TIDMSKG
27 July 2016: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 6 months ending 30
June 2016.
2016 Second Quarter & First Half | Key Financial Performance
Measures
EURm H12016 H12015 Change Q22016 Q22015 Change Q12016 Change
Revenue EUR4,049 EUR3,996 1% EUR2,049 EUR2,034 1% EUR2,001 2%
EBITDA EUR593 EUR551 8% EUR312 EUR285 10% EUR281 11%
before
Exceptional
Items
andShare-based
Payment
(1)
(2)
EBITDA 14.6% 13.8% 15.3% 14.0% 14.0%
Margin(1)
Operating EUR390 EUR348 12% EUR211 EUR183 15% EUR179 18%
Profit
before
Exceptional
Items(1)
Profit EUR312 EUR243 28% EUR184 EUR145 27% EUR128 43%
before
Income Tax
Basic EPS 90.8 73.2 24% 52.0 42.3 23% 38.8 34%
(cent)
Pre-exceptional 85.6 88.7 (3%) 46.9 44.6 5% 38.8 21%
Basic
EPS
(cent)(1)
Return on 15.4% 14.6% 15.3%
Capital
Employed(1)
Free Cash EUR35 EUR74 (53%) EUR28 EUR49 (43%) EUR7 300%
Flow(1)
Net EUR3,121 EUR3,100 1% EUR3,029 3%
Debt(1)
Net Debt 2.5x 2.7x 2.5x
to
EBITDA
(LTM)(1)
1) Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 36.
2) EBITDA before exceptional items and share-based payment
expense is denoted by EBITDA throughout the remainder of the
management commentary for ease of reference.
Second Quarter & Half Year Key Points
-- Group corrugated packaging growth of 5% in the first half - solid
organic volume growth
-- EBITDA growth of 8% in the first half of the year - improved EBITDA
margin of 14.6%
-- Improved ROCE of 15.4%
-- Interim dividend increased by 10% to 22 cent per share
-- Kraftliner price increases implemented in July in European markets
Performance Review and Outlook
Tony Smurfit, Group CEO, commented: "We are pleased to deliver a
strong first half result with EBITDA growth of 8% to EUR593
million. This result reflects the strength of our team; our
portfolio of geographically diverse operations; and, our integrated
business model delivering a strong ROCE of 15.4%.
"In Europe, we have delivered an improved earnings performance
in the first half, with organic box volume growth of 2% and a
relatively stable pricing environment in local currency terms. This
result has been achieved despite higher than expected OCC costs,
while negatively impacting our margin in the short-term, should
provide a solid underpin to containerboard pricing and, in turn,
box prices.
"In the Americas we have sustained our strong volume growth.
Pricing initiatives across the region have helped offset some of
the negative currency impact in the first half and we expect to
implement price increases through the second half of the year.
"The Group's proven ability to drive strong free cash flows
supports our strategic agenda. We continue to focus on operational
efficiency and expanding our geographic reach. Our leverage
multiple has reduced to 2.5 times net debt to EBITDA in advance of
our more cash generative second half of the year. The Board's
confidence in the strength of, and prospects for our business, is
reflected in a 10 per cent increase in our interim dividend.
"Against a backdrop of higher than expected input costs, more
pronounced currency volatility and a greater degree of
macroeconomic risk, we expect to have a good year with earnings
growth for 2016.
"SKG is well positioned for growth and business development. We
are a clear market leader, in a growth industry, with a
continuously improving business model. SKG continues to build
balance sheet strength which increases the range of strategic and
financial options open to us."
About Smurfit Kappa
Smurfit Kappa is one of the leading providers of paper-based
packaging solutions in the world, with around 45,000 employees in
approximately 370 production sites across 34 countries and with
revenue of EUR8.1 billion in 2015. We are located in 21 countries
in Europe, and 13 in the Americas. We are the only large-scale
pan-regional player in Latin America.
With our pro-active team, we relentlessly use our extensive
experience and expertise, supported by our scale, to open up
opportunities for our customers. We collaborate with forward
thinking customers by sharing superior product knowledge, market
understanding and insights in packaging trends to ensure business
success in their markets. We have an unrivalled portfolio of
paper-packaging solutions, which is constantly updated with our
market-leading innovations. This is enhanced through the benefits
of our integration, with optimal paper design, logistics,
timeliness of service, and our packaging plants sourcing most of
their raw materials from our own paper mills.
smurfitkappa.com
Check out our microsite: openthefuture.infoFollow us on Twitter
at @smurfitkappa and on LinkedIn at 'Smurfit Kappa'.
Forward Looking Statements
Some statements in this announcement are forward-looking. They
represent expectations for the Group's business, and involve risks
and uncertainties. These forward-looking statements are based on
current expectations and projections about future events. The Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because
they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the Group's control, actual
results or performance may differ materially from those expressed
or implied by such forward-looking statements.
Contacts
Garrett Quinn FTI Consulting
Smurfit Kappa
T: +353 1 202 71 80 T: +353 1 663 36 80
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2016 Second Quarter & First Half | Performance Overview
The Group's strong earnings performance in the first half
reflects the strength of our portfolio of geographically diverse
operations and our integrated business model which continues to
deliver strong return on capital employed ('ROCE') performance. SKG
is a market leader in corrugated packaging in Europe and across the
Americas, operating in a growth industry, within which the Group is
well positioned to drive continued earnings growth. An effective
capital structure with strong free cash flow characteristics will
continue to build balance sheet strength and, in turn, our
opportunity set.
In the first half the Group delivered an 8% increase in EBITDA
year-on-year, and for the second quarter delivered a 10% increase
in EBITDA year-on-year. SKG also reported ROCE of 15.4% and
positive free cash flow in the first half reflecting our consistent
focus on capital management and the benefit of incremental earnings
from our programme of capital investment.
In Europe, the Group's corrugated packaging operations reported
a solid first half with a 2% year-on-year increase in organic box
volumes, and sequentially flat corrugated pricing. Good demand
growth and increased pricing for Old Corrugated Containers ('OCC'),
which will have a negative impact on margin in the near-term, are
expected to continue to provide a solid underpin to containerboard
and corrugated pricing for the remainder of the year.
In the first half of 2016, OCC prices were 13% higher
year-on-year and are expected to remain at a high level through the
remainder of the year. SKG consumes approximately 4.3 million
tonnes of OCC per annum in Europe.
In recycled containerboard, after some weakness in the early
part of the year pricing has now stabilised. Margins in this grade
have diminished as a result of the OCC price increases. However
stock levels have reduced due to improved demand for corrugated
across Europe. The Group remains a significant buyer of over
600,000 tonnes per annum of recycled containerboard while also
being the largest producer in Europe with close to 3 million tonnes
of production. We continue to invest in our containerboard system
to ensure we have the most effective, low cost operations in this
grade.
Demand for kraftliner remains robust and we have achieved a
EUR20 per tonne increase in kraftliner pricing in the North-West
European market in July and have announced an additional increase
of GBP40 per tonne in kraftliner pricing in the UK for
implementation in August. SKG's 1.6 million tonnes of kraftliner
production per annum is a distinct competitive advantage for the
Group in providing corrugated customers with a complete product
offering, while maintaining a net long position of 500,000 tonnes
per annum in the grade.
In the Americas, the Group's operations delivered a strong
result in the first half with corrugated volume growth of 23% and
an EBITDA margin of over 16%. Organic volume growth in the first
half was over 3% year-on-year (excluding Venezuela). Our North
American business performed well although our Californian business
remains somewhat challenging. Mexico had a very strong first half
with volume growth of 6% offsetting a weak currency. Colombia and
our Central American and Caribbean operations performed in line
with expectations with currency affecting translated earnings. Our
businesses in Brazil operated well in volume terms with an above
market growth of 4%. However, we were impacted by significantly
higher recovered fibre costs. In Argentina there was a slowdown in
the first half of 2016 as the new President implemented market
reforms which are likely to benefit the country and demand longer
term. The Venezuelan business remains very challenging. Volumes
have contracted considerably although local management continue to
perform well within a difficult environment. The country represents
less than 1% of Group EBITDA.
