TIDMSKG
7 February: Smurfit Kappa Group plc ('SKG' or 'the Group') today
announced results for the 3 months and full year ending 31 December
2017.
2017 Fourth Quarter & Full Year | Key Financial Performance
Measures
EURm FY FY Change Q4 Q4 Change Q3 Change
2017 2016 2017 2016 2017
Revenue EUR8,562 EUR8,159 5% EUR2,208 EUR2,060 7% EUR2,121 4%
EBITDA(1) EUR1,240 EUR1,236 - EUR351 EUR320 10% EUR320 10%
EBITDA 14.5% 15.1% 15.9% 15.5% 15.1%
Margin(1)
Operating EUR820 EUR830 (1%) EUR246 EUR221 12% EUR216 14%
Profit
before
Exceptional
Items
Profit EUR576 EUR654 (12%) EUR161 EUR155 4% EUR170 (5%)
before
Income Tax
Basic EPS 177.2 189.4 (6%) 50.2 42.3 19% 52.7 (5%)
(cent)
Pre-exceptional 185.3 189.4 (2%) 57.6 47.4 22% 52.7 9%
Basic
EPS
(cent)(1)
Return on 15.0% 15.4% 14.8%
Capital
Employed(1)
Free Cash EUR307 EUR303 1% EUR109 EUR104 5% EUR152 (28%)
Flow(1)
Net EUR2,805 EUR2,941 (5%) EUR2,839 (1%)
Debt(1)
Net Debt 2.3x 2.4x 2.3x
to
EBITDA
(LTM)(1)
(1) Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 31.
Fourth Quarter and Full Year Key Points
-- Group revenue growth of 7% for the fourth quarter and 5% for the full
year
-- Fourth quarter EBITDA up 10% year-on-year with reported full year
EBITDA of EUR1,240 million
-- Full year ROCE at 15.0% in line with Group target
-- Solid free cash flow generation of EUR307 million for the year
-- Net debt to EBITDA of 2.3x
-- Final dividend increase of 12% to 64.5 cent per share
Performance Review and Outlook
Tony Smurfit, Group CEO, commented:
"I am pleased to report EBITDA for the fourth quarter of EUR351
million, an increase of 10% year-on-year. Our EBITDA margin for the
quarter at 15.9% also improved both year-on-year and on a
sequential basis. Our full-year EBITDA was EUR1,240 million, a
record for the Group, with an EBITDA margin of 14.5%.
"Our full year result was delivered against a backdrop of an
increase in excess of EUR120 million in recovered fibre costs,
generally higher raw material costs and adverse currency movements.
This improved result for the year, and more importantly for the
fourth quarter, reflects the benefits of our continued focus on
offering our customers cost effective and innovative solutions, our
capital expenditure program, input cost recovery through paper and
box price increases and generally strong markets. We also continue
to benefit from the Group's geographic reach and integrated model,
which support our customers by ensuring security of supply in very
tight markets.
"Our European business showed very strong progression for the
quarter, growing its margin to 16.5%. This strong performance came
as a result of high levels of demand across most product lines and
input cost recovery. Security of supply for our customers is key
for us and we have been investing accordingly.
"In the Americas, reported EBITDA of EUR311 million and a 14.4%
margin came in below our expectations. The result was impacted by a
number of factors including increased recovered fibre costs,
adverse weather events in the latter half of the year, the
continued rise in containerboard prices where we are a significant
net buyer of approximately 300,000 tonnes and adverse currency
moves. During the fourth quarter, some countries experienced an
unexpected slowdown which now shows signs of reversing. The region
has been progressing its input cost recovery through 2017 and this
will continue into 2018.
"Our two most recent acquisitions in Russia and Greece are
integrating well. The Group remains ready to further expand our
geographic footprint through acquisition where we can deliver
long-term value creation.
"Our net debt to EBITDA ratio at 2.26x is at the lower end of
our stated range.
"As we start 2018, the benefits of paper-based packaging are
being increasingly recognised as the most sustainable,
biodegradable solution for both our customers and their end
customers. SKG continues to invest and develop these innovative and
sustainable packaging applications which will further broaden our
product portfolio. These investments will continue to ensure
security of supply for our customers and help them address growing
trends such as e-commerce and increasing supply chain
complexity.
"SKG is a leader in the area of corporate social responsibility,
which has been recognised by a number of third party organisations,
and we are committed to supporting the communities in which we
operate.
"While we continue to experience currency volatility, wage
inflation as well as higher energy and other input costs, 2018 has
seen the continuation of good demand in Europe, further input cost
recovery and signs of improvement in our Americas business. The
Group has exciting plans in place to continue our development and
sustain our industry leadership into the future".
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 46,000 employees in approximately 370 production sites
across 35 countries and with revenue of EUR8.6 billion in 2017. We
are located in 22 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.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
Garrett Quinn Melanie Farrell or Mark Kenny
Smurfit Kappa FTI Consulting
T: +353 1 202 71 80 T: +353 1 663 36 80
E:ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2017 Fourth Quarter & Full Year | Performance Overview
The Group reported EBITDA for the quarter of EUR351 million,
EUR31 million up on the same period last year. EBITDA in Europe was
EUR41 million higher, offset by a fall of EUR11 million in the
Americas with lower Group Centre costs. The underlying1 move in
EBITDA was an increase of 15%, reflecting higher earnings in both
regions.
The EBITDA margin of 15.9% for the fourth quarter improved from
15.1% in the third quarter driven primarily by improving margins in
our European segment. The Group continued its recovery of raw
material cost pressures through corrugated price increases in 2017
and expects further cost recovery as we progress through 2018. The
improved sequential and year-on-year margins reflect the benefits
of our capital spend programme, the strength of our integrated
model, investment in innovation and sustainability and the ongoing
cost recovery initiatives across our operations.
In Europe, for the full year, EBITDA increased by 3% to EUR955
million. The benefits of prior years' capital investments, input
cost recovery together with strong volume growth were fundamental
in achieving this result. Reported box volume growth was 5% in the
fourth quarter and over 3% for the full year. Adjusting for
acquisitions and working days, the year-on-year box volume growth
for the quarter was 4% and over 3% for the year.
In Europe, average recovered fibre input prices for the fourth
quarter were 2% higher year-on-year and 14% higher for the full
year.
The European markets for both testliner and kraftliner were
stable in the fourth quarter. The Group announced a EUR60/tonne
price increase at the end of December across all grades, the
majority of which will be implemented in February. This
announcement was driven by continued strong demand, increasing
input costs and a volatile recovered fibre outlook. Demand for both
grades remains strong with our integrated position a key
differentiator in meeting our customers' packaging requirements at
a time of scarce availability, especially in kraftliner.
