TIDMSKG
13 February: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the full year ending 31 December
2018.
2018 Full
Year |
Key
Financial
Performance
Measures
EURm FY FY Change H2 H2 Change H1 Change
2018 2017 2018 2017 2018 H2 v H1
Revenue EUR8,946 EUR8,562 4 % EUR4,518 EUR4,329 4 % EUR4,428 2 %
EBITDA 1 EUR1,545 EUR1,240 25 % EUR821 EUR671 22 % EUR724 13 %
EBITDA 17.3 % 14.5 % 18.2 % 15.5 % 16.4 %
Margin1
Pre-exceptional EUR1,105 EUR820 35 % EUR576 EUR462 25 % EUR529 9 %
Operating
Profit
Pre-exceptional EUR938 EUR601 56 % EUR485 EUR354 37 % EUR453 7 %
Profit
before
Income
Tax
Pre-exceptional 292.2 185.3 58 % 151.5 110.3 37 % 140.7 8 %
Basic
EPS
(cent)1
Free Cash EUR494 EUR307 61 % EUR346 EUR261 33 % EUR148 134 %
Flow1
Return on 19.3 % 15.0 % 18.1 %
Capital
Employed1
Net Debt1 EUR3,122 EUR2,805 11 % EUR2,871 9 %
Net Debt 2.0x 2.3x 2.1x
to
EBITDA
(LTM)1
Key Points
-- Record performance across key measures
Revenue growth of 4%, with an underlying2 increase of
over 7%
EBITDA of EUR1,545 million, a 25% improvement. Group EBITDA
margin
of 17.3%
Pre-exceptional basic EPS up 58%
Strong free cash flow of EUR494 million, an increase of 61%
ROCE of 19.3%
Net debt to EBITDA ratio of 2.0x
-- Significant acquisition activity with acquisitions in France, the
Netherlands and Serbia
-- Refinancing of senior credit facility and bond issuance of EUR1 billion
-- Proposed final dividend increase of 12% to 72.2 cent per share
Performance Review and Outlook
Tony Smurfit, Group CEO, commented:
"Our 2018 performance demonstrates the Group's transformation of
recent years, which is delivering progressively superior returns.
This creates the platform for success in 2019 and beyond. The Group
delivered on or exceeded its key measures. This reflects our
market-leading positions, our innovation capability and investment
decisions. Above all else, it reflects an unrelenting focus on
delivering value to our customer base, a performance-led culture
and the quality of our people. EBITDA of EUR1,545 million is
materially better than 2017, representing a 25% increase, with a
corresponding EBITDA margin of 17.3%.
_______________
1 Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 33.
2 Underlying in relation to financial measures throughout this
report excludes acquisitions, disposals, currency and
hyperinflation movements where applicable.
"Our European business performed very strongly in 2018 with
underlying revenue growth of 7%. This was driven by a combination
of demand growth, input cost recovery and the benefits of our
investment programme.
"The Americas region had underlying revenue growth of 8% and our
business continued to improve as the year progressed with
particularly strong performances in our major markets of Mexico and
Colombia. Across the region, we have seen progress in input cost
recovery, demand growth and, as with our European business, the
benefits of our investment plans.
"The Group has made significant progress on its Medium-Term Plan
since its announcement in February 2018, together with continued
expansion of its geographic reach, including acquisitions in
France, the Netherlands and Serbia. These acquisitions are well
positioned in their respective markets and offer great
opportunities for future growth, adding three paper machines and
four converting sites to the Group's operational footprint.
"The Group is proud to support and develop the many Corporate
Social Responsibility initiatives in the countries in which we
operate. Such initiatives are consistent with our long-term
commitment to support and develop programmes that benefit our
communities, and form an integral part of our corporate values. The
year also marked a significant shift in consumer awareness as to
the benefits of renewable, recyclable and biodegradable paper-based
packaging as against less environmentally friendly materials. As
the leader in our field, we launched our 'Better Planet Packaging'
initiative, which will progressively promote our products and allow
us to leverage our unique applications to capitalise on this
opportunity and help us deliver a more sustainable world.
"After almost 65 years of successfully operating in Venezuela,
due to the continuing actions and interference of the Government of
Venezuela the Group deconsolidated its Venezuelan operations in
August 2018. The Group has initiated international arbitration
proceedings to protect the interests of its stakeholders and seek
compensation from the Government of Venezuela for its unlawful
actions.
"While we are always conscious of macro-economic risk, SKG is
very well positioned to capitalise on industry opportunities and to
deliver consistently excellent performance for all stakeholders.
The current year has started positively, and together with the
continued development of sustainable packaging, e-commerce and
other demand drivers, SKG has an exciting future.
"Reflecting its confidence in the strength of and prospects for
our business, the Board is recommending a 12% increase in the final
dividend to 72.2 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 over 350 production sites across 34
countries and with revenue of EUR8.9 billion in 2018. We are
located in 22 countries in Europe, and 12 in the Americas. We are
the only large-scale pan-regional player in Latin America.
With our pro-active team, we relentlessly use our extensive
experience and expertise, supported by our scale, to open up
opportunities for our customers. We collaborate with forward
thinking customers by sharing superior product knowledge, market
understanding and insights in packaging trends to ensure business
success in their markets. We have an unrivalled portfolio of
paper-packaging solutions, which is constantly updated with our
market-leading innovations. This is enhanced through the benefits
of our integration, with optimal paper design, logistics,
timeliness of service, and our packaging plants sourcing most of
their raw materials from our own paper mills.
Our products, which are 100% renewable and produced sustainably,
improve the environmental footprint of our customers.
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
Smurfit Kappa FTI Consulting
T: +353 1 202 71 80 T: +353 765 08 00
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2018 Full Year | Performance Overview
In 2018 the Group reported its strongest ever result with EBITDA
of EUR1,545 million and an EBITDA margin of 17.3%.
The European business delivered an underlying increase in
revenue of 7% in 2018, driven by volume growth and continued input
cost recovery. Together with the benefits of our capital spend
programme this delivered a full year EBITDA of EUR1,267 million, a
year-on-year increase of 33%. EBITDA margin for the year was 18.3%
compared to 14.9% in 2017.
Box volumes grew by 2% in the year with notable performances in
France, Portugal, Russia, Scandinavia, Spain and Eastern Europe.
The Group also prioritised input cost recovery during the year
which impacted corrugated demand in certain countries.
Input cost recovery in corrugated pricing continued into the
second half of 2018 and was at the upper end of our expectations as
we finished the year.
In 2018, the price of recovered fibre in our European business
was down 27% year-on-year, broadly returning to long term average
price levels. The Group expects recovered fibre prices in the
region to remain stable in the short term and to trend upwards in
the longer term.
The European pricing for both testliner and kraftliner were
relatively stable through 2018. With market increases for both
grades in the first quarter, prices for recycled containerboard
reduced in the fourth quarter ending the year flat with kraftliner
up for the same period.
During 2018, the Group completed a number of acquisitions. In
July, the Group acquired Reparenco in the Netherlands, securing the
Group's medium-term European recycled containerboard requirements
through the acquisition of an independently owned mill system. In
the fourth quarter, the Group announced its entry into Serbia with
the acquisition of the FHB containerboard mill and the Avala Ada
corrugated plant. This acquisition builds on our Greek acquisition
in 2017, which is located in the North East of Greece and services
the Balkan region. Finally, in the fourth quarter the Group
completed the acquisitions of two corrugated plants and an erecting
centre in France, further strengthening the Group's market presence
in the North West of the country.
In the latter part of the year, the Group commenced a cost
reduction programme across our operations. These actions will help
reduce our fixed labour costs, the benefits of which are in
addition to those outlined in our Medium-Term Plan.
The Americas segment reported a year-on-year increase in EBITDA
of 2% to EUR317 million. The EBITDA margin in the Americas
continues to recover and increased to 15.7% from 14.4% in 2017.
Underlying revenue growth for the year was 8%, driven by volume
growth of 2% and price recovery initiatives following on from the
significant containerboard price increases incurred through 2017
and 2018.
