SKG Smurfit Kappa Group Plc

 
TIDMSKG 
 

10 February 2016: Smurfit Kappa Group plc ('SKG' or 'the Group') today announced results for the 3 months and 12 months ending 31 December 2015.

2015 Fourth Quarter & Full Year | Key Financial Performance Measures

 
EURm                FY 2015  FY 2014  Change  Q4 2015  Q4 2014  Change  Q3 2015  Change 
Revenue           EUR8,109   EUR8,083   -       EUR2,089   EUR2,108   (1%)    EUR2,024   3% 
EBITDA            EUR1,182   EUR1,161   2%      EUR326     EUR295     11%     EUR305     7% 
before 
Exceptional 
Items 
andShare-based 
Payment 
(1) 
EBITDA            14.6%    14.4%            15.6%    14.0%            15.0% 
margin 
Operating         EUR780     EUR771     1%      EUR229     EUR212     8%      EUR202     13% 
Profit 
before 
Exceptional 
Items 
Profit            EUR599     EUR378     58%     EUR191     EUR58      230%    EUR165     15% 
before 
Income Tax 
Basic EPS         172.6    105.8    63%     52.9     11.6     356%    46.4     14% 
(cent) 
Pre-exceptional   197.3    162.5    21%     59.3     47.3     25%     49.2     21% 
Basic 
EPS (cent) 
Return on         14.8%    15.0%                                      15.0% 
Capital 
Employed(2) 
Free Cash         EUR388     EUR362     7%      EUR152     EUR19      693%    EUR162     (6%) 
Flow(3) 
Net Debt          EUR3,048   EUR2,759   11%                               EUR2,953   3% 
Net Debt          2.6x     2.4x                                       2.6x 
to 
EBITDA 
(LTM) 
 
 
1)   EBITDA before exceptional items and share-based 
     payment expense is  denoted 
     by EBITDA throughout the remainder of 
     themanagement  commentary for ease 
     of reference. A reconciliation of profit 
     for  the period to EBITDA before 
     exceptional items andshare-based  payment 
     expense is set out on page 36. 
2)   LTM pre-exceptional operating profit plus share of 
     associates'  profit/average capital employed. 
3)   Free cash flow is set out on page 11. The 
     IFRS cash flow is set out  on page 21. 
 
 

Fourth Quarter and Full Year Key Points

 
 
    -- Full year Group packaging volume growth of 6% with underlying growth 

of 3% excluding acquisitions

 
    -- Full year pre-exceptional EPS growth of 21% year-on-year and fourth 

quarter EBITDA margin of 15.6%

 
    -- ROCE of 15.1% and Net Debt / EBITDA at 2.4 times after adjusting for 

acquisitions in Brazil in December

 
    -- Free cash flow at EUR388 million supporting strong financial position 

and strategic flexibility

 
    -- Successful delivery on 2015 cost take-out target of EUR75 million with 

new target of EUR75 million in 2016

 
    -- Completion of over EUR380 million of acquisitions in 2015 
 
    -- Final dividend increased by 20% to 48 cent per share 
 

Performance Review and Outlook

Tony Smurfit, Smurfit Kappa CEO, commented: "We are pleased to report a strong 2015 outcome delivering significant improvement across all key financial and operating metrics. We will continue to drive our performance by focusing on marketing and innovation initiatives for our customers, cost efficiency and financial discipline. Our objective is to continue to deliver on our target of 15% ROCE through the cycle.

"We invested over EUR380 million in acquisitions in 2015 to strengthen and diversify our geographic reach and drive earnings. During the year we invested EUR450 million to optimise the asset quality in our system and our investments in high return capital investment projects are now also delivering incremental EBITDA growth. We are continually enhancing the breadth and depth of our service offering for customers, while consistently lowering operating costs through our supply chain.

"Our strong financial profile is reflected in our Net Debt to EBITDA ratio of 2.4 times at the end of 2015, after adjusting for the Brazilian acquisitions in December. We remain firmly committed to maintaining our Ba1 / BB+ credit rating.

"The Board's confidence in the strength of the business is reflected in a proposed 20% increase in the final dividend to 48 cent per share. Combined with an interim dividend of 20 cent per share paid in October 2015, this will bring the total dividend to 68 cent, a 23% increase year-on-year. Our dividend is a core component of our commitment to driving value for shareholders.

"Having established a strong platform for growth over the past few years, we expect to deliver good earnings growth in 2016. While this will, to some extent, be influenced by the broader macro-economic environment, we are confident our current investment initiatives, our geographic diversity, our integrated business model and our strong free cash flow generation positions us well for 2016 and beyond."

