TIDMSKG
8 February 2017: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 12 months ending 31
December 2016.
2016 Fourth Quarter & Full Year | Key Financial Performance
Measures
EURm FY FY Change Q4 Q4 Change Q3 Change
2016 2015 2016 2015 2016
Revenue EUR8,159 EUR8,109 1% EUR2,060 EUR2,089 (1%) EUR2,050 1%
EBITDA EUR1,236 EUR1,182 5% EUR320 EUR326 (2%) EUR323 (1%)
before
Exceptional
Items
andShare-based
Payments
(1)(2)
EBITDA 15.1% 14.6% 15.5% 15.6% 15.7%
margin(1)
Operating EUR830 EUR780 6% EUR221 EUR229 (3%) EUR219 1%
Profit
before
ExceptionalItems
(1)
Profit EUR654 EUR599 9% EUR155 EUR191 (19%) EUR187 (17%)
before
Income Tax
Basic EPS 189.4 172.6 10% 42.3 52.9 (20%) 56.4 (25%)
(cent)
Pre-exceptional 189.4 197.3 (4%) 47.4 59.3 (20%) 56.4 (16%)
Basic
EPS
(cent)(1)
Return on 15.4% 14.8% 16.1%
Capital
Employed(1)
Free Cash EUR303 EUR388 (22%) EUR104 EUR152 (32%) EUR164 (37%)
Flow(1)
Net Debt(1) EUR2,941 EUR3,048 (4%) EUR2,953 -
Net Debt to 2.4x 2.6x 2.4x
EBITDA
(LTM)(1)
1) Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 32.2) EBITDA before exceptional items and
share-based payment expense is denoted by EBITDA throughout the
remainder of the management commentary for ease of reference.
Full Year Key Points
-- Full year 2016 revenues on a constant currency basis up 5%
-- 2016 EBITDA of EUR1,236 million, a new record for the Group
-- Improved ROCE at 15.4%
-- Continued good cash generation with free cash flow of EUR303 million
-- Admission to FTSE 100 index effective 19 December 2016
-- 7 year bond issuance of EUR500 million at 2.375% in January 2017
-- Final dividend increased by 20% to 57.6 cent per share
Performance Review and Outlook
Tony Smurfit, Group CEO, commented:
"In 2016 SKG delivered continued earnings growth with EBITDA of
EUR1,236 million and an EBITDA margin of 15.1%, driven by solid
volume growth across our markets, resilient box pricing and the
Group's investment in high return capital projects.
"These strong results against most performance metrics were
delivered despite the significant headwinds experienced by the
Group in higher raw material input costs and adverse currency
impacts. This once again highlights the strength of the Group's
integrated business model, our geographically diverse portfolio of
businesses and our performance based culture.
"In 2016 we have invested approximately EUR500 million in our
business, building a platform to deliver continued performance and
growth. Effective capital spend will enhance operating efficiency,
optimise our asset base and continuously improve our market
positioning across Europe and the Americas enabling us to deliver
added value to our customers. In 2017 we will continue to realise
the benefits of our average annual capital spend of more than
EUR450 million over the last three years.
"In December 2016, the Group was pleased to be admitted to the
FTSE 100 index, one of the world's leading equity markets indices.
Admission to the FTSE 100 is consistent with our vision of being a
globally recognised and respected business delivering both secure
and superior returns for all stakeholders.
"In January 2017 we issued a 7 year, EUR500 million bond
enabling the Group to extend the maturity profile of our debt to
4.3 years and secure, at 2.375%, our lowest ever coupon for the
Group.
"We are excited about the significant number of internal
opportunities that exist within SKG which will continue to drive
business improvement as we deliver 15% ROCE through the cycle. The
Group is also well positioned to make acquisitions that deliver
long term value.
"SKG has an unrivalled market offering which helps our customers
succeed in their chosen markets. This is underpinned by our unique
differentiation tools, market insights and innovation
infrastructure, supported by our ongoing capital expenditure
programmes and our leading sustainable business practices across
our operations.
"From a demand perspective, the year has started well across
most areas of our business and, while recently announced paper
price increases should translate with the customary time lag into
higher box prices, we look forward to 2017 and beyond.
"Reflecting the distinct strengths and capabilities of our
business, the Board is recommending a 20% increase in the final
dividend to 57.6 cent per share."
About Smurfit Kappa
Smurfit Kappa, a FTSE 100 company, 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 EUR8.2 billion in 2016. 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.
smurfitkappa.com
Check out our microsite: openthefuture.infoFollow 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
Garrett Quinn FTI Consulting
Smurfit Kappa
T: +353 1 202 71 80 T: +353 1 663 36 80
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2016 Fourth Quarter & Full Year | Performance Overview
In 2016 the Group reported its strongest ever result with EBITDA
of EUR1,236 million and an EBITDA margin of 15.1% driven by solid
volume growth across our markets, resilient box pricing and the
Group's investment in high return capital projects. These strong
results across most metrics were delivered despite the significant
headwinds experienced by the Group in higher raw material input
costs and adverse currency impacts and highlight the strength of
the Group's integrated business model, the dynamism of the Group's
performance led culture and the geographically diverse portfolio of
businesses.
In Europe for the year, EBITDA increased by 3% to EUR928
million. Box price resilience through the year, along with the
benefits of our 'Quick Win' programme and good corrugated volume
growth were key drivers in this improvement. Total corrugated
volumes for the year were up 1%, with boxes up over 2% when
adjusted for the impact of our German rationalisation programme. On
a constant currency basis the Group's average corrugated pricing in
Europe for the year was up 1%.
In the Americas for the year, EBITDA increased by 11% to EUR339
million. This result was driven by the impact of our recent
acquisitions along with strong underlying EBITDA growth, up 15% for
the year. Volumes in the Americas grew 20% in 2016 with growth of
18% in the fourth quarter driven by the positive impact of
acquisitions and solid underlying volume growth. The integration of
our Brazilian, Central American and US acquisitions is progressing
well notwithstanding some of the input cost pressures in Brazil.
The profile of our Americas business is primarily weighted to the
US, Mexican and Colombian markets, which comprised over 70% of the
Americas' EBITDA in 2016. SKG is the largest pan-regional producer
of corrugated packaging in Latin America.
In 2016 the Group completed the acquisitions of four businesses,
of which three were in the US and one in the UK.
The Group's differentiation programme continues to help our
customers succeed in their chosen markets and delivers tangible
results with increased sales for our corrugated customers. This has
been driven by our unique market insights, tools and expertise. In
2016 the Group was recognised by both peers and customers,
garnering over 50 awards. The five red dot design awards won in
2016 were a highlight, with SKG the most successful corrugated
packaging company.
The Group reported a free cash flow of EUR303 million in 2016
compared to EUR388 million in 2015, reflecting higher outflows
mainly in respect of working capital, retirement benefits, tax and
cash interest and some
one-off inflows from 2015. Following the recent bond issuance
achieved at a historically low rate for SKG of 2.375%, the average
maturity profile of the Group's debt was extended from 3.7 to 4.3
years while maintaining our Net Debt to EBITDA at 2.4x. With these
metrics along with an EBITDA to cash interest cover of 8.35 times
at the end of 2016, the Group remains well positioned within its
Ba1/BB+/BB+ rating category. The Group will continue to balance the
maintenance of a strong capital structure with its growth
objectives through 2017 and beyond.