For the year, 85% of the region's earnings was delivered by
Colombia, Mexico and the USA. The combined EBITDA margin for these
three countries was up approximately 230 basis points year-on-year
as the countries grew corrugated volumes, recovered input costs and
progressed investments.
In Colombia, corrugated volumes were up 7% for the year together
with corrugated price recovery. Strong performances in the FMCG and
flower sectors drove the growth while we saw acceleration in
agriculture related volumes through the latter part of the year.
The country also benefited from the continued ramp-up of the
Papelsa Mill expansion project where we expect continued
improvement into 2019.
In Mexico, we saw significant improvement on both an absolute
EBITDA and EBITDA margin basis. The Group saw positive volume
growth for the country with a strong performance in the legacy
business through the year and a strong fourth quarter for the
border region. The region has benefited from the continued ramp-up
of the Los Reyes Mill investment, which on top of providing
incremental containerboard for integration, also provides
lightweight containerboard capacity to enhance the delivery of
performance packaging to our customers.
In the US, our margins and profitability improved as we
progressed through 2018 with a step up in the second half both
year-on-year and sequentially. Further corrugated price recovery
coupled with the exceptional performance of our Texas Mill were the
chief contributors to this improvement. Our box volumes were lower
due to some rationalisation projects in our operations in
California but showed some good growth in the second half.
Our Brazilian business continues to perform in line with
expectations with good volume growth in the second half. The
Group's Argentinean business had a strong year from a volume growth
perspective despite the country being impacted by inflationary
pressures.
As communicated in September, due to the continuing actions and
interference of the Government of Venezuela, the Group was no
longer able to exercise control over the business of Smurfit Kappa
Carton de Venezuela and so confirmed the deconsolidation of the
Group's Venezuelan operations in the third quarter. On 3 December
2018, Smurfit Kappa submitted a Request for Arbitration with the
World Bank's International Centre for Settlement of Investment
Disputes ('ICSID') against the Bolivarian Republic of Venezuela
(the ICSID Arbitration). In the submission, we are seeking
compensation for the seizure of the Group's Venezuelan Business by
the Venezuelan Government as well as for other arbitrary,
inconsistent and disproportionate State measures that have
destroyed the value of our investments in Venezuela.
The Group reported a free cash flow of EUR494 million in 2018
compared to EUR307 million in 2017, an increase of 61%. In June
2018, SKG issued a EUR600 million bond at a rate of 2.875% and in
January 2019, the Group successfully priced a EUR400 million add-on
offering to the June 2018 issue at a price of 100.75 giving a yield
of 2.756%. Also in January 2019, the Group signed and completed a
new 5-year EUR1,350 million revolving credit facility ('RCF') with
21 of its existing relationship banks. The new RCF refinances the
Group's existing senior credit facility which was due to mature in
March 2020. The average maturity profile of the Group's debt
(including the effect of our latest financing activity) now stands
at 4.6 years with an average interest rate of 3.7%. Net debt to
EBITDA was 2.0x at the year-end. The Group remains well positioned
within its Ba1/BB+/BB+ credit rating.
The Group made significant progress in its Medium-Term Plan
during the year with over EUR450 million of projects approved. The
acquisition of Reparenco in the Netherlands in July represented an
early and significant achievement in our plan, which is in addition
to the capital expenditure progress.
2018 Full year | Financial Performance
Revenue for the full year was EUR8,946 million, up 4% on the
same period last year, or 7% on an underlying basis. Revenue in
Europe was up 8%, driven by volume growth along with progressive
input cost recovery. On an underlying basis, revenue in Europe was
up 7%. Revenue in the Americas was down 6%, predominantly due to
currency and the deconsolidation of the Venezuelan operations, on
an underlying basis revenue growth in the Americas was 8% for the
year.
EBITDA for the full year was EUR1,545 million, 25% ahead of
2017, with higher earnings in Europe and the Americas partly offset
by higher Group centre costs.
Exceptional items charged within operating profit in 2018
amounted to EUR66 million. EUR28 million related to reorganisation
and restructuring costs in Europe, EUR18 million related to the
defence from the unsolicited approach by International Paper, EUR11
million to the loss on disposal of the Baden operations in Germany
and EUR9 million was due to the UK High Court ruling on
equalisation of guaranteed minimum pensions ('GMP') in the UK.
Exceptional items charged within operating profit in 2017
amounted to EUR23 million. EUR12 million related to reorganisation
and restructuring costs in the Americas and EUR11 million related
to impairment charges on property, plant and equipment in Europe
and the Americas.
Exceptional finance costs charged in 2018 amounted to EUR6
million relating to the fee payable to the bondholders to secure
their consent to the Group's move from quarterly to semi-annual
reporting and the interest cost on the early termination of certain
US dollar/euro swaps.
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.
Net pre-exceptional finance costs at EUR167 million were EUR52
million lower than in 2017, primarily as a result of a decrease in
non-cash costs, with a positive swing of EUR35 million from a net
currency translation loss on debt of EUR13 million in 2017 to a net
gain of EUR22 million in 2018 as well as a decrease of EUR12
million in the hyperinflation related net monetary loss. Cash
interest at EUR155 million, including the exceptional finance costs
of EUR6 million, was EUR3 million lower than in 2017 reflecting the
benefits of prior-year refinancing.
With the combination of a EUR285 million increase in
pre-exceptional operating profit and the EUR52 million decrease in
net finance costs, the pre-exceptional profit before income tax of
EUR938 million was EUR337 million higher than in 2017. The higher
exceptional items, specifically the EUR1.3 billion non-cash charge
relating to the deconsolidation of Venezuela, resulted in a loss
before income tax of EUR404 million compared to a profit of EUR576
million in 2017. As stated in our third quarter 2018 trading update
the non-cash exceptional charge related to currency recycling in
the Consolidated Income Statement has a corresponding credit of
EUR1.2 billion to the Consolidated Statement of Comprehensive
Income and in turn has no impact on the net assets or total equity
of the Group.
The income tax expense was EUR235 million compared to EUR153
million in 2017, with the increase of EUR82 million in the expense
largely reflecting moves in profitability and non-recurring tax
credits.
The resulting loss for the financial year was EUR639 million
compared to a profit of EUR423 million in 2017. Excluding the
exceptional items (and the related tax charges / credits), the
after tax profit for 2018 would be EUR696 million.
Basic EPS for the full year of 2018 was (273.7) cent, compared
to a positive 177.2 cent earned in the same period of 2017. On a
pre-exceptional basis, EPS was 292.2 cent for the full year, 58%
higher than the 185.3 cent in 2017.
2018 Full Year | Free Cash Flow
Free cash flow in 2018 was EUR494 million compared to EUR307
million in 2017, an increase of EUR187 million. The increase in
EBITDA was partly offset by an increase of EUR103 million in
capital outflows and by higher tax payments. The outflow relating
to exceptional items was also higher in 2018 while the working
capital outflow and the net outflow for other (mainly retirement
benefits and hyperinflationary adjustments) were both lower.
The working capital outflow in 2018 was EUR94 million compared
to EUR112 million in 2017. The outflow in 2018 was the combination
of an increase in debtors and stocks, partly offset by an increase
in creditors. These increases reflect the combination of volume
growth, higher European selling prices and lower OCC costs. Working
capital amounted to EUR683 million at December 2018, representing
7.5% of annualised revenue compared to 7.3% at December 2017.
Capital expenditure in 2018 amounted to EUR574 million, equating
to 138% of depreciation, compared to EUR430 million or 109% of
depreciation in 2017. The higher level of expenditure was in line
with the Medium-Term Plan, with 2018 being the first year of our
accelerated investment programme.
Cash interest of EUR155 million in 2018 included the exceptional
finance costs of EUR6 million. Excluding these amounts, our cash
interest amounted to EUR149 million in 2018 compared to EUR158
million in 2017. The year-on-year decrease reflects mainly lower
average interest rates, partly as a result of the pay down in
mid-June of the relatively higher cost 2018 senior notes.
Tax payments of EUR193 million in 2018 were EUR39 million higher
than in 2017. This is predominantly due to higher
profitability.