About Smurfit Kappa

Smurfit Kappa is one of the leading providers of paper-based packaging solutions in the world, with around 45,000 employees in approximately 370 production sites across 34 countries and with revenue of EUR8.1 billion in 2015. We are located in 21 countries in Europe, and 13 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 Follow us on Twitter at @smurfitkappa and on LinkedIn at 'Smurfit Kappa'.

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 Fourth Quarter & Full Year | Performance Overview

In 2015, the Group reported its strongest ever fourth quarter earnings result with EBITDA of EUR326 million and an EBITDA margin of 15.6% driven by a generally good trading environment and supported by the contribution of acquisitions and the Group's high return capital investments. The full year result also indicates solid progress across most metrics, despite the impact of the adoption of the Simadi rate for the consolidation of our Venezuelan operations in the first quarter, underscoring the strong underlying performance and the resilience of the geographically diversified and vertically integrated business model.

In Europe, SKG's underlying corrugated volumes grew by 3% year-on-year reflecting good levels of demand across most countries and market segments. Corrugated pricing increased by 1% sequentially on the third quarter following earlier positive developments in the containerboard market. We expect some further positive impact of this in early 2016.

In the Americas, our underlying business has grown strongly as a result of solid performances in most markets and steady delivery of over EUR320 million of acquisitions in five countries in the region over the course of the year. The profile of our Americas business is primarily weighted to the US, Mexican and Colombian markets, which made up over 80% of the Americas' EBITDA in 2015.

Following EUR160 million of acquisitions in 2014, the Group completed the acquisition of seven businesses across nine countries in 2015 for a total consideration of over EUR380 million. The Group was pleased to successfully complete the acquisitions of two businesses in Brazil in December which combined equate to approximately 5% market share in the largest market in Latin America. The transaction was completed at a post synergy valuation of 6.3 times EV / EBITDA. Commercially, the expansion into Brazil will now allow SKG to service its international customers across Latin America, significantly boosting its total service footprint while offering a compelling platform for further growth in a still fragmented market.

The Group has a proven track record of quality earnings delivery and strong free cash flows through the cycle, and a key pillar of this solid operational performance has been the Group's commitment to its cost take-out programme. Having met our target of EUR75 million in 2015, we expect to deliver a further EUR75 million of cost reductions in 2016.

For the full year 2015, the Group has recorded a charge for exceptional items of EUR69 million within operating profit. This is primarily due to the adoption of the Simadi rate for the consolidation of the Group's Venezuelan operations which resulted in a non-cash exceptional charge of EUR69 million. Further non-cash exceptional charges of EUR12 million relating to the disposal of the Group's solidboard operations in Belgium, the Netherlands and the UK and European restructuring were offset by a EUR13 million gain on the sale of the site of the Group's former Nanterre containerboard mill, near Paris.

February 10, 2016 02:00 ET (07:00 GMT)

In 2015, the Group's operations in Venezuela represented approximately 2% (2014: 6%) of its total assets and 4% (2014: 18%) of its net assets. Cumulative foreign translation losses arising on its net investment in these operations amounting to EUR927 million (2014: EUR535 million) are included in the foreign exchange translation reserve.

15.Business Combinations

The acquisitions completed by the Group during the year, together with percentages acquired and completion dates were as follows:

 
 
    -- Hexacomb, (100%, 1 April 2015), protective packaging business located 

in Europe and Mexico;

 
    -- Inspirepac, (100%, 14 April 2015), corrugated, high quality print and 

display business in the UK;

 
    -- Beacon, (75%, 15 April 2015), a large independent converter of board 

into corrugated boxes and fitments located in the UK;

 
    -- Cybsa, (100%, 6 May 2015), corrugated packaging business in Costa Rica 

and El Salvador;

 
    -- Nigua, (100%, 1 July 2015), certain assets of Industrias Nigua which 

is based in the Dominican Republic; and

 
    -- INPA (98.5%, 30 November 2015) & Paema, (100%, 30 November 2015); 

integrated packaging businesses located in Brazil.

As the INPA and Paema acquisitions occurred within such close proximity to the year end, the assignment of fair values has not yet been performed. For all other acquisitions, the initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis and any amendments to these fair values will be made within the allowed measurement period permitted by IFRS 3.

Only the INPA and Paema acquisitions were deemed to be sufficiently material to warrant separate disclosure. All other acquisitions have been accumulated and are disclosed separately in the Other Acquisitions table below.