The delivery of a positive free cash flow result despite a
working capital outflow and increased capital expenditure,
illustrates the significantly strengthened position of the Group
today. The Group's leverage multiple, at 2.5 times net debt to
EBITDA, is expected to continue to reduce as EBITDA from
acquisitions incrementally contribute over the course of the year
and the Group continues to generate strong free cash flows in the
generally more cash generative second half of the year.
2016 Second Quarter & First Half | Financial Performance
Revenue was 1% higher year-on-year for both the second quarter
and the first half of 2016. Revenue in the first half was EUR4,049
million compared to EUR3,996 million reported in the first half of
2015. However, with the contribution from acquisitions offsetting
some of the negative currency movements and the absence of the
solidboard operations in the first half, the underlying1 increase
in revenue was EUR109 million or 3%.
Driven by quarter-on-quarter growth in 2016, EBITDA increased by
8% in the first half, to EUR593 million from EUR551 million in
2015, with an underlying move of 9% as the negative impact of
currencies was offset in part by the positive impact of net
acquisitions.
Operating profit before exceptional items in the first half of
2016 was EUR390 million compared to EUR348 million for the same
period in 2015, an increase of 12%.
In the first half of 2016 there were no exceptional items
charged within operating profit. In the first half of 2015,
exceptional items charged within operating profit amounted to EUR46
million. The majority of the 2015 charge was represented by the
further impairment of the solidboard operations held for sale of
EUR6 million reported within cost of sales, and EUR36 million,
reported within other operating expenses, relating to the higher
cost to the Venezuelan operations of discharging their non-Bolivar
denominated payables following the adoption of the Simadi rate in
March 2015.
Net finance costs before exceptional items for the first half
2016 amounted to EUR91 million compared to EUR70 million in the
same period 2015, with increases in both cash and non-cash
interest. Cash interest costs were EUR13 million higher reflecting
the higher level of net debt following our acquisition activity in
2015 and early 2016. The acquisitions in Brazil, which were partly
funded in local currency, resulted in a slight increase in our
average rate of interest.
In the first half of 2016 the Group reported exceptional finance
income of EUR12 million, which was recorded in the second quarter,
in relation to the profit on the sale of our shareholding in the
Swedish company IL Recycling. In the first half of 2015 exceptional
finance income of EUR11 million represented the gain in Venezuela
on their US dollar denominated intra-group loans as a result of our
adoption of the Simadi rate. This gain was partly offset by an
exceptional finance cost of EUR2 million. This represented the
accelerated amortisation of the issue costs relating to the debt
within our senior credit facility which was paid down with the
proceeds of the EUR250 million bond issue in February 2015.
Including the Group's share of associates' profit of EUR1
million, profit before income tax was EUR312 million for the half
year 2016 compared to EUR243 million in 2015.
The Group reported an income tax expense of EUR97 million for
the first half of 2016 compared to EUR73 million for the same
period in 2015.
Basic EPS for the first half was 90.8 cent which is 24% higher
than the 73.2 cent earned in the same period of 2015. The second
quarter basic EPS was 52.0 cent against 42.3 cent in the second
quarter of 2015, a 23% improvement. On a pre-exceptional basis, EPS
for the second quarter was 5% higher at 46.9 cent compared to 44.6
cent in the second quarter of 2015, while EPS for the first half
was 3% lower year-on-year at 85.6 cent compared to 88.7 cent in
2015.
2016 Second Quarter & First Half | Free Cash Flow
In the first half of 2016, the Group reported a free cash inflow
of EUR35 million, compared to an inflow of EUR74 million in the
first half of 2015. Although the Group reported higher EBITDA
year-on-year, the reduction in free cash flow was primarily a
result of an EUR83 million increase in outflows for working capital
and capital expenditure. Exceptional items of EUR35 million in the
first half of 2015, predominantly associated with the Venezuelan
exchange rate change, did not reoccur in 2016.
Capital expenditure of EUR211 million in the first half of 2016
equated to 109% of depreciation, compared to 95% in the first half
of 2015. On a full year basis and as part of the final year of our
three-year 'Quick-Win' programme capital expenditure is expected to
be broadly in line with 2015 levels.
The working capital outflow in the first half was EUR161
million, compared to EUR120 million in 2015. At the end of June,
working capital amounted to EUR697 million and represented 8.5% of
sales, compared to 6.6% at the end of December and 8.0% at June
2015. Working capital levels remain a key focus for the Group and
have been substantially reduced in recent years through consistent
monitoring and review. We would expect working capital as a
percentage of sales to return to its usual level by year-end.
Cash interest in the six months to June 2016 was EUR72 million,
EUR13 million higher than in the same period of 2015. This increase
was due to the cost of financing our Brazilian acquisitions in
December 2015, part of which was funded in local currency where
interest rates are relatively high. On a full year basis, cash
interest is expected to increase by approximately EUR20 million to
EUR143 million.
Tax payments in the first half of 2016 of EUR71 million were
EUR7 million higher than in the same period of 2015, mainly due to
higher profitability and acquisitions. The Americas was EUR7
million higher and Europe was neutral on a net basis.
1 Underlying move throughout this interim report excludes
acquisitions, disposals, currency and hyperinflation movements
where applicable.
2016 Second Quarter & First Half | Capital Structure
The Group's net debt increased by EUR73 million to EUR3,121
million at the end of the second quarter of 2016 against a 2015
year end net debt of EUR3,048 million. This is primarily due to
dividend payments in the second quarter of 2016 which totalled
EUR115 million. Net debt to EBITDA at 2.5 times at the end of the
quarter remained well within the stated guidance of 2.0 to 3.0
times. Strong cash generation in the second half of the year is
expected to reduce the leverage position. The Group remains
committed to the preservation of its Ba1/BB+/BB+ credit rating.
At 30 June 2016 the Group's average interest rate was 4.2%,
slightly higher year-on-year as a result of the local currency
Brazilian debt associated with the acquisitions of INPA and Paema
in December 2015. The Group's diversified funding base and long
dated maturity profile (4.1 years) provide a stable funding
outlook. In terms of liquidity, the Group held cash on the balance
sheet of EUR299 million at the end of the quarter which was further
supplemented by available commitments under its revolving credit
facility of approximately EUR613 million.
The Group has a stable financing base with a long-term and well
spread maturity profile. The Group's credit rating of Ba1/BB+/BB+
contributes to a lower cost of capital and access to the widest
range of financing options available. These positions were achieved
as a result of the Group's consistent ability to generate strong
free cash flows together with active management of its debt
portfolio. The strength of the Group's capital base together with
consistent delivery of strong free cash flows provides a solid and
cost effective support to the Group's growth agenda over the
medium-term.
Listing Arrangements and Admission to FTSE Indices
Following the Group's transfer of its primary listing to the
London Stock Exchange, during the second quarter SKG was admitted
as a constituent of the FTSE250 and FTSE All Share Indices.
Dividends
The Board will increase the 2016 interim dividend by 10% to 22
cent per share. It is proposed to pay the interim dividend on 28
October 2016 to shareholders registered at the close of business on
30 September 2016.
2016 Second Quarter & First Half | Operating Efficiency
Commercial Offering and Innovation
During the quarter the Group continued to lead the way with
industry awards across Europe and recognition by major customers.
As further proof of the success of our industry leading innovation,
Nestlé has recognised the Group with their European "Out of the
Box" supplier of the year award for the second year running.
In July, the Group received two awards at the PART awards in
Moscow winning first and second prizes in the 'Alcoholic Beverage'
category. Smurfit Kappa in Norway and Denmark have both recently
won a Scanstar 2016 Packaging Award - awards which are organised by
the Scandinavian Packaging Association, a body incorporating the
national packaging organisations of Denmark, Finland, Iceland,
Norway and Sweden.
As part of its ongoing differentiation initiative, Smurfit Kappa
has continued to advance its communication and reputation among new
audiences across multiple channels. The Group recently embarked on
a number of targeted marketing campaigns showcasing Smurfit Kappa's
industry-leading sustainability credentials and building awareness
of its unique ShelfSmart process, particularly within the fast
moving consumer goods ('FMCG') sector. The Group's marketing and
communications activity has developed on a number of fronts,
resulting in a strong brand presence highlighting expertise, and
some firsts in the area of marketing within the sector. This has
been underpinned by ongoing recognition of the Group's innovation,
expertise and leadership by customers and trade groups.
Sustainability
The Group published its ninth Sustainable Development Report in
June 2016, outlining the progress made by the Group against the
five strategic key sustainability priorities.