In 2017, the Group completed the acquisitions of Soyuz, near
Moscow in Russia, and Chatziioannou, near Thessaloniki in
Greece.
Recovered fibre costs were also higher year-on-year in the
Americas, 25% higher in the fourth quarter and 26% higher for the
full year. The Group continues to anticipate a long-term upward
trend in pricing for this raw material.
In the Americas, EBITDA increased to EUR87 million in the fourth
quarter from EUR79 million in the third quarter. However, this was
below the EUR98 million in the fourth quarter of 2016. For the full
year, EBITDA in the region was down 8% on 2016. Export pricing for
kraftliner from the US into Latin America is up significantly with
third party benchmarks reporting a 44% increase year-on-year for
the quarter. Our short position in the region, where we buy
approximately 300,000 tonnes of kraftliner, together with higher
recovered fibre costs, had a significant adverse impact on the
year's results. The Group continues to recover these input cost
pressures as we move into 2018. The region will also benefit in
2018 from the investments made in our new mill in Los Reyes in
Mexico as well as the expansion of the Papelsa mill in Colombia. At
full run rate, these two projects will integrate an additional
140,000 tonnes of containerboard into our corrugated system.
The Group reported a free cash flow of EUR307 million in 2017
compared to EUR303 million in 2016. In January 2017, SKG issued a
EUR500 million bond at a historically low rate for the Group of
2.375% and the average maturity profile of the Group's debt now
stands at 3.4 years with an average interest rate of 4.1%. Net debt
to EBITDA was 2.3x at the year end. The Group remains well
positioned within its Ba1/BB+/BB+ credit rating.
2017 Fourth Quarter | Financial Performance
Revenue for the quarter was EUR2,208 million, up 7% on the same
period last year, or 9% on an underlying basis. Revenue in Europe
was up 8% or EUR124 million, driven predominantly by underlying
revenue growth with a small contribution from acquisitions. Revenue
in the Americas was up 4% or EUR24 million with underlying revenue
growth of 14%.
_______________1 Underlying in relation to financial measures
throughout this report excludes acquisitions, disposals, currency
and hyperinflation movements where applicable
EBITDA for the fourth quarter was up 10% to EUR351 million with
earnings growth of 18% in Europe offset by reduced earnings in the
Americas of 12%. On an underlying basis, Group EBITDA was up 15% in
the quarter.
Exceptional items charged within operating profit in the fourth
quarter of 2017 amounted to EUR23 million. EUR12 million related to
reorganisation and restructuring costs in the Americas and EUR11
million related to an impairment charge on property, plant and
equipment in Europe and the Americas.
Exceptional items charged within operating profit in the fourth
quarter of 2016 amounted to EUR15 million and related to
reorganisation and restructuring costs in the Americas.
Net finance costs at EUR62 million were EUR11 million higher
than in 2016, primarily as the result of increased non-cash
costs.
At EUR40 million, cash interest was EUR2 million higher than in
the fourth quarter of 2016.
With the EUR25 million increase in pre-exceptional operating
profit partly offset by higher net pre-exceptional finance costs
and higher exceptional items, the profit before income tax of
EUR161 million was EUR6 million higher than in 2016.
The income tax expense was EUR41 million compared to EUR49
million in 2016.
Pre-exceptional basic EPS was 57.6 cent for the quarter to
December 2017 (2016: 47.4 cent), an increase of 22%
year-on-year.
2017 Full year | Financial Performance
Revenue for the full year was EUR8,562 million, up 5% on the
same period last year, or 6% on an underlying basis. Revenue in
Europe was up EUR258 million or 4%, driven predominantly by
underlying revenue growth. Revenue in the Americas was up 7% or
EUR145 million with underlying revenue growth of 12%.
EBITDA for the full year was EUR1,240 million, EUR4 million
ahead of 2016, with higher earnings in Europe and lower Group
centre costs partly offset by lower earnings in the Americas.
Exceptional items charged within operating profit of EUR23
million and EUR15 million for 2017 and 2016 respectively, arose
entirely in the fourth quarter of each year.
Net pre-exceptional finance costs at EUR219 million were EUR44
million higher than in 2016, primarily as a result of an increase
in cash interest and a swing of EUR28 million from a net monetary
gain relating to hyperinflation in 2016 to a loss in 2017. Cash
interest was EUR10 million higher year-on-year.
The exceptional finance cost of EUR2 million in 2017 represented
the accelerated amortisation of issue costs relating to the debt
within our senior credit facility which was paid down with the
proceeds of the EUR500 million bond issue in January 2017.
Exceptional finance income in 2016 amounted to EUR12 million in
relation to the profit on the sale of our shareholding in the
Swedish company IL Recycling.
With a EUR10 million decrease in pre-exceptional operating
profit impacted by higher net pre-exceptional finance costs, lower
earnings from associates and higher exceptional items, the profit
before income tax of EUR576 million was EUR78 million lower than in
2016.
The income tax expense was EUR153 million compared to EUR196
million in 2016, the decrease of EUR43 million in the expense
largely reflected moves in profitability and non-cash deferred tax
credits.
Basic EPS for the full year of 2017 was 177.2 cent, 6% lower
than the 189.4 cent earned in the same period of 2016. On a
pre-exceptional basis, EPS was 185.3 cent for the full year, 2%
lower than the 189.4 cent in 2016.
2017 Fourth Quarter and Full Year | Free Cash Flow
Free cash flow in 2017 was EUR307 million compared to EUR303
million in 2016, an increase of EUR4 million. The year-on-year
increase reflected marginally higher EBITDA and lower 'other'
outflows offset partially by higher cash interest paid, a higher
working capital outflow and slightly higher capital outflows.
The working capital move in the year to December was an outflow
of EUR112 million compared to EUR95 million in 2016. The outflow in
2017 was the combination of an increase in stocks and debtors
partly offset by an increase in creditors. Working capital amounted
to EUR644 million at December 2017 (2016: EUR573 million),
representing 7.3% of annualised revenue compared to 8.1% at
September 2017 and 7.0% at December 2016.
Capital expenditure amounted to EUR430 million in the year to
December 2017 and equated to 109% of depreciation, compared to 127%
in 2016.
Cash interest at EUR158 million in 2017 was EUR10 million higher
than in 2016, mainly as a result of the impact of the bond issued
in January 2017 as well as our exposure to the relatively high
local interest rates in Latin America.
