ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for discussion Register to chat with like-minded investors on our interactive forums.

SKG Smurfit Kappa Group Plc

3,620.00
-8.00 (-0.22%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Smurfit Kappa Group Plc LSE:SKG London Ordinary Share IE00B1RR8406 ORD EUR0.001 (CDI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -8.00 -0.22% 3,620.00 3,614.00 3,618.00 3,630.00 3,586.00 3,630.00 405,128 16:35:17
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Pkg Paper, Plastics Film 12.82B 944M 3.6258 11.66 11.01B

Smurfit Kappa GrpPLC 3rd Quarter Results

01/11/2017 7:00am

UK Regulatory


 
TIDMSKG 
 
 

1 November: Smurfit Kappa Group plc ('SKG' or 'the Group') today announced results for the 3 months and 9 months ending 30 September 2017.

 

2017 Third Quarter & First Nine Months | Key Financial Performance Measures

 
EURm                YTD2017  YTD2016  Change  Q32017  Q32016  Change  Q22017  Change 
Revenue           EUR6,354   EUR6,099   4%      EUR2,121  EUR2,050  4%      EUR2,104  1% 
EBITDA(1)         EUR889     EUR916     (3%)    EUR320    EUR323    (1%)    EUR292    10% 
EBITDA            14.0%    15.0%            15.1%   15.7%           13.9% 
Margin(1) 
Operating         EUR574     EUR609     (6%)    EUR216    EUR219    (2%)    EUR190    13% 
Profit 
before 
Exceptional 
Items 
Profit            EUR415     EUR499     (17%)   EUR170    EUR187    (9%)    EUR136    25% 
before 
Income Tax 
Basic EPS         127.0    147.1    (14%)   52.7    56.4    (7%)    42.8    23% 
(cent) 
Pre-exceptional   127.7    142.0    (10%)   52.7    56.4    (7%)    42.8    23% 
Basic 
EPS 
(cent)(1) 
Return on                                   14.8%   16.1%           14.7% 
Capital 
Employed(1) 
Free Cash         EUR198     EUR199     -       EUR152    EUR164    (7%)    EUR30     408% 
Flow(1) 
Net                                         EUR2,839  EUR2,953  (4%)    EUR2,985  (5%) 
Debt(1) 
Net Debt                                    2.3x    2.4x            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 28.

 

Third Quarter and First Nine Months Key Points

 
 
    -- Group revenue growth of 4% for the third quarter and year-to-date 
 
    -- Continued box price progression in the third quarter 
 
    -- Increased sequential EBITDA margin of 15.1% 
 
    -- Solid free cash flow delivery of EUR152 million for the quarter 
 
    -- Acquisitions in Russia and Greece, expanding the Group's packaging 

footprint

 

Performance Review and Outlook

 

Tony Smurfit, Group CEO, commented:

 

"SKG continues to deliver, showing strong sequential progress with Group EBITDA margin at 15.1% for the quarter.

 

"Total Group corrugated volumes grew 3% for the quarter. Corrugated volumes in Europe improved by 4% on a days-adjusted basis with strong demand in most areas of activity. In the Americas demand growth was 3% with growth in most markets.

 

"In the third quarter, recovered fibre cost pressures remained, resulting in a headwind of almost EUR40 million for the quarter and EUR111 million for the year-to-date compared to 2016. SKG will continue to offset these cost pressures through further corrugated price recovery and ongoing efficiency improvements as we progress towards the year-end and into 2018.

 

"Reported third quarter EBITDA in Europe was up 3% year-on-year against a backdrop of increased recovered fibre costs of EUR26 million, with sequential margins expanding to 15.3% reflecting ongoing corrugated price recovery, strong demand in most markets, the continuation of our capital programmes and the strength of our integrated model.

 

"In the Americas, EBITDA decreased 8% year-on-year primarily as a result of increased input costs and currency headwinds. The region is strongly pursuing input cost recovery, which has contributed to improved sequential EBITDA margins at 15.4%. Recent investments in our mill system provide an improved operating platform for 2018 and beyond.

 

"We continue to expand our geographic reach through the acquisition of a corrugated plant in central Moscow. This acquisition establishes SKG as the largest international corrugated packaging producer in Russia. In October, we agreed to purchase a high-end display and corrugated business in Greece, which provides us with a platform for future expansion in the region. SKG remains a disciplined acquirer and is committed to growth through acquisition where it creates long-term value for our shareholders and enhances the overall quality of our business.

 

"The Group's net debt to EBITDA ratio continues to improve and now stands at 2.3x.

 

"The demand backdrop remains strong and in these increasingly tight markets, the Group continues to invest in our asset base to support our customers through security of supply.

 

"The exceptional volatility in global recovered fibre trade flows continues to present some short-term uncertainty. The Group has shown sequential progress within that context, and remains on track to continue corrugated price recovery. We expect to deliver a full year EBITDA in line with current market expectations and will enter 2018 with optimism and good momentum."