1. 99.9% of paper produced and sourced for our packaging solutions
is now FSC®, PEFCT or SFIT Chain of Custody certified
2. Climate Change: 22.6% reduction in carbon emissions
per tonne of paper produced since 2005
3. Water: 29% reduction in organic content of water ('COD') returned
to the environment from paper and board mills since 2005
4. Waste: 13.8% reduction in waste sent to landfill
from paper and board mills since 2013
5. People: The dynamic follow-up of our MyVoice employee
engagement survey with 1,000+ practical
actions and over EUR4 million of social investments
in local community projects in 2015
The full 2015 Sustainability Report is available at
smurfitkappa.com
Cost Take-out Programme
In recognition of the requirement to continuously drive cost
efficiencies to partially offset inflationary pressures, the Group
has had a formal cost take-out programme in place each year since
2008. The programme has consistently provided a solid support to
maintaining operating efficiency despite steady increases in both
direct and indirect costs.
The Group announced a cost take-out target of EUR75 million for
the full year 2016 and expects to deliver on this commitment with
EUR31 million achieved in the first half.
Enhanced Capital Expenditure Programme
The Group is in the third and final year of its three-year
programme of 'Quick Win' capital expenditure. As previously guided,
EBITDA benefits are expected to lag expenditure with a EUR25
million EBITDA uplift in 2016 and a further EUR33 million benefit
in 2017 to complete the EUR75 million of incremental EBITDA derived
from the programme. As part of its full year 2015 results the Group
confirmed EUR17 million of the Group's 2015 EBITDA was associated
with the programme to date.
2016 Second Quarter & First Half | Regional Performance
Reviews
Europe
The Group's European operations delivered an improved EBITDA
margin in the second quarter of 2016 of 15.9% against 14.1% in the
same period in 2015. EBITDA increased by EUR28 million in the
second quarter of 2016 against the same period in 2015. Allowing
for currency movements, the underlying increase in European
earnings was EUR30 million. For the first half of 2016 the EBITDA
margin was 14.8% against 13.6% in the first half of 2015, with
strong volume growth and solid pricing supporting the result.
Total corrugated volumes increased by 2% in the second quarter
of 2016 against the second quarter of 2015 with organic box volume
growth of 2%. In the six months to June 2016 total corrugated
volumes were up over 1%. This was made up of solid 2% organic box
volume growth which was offset by the reduction in the more
commodity-like sheet volume of 7%.
Corrugated pricing has remained sequentially flat in the second
quarter of 2016 versus the first quarter of 2016, with pricing for
the first half of 2016 marginally up on the same period in 2015.
Good demand growth and increased pricing for OCC, which will have a
negative impact on margin in the near-term, are expected to
continue to provide a solid underpin to containerboard and
corrugated pricing for the remainder of the year.
Recovered paper prices have continued to move upwards throughout
the second quarter, with prices up 10% in the second quarter of
2016 against the same period in 2015. Market indices have reported
a EUR9 per tonne increase in OCC year to date 2016. This increase,
from an already high level, has been driven by strong domestic
demand levels in Europe and good overseas demand. Chinese imports
of OCC are up 9% in the five months to May 2016.
Demand for kraftliner remains strong with internal demand in the
second quarter of 2016 up 6% against the same period of 2015.
Following the successful implementation of the first step of the
kraftliner price increase in North-Western Europe and the sharp
movement in the value of Sterling versus the euro, the Group
announced a price increase of GBP40 per tonne for brown and white
kraftliner in the UK effective for all deliveries from mid-August.
The increase is supported by continued strong demand for these
grades in Europe and recovers some of the recent softening of price
in the grade. The Group remains approximately 500,000 tonnes long
on kraftliner in a European market that is a net importer of the
grade.
The Americas
The Group's Americas segment has reported EBITDA in the second
quarter of 2016 of EUR73 million compared to EUR72 million in the
second quarter of 2015. For the first half of 2016 the result was
an EBITDA of EUR154 million, an 11% increase year-on-year despite
significant currency headwinds. This was achieved as a result of
our acquisitions in 2015, a generally good operational performance
across the region and continuing price increases.
EBITDA margins in the second quarter of 2016 were 15.6% against
15.9% in the second quarter of 2015 and 17.0% in the first quarter
of 2016. The EBITDA margin contraction in the second quarter of
2016 compared to the first quarter of 2016 is attributable to a
number of factors. These include the annual shut in our Cali Mill
which impacted the second quarter by approximately US$3 million.
OCC pricing in Brazil also contributed to the margin reduction with
a 23% increase in OCC in local currency in the second quarter
against the first quarter and a year to date increase of close to
50%.
Organic corrugated volumes excluding Venezuela were up 3% for
both the second quarter and the half year position against the same
periods in 2015. The Americas continues to provide a geographically
diversified source of resilient earnings growth. The delivery of
organic and acquisitive growth in this region remains a key
strategic objective of the Group. Continued diversification in the
Americas will further strengthen the Group's overall risk profile
whilst providing attractive growth opportunities in emerging
markets.
With the exception of Mexico, currencies stabilised during the
second quarter, whilst still providing a headwind year-on-year.
Currencies had a negative impact in the region of approximately
EUR10 million for the second quarter against the same period 2015.
The currency impact was offset in part by the positive
contributions of acquisitions in the region and robust pricing
initiatives in most markets.
The Group's Pan American sales volumes continue to grow, up 4%
for the first half of the year and up 7% when excluding Venezuela.
This increase in volumes further amplifies the effectiveness of
SKG's pan-regional offering to large blue-chip companies, looking
for a packaging partner who understands their business and can
offer industry leading market insights, delivered with industry
leading operational excellence.
The Mexican business continues to grow well with corrugated
volumes up 6% for the second quarter of 2016 against the second
quarter of 2015 and continuing the country's solid start to the
year. Volume growth was principally derived from the produce and
food sectors. Corrugated pricing in the region was up in local
currency due to the implementation of price increases which will
continue into the second half of the year. The previously announced
project to increase capacity at the Los Reyes mill near Mexico City
by 100,000 tonnes per annum is expected to be completed in February
2017.
In Colombia corrugated volumes increased by 6% in the second
quarter of 2016 against the same period in 2015. Currency
challenges have been offset in part by extensive cost take-out
programmes and price increases. OCC prices continue to rise with
reduced availability of imported OCC which has been impacted by the
devaluation of the Colombian peso. After a successful box price
increase in the fourth quarter of 2015, continued price increases
are being implemented in the second half of 2016.
The North American business expanded through the acquisition of
three corrugated businesses in the first quarter of 2016 with the
region remaining a key growth market for the Group. Operational
challenges in the Group's Californian operations continued in the
second quarter of 2016. However, most other operations in this
region performed well.
The Group's operations in Argentina are continuing to perform
well in a challenging environment. The new government in Argentina
has introduced some reforms in the local economy which has caused
some reduced activity in the second quarter with higher inflation.
Economic recovery is expected from the third quarter of 2016 which
should in turn drive volume growth into 2017. In Chile, the Group's
operations have improved margins and in turn improved EBITDA
year-on-year for the second quarter and first half of 2016.
The integration of the Group's recent acquisitions in Brazil
continues to progress well. The Group's volumes increased 4% in a
corrugated market that is contracting as the government implements
some national reforms to re-balance the economy. Price increases
have been implemented in the first half with further increases
being implemented in the second half to offset significantly higher
raw material costs and currency headwinds.
The political and macroeconomic environment in Venezuela
continues to deteriorate in 2016. Venezuela represented less than
1% of group EBITDA in the first half of 2016. Driven by resilient
local management and locally sourced raw materials the Group's
operations continue to operate well within a very difficult
environment.
Brexit
The UK recently voted to leave the European Union. SKG operates
a UK based business that is broadly self-sufficient with UK mills
and UK corrugated plants servicing the local economy. Any effect on
SKG will principally be as a result of the withdrawal having a
knock-on impact on UK/European GDP and confidence.
Summary Cash Flow
Summary cash
flows(1) for
the second quarter
and
six months
are set out
in the following
table.