Tax payments were EUR154 million, which were EUR3 million higher
than in 2016. This is primarily due to the timing of payments.
2017 Fourth Quarter and Full Year | Capital Structure
Net debt was EUR2,805 million at the end of December, resulting
in a net debt to EBITDA ratio of 2.3x compared to 2.3x at the end
of September 2017 and 2.4x at the end of 2016. The Group's balance
sheet continues to provide 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 2017, the Group's average interest rate was 4.1%
compared to 4.3% at 31 December 2016. The Group's diversified
funding base and long dated maturity profile of 3.4 years provide a
stable funding outlook. In terms of liquidity, the Group held cash
balances of EUR539 million at the end of the year, which was
further supplemented by available commitments under its revolving
credit facility of approximately EUR834 million.
2017 Fourth Quarter and 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 2017, the Board
is recommending a final dividend of 64.5 cent per share, a 12%
increase year-on-year. Combined with an interim dividend of 23.1
cent per share paid in October 2017, this will bring the total
dividend to 87.6 cent, a 10% increase year-on-year.
It is proposed to pay the final dividend on 11 May 2018 to all
ordinary shareholders on the share register at the close of
business on 13 April 2018. As in previous years, the 2018 dividend
will be paid in two parts, an interim dividend payable in October
2018 and a final dividend payable in May 2019.
2017 Fourth Quarter and Full Year | Semi-Annual Reporting
In common with the majority of our FTSE 100 listed peers and
reflective of a focus on the longer term strategic direction of the
Group, we are considering a move from full quarterly to semi-annual
reporting together with trading updates on the Group's performance
following the end of its first quarter and third quarter. The Group
remains committed to full and transparent disclosure in accordance
with the requirements of companies listed on the London Stock
Exchange and the Irish Stock Exchange.
2017 Fourth Quarter and Full Year | Commercial Offering and
Innovation
The Group was recognised with 43 awards for design, print and
sustainability across our global operations in 2017, with 17 awards
in the fourth quarter alone. These awards were spread across
Colombia, the Czech Republic, France, Germany, Ireland, the
Netherlands, Poland, Russia, Switzerland and the United
Kingdom.
During the fourth quarter, the Group continued to expand its
network of global experience centres with the opening in October of
our first Experience Centre in South America in Cali, Colombia. The
expansion of our global experience centre network continues to
drive real value for customers and fundamentally changes how
corrugated packaging is seen within our customers' world. The Group
plans to open an Experience Centre in Mexico City in the first
quarter of 2018.
In 2017, the Group added to the existing portfolio of industry
leading business applications that help our customers win in their
marketplace. Our unique eCommerce packaging service, eSmart,
launched in October 2017, allows our experts to scrutinise and
optimise the performance of our customers packaging across 12
different areas, from optimising their planning and increasing
supply chain efficiency to delivering a positive customer
experience. SupplySmart, launched in September 2017, is a
combination of unique tools, data and expertise, enabling our
customers to optimise the role of packaging across their supply
chains, giving them reassurance that they can make fully risk
assessed decisions that will deliver measurable cost savings.
These tools complement ShelfSmart, launched in 2016, an
application that allows our brand owners to use the Group's
technology to evaluate, measure and validate their on-shelf shopper
marketing strategies in test conditions, rapidly delivering
optimised Shelf-Ready Packaging that disrupts and engages
shoppers.
In the week beginning 26 February 2018, the Group will host its
customers at the Global Experience Centre in Amsterdam to discuss
the challenges and solutions to operating in the modern eCommerce
environment. Experts will be available to all the Group's customers
to help them better understand how the right packaging can help
deliver the right customer experience in the most efficient manner
and for the lowest cost.
2017 Fourth Quarter and Full Year | Regional Performance
Review
Europe
The European segment delivered a 3% increase in full year EBITDA
to EUR955 million in 2017. This was achieved despite increased raw
material input costs and adverse currency impacts. The improved
result was delivered through the benefits of our capital spend
programme, ongoing input cost recovery and strong growth in most
markets. EBITDA margin for the year was 14.9% against 15.1% in
2016, and 16.5% against 15.1% in 2016 for the quarter.
The Group's differentiated market offering increasingly
positions SKG as a key solutions provider to our customers,
delivering real, tangible benefits via increased sales to their
customers, reduced costs in their supply chain and by providing the
most sustainable packaging solutions in the market.
The strength of the Group's European integrated model has
delivered security of supply to all our customers in what has been
an extremely tight market. This security of supply ensures our
customers have a sustainable, biodegradable packaging solution that
meets their supply chain requirements, available at all times and
from certified sustainable sources.
Box volumes grew by 5% in the fourth quarter or 6% on a days
adjusted basis, net of acquisitions the growth was 4% on a days
adjusted basis for the quarter. The growth was broad-based across
most sectors and geographies with strong growth in eCommerce
customers across the region.
Input cost recovery in corrugated pricing continued to progress
in the fourth quarter with further progress expected in 2018.
In the fourth quarter of 2017, the price of recovered fibre in
our European business was up 2% year-on-year, though down
sequentially, it continued to be a headwind year-on-year. For the
full year 2017, recovered fibre was up over 13%, or a headwind
against 2016 for our paper division of approximately EUR80 million.
The Group continues to anticipate a long-term upward trend in
recovered fibre pricing.
Kraftliner has remained in tight supply through 2017 with the
Group implementing price increases totalling EUR150 per tonne
during the year. As in the case of recycled containerboard, with
demand for kraftliner containerboard remaining robust, the Group
announced a further price increase of EUR60 per tonne in December,
the majority of which will be implemented in February. The Group
plans to carry out significant maintenance on its French kraftliner
mill during the month of March which will cause a reduction in
output of 40,000 tonnes in 2018.
In recycled containerboard, price increases of over EUR100 per
tonne achieved earlier in the year were maintained, buoyed by
strong demand. Due to increased demand, rising input costs in raw
materials, energy, chemicals and labour, and a volatile outlook for
recovered fibre costs, the Group announced a further price increase
of EUR60 per tonne in December, the majority of which will be
implemented in February.
The Americas
The Americas segment reported a year-on-year reduction in EBITDA
of 12% for the quarter and 8% for the year, delivering EUR87
million and EUR311 million respectively. The EBITDA margin in the
Americas reduced sequentially in the fourth quarter from 15.4% to
15.0% and for the year to 14.4% from 16.8% in 2016.