2016 Fourth Quarter | Financial Performance
Revenue of EUR2,060 million in the fourth quarter of 2016 was
down EUR29 million or 1% on the fourth quarter of 2015. Revenues in
Europe decreased by EUR36 million year-on-year driven by adverse
currency impacts. In the Americas revenues increased by EUR7
million year-on-year driven by both underlying revenue growth and
the benefit of acquisitions, which were offset in part by currency.
The underlying year-on-year move in Group revenue when adjusted for
net negative currency movements and net acquisitions, was an
increase of 2%.
EBITDA for the fourth quarter was EUR320 million, EUR6 million
down on the same period in 2015 with earnings growth in the
Americas 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 for the quarter was an
increase of nearly 1%.
Exceptional items charged within operating profit in the fourth
quarter of 2016 amounted to EUR15 million relating to
reorganisation and restructuring costs in the Americas.
An exceptional charge of EUR15 million within operating profit
in the fourth quarter of 2015 represented the net impact of the
adjustment for hyperinflation on the currency trading loss incurred
in the first quarter following the adoption of the Simadi rate,
offset by a EUR13 million exceptional gain on the sale of the site
of the Group's former Nanterre containerboard mill, near Paris.
Pre-exceptional basic EPS was 47.4 cent for the quarter to
December 2016 (2015: 59.3 cent), a decrease of 20%
year-on-year.
2016 Full year | Financial Performance
Revenue for the year to December of EUR8,159 million was EUR50
million or 1% higher than 2015. Higher reported revenue in the
Americas was partly offset by lower revenue in Europe predominantly
due to negative currency impacts. Allowing for currency movements
and the contribution from acquisitions net of disposals, the
underlying increase in revenue was EUR188 million, the equivalent
of over 2%, with higher underlying revenue in both Europe and the
Americas.
EBITDA for the full year 2016 of EUR1,236 million compared to
EUR1,182 million in 2015 with higher earnings in both Europe and
the Americas offset by slightly higher Group Centre costs.
Allowing for currency movements and the contribution from
acquisitions net of disposals, comparable earnings in Europe and
the Americas were EUR39 million and EUR47 million higher
respectively in 2016.
Exceptional items of EUR15 million charged within operating
profit in the year to December 2016 related to reorganisation and
restructuring costs in the Americas.
Exceptional items charged within operating profit in the year to
December 2015 amounted to EUR69 million which included a number of
offsetting balances. The higher cost to the Venezuelan operations
of discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate resulted in a charge of EUR69 million.
The remaining offsetting amounts primarily comprise a charge of
EUR12 million relating to the solidboard operations less the gain
of EUR13 million on the sale of the Nanterre site.
Operating profit after exceptional items for the year was EUR815
million compared to EUR711 million for 2015, an increase of 15%
(increase of 6% before exceptional items).
Net finance costs before exceptional items at EUR175 million
were EUR46 million higher year-on-year reflecting increases in both
cash and non-cash interest. The increase in cash interest reflects
the higher level of debt following our acquisition activity in 2015
and into early 2016 and a slight increase in our average interest
rate, partly as a result of our exposure to the relatively high
local interest rates in Brazil. In addition, cash interest income
fell year-on-year as deposit rates progressively turned negative
during the year. Non-cash interest was higher mainly due to
increased hyperinflationary adjustments.
The exceptional finance income in 2016 related to the gain of
EUR12 million on the sale of our shareholding in the Swedish
company, IL Recycling.
Exceptional finance costs in the year to December 2015 amounted
to EUR2 million relating to 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 finance income amounted to EUR16 million
and represented a gain in Venezuela on US dollar denominated
intra-group loans following our adoption of the Simadi rate in the
first quarter of 2015.
Including the Group's share of associates' profit of EUR2
million, profit before income tax was EUR654 million in 2016
compared to EUR599 million in 2015, an increase of 9%
year-on-year.
Basic earnings per share was 189.4 cent for the full year 2016
(2015: 172.6 cent), an increase of 10% year-on-year. Adjusting for
exceptional items, pre-exceptional basic EPS was 189.4 cent (2015:
197.3 cent), a decrease of 4% year-on-year.
2016 Fourth Quarter & Full Year | Free Cash Flow
The Group reported free cash flow of EUR303 million in 2016
compared to EUR388 million in 2015. The year-on-year decrease of
EUR85 million reflected higher outflows mainly in respect of
working capital, retirement benefits, tax and cash interest. In
addition our free cash flow in the fourth quarter and full year
2015 included the proceeds of the Nanterre site sale.
The working capital move in the year to December was an outflow
of EUR95 million compared to EUR24 million in 2015. The outflow in
2016 was the combination of an increase in stocks and, to a lesser
extent, debtors partly offset by an increase in creditors. Working
capital amounted to EUR573 million at December 2016 (2015: EUR548
million), representing 7.0% of annualised revenue compared to 7.7%
at September 2016 and 6.6% at December 2015.
Capital expenditure amounted to EUR499 million in the year to
December 2016, approximately 127% of depreciation, compared to 123%
in 2015. Capital expenditure is expected to reduce to a level
closer to 100% of depreciation in 2017.
Cash interest at EUR148 million in 2016 was EUR25 million higher
than in 2015, reflecting our acquisition activity in 2015 and the
average interest rate which was slightly higher year-on-year given
our exposure now to the relatively high local interest rates in
Brazil.
The Group made tax payments of EUR151 million in 2016, EUR20
million higher than 2015 reflecting the impact of higher
profitability and the timing of payments.
2016 Fourth Quarter & Full Year | Capital Structure
The reported net debt was EUR2,941 million at the end of the
year delivering a net debt to EBITDA ratio of 2.4x compared to 2.6x
at the end of 2015. The Group's net debt continues to reduce in
both absolute and in multiple terms positioning the Group with
considerable financial strategic flexibility subject to the stated
leverage range of 2.0x to 3.0x through the cycle and SKG's
Ba1/BB+/BB+ credit rating.
At 31 December 2016 the Group's average interest rate was 4.3%,
slightly higher year-on-year primarily as a result of the local
currency Brazilian debt associated with the acquisitions of INPA
and Paema in December 2015. The Group's diversified funding base
and long dated maturity profile at 3.7 years provide a stable
funding outlook. In terms of liquidity, the Group held cash on the
balance sheet of EUR443 million at the end of the year which was
further supplemented by available commitments under its revolving
credit facility of approximately EUR613 million.
On 17 January 2017 the Group took the opportunity to access the
bond markets taking advantage of the current low interest rate
environment to further extend maturity profile, diversify funding
sources and increase liquidity at a historically low coupon for the
Group. The proceeds will be used to reduce indebtedness under the
Group's senior facilities agreement and existing securitisation
facilities and for general corporate purposes. The funding will
significantly enhance the Group's liquidity and position us very
strongly from the perspective of our refinancing programme over the
next couple of years as we replace more expensive debt.