3 months to 3 months to 6 months to 6 months to
30-Jun-16 30-Jun-15 30-Jun-16 30-Jun-15
EURm EURm EURm EURm
EBITDA 312 285 593 551
Exceptional items - (3) - (35)
Cash interest (36) (29) (72) (59)
expense
Working capital (63) (68) (161) (120)
change
Current provisions (3) (4) (7) (10)
Capital expenditure (104) (96) (211) (169)
Change in capital (16) (8) (8) (6)
creditors
Tax paid (43) (27) (71) (64)
Sale of fixed assets 1 3 1 5
Other (20) (4) (29) (19)
Free cash flow 28 49 35 74
Share issues - - - 1
Purchase of own - (1) (10) (15)
shares (net)
Sale of businesses 13 30 13 30
and investments
Purchase of (10) (163) (41) (163)
businesses
and investments
Dividends (115) (96) (115) (96)
Derivative - (2) - (2)
termination
benefits
Net cash outflow (84) (183) (118) (171)
Net debt acquired - (13) - (13)
Deferred debt issue (3) (2) (5) (6)
costs amortised
Currency translation (5) 28 50 (151)
adjustment
Increase in net debt (92) (170) (73) (341)
(1) The summary cash flow is prepared on a different basis to
the Condensed Consolidated Statement of Cash Flows under IFRS
('IFRS cash flow') and as such the reconciling items between EBITDA
and decrease/increase in net debt may differ to amounts presented
in the IFRS cash flow. The principal differences are as
follows:
(a) The summary cash flow details movements in net debt. The
IFRS cash flow details movements in cash and cash equivalents.
(b) Free cash flow reconciles to cash generated from operations
in the IFRS cash flow as shown in the table on the next page. The
main adjustments are in respect of cash interest, capital
expenditure, tax payments and the sale of fixed assets and
businesses.
(c) The IFRS cash flow has different sub-headings to those used
in the summary cash flow.
-- Current provisions in the summary cash flow are included within change
in employee benefits and other provisions in the IFRS cash
flow.
-- Capital expenditure (net of change in capital creditors) in the
summary cash flow includes additions to intangible assets which
is
shown separately in the IFRS cash flow.
-- Other in the summary cash flow includes changes in employee benefits
and other provisions (excluding current provisions),
amortisation of
capital grants, receipt of capital grants and dividends received
from
associates which are shown separately in the IFRS cash flow.
Reconciliation of Free Cash Flow to
Cash Generated from Operations
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Free cash 35 74
flow
Add Cash interest 72 59
back:
Capital expenditure (net of change in capital creditors) 219 175
Tax payments 71 64
Less: Sale of fixed assets (1) (5)
Profit on sale of assets and businesses - non exceptional (4) (2)
Receipt of capital grants (in 'Other' in summary cash flow) (1) (1)
Dividends received from associates (1) (1)
Non-cash financing activities (1) (2)
Cash generated from 389 361
operations
Capital Resources
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the revolving credit facility. The
Group's primary uses of cash are for funding day to day operations,
capital expenditure, debt service, dividends and other investment
activity including acquisitions.
At 30 June 2016, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR162.2 million and STGGBP63.9 million
variable funding notes issued under the EUR240 million accounts
receivable securitisation programme maturing in June 2019, together
with EUR175 million variable funding notes issued under the EUR175
million accounts receivable securitisation programme maturing in
April 2018.
Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018,
EUR400 million 4.125% senior notes due 2020, EUR250 million senior
floating rate notes due 2020, EUR500 million 3.25% senior notes due
2021 and EUR250 million 2.75% senior notes due 2025. Smurfit Kappa
Acquisitions and certain subsidiaries are also party to a senior
credit facility. At 30 June 2016, the Group's senior credit
facility comprised term drawings of EUR572.6 million, US$55.2
million and STGGBP100 million under the amortising Term A facility
maturing in 2020. In addition, as at 30 June 2016, the facility
included a EUR625 million revolving credit facility of which EUR6
million was drawn in revolver loans, with a further EUR6 million in
operational facilities including letters of credit drawn under
various ancillary facilities.
The following table provides the range of interest rates as at
30 June 2016 for each of the drawings under the various senior
credit facility loans.
Borrowing arrangement Currency Interest rate
Term A Facility EUR 1.239% - 1.354%
USD 2.060%
GBP 2.105%
Revolving Credit Facility EUR 0.997%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
Following acquisitions of over EUR380 million in 2015, including
the Brazilian acquisitions in December, the Group increased the
term loan under its senior credit facility by EUR250 million, from
EUR500 million to EUR750 million on 5 February 2016. The terms
applicable to the increase, including margin, amortisation profile
and maturity date are the same as the existing Term A loan. The
proceeds were substantially applied to reduce drawings under the
revolving credit facility, thereby further improving the Group's
liquidity.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding
activities and its operations in different foreign currencies.
Interest rate risk exposure is managed by achieving an appropriate
balance of fixed and variable rate funding. As at 30 June 2016, the
Group had fixed an average of 66% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018
(US$50 million swapped to floating), EUR400 million 4.125% senior
notes due 2020, EUR500 million 3.25% senior notes due 2021, EUR250
million 2.75% senior notes due 2025 and US$292.3 million 7.50%
senior debentures due 2025. In addition the Group had EUR349
million in interest rate swaps with maturity dates ranging from
October 2018 to January 2021.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR/EURIBOR interest rates for these borrowings increase by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR13 million over
the following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR3 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the
management process throughout the Group. Risks are identified,
evaluated and appropriate risk management strategies are
implemented at each level.
The Board in conjunction with senior management identifies major
business risks faced by the Group and determines the appropriate
course of action to manage these risks.
The principal risks and uncertainties faced by the Group were
outlined in our 2015 annual report on pages 16-17. The annual
report is available on our website smurfitkappa.com. The principal
risks and uncertainties for the remaining six months of the
financial year are summarised below.
-- If the current economic climate were to deteriorate, especially
following Brexit, and result in an increased economic slowdown
which
was sustained over any significant length of time, or the
sovereign
debt crisis (including its impact on the euro) were to re-emerge
or
exacerbate following Brexit, it could adversely affect the
Group's
financial position and results of operations.
-- The cyclical nature of the packaging industry could result in
overcapacity and consequently threaten the Group's pricing
structure.
-- If operations at any of the Group's facilities (in particular its key
mills) were interrupted for any significant length of time it
could
adversely affect the Group's financial position and results
of
operations.
-- Price fluctuations in raw materials and energy costs could adversely
affect the Group's manufacturing costs.
-- The Group is exposed to currency exchange rate fluctuations.
-- The Group may not be able to attract and retain suitably qualified
employees as required for its business.
-- The Group is subject to a growing number of environmental laws and
regulations, and the cost of compliance or the failure to comply
with
current and future laws and regulations may negatively affect
the
Group's business.
-- The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
-- The Group, similar to other large global companies, is susceptible to
cyber attacks with the threat to the confidentiality, integrity
and
availability of data in systems.
-- The Group is exposed to potential risks in relation to the current
political situation in Venezuela.
The Board regularly monitors all of the above risks and
appropriate actions are taken to mitigate those risks or address
their potential adverse consequences.