2018 Full Year | Capital Structure
Net debt was EUR3,122 million at the end of December, resulting
in a net debt to EBITDA ratio of 2.0x compared to 2.3x at the end
of 2017. The Group's balance sheet continues to provide
considerable financial strategic flexibility, subject to the stated
leverage range of 1.75x to 2.5x through the cycle and SKG's
Ba1/BB+/BB+ credit rating.
In line with the Group's ongoing credit strategy of further
extending maturity profiles, diversifying funding sources and
increasing liquidity the Group has undertaken a number of actions
in 2018 and January 2019. In June 2018, SKG issued a EUR600 million
bond at a rate of 2.875%, and in January 2019, the Group
successfully priced a EUR400 million add-on offering to the June
2018 issue at a price of 100.75 giving a yield of 2.756%. Also in
January 2019, the Group signed and completed a new 5-year EUR1,350
million RCF with 21 of its existing relationship banks. The new RCF
refinances the Group's existing senior credit facility which was
due to mature in March 2020.
At 31 December 2018 (proforma for our January 2019 financing
activity), the Group's average interest rate was 3.7% compared to
4.1% at 31 December 2017. The Group's diversified funding base and
long dated maturity profile of 4.6 years (proforma for our new
revolver and EUR400 million note issuance) provide a stable funding
outlook. In terms of liquidity, the Group held cash balances of
EUR417 million at the end of the year, which was further
supplemented by available commitments under its new RCF of
approximately EUR930 million.
2018 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 2018, the Board
is recommending a final dividend of 72.2 cent per share, a 12%
increase year-on-year. Combined with an interim dividend of 25.4
cent per share paid in October 2018, this will bring the total
dividend to 97.6 cent, an 11% increase year-on-year.
It is proposed to pay the final dividend on 10 May 2019 to all
ordinary shareholders on the share register at the close of
business on 12 April 2019.
2018 Full Year | Commercial Offering and Innovation
In the third quarter, the Group launched 'Better Plant
Packaging' a multi-faceted initiative comprising innovative product
design, extensive research and development and collaboration with
existing and new partners. 'Better Planet Packaging' builds on the
Group's industry leading sustainability credentials and business
applications to help our customers, both existing and prospective,
with their challenge of finding more sustainable packaging and
merchandising solutions. Brand owners and retailers have made their
plans and goals clear, and this is to move away from unsustainable
packaging materials. 'Better Planet Packaging' positions Smurfit
Kappa to lead in this mega-trend.
During 2018, the Group was recognised with over 52 national or
international awards for packaging innovation, sustainability,
design and print. The awards stretched across 11 countries and two
continents including Argentina, Colombia, the Czech Republic,
France, Germany, Ireland, the Netherlands, Poland, Russia,
Switzerland and the UK.
2018 Full Year | Sustainability
SKG continues to feature at the top of independent
sustainability accreditations with an 'A' rating from MSCI, a Gold
rating with EcoVadis and the highest score in the sector (out of 31
corporates) with Sustainalytics. The company continues to be part
of the 'FTSE4GOOD', 'Ethibel' and 'STOXX Global ESG leader'
sustainability indices.
During 2018, the Group launched its 11th sustainability report
with significant progress made in its sustainability goals reaching
targets in many cases well ahead of the deadline. Building on these
achievements the Group rolled out an ambitious new set of goals in
October, please click on hyperlink for more details. October 2018 -
Increased Sustainability Targets
Summary Cash Flow
Summary cash flowsfor the
second half and full
year are set out in
the following table.
H2 2018 H2 2017 FY 2018 FY 2017
EURm EURm EURm EURm
EBITDA 821 671 1,545 1,240
Exceptional items (12) (12) (29) (12)
Cash interest expense (74) (78) (155) (158)
Working capital change 55 13 (94) (112)
Current provisions 2 1 (1) (2)
Capital expenditure (369) (253) (574) (430)
Change in capital creditors 39 22 13 (28)
Tax paid (104) (77) (193) (154)
Sale of property, plant 4 2 4 5
and equipment
Other (16) (28) (22) (42)
Free cash flow 346 261 494 307
Share issues - - - 1
Purchase of own shares (net) - 1 (10) (10)
Sale of businesses and investments 3 - (8) 5
Deconsolidation of Venezuela (17) - (17) -
Purchase of businesses (500) (53) (516) (63)
and investments
Dividends (64) (57) (219) (195)
Derivative termination - (5) 17 (6)
(payments)/receipts
Net cash (outflow)/inflow (232) 147 (259) 39
Net debt acquired (3) (6) (3) (6)
Deferred debt issue costs amortised (5) (5) (10) (12)
Currency translation adjustment (11) 44 (45) 115
(Increase)/decrease in net debt (251) 180 (317) 136
Funding and Liquidity
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the RCF. 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 2018, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR94.2 million and STGGBP77.2 million
variable funding notes issued under the EUR230 million accounts
receivable securitisation programme maturing in June 2023, together
with EUR50 million variable funding notes issued under the EUR200
million accounts receivable securitisation programme maturing in
February 2022.
Smurfit Kappa Acquisitions had outstanding 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, EUR250 million 2.75% senior
notes due 2025 and EUR600 million 2.875% senior notes due 2026.
Smurfit Kappa Acquisitions and certain subsidiaries are also party
to a senior credit facility. At 31 December 2018, the Group's
senior credit facility comprised term drawings of EUR252.3 million,
US$57.4 million and STGGBP94.6 million under the amortising Term A
facility maturing in 2020. In addition, at 31 December 2018, the
facility included an EUR845 million RCF 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 at 31
December 2018 for each of the drawings under the various senior
credit facility loans.
Borrowing Arrangement Currency Interest Rate
Term A Facility EUR 0.982% - 1.034%
USD 3.872%
GBP 2.081%
Revolving Credit Facility EUR 0.732%
Borrowings under the RCF are available to fund the Group's
working capital requirements, capital expenditures and other
general corporate purposes.
In March 2018, the Group repaid EUR82 million of amortising Term
A Facility borrowings under the terms of the senior credit
facility.
In June 2018, the Group amended its EUR240 million receivables
securitisation programme, which utilises the Group's receivables in
France, Germany and the UK, reducing the facility to EUR230
million, extending the maturity from 2019 to 2023 and reducing the
variable funding notes margin from 1.4% to 1.2%.
In June 2018, the Group completed the redemption of its EUR200
million 5.125% senior notes due 2018 and US$300 million 4.875%
senior notes due 2018. The Group funded the redemption by drawing
on its revolving credit and securitisation facilities.
In June 2018, the Group issued EUR600 million of 7.5 year euro
denominated senior notes at a coupon of 2.875%. The net proceeds of
the offering were used in July 2018 to fund the Reparenco
acquisition and reduce borrowings under the RCF.
In November 2018, the Group increased its EUR175 million
receivables securitisation programme, which utilises the Group's
receivables in Austria, Belgium, Italy and the Netherlands, to
EUR200 million.
In January 2019, the Group successfully priced a EUR400 million
add-on offering to the June 2018 EUR600 million 2.875% bond issue
at a price of 100.75 giving a yield of 2.756%. Also in January
2019, the Group signed and completed a new 5-year EUR1,350 million
RCF with 21 of its existing relationship banks. The new RCF
refinances the Group's existing senior credit facility which was
due to mature in March 2020.
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 2018,
the Group had fixed an average of 79% (86% proforma for our
treasury refinancing transactions undertaken in January 2019) of
its interest cost on borrowings over the following twelve
months.