The Group has a stable financing base with a long term and well
spread maturity profile. The Group's credit rating of Ba1/BB+/BB+
contributes to a lower cost of capital and access to the widest
range of financing options available. These positions were achieved
as a result of the Group's consistent ability to generate strong
free cash flows together with active management of its debt
portfolio. The strength of the Group's capital base together with
consistent delivery of strong free cash flows provides a solid and
cost effective support to the Group's growth agenda over the medium
term.
2016 Fourth Quarter & Full Year | Dividend
The Group views its dividend as an important component of its
investment thesis and a way to directly transfer value creation
within the business to shareholders. For the year 2016, the Board
is recommending a final dividend of 57.6 cent per share, a 20%
increase year-on-year. Combined with an interim dividend of 22 cent
per share paid in October 2016, this will bring the total dividend
to 79.6 cent, a 17% increase year-on-year.
It is proposed to pay the final dividend on 12 May 2017 to all
ordinary shareholders on the share register at the close of
business on 21 April 2017. As in previous years, the 2017 dividend
will be paid in two parts, an interim dividend payable in October
2017 and a final dividend payable in May 2018.
2016 Fourth Quarter & Full Year | Operating Efficiency
Cost Take-out Programme
The Group delivered EUR74 million of cost take-out in 2016, with
EUR25 million in the fourth quarter. Since the programme's
inception in 2008 the Group has achieved cost savings of over
EUR850 million and the Group continues to view these projects as a
key tool in combating cost inflation creep throughout the
business.
Capital Expenditure ('Quick Win') Programme
In 2016 the Group continued its investment stage of the current
'Quick Win' capital expenditure programme. The benefits of these
high return investments have been delivered since 2014 and are
expected to deliver a total incremental EBITDA of EUR75 million by
the end of 2017. Of this, EUR25 million was delivered in 2016 with
an expected balance of approximately EUR30 million to be delivered
in 2017.
2016 Fourth Quarter & Full Year | Regional Performance
Review
Europe
The European segment delivered a 3% increase in EBITDA to EUR928
million in 2016. This was achieved despite increased raw material
input costs, lower containerboard pricing and adverse currency
impacts. The improved result was delivered through resilient box
pricing, increased volumes and cost reduction programmes which
delivered an improved EBITDA margin of 15.1% against 14.4% in
2015.
Our differentiation project continues to deliver profitable
growth for the Group. SKG works with its customers to help them
succeed in their marketplace. We are increasingly seeing the
benefit of more collaborative relationships with customers as we
help them at the front end of their business, helping them sell
more by using our unique tools and expertise.
The scale of our unrivalled databases with supply chain data
from across the globe allows us to deliver scientifically backed,
cost effective solutions to our customers.
Operations in Spain, Poland and Germany contributed to the
Group's five red dot awards in 2016 and showcased the unique talent
the Group has in helping our customers sell more.
In the corrugated division following rationalisations in 2015,
both France and Germany saw recovery in their EBITDA results and
this is expected to continue into 2017.
Strong volume growth in the Benelux, Spain and Portugal and
Eastern Europe helped to drive volume growth in Europe, offsetting
lower volumes in Germany which was impacted by the rationalisation
programme in 2015.
In 2016, in Europe, the Group experienced significant cost
headwinds in the form of higher OCC input costs. In the fourth
quarter of 2016, the price of OCC was up 11% year-on-year, driven
by both strong domestic demand and continued export market demand.
For the full year 2016, OCC was up over 10%, with a high OCC price
providing positive support to the containerboard price and, in
turn, packaging business in the medium term. With the generation of
mixed waste declining coupled with the continued demand both
domestically and on export markets for recovered paper, the Group
expects the medium term trend for OCC pricing to remain at a high
level.
In recycled containerboard, prices softened through 2016,
reducing by EUR50 per tonne after increases went through in the
middle of 2015. However, on the back of significantly lower
containerboard inventories year-on-year and good demand, the Group
has announced an increase of EUR60 per tonne on brown recycled
containerboard for implementation on 1 February 2017.
Following successful price increases in the second half of 2016,
demand for kraftliner containerboard remains robust and as a
result, the Group announced a EUR60 per tonne price increase on
both white and brown kraftliner across Europe for implementation on
1 March 2017. Kraftliner is a vital part of today's global supply
chain requirements with its relative strengths against recycled
alternatives, positioning it as a critical part of our customers'
requirements in certain industries and supply chain
applications.
The Americas
The Group's Americas business continues to provide a source of
geographic diversification and growth opportunities. EBITDA for the
year and quarter was up 11% delivering EUR339 million and EUR98
million respectively. The EBITDA margin in the Americas increased
again in the fourth quarter of 2016 to 17.8% from 16.8% in the
third quarter of 2016 and from 16.2% in the fourth quarter of 2015.
For the year to December the EBITDA margin increased to 16.8% from
16.4% in 2015 with both Mexico and Chile delivering a record EBITDA
performance.
These results were delivered against a backdrop of adverse
currency impacts of approximately EUR42 million year-on-year. This
currency impact was offset by the positive contributions of
acquisitions in the region, continued pricing initiatives in most
markets, strong underlying volume growth and the benefits of our
capital investment programme.
Year-on-year corrugated volumes increased by over 20% driven by
our acquisitions in the region together with strong growth in the
larger economies in which we operate, specifically the three major
markets of the US, Mexico and Colombia. In the US, corrugated
volumes were up 14% year-on-year and 12% in the fourth quarter of
2016 versus the fourth quarter of 2015. Our Mexican and Colombian
businesses were both up 6% year-on-year. Overall underlying volume
growth in the region, excluding the impact of Venezuela and
acquisitions was 2%.
Pan American Sales ('PAS') continues to deliver above market
growth for the Group with customers enjoying the ability to partner
with SKG on a regional basis. 2016 PAS volumes were up 6% excluding
Venezuela. Growth in Brazil was seen in PAS on the back of SKG's
entry into the market in December 2015.
In Mexico the business delivered a record EBITDA with strong
volumes throughout the country. The negative currency impact in the
year was offset by volume growth and productivity gains. Box price
increases are underway in the first quarter of 2017 to recover
increased input cost pressures. The previously announced project to
increase capacity at the Los Reyes mill near Mexico City is
expected to be completed mid-2017.
In Colombia we continue to see very strong volume growth in
corrugated with volumes up 6% in 2016 and 7% in the fourth quarter
year-on-year. The Group's recent capital investment programme has
allowed the country to keep pace with the demand growth. Price
increases for boxes are underway in the first quarter of 2017. Our
recent acquisitions in Central America and the Caribbean region are
performing in line with expectations.
In the US volume growth of 14% has been predominantly due to
acquisitions. A successful containerboard price increase of US$40
per tonne towards the end of 2016 has been implemented with box
price increases being processed in the first half of 2017. Domestic
OCC prices increased throughout the year and into January against a
backdrop of an improving climate for containerboard. Containerboard
price increases achieved in late 2016 should be supportive going
into 2017.
The Brazilian operations are successfully integrating and are
ahead of expectations net of OCC input cost pressures. Volume
growth in 2016 was ahead of the market albeit with a flat volume
evolution year-on-year against a market which was down 2%. Recent
industry publications indicate some softening of OCC prices in
January.
In volume terms the Group's Argentinean operations performed
ahead of the market but remained down year-on-year as the country
adjusts to local government reforms. Volume growth is expected as
we enter the second quarter. The Group also implemented significant
price increases in the year to December 2016, helping offset
inflationary pressures.