Condensed
Consolidated
Income
Statement
-
Six Months
6 months to 30-Jun-16 6 months to 30-Jun-15
Unaudited Unaudited
Pre-exceptional2016 Exceptional2016 Total 2016 Pre-exceptional2015 Exceptional2015 Total 2015
EURm EURm EURm EURm EURm EURm
Revenue 4,049 - 4,049 3,996 - 3,996
Cost of (2,829) - (2,829) (2,803) (6) (2,809)
sales
Gross 1,220 - 1,220 1,193 (6) 1,187
profit
Distribution (314) - (314) (321) - (321)
costs
Administrative (517) - (517) (525) - (525)
expenses
Other 1 - 1 1 - 1
operating
income
Other - - - - (40) (40)
operating
expenses
Operating 390 - 390 348 (46) 302
profit
Finance (117) - (117) (86) (2) (88)
costs
Finance 26 12 38 16 11 27
income
Share 1 - 1 2 - 2
of
associates'
profit
(after
tax)
Profit 300 12 312 280 (37) 243
before
income tax
Income tax (97) (73)
expense
Profit for 215 170
the
financial
period
Attributable
to:
Owners 212 169
of the
parent
Non-controlling 3 1
interests
Profit for 215 170
the
financial
period
Earnings
per
share
Basic 90.8 73.2
earnings
per
share -
cent
Diluted 90.0 72.4
earnings
per share
- cent
Condensed
Consolidated
Income
Statement
- Second
Quarter
3 months to 30-Jun-16 3 months to 30-Jun-15
Unaudited Unaudited
Pre-exceptional 2016 Exceptional2016 Total2016 Pre-exceptional2015 Exceptional2015 Total2015
EURm EURm EURm EURm EURm EURm
Revenue 2,049 - 2,049 2,034 - 2,034
Cost of (1,419) - (1,419) (1,421) - (1,421)
sales
Gross 630 - 630 613 - 613
profit
Distribution (160) - (160) (162) - (162)
costs
Administrative (259) - (259) (268) - (268)
expenses
Other - - - - (7) (7)
operating
expenses
Operating 211 - 211 183 (7) 176
profit
Finance (56) - (56) (34) - (34)
costs
Finance 16 12 28 1 1 2
income
Share 1 - 1 1 - 1
of
associates'
profit
(after
tax)
Profit 172 12 184 151 (6) 145
before
income tax
Income tax (59) (44)
expense
Profit for 125 101
the
financial
period
Attributable
to:
Owners 122 98
of the
parent
Non-controlling 3 3
interests
Profit for 125 101
the
financial
period
Earnings
per
share
Basic 52.0 42.3
earnings
per
share -
cent
Diluted 51.6 41.8
earnings
per share
- cent
Condensed Consolidated Statement
of Comprehensive
Income - Six Months
6 months to 6 months to
30-Jun-16 30-Jun-15
Unaudited Unaudited
EURm EURm
Profit for the financial period 215 170
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (98) (388)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 3 5
- New fair value adjustments into reserve (4) 5
(99) (378)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (129) 90
- Movement in deferred tax 21 (14)
(108) 76
Total other comprehensive expense (207) (302)
Total comprehensive income/(expense) 8 (132)
for the financial period
Attributable to:
Owners of the parent 5 (88)
Non-controlling interests 3 (44)
Total comprehensive income/(expense) 8 (132)
for the financial period
Condensed Consolidated Statement
of Comprehensive
Income - Second Quarter
3 months to 3 months to
30-Jun-16 30-Jun-15
Unaudited Unaudited
EURm EURm
Profit for the financial period 125 101
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (34) (46)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 1 1
- New fair value adjustments into reserve (2) 2
Net change in fair value of available-for-sale - (1)
financial assets
(35) (44)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (72) 122
- Movement in deferred tax 14 (18)
(58) 104
Total other comprehensive (expense)/income (93) 60
Total comprehensive income 32 161
for the financial period
Attributable to:
Owners of the parent 25 164
Non-controlling interests 7 (3)
Total comprehensive income 32 161
for the financial period
Condensed Consolidated Balance Sheet
30-Jun-16 30-Jun-15 31-Dec-15
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,086 2,954 3,103
Goodwill and intangible assets 2,488 2,428 2,508
Available-for-sale financial assets 21 21 21
Investment in associates 16 18 17
Biological assets 95 97 98
Trade and other receivables 32 26 34
Derivative financial instruments 30 34 34
Deferred income tax assets 193 220 200
5,961 5,798 6,015
Current assets
Inventories 740 716 735
Biological assets 9 8 8
Trade and other receivables 1,604 1,598 1,451
Derivative financial instruments 13 2 28
Restricted cash 10 8 5
Cash and cash equivalents 289 158 270
2,665 2,490 2,497
Total assets 8,626 8,288 8,512
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - - -
Share premium 1,983 1,982 1,983
Other reserves (524) (357) (425)
Retained earnings 638 432 619
Total equity attributable 2,097 2,057 2,177
to owners of the parent
Non-controlling interests 155 153 151
Total equity 2,252 2,210 2,328
LIABILITIES
Non-current liabilities
Borrowings 3,314 3,173 3,238
Employee benefits 906 794 818
Derivative financial instruments 30 16 15
Deferred income tax liabilities 157 145 179
Non-current income tax liabilities 31 18 25
Provisions for liabilities and charges 52 46 52
Capital grants 13 13 13
Other payables 13 6 13
4,516 4,211 4,353
Current liabilities
Borrowings 106 93 85
Trade and other payables 1,679 1,685 1,672
Current income tax liabilities 40 29 30
Derivative financial instruments 14 11 10
Provisions for liabilities and charges 19 49 34
1,858 1,867 1,831
Total liabilities 6,374 6,078 6,184
Total equity and liabilities 8,626 8,288 8,512
CondensedConsolidated
Statement
of Changes in Equity
Attributable to owners of the parent
Equitysharecapital Sharepremium Otherreserves Retainedearnings Total Non-controllinginterests Totalequity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2016 - 1,983 (425) 619 2,177 151 2,328
Profit for the financial - - - 212 212 3 215
period
Other comprehensive
income
Foreign currency - - (98) - (98) - (98)
translation
adjustments
Defined benefit - - - (108) (108) - (108)
pension plans
Effective portion - - (1) - (1) - (1)
of changes in
fair value of cash
flow hedges
Total - - (99) 104 5 3 8
comprehensive(expense)/income
for thefinancial
period
Hyperinflation - - - 28 28 3 31
adjustment
Dividends paid - - - (113) (113) (2) (115)
Share-based payment - - 10 - 10 - 10
Shares acquired by - - (10) - (10) - (10)
SKG Employee Trust
At 30 June 2016 - 1,983 (524) 638 2,097 155 2,252
Unaudited
At 1 January 2015 - 1,981 (30) 271 2,222 197 2,419
Profit for the financial - - - 169 169 1 170
period
Other comprehensive
income
Foreign currency - - (343) - (343) (45) (388)
translation
adjustments
Defined benefit - - - 76 76 - 76
pension plans
Effective portion - - 10 - 10 - 10
of changes in
fair value of cash
flow hedges
Total - - (333) 245 (88) (44) (132)
comprehensive(expense)/income
for thefinancial
period
Shares issued - 1 - - 1 - 1
Hyperinflation - - - 10 10 1 11
adjustment
Dividends paid - - - (94) (94) (2) (96)
Share-based payment - - 21 - 21 - 21
Shares acquired by - - (15) - (15) - (15)
SKG Employee Trust
Acquired non-controlling - - - - - 1 1
interest
At 30 June 2015 - 1,982 (357) 432 2,057 153 2,210
An analysis of the movements in Other reserves is provided in
Note 13.
Condensed Consolidated Statement
of Cash Flows
6 months to 6 months to
30-Jun-16 30-Jun-15
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 312 243
Net finance costs 79 61
Depreciation charge 172 162
Impairment of assets - 6
Amortisation of intangible assets 16 16
Amortisation of capital grants (1) (1)
Equity settled share-based payment expense 10 21
(Profit)/loss on sale of (4) 2
assets and businesses
Share of associates' profit (after tax) (1) (2)
Net movement in working capital (161) (117)
Change in biological assets 5 -
Change in employee benefits (44) (36)
and other provisions
Other 6 6
Cash generated from operations 389 361
Interest paid (74) (62)
Income taxes paid:
Irish corporation tax paid (9) -
Overseas corporation tax (net (62) (64)
of tax refunds) paid
Net cash inflow from operating activities 244 235
Cash flows from investing activities
Interest received 2 3
Business disposals - 31
Additions to property, plant and (213) (171)
equipment and biological assets
Additions to intangible assets (6) (4)
Receipt of capital grants 1 1
Disposal of available-for-sale 13 -
financial assets
Increase in restricted cash (5) (1)
Disposal of property, plant and equipment 5 6
Dividends received from associates 1 1
Purchase of subsidiaries and (32) (155)
non-controlling interests
Deferred consideration paid (9) (8)
Net cash outflow from investing activities (243) (297)
Cash flows from financing activities
Proceeds from issue of new ordinary shares - 1
Proceeds from bond issue - 250
Proceeds from other debt issues 250 -
Purchase of own shares (net) (10) (15)
Increase in other interest-bearing 35 55
borrowings
Payment of finance leases (1) (2)
Repayment of borrowings (169) (256)
Derivative termination payments - (2)
Deferred debt issue costs paid (2) (7)
Dividends paid to shareholders (113) (94)
Dividends paid to non-controlling interests (2) (2)
Net cash outflow from financing activities (12) (72)
Decrease in cash and cash equivalents (11) (134)
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 263 361
Currency translation adjustment 22 (91)
Decrease in cash and cash equivalents (11) (134)
Cash and cash equivalents at 30 June 274 136
An analysis of the net movement in working capital is provided
in Note 11.
