TIDMSKG
Smurfit Kappa Group plc : 2009 First Quarter Results
Interim Management Statement
Smurfit Kappa Group plc ("SKG" or the "Group"), one of the world's largest integrated manufacturers of paper-based packaging products, with operations in Europe and Latin America, today announced results for the 3 months ending 31 March 2009.
2009 First Quarter | Key Financial Performance Measures
EUR m Q1 2009 Q1 2008 Change Q4 2008 Change
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Revenue EUR1,504 EUR1,832 (18%) EUR1,631 (8%)
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
EBITDA before Exceptional EUR180 EUR257 (30%) EUR195 (8%)
Items and
Share-based Payment expense(1)
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
EBITDA Margin 11.9% 14.0% - 12.0% -
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Operating Profit before EUR82 EUR156 (47%) EUR97 (15%)
Exceptional Items
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Basic Earnings/(Loss) 3.8 18.4 (79%) (96.3) n/a
Per Share (EUR cts)
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Free Cash Flow(2) EUR- EUR1 - EUR55 -
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Net Debt EUR3,187 EUR3,373 6% EUR3,185 -
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
Net Debt to EBITDA (LTM) 3.7x 3.2x - 3.4x
=-------------------------------------------------------------------------
(1) EBITDA before exceptional items and share-based payment expense is denoted by EBITDA throughout the remainder of the management commentary for ease of reference. A reconciliation of net profit for the period to EBITDA before exceptional items and share-based payment expense is set out on page 22.(2) Free cash flow is set out on page 7. The IFRS cash flow is set out on page 12.
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: "In a difficult operating environment, we are pleased to report resilient EBITDA margins and continued strong cash flow management.
As a result of the impact of the weak macro environment on both volumes and price, revenue was down compared to quarter one 2008. While down two percentage points year-on-year, EBITDA margins remained stable compared to quarter four 2008.
Bearing in mind reduced earnings, the relatively good cash flow outcome in a seasonally weak quarter primarily reflects lower debt servicing costs and continued working capital control. Due to phasing of certain projects initiated in 2008, capital expenditure equated to 71% of depreciation in the first quarter. SKG is on target to achieve its full year objective of reducing capital expenditure towards 60% of depreciation.
SKG continues to maintain a strong liquidity position with in excess of EUR700 million of cash on its balance sheet, unused committed credit facilities of EUR600 million and no material debt maturity until 2012.
The Group's performance for the first quarter reflects another strong performance from its Latin American operations, the continuing benefits of the Group's integrated business model, and a progressively lower cost base, supported by EUR30 million of cost take-out delivered over the period.
The ongoing uncertainty in the global economy makes it difficult to provide guidance in any meaningful manner. While demand and pricing remain under pressure, we are now seeing signs of increasing capacity rationalisation. From SKG's perspective, the Group will continue to proactively adapt its production to its sustainable level of demand, and will continue to rationalise its system to maximise cost efficiency, while maintaining superior customer service.
Reduced capital expenditure and further input cost relief, especially for energy and wood, are expected to deliver their full benefit in the latter part of 2009. The Group has also increased its full year formal cost take-out target to EUR130 million for 2009. These factors should contribute to maintaining SKG's industry-leading margins, and to maximising cash flow generation and net debt reduction in 2009 and beyond."
About Smurfit Kappa Group
Smurfit Kappa Group is a world leader in paper-based packaging with operations in Europe and Latin America. Smurfit Kappa Group operates in 22 countries in Europe and is the European leader in containerboard, solidboard, corrugated and solidboard packaging and has a key position in several other packaging and paper market segments, including graphicboard, sack paper and paper sacks. Smurfit Kappa Group also has a growing presence in Eastern Europe. Smurfit Kappa Group operates in 9 countries in Latin America and is the only pan-regional operator.
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 Information
Smurfit Kappa Group +353 1 202 7000 ir@smurfitkappa.com
K Capital Source +353 1 631 5500 smurfitkappa@kcapitalsource.com
2009 First Quarter | Performance Overview
While revenues and earnings were affected by the weak macro environment that prevailed in the first quarter, the Group's EBITDA margins remained relatively stable compared with quarter four 2008. This primarily reflects the resilience of the integrated model and the benefits of moderating input costs, particularly for recovered paper. Further deflation, especially for energy and wood, are expected to benefit SKG's performance in the coming few quarters.
Our Latin American business was also a significant contributor to the Group's performance in the first quarter, reporting 21% EBITDA growth year-on-year excluding currency effects.
The lower absolute level of earnings by SKG in the first quarter reflects weak demand, and further pressure on corrugated pricing, as a result of the continued fall in containerboard prices. The increase in capacity closure announcements across the industry in the first quarter underlines the level of stress in the recycled containerboard market at current price levels, especially for non-integrated producers.
In comparison, the Group's overall containerboard system remained competitive in the first quarter, benefiting from its lower cost recycled capacity, leading market position in kraftliner grades, and optimised integrated corrugated plant network.
While the increasing number of capacity closure announcements is clearly a positive for the overall market balance, new recycled capacity is expected to come on stream in Europe in the second half of 2009. As a result, the Group anticipates that sustained pricing pressure should force non-integrated and/or higher cost paper producers, among others, to close further capacity.
In this environment, SKG continues to maximise its cost take-out efforts and the priority focus remains on cash generation for net debt reduction. In the first quarter, the Group succeeded in limiting the normal seasonal working capital outflow, which contributed to delivering a stable free cash flow performance year-on-year despite a significant decline in EBITDA.