The Group's Venezuelan business performed well in a very
challenging environment. Despite a drop in corrugated shipments of
48% in 2016, due to a stronger export performance and our ability
to supply Group containerboard needs in the Americas, our
operations continue to perform. In the year to December 2016
Venezuela accounted for approximately 3% of Group EBITDA. Local
management and our people continue to do an outstanding job under
difficult circumstances.
In Venezuela, we expect a similar EBITDA performance in 2017.
However, the Group is aware that the macro situation in Venezuela
remains uncertain. The effect of high inflation without a
corresponding devaluation of the exchange rate would result in a
net monetary loss which may distort some of the Group's key
metrics. We will continue to monitor events as they unfold. Net
assets in Venezuela amounted to EUR91 million at year end.
Summary Cash Flow
Summary cash flows() 1for 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-16 31-Dec-15 31-Dec-16 31-Dec-15
EURm EURm EURm EURm
EBITDA 320 326 1,236 1,182
Exceptional (15) (29) (15) (69)
items
Cash interest (38) (33) (148) (123)
expense
Working 15 41 (95) (24)
capital
change
Current (2) (8) (8) (28)
provisions
Capital (177) (164) (499) (451)
expenditure
Change in 48 3 49 12
capital
creditors
Tax paid (34) (29) (151) (131)
Sale of fixed 1 29 3 33
assets
Other (14) 16 (69) (13)
Free cash flow 104 152 303 388
Share issues - - - 2
Sale/(purchase) - 2 (10) (13)
of
own shares
(net)
Sale 4 - 17 29
of businesses
and
investments
Purchase of (4) (140) (44) (321)
businesses
and
investments
Dividends (53) (48) (170) (145)
Derivative 13 - 13 (2)
termination
receipts/(payments)
Net 64 (34) 109 (62)
cash
inflow/(outflow)
Net debt (1) (41) (1) (62)
acquired
Deferred debt (2) (2) (10) (11)
issue
costs
amortised
Currency (49) (18) 9 (154)
translation
adjustment
Decrease/(increase) 12 (95) 107 (289)
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') and as such the reconciling items between EBITDA and
decrease/(increase) in net debt may differ to amounts presented in
the 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 in the table on the next page. The
main adjustments are in respect of cash interest, capital
expenditure, tax payments and the sale of fixed assets and
businesses.
(c) The IFRS cash flow has different sub-headings to those used
in the summary cash flow.
-- Current provisions in the summary cash flow are included within change
in employee benefits and other provisions in the IFRS cash
flow.
-- The total of capital expenditure and change in capital creditors in
the summary cash flow includes additions to intangible assets
which is
shown separately in the IFRS cash flow. It also includes
capitalised
leased assets which are excluded from additions to property,
plant and
equipment and biological assets in the IFRS cash flow.
-- Other in the summary cash flow includes changes in employee benefits
and other provisions (excluding current provisions),
amortisation of
capital grants, receipt of capital grants and dividends received
from
associates which are shown separately in the IFRS cash flow.
Reconciliation of Free Cash Flow to
Cash Generated from Operations
12 months to 12 months to
31-Dec-16 31-Dec-15
EURm EURm
Free cash 303 388
flow
Add Cash interest 148 123
back:
Capital expenditure (net of change in capital creditors) 450 439
Tax payments 151 131
Less: Sale of fixed assets (3) (33)
Profit on sale of assets and businesses - non exceptional (9) (7)
Receipt of capital grants (in 'Other' in summary cash flow) (3) (2)
Dividends received from associates (in 'Other' in summary cash flow) (1) (1)
Cash generated from 1,036 1,038
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 2016, Smurfit Kappa Treasury Funding Designated
Activity Company had outstanding US$292.3 million 7.50% senior
debentures due 2025. The Group had outstanding EUR113.9 million and
STGGBP59.7 million variable funding notes issued under the EUR240
million accounts receivable securitisation programme maturing in
June 2019, together with EUR115 million variable funding notes
issued under the EUR175 million accounts receivable securitisation
programme maturing in April 2018.
Smurfit Kappa Acquisitions Unlimited Company 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 Unlimited Company and certain
subsidiaries are also party to a senior credit facility. At 31
December 2016, the Group's senior credit facility comprised term
drawings of EUR572.6 million, US$51.3 million and STGGBP106.9
million under the amortising Term A facility maturing in 2020. In
addition, as at 31 December 2016, the facility included a EUR625
million revolving credit facility of which EUR6 million was drawn
in revolver loans, with a further EUR6 million in operational
facilities including letters of credit drawn under various
ancillary facilities.
The following table provides the range of interest rates as at
31 December 2016 for each of the drawings under the various senior
credit facility loans.
Borrowing Arrangement Currency Interest Rate
Term A Facility EUR 1.229% - 1.299%
USD 2.370%
GBP 1.862%
Revolving Credit Facility EUR 0.980%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
Following acquisitions of over EUR380 million in 2015, including
the Brazilian acquisitions in December, the Group increased the
Term Loan under its Senior Credit Facility by EUR250 million, from
EUR500 million to EUR750 million on 5 February 2016. The terms
applicable to the increase, including margin, amortisation profile
and maturity date are the same as the existing Term A loan. The
proceeds were substantially applied to reduce drawings under the
revolving credit facility, thereby further improving the Group's
liquidity.
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 2016,
the Group had fixed an average of 68% 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 EUR12 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 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 2015 annual report on pages 16-17. The annual
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, for example
following Brexit or changes in world trade agreements, and
result in
an economic slowdown which was sustained over any significant
length
of time, or the sovereign debt crisis (including its impact on
the
euro) were to re-emerge or exacerbate, 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 is exposed to currency exchange rate fluctuations.
-- The Group may not be able to attract and retain suitably qualified
employees as required for its business.
-- Failure to maintain good health and safety practices may have an
adverse effect on our 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, similar to other large global companies, is susceptible to
cyber attacks with the threat to the confidentiality, integrity
and
availability of data in systems.
-- The Group is exposed to potential risks in relation to the current
political situation in Venezuela which are set out as
follows:
The Venezuelan economy remains depressed and the political
situation unpredictable, increasing the risk of future
inflationary pressures and currency devaluations. The effect
of
high inflation without a corresponding devaluation of the
exchange
rate would result in a net monetary loss which may distort some
of
the Group's key metrics. Were the exchange rate to devalue in
line
with inflation it would have an adverse effect on the
Group's
results of operations and financial position. We will continue
to
monitor events as they unfold. Net assets in Venezuela amounted
to
EUR91 million at year end.
Our Venezuelan operations have mitigated to some extent the
loss
of revenue due to the drop in corrugated volumes in the country
by
exporting paper to our operations in other Latin American
countries. This export of paper is subject to the availability
of
local raw materials to produce the paper, the quality of the
paper
being maintained to a satisfactory standard for our end
markets
and the renewal of an export licence by the Government every
five
months. There is a risk that if the quality of paper
materially
deteriorated due to a lack of raw materials or if we were
unable
to renew the export licence it would have an adverse effect on
our
results of operations.