Notes to the Condensed Consolidated Interim 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 tax resident in
Ireland. The address of its registered office is Beech Hill,
Clonskeagh, Dublin 4, D04 N2R2, Ireland.
2.Basis of Preparation and Accounting Policies
The condensed consolidated interim financial statements included
in this report have been prepared in accordance with the
Transparency (Directive 2004/109/EC) Regulations 2007, the related
Transparency Rules of the Central Bank of Ireland and with
International Accounting Standard 34, Interim Financial Reporting
('IAS 34') as adopted by the European Union. Certain quarterly
information and the balance sheet as at 30 June 2015 have been
included in this report; this information is supplementary and not
required by IAS 34. This report should be read in conjunction with
the consolidated financial statements for the year ended 31
December 2015 included in the Group's 2015 annual report 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 condensed
consolidated interim financial statements are consistent with those
described and applied in the annual report for the financial year
ended 31 December 2015. There are no new IFRS standards effective
from 1 January 2016 which have a material effect on the condensed
consolidated interim financial information included in this
report.
The Group is a highly integrated manufacturer of paper-based
packaging products with leading market positions, quality assets
and broad geographic reach. The financial position of the Group,
its cash generation, capital resources and liquidity continue to
provide a stable financing platform. Having made enquiries, the
Directors have a reasonable expectation that the Company, and the
Group as a whole, have adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
condensed consolidated interim financial statements.
The condensed consolidated interim financial statements include
all adjustments that management considers necessary for a fair
presentation of such financial information. All such adjustments
are of a normal recurring nature. Certain tables in this interim
statement may not add precisely due to rounding.
The Group's auditors have not audited or reviewed the condensed
consolidated interim financial statements contained in this
report.
The condensed consolidated interim financial statements
presented do not constitute full statutory accounts. Full statutory
accounts for the year ended 31 December 2015 will be filed with the
Irish Registrar of Companies in due course. The audit report on
those statutory accounts was unqualified.
3.Segmental Analyses
The Group has determined operating segments based on the manner
in which reports are reviewed by the chief operating decision maker
('CODM'). The CODM is determined to be the executive management
team responsible for assessing performance, allocating resources
and making strategic decisions. The Group has identified two
operating segments: 1) Europe and 2) The Americas.
The Europe segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Americas segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries
and the United States. Inter-segment revenue is not material. No
operating segments have been aggregated for disclosure
purposes.
Segment profit is measured based on earnings before interest,
tax, depreciation, amortisation, exceptional items and share-based
payment expense ('EBITDA before exceptional items').
6 months to 30-Jun-16 6 months to 30-Jun-15
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 3,102 947 4,049 3,129 867 3,996
EBITDA before 460 154 614 425 139 564
exceptional
items
Segment - - - (4) (35) (39)
exceptional
items
EBITDA after 460 154 614 421 104 525
exceptional
items
Unallocated (21) (13)
centre
costs
Share-based (10) (26)
payment
expense
Depreciation (177) (162)
and
depletion (net)
Amortisation (16) (16)
Impairment - (6)
of assets
Finance costs (117) (88)
Finance income 38 27
Share 1 2
of associates'
profit (after
tax)
Profit before 312 243
income tax
Income tax (97) (73)
expense
Profit for the 215 170
financial
period
3.Segmental Analyses (continued)
3 months to 30-Jun-16 3 months to 30-Jun-15
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 1,583 466 2,049 1,584 450 2,034
EBITDA before 251 73 324 223 72 295
exceptional
items
Segment - - - (4) (2) (6)
exceptional
items
EBITDA after 251 73 324 219 70 289
exceptional
items
Unallocated (12) (10)
centre
costs
Share-based (5) (15)
payment
expense
Depreciation (88) (80)
and
depletion (net)
Amortisation (8) (8)
Finance costs (56) (34)
Finance income 28 2
Share 1 1
of associates'
profit (after
tax)
Profit before 184 145
income tax
Income tax (59) (44)
expense
Profit for the 125 101
financial
period
4.Exceptional Items
6 months to 6 months to
The following items are regarded 30-Jun-16 30-Jun-15
as exceptional in nature:
EURm EURm
Impairment of assets - 6
Loss on the disposal of the - 4
solidboard operations
Currency trading loss on change - 36
in Venezuelan translation rate
Exceptional items included - 46
in operating profit
Exceptional finance costs - 2
Exceptional finance income (12) (11)
Exceptional items included (12) (9)
in net finance costs
The exceptional finance income in 2016 related to the gain of
EUR12 million on the sale of our shareholding in the Swedish
company, IL Recycling, in the second quarter.
Exceptional items charged within operating profit in the first
six months of 2015 amounted to EUR46 million, EUR36 million of
which represented the higher cost to the Venezuelan operations of
discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate. The remaining EUR10 million related to
the solidboard operations in Europe.
Exceptional finance income of EUR11 million in the first six
months of 2015 represented the gain in Venezuela on their US dollar
denominated intra-group loans as a result of our adoption of the
Simadi rate. This gain was partly offset by an exceptional finance
cost of EUR2 million. This represented the accelerated amortisation
of the issue costs relating to the debt within our senior credit
facility which was paid down with the proceeds of the EUR250
million bond issue in February 2015.
5.Finance Costs and Income
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 26 17
Interest payable on other borrowings 53 49
Exceptional finance costs associated - 2
with debt restructuring
Foreign currency translation loss on debt 11 9
Fair value loss on derivatives 16 1
not designated as hedges
Net interest cost on net pension liability 11 10
Total finance costs 117 88
Finance income:
Other interest receivable (2) (3)
Foreign currency translation gain on debt (23) (4)
Exceptional foreign currency translation gain - (11)
Exceptional gain on sale of investment (12) -
Fair value gain on derivatives (1) (9)
not designated as hedges
Total finance income (38) (27)
Net finance costs 79 61
6.Income Tax Expense
Income tax expense recognised in the Condensed
Consolidated Income Statement
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Current tax:
Europe 55 41
The Americas 31 26
86 67
Deferred tax 11 6
Income tax expense 97 73
Current tax is analysed
as follows:
Ireland 7 7
Foreign 79 60
86 67
Income tax recognised in the
Condensed Consolidated
Statement of Comprehensive Income
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Arising on actuarial (loss)/gain (21) 14
on defined benefit plans
The tax expense in 2016 is EUR24 million higher than in the
comparable period in 2015 primarily due to an increase in earnings.
The tax expense is higher in Europe by approximately EUR17 million
and higher in the Americas by EUR7 million. The movement in
deferred tax arises from the reversal of timing differences
including the use of tax losses. The tax expense includes a EUR1
million tax credit on exceptional items in 2015. There is a nil tax
effect on exceptional items in 2016.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Current service cost 17 22
Gain on curtailment (12) (1)
Gain on settlement (2) (1)
Actuarial loss arising on other 1 -
long-term employee benefits
Net interest cost on net pension liability 11 10
Defined benefit cost 15 30
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR4 million (2015: EUR20
million). Net interest cost on net pension liability of EUR11
million (2015: EUR10 million) is included in finance costs in the
Condensed Consolidated Income Statement.
The gain on curtailment of EUR12 million in 2016 relates to a
change to the top-up compensation plan in the Netherlands from
defined benefit to defined contribution.
The amounts recognised in the Condensed Consolidated Balance
Sheet were as follows:
30-Jun-16 31-Dec-15
EURm EURm
Present value of funded or partially (2,315) (2,195)
funded obligations
Fair value of plan assets 1,956 1,884
Deficit in funded or partially funded plans (359) (311)
Present value of wholly unfunded obligations (547) (507)
Net pension liability (906) (818)
The employee benefits provision has increased from EUR818
million at 31 December 2015 to EUR906 million at 30 June 2016,
mainly as a result of lower Eurozone and Sterling corporate bond
yields which have decreased the discount rates in the Eurozone and
Sterling area.