As a result of this relatively strong cash flow performance, the Group's net debt remained broadly unchanged at the end of March 2009 compared to December 2008. This performance also reflects the benefits of the Group's debt buy-back process, which generated a net debt reduction of EUR6 million in the quarter.
2009 First Quarter | Financial performance
At EUR1,504 million for the first quarter of 2009, sales revenue was 18% lower than in the first quarter of 2008. While plant closures had a minimal impact, currency accounted for EUR56 million of the year-on-year decline, giving an underlying decrease of EUR271 million, the equivalent of almost 15%.
At EUR180 million for the first quarter, EBITDA was EUR77 million lower than in 2008. Allowing for the negative impact of currency of EUR7 million and plant closures of EUR1 million, the underlying decrease in EBITDA was EUR69 million, the equivalent of 27%.
Compared to the fourth quarter of 2008, EBITDA in the first quarter of 2009 was EUR15 million lower (the equivalent of almost 8%) with currency accounting for approximately EUR4 million of the decrease. EBITDA margins remained relatively stable at 11.9% in the first quarter of 2009 compared to 12.0% in the previous quarter. This reflects the Group's continuing focus on operating efficiency and cost take-out.
2009 First Quarter | Free Cash Flow
Free cash flow for the first quarter to March 2009 was broadly unchanged with a break-even situation in 2009 compared to a net inflow of EUR1 million in 2008. While EBITDA was EUR77 million lower, the resilient cash flow performance primarily reflects a significantly lower working capital outflow than normal as well as reduced tax payments and cash interest.
Working capital increased by only EUR7 million in the first quarter of 2009 compared to a EUR75 million increase in the first quarter of 2008. This reflects the Group's continued strong working capital management and lower end-product pricing as well as a positive one-off inflow of approximately EUR20 million as a result of a change in payment terms regulations in France. Working capital of EUR560 million at March 2009 represented 9.3% of annualised net revenue, compared to 10.2% at March 2008 and 8.1% at December 2008.
Cash interest of EUR52 million in the first quarter of 2009 was EUR8 million lower than in the same period in 2008, reflecting the lower interest rate environment together with the continued net debt reduction throughout last year. A 1% move in interest rates changes the Group's cash interest bill by approximately EUR12 million per annum.
At EUR60 million, capital expenditure in the first quarter of 2009 was broadly unchanged compared to the same period in 2008. While the expenditure in the quarter equated to 71% of depreciation, the Group remains on track to reduce its level of expenditure towards 60% of depreciation for the full year, compared to 98% in 2008. The reduction in capital expenditure is expected to enhance the Group's free cash flow generation by approximately EUR120 million over the remaining three quarters of 2009.
Tax payments in the first quarter of 2009 were EUR6 million lower than in the first quarter of 2008, primarily as a result of the Group's lower profitability.
2009 First Quarter | Capital Structure & Debt Reduction
At the end of March 2009, the Group's net debt was stable compared to December 2008 levels, at just under EUR3.2 billion. Year-on-year, the Group reduced its net debt by EUR186 million, the equivalent of 6%. The Group's financial priority continues to be on sustaining positive free cash flow generation and debt reduction throughout the cycle.
In the current credit market environment, the Group benefits from its long-term debt profile, with no material near-term maturity. In addition, the Group benefits from strong liquidity, with approximately EUR712 million of cash on its balance sheet at the end of March 2009, and unused committed credit lines of approximately EUR600 million maturing in December 2012.
In view of the challenging economic environment and consistent with a prudent financial strategy, the Group suspended its dividend payments in 2009, thereby increasing its debt paydown capability by EUR70 million compared to 2008. The Group will evaluate future dividend policy in light of prevailing market conditions, cash flow generation and capital structure requirements.
In February, the Group launched an auction process to buy-back up to EUR100 million of its Senior bank debt. In total, just over EUR100 million of offers were received, of which EUR43 million were accepted at an average discount of 24% to par. The buy-back is expected to reduce the Group's net debt by EUR8 million, of which EUR6 million has been reflected in the first quarter. It also reduces SKG's interest charge by EUR1.2 million per annum.
2009 First Quarter | Performance Review
Packaging: Europe
The Group's corrugated volumes in the first quarter decreased by just under 12% year-on-year, reflecting the overall slowing in European economies. The year-on-year comparison is particularly tough as markets were showing healthy growth in the first quarter of 2008. Compared to the fourth quarter of 2008, the Group's corrugated deliveries declined by 3% in the first 3 months of 2009.
Despite lower deliveries, the Group's stable EBITDA margin of 11.9% in the first quarter reflects the benefits of its integrated model, supported by the sustained performance of its corrugated division. While under increasing pressure, corrugated pricing remains more resilient than containerboard, reflecting SKG's geographical diversity and focus on product quality and customer service.
In the first quarter, the Group also benefited from a reduced overall cost base. This reflects lower production output, a material reduction in input costs, especially for recovered paper, and the EUR30 million of cost take-out achieved in the period. In addition to its formal 3-year cost take-out programme, the Group is also focusing on curtailing all discretionary expenditure within its system in 2009, this delivered savings in excess of EUR30 million in quarter one.
The increasing number of capacity closures in the industry demonstrates the current level of stress for higher cost and/or non-integrated producers. In the year-to-date, seven recycled containerboard paper mills have been permanently closed or indefinitely idled, and four more closures have already been announced for the second quarter. In total, those closures are expected to remove circa 1.3 million tonnes from the market, the equivalent of 6% of European capacity.