The Group's fixed rate debt comprised 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, US$292.3 million 7.50% senior debentures due
2025 and EUR600 million 2.875% senior notes due 2026. In addition,
the Group had EUR224 million in interest rate swaps converting
variable rate borrowings to fixed rate with maturity dates ranging
from January 2019 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 increased by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR6 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 2017 Annual Report on pages 36-41. 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, especially as a
result of Brexit or changes in free 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 as a result of Brexit or changes
in
free trade agreements, 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 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
For
the
Financial
Year
Ended 31
December
2018
2018 2017
Unaudited Audited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
EURm EURm EURm EURm EURm EURm
Revenue 8,946 - 8,946 8,562 - 8,562
Cost of (5,989) - (5,989) (5,997) (11) (6,008)
sales
Gross 2,957 - 2,957 2,565 (11) 2,554
profit
Distribution (705) - (705) (667) - (667)
costs
Administrative (1,147) - (1,147) (1,078) - (1,078)
expenses
Other - (66) (66) - (12) (12)
operating
expenses
Operating 1,105 (66) 1,039 820 (23) 797
profit
Finance (214) (6) (220) (248) (2) (250)
costs
Finance 47 - 47 29 - 29
income
Deconsolidation - (1,270) (1,270) - - -
of
Venezuela
(Loss)/profit 938 (1,342) (404) 601 (25) 576
before
income tax
Income tax (235) (153)
expense
(Loss)/profit (639) 423
for the
financial
year
Attributable
to:
Owners (646) 417
of the
parent
Non-controlling 7 6
interests
(Loss)/profit (639) 423
for the
financial
year
Earnings
per
share
Basic (273.7) 177.2
earnings
per
share -
cent
Diluted (273.7) 175.8
earnings
per share
- cent
Consolidated Statement of Comprehensive Income
For the Financial Year Ended 31 December 2018
2018 2017
Unaudited Audited
EURm EURm
(Loss)/profit for the financial year (639) 423
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial year (201) (215)
- Recycled to Consolidated Income Statement 1,196 -
on deconsolidation of Venezuela
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 11 8
- New fair value adjustments into reserve (6) (3)
Changes in fair value of cost of hedging:
- Movement out of reserve (1) -
- New fair value adjustments into reserve 2 -
1,001 (210)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (6) (9)
- Movement in deferred tax - 1
(6) (8)
Total other comprehensive income/(expense) 995 (218)
Total comprehensive income for the financial year 356 205
Attributable to:
Owners of the parent 370 225
Non-controlling interests (14) (20)
Total comprehensive income for the financial year 356 205
Consolidated Balance Sheet
At 31 December 2018
2018 2017
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,613 3,242
Goodwill and intangible assets 2,590 2,427
Other investments 20 21
Investment in associates 14 13
Biological assets 100 110
Other receivables 40 27
Derivative financial instruments 8 3
Deferred income tax assets 153 200
6,538 6,043
Current assets
Inventories 847 838
Biological assets 11 11
Trade and other receivables 1,667 1,558
Derivative financial instruments 13 16
Restricted cash 10 9
Cash and cash equivalents 407 530
2,955 2,962
Total assets 9,493 9,005
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - -
Share premium 1,984 1,984
Other reserves 355 (678)
Retained earnings 420 1,202
Total equity attributable to owners of the parent 2,759 2,508
Non-controlling interests 131 151
Total equity 2,890 2,659
LIABILITIES
Non-current liabilities
Borrowings 3,372 2,671
Employee benefits 804 848
Derivative financial instruments 17 26
Deferred income tax liabilities 173 148
Non-current income tax liabilities 36 33
Provisions for liabilities 47 62
Capital grants 18 19
Other payables 14 17
4,481 3,824
Current liabilities
Borrowings 167 673
Trade and other payables 1,871 1,779
Current income tax liabilities 24 37
Derivative financial instruments 10 10
Provisions for liabilities 50 23
2,122 2,522
Total liabilities 6,603 6,346
Total equity and liabilities 9,493 9,005
Consolidated
Statement
of Changes
in Equity
For the Financial
Year
Ended 31 December
2018
Attributable to owners of the parent
Equity share capital Share premium Other reserves(1) Retained earnings Total Non-controlling Total equity
interests
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2018 - 1,984 (678) 1,202 2,508 151 2,659
(Loss)/profit - - - (646) (646) 7 (639)
for the
financial year
Other comprehensive
income
Foreign - - 1,015 - 1,015 (20) 995
currency
translationadjustments
Defined benefit - - - (5) (5) (1) (6)
pension plans
Effective portion - - 5 - 5 - 5
of changes in
fairvalue of cash
flow hedges
Changes in - - 1 - 1 - 1
fair value
of cost ofhedging
Total comprehensive - - 1,021 (651) 370 (14) 356
income/(expense)
for the financial
year
Purchase - - - (5) (5) (3) (8)
of
non-controllinginterests
Hyperinflation - - - 87 87 10 97
adjustment
Dividends paid - - - (213) (213) (6) (219)
Share-based payment - - 22 - 22 - 22
Net shares acquired - - (10) - (10) - (10)
by
SKGEmployee Trust
Venezuela - - - - - (7) (7)
deconsolidation
At 31 December 2018 - 1,984 355 420 2,759 131 2,890
Audited
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 comprehensive - - (184) 409 225 (20) 205
(expense)/income
for the financial
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 - - (10) - (10) - (10)
by
SKGEmployee Trust
At 31 December 2017 - 1,984 (678) 1,202 2,508 151 2,659
(1)An analysis of the movements in Other reserves is provided in
Note 13.
Consolidated Statement of Cash Flows
For the Financial Year Ended 31 December 2018
2018 2017
Unaudited Audited
EURm EURm
Cash flows from operating activities
(Loss)/profit before income tax (404) 576
Net finance costs 173 221
Depreciation charge 379 360
Impairment of assets - 11
Amortisation of intangible assets 40 40
Amortisation of capital grants (2) (2)
Equity settled share-based payment expense 22 23
Profit on sale of property, plant and equipment (3) (9)
Loss on disposal of businesses 11 -
Deconsolidation of Venezuela - exceptional items 1,270 -
Net movement in working capital (93) (110)
Change in biological assets (3) (4)
Change in employee benefits and other provisions (26) (54)
Other (primarily hyperinflation adjustments) 29 6
Cash generated from operations 1,393 1,058
Interest paid (167) (161)
Income taxes paid:
Irish corporation tax paid (10) (14)
Overseas corporation tax (net of tax refunds) paid (183) (140)
Net cash inflow from operating activities 1,033 743
Cash flows from investing activities
Interest received 4 3
Business disposals (8) 4
Deconsolidation of Venezuela (17) -
Additions to property, plant and (528) (442)
equipment and biological assets
Additions to intangible assets (25) (16)
Receipt of capital grants 2 4
Increase in restricted cash (1) (2)
Disposal of property, plant and equipment 7 14
Disposal of associates - 1
Dividends received from associates - 1
Purchase of subsidiaries (482) (49)
Deferred consideration paid (1) (3)
Net cash outflow from investing activities (1,049) (485)
Cash flows from financing activities
Proceeds from issue of new ordinary shares - 1
Proceeds from bond issue 600 500
Purchase of own shares (net) (10) (10)
Purchase of non-controlling interests (16) (7)
Increase/(decrease) in other 94 (78)
interest-bearing borrowings
Repayment of finance leases (2) (2)
Repayment of borrowings (525) (366)
Derivative termination receipts/(payments) 17 (6)
Deferred debt issue costs paid (9) (10)
Dividends paid to shareholders (213) (191)
Dividends paid to non-controlling interests (6) (4)
Net cash outflow from financing activities (70) (173)
(Decrease)/increase in cash and cash equivalents (86) 85
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 503 402
Currency translation adjustment (27) 16
(Decrease)/increase in cash and cash equivalents (86) 85
Cash and cash equivalents at 31 December 390 503
An analysis of the Net movement in working capital is provided
in Note 11.
Selected Explanatory 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
Basis of preparation
The Consolidated Financial Statements of the Group are prepared
in accordance with International Financial Reporting Standards
('IFRS') issued by the International Accounting Standards Board
('IASB') 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 2017 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 2017 with the exception of IFRS 9, Financial Instruments
and IFRS 15, Revenue from Contracts with Customers which are
described below. A number of other changes to IFRS became effective
in 2018, however they did not have a material effect on the
financial information included in this report.
New and amended standards and interpretations effective during
2018
Financial instruments
IFRS 9, Financial Instruments, is the standard which replaces
IAS 39, Financial Instruments: Recognition and Measurement. The
Standard addresses the classification, measurement and
derecognition of financial assets and liabilities, introduces new
rules for hedge accounting and a new impairment model for financial
assets. The Group has adopted IFRS 9 from 1 January 2018, with the
practical expedients permitted under the standard. Comparatives for
2017 have not been restated.