The results were impacted by a number of factors including
increased export prices for containerboard from the US into Latin
America, where our system is short approximately 300,000 tonnes of
kraftliner, increased recovered fibre costs, adverse currency
movements, adverse natural events and some countries that
experienced an unexpected slowdown in the fourth quarter which now
shows signs of reversing.
Full year reported corrugated volumes increased by 2%
year-on-year excluding Venezuela. Within the region, some countries
did not perform as well as anticipated.
In Colombia, corrugated volumes were up 2% for the year with a
contraction in demand since September as a combination of higher
interest rates and local VAT rates impacted local consumption in
the country, which is expected to normalise in 2018. The country is
also set to benefit from continued input cost recovery and the ramp
up of the Papelsa Mill expansion which started up in late 2017 and
at full run-rate will deliver an additional 40,000 tonnes of
recycled containerboard for integration.
In Mexico, corrugated volumes were up 3% for the year.
Corrugated volumes in the fourth quarter were flat year-on-year
with improved sequential margins in the fourth quarter as the Group
prioritised input cost recovery over volume. We expect both margins
to improve and volumes to recover as we progress through 2018 with
the region also benefitting from the ramp-up of the Los Reyes mill
which started mid-2017 and will deliver an additional 100,000
tonnes of recycled containerboard for integration at full
run-rate.
In the US, our margins and profitability improved year-on-year
in the fourth quarter as price increases progressed and our Texas
Mill continues to perform well. For both the quarter and the year,
our box volumes were lower due to some rationalisation projects in
our operations in California, along with the continued impact of
natural events during the second half of the year.
Our Argentinean business had a difficult year due to macro
economic reforms which now seem to be showing signs of progress as
we enter 2018. In Brazil, the economy continues to show signs of
recovery. Corrugated volumes were up 10% year-on-year for the full
year and with relatively stable raw material costs and ongoing
input cost recovery, Brazil has reported a strong set of results up
significantly on 2016. Volume growth in the fourth quarter in our
other Americas operations was positive. Volumes for 2018 are
expected to improve as we progress through the year, having started
well.
In Venezuela, our corrugated shipments were down 35% in 2017
compared to 2016. However, the Group's operations continue to
perform in extremely difficult circumstances and we continue to
export paper to other SKG operations in the region. The macro
situation remains uncertain and we continue to monitor events as
they unfold. The business represented 2% of Group EBITDA in 2017
(2016: 3%). As a result of higher inflation in 2017, net assets in
Venezuela increased to EUR128 million as at 31 December 2017 (31
December 2016: EUR91 million).
Summary Cash Flow
Summary cash flows(1)for the fourth quarter and twelve
months are set out in the following table.
3 months to 3 months to 12 months to 12 months to
31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16
EURm EURm EURm EURm
EBITDA 351 320 1,240 1,236
Exceptional items (12) (15) (12) (15)
Cash interest (40) (38) (158) (148)
expense
Working capital 8 15 (112) (95)
change
Current 3 (2) (2) (8)
provisions
Capital (170) (177) (430) (499)
expenditure
Change in capital 30 48 (28) 49
creditors
Tax paid (46) (34) (154) (151)
Sale of fixed - 1 5 3
assets
Other (15) (14) (42) (69)
Free cash flow 109 104 307 303
Share issues - - 1 -
Purchase of own 1 - (10) (10)
shares (net)
Sale - 4 5 17
of businesses
and investments
Purchase of (17) (4) (63) (44)
businesses
and investments
Dividends (55) (53) (195) (170)
Derivative (5) 13 (6) 13
termination
(payments)/receipts
Net cash inflow 33 64 39 109
Net debt acquired (9) (1) (6) (1)
Deferred debt (3) (2) (12) (10)
issue
costs amortised
Currency 13 (49) 115 9
translation
adjustment
Decrease in 34 12 136 107
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-17 31-Dec-16
EURm EURm
Free cash 307 303
flow
Add Cash interest 158 148
back:
Capital expenditure (net of change in capital creditors) 458 450
Tax payments 154 151
Less: Sale of fixed assets (5) (3)
Profit on sale of assets and businesses - non-exceptional (9) (9)
Receipt of capital grants (in 'Other' in summary cash flow) (4) (3)
Dividends received from associates (in 'Other' in summary cash flow) (1) (1)
Cash generated from 1,058 1,036
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 2017, Smurfit Kappa Treasury Funding DAC had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR9 million and STGGBP70.9 million variable
funding notes issued under the EUR240 million accounts receivable
securitisation programme maturing in June 2019, together with EUR5
million variable funding notes issued under the EUR175 million
accounts receivable securitisation programme maturing in February
2022.
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, EUR500 million 2.375% senior notes due
2024 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 2017, the Group's
senior credit facility comprised term drawings of EUR312.6 million,
US$55.8 million and STGGBP113.5 million under the amortising Term A
facility maturing in 2020. In addition, at 31 December 2017, the
facility included an EUR845 million revolving credit facility of
which EUR6 million was drawn in revolver loans, with a further EUR5
million in operational facilities including letters of credit drawn
under various ancillary facilities.
The following table provides the range of interest rates at 31
December 2017 for each of the drawings under the various senior
credit facility loans.
Borrowing Arrangement Currency Interest Rate
Term A Facility EUR 1.229% - 1.271%
USD 3.169%
GBP 2.090%
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.
Capital Resources (continued)
In January 2017, the Group issued EUR500 million of seven-year
euro denominated senior notes at a coupon of 2.375%, the proceeds
of which were used to prepay term debt under the senior credit
facility, reduce indebtedness under existing securitisation
facilities and for general corporate purposes. In February 2017,
the Group increased the revolving credit facility under the senior
credit facility by EUR220 million thereby further enhancing
liquidity.
In May 2017, the Group amended, restated and extended its EUR175
million 2018 receivables securitisation programme, which utilises
the Group's receivables in Austria, Belgium, Italy and the
Netherlands, extending the maturity to 2022 and reducing the margin
on the variable funding notes from 1.70% to 1.375%.
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 2017,
the Group had fixed an average of 79% 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, EUR500
million 2.375% senior notes due 2024, 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 EUR8 million over the
following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR6 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the
management process throughout the Group. Risks are identified,
evaluated and appropriate risk management strategies are
implemented at each level.
The 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 2016 annual report on pages 30-35. 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 climate were to deteriorate, especially as a result of
Brexit, and result in an increased economic slowdown which
was
sustained over any significant length of time, or the sovereign
debt
crisis (including its impact on the euro) were to re-emerge
or
exacerbate as a result of Brexit, it could adversely affect
the
Group's financial position and results of the 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 the Group's 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 its systems.