While capacity closures are clearly a positive for the overall market balance, new recycled capacity is expected to come on stream in Europe in the second half of 2009 in a weak demand environment. As a result, it is anticipated that sustained containerboard pricing pressure should force non-integrated and/or higher cost paper producers, among others, to close further capacity. In such an environment, the Group's performance will continue to benefit from its fully integrated, lower cost paper system.
However, to further maximise its own efficiency and maintain its low inventory level, the Group has temporarily closed its Nanterre paper machine in France, for a duration of 6 months from 30 April 2009. It is expected to remove approximately 85,000 tonnes from the recycled containerboard market over the period. This temporary closure will contribute to the Group's earnings, by minimising production stoppage in its other three paper mills in France despite the anticipated continued weak demand.
Moreover, as part of its deepened cost take-out programme, the Group initiated the closure of three of its underperforming corrugated box plants in the first quarter of 2009: in Spain, the Netherlands and Denmark. In the remainder of the year, the Group will continue to take necessary action to reduce its cost base, and adapt its production system to the sustainable level of demand.
The Group continues to benefit from its leading market position in kraftliner across Europe. Notwithstanding increasing pricing pressure as a result of the weak fundamentals in the recycled market, kraftliner margins were more resilient than those of other paper grades in the first quarter. This performance was achieved despite significant downtime across our kraftliner system, primarily related to a triennial maintenance shutdown at our Facture mill in France.
Packaging: Latin America
The Group's performance in the first quarter reflects the ongoing benefits of its geographical diversity, as its Latin American business continues to deliver superior performance. SKG's Latin American operations reported a 21% EBITDA growth year-on-year for the quarter on a constant currency basis.
As a result of its sustained performance, the region contributed to approximately 16% of the Group's revenue and over 25% of the Group's EBITDA in the first quarter.
Latin America was not immune from the overall global slowdown in the first quarter, with the Group's corrugated volumes declining by 11% year-on-year. However, as a result of management focus on all aspects of the business, the region delivered a strong outcome and an overall margin improvement.
Specialties: Europe
The difficult trading conditions experienced at the end of 2008 continued into 2009. Profitability of the sacks and solidboard divisions declined year-on-year in the first quarter, somewhat offset by EBITDA growth in our bag-in-box and cartons business.
One of the Group's poorer performers remains its sack division, primarily driven by very weak converting volumes, which have declined by a further 13% compared to an already weak first quarter in 2008. The Group's solidboard business also suffered from lower volumes on the converting side, but SKG's solidboard mills reported better profitability, benefiting from lower recovered paper prices year-on-year.
Cost Take-Out programme
Early in 2008, the Group initiated a cost take out programme to further strengthen the competitiveness of its operations. In the full year of 2008, this programme delivered EUR72 million of cost savings, and SKG increased its cost take-out objective to EUR200 million over the three year period 2008-2010.
In light of the continued challenging operating environment that prevails in 2009, the Group has deepened its cost take-out efforts, and now expects to deliver in excess of EUR250 million over the three-year period 2008-2010.
In the first quarter of 2009, SKG delivered EUR30 million of cost take-out, and expects to deliver approximately EUR130 million for the full year of 2009, an increase from its previously announced objective of EUR75 million.
In addition to its formal cost take-out programme, the Group is also focusing on curtailing all discretionary expenditure within its system in 2009. This effort delivered year-on-year reductions of in excess of EUR30 million in the first quarter.
Dividend
To maximise cash available for debt paydown and in light of the challenging economic outlook, the Group announced last February that it would not be paying dividends in 2009. Going forward the Group will evaluate future dividend policy in light of prevailing market conditions, cash flow generation and capital structure requirements.
Summary Cash Flows
Summary cash flows for the first quarter
are set out in the following table.
3 months to 3 months to
31-Mar-09 31-Mar-08
EUR Million EUR Million
Pre-exceptional EBITDA 180 257
Cash interest (52) (60)
Working capital change (7) (75)
Current provisions (10) (12)
Capital expenditure (60) (63)
Change in capital creditors (33) (13)
Sale of fixed assets 2 1
Tax paid (9) (15)
Other (11) (19)
Free cash flow - 1
Gain on debt buy-back 6 -
Sale of businesses and investments - 1
Derivative termination 5 (3)
receipts/(payments)
Net cash inflow/(outflow) 11 (1)
Deferred debt issue costs amortised (4) (4)
Currency translation adjustments (9) 36
(Increase)/decrease in net borrowing (2) 31
(1) The summary cash flow is prepared on a different basis to the cash flow statement under IFRS.
The principal difference is that the summary cash flow details movements in net borrowing while the IFRS cash flow details movement in cash and cash equivalents. In addition, the IFRS cash flow has different sub-headings to those used in the summary cash flow. A reconciliation of the free cash flow to cash generated from operations in the IFRS cash flow is set out below.
3 months to 3 months to
31-Mar-09 31-Mar-08
EUR Million EUR Million
Free cash - 1
flow
Add Cash interest 52 60
back:
Capital expenditure 60 63
Change in capital creditors 33 13
Tax payments 9 15
Less: Sale of fixed assets (2) (1)
Profit on sale of assets and businesses - non exceptional (2) (2)
Receipt of capital grants (in "Other") (1) -
Cash generated from 149 149
operations
Capital Resources
The Group's primary sources of liquidity are cash flow from operations and borrowings under the revolving credit and restructuring facilities. The Group's primary uses of cash are for debt service and capital expenditure.