The impact of adopting IFRS 9 on our Consolidated Financial
Statements was not material for the Group and there was no
adjustment to retained earnings on application at 1 January
2018.
Classification and measurement
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial
assets of held-to-maturity, loans and receivables and
available-for-sale. Under IFRS 9, on initial recognition, a
financial asset is classified as measured at amortised cost, or
fair value through other comprehensive income ('FVOCI'), or fair
value through profit or loss ('FVPL'). The classification is based
on the business model for managing the financial assets and the
contractual terms of the cash flows.
2.Basis of Preparation and Accounting Policies (continued)
The table below details the original measurement categories
under IAS 39 and the new measurement categories under IFRS 9 for
each class of the Group's financial assets and financial
liabilities at 1 January 2018.
Original New classification Original carrying New carrying amount
classification under IFRS 9 amount under IFRS 9
under IAS 39 under IAS 39
EURm EURm
Financial
assets
Equity Available-for-sale FVOCI 10 10
instruments
Listed Available-for-sale FVPL 11 11
and
unlisteddebt
instruments
Derivative FVPL FVPL 5 5
financialinstruments
-
non-qualifying
hedges
Derivative Derivatives used Derivatives used 14 14
financialinstruments for hedging for hedging
-qualifying
hedges
Trade Loans Amortised cost 1,474 1,474
and and receivables
otherreceivables
Cash Loans Amortised cost 530 530
and and receivables
cashequivalents
Restricted cash Loans Amortised cost 9 9
and receivables
Financial
liabilities
Borrowings Other financial Other financial 3,344 3,344
liabilities liabilities
Derivative FVPL FVPL 2 2
financialinstruments
-
non-qualifying
hedges
Derivative Derivatives used Derivatives used 34 34
financialinstruments for hedging for hedging
-qualifying
hedges
Trade Other financial Other financial 1,432 1,432
and liabilities liabilities
otherpayables
The financial assets held by the Group include equity and debt
instruments which were previously classified as available-for-sale.
Under IFRS 9, the Group will continue to measure all equity
instruments at FVOCI. However, gains or losses realised on the sale
of financial assets at FVOCI will no longer be transferred to
profit or loss on sale, but instead will be reclassified within
equity from the FVOCI reserve to retained earnings. EUR1 million
was reclassified from the available-for-sale reserve to the FVOCI
reserve on 1 January 2018. Listed and unlisted debt instruments
which were previously classified as available-for-sale are now
classified as FVPL as the cash flows do not represent solely
payments of principal and interest.
Refinancing
IFRS 9 requires that when a financial liability measured at
amortised cost is modified without being derecognised, a gain or
loss should be recognised in the income statement. This change in
accounting policy did not have a material impact on the Group's
financial results.
2.Basis of Preparation and Accounting Policies (continued)
Hedge accounting
The Group has elected to adopt the new general hedge accounting
model in IFRS 9. The new hedge accounting rules align the
accounting for hedging instruments more closely with the Group's
risk management practices and provides greater scope to apply hedge
accounting. The Group's hedge documentation has been reworked in
line with the new standard and all current hedge relationships
qualify as continuing hedges upon the adoption of IFRS 9. Under
IFRS 9, when designating a foreign exchange derivative contract as
a hedging instrument, the currency basis spread can be excluded and
accounted for separately through other comprehensive income as a
cost of hedging, being recognised in the income statement at the
same time as the hedged item affects profit or loss. Accounting for
foreign currency basis spreads as a cost of hedging has been
applied prospectively, without restating comparatives. Costs of
hedging pertaining to our foreign currency derivatives at the date
of transition of EUR2 million were reclassified to the cost of
hedging reserve on 1 January 2018.
Impairment of financial assets
IFRS 9 has introduced a new impairment model which requires the
recognition of impairment provisions based on expected credit
losses rather than incurred credit losses as was the case under IAS
39. It applies to financial assets classified at amortised cost,
debt instruments measured at FVOCI, contract assets under IFRS 15,
Revenue from Contracts with Customers, lease receivables, loan
commitments and certain financial guarantee contracts. For trade
receivables, the Group applies the IFRS 9 simplified approach to
measure expected credit losses which uses a lifetime expected loss
allowance. The change in impairment methodology as a result of
implementing IFRS 9 did not have a material impact on the Group's
financial results.
Revenue recognition
IFRS 15, Revenue from Contracts with Customers, replaces IAS 18,
Revenue and IAS 11, Construction Contracts and related
interpretations. IFRS 15 establishes a five-step model for
reporting the nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers. IFRS 15 specifies
how and when revenue should be recognised as well as requiring
enhanced disclosures. The core principle of the standard requires
an entity to recognise revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
that it expects to be entitled to in exchange for transferring
those goods or services to the customer. Revenue is recognised when
an identified performance obligation has been met and the customer
can direct the use of and obtain substantially all the remaining
benefits from a good or service as a result of obtaining control of
that good or service. The Group has adopted IFRS 15 from 1 January
2018, using the modified retrospective approach and has not
restated comparatives for 2017.
The Group used the five-step model to develop an impact
assessment framework to assess the impact of IFRS 15 on the Group's
revenue transactions. The results of our IFRS 15 assessment
framework and contract reviews indicated that the impact of
applying IFRS 15 on our Consolidated Financial Statements was not
material for the Group and there was no adjustment to retained
earnings on application of the new rules at 1 January 2018.
The adoption of IFRS 15 has had no material impact on the
principles applied by the Group for reporting the nature, amount
and timing of revenue recognition. Contracts with customers can be
readily identified throughout the Group and include a single
performance obligation to sell containerboard, corrugated
containers and other paper-based packaging products. Revenue is
recognised when control of the goods is transferred to the
customer, which for the Group is at a point in time when delivery
to the customer has taken place according to the terms of sale.
New and amended standards and interpretations issued but not yet
effective or early adopted
Leases
IFRS 16, Leases issued in January 2016 by the IASB replaces IAS
17, Leases and related interpretations. IFRS 16 sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both the lessee and the lessor. For
lessees, IFRS 16 eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee
accounting model with some exemptions for short-term and low-value
leases. The lessee recognises a right-of-use asset representing its
right to use the underlying asset and a lease liability
representing its obligation to make lease payments. It also
includes an election which permits a lessee not to separate
non-lease components (e.g. maintenance) from lease components and
instead capitalise both the lease cost and associated non-lease
cost. For lessors, IFRS 16 substantially carried forward the
accounting requirement in IAS 17.
2.Basis of Preparation and Accounting Policies (continued)
Impact - leases in which the Group is a lessee
The standard will primarily affect the accounting for the
Group's operating leases. The application of IFRS 16 will result in
the recognition of additional assets and liabilities in the
Consolidated Balance Sheet and in the Consolidated Income Statement
it will replace the straight-line operating lease expense with a
depreciation charge for the right-of-use asset and an interest
expense on the lease liabilities. In addition, the Group will no
longer recognise provisions for operating leases that it assesses
to be onerous instead the Group will perform impairment testing on
the right-of-use asset.
The Group's non-cancellable operating lease commitments on an
undiscounted basis at 31 December 2018 are EUR332 million and
provide an indication of the scale of leases held by the Group. The
actual impact of applying IFRS 16 on the Consolidated Financial
Statements will depend on the discount rate at 1 January 2019, the
expected lease term, including renewal options, exemptions for
short-term and low-value leases and the extent to which the Group
chooses to use practical expedients.
The Group has entered into operating leases for a range of
assets, including property, plant and equipment and vehicles. The
Group has elected to apply the recognition exemption for both
short-term and low-value leases.
The Group's assessment of the impact of adopting IFRS 16 is in
the process of being finalised. Based on the information currently
available for those operating leases that will be recognised in the
Consolidated Balance Sheet at 1 January 2019 the estimated impact
on the Group's key measures at 1 January 2019 is as follows:
Property, plant and equipment increase 8%-9%
Net debt increase 11%-12%
EBITDA increase approximately 5%
Profit before tax decrease marginal
Net debt to EBITDA increase marginal
Return on capital employed decrease approximately 1%
Transition
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. The Group will apply IFRS 16 from its effective date
using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings at 1 January
2019, with no restatement of comparative information. The Group
will apply the practical expedient to grandfather the definition of
a lease on transition. This means that it will apply IFRS 16 to all
contracts entered into before 1 January 2019 and identified as
leases in accordance with IAS 17 and related interpretations. On
transition the Group has also elected to measure the right-of-use
assets for certain property leases as if the new rules had always
been applied. All other right-of-use assets will be measured at the
amount of the lease liability on adoption.