 
INPA & PAEMA           Book value   Fair value adjustments   Fair Value 
                       EURm           EURm                       EURm 
Non-current assets     73           -                        73 
Current assets         50           -                        50 
Non-current            (42)         -                        (42) 
liabilities 
Current liabilities    (40)         -                        (40) 
Net assets acquired    41           -                        41 
Goodwill                                                     112 
Consideration                                                153 
Settled by: 
Cash                                                         144 
Contingent                                                   9 
consideration 
                                                             153 
 
 

15.Business Combinations (continued)

 
OTHER ACQUISITIONS                  Fair value adjustments   Fair Value 
                       Book value 
                       EURm           EURm                       EURm 
Non-current assets     66           85                       151 
Current assets         90           (3)                      87 
Non-current            (16)         (18)                     (34) 
liabilities 
Current liabilities    (69)         (3)                      (72) 
Net assets acquired    71           61                       132 
Goodwill                                                     48 
Non-controlling                                              (3) 
interests 
Consideration                                                177 
Settled by: 
Cash                                                         174 
Deferred                                                     3 
consideration 
                                                             177 
 
 
TOTAL ACQUISITIONS                                Fair value adjustments   Fair Value 
                                     Book value 
                                     EURm           EURm                       EURm 
Non-current assets                   139          85                       224 
Current assets                       140          (3)                      137 
Non-current liabilities              (58)         (18)                     (76) 
Current liabilities                  (109)        (3)                      (112) 
Net assets acquired                  112          61                       173 
Goodwill                                                                   160 
Non-controlling interests                                                  (3) 
Consideration                                                              330 
Settled by: 
Cash                                                                       318 
Contingent/deferred consideration                                          12 
                                                                           330 
Acquisition-related costs of EUR3 million were incurred and are  included within administrative expenses in theConsolidated  Income Statement. 
 
 

16.Contingent Liabilities

During 2013, the Spanish Competition Authority ('CNMC') launched an investigation into several corrugated manufacturers based in Spain including SKG and the Spanish Association of Corrugated Cardboard Containers and Packaging Manufacturers ('AFCO'). On 23 June 2015, SKG received notification from the CNMC of a fine for alleged anticompetitive conduct.

The Group considers that the fine is unjustified and that there is no basis upon which a fine can be levied. A formal appeal was lodged in December and the Group is confident of a successful outcome. Accordingly no provision has been made in respect of this fine in the consolidated financial statements. In the event that the Group is unsuccessful in the appeal, the potential liability amounts to EUR8.1 million.

Supplementary Financial Information

EBITDA before exceptional items and share-based payment expense is denoted by EBITDA in the following schedules for ease of reference.

 
Reconciliation of 
Profit to EBITDA 
                    3 months to  3 months to  12 months to  12 months to 
                    31-Dec-15    31-Dec-14    31-Dec-15     31-Dec-14 
                    EURm           EURm           EURm            EURm 
Profit for the      131          34           413           252 
financial 
period 
Income tax          60           24           186           126 
expense 
Exceptional items   15           86           69            110 
charged 
in operating 
profit 
Share               -            (1)          (3)           (2) 
of associates' 
profit (after 
tax) 
Net finance costs   23           69           115           285 
(after 
exceptional 
items) 
Share-based         2            12           34            26 
payment 
expense 
Depreciation,       95           71           368           364 
depletion 
(net) 
and amortisation 
EBITDA              326          295          1,182         1,161 
 
 
Supplementary 
Historical 
Financial 
Information 
EURm              FY, 2014  Q1, 2015  Q2, 2015  Q3, 2015  Q4, 2015  FY, 2015 
Group and       13,306    3,235     3,305     3,347     3,422     13,309 
third 
party 
revenue 
Third           8,083     1,962     2,034     2,024     2,089     8,109 
party 
revenue 
EBITDA          1,161     266       285       305       326       1,182 
EBITDA          14.4%     13.5%     14.0%     15.0%     15.6%     14.6% 
margin 
Operating       661       127       176       195       214       711 
profit 
Profit          378       98        145       165       191       599 
before 
income tax 
Free cash       362       25        49        162       152       388 
flow 
Basic           105.8     30.9      42.3      46.4      52.9      172.6 
earnings 
per 
share - 
cent 
Weighted        228       230       231       231       233       232 
average 
number 
of 
sharesused 
in 
EPS 
calculation 
(million) 
Net debt        2,759     2,930     3,100     2,953     3,048     3,048 
Net debt        2.38      2.53      2.70      2.57      2.58      2.58 
to 
EBITDA 
(LTM) 
 
 
 
 

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(END) Dow Jones Newswires

February 10, 2016 02:00 ET (07:00 GMT)