At 31 March 2009 Smurfit Kappa Funding plc had outstanding EUR217.5 million 7.75% senior subordinated notes due 2015 and $200 million 7.75% senior subordinated notes due 2015. In addition Smurfit Kappa Treasury Funding Limited had outstanding $292.3 million 7.50% senior debentures due 2025 and the Group had outstanding EUR210 million floating rate notes issued under an accounts receivable securitisation program maturing in 2011.
Smurfit Kappa Acquisitions and certain subsidiaries are party to a Senior Credit Facility. The senior credit facility comprises a EUR406 million amortising A Tranche maturing in 2012, a EUR1,279 million B Tranche maturing in 2013 and a EUR1,277 million C Tranche maturing in 2014. In addition, as at 31 March 2009, the facility included a EUR600 million revolving credit facility of which there were EUR16.4 million in letters of credit issued in support of other liabilities.
The following table provides the range of interest rates as of 31 March 2009 for each of the drawings under the various Senior Credit Facility term loans.
BORROWING ARRANGEMENT CURRENCY INTEREST RATE
Term Loan A EUR 2.70% - 4.54%
Term Loan B EUR 3.04% - 4.91%
USD 3.29%
Term Loan C EUR 3.29% - 4.74%
USD 3.54%
Borrowings under the revolving credit facility are available to fund the Group's working capital requirements, capital expenditures and other general corporate purposes and will terminate in December 2012.
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. At 31 March 2009 the Group had fixed an average of 55%of its interest cost on borrowings over the following twelve months.
Our fixed rate debt comprised mainly EUR217.5 million 7.75% senior subordinated notes due 2015, $200 million 7.75% senior subordinated notes due 2015 and $292.3 million 7.50% senior debentures due 2025. In addition the Group also has EUR1,560 million in interest rate swaps with maturity dates ranging from April 2009 to April 2014.
Our earnings are affected by changes in short-term interest rates as a result of our floating rate borrowings. If LIBOR interest rates for these borrowings increase by one percent, our interest expense would increase, and income before taxes would decrease, by approximately EUR19 million over the following twelve months. Interest income on our cash balances would increase by approximately EUR7 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.
Group Income Statement
Unaudited Unaudited
3 Months to 31-Mar-09 3 Months to 31-Mar-08
Pre-Exceptional 2009 Exceptional 2009 Total 2009 Pre-Exceptional 2008 Exceptional 2008 Total 2008
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Continuing
operations
Revenue 1,504,080 - 1,504,080 1,832,016 - 1,832,016
Cost of (1,084,390) - (1,084,390) (1,299,335) (10,950) (1,310,285)
sales
Gross 419,690 - 419,690 532,681 (10,950) 521,731
profit
Distribution (125,023) - (125,023) (146,847) - (146,847)
costs
Administrative (213,114) - (213,114) (230,479) - (230,479)
expenses
Other 817 - 817 403 - 403
operating
income
Other - - - - (17,318) (17,318)
operating
expenses
Operating 82,370 - 82,370 155,758 (28,268) 127,490
profit
Finance (116,969) - (116,969) (137,665) - (137,665)
costs
Finance 48,752 6,399 55,151 70,272 - 70,272
income
Share (454) - (454) 1,457 - 1,457
of
associates'
(loss)/profit
(after
tax)
Profit 13,699 6,399 20,098 89,822 (28,268) 61,554
before
income
tax
Income (7,618) (18,713)
tax
expense
Profit for 12,480 42,841
the
financial
period
Attributable
to:
Equity 8,186 40,163
holders
of
the Company
Minority 4,294 2,678
interest
Profit for 12,480 42,841
the
financial
period
Earnings
per
share:
Basic 3.8 18.4
earnings
per share
(cent per
share)
Diluted 3.7 18.1
earnings
per
share(cent
per
share)
Group Statement of Recognised Income and Expense
Unaudited Unaudited
3 months to 3 months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Items of income and expense recognised
directly within equity:
Foreign currency translation adjustments (25,315) (19,192)
Defined benefit pension schemes
- Actuarial loss (75,298) (86,178)
- Movement in deferred tax 19,435 13,350
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 2,119 (3,235)
- New fair value adjustments into reserve (21,598) 339
- Movement in deferred tax 2,386 -
Net change in fair value of available-for-sale - (237)
financial assets
Net income and expense recognised (98,271) (95,153)
directly within equity
Profit for the financial period 12,480 42,841
Total recognised income and expense (85,791) (52,312)
for the financial period
Attributable to:
Equity holders of the Company (82,682) (56,596)
Minority interest (3,109) 4,284
(85,791) (52,312)
Group Balance Sheet
Unaudited Unaudited Audited
31-Mar-09 31-Mar-08 31-Dec-08
EUR'000 EUR'000 EUR'000
Assets
Non-current assets
Property, plant and equipment 2,992,452 3,195,873 3,038,207
Goodwill and intangible assets 2,135,185 2,398,169 2,154,212
Available-for-sale financial assets 30,630 43,265 30,651
Investment in associates 13,245 80,514 14,038
Biological assets 75,635 76,894 78,166
Trade and other receivables 4,480 5,471 4,098
Derivative financial instruments 264 2,850 153
Deferred income tax assets 253,688 270,080 228,061
5,505,579 6,073,116 5,547,586
Current assets
Inventories 602,488 709,546 623,185
Biological assets 7,496 6,870 8,122
Trade and other receivables 1,182,960 1,436,252 1,210,631
Derivative financial instruments 7,803 24,000 14,681
Restricted cash 44,085 21,451 19,408
Cash and cash equivalents 667,950 413,352 699,554
2,512,782 2,611,471 2,575,581
Non-current assets held for sale 10,482 15,999 10,482