Significant accounting judgements, estimates and assumptions
Preparation of the Consolidated Financial Statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts of revenue, expenses, assets and
liabilities. The significant accounting judgements, estimates and
assumptions made by management in the preparation of the Group
financial information are consistent with those described in the
Annual Report for the year ended 31 December 2017 with the
exception of those which are described below.
Venezuela
During the third quarter of 2018, the Government of Venezuela
took control of Smurfit Kappa Carton de Venezuela's ('SKCV')
business and operations. As a result of this action, Smurfit Kappa
Group plc was no longer able to exercise control over the its
Venezuelan business and operations. As a consequence of the Group's
loss of control over SKCV, the Group has deconsolidated its
Venezuelan operations in accordance with the requirements of IFRS
10, Consolidated Financial Statements, with effect from August
2018.
2.Basis of Preparation and Accounting Policies (continued)
Business combinations
Business combinations are accounted for using the acquisition
method which requires that the assets and liabilities assumed are
recorded at their respective fair values at the date of
acquisition. The application of this method requires certain
estimates and assumptions relating, in particular, to the
determination of the fair values of the acquired assets and
liabilities assumed as at the date of acquisition. For intangible
assets acquired, the Group bases valuations on expected future cash
flows. This method employs a discounted cash flow analysis using
the present value of the estimated cash flows expected to be
generated from these intangible assets using appropriate discount
rates and revenue forecasts. The period of expected cash flows is
based on the expected useful life of the intangible asset
acquired.
Financial statements
The financial information presented in this preliminary release
does not constitute full statutory financial statements. The Annual
Report and Financial Statements will be approved by the Board of
Directors and reported on by the auditors in due course.
Accordingly, the financial information is unaudited. Full statutory
financial statements for the year ended 31 December 2017 have been
filed with the Irish Registrar of Companies. The audit report on
those statutory financial statements was unqualified.
The preliminary release was approved by the Board of
Directors.
3.Segment and Revenue 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.
FY 2018 FY 2017
Europe The Americas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 6,922 2,024 8,946 6,404 2,158 8,562
EBITDA 1,267 317 1,584 955 311 1,266
Segment (48) (1,270) (1,318) - (12) (12)
exceptional
items
EBITDA after 1,219 (953) 266 955 299 1,254
exceptional
items
Unallocated (39) (26)
centre
costs
Share-based (24) (24)
payment
expense
Depreciation (376) (356)
and
depletion (net)
Amortisation (40) (40)
Exceptional (18) -
items
Impairment - (11)
of assets
Finance costs (220) (250)
Finance income 47 29
(Loss)/profit (404) 576
before
income tax
Income tax (235) (153)
expense
(Loss)/profit (639) 423
for the
financial year
3.Segment and Revenue Analyses (continued)
H2 2018 H2 2017
Europe The Americas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 3,525 993 4,518 3,240 1,089 4,329
EBITDA 680 160 840 516 165 681
Segment (34) (1,270) (1,304) - (12) (12)
exceptional
items
EBITDA 646 (1,110) (464) 516 153 669
after
exceptional
items
Unallocated (19) (10)
centre
costs
Share-based (14) (16)
payment
expense
Depreciation (209) (174)
and
depletion
(net)
Amortisation (22) (19)
Exceptional (1) -
items
Impairment - (11)
of assets
Finance (99) (119)
costs
Finance 9 11
income
Share (1) -
of
associates'
loss (after
tax)
(Loss)/profit (820) 331
before
income tax
Income tax (114) (84)
expense
(Loss)/profit (934) 247
for the
financial
year
Revenue information about geographical areas
The following information is a geographical analysis presented
in accordance with IFRS 8, Operating Segments, which requires
disclosure of information about country of domicile (Ireland) and
countries with material revenue.
2018 2017
EURm EURm
Ireland 119 116
Germany 1,325 1,292
France 1,053 985
United Kingdom 797 723
Mexico 794 769
Rest of world 4,858 4,677
Total revenue by geographical area 8,946 8,562
Revenue is derived almost entirely from the sale of goods and is
disclosed based on the location of production. All revenue
recognised relates to revenue from contracts with customers.
3.Segment and Revenue Analyses (continued)
Disaggregation of revenue
The Group derives revenue from the following major product lines and sells both in each ofits operating segments.
2018 2017
EURm EURm
Paper 1,510 1,402
Packaging 7,436 7,160
Total revenue by product 8,946 8,562
4.Exceptional Items
2018 2017
EURm EURm
The following items are regarded as exceptional in nature:
International Paper defence costs 18 -
Loss on the disposal of Baden operations 11 -
Impairment of assets - 11
GMP equalisation pension adjustment 9 -
Reorganisation and restructuring costs 28 12
Exceptional items included in operating profit 66 23
Exceptional finance costs 6 2
Exceptional items included in net finance costs 6 2
Venezuela deconsolidation - currency recycling 1,196 -
Venezuela deconsolidation - write-off net assets 61 -
Venezuela deconsolidation - legal and reorganisation costs 13 -
Total Venezuela deconsolidation costs 1,270 -
Total exceptional items 1,342 25
Exceptional items charged within operating profit in 2018
amounted to EUR66 million. This comprised the cost of countering
the unsolicited approach from International Paper of EUR18 million,
the loss on the disposal of the Baden operations in Germany of
EUR11 million, the GMP pension adjustment in the UK of EUR9 million
and restructuring costs in Europe of EUR28 million. In 2017,
exceptional items amounting to EUR23 million 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.
Exceptional finance costs of EUR6 million represented EUR4
million in respect of the fee payable to the bondholders to secure
their consent to the Group's move from quarterly to semi-annual
reporting and EUR2 million representing the interest cost on the
early termination of certain US dollar/euro swaps. The swaps were
terminated following the paydown of the US dollar element of the
2018 bonds.
Exceptional finance costs of EUR2 million in 2017 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.
Exceptional costs of EUR1,270 million in relation to the
deconsolidation of Venezuela have been charged to the Consolidated
Income Statement in 2018 as described further in Note 14.
5.Finance Costs and Income
2018 2017
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 47 52
Interest payable on finance leases 1 1
Interest payable on other borrowings 115 119
Exceptional finance costs associated with debt restructuring - 2
Exceptional consent fee - reporting waiver 4 -
Exceptional interest on early termination 2 -
of cross currency swaps
Unwinding discount element of provision 1 1
Foreign currency translation loss on debt 19 27
Fair value loss on financial assets 1 -
Net interest cost on net pension liability 18 24
Net monetary loss - hyperinflation 12 24
Total finance costs 220 250
Finance income:
Other interest receivable (4) (3)
Foreign currency translation gain on debt (41) (14)
Fair value gain on derivatives not designated as hedges (2) (12)
Total finance income (47) (29)
Net finance costs 173 221
6.Income Tax Expense
Income tax expense recognised in the Consolidated Income Statement
2018 2017
EURm EURm
Current tax:
Europe 145 143
The Americas 54 48
199 191
Deferred tax 36 (38)
Income tax expense 235 153
Current tax is analysed as follows:
Ireland 18 20
Foreign 181 171
199 191
Income tax recognised in the Consolidated
Statement of Comprehensive Income
2018 2017
EURm EURm
Arising on defined benefit - (1)
pension plans
The income tax expense in 2018 is EUR82 million higher than in
the comparable period in 2017. The increase primarily arises on the
higher profits when compared to the prior year. The resulting tax
effects are recorded in current tax and also in deferred tax, to
the extent that tax credits and losses are used.
The current tax charge is EUR199 million compared to EUR191
million in 2017. The current tax expense is EUR2 million higher in
Europe and EUR6 million higher in the Americas. The increases arise
primarily from higher profitability, offset by other timing items
which are recorded in the deferred tax expense.