8.Earnings per Share
Basic
Basic earnings per share is calculated by dividing the profit
attributable to owners of the parent by the weighted average number
of ordinary shares in issue during the period less own shares.
6 months to 6 months to
30-Jun-16 30-Jun-15
Profit attributable to owners 212 169
of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Basic earnings per share (cent) 90.8 73.2
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 which comprise
convertible shares issued under the 2007 Share Incentive Plan and
deferred shares held in trust under the Deferred Annual Bonus
Plan.
6 months to 6 months to
30-Jun-16 30-Jun-15
Profit attributable to owners 212 169
of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Potential dilutive ordinary 2 3
shares assumed (million)
Diluted weighted average ordinary 236 234
shares (million)
Diluted earnings per share (cent) 90.0 72.4
Pre-exceptional
6 months to 6 months to
30-Jun-16 30-Jun-15
Profit attributable to owners 212 169
of the parent (EUR million)
Exceptional items included in profit before (12) 37
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) - (1)
Pre-exceptional profit attributable to 200 205
owners of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Pre-exceptional basic earnings 85.6 88.7
per share (cent)
Diluted weighted average ordinary 236 234
shares (million)
Pre-exceptional diluted earnings 84.9 87.7
per share (cent)
9.Dividends
During the period, the final dividend for 2015 of 48 cent per
share was paid to the holders of ordinary shares. The Board has
decided to pay an interim dividend of 22 cent per share for 2016
and it is proposed to pay this dividend on 28 October 2016 to all
ordinary shareholders on the share register at the close of
business on 30 September 2016.
10.Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Six months ended
30 June 2016
Opening net book amount 988 2,115 3,103
Reclassifications 13 (13) -
Additions 1 200 201
Acquisitions - 21 21
Depreciation charge (23) (149) (172)
Retirements and (1) (10) (11)
disposals
Hyperinflation 9 7 16
adjustment
Foreign currency (26) (46) (72)
translation
adjustment
At 30 June 2016 961 2,125 3,086
Year ended 31 December 2015
Opening net book amount 1,079 1,954 3,033
Reclassifications 19 (21) (2)
Additions 7 421 428
Acquisitions 46 116 162
Depreciation charge (47) (291) (338)
Retirements and disposals (18) (2) (20)
Hyperinflation adjustment 17 13 30
Foreign currency translation adjustment (115) (75) (190)
At 31 December 2015 988 2,115 3,103
11.Net Movement in Working Capital
6 months to 6 months to
30-Jun-16 30-Jun-15
EURm EURm
Change in inventories (24) (47)
Change in trade and other receivables (171) (180)
Change in trade and other payables 34 110
Net movement in working capital (161) (117)
12.Analysis of Net Debt
30-Jun-16 31-Dec-15
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest at 1 149
relevant interbank rate + 1.35%(5)
Facility A term loan(2)- interest at 737 494
relevant interbank rate + 1.60%(5)
U US$292.3 million 7.50% senior debentures 264 270
due 2025 (including accrued interest)
Bank loans and overdrafts 130 124
Cash (299) (275)
2018 receivables securitisation 174 174
variable funding notes
2019 receivables securitisation 238 232
variable funding notes
2018 senior notes (including accrued interest)(3) 473 477
EUR400 million 4.125% senior notes due 403 403
2020 (including accrued interest)
EUR250 million senior floating rate notes due 249 249
2020 (including accrued interest)(4)
EUR500 million 3.25% senior notes due 496 495
2021 (including accrued interest)
EUR250 million 2.75% senior notes due 249 248
2025 (including accrued interest)
Net debt before finance leases 3,115 3,040
Finance leases 6 8
Net debt including leases 3,121 3,048
(1) Revolving credit facility ('RCF') of EUR625 million (available under the senior credit facility) to be repaid in 2020.
(a) Revolver loans - EUR6 million, (b) drawn under ancillary facilities and facilities supported by letters of credit - nil and(c) other operational facilities including letters of credit - EUR6 million.
(2) Facility A term loan ('Facility A') due to be repaid in certain instalments from 2018 to 2020. In February 2016, the Group increasedFacility A by EUR250 million. The proceeds were substantially applied to reduce the Group's drawings under the RCF.
(3) EUR200 million 5.125% senior notes due 2018 and US$300 million 4.875% senior notes due 2018.
(4) Interest at EURIBOR + 3.5%.
(5) The margins applicable under the senior credit facility are determined as follows:
Net debt/EBITDA ratio RCF Facility A
Greater than 3.00 : 1 1.85% 2.10%
3.00 : 1 or less but more than 2.50 : 1 1.35% 1.60%
2.50 : 1 or less but more than 2.00 : 1 1.10% 1.35%
2.00 : 1 or less 0.85% 1.10%
13.Other Reserves
Other reserves included in the Condensed Consolidated Statement
of Changes in Equity are comprised of the following:
Reverseacquisitionreserve Cash flowhedgingreserve Foreigncurrencytranslationreserve Share-basedpaymentreserve Ownshares Available-for-salereserve
Total
EURm EURm EURm EURm EURm EURm EURm
At 1 January 2016 575 (22) (1,109) 168 (38) 1 (425)
Other comprehensive income
Foreign currency translation - - (98) - - - (98)
adjustments
Effective portion of changes in - (1) - - - - (1)
fair value of cash flow hedges
Total other comprehensive - (1) (98) - - - (99)
expense
Share-based payment - - - 10 - - 10
Shares acquired by - - - - (10) - (10)
SKG Employee Trust
Shares distributed by - - - (15) 15 - -
SKG Employee Trust
At 30 June 2016 575 (23) (1,207) 163 (33) 1 (524)
At 1 January 2015 575 (33) (689) 156 (40) 1 (30)
Other comprehensive income
Foreign currency translation - - (343) - - - (343)
adjustments
Effective portion of changes in - 10 - - - - 10
fair value of cash flow hedges
Total other comprehensive - 10 (343) - - - (333)
income/(expense)
Share-based payment - - - 21 - - 21
Shares acquired by - - - - (15) - (15)
SKG Employee Trust
Shares distributed by - - - (14) 14 - -
SKG Employee Trust
At 30 June 2015 575 (23) (1,032) 163 (41) 1 (357)
14.Fair Value Hierarchy
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 30 June 2016:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Available-for-sale financial assets:
Listed 2 - - 2
Unlisted - 7 12 19
Derivative financial instruments:
Assets at fair value through Condensed - 6 - 6
Consolidated Income Statement
Derivatives used for hedging - 37 - 37
Derivative financial instruments:
Liabilities at fair value - (23) - (23)
through Condensed
Consolidated Income Statement
Derivatives used for hedging - (21) - (21)
2 6 12 20
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 31 December
2015:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Available-for-sale financial assets:
Listed 1 - - 1
Unlisted - 7 13 20
Derivative financial instruments:
Assets at fair value through Condensed - 19 - 19
Consolidated Income Statement
Derivatives used for hedging - 43 - 43
Derivative financial instruments:
Liabilities at fair value - (5) - (5)
through Condensed
Consolidated Income Statement
Derivatives used for hedging - (20) - (20)
1 44 13 58
The fair value of the level 2 derivative financial instruments
set out above has been measured using observable market inputs as
defined under IFRS 13, Fair Value Measurement. All are plain
derivative instruments, valued with reference to observable foreign
exchange rates, interest rates or broker prices. There have been no
transfers between level 1 and level 2 during the period. The Group
uses discounted cash flow analysis for various available-for-sale
financial assets that are not traded in active markets.
The following table presents the changes in the level 3
instruments for the period:
EURm
At 1 January 2016 13
Sale of investment (1)
At 30 June 2016 12
15.Fair Value
The following table sets out the fair value of the Group's
principal financial assets and liabilities. The determination of
these fair values is based on the descriptions set out within Note
2 to the consolidated financial statements of the Group's 2015
annual report.