Total assets 8,028,843 8,700,586 8,133,649
Equity
Capital and reserves attributable to
the equity holders of the Company
Equity share capital 229 228 229
Capital and other reserves 2,295,845 2,512,916 2,329,613
Retained earnings (726,901) (511,763) (679,224)
Total equity attributable to equity 1,569,173 2,001,381 1,650,618
holders of the Company
Minority interest 141,077 141,304 144,723
Total equity 1,710,250 2,142,685 1,795,341
Liabilities
Non-current liabilities
Borrowings 3,745,596 3,641,332 3,751,361
Employee benefits 587,895 551,779 516,665
Derivative financial instruments 28,579 - 19,227
Deferred income tax liabilities 320,763 441,699 324,563
Non-current income tax liabilities 20,118 29,007 18,538
Provisions for liabilities and charges 45,285 64,538 48,343
Capital grants 13,267 13,719 13,026
Other payables 3,942 8,060 3,591
4,765,445 4,750,134 4,695,314
Current liabilities
Borrowings 153,413 166,321 152,193
Trade and other payables 1,229,797 1,404,697 1,311,012
Current income tax liabilities 26,134 27,819 24,926
Derivative financial instruments 104,349 146,015 108,907
Provisions for liabilities and charges 39,455 62,915 45,956
1,553,148 1,807,767 1,642,994
Total liabilities 6,318,593 6,557,901 6,338,308
Total equity and liabilities 8,028,843 8,700,586 8,133,649
Group Cash Flow Statement
Unaudited Unaudited
3 months to 3 months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Cash flows from operating activities
Profit for the financial period 12,480 42,841
Adjustment for
Income tax expense 7,618 18,713
Profit on sale of assets and businesses (1,777) (2,281)
- continuing operations
Amortisation of capital grants (942) (382)
Impairment of property, plant and equipment - 10,950
Equity settled share-based payment expense 1,237 3,682
Amortisation of intangible assets 11,200 11,132
Share of loss/(profit) of associates 454 (1,457)
Depreciation charge 82,662 85,734
Net finance costs 61,818 67,393
Change in inventories 18,703 (33,076)
Change in biological assets 2,088 954
Change in trade and other receivables 29,585 (69,897)
Change in trade and other payables (55,075) 28,080
Change in provisions (11,364) (3,136)
Change in employee benefits (9,788) (9,776)
Foreign currency translation adjustments 210 (936)
Cash generated from operations 149,109 148,538
Interest paid (66,299) (65,870)
Income taxes paid:
Irish corporation tax paid (564) (793)
Overseas corporation tax (net (8,155) (14,307)
of tax refunds) paid
Net cash inflow from operating activities 74,091 67,568
Cash flows from investing activities
Interest received 3,462 9,952
Business disposals - 580
Purchase of property, plant and equipment (90,670) (73,624)
and biological assets
Purchase of intangible assets (2,136) (1,888)
Receipt/(repayment) of capital grants 1,173 (23)
Purchase of available-for-sale financial assets (2) (2)
(Increase) in restricted cash (24,677) (8,355)
Disposal of property, plant and equipment 3,694 2,938
Disposal of investments 14 -
Disposal of associates 15 -
Purchase of subsidiaries and minorities 104 -
Deferred and contingent acquisition (22) -
consideration paid
Net cash outflow from investing activities (109,045) (70,422)
Cash flow from financing activities
Proceeds from issue of new ordinary shares - 33
Costs associated with issuing new shares - (60)
(Decrease)/increase in interest-bearing (11,163) 6,843
borrowings
Repayment of finance lease liabilities (3,853) (3,707)
Derivative termination (receipts)/payments 4,886 (2,631)
Deferred debt issue costs (25) -
Dividends paid to minority interests (537) (423)
Net cash (outflow)/inflow from (10,692) 55
financing activities
Decrease in cash and cash equivalents (45,646) (2,799)
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 682,692 375,390
Currency translation adjustment 2,968 (8,301)
Decrease in cash and cash equivalents (45,646) (2,799)
Cash and cash equivalents at 31 March 640,014 364,290
1.General Information
Smurfit Kappa Group plc ('SKG plc') ('the Company') and its subsidiaries (together 'the Group') manufacture, distribute and sell containerboard, corrugated containers and other paper-based packaging products such as solidboard and graphicboard. The Company is a public limited company incorporated and tax resident in Ireland. The address of its registered office is Beech Hill, Clonskeagh, Dublin 4, Ireland.
On 14 March 2007 SKG plc completed an IPO with the placing to institutional investors of 78,787,879 new ordinary shares. This offering, together with the issue of an additional 11,818,181 ordinary shares, generated gross proceeds of EUR1,495 million. The additional shares were issued on admission by Deutsche Bank acting as stabilising manager under an over-allocation option and represent the permitted maximum 15% of the total number of shares in the IPO. The issue proceeds, net of costs, were used to repay certain debt obligations of the Group and to repay the shareholders PIK note issued in connection with the Group's 2005 acquisition of Kappa Packaging. Trading in the shares on the Irish Stock Exchange and the London Stock Exchange commenced on 20 March 2007.
2.Basis of Preparation
The annual consolidated financial statements of SKG plc are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations as adopted by the EU, and with those parts of the Companies Acts applicable to companies reporting under IFRS. IFRS is comprised of standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards and interpretations approved by the predecessor International Accounting Standards Committee that have been subsequently approved by the IASB and remain in effect.
