (438) (67) (505)
translation
adjustments
Defined benefit - - - 39 39 - 39
pension plans
Effective portion - - 10 - 10 - 10
of changes in
fair value of cash
flow hedges
Total comprehensive - - (428) 316 (112) (62) (174)
(expense)/income
for the financial
period
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 16 16 3 19
adjustment
Dividends paid - - - (94) (94) (4) (98)
Share-based payment - - 27 - 27 - 27
Shares acquired by - - (15) - (15) - (15)
SKG Employee Trust
Acquired - - - - - 1 1
non-controlling
interest
At 30 September 2015 - 1,983 (446) 509 2,046 135 2,181
At 1 January 2014 - 1,979 208 121 2,308 199 2,507
Profit for the - - - 215 215 3 218
financial
period
Other comprehensive
income
Foreign currency - - (165) - (165) (17) (182)
translation
adjustments
Defined benefit - - - (79) (79) - (79)
pension plans
Effective portion - - (15) - (15) - (15)
of changes in
fair value of cash
flow hedges
Total comprehensive - - (180) 136 (44) (14) (58)
(expense)/income
for the financial
period
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 124 124 15 139
adjustment
Dividends paid - - - (71) (71) (5) (76)
Share-based payment - - 14 - 14 - 14
Shares acquired by - - (13) - (13) - (13)
SKG Employee Trust
Acquired - - - - - 2 2
non-controlling
interest
At 30 September 2014 - 1,981 29 310 2,320 197 2,517
An analysis of the movements in Other reserves is provided in
Note 13.
Condensed Consolidated Statement
of Cash Flows
9 months to 9 months to
30-Sep-15 30-Sep-14
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 408 321
Net finance costs 92 216
Depreciation charge 246 246
Impairment of assets 8 15
Amortisation of intangible assets 24 20
Amortisation of capital grants (1) (1)
Equity settled share-based 27 14
payment expense
Loss/(profit) on sale of 2 (4)
assets and businesses
Share of associates' (3) (1)
profit (after tax)
Net movement in working capital (60) (47)
Change in biological assets 3 26
Change in employee benefits (59) (47)
and other provisions
Other 10 8
Cash generated from operations 697 766
Interest paid (97) (167)
Income taxes paid:
Irish corporation tax (net (2) (1)
of tax refunds) paid
Overseas corporation tax (net (100) (64)
of tax refunds) paid
Net cash inflow from 498 534
operating activities
Cash flows from investing activities
Interest received 4 4
Business disposals 30 -
Additions to property, plant and (273) (249)
equipment and biological assets
Additions to intangible assets (6) (10)
Receipt of capital grants 2 1
Disposal of available-for-sale - 1
financial assets
Increase in restricted cash (1) (4)
Disposal of property, 7 8
plant and equipment
Dividends received from associates 1 1
Purchase of subsidiaries and (180) (29)
non-controlling interests
Deferred consideration paid (8) (1)
Net cash outflow from (424) (278)
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investing activities
Cash flows from financing activities
Proceeds from issue of 2 2
new ordinary shares
Proceeds from bond issue 250 500
Purchase of own shares (15) (13)
Increase in other interest-bearing 17 25
borrowings
Payment of finance leases (3) (1)
Repayment of borrowings (258) (484)
Derivative termination payments (2) -
Deferred debt issue costs paid (9) (9)
Dividends paid to shareholders (94) (71)
Dividends paid to non-controlling (4) (5)
interests
Net cash outflow from (116) (56)
financing activities
(Decrease)/increase in cash (42) 200
and cash equivalents
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 361 424
Currency translation adjustment (86) (83)
(Decrease)/increase in cash (42) 200
and cash equivalents
Cash and cash equivalents 233 541
at 30 September
An analysis of the Net movement in working capital is provided
in Note 11.
Notes to the Condensed Consolidated Interim Financial
Statements
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 D04
N2R2, 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 presented in this report has been
prepared to comply with the requirement to publish an 'Interim
management statement' during the second six months of the financial
year in accordance with the Transparency Regulations. The
Transparency Regulations do not require Interim management
statements to be prepared in accordance with International
Accounting Standard 34 - 'Interim Financial Reporting' ('IAS 34').
Accordingly the Group has not prepared this financial information
in accordance with IAS 34.