30-Jun-16 31-Dec-15
Carrying value Fair value Carrying value Fair value
EURm EURm EURm EURm
Trade and 1,529 1,529 1,384 1,384
other
receivables(1)
Available-for-sale 21 21 21 21
financial
assets(2)
Cash 289 289 270 270
and
cash
equivalents(3)
Derivative 43 43 62 62
assets(4)
Restricted 10 10 5 5
cash
1,892 1,892 1,742 1,742
Trade and 1,367 1,367 1,365 1,365
other
payables(1)
Senior credit 738 738 643 643
facility(5)
2018 174 174 174 174
receivables
securitisation(3)
2019 238 238 232 232
receivables
securitisation(3)
Bank 130 130 124 124
overdrafts(3)
2025 264 314 270 324
debentures(6)
2018 notes(6) 473 503 477 506
2020 fixed 403 443 403 442
rate
notes(6)
2020 floating 249 265 249 268
rate
notes(6)
2021 notes(6) 496 533 495 522
2025 notes(6) 249 252 248 241
4,781 4,957 4,680 4,841
Finance 6 6 8 8
leases
4,787 4,963 4,688 4,849
Derivative 44 44 25 25
liabilities(4)
4,831 5,007 4,713 4,874
Total net (2,939) (3,115) (2,971) (3,132)
position
(1) The fair value of trade and other receivables and
payables is estimated as the present value
of future cash flows, discounted at the market
rate of interest at the reporting date.
(2) The fair value of listed available-for-sale financial
assets is determined by reference
to their bid price at the reporting date.
Unlisted available-for-sale financial
assets are valued using recognised valuation
techniques for the underlying security
including discounted cash flows and similar
unlisted equity valuation models.
(3) The carrying amount reported in the Condensed
Consolidated Balance Sheet
is estimated to approximate to fair
value because of the short-term
maturity of these instruments and, in the case
of the receivables securitisation,
the variable nature of the facility and repricing dates.
(4) The fair value of forward foreign currency
and energy contracts is based on their
listed market price if available. If a listed
market price is not available,
then fair value is estimated by discounting
the difference between the contractual
forward price and the current forward
price for the residual maturity
of the contract using a risk-free interest
rate (based on government bonds). The
fair value of interest rate swaps is
based on discounting estimated future
cash flows based on the terms and maturity
of each contract and using market
interest rates for a similar instrument
at the measurement date.
(5) The fair value of the senior credit facility is based
on the present value of its estimated future
cash flows discounted at an appropriate market
discount rate at the balance sheet date.
(6) Fair value is based on broker prices at the balance sheet date.
16. Related Party Transactions
Details of related party transactions in respect of the year
ended 31 December 2015 are contained in Note 32 to the consolidated
financial statements of the Group's 2015 annual report. The Group
continued to enter into transactions in the normal course of
business with its associates and other related parties during the
period. There were no transactions with related parties in the
first half of 2016 or changes to transactions with related parties
disclosed in the 2015 consolidated financial statements that had a
material effect on the financial position or the performance of the
Group.
17. Board Approval
This interim report was approved by the Board of Directors on 26
July 2016.
18. Distribution of the Interim Report
This 2016 interim report is available on the Group's website
smurfitkappa.com.
Responsibility Statement in Respect of the Six Months Ended 30
June 2016
The Directors, whose names and functions are listed on pages 36
and 37 in the Group's 2015 annual report, are responsible for
preparing this interim management report and the condensed
consolidated interim financial statements in accordance with the
Transparency (Directive 2004/109/EC) Regulations 2007, the related
Transparency Rules of the Central Bank of Ireland and with IAS 34,
Interim Financial Reporting as adopted by the European Union.
The Directors confirm that, to the best of their knowledge:
-- the condensed consolidated interim financial statements for the half
year ended 30 June 2016 have been prepared in accordance with
the
international accounting standard applicable to interim
financial
reporting, IAS 34, adopted pursuant to the procedure provided
for
under Article 6 of the Regulation (EC) No. 1606/2002 of the
European
Parliament and of the Council of 19 July 2002;
-- the interim management report includes a fair review of the important
events that have occurred during the first six months of the
financial
year, and their impact on the condensed consolidated interim
financial
statements for the half year ended 30 June 2016, and a
description of
the principal risks and uncertainties for the remaining six
months;
-- the interim management report includes a fair review of related party
transactions that have occurred during the first six months of
the
current financial year and that have materially affected the
financial
position or the performance of the Group during that period, and
any
changes in the related party transactions described in the last
annual
report that could have a material effect on the financial
position or
performance of the Group in the first six months of the
current
financial year.
Signed on behalf of the Board
A. Smurfit, Director and Chief Executive Officer
26 July 2016
Supplementary Financial Information
Alternative Performance Measures
Certain financial measures set out in this interim report are
not defined under International Financial Reporting Standards
('IFRS'). An explanation for the use of these Alternative
Performance Measures ('APMs') is set out within Financial
Performance Indicators on pages 26-28 of the Group's 2015 annual
report. The key APMs of the Group are set out below.
APM Description
EBITDA Earnings before exceptional
items, share-based
payment expense, net
finance costs, income
tax expense, depreciation
and depletion (net)
and intangible assets amortisation
EBITDA Margin EBITDA
Revenue
x 100
Operating Profit before Profit before exceptional items,
Exceptional Items net finance costs, share of
associates' profit (after tax)
and income tax expense
Pre-exceptional Basic EPS (cent) Profit attributable to
owners of the parent,
adjusted for exceptional items
included in profit before
tax and income
tax on exceptional items
Weighted average number of
ordinary shares in issue
x 100
Return on Capital Employed LTM pre-exceptional operating
profit plus share of
associates' profit (after tax)
Average capital employed (where
capital employed is the
sum of total equity and net
debt at each period end)
x 100
Free Cash Flow Free cash flow is the result
of the cash inflows
and outflows from our
operating activities,
and is before those arising
from acquisition
and disposal activities.
Free cash flow (APM)
and a reconciliation
of free cash flow to
cash generated from operations
(IFRS measure) are included in
the management commentary. The
IFRS cash flow is included in
the Condensed Consolidated
Interim
Financial Statements.
Net Debt Net debt is comprised of
borrowings net of cash
and cash equivalents
and restricted cash
Net Debt to EBITDA (LTM) Net debt
EBITDA (LTM)
Reconciliation of
Profit to EBITDA
3 months to 3 months to 6 months to 6 months to
30-Jun-16 30-Jun-15 30-Jun-16 30-Jun-15
EURm EURm EURm EURm
Profit for the 125 101 215 170
financial
period
Income tax 59 44 97 73
expense
Exceptional items - 7 - 46
charged
in operating
profit
Share (1) (1) (1) (2)
of associates'
profit (after
tax)
Net finance costs 28 32 79 61
(after
exceptional
items)
Share-based 5 14 10 25
payment
expense
Depreciation, 96 88 193 178
depletion
(net)
and amortisation
EBITDA 312 285 593 551
Return on Capital Employed
Q2, 2016 Q2, 2015 Q1, 2016
EURm EURm EURm
Pre-exceptional operating profit plus share 823 760 796
of associates' profit (after tax) (LTM)
Total equity - current period end 2,252 2,210 2,310
Net debt - current period end 3,121 3,100 3,029
Capital employed - current period end 5,373 5,310 5,339
Total equity - prior period end 2,210 2,403 2,128
Net debt - prior period end 3,100 2,676 2,930
Capital employed - prior period end 5,310 5,079 5,058
Average capital employed 5,342 5,195 5,198
Return on capital employed 15.4% 14.6% 15.3%
Supplementary Historical Financial Information
EURm Q2, 2015 Q3, 2015 Q4, 2015 FY, 2015 Q1, 2016 Q2, 2016
Group and 3,305 3,347 3,422 13,309 3,280 3,375
third
party
revenue
Third 2,034 2,024 2,089 8,109 2,001 2,049
party
revenue
EBITDA 285 305 326 1,182 281 312
EBITDA 14.0% 15.0% 15.6% 14.6% 14.0% 15.3%
margin
Operating 176 195 214 711 179 211
profit
Profit 145 165 191 599 128 184
before
income tax
Free cash 49 162 152 388 7 28
flow
Basic 42.3 46.4 52.9 172.6 38.8 52.0
earnings
per
share -
cent
Weighted 231 231 233 232 234 234
average
number
of shares
used
in
EPS
calculation
(million)
Net debt 3,100 2,953 3,048 3,048 3,029 3,121
EBITDA 1,148 1,150 1,182 1,182 1,197 1,224
(LTM)
Net debt 2.70 2.57 2.58 2.58 2.53 2.55
to
EBITDA
(LTM)
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(END) Dow Jones Newswires
July 27, 2016 02:00 ET (06:00 GMT)
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