The financial information presented in this report has been prepared to comply with the requirement to publish an "Interim management statement" for the first quarter, in accordance with the Transparency Regulations which were signed into Irish law on 13 June 2007. The Transparency Regulations do not require Interim management statements to be prepared in accordance with International Accounting Standard 34 - "Interim Financial Information" ("IAS 34"). Accordingly the Group has not prepared this financial information in accordance with IAS 34.
The financial information has been prepared in accordance with the Group's accounting policies. Full details of the accounting policies adopted by the Group are contained in the financial statements included in the Group's annual report for the year ended 31 December 2008 which is available on the Group's website www.smurfitkappa.com. The accounting policies and methods of computation and presentation adopted in the preparation of the Group financial information are consistent with those applied in the annual report for the financial year ended 31 December 2008 as described in those financial statements.
The Group will apply IFRS 8, Operating Segments in our 30 June 2009 half-yearly report, which is prepared in accordance with IAS 34, as required by the Transparency Regulations. IFRS 8 sets out the requirements for disclosure of financial and descriptive information about the Group's operating segments, products, the geographical areas in which we operate and major customers. The Group is currently assessing the impact of IFRS 8.
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.
3.Segmental Analyses
3 months to 31-Mar-09 3 months to 31-Mar-08
Packaging Specialties Total Packaging Specialties Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Third 1,312,432 191,648 1,504,080 1,602,288 229,728 1,832,016
party
revenue
Segment 87,818 1,188 89,006 155,047 9,354 164,401
results
before
exceptional
items
Exceptional - - - (28,268) - (28,268)
items
Segment 87,818 1,188 89,006 126,779 9,354 136,133
results
Unallocated (6,636) (8,643)
centre
costs
Operating 82,370 127,490
profit
Share (454) - (454) 1,457 - 1,457
of
associates'
(loss)/profit
(after
tax)
Finance (116,969) (137,665)
costs
Finance 55,151 70,272
income
Profit 20,098 61,554
before
income
tax
4.Exceptional Items
The following items are regarded 3 Months to 3 Months to
as exceptional in nature:
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Reorganisation and restructuring costs - (17,318)
Impairment of property, plant and equipment - (10,950)
Total exceptional items included - (28,268)
in operating costs
Total exceptional items included 6,399 -
in finance income
The exceptional financial income of EUR6 million relates to the gain on the Group's debt buy-back. In February, the Group launched an auction process to buy-back up to EUR100 million of its Senior bank debt. In total, just over EUR100 million of offers were received, of which EUR43 million were accepted at an average discount of 24% to par. The buy-back is expected to reduce the Group's net debt by EUR8 million, of which EUR6 million has been reflected in the first quarter.
The reorganisation and restructuring costs and impairment of property, plant and equipment in 2008, related entirely to the closure of our Valladolid recycled containerboard mill in Spain.
5.Finance Costs and Income
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Finance costs
Interest payable on bank loans and overdrafts 39,389 53,436
Interest payable on finance leases 1,157 1,493
and hire purchase contracts
Interest payable on other borrowings 19,462 20,017
Impairment loss on available-for-sale 29 -
financial assets
Unwinding of discount element of provisions 144 83
Foreign currency translation loss on debt 26,208 2,456
Fair value loss on commodity derivatives 248 2,964
not designated as hedges
Fair value loss on other derivatives 6,456 31,086
not designated as hedges
Interest cost on employee 23,876 26,130
benefit plan liabilities
Total finance cost 116,969 137,665
Finance income
Other interest receivable 3,462 9,952
Foreign currency translation gain on debt 6,468 34,157
Gain on debt buy-back 6,399 -
Fair value gain on other derivatives 21,942 3,483
not designated as hedges
Expected return on employee benefit plan assets 16,880 22,680
Total finance income 55,151 70,272
Net finance cost 61,818 67,393
6.Income Tax Expense
Income tax expense recognised in the Group Income Statement
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Current taxation:
Europe (3,412) 16,591
United States and Canada 10 3
Latin America 9,803 10,752
6,401 27,346
Deferred taxation 1,217 (8,633)
Income tax expense 7,618 18,713
Current tax is analysed as follows:
Ireland 794 11,018
Foreign 5,607 16,328
6,401 27,346
Income tax recognised directly in equity
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Arising on actuarial losses (19,435) (13,350)
on defined benefit plans
Arising on qualifying derivative (2,386) -
cash flow hedges
(21,821) (13,350)
7.Employee Post Retirement Schemes - Defined Benefit Expense
The table below sets out the components of the defined benefit income statement expense for the period:
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Current service cost 9,172 10,490
Past service cost 1,383 559
Gain on settlements and curtailments (10) (281)
Actuarial gains and losses arising 95 485
on long-term employee
benefits other than defined benefit schemes
10,640 11,253
Expected return on scheme assets (16,880) (22,680)
Interest cost on scheme liabilities 23,876 26,130
Net financial expense 6,996 3,450
Defined benefit expense 17,636 14,703
The disclosures above reflect the requirements of IAS 19 - Employee Benefits. Included in cost of sales, distributions costs and administrative expenses is a defined benefit expense of EUR11 million for the first quarter of 2009 (2008: EUR11 million). Expected Return on Scheme Assets of EUR17 million (2008: EUR23 million) is included in Finance Income and Interest Cost on Scheme Liabilities of EUR24 million (2008: EUR26 million) is included in Finance Costs in the Group Income Statement.
The amounts recognised in the Group Balance Sheet were as follows:
31-Mar-09 31-Dec-08
EUR'000 EUR'000
Present value of funded obligations 1,234,855 1,210,486
Fair value of plan assets (1,033,082) (1,080,129)
Present value of unfunded obligations 386,122 386,308
Liability in the balance sheet 587,895 516,665
The employee benefits provision has increased from EUR517 million at 31 December 2008 to EUR588 million at 31 March 2009. The rise in the provision was as a result of asset losses over the quarter.