The movement in deferred tax from a tax credit of EUR38 million
in 2017 to a tax charge of EUR36 million in 2018 includes the
effects of the reversal of timing differences on which deferred tax
liabilities were previously recognised, the use and recognition of
tax losses and credits and a positive impact from tax rate
reductions.
There is a EUR7 million net tax credit included in the income
tax expense in respect of exceptional items in 2018 compared to a
EUR6 million tax credit in 2017.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the year:
2018 2017
EURm EURm
Current service cost 29 28
Past service cost - GMP equalisation 9 -
Past service cost - Other (2) -
Actuarial loss arising on other long-term employee benefits 1 1
Net interest cost on net pension liability 16 18
Defined benefit cost 53 47
Included in cost of sales, distribution costs, administrative
expenses and other operating expenses is a defined benefit cost of
EUR37 million (2017: EUR29 million). Net interest cost on net
pension liability of EUR16 million (2017: EUR18 million) is
included in finance costs in the Consolidated Income Statement.
There was a High Court ruling in October 2018 in the UK
requiring pension schemes to equalise benefits for the effect of
GMP, which has resulted in a past service cost for the Group of
EUR9 million.
The amounts recognised in the Consolidated Balance Sheet were as
follows:
2018 2017
EURm EURm
Present value of funded or partially funded obligations (2,145) (2,282)
Fair value of plan assets 1,831 1,953
Deficit in funded or partially funded plans (314) (329)
Present value of wholly unfunded obligations (489) (517)
Amounts not recognised as assets due to asset ceiling (1) (2)
Net pension liability (804) (848)
The employee benefits provision has reduced from EUR848 million
at 31 December 2017 to EUR804 million at 31 December 2018, mainly
as a result of Group cash contributions in excess of liability
accrual and the disposal of the Baden operations in Germany.
8.Earnings per Share
Basic
Basic earnings per share is calculated by dividing the
(loss)/profit attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the year less own
shares.
2018 2017
(Loss)/profit attributable to owners (646) 417
of the parent (EUR million)
Weighted average number of ordinary 236 235
shares in issue (million)
Basic earnings per share (cent) (273.7) 177.2
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. 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.
2018 2017
(Loss)/profit attributable to owners (646) 417
of the parent (EUR million)
Weighted average number of ordinary 236 235
shares in issue (million)
Potential dilutive ordinary shares assumed (million) - 2
Diluted weighted average ordinary shares (million) 236 237
Diluted earnings per share (cent) (273.7) 175.8
At 31 December 2018, there were 1,563,662 potential ordinary
shares in issue that could dilute earnings per share ('EPS') in the
future, but these were not included in the computation of basic
diluted EPS in the year because they would have the effect of
reducing the loss per share. Accordingly, there is no difference
between basic and diluted loss per share in 2018.
Pre-exceptional
2018 2017
(Loss)/profit attributable to owners (646) 417
of the parent (EUR million)
Exceptional items included in profit before 1,342 25
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) (7) (6)
Pre-exceptional profit attributable to 689 436
owners of the parent (EUR million)
Weighted average number of ordinary 236 235
shares in issue (million)
Pre-exceptional basic earnings per share (cent) 292.2 185.3
Weighted average number of ordinary 236 235
shares in issue (million)
Dilutive potential ordinary shares assumed (million) 2 2
Diluted weighted average ordinary shares (million) 238 237
Pre-exceptional diluted earnings per share (cent) 290.2 183.8
9.Dividends
In May 2018, the final dividend for 2017 of 64.5 cent per share
was paid to the holders of ordinary shares. In October 2018, an
interim dividend for 2018 of 25.4 cent per share was paid to the
holders of ordinary shares.
The Board is recommending a final dividend of 72.2 cent per
share for 2018 subject to the approval of the shareholders at the
AGM. It is proposed to pay the final dividend on 10 May 2019 to all
ordinary shareholders on the share register at the close of
business on 12 April 2019. The final dividend and interim dividend
are paid in May and October in each year.
10.Property, Plant and Equipment
Land and buildings Plant and equipment Total
EURm EURm EURm
Financial year ended
31 December 2018
Opening net book amount 1,023 2,219 3,242
Reclassifications 60 (65) (5)
Additions 2 537 539
Acquisitions 88 237 325
Depreciation charge (51) (328) (379)
Retirements and (14) (7) (21)
disposals
Deconsolidation (11) (8) (19)
of Venezuela
Hyperinflation 17 24 41
adjustment
Foreign currency (55) (55) (110)
translation
adjustment
At 31 December 2018 1,059 2,554 3,613
Financial 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
11.Net Movement in Working Capital
2018 2017
EURm EURm
Change in inventories (84) (112)
Change in trade and other receivables (99) (136)
Change in trade and other payables 90 138
Net movement in working capital (93) (110)
12.Analysis of Net Debt
2018 2017
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest 4 2
at relevant interbank rate + 1.1%(8)
Facility A term loan(2)- interest at 407 485
relevant interbank rate + 1.35%(8)
US$292.3 million 7.50% senior debentures 257 245
due 2025 (including accrued interest)
Bank loans and overdrafts 119 154
2022 receivables securitisation variable funding 49 4
notes (including accrued interest)(3)
2023 receivables securitisation variable funding notes(4) 179 88
2018 senior notes (including accrued interest)(5) - 455
EUR400 million 4.125% senior notes due 406 405
2020 (including accrued interest)
EUR250 million senior floating rate notes due 251 250
2020 (including accrued interest)(6)
EUR500 million 3.25% senior notes due 498 497
2021 (including accrued interest)
EUR500 million 2.375% senior notes due 499 498
2024 (including accrued interest)
EUR250 million 2.75% senior notes due 250 249
2025 (including accrued interest)
EUR600 million 2.875% senior notes due 2026 601 -
(including accrued interest)(7)
Gross debt before finance leases 3,520 3,332
Finance leases 19 12
Gross debt including finance leases 3,539 3,344
Cash (417) (539)
Net debt including finance leases 3,122 2,805
(1) Revolving credit facility ('RCF') ofEUR845 million (available under the senior credit facility) to be repaid in 2020.
(a) Revolver loans - EUR6 million
(b) Drawn under ancillary facilities andfacilities supported by letters of credit - nil
(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 March 2018, the Group prepaid
EUR82 million of drawings under the term loan facility.
(3) EUR200 million 2022 receivables securitisation programme. In November 2018, the EUR175 million receivables securitisationprogramme was increased by EUR25 million.
(4) In June 2018, the EUR240 million receivables securitisation programme was amended and restated, reducing the facility to
EUR230 million, extending the maturity to 2023 and reducing the variable funding notes margin from 1.4% to 1.2%. The amendmentand restatement of the programme did not result in a material modification gain or loss.
(5) EUR200 million 5.125% senior notes due2018 and US$300 million 4.875% senior notes due 2018 redeemed in full in June 2018.
(6) Interest at EURIBOR + 3.5%.
(7) On 28 June 2018 the Group issued EUR600million of 7.5 year euro denominated senior notes at a coupon of 2.875%. The netproceeds of the offering were used in July 2018 to fund the Reparenco acquisition and reduce borrowings under the revolvingcredit facility.
(8) Following a reduction in leverage inDecember 2017,the margins on the RCF and Facility A reduced by 0.25%, to 1.10% and1.35% respectively, effective February 2018.