In 2014 the Venezuelan government decreed that companies
could
only seek price increases if they had clearance that their
margins
were within certain guidelines. Our Venezuelan operations may
not
be able to 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 devaluation of currency, which
would
have an adverse effect on our results of operations in
Venezuela.
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 31-Dec-16 12 months to 31-Dec-15
Unaudited Audited
Pre-exceptional2016 Exceptional2016 Total2016 Pre-exceptional2015 Exceptional2015 Total2015
EURm EURm EURm EURm EURm EURm
Revenue 8,159 - 8,159 8,109 - 8,109
Cost of (5,690) - (5,690) (5,672) (8) (5,680)
sales
Gross 2,469 - 2,469 2,437 (8) 2,429
profit
Distribution (636) - (636) (643) - (643)
costs
Administrative (1,003) - (1,003) (1,014) - (1,014)
expenses
Other - (15) (15) - (61) (61)
operating
expenses
Operating 830 (15) 815 780 (69) 711
profit
Finance (215) - (215) (177) (2) (179)
costs
Finance 40 12 52 48 16 64
income
Share 2 - 2 3 - 3
of
associates'
profit
(after
tax)
Profit 657 (3) 654 654 (55) 599
before
income tax
Income tax (196) (186)
expense
Profit for 458 413
the
financial
year
Attributable
to:
Owners 444 400
of the
parent
Non-controlling 14 13
interests
Profit for 458 413
the
financial
year
Earnings
per
share
Basic 189.4 172.6
earnings
per
share -
cent
Diluted 187.5 169.4
earnings
per share
- cent
Consolidated Income Statement
- Fourth Quarter
3 months to 31-Dec-16 3 months to 31-Dec-15
Unaudited Unaudited
Pre-exceptional2016 Exceptional2016 Total2016 Pre-exceptional2015 Exceptional2015 Total2015
EURm EURm EURm EURm EURm EURm
Revenue 2,060 - 2,060 2,089 - 2,089
Cost of sales (1,433) - (1,433) (1,452) - (1,452)
Gross profit 627 - 627 637 - 637
Distribution costs (160) - (160) (161) - (161)
Administrative (246) - (246) (247) - (247)
expenses
Other operating - (15) (15) - (15) (15)
expenses
Operating profit 221 (15) 206 229 (15) 214
Finance costs (54) - (54) (49) - (49)
Finance income 3 - 3 22 4 26
Profit before 170 (15) 155 202 (11) 191
income tax
Income tax expense (49) (60)
Profit for the financial 106 131
period
Attributable to:
Owners of the parent 99 123
Non-controlling 7 8
interests
Profit for the financial 106 131
period
Earnings per share
Basic earnings per 42.3 52.9
share - cent
Diluted earnings 41.9 51.9
per share - cent
Consolidated Statement
of Comprehensive
Income - Twelve Months
12 months to 12 months to
31-Dec-16 31-Dec-15
Unaudited Audited
EURm EURm
Profit for the financial year 458 413
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation
adjustments:
- Arising in the year (80) (485)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 7 10
- New fair value adjustments (7) 1
into reserve
(80) (474)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (148) 37
- Movement in deferred tax 23 (10)
(125) 27
Total other comprehensive expense (205) (447)
Total comprehensive income/(expense) 253 (34)
for the financial year
Attributable to:
Owners of the parent 235 18
Non-controlling interests 18 (52)
Total comprehensive income/(expense) 253 (34)
for the financial year
Consolidated Statement of Comprehensive
Income - Fourth Quarter
3 months to 3 months to
31-Dec-16 31-Dec-15
Unaudited Unaudited
EURm EURm
Profit for the financial period 106 131
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period 43 20
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 2 2
- New fair value adjustments into reserve - (1)
45 21
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial gain/(loss) 43 (6)
- Movement in deferred tax (5) (6)
38 (12)
Total other comprehensive income 83 9
Total comprehensive income 189 140
for the financial period
Attributable to:
Owners of the parent 179 130
Non-controlling interests 10 10
Total comprehensive income 189 140
for the financial period
Consolidated Balance Sheet
31-Dec-16 31-Dec-15
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,261 3,103
Goodwill and intangible assets 2,478 2,508
Available-for-sale financial assets 21 21
Investment in associates 17 17
Biological assets 114 98
Trade and other receivables 29 34
Derivative financial instruments 42 34
Deferred income tax assets 190 200
6,152 6,015
Current assets
Inventories 779 735
Biological assets 10 8
Trade and other receivables 1,470 1,451
Derivative financial instruments 10 28
Restricted cash 7 5
Cash and cash equivalents 436 270
2,712 2,497
Total assets 8,864 8,512
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - -
Share premium 1,983 1,983
Other reserves (507) (425)
Retained earnings 853 619
Total equity attributable to owners of the parent 2,329 2,177
Non-controlling interests 174 151
Total equity 2,503 2,328
LIABILITIES
Non-current liabilities
Borrowings 3,247 3,238
Employee benefits 884 818
Derivative financial instruments 12 15
Deferred income tax liabilities 183 179
Non-current income tax liabilities 30 25
Provisions for liabilities and charges 69 52
Capital grants 14 13
Other payables 13 13
4,452 4,353
Current liabilities
Borrowings 137 85
Trade and other payables 1,705 1,672
Current income tax liabilities 21 30
Derivative financial instruments 27 10
Provisions for liabilities and charges 19 34
1,909 1,831
Total liabilities 6,361 6,184
Total equity and liabilities 8,864 8,512
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 2016 - 1,983 (425) 619 2,177 151 2,328
Profit for the - - - 444 444 14 458
financial year
Other comprehensive
income
Foreign currency - - (84) - (84) 4 (80)
translation
adjustments
Defined benefit - - - (125) (125) - (125)
pension plans
Total comprehensive - - (84) 319 235 18 253
(expense)/income
for the financial year
Hyperinflation - - - 81 81 9 90
adjustment
Dividends paid - - - (166) (166) (4) (170)
Share-based payment - - 12 - 12 - 12
Shares acquired by - - (10) - (10) - (10)
SKG Employee Trust
At 31 December 2016 - 1,983 (507) 853 2,329 174 2,503
Audited
At 1 January 2015 - 1,981 (30) 271 2,222 197 2,419
Profit for the - - - 400 400 13 413
financial year
Other comprehensive
income
Foreign currency - - (420) - (420) (65) (485)
translation
adjustments
Defined benefit - - - 27 27 - 27
pension plans
Effective portion - - 11 - 11 - 11
of changes in
fair value of cash
flow hedges
Total comprehensive - - (409) 427 18 (52) (34)
(expense)/income
for the financial year
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 61 61 7 68
adjustment
Dividends paid - - - (141) (141) (4) (145)
Share-based payment - - 28 - 28 - 28
Shares - - (14) 1 (13) - (13)
(acquired)/disposed
by SKG Employee Trust
Acquired - - - - - 3 3
non-controlling
interest
At 31 December 2015 - 1,983 (425) 619 2,177 151 2,328
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-16 31-Dec-15
Unaudited Audited
EURm EURm
Cash flows from operating activities
Profit before income tax 654 599
Net finance costs 163 115
Depreciation charge 357 338
Impairment of assets - 8
Amortisation of intangible assets 40 37
Amortisation of capital grants (2) (2)
Equity settled share-based 12 28
payment expense
Profit on purchase/sale of (13) (15)
assets and businesses
Share of associates' profit (after tax) (2) (3)
Net movement in working capital (94) (18)
Change in biological assets (4) (7)
Change in employee benefits (87) (85)
and other provisions
Other (primarily hyperinflation 12 43
adjustments)
Cash generated from operations 1,036 1,038
Interest paid (151) (128)
Income taxes paid:
Irish corporation tax paid (24) (2)
Overseas corporation tax (net (127) (129)
of tax refunds) paid
Net cash inflow from 734 779
operating activities
Cash flows from investing activities
Interest received 3 5
Business disposals 4 30
Additions to property, plant and (427) (428)
equipment and biological assets
Additions to intangible assets (13) (11)
Receipt of capital grants 3 2
Disposal of available-for-sale 13 -
financial assets
(Increase)/decrease in restricted cash (2) 2
Disposal of property, 12 39
plant and equipment
Dividends received from associates 1 1
Purchase of subsidiaries and (35) (332)
non-controlling interests
Deferred consideration paid (9) (8)
Net cash outflow from (450) (700)
investing activities
Cash flows from financing activities
Proceeds from issue of - 2
new ordinary shares
Proceeds from bond issue - 250
Proceeds from other debt issues 250 -
Purchase of own shares (net) (10) (13)
(Decrease)/increase in other (65) 106
interest-bearing borrowings
Repayment of finance leases (3) (4)
Repayment of borrowings (169) (264)
Derivative termination 13 (2)
receipts/(payments)
Deferred debt issue costs paid (3) (10)
Dividends paid to shareholders (166) (141)
Dividends paid to non-controlling (4) (4)
interests
Net cash outflow from (157) (80)
financing activities
Increase/(decrease) in cash 127 (1)
and cash equivalents
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 263 361
Currency translation adjustment 12 (97)
Increase/(decrease) in cash 127 (1)
and cash equivalents
Cash and cash equivalents 402 263
at 31 December
An analysis of the net movement in working capital is provided
in Note 11.