The financial information has been prepared in accordance with
the Group's accounting policies. Full details of the accounting
policies adopted by the Group are contained in the financial
statements included in the Group's annual report for the year ended
31 December 2014 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
condensed consolidated interim financial statements are consistent
with those described and applied in the annual report for the
financial year ended 31 December 2014. There are no new IFRS
standards effective from 1 January 2015 which have a material
effect on the condensed consolidated interim financial information
included in this report.
The condensed consolidated interim financial statements include
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 interim
statement may not add precisely due to rounding.
The condensed consolidated interim financial statements
presented do not constitute full statutory accounts. Full statutory
accounts for the year ended 31 December 2014 have been filed with
the Irish Registrar of Companies. The audit report on those
statutory 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 United States. 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-15 9 months to 30-Sep-14
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
results
Revenue 4,707 1,313 6,020 4,615 1,360 5,975
EBITDA 663 217 880 665 221 886
before
exceptional
items
Segment (5) (40) (45) - (9) (9)
exceptional
items
EBITDA 658 177 835 665 212 877
after
exceptional
items
Unallocated (25) (20)
centre
costs
Share-based (32) (14)
payment
expense
Depreciation (249) (272)
and
depletion
(net)
Amortisation (24) (20)
Impairment (8) (15)
of
assets
Finance (130) (247)
costs
Finance 38 31
income
Share 3 1
of
associates'
profit
(after
tax)
Profit 408 321
before
income
tax
Income (126) (103)
tax
expense
Profit 282 218
for
the
financial
period
3.Segmental Analyses (continued)
3 months to 30-Sep-15 3 months to 30-Sep-14
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
results
Revenue 1,579 445 2,024 1,556 471 2,027
EBITDA 238 78 316 244 66 310
before
exceptional
items
Segment (1) (5) (6) - - -
exceptional
items
EBITDA 237 73 310 244 66 310
after
exceptional
items
Unallocated (11) (8)
centre
costs
Share-based (6) (7)
payment
expense
Depreciation (89) (92)
and
depletion
(net)
Amortisation (8) (6)
Impairment (1) (15)
of
assets
Finance (42) (107)
costs
Finance 10 18
income
Share 2 -
of
associates'
profit
(after
tax)
Profit 165 93
before
income
tax
Income (53) (18)
tax
expense
Profit 112 75
for
the
financial
period
4.Exceptional Items
9 months to 9 months to
The following items are regarded 30-Sep-15 30-Sep-14
as exceptional in nature:
EURm EURm
Impairment of assets 8 15
Loss on the disposal of the 4 -
solidboard operations
Currency trading loss on change 42 9
in Venezuelan translation rate
Exceptional items included 54 24
in operating profit
Exceptional finance costs 2 41
Exceptional finance income (12) (9)
Exceptional items included (10) 32
in net finance costs
Exceptional items charged within operating profit in the first
nine months of 2015 amounted to EUR54 million, EUR42 million of
which represented the higher cost to the Venezuelan operations of
discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate. At the time, the Simadi rate was VEF
193 per US dollar compared to the Sicad rate of 12 VEF per US
dollar with the large loss reflecting the very different rates. The
remaining EUR12 million related to the solidboard operations,
comprising impairment losses of EUR8 million booked within cost of
sales and a loss of EUR4 million booked mainly in the second
quarter on their disposal.
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Exceptional finance income of EUR12 million in 2015 represented
the gain in Venezuela on their US dollar denominated intra-group
loans as a result of our adoption of the Simadi rate. This gain was
partly offset by an exceptional finance cost of EUR2 million, which
was booked in the first quarter. This represented the accelerated
amortisation of the issue costs relating to the debt within our
Senior Credit Facility which was paid down with the proceeds of
February's EUR250 million bond issue.
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 European
plants. 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 in Venezuela on the
retranslation of the US dollar denominated intra-group loans to the
Sicad I rate.