8.Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Profit attributable to equity 8,186 40,163
holders of the Company
Weighted average number of ordinary 218,023 217,994
shares in issue ('000)
Basic earnings per share (cent per share) 3.8 18.4
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 which comprise convertible shares issued under the Management Equity Plan.
3 Months to 3 Months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Profit attributable to equity 8,186 40,163
holders of the Company
Weighted average number of ordinary 218,023 217,994
shares in issue ('000)
Potential dilutive ordinary shares assumed 329 4,514
Diluted weighted average ordinary shares 218,352 222,508
Diluted earnings per share (cent per share) 3.7 18.1
9.Property, Plant and Equipment
Land and Buildings Plant and Equipment Total
EUR'000 EUR'000 EUR'000
Three months ended
31 March 2009
Opening net book 1,108,189 1,930,018 3,038,207
amount
Reclassification 3,855 (4,171) (316)
Acquisitions - 14 14
Additions 470 54,285 54,755
Depreciation (11,551) (71,131) (82,682)
charge
for the period
Retirements and (1,558) (358) (1,916)
disposals
Foreign currency (6,911) (8,699) (15,610)
translation
adjustment
At 31 March 2009 1,092,494 1,899,958 2,992,452
Land and Buildings Plant and Equipment Total
EUR'000 EUR'000 EUR'000
Year ended 31
December
2008
Opening net book 1,176,694 2,074,785 3,251,479
amount
Reclassification 28,867 (30,594) (1,727)
Additions 10,019 312,900 322,919
Depreciation (49,719) (294,763) (344,482)
charge
for the year
Impairment losses (12,977) (53,009) (65,986)
recognised in
the Group Income
Statement
Retirements and (2,728) (2,908) (5,636)
disposals
Foreign currency (41,967) (76,393) (118,360)
translation
adjustment
At 31 December 1,108,189 1,930,018 3,038,207
2008
10.Investment in Associates
3 Months to 12 Months to
31-Mar-09 31-Dec-08
EUR'000 EUR'000
At 1 January 14,038 79,307
Share of (loss)/profit for the period (454) 2,731
Dividends received from associates - (4,528)
Loss on disposal of associate - (6,905)
Disposals (15) (55,418)
Foreign currency translation adjustment (324) (1,149)
At end of period 13,245 14,038
11.Share-based Payment
In March 2007 upon the IPO becoming effective, all of the then class A, E, F and H convertible shares and 80% of the class B convertible shares vested and were converted into D convertible shares. The class C, class G and 20% of the class B convertible shares did not vest and were re-designated as A1, A2 and A3 convertible shares.
The A1 and A2 convertible shares vested on the first and second anniversaries respectively of the IPO. The A3 convertible shares will automatically convert on a one-to-one basis into D convertible shares on the third anniversary of the IPO, provided their holder remains an employee of the Group at the relevant anniversary. The D convertible shares resulting from these conversions are convertible on a one-to-one basis into ordinary shares, at the instance of the holder, upon the payment by the holder of the agreed conversion price. The life of the D convertible shares arising from the vesting of these new classes of convertible share ends on 20 March 2014.
The plans provide for equity settlement only, no cash settlement alternative is available.
In March 2007, SKG plc adopted the 2007 Share Incentive Plan (the "2007 SIP"). Incentive awards under the 2007 SIP are in the form of new class B and new class C convertible shares issued in equal proportions to participants at a nominal value of EUR0.001 per share. On satisfaction of specified performance criteria the new class B and new class C convertible shares will automatically convert on a one-to-one basis into D convertible shares. The D convertibles may be converted by the holder into ordinary shares upon payment of the agreed conversion price. The conversion price for each D convertible share is the market value of an ordinary share on the date the participant was invited to subscribe less the nominal subscription price. Each award has a life of ten years from the date of issuance of the new class B and new class C convertible shares. Current market conditions will make it extremely difficult for the Company to satisfy the performance conditions applicable to those awards.
As of 31 March 2009 SKG plc had a total of 15,310,509 convertible shares in issue in total, 10,114,029 under the 2002 Plan, as amended and 5,196,480 under the 2007 SIP.
A summary of the activity under the 2002 Plan, as amended, for the period from 31 December 2008 to 31 March 2009 is presented below.
Shares 000's Class of Convertible shares
D A1 A2 A3 Total
Balance December 2008 9,035.0 - 539.5 539.5 10,114.0
Vested into D 553.4 - (539.5) (13.9) -
Balance March 2009 9,588.4 - - 525.6 10,114.0
Exercisable March 2009 9,588.4 - - - 9,588.4
The weighted average exercise price for all D, A2 and A3 convertible shares at 31 March 2009 was EUR4.56. The weighted average remaining contractual life of all the awards issued under the 2002 Plan, as amended, at 31 March 2009 was 3.72 years.
A summary of the activity under the 2007 SIP, for the period from 31 December 2008 to 31 March 2009 is presented below:
Shares 000's Class of Convertible shares
New B New C Total
Balance December 2008 2,598.2 2,598.2 5,196.5
Exercisable December 2008 - - -
Balance March 2009 2,598.2 2,598.2 5,196.5
Exercisable March 2009 - - -
As at 31 March 2009 the weighted average exercise price for all new B and new C convertible shares upon conversion would be EUR13.68. The weighted average remaining contractual life of all the awards issued under the 2007 SIP at 31 March 2009 was 8.53 years.