Notes to the Consolidated 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, graphicboard and
bag-in-box. The Company is a public limited company whose shares
are publicly traded. It is incorporated and domiciled in Ireland.
The address of its registered office is Beech Hill, Clonskeagh,
Dublin 4, D04 N2R2, Ireland.
2.Basis of Preparation and Accounting Policies
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') as adopted by the European Union ('EU'); and those parts
of the Companies Act 2014 applicable to companies reporting under
IFRS.
The financial information in this report 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
consolidated financial statements included in the Group's annual
report for the year ended 31 December 2015 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 2015. There are no new IFRS standards effective from 1
January 2016 which had a material effect on the financial
information included in this report.
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. Certain tables in the financial information may
not add precisely due to rounding.
The financial information presented in this preliminary release
does not constitute full statutory financial statements. The
preliminary release was approved by the Board of Directors. The
annual report and financial statements will be approved by the
Board of Directors and reported on by the auditors in due course.
The annual financial statements reported on by the auditors will
not contain quarterly information. Accordingly, the financial
information is unaudited. Full statutory financial statements for
the year ended 31 December 2015 have been filed with the Irish
Registrar of Companies. The audit report on those statutory
financial statements was unqualified.
3.Segmental Analyses
The Group has determined 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
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, share-based
payment expense and share of associates' profit (after tax)
('EBITDA before exceptional items').
12 months to 31-Dec-16 12 months to 31-Dec-15
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
results
Revenue 6,146 2,013 8,159 6,249 1,860 8,109
EBITDA 928 339 1,267 901 306 1,207
before
exceptional
items
Segment - (15) (15) 8 (69) (61)
exceptional
items
EBITDA 928 324 1,252 909 237 1,146
after
exceptional
items
Unallocated (31) (25)
centre
costs
Share-based (13) (34)
payment
expense
Depreciation (353) (331)
and
depletion
(net)
Amortisation (40) (37)
Impairment - (8)
of
assets
Finance (215) (179)
costs
Finance 52 64
income
Share 2 3
of
associates'
profit
(after
tax)
Profit 654 599
before
income
tax
Income (196) (186)
tax
expense
Profit 458 413
for
the
financial
year
3.Segmental Analyses (continued)
3 months to 31-Dec-16 3 months to 31-Dec-15
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue
and
results
Revenue 1,506 554 2,060 1,542 547 2,089
EBITDA 228 98 326 238 89 327
before
exceptional
items
Segment - (15) (15) 13 (28) (15)
exceptional
items
EBITDA 228 83 311 251 61 312
after
exceptional
items
Unallocated (6) (1)
centre
costs
Share-based - (2)
payment
expense
Depreciation (85) (82)
and
depletion
(net)
Amortisation (14) (13)
Finance (54) (49)
costs
Finance 3 26
income
Profit 155 191
before
income
tax
Income (49) (60)
tax
expense
Profit 106 131
for
the
financial
period
4.Exceptional Items
12 months to 12 months to
The following items are regarded 31-Dec-16 31-Dec-15
as exceptional in nature:
EURm EURm
Impairment of assets - 8
Loss on the disposal of the - 4
solidboard operations
Profit on the sale of the Nanterre site - (13)
Reorganisation and restructuring costs 15 1
Currency trading loss on change - 69
in Venezuelan translation rate
Exceptional items included 15 69
in operating profit
Exceptional finance costs - 2
Exceptional finance income (12) (16)
Exceptional items included (12) (14)
in net finance costs
Exceptional items charged within operating profit in the year to
December in 2016 amounted to EUR15 million. These were reported in
the fourth quarter and related to reorganisation and restructuring
costs in the Americas.
The exceptional finance income in 2016 related to the gain of
EUR12 million on the sale of our shareholding in the Swedish
company, IL Recycling, in the second quarter.
Exceptional items charged within operating profit in 2015
amounted to EUR69 million in total, primarily relating to a charge
of EUR69 million which represented the higher cost to our
Venezuelan operations of discharging their non-Bolivar denominated
payables following our adoption of the Simadi rate. The remaining
offsetting amounts comprised a charge of EUR12 million relating to
the solidboard operations and EUR1 million in reorganisation and
restructuring costs less the gain of EUR13 million on the sale of
the site of our former Nanterre mill.
Exceptional finance income of EUR16 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. 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 the EUR250 million bond issue in
February 2015.