5.Finance Costs and Income
9 months to 9 months to
30-Sep-15 30-Sep-14
EURm EURm
Finance costs:
Interest payable on bank 27 35
loans and overdrafts
Interest payable on other borrowings 74 83
Exceptional finance costs associated 2 41
with debt restructuring
Unwinding discount element of provision 1 1
Foreign currency translation 11 17
loss on debt
Fair value loss on derivatives - 2
not designated as hedges
Net interest cost on net 15 20
pension liability
Net monetary loss - hyperinflation - 48
Total finance costs 130 247
Finance income:
Other interest receivable (4) (4)
Gain on sale of financial asset - (1)
Foreign currency translation (13) (3)
gain on debt
Exceptional foreign currency (12) (9)
translation gain
Fair value gain on derivatives (8) (14)
not designated as hedges
Net monetary gain - hyperinflation (1) -
Total finance income (38) (31)
Net finance costs 92 216
6.Income Tax Expense
Income tax expense recognised in the Condensed Consolidated
Income Statement
9 months to 9 months to
30-Sep-15 30-Sep-14
EURm EURm
Current tax:
Europe 63 59
The Americas 42 41
105 100
Deferred tax 21 3
Income tax expense 126 103
Current tax is analysed as follows:
Ireland 10 2
Foreign 95 98
105 100
Income tax credit recognised in the Condensed Consolidated
Statement of Comprehensive Income
9 months to 9 months to
30-Sep-15 30-Sep-14
EURm EURm
Arising on actuarial gain/loss 4 (13)
on defined benefit plans
The tax expense in 2015 is EUR23 million higher than the
comparable period. In Europe, the tax expense, which is higher by
EUR15 million, reflects the impact of lower financing costs and
higher taxable profits as well as some routine timing differences
and tax adjustments related to currency movements. In the Americas,
the tax expense, which is EUR8 million higher, includes the effects
of the reintroduction of a temporary tax in Colombia, increased
taxable profits in Mexico, and a reduction in euro terms of the tax
expense in Venezuela from the adoption of the Simadi exchange rate.
The EUR18 million movement in deferred tax arises largely in Europe
from the reversal of timing benefits previously recognised. The tax
expense includes a EUR1 million tax credit on exceptional items in
2015 compared to a EUR9 million tax credit in 2014.
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-15 30-Sep-14
EURm EURm
Current service cost 33 37
Past service cost (7) (4)
Gain on curtailment (1) -
Gain on settlement (1) (6)
Recognition of net loss 3 -
Net interest cost on net pension liability 15 20
Defined benefit cost 42 47
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR27 million (2014: EUR27
million). Net interest cost on net pension liability of EUR15
million (2014: EUR20 million) is included in finance costs in the
Condensed Consolidated Income Statement.
The amounts recognised in the Condensed Consolidated Balance
Sheet were as follows:
30-Sep-15 31-Dec-14
EURm EURm
Present value of funded or partially (2,174) (2,226)
funded obligations
Fair value of plan assets 1,865 1,889
Deficit in funded or partially funded plans (309) (337)
Present value of wholly unfunded obligations (512) (556)
Net pension liability (821) (893)
The employee benefits provision has decreased from EUR893
million at 31 December 2014 to EUR821 million at 30 September 2015,
mainly as a result of higher Eurozone and Sterling corporate bond
yields which increased the discount rates in the Eurozone and
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 period less own shares.
9 months to 9 months to
30-Sep-15 30-Sep-14
Profit attributable to owners 277 215
of the parent (EUR million)
Weighted average number of ordinary 231 228
shares in issue (million)
Basic earnings per share (cent) 119.7 94.2
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
deferred shares held in trust.
9 months to 9 months to
30-Sep-15 30-Sep-14
Profit attributable to owners 277 215
of the parent (EUR million)
Weighted average number of ordinary 231 228
shares in issue (million)
Potential dilutive ordinary 3 1
shares assumed (million)
Diluted weighted average ordinary 234 229
shares (million)
Diluted earnings per share (cent) 118.2 93.6
Pre-exceptional
9 months to 9 months to
30-Sep-15 30-Sep-14
Profit attributable to owners 277 215
of the parent (EUR million)
Exceptional items included 44 56
in profit before
income tax (Note 4) (EUR million)
Income tax on exceptional (1) (9)
items (EUR million)
Pre-exceptional profit attributable to 320 262
owners of the parent (EUR million)
Weighted average number of ordinary 231 228
shares in issue (million)
Pre-exceptional basic earnings 138.0 115.2
per share (cent)
Diluted weighted average ordinary 234 229
shares (million)
Pre-exceptional diluted earnings 136.3 114.5
per share (cent)
9.Dividends
In May 2015, the final dividend for 2014 of 40 cent per share
was paid to the holders of ordinary shares. In October, an interim
dividend for 2015 of 20 cent per share was paid to the holders of
ordinary shares.