12.Reconciliation of Movements in Total Equity
Attributable toequity Minorityinterests Total equity
holdersof
the Company
EUR'000 EUR'000 EUR'000
31 December 2008 1,650,618 144,723 1,795,341
Total recognised (82,682) (3,109) (85,791)
gains and losses
Share-based 1,237 - 1,237
payment
expense
Dividends paid - (537) (537)
to minorities
At 31 March 2009 1,569,173 141,077 1,710,250
31 December 2007 2,052,149 137,443 2,189,592
Shares issued 120 - 120
Total recognised (331,098) 21,937 (309,161)
income
and expense
Other movements (4,926) 4,926 -
Dividend paid to (70,000) - (70,000)
shareholders
Dividends paid - (6,695) (6,695)
to minorities
Purchase of - (12,888) (12,888)
minorities
Share-based 4,373 - 4,373
payment
expense
At 31 December 1,650,618 144,723 1,795,341
2008
13.Analysis of Net Debt
31-Mar-09 31-Dec-08
EUR'000 EUR'000
Senior credit
facility:
Revolving credit facility(1)- interest at relevant interbank rate + 1.5% (8,047) (8,506)
Tranche A Term loan(2a)- interest at relevant interbank rate + 1.5% 406,147 405,410
Tranche B Term loan(2b)- interest at relevant interbank rate + 1.875% 1,278,710 1,289,194
Tranche C Term loan(2c)- interest at relevant interbank rate + 2.125% 1,277,254 1,287,839
Yankee bonds (including 224,009 210,246
accrued interest)(3)
Bank (616,431) (628,899)
loans and overdrafts/(cash)
2011 Receivables securitisation floating rate 207,094 206,882
notes (including accrued interest)(4)
2,768,736 2,762,166
2015 Cash pay subordinated notes 361,808 361,982
(including accrued interest)(5)
Net debt before 3,130,544 3,124,148
finance leases
Finance 50,824 54,369
leases
Net debt including leases - 3,181,368 3,178,517
Smurfit Kappa Funding plc
Balance of revolving credit facility 8,049 8,506
reclassified to debtors
Net debt after reclassification 3,189,417 3,187,023
- Smurfit Kappa Funding plc
Net (cash) in parents of Smurfit (2,443) (2,431)
Kappa Funding plc
Net Debt including leases - 3,186,974 3,184,592
Smurfit Kappa Group plc
(1) Revolving credit facility of EUR600 million (available under
the senior credit facility) to be repaid in full in 2012.
(Revolver Loans - Nil, drawn under ancillary facilities
and facilities supported by letters of credit
- EUR0.09 million, letters of credit issued in support
of other liabilities - EUR16.4 million)
(2a) Term Loan A due to be repaid in certain instalments up to 2012
(2b) Term Loan B due to be repaid in full in 2013
(2c) Term Loan C due to be repaid in full in 2014
(3) 7.50% senior debentures due 2025 of $292.3 million
(4) Receivables securitisation floating rate notes mature September 2011
(5) EUR217.5 million 7.75% senior subordinated notes due 2015 and
$200.0 million 7.75% senior subordinated notes due 2015
Supplemental Financial Information
Reconciliation of net income to
EBITDA, before exceptional
items & share-based payment expense
3 months to 3 months to
31-Mar-09 31-Mar-08
EUR'000 EUR'000
Profit for the financial period 8,186 40,163
Equity minority interests 4,294 2,678
Income tax expense 7,618 18,713
Share of associates' operating loss/(profit) 454 (1,457)
Reorganisation and restructuring costs - 17,318
Impairment of fixed assets - 10,950
Total net interest 61,818 67,393
Share-based payment expense 1,237 3,682
Depreciation, depletion (net) and amortisation 95,950 97,820
EBITDA before exceptional items and 179,557 257,260
share-based payment expense
Supplemental Historical Financial Information
EUR Million Q1, 2008 Q2, 2008 Q3, 2008 Q4, 2008 FY 2008 Q1, 2009
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Group and 2,702 2,696 2,570 2,384 10,351 2,268
third
party revenue
=--------------------------------------------------------------------------
Third party 1,832 1,846 1,753 1,631 7,062 1,504
revenue
=--------------------------------------------------------------------------
EBITDA before 257 257 231 195 941 180
exceptional
items and
share-based
payment
expense
=--------------------------------------------------------------------------
EBITDA margin 14.0% 13.9% 13.2% 12.0% 13.3% 11.9%
=--------------------------------------------------------------------------
Operating 127 156 131 (133) 282 82
profit/(loss)
=--------------------------------------------------------------------------
Profit/(loss) 62 83 61 (218) (12) 20
before tax
=--------------------------------------------------------------------------
Free cashflow 1 76 149 55 281 -
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Basic 18.4 38.3 16.8 (96.3) (22.8) 3.8
earnings/(loss)
per
share (cent
per share)
=--------------------------------------------------------------------------
Weighted 217,994 218,022 218,023 218,023 218,015 218,023
average
number of
shares
used
in
EPS calculation
=--------------------------------------------------------------------------
Net debt 3,373 3,285 3,192 3,185 3,185 3,187
=--------------------------------------------------------------------------
Net debt to 3.16 3.09 3.13 3.39 3.39 3.69
EBITDA
(LTM)
=--------------------------------------------------------------------------
Smurfit Kappa (LSE:SKG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Smurfit Kappa (LSE:SKG)
Historical Stock Chart
From Jul 2023 to Jul 2024