-- The Group is exposed to potential risks in relation to the political
instability 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 our results
of
operations in Venezuela. We will continue to monitor events
as
they unfold.
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
six
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 12 months to 31-Dec-16
31-Dec-17
Unaudited Audited
Pre-exceptional2017 Exceptional2017 Total2017 Pre-exceptional2016 Exceptional2016 Total2016
EURm EURm EURm EURm EURm EURm
Revenue 8,562 - 8,562 8,159 - 8,159
Cost of sales (5,997) (11) (6,008) (5,690) - (5,690)
Gross profit 2,565 (11) 2,554 2,469 - 2,469
Distribution (667) - (667) (636) - (636)
costs
Administrative (1,078) - (1,078) (1,003) - (1,003)
expenses
Other operating - (12) (12) - (15) (15)
expenses
Operating 820 (23) 797 830 (15) 815
profit
Finance costs (248) (2) (250) (215) - (215)
Finance income 29 - 29 40 12 52
Share - - - 2 - 2
of associates'
profit(after
tax)
Profit before 601 (25) 576 657 (3) 654
income tax
Income tax (153) (196)
expense
Profit for the 423 458
financial year
Attributable
to:
Owners of the 417 444
parent
Non-controlling 6 14
interests
Profit for the 423 458
financial year
Earnings per
share
Basic earnings 177.2 189.4
per
share - cent
Diluted 175.8 187.5
earnings
per share
- cent
Consolidated Income Statement - Fourth Quarter
3 months to 3 months to 31-Dec-16
31-Dec-17
Unaudited Unaudited
Pre-exceptional2017 Exceptional2017 Total2017 Pre-exceptional2016 Exceptional2016 Total2016
EURm EURm EURm EURm EURm EURm
Revenue 2,208 - 2,208 2,060 - 2,060
Cost of sales (1,515) (11) (1,526) (1,433) - (1,433)
Gross profit 693 (11) 682 627 - 627
Distribution (170) - (170) (160) - (160)
costs
Administrative (277) - (277) (246) - (246)
expenses
Other operating - (12) (12) - (15) (15)
expenses
Operating 246 (23) 223 221 (15) 206
profit
Finance costs (70) - (70) (54) - (54)
Finance income 8 - 8 3 - 3
Profit before 184 (23) 161 170 (15) 155
income tax
Income tax (41) (49)
expense
Profit for the 120 106
financial
period
Attributable
to:
Owners of the 118 99
parent
Non-controlling 2 7
interests
Profit for the 120 106
financial
period
Earnings per
share
Basic earnings 50.2 42.3
per
share - cent
Diluted 49.8 41.9
earnings
per share
- cent
Consolidated Statement of Comprehensive Income - Twelve
Months
12 months to 12 months to
31-Dec-17 31-Dec-16
Unaudited Audited
EURm EURm
Profit for the financial year 423 458
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial year (215) (80)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 8 7
- New fair value adjustments into reserve (3) (7)
(210) (80)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (9) (148)
- Movement in deferred tax 1 23
(8) (125)
Total other comprehensive expense (218) (205)
Total comprehensive income 205 253
for the financial year
Attributable to:
Owners of the parent 225 235
Non-controlling interests (20) 18
Total comprehensive income 205 253
for the financial year
Consolidated Statement of Comprehensive Income - Fourth
Quarter
3 months to 3 months to
31-Dec-17 31-Dec-16
Unaudited Unaudited
EURm EURm
Profit for the financial period 120 106
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial period (57) 43
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 2 2
(55) 45
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/profit (2) 43
- Movement in deferred tax - (5)
(2) 38
Total other comprehensive (expense)/income (57) 83
Total comprehensive income 63 189
for the financial period
Attributable to:
Owners of the parent 65 179
Non-controlling interests (2) 10
Total comprehensive income 63 189
for the financial period
Consolidated Balance Sheet
31-Dec-17 31-Dec-16
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,242 3,261
Goodwill and intangible assets 2,427 2,478
Available-for-sale financial assets 21 21
Investment in associates 13 17
Biological assets 110 114
Trade and other receivables 27 29
Derivative financial instruments 3 42
Deferred income tax assets 200 190
6,043 6,152
Current assets
Inventories 838 779
Biological assets 11 10
Trade and other receivables 1,558 1,470
Derivative financial instruments 16 10
Restricted cash 9 7
Cash and cash equivalents 530 436
2,962 2,712
Total assets 9,005 8,864
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - -
Share premium 1,984 1,983
Other reserves (678) (507)
Retained earnings 1,202 853
Total equity attributable to owners of the parent 2,508 2,329
Non-controlling interests 151 174
Total equity 2,659 2,503
LIABILITIES
Non-current liabilities
Borrowings 2,671 3,247
Employee benefits 848 884
Derivative financial instruments 26 12
Deferred income tax liabilities 148 183
Non-current income tax liabilities 33 30
Provisions for liabilities and charges 62 69
Capital grants 19 14
Other payables 17 13
3,824 4,452
Current liabilities
Borrowings 673 137
Trade and other payables 1,779 1,705
Current income tax liabilities 37 21
Derivative financial instruments 10 27
Provisions for liabilities and charges 23 19
2,522 1,909
Total liabilities 6,346 6,361
Total equity and liabilities 9,005 8,864
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 2017 - 1,983 (507) 853 2,329 174 2,503
Profit for the - - - 417 417 6 423
financial year
Other comprehensive
income
Foreign - - (189) - (189) (26) (215)
currency
translationadjustments
Defined benefit - - - (8) (8) - (8)
pension plans
Effective portion - - 5 - 5 - 5
of changes in
fairvalue of cash
flow hedges
Total - - (184) 409 225 (20) 205
comprehensive(expense)/income
for thefinancial year
Shares issued - 1 - - 1 - 1
Purchase - - - - - (15) (15)
of
non-controllinginterests
Hyperinflation - - - 131 131 16 147
adjustment
Dividends paid - - - (191) (191) (4) (195)
Share-based payment - - 23 - 23 - 23
Net shares acquired by - - (10) - (10) - (10)
SKGEmployee Trust
At 31 December 2017 - 1,984 (678) 1,202 2,508 151 2,659
Audited
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 - - (84) - (84) 4 (80)
currency
translationadjustments
Defined benefit - - - (125) (125) - (125)
pension plans
Total - - (84) 319 235 18 253
comprehensive(expense)/income
for thefinancial year
Hyperinflation - - - 81 81 9 90
adjustment
Dividends paid - - - (166) (166) (4) (170)
Share-based payment - - 12 - 12 - 12
Net shares acquired by - - (10) - (10) - (10)
SKGEmployee Trust
At 31 December 2016 - 1,983 (507) 853 2,329 174 2,503
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-17 31-Dec-16
Unaudited Audited
EURm EURm