The margins applicable under the senior credit facility are determined as follows:
Net debt/EBITDA ratio RCF Facility A
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:
Reverse acquisition Cash flow Cost of hedging Foreign Share- Own shares Available-for-sale FVOCI reserve
reserve hedging reserve reserve currency based reserve Total
translation payment
reserve reserve
EURm EURm EURm EURm EURm EURm EURm EURm EURm
At 31 December 575 (17) - (1,382) 176 (31) 1 - (678)
2017
Adjustment - (2) 2 - - - (1) 1 -
on
initialapplication
of IFRS 9(net
of tax)
At 1 January 575 (19) 2 (1,382) 176 (31) - 1 (678)
2018
Other
comprehensive
income
Foreign - - - 1,015 - - - - 1,015
currencytranslation
adjustments
Effective - 5 - - - - - - 5
portion
ofchanges in
fair value
ofcash
flow hedges
Changes in - - 1 - - - - - 1
fair value
ofcost of
hedging
Total - 5 1 1,015 - - - - 1,021
other
comprehensive
income
Share-based - - - - 22 - - - 22
payment
Net shares - - - - - (10) - - (10)
acquired
bySKG
Employee Trust
Shares - - - - (13) 13 - - -
distributed
bySKG
Employee Trust
At 31 December 575 (14) 3 (367) 185 (28) - 1 355
2018
At 1 January 575 (22) - (1,193) 165 (33) 1 - (507)
2017
Other
comprehensive
income
Foreign - - - (189) - - - - (189)
currencytranslation
adjustments
Effective - 5 - - - - - - 5
portion
ofchanges in
fair value
ofcash
flow hedges
Total - 5 - (189) - - - - (184)
other
comprehensive
income/(expense)
Share-based - - - - 23 - - - 23
payment
Net shares - - - - - (10) - - (10)
acquired
bySKG
Employee Trust
Shares - - - - (12) 12 - - -
distributed
bySKG
Employee Trust
At 31 December 575 (17) - (1,382) 176 (31) 1 - (678)
2017
14.Venezuela
Control
During the third quarter of 2018, the Government of Venezuela
took control of Smurfit Kappa Carton de Venezuela's ('SKCV')
business and operations. As a result of this action, SKG plc was no
longer able to exercise control over its Venezuelan business and
operations. Consequently, the Group has deconsolidated its
Venezuelan operations with effect from August 2018.
As a result of the deconsolidation of SKCV, the Group's
Consolidated Financial Statements for the year ended 31 December
2018, are impacted as follows: write down of net assets of EUR61
million included in the Consolidated Balance Sheet with a
corresponding charge in the Consolidated Income Statement and legal
and reorganisation costs of EUR13 million charged to the
Consolidated Income Statement.
As required under IAS 21, The Effects of Changes in Foreign
Exchange Rates, currency is recycled on deconsolidation. This
results in a non-cash exceptional charge to the Consolidated Income
Statement of EUR1,196 million, with a corresponding credit of
EUR1,196 million to the Consolidated Statement of Comprehensive
Income. This has no impact on the net assets or total equity of the
Group. It represents the transfer of negative currency reserves,
generated by previous devaluations of the Bolivar Fuerte, from the
foreign currency translation reserve into the retained earnings
reserve.
Hyperinflation
As discussed more fully in the 2017 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 2018 and 2017, in the absence of published indices,
management engaged an independent expert to determine an estimate
of the annual inflation rate. The estimated level of inflation to
June 2018 was 2,213% (December 2017: 971%).
15.Argentina
Argentina became hyperinflationary during 2018 when the
three-year cumulative inflation rate using the wholesale price
index exceeded 100% indicating that Argentina is a
hyper-inflationary economy for accounting purposes. Consequently,
it was considered as such from 1 July 2018 and the Group has
applied the hyperinflationary accounting requirements of IAS 29,
Financial Reporting in Hyperinflationary Economies to the results
of our Argentinian operations from the beginning of 2018.
16.Business Combinations
The acquisitions completed by the Group during the year,
together with percentages acquired and completion dates were as
follows:
-- Reparenco, (100%, 2 July 2018), a paper and recycling business in the
Netherlands;
-- Caradec, (100%, 4 December 2018), an integrated corrugated plant and
an erecting centre in France; and
-- Papcart, (100%, 4 December 2018), a specialist corrugated converter in
France.
The table below reflects the fair value of the identifiable net
assets acquired in respect of the acquisitions completed during the
year. The acquisitions of Caradec and Papcart both completed on 4
December 2018 and, as such, the fair values assigned to them have
been performed on a provisional basis. Any amendments to fair
values will be made within the twelve month period from the date of
acquisition, as permitted by IFRS 3, Business Combinations.
Reparenco Other* Total
EURm EURm EURm
Non-current assets
Property, plant and equipment 308 17 325
Intangible assets 95 - 95
Deferred income tax assets 18 - 18
Current assets
Inventories 11 9 20
Trade and other receivables 30 12 42
Cash and cash equivalents 12 4 16
Non-current liabilities
Employee benefits - (1) (1)
Deferred income tax liabilities (60) - (60)
Borrowings (9) (1) (10)
Current liabilities
Borrowings (9) - (9)
Trade and other payables (39) (8) (47)
Net assets acquired 357 32 389
Goodwill 109 - 109
Consideration 466 32 498
Settled by:
Cash 466 32 498
466 32 498
* In addition to the Caradec and Papcart acquisitions, other
also includes fair value adjustments in relation to 2017
acquisitions.
The principal factors contributing to the recognition of
goodwill are the realisation of cost savings and other synergies
with existing entities in the Group which do not qualify for
separate recognition as intangible assets.
None of the goodwill recognised is expected to be deductible for
tax purposes.
Net cash outflow arising on acquisition EURm
Cash consideration 498
Less cash & cash equivalents acquired (16)
Total 482
16.Business Combinations (continued)
The gross contractual value of trade and other receivables as at
the respective dates of acquisition amounted to EUR45 million. The
fair value of these receivables is estimated at EUR42 million (all
of which is expected to be recoverable).
Acquisition-related costs of EUR2 million were incurred and are
included within administrative expenses in the Consolidated Income
Statement.
The Group's acquisitions in 2018 have contributed EUR120 million
to revenue and EUR21 million of profit to the result for the
financial year. The proforma revenue and loss of the Group for the
year ended 31 December 2018 would have been EUR9,144 million and
EUR621 million respectively had the acquisitions taken place at the
start of the current reporting period.
No contingent liabilities were recognised on the acquisitions
completed during the year.
There have been no acquisitions completed subsequent to the
balance sheet date which would be individually material to the
Group, thereby requiring disclosure under either IFRS 3 or IAS 10,
Events after the Balance Sheet Date.
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 46-49 of the Group's 2017 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)and intangible
assets amortisation.
EBITDA Margin % EBITDA
_________ x 100
Revenue
Pre-exceptional Basic EPS (cent) Profit attributable to
owners of the parent,
adjustedfor exceptional items
included in profit before
incometax and
income 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) is included in
the management report.The IFRS
cash flow is included
in the Consolidated
FinancialStatements.
A reconciliation of free cash
flow to cashgenerated
from operations (IFRS measure)
is included below.
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 (Loss)/Profit to EBITDA
2018 2017
EURm EURm
(Loss)/profit for the financial year (639) 423
Income tax expense (after exceptional items) 235 153
Deconsolidation of Venezuela 1,270 -
Exceptional items charged in operating profit 66 23
Net finance costs (after exceptional items) 173 221
Share-based payment expense 24 24
Depreciation, depletion (net) and amortisation 416 396
EBITDA 1,545 1,240
Return on Capital Employed
2018 2017
EURm EURm
Pre-exceptional operating profit plus share 1,105 820
of associates' profit (aftertax)
Total equity - current year end 2,890 2,659
Net debt - current year end 3,122 2,805
Capital employed - current year end 6,012 5,464
Total equity - prior year end 2,659 2,503
Net debt - prior year end 2,805 2,941
Capital employed - prior year end 5,464 5,444
Average capital employed 5,738 5,454
Return on capital employed 19.3% 15.0%
Reconciliation of Free Cash Flow to Cash Generated from
Operations
2018 2017
EURm EURm
Free cash 494 307
flow
Add back: Cash interest 155 158
Capital expenditure (net of change in capital creditors) 561 458
Tax payments 193 154
Less: Sale of property, plant and equipment (4) (5)
Profit on sale of property, plant and equipment - non-exceptional (3) (9)
Receipt of capital grants (in 'Other' in summary cash flow) (2) (4)
Dividends received from associates (in 'Other' in summary cash flow) - (1)
Non-cash financing activities (1) -
Cash generated from 1,393 1,058
operations
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
(increase)/decrease 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 above. The main
adjustments are in respect of cash interest, capital expenditure,
tax payments and the sale of property, plant and equipment.
(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.
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(END) Dow Jones Newswires
February 13, 2019 02:00 ET (07:00 GMT)
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