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10.Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Nine months
ended 30
September 2015
Opening net book 1,079 1,954 3,033
amount
Reclassifications 7 (9) (2)
Additions 2 271 273
Acquisitions 29 77 106
Depreciation (35) (211) (246)
charge
for the period
Retirements and (4) (1) (5)
disposals
Hyperinflation 5 3 8
adjustment
Foreign currency (119) (85) (204)
translation
adjustment
At 30 September 964 1,999 2,963
2015
Year ended 31
December
2014
Opening net book 1,107 1,915 3,022
amount
Reclassifications 44 (49) (5)
Assets classified (20) (19) (39)
as held for sale
Additions 9 391 400
Acquisitions 1 49 50
Depreciation (48) (292) (340)
charge
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 1,079 1,954 3,033
2014
11.Net Movement in Working Capital
9 months to 9 months to
30-Sep-15 30-Sep-14
EURm EURm
Change in inventories (73) (25)
Change in trade and other receivables (126) (182)
Change in trade and other payables 139 160
Net movement in working capital (60) (47)
12.Analysis of Net Debt
30-Sep-15 31-Dec-14
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest at 99 100
relevant interbank rate + 1.35%(6)
Facility A term loan(2)- interest at 496 745
relevant interbank rate + 1.60%(6)
US$292.3 million 7.50% senior debentures 267 242
due 2025 (including accrued interest)
Bank loans and overdrafts 91 65
Cash (271) (399)
2018 receivables securitisation 174 173
variable funding notes
2019 receivables securitisation 233 236
variable funding notes
2018 senior notes (including 463 446
accrued interest)(3)
EUR400 million 4.125% senior notes due 398 402
2020 (including accrued interest)
EUR250 million senior floating rate notes due 249 248
2020 (including accrued interest)(4)
EUR500 million 3.25% senior notes due 499 494
2021 (including accrued interest)
EUR250 million 2.75% senior notes due 2025 246 -
(including accrued interest)(5)
Net debt before finance leases 2,944 2,752
Finance leases 9 7
Net debt including leases 2,953 2,759
(1) Revolving credit facility ('RCF') of EUR625 million
(available under the senior credit facility)
to be repaid in 2020 (maturity dates extended
from 2018 effective 13March 2015).
(a) Revolver loans - EUR105 million (b) drawn under ancillary
facilities and facilities supported by letters
of credit - nil and (c) other operational facilities
including letters of credit - EUR10 million.
(2) Facility A term loan ('Facility A') due to be
repaid in certain instalments from 2018
to 2020 (maturity dates extended from 2016
to 2018 effective 13 March 2015).
(3) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(4) Interest at EURIBOR + 3.5%.
(5) On 11 February 2015 the Group priced EUR250 million of ten-year
euro denominated senior notes at a coupon of 2.75%.
The proceeds of the offering were used to reduce term
loan borrowings under the senior credit facility.
(6) Following a reduction in the margins applicable to the senior
credit facility of 0.65% as part of the amendment and
extension of that facility effective 13 March 2015,
the margins are determined as follows:
Net debt/EBITDA ratio RCF Facility A
Greater than 3.00 : 1 1.85% 2.10%
3.00 : 1 or less but more than 2.50 : 1 1.35% 1.60%
2.50 : 1 or less but more than 2.00 : 1 1.10% 1.35%
2.00 : 1 or less 0.85% 1.10%
13.Other Reserves
Other reserves included in the Condensed 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 2015 575 (33) (689) 156 (40) 1 (30)
Other comprehensive income
Foreign currency translation - - (438) - - - (438)
adjustments
Effective portion of changes in - 10 - - - - 10
fair value of cash flow hedges
Total other comprehensive - 10 (438) - - - (428)
income/(expense)
Share-based payment - - - 27 - - 27
Shares acquired by - - - - (15) - (15)
SKG Employee Trust
Shares distributed by the - - - (16) 16 - -
SKG Employee Trust
At 30 September 2015 575 (23) (1,127) 167 (39) 1 (446)
At 1 January 2014 575 (15) (456) 131 (28) 1 208
Other comprehensive income
Foreign currency translation - - (165) - - - (165)
adjustments
Effective portion of changes in - (15) - - - - (15)
fair value of cash flow hedges
Total other comprehensive - (15) (165) - - - (180)
expense
Share-based payment - - - 14 - - 14
Shares acquired by - - - - (13) - (13)
SKG Employee Trust
Shares distributed by the - - - (1) 1 - -
SKG Employee Trust
At 30 September 2014 575 (30) (621) 144 (40) 1 29
14.Venezuela
Hyperinflation
As discussed more fully in the 2014 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.
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