Cash flows from operating activities
Profit before income tax 576 654
Net finance costs 221 163
Depreciation charge 360 357
Impairment of assets 11 -
Amortisation of intangible assets 40 40
Amortisation of capital grants (2) (2)
Equity settled share-based payment expense 23 12
Profit on sale/purchase of (9) (13)
assets and businesses
Share of associates' profit (after tax) - (2)
Net movement in working capital (110) (94)
Change in biological assets (4) (4)
Change in employee benefits (54) (87)
and other provisions
Other (primarily hyperinflation adjustments) 6 12
Cash generated from operations 1,058 1,036
Interest paid (161) (151)
Income taxes paid:
Irish corporation tax paid (14) (24)
Overseas corporation tax (net (140) (127)
of tax refunds) paid
Net cash inflow from operating activities 743 734
Cash flows from investing activities
Interest received 3 3
Business disposals 4 4
Additions to property, plant and (442) (427)
equipment and biological assets
Additions to intangible assets (16) (13)
Receipt of capital grants 4 3
Disposal of available-for-sale - 13
financial assets
Increase in restricted cash (2) (2)
Disposal of property, plant and equipment 14 12
Disposal of associates 1 -
Dividends received from associates 1 1
Purchase of subsidiaries (49) (35)
Deferred consideration paid (3) (9)
Net cash outflow from investing activities (485) (450)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 1 -
Proceeds from bond issue 500 -
Proceeds from other debt issues - 250
Purchase of own shares (net) (10) (10)
Purchase of non-controlling interests (7) -
Decrease in other interest-bearing borrowings (78) (65)
Repayment of finance leases (2) (3)
Repayment of borrowings (366) (169)
Derivative termination (payments)/receipts (6) 13
Deferred debt issue costs paid (10) (3)
Dividends paid to shareholders (191) (166)
Dividends paid to non-controlling interests (4) (4)
Net cash outflow from financing activities (173) (157)
Increase in cash and cash equivalents 85 127
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 402 263
Currency translation adjustment 16 12
Increase in cash and cash equivalents 85 127
Cash and cash equivalents at 31 December 503 402
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 2016 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 2016. There are no new IFRS standards effective from 1
January 2017 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 2016 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 EBITDA(1)
12 months to 31-Dec-17 12 months to 31-Dec-16
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 6,404 2,158 8,562 6,146 2,013 8,159
EBITDA before 955 311 1,266 928 339 1,267
exceptional
items
Segment - (12) (12) - (15) (15)
exceptional
items
EBITDA after 955 299 1,254 928 324 1,252
exceptional
items
Unallocated (26) (31)
centre
costs
Share-based (24) (13)
payment
expense
Depreciation (356) (353)
and
depletion (net)
Amortisation (40) (40)
Impairment (11) -
of assets
Finance costs (250) (215)
Finance income 29 52
Share - 2
of associates'
profit (after
tax)
Profit before 576 654
income tax
Income tax (153) (196)
expense
Profit for the 423 458
financial year
(1) EBITDA is defined within Alternative Performance Measures
set out in Supplementary Financial Information.
3.Segmental Analyses (continued)
3 months to 31-Dec-17 3 months to 31-Dec-16
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 1,630 578 2,208 1,506 554 2,060
EBITDA before 269 87 356 228 98 326
exceptional
items
Segment - (12) (12) - (15) (15)
exceptional
items
EBITDA after 269 75 344 228 83 311
exceptional
items
Unallocated (5) (6)
centre
costs
Share-based (11) -
payment
expense
Depreciation (84) (85)
and
depletion (net)
Amortisation (10) (14)
Impairment (11) -
of assets
Finance costs (70) (54)
Finance income 8 3
Profit before 161 155
income tax
Income tax (41) (49)
expense
Profit for the 120 106
financial
period
4.Exceptional Items
12 months to 12 months to
The following items are regarded 31-Dec-17 31-Dec-16
as exceptional in nature:
EURm EURm
Impairment of assets 11 -
Reorganisation and restructuring costs 12 15
Exceptional items included 23 15
in operating profit
Exceptional finance costs 2 -
Exceptional finance income - (12)
Exceptional items included 2 (12)
in net finance costs
Total exceptional items 25 3
Exceptional items charged within operating profit in the year
ended to December 2017 amounted to EUR23 million. These were
reported in the fourth quarter and comprised impairment losses of
EUR11 million relating to property, plant and equipment in one of
our European mills and a corrugated plant in the Americas. The
remaining EUR12 million related to reorganisation and restructuring
costs in the Americas. In 2016, we charged EUR15 million in the
fourth quarter in respect of reorganisation and restructuring costs
in the Americas.
Exceptional finance costs of EUR2 million arose in the first
quarter of 2017 and 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 January's EUR500 million
bond issue. 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.
5.Finance Costs and Income
12 months to 12 months to
31-Dec-17 31-Dec-16
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 52 56
Interest payable on finance leases 1 -
and hire purchase contracts
Interest payable on other borrowings 119 106
Exceptional finance costs associated 2 -
with debt restructuring
Unwinding discount element of provision 1 1
Foreign currency translation loss on debt 27 12
Fair value loss on derivatives - 17
not designated as hedges
Net interest cost on net pension liability 24 23
Net monetary loss - hyperinflation 24 -
Total finance costs 250 215
Finance income:
Other interest receivable (3) (3)
Foreign currency translation gain on debt (14) (28)
Exceptional gain on sale of investment - (12)
Fair value gain on derivatives (12) (5)
not designated as hedges
Net monetary gain - hyperinflation - (4)
Total finance income (29) (52)
Net finance costs 221 163
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
12 months to 12 months to
31-Dec-17 31-Dec-16
EURm EURm
Current tax:
Europe 143 87
The Americas 48 69
191 156
Deferred tax (38) 40
Income tax expense 153 196
Current tax is analysed as follows:
Ireland 20 14
Foreign 171 142
191 156
Income tax recognised in the Consolidated Statement of
Comprehensive Income
12 months to 12 months to
31-Dec-17 31-Dec-16
EURm EURm
Arising on defined benefit plans (1) (23)
The income tax expense in 2017 is EUR43 million lower than in
the comparable period in 2016.