5.Finance Costs and Income
12 months to 12 months to
31-Dec-16 31-Dec-15
EURm EURm
Finance costs:
Interest payable on bank 56 37
loans and overdrafts
Interest payable on other borrowings 106 100
Exceptional finance costs associated - 2
with debt restructuring
Unwinding discount element of provision 1 1
Foreign currency translation 12 16
loss on debt
Fair value loss on derivatives 17 2
not designated as hedges
Net interest cost on net 23 21
pension liability
Total finance costs 215 179
Finance income:
Other interest receivable (3) (5)
Foreign currency translation (28) (18)
gain on debt
Exceptional foreign currency - (16)
translation gain
Exceptional gain on sale of investment (12) -
Fair value gain on derivatives (5) (10)
not designated as hedges
Net monetary gain - hyperinflation (4) (15)
Total finance income (52) (64)
Net finance costs 163 115
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
12 months to 12 months to
31-Dec-16 31-Dec-15
EURm EURm
Current tax:
Europe 87 86
The Americas 69 60
156 146
Deferred tax 40 40
Income tax expense 196 186
Current tax is analysed as follows:
Ireland 14 20
Foreign 142 126
156 146
Income tax recognised in the Consolidated Statement of
Comprehensive Income
12 months to 12 months to
31-Dec-16 31-Dec-15
EURm EURm
Arising on actuarial (loss)/gain (23) 10
on defined benefit plans
The income tax expense in 2016 is EUR10 million higher than in
the comparable period. In Europe, the income tax expense is higher
by EUR6 million. This reflects the tax effects of increased
profitability and a tax rate change on deferred tax assets recorded
in prior periods. In the Americas, the income tax expense is EUR4
million higher and includes the effects of a change in the
profitability mix, the impact of a tax rate change on deferred tax
liabilities recorded in prior periods and foreign currency.
The deferred tax expense in 2016 is the same as in 2015.
However, there is an overall increase in the deferred tax expense
from the impact of tax rate changes both in Europe and the Americas
which is offset by other timing differences and credits.
The income tax expense includes a EUR3 million tax credit in
respect of exceptional items compared to a EUR3 million charge in
2015.
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-16 31-Dec-15
EURm EURm
Current service cost 29 43
Past service cost (21) (9)
Gain on settlement (5) (3)
Actuarial loss arising on other 1 1
long-term employee benefits
Net interest cost on net pension liability 22 21
Defined benefit cost 26 53
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR4 million (2015: cost of
EUR32 million). Net interest cost on net pension liability of EUR22
million (2015: EUR21 million) is included in finance costs in the
Consolidated Income Statement.
The negative past service cost of EUR21 million in 2016 relates
to the change from defined benefit to defined contribution
arrangements in a number of countries in Europe.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
31-Dec-16 31-Dec-15
EURm EURm
Present value of funded or partially (2,320) (2,195)
funded obligations
Fair value of plan assets 1,953 1,884
Deficit in funded or partially funded plans (367) (311)
Present value of wholly unfunded obligations (517) (507)
Net pension liability (884) (818)
The employee benefits provision has increased from EUR818
million at 31 December 2015 to EUR884 million at 31 December 2016,
mainly as a result of lower Eurozone and Sterling corporate bond
yields which have decreased the discount rates in the Eurozone and
Sterling area, partially offset by an increase in the fair value of
plan assets.
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 less own shares.
12 months to 12 months to
31-Dec-16 31-Dec-15
Profit attributable to owners 444 400
of the parent (EUR million)
Weighted average number of ordinary 235 232
shares in issue (million)
Basic earnings per share (cent) 189.4 172.6
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 2007 Share Incentive 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-16 31-Dec-15
Profit attributable to owners 444 400
of the parent (EUR million)
Weighted average number of ordinary 235 232
shares in issue (million)
Potential dilutive ordinary 2 4
shares assumed (million)
Diluted weighted average ordinary 237 236
shares (million)
Diluted earnings per share (cent) 187.5 169.4
Pre-exceptional
12 months to 12 months to
31-Dec-16 31-Dec-15
Profit attributable to owners 444 400
of the parent (EUR million)
Exceptional items included 3 55
in profit before
income tax (Note 4) (EUR million)
Income tax on exceptional (3) 3
items (EUR million)
Pre-exceptional profit attributable to 444 458
owners of the parent (EUR million)
Weighted average number of ordinary 235 232
shares in issue (million)
Pre-exceptional basic earnings 189.4 197.3
per share (cent)
Diluted weighted average ordinary 237 236
shares (million)
Pre-exceptional diluted earnings 187.6 193.7
per share (cent)
9.Dividends
In May 2016, the final dividend for 2015 of 48 cent per share
was paid to the holders of ordinary shares. In October 2016, an
interim dividend for 2016 of 22 cent per share was paid to the
holders of ordinary shares.
The Board is recommending a final dividend of 57.6 cent per
share for 2016 subject to the approval of the shareholders at the
AGM. It is proposed to pay the final dividend on 12 May 2017 to all
ordinary shareholders on the share register at the close of
business on 21 April 2017. The final dividend and interim dividend
are paid in May and October in each year.
10.Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Year ended 31
December
2016
Opening net book 988 2,115 3,103
amount
Reclassifications 42 (43) (1)
Additions 11 465 476
Acquisitions 10 56 66
Depreciation (48) (309) (357)
charge
Retirements and (1) (11) (12)
disposals
Hyperinflation 25 21 46
adjustment
Foreign currency (23) (37) (60)
translation
adjustment
At 31 December 1,004 2,257 3,261
2016
Year ended 31
December
2015
Opening net book 1,079 1,954 3,033
amount
Reclassifications 19 (21) (2)
Additions 7 421 428
Acquisitions 46 116 162
Depreciation (47) (291) (338)
charge
Retirements and (18) (2) (20)
disposals
Hyperinflation 17 13 30
adjustment
Foreign currency (115) (75) (190)
translation
adjustment
At 31 December 988 2,115 3,103
2015
11.Net Movement in Working Capital
12 months to 12 months to
31-Dec-16 31-Dec-15
EURm EURm
Change in inventories (60) (75)
Change in trade and other receivables (51) (49)
Change in trade and other payables 17 106
Net movement in working capital (94) (18)
12.Analysis of Net Debt
31-Dec-16 31-Dec-15
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest at 1 149
relevant interbank rate + 1.35%(5)
Facility A term loan(2)- interest at 741 494
relevant interbank rate + 1.60%(5)
US$292.3 million 7.50% senior debentures 279 270
due 2025 (including accrued interest)
Bank loans and overdrafts 167 124
Cash (443) (275)
2018 receivables securitisation 114 174
variable funding notes
2019 receivables securitisation 182 232
variable funding notes
2018 senior notes (including 488 477
accrued interest)(3)
EUR400 million 4.125% senior notes due 404 403
2020 (including accrued interest)
EUR250 million senior floating rate notes due 249 249
2020 (including accrued interest)(4)
EUR500 million 3.25% senior notes due 496 495
2021 (including accrued interest)
EUR250 million 2.75% senior notes due 249 248
2025 (including accrued interest)
Net debt before finance leases 2,927 3,040
Finance leases 14 8
Net debt including leases 2,941 3,048
(1) Revolving credit facility ('RCF') of EUR625 million (available under the senior credit facility) to be repaid in 2020.
(a) Revolver loans - EUR6 million, (b) drawn under ancillary facilities and facilities supported by letters of credit - nil and (c) other operational facilities including letters of credit - EUR6 million.
(2) Facility A term loan ('Facility A') due to be repaid in certain instalments from 2018 to 2020. In February 2016, the Group increased Facility A by EUR250 million. The proceeds were substantially applied to reduce the Group's drawings under the RCF.
(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) The margins applicable under the senior credit facility 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 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 2016 575 (22) (1,109) 168 (38) 1 (425)
Other comprehensive income
Foreign currency translation - - (84) - - - (84)
adjustments
Total other comprehensive - - (84) - - - (84)
expense
Share-based payment - - - 12 - - 12
Shares acquired by - - - - (10) - (10)
SKG Employee Trust
Shares distributed by - - - (15) 15 - -
SKG Employee Trust
At 31 December 2016 575 (22) (1,193) 165 (33) 1 (507)
At 1 January 2015 575 (33) (689) 156 (40) 1 (30)
Other comprehensive income
Foreign currency translation - - (420) - - - (420)
adjustments
Effective portion of changes in - 11 - - - - 11
fair value of cash flow hedges
Total other comprehensive - 11 (420) - - - (409)
income/(expense)
Share-based payment - - - 28 - - 28
Shares acquired by - - - - (14) - (14)
SKG Employee Trust
Shares distributed by - - - (16) 16 - -
SKG Employee Trust
At 31 December 2015 575 (22) (1,109) 168 (38) 1 (425)
14.Venezuela
Hyperinflation
As discussed more fully in the 2015 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.
In 2015 and 2016 management engaged an independent expert to
determine an estimate of the annual inflation rate. The level of
and movement in the price index at December 2016 and 2015 are as
follows:
31-Dec-16 31-Dec-15
Index at year-end 11,154.7 2,575.1
Movement in year 333.2% 206.7%
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR62 million increase
(2015: EUR14 million decrease), pre-exceptional EBITDA EUR6 million
increase (2015: EURnil) and profit after taxation EUR51 million
decrease (2015: EUR24 million decrease). In 2016, a net monetary
gain of EUR4 million (2015: EUR15 million gain) was recorded in the
Consolidated Income Statement. The impact on our net assets and our
total equity is an increase of EUR64 million (2015: EUR69 million
increase).
Exchange Control and Devaluation
In quarter one of 2016, the Venezuelan government announced
changes to its system of multiple exchange rates for the Venezuelan
Bolivar Fuerte ('VEF') as follows:
-- The Sicad and Simadi transaction systems were unified into a single
variable rate ('DICOM');
-- The DICOM rate was VEF 673.8 per US dollar at 31 December 2016; and
-- The official CENCOEX fixed rate of VEF 6.3 per US dollar has been
replaced by the DIPRO fixed rate of VEF 10.0 per US dollar.
The Group consolidates its Venezuelan operations at the variable
DICOM rate. The Group believes that DICOM is the most appropriate
rate for accounting and consolidation, as it believes that this is
the rate at which the Group extracts economic benefit.
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 2016, the Group's operations in Venezuela represented
approximately 3% (2015: 2%) of its EBITDA, 2% (2015: 2%) of its
total assets and 4% (2015: 4%) of its net assets. Cumulative
foreign translation losses arising on its net investment in these
operations amounting to EUR987 million (2015: EUR927 million) are
included in the foreign currency translation reserve.
15.Events after the balance sheet date
On 17 January 2017, the Group successfully completed the pricing
of EUR500 million of euro denominated senior notes due 2024 issued
by its wholly-owned subsidiary, Smurfit Kappa Acquisitions
Unlimited Company. The proceeds will be used to reduce indebtedness
under the Group's senior facilities agreement and existing
securitisation facilities and for general corporate purposes.
Supplementary Financial Information
Alternative Performance Measures
Certain financial measures set out in this report are not
defined under International Financial Reporting Standards ('IFRS').
An explanation for the use of these Alternative Performance
Measures ('APMs') is set out within Financial Performance
Indicators on pages 26-28 of the Group's 2015 annual report. The
key APMs of the Group are set out below.
APM Description
EBITDA Earnings before exceptional items,
share-based paymentexpense,
shares of associates' profit
(after tax), net
financecosts, income tax
expense, depreciation and
depletion (net)and intangible
assets amortisation
EBITDA Margin % EBITDA
Revenue
x 100
Operating Profit before Profit before exceptional
Exceptional Items items, net
finance costs, share ofassociates'
profit (after tax) and
income tax expense
Pre-exceptional Basic EPS (cent) Profit attributable to
owners of the parent,
adjustedfor exceptional items
included in profit before
tax andincome
tax on exceptional items
Weighted average number of
ordinary shares in issue
x 100
Return on Capital Employed % LTM (last twelve months)
pre-exceptional
operatingprofit
plus share of associates'
profit (after tax)
Average capital employed
(where capital
employedis the sum of total
equity and net debt
at the beginning
and end of the period)
x 100
Free Cash Flow Free cash flow is the result
of the cash inflows
and outflowsfrom our
operating activities,
and is before those arising
fromacquisition
and disposal activities.
Free cash flow (APM)
and a reconciliation
of free cash flow tocash
generated from operations (IFRS
measure) are includedin
the management commentary. The
IFRS cash flow isincluded
in the Consolidated Financial
Statements.
Net Debt Net debt is comprised of
borrowings net of cash
and cashequivalents
and restricted cash
Net Debt to EBITDA (LTM) times Net debt
EBITDA (LTM)
Reconciliation
of
Profit to
EBITDA
3 months to 3 months to 12 months to 12 months to
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
EURm EURm EURm EURm
Profit 106 131 458 413
for
the
financial
period
Income 49 60 196 186
tax
expense
Exceptional 15 15 15 69
items
charged
in
operating
profit
Share - - (2) (3)
of
associates'
profit
(after
tax)
Net 51 23 163 115
finance
costs
(after
exceptional
items)
Share-based - 2 13 34
payment
expense
Depreciation, 99 95 393 368
depletion
(net)
and
amortisation
EBITDA 320 326 1,236 1,182
Return on Capital Employed
Q4, 2016 Q4, 2015 Q3, 2016
EURm EURm EURm
Pre-exceptional operating 832 783 838
profit plus share
of associates' profit(after
tax) (LTM)
Total equity - current 2,503 2,328 2,356
period end
Net debt - current period end 2,941 3,048 2,953
Capital employed - 5,444 5,376 5,309
current period end
Total equity - prior period end 2,328 2,419 2,181
Net debt - prior period end 3,048 2,759 2,953
Capital employed - 5,376 5,178 5,134
prior period end
Average capital employed 5,410 5,277 5,221
Return on capital employed 15.4% 14.8% 16.1%
Supplementary
Historical
Financial
Information
EURm FY, 2015 Q1, 2016 Q2, 2016 Q3, 2016 Q4, 2016 FY, 2016
Group 13,309 3,280 3,375 3,424 3,441 13,521
and
third
party
revenue
Third 8,109 2,001 2,049 2,050 2,060 8,159
party
revenue
EBITDA 1,182 281 312 323 320 1,236
EBITDA 14.6% 14.0% 15.3% 15.7% 15.5% 15.1%
margin
Operating 711 179 211 219 206 815
profit
Profit 599 128 184 187 155 654
before
income
tax
Free 388 7 28 164 104 303
cash
flow
Basic 172.6 38.8 52.0 56.4 42.3 189.4
earnings
per
share -
cent
Weighted 232 234 234 234 235 235
average
number
of
shares
used
inEPS
calculation
(million)
Net debt 3,048 3,029 3,121 2,953 2,941 2,941
EBITDA 1,182 1,197 1,224 1,242 1,236 1,236
(LTM)
Net debt 2.58 2.53 2.55 2.38 2.38 2.38
to
EBITDA
(LTM)
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(END) Dow Jones Newswires
February 08, 2017 02:00 ET (07:00 GMT)
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