The current tax expense has increased by EUR35 million compared
to the prior period. In Europe the current tax expense is EUR56
million higher. The Group's historic tax losses have now been fully
utilised in a number of countries and the impact of this, together
with other timing items, is included in the increased current tax
expense in 2017. In the Americas, the current tax expense is EUR21
million lower and this reflects the tax effects of lower
profitability.
There is a deferred tax credit of EUR38 million in 2017 compared
to a deferred tax charge of EUR40 million in 2016. The movement in
deferred tax includes the effects of the reversal of timing
differences on which deferred tax liabilities were previously
recognised, other credits and the use and recognition of tax
losses.
The income tax expense includes a EUR6 million tax credit in
respect of exceptional items compared to a
EUR3 million credit in 2016.
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-17 31-Dec-16
EURm EURm
Current service cost 28 29
Past service cost - (21)
Gain on settlement - (5)
Actuarial loss arising on other 1 1
long-term employee benefits
Net interest cost on net pension liability 18 22
Defined benefit cost 47 26
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR29 million (2016: cost of
EUR4 million). Net interest cost on net pension liability of EUR18
million (2016: EUR22 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-17 31-Dec-16
EURm EURm
Present value of funded or partially (2,282) (2,320)
funded obligations
Fair value of plan assets 1,953 1,954
Deficit in funded or partially funded plans (329) (366)
Present value of wholly unfunded obligations (517) (517)
Amounts not recognised as assets (2) (1)
due to asset ceiling
Net pension liability (848) (884)
The employee benefits provision has reduced from EUR884 million
at 31 December 2016 to EUR848 million at 31 December 2017, mainly
as a result of Group cash contributions in excess of liability
accrual and positive asset performance.
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-17 31-Dec-16
Profit attributable to owners 417 444
of the parent (EUR million)
Weighted average number of ordinary 235 235
shares in issue (million)
Basic earnings per share (cent) 177.2 189.4
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. These
comprise convertible shares issued under the Share Incentive Plan,
which were based on performance and the passage of time, deferred
shares held in trust, which are based on the passage of time, and
matching shares, which are performance-based in addition to the
passage of time. Both deferred shares held in trust and matching
shares are issued under the Deferred Annual Bonus Plan. Where the
conditions governing exercisability of these shares have been
satisfied as at the end of the reporting period, they are included
in the computation of diluted earnings per ordinary share.
12 months to 12 months to
31-Dec-17 31-Dec-16
Profit attributable to owners 417 444
of the parent (EUR million)
Weighted average number of ordinary 235 235
shares in issue (million)
Potential dilutive ordinary 2 2
shares assumed (million)
Diluted weighted average ordinary 237 237
shares (million)
Diluted earnings per share (cent) 175.8 187.5
Pre-exceptional
12 months to 12 months to
31-Dec-17 31-Dec-16
Profit attributable to owners 417 444
of the parent (EUR million)
Exceptional items included in profit before 25 3
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) (6) (3)
Pre-exceptional profit attributable to 436 444
owners of the parent (EUR million)
Weighted average number of ordinary 235 235
shares in issue (million)
Pre-exceptional basic earnings 185.3 189.4
per share (cent)
Diluted weighted average ordinary 237 237
shares (million)
Pre-exceptional diluted earnings 183.8 187.6
per share (cent)
9.Dividends
In May 2017, the final dividend for 2016 of 57.6 cent per share
was paid to the holders of ordinary shares. In October 2017, an
interim dividend for 2017 of 23.1 cent per share was paid to the
holders of ordinary shares.
The Board is recommending a final dividend of 64.5 cent per
share for 2017 subject to the approval of the shareholders at the
AGM. It is proposed to pay the final dividend on 11 May 2018 to all
ordinary shareholders on the share register at the close of
business on 13 April 2018. 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
2017
Opening net book amount 1,004 2,257 3,261
Reclassifications 56 (57) (1)
Additions 1 401 402
Acquisitions 23 15 38
Depreciation charge (49) (311) (360)
Impairments - (11) (11)
Retirements and (3) (1) (4)
disposals
Hyperinflation 42 34 76
adjustment
Foreign currency (51) (108) (159)
translation
adjustment
At 31 December 2017 1,023 2,219 3,242
Year ended 31 December
2016
Opening net book amount 988 2,115 3,103
Reclassifications 42 (43) (1)
Additions 11 465 476
Acquisitions 10 56 66
Depreciation charge (48) (309) (357)
Retirements and (1) (11) (12)
disposals
Hyperinflation 25 21 46
adjustment
Foreign currency (23) (37) (60)
translation
adjustment
At 31 December 2016 1,004 2,257 3,261
11.Net Movement in Working Capital
12 months to 12 months to
31-Dec-17 31-Dec-16
EURm EURm
Change in inventories (112) (60)
Change in trade and other receivables (136) (51)
Change in trade and other payables 138 17
Net movement in working capital (110) (94)
12.Analysis of Net Debt
31-Dec-17 31-Dec-16
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest at 2 1
relevant interbank rate + 1.35%(6)
Term loan facility(2)- interest at relevant 485 741
interbank rate + 1.60%(6)
US$292.3 million 7.50% senior debentures 245 279
due 2025 (including accrued interest)
Bank loans and overdrafts 154 167
Cash (539) (443)
2019 receivables securitisation 88 182
variable funding notes
2022 receivables securitisation variable funding 4 114
notes (including accrued interest)(3)
2018 senior notes (including accrued interest)(4) 455 488
EUR400 million 4.125% senior notes due 405 404
2020 (including accrued interest)
EUR250 million senior floating rate notes due 250 249
2020 (including accrued interest)(5)
EUR500 million 3.25% senior notes due 497 496
2021 (including accrued interest)
EUR500 million 2.375% senior notes due 498 -
2024 (including accrued interest)
EUR250 million 2.75% senior notes due 249 249
2025 (including accrued interest)
Net debt before finance leases 2,793 2,927
Finance leases 12 14
Net debt including leases 2,805 2,941
(1) Revolving credit facility ('RCF') of EUR845 million (available
under the senior credit facility) to
be repaid in 2020. The RCF wasincreased by EUR220
million in February 2017. (a) Revolver loans
- EUR6 million, (b) drawn under ancillary facilities
and facilitiessupported by letters of credit
- nil and (c) other operational facilities
including letters of credit - EUR5 million.
(2) Term loan facility due to be repaid in certain instalments
from 2018 to 2020. In January and
February 2017, the Group prepaidEUR260 million
of drawings under the term loan facility.
(3) In May 2017, the EUR175 million receivables securitisation
programme was amended and restated, extending
the maturity to 2022and reducing the variable
funding notes margin from 1.70% to 1.375%.
(4) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(5) Interest at EURIBOR + 3.5%.
(6) The margins applicable under the senior credit
facility are determined as follows:
Net debt/EBITDA ratio RCF Term Loan Facility
Greater than 3.0 : 1 1.85% 2.10%
3.0 : 1 or less but more than 2.5 : 1 1.35% 1.60%
2.5 : 1 or less but more than 2.0 : 1 1.10% 1.35%
2.0 : 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 2017 575 (22) (1,193) 165 (33) 1 (507)
Other comprehensiveincome
Foreign currencytranslation - - (189) - - - (189)
adjustments
Effective portion ofchanges - 5 - - - - 5
in fair
value ofcash flow hedges
Total - 5 (189) - - - (184)
othercomprehensiveincome/(expense)
Share-based payment - - - 23 - - 23
Net shares acquired bySKG - - - - (10) - (10)
Employee Trust
Shares distributed by - - - (12) 12 - -
SKGEmployee Trust
At 31 December 2017 575 (17) (1,382) 176 (31) 1 (678)
At 1 January 2016 575 (22) (1,109) 168 (38) 1 (425)
Other comprehensiveincome
Foreign currencytranslation - - (84) - - - (84)
adjustments
Total othercomprehensive - - (84) - - - (84)
expense
Share-based payment - - - 12 - - 12
Net shares acquired bySKG - - - - (10) - (10)
Employee Trust
Shares distributed by - - - (15) 15 - -
SKGEmployee Trust
At 31 December 2016 575 (22) (1,193) 165 (33) 1 (507)
14.Venezuela
Hyperinflation
As discussed more fully in the 2016 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 2017 and 2016, management engaged an independent expert to
determine an estimate of the annual inflation rate. The estimated
level of inflation for the year ended 2017 was 971% (2016:
333%).
As a result of the entries recorded in respect of
hyperinflationary accounting under IFRS, the Consolidated Income
Statement is impacted as follows: Revenue EUR30 million increase
(2016: EUR62 million increase), EBITDA EUR13 million decrease
(2016: EUR6 million increase) and profit after taxation EUR47
million decrease (2016: EUR29 million decrease). In 2017, a net
monetary loss of EUR24 million (2016: EUR4 million net monetary
gain) was recorded in the Consolidated Income Statement. The impact
on our net assets and our total equity is an increase of EUR197
million (2016: EUR64 million increase).
Exchange Control
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. On this
basis, in accordance with IFRS, the financial statements of the
Group's operations in Venezuela were translated at 31 December 2017
using the DICOM rate of VEF 3,345.00 per US dollar and the closing
euro/US dollar rate of 1 euro = US$1.1993.
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 year-end in accordance with the
requirements of IFRS 10.
In 2017, the Group's operations in Venezuela represented
approximately 2% (2016: 3%) of its EBITDA, 3% (2016: 2%) of its
total assets and 5% (2016: 4%) of its net assets. Cumulative
foreign translation losses arising on its net investment in these
operations amounting to EUR1,081 million (2016: EUR987 million) are
included in the foreign currency translation reserve.
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 Key Performance
Indicators on pages 40-42 of the Group's 2016 annual report. The
key APMs of the Group are set out below.
APM Description
EBITDA Earnings before exceptional items,
share-based paymentexpense,
share of associates' profit (after
tax), net financecosts,
income tax expense, depreciation
and depletion (net),impairment
of assets and intangible assets amortisation.
EBITDA Margin % EBITDA____________ X 100Revenue
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____________________________________________x
100
Weighted average number of
ordinary shares inissue
Return on Capital Employed % Last twelve months ('LTM') pre-exceptional
operatingprofit
plus share of associates'
profit
(after
tax)_____________________________________________x
100
Average capital employed (where capital
employedis the average of
total equity and net debt at thebeginning
and end of the LTM)
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-17 31-Dec-16 31-Dec-17 31-Dec-16
EURm EURm EURm EURm
Profit for the 120 106 423 458
financial
period
Income tax 41 49 153 196
expense
Exceptional items 23 15 23 15
charged
in operating
profit
Share - - - (2)
of associates'
profit (after
tax)
Net finance costs 62 51 221 163
(after
exceptional
items)
Share-based 11 - 24 13
payment
expense
Depreciation, 94 99 396 393
depletion
(net)
and amortisation
EBITDA 351 320 1,240 1,236
Return on Capital Employed
Q4, 2017 Q4, 2016 Q3, 2017
EURm EURm EURm
Pre-exceptional operating profit plus share 820 832 795
of associates' profit (after tax) (LTM)
Total equity - current period end 2,659 2,503 2,575
Net debt - current period end 2,805 2,941 2,839
Capital employed - current period end 5,464 5,444 5,414
Total equity - prior period end 2,503 2,328 2,356
Net debt - prior period end 2,941 3,048 2,953
Capital employed - prior period end 5,444 5,376 5,309
Average capital employed 5,454 5,410 5,361
Return on capital employed 15.0% 15.4% 14.8%
Supplementary Historical Financial Information
EURm FY, 2016 Q1, 2017 Q2, 2017 Q3, 2017 Q4, 2017 FY, 2017
Group and 13,521 3,573 3,590 3,667 3,828 14,659
third
party
revenue
Third 8,159 2,129 2,104 2,121 2,208 8,562
party
revenue
EBITDA 1,236 278 292 320 351 1,240
EBITDA 15.1% 13.0% 13.9% 15.1% 15.9% 14.5%
margin
Operating 815 168 190 216 223 797
profit
Profit 654 109 136 170 161 576
before
income
tax
Free cash 303 16 30 152 109 307
flow
Basic 189.4 31.5 42.8 52.7 50.2 177.2
earnings
per
share -
cent
Weighted 235 235 235 235 235 235
average
number
of shares
used
inEPS
calculation
(million)
Net debt 2,941 2,931 2,985 2,839 2,805 2,805
EBITDA 1,236 1,233 1,212 1,209 1,240 1,240
(LTM)
Net debt 2.38 2.38 2.46 2.35 2.26 2.26
to
EBITDA
(LTM)
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This information is provided by Business Wire
(END) Dow Jones Newswires
February 07, 2018 02:00 ET (07:00 GMT)
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