 

About Smurfit Kappa

 

Smurfit Kappa, a FTSE 100 company, is one of the leading providers of paper-based packaging solutions in the world, with around 45,000 employees in approximately 370 production sites across 34 countries and with revenue of EUR8.2 billion in 2016. We are located in 21 countries in Europe, and 13 in the Americas. We are the only large-scale pan-regional player in Latin America.

 

With our pro-active team, we relentlessly use our extensive experience and expertise, supported by our scale, to open up opportunities for our customers. We collaborate with forward thinking customers by sharing superior product knowledge, market understanding and insights in packaging trends to ensure business success in their markets. We have an unrivalled portfolio of paper-packaging solutions, which is constantly updated with our market-leading innovations. This is enhanced through the benefits of our integration, with optimal paper design, logistics, timeliness of service, and our packaging plants sourcing most of their raw materials from our own paper mills.

 

smurfitkappa.com

 

Check out our microsite: openthefuture.info

 

Follow us on Twitter at @smurfitkappa and on LinkedIn at 'Smurfit Kappa'.

 

Forward Looking Statements

 

Some statements in this announcement are forward-looking. They represent expectations for the Group's business, and involve risks and uncertainties. These forward-looking statements are based on current expectations and projections about future events. The Group believes that current expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Group's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.

 
Contacts 
Garrett Quinn            Melanie Farrell or Mark Kenny 
Smurfit Kappa            FTI Consulting 
T: +353 1 202 71 80      T: +353 1 663 36 80 
E: ir@smurfitkappa.com   E: smurfitkappa@fticonsulting.com 
 
 

2017 Third Quarter & First Nine Months | Performance Overview

 

The Group reported EBITDA for the quarter of EUR320 million, EUR3 million down on the same period last year. EBITDA in Europe was EUR7 million higher, offset by a shortfall of EUR7 million in the Americas and higher Group Centre costs. The underlying1 move in EBITDA was an increase of 4% reflecting higher earnings in both regions.

 

EBITDA margin of 15.1% for the third quarter has improved from 13.9% in the second quarter and 13.0% in the first quarter, driven by better margins in both Europe and the Americas. This margin progression is as a result of the recovery of raw material cost pressures through box price recovery and a continuous focus on cost take-out. The improved result was delivered in an environment of continued high recovered fibre costs and adverse currency impacts, underscoring the Group's ability to deliver, through the strength of our integrated model and geographically diverse portfolio of businesses.

 

In Europe, total reported corrugated box volumes for the third quarter were up 3%. On a days-adjusted basis, net of acquisitions, volumes increased by 4%.

 

In Europe, the Group's recovered fibre costs for the third quarter increased by 16% year-on-year. For the first nine months, recovered fibre costs were 18% higher than the same period in 2016. In the Americas, recovered fibre costs were also higher year-on-year, 26% higher in the third quarter and 23% higher for the first nine months.

 

The main European markets for recycled containerboard increased again in August bringing the cumulative increase from January 2017 to an average of EUR105 per tonne. Continued demand strength for recycled containerboard has resulted in inventory levels being significantly below industry norms.

 

Global demand for kraftliner is very strong and supply remains extremely tight. SKG implemented a further price increase of EUR50 per tonne in August bringing the cumulative increase from January 2017 to EUR150 per tonne in North Western Europe and an additional EUR20 to EUR30 per tonne of increases in Southern European markets.

 

In the Americas, total corrugated volumes increased 3% for the third quarter with good demand in most markets. The region reported EBITDA margin improvement from 14.2% in the second quarter to 15.4% in the third quarter. On an underlying basis, the EBITDA result was 10% higher year-on-year. The region's result was impacted by higher recovered fibre costs and its short position in kraftliner of approximately 300,000 tonnes per annum. Export prices for kraftliner from the US are over 30% higher year-on-year. These input cost pressures were offset in part by corrugated price recovery which will continue through the remainder of the year and into 2018.

 

The Group reported a free cash flow in the third quarter of EUR152 million compared to EUR164 million in the same period of 2016 and an improved net debt to EBITDA ratio, both sequentially and year-on-year, of 2.3x.

 

2017 Third Quarter & First Nine Months | Financial Performance

 

Revenue for the first nine months of 2017 was EUR6,354 million, EUR255 million or 4% higher than last year, with Europe higher by EUR135 million and the Americas higher by EUR120 million. On an underlying basis, Europe increased by EUR162 million year-on-year while the Americas increased by EUR163 million. For the quarter, revenue was EUR2,121 million, up 4% on the same period last year, or 7% on an underlying basis.

 

EBITDA for the first nine months of 2017 was EUR889 million, EUR27 million down on the same period in 2016, with lower earnings in both Europe and the Americas partly offset by marginally lower Group centre costs.

 

There were no exceptional items charged within operating profit in the first nine months of either 2017 or 2016.

 

1 Underlying in relation to financial measures throughout this report excludes acquisitions, disposals, currency and hyperinflation movements where applicable.

 

Net pre-exceptional finance costs for the first nine months of 2017 of EUR157 million were EUR34 million higher than in 2016, primarily as the result of an increase in cash interest and a net monetary loss of EUR12 million relating to hyperinflation in 2017 compared to a net monetary gain of EUR12 million in 2016.

 

Cash interest was EUR9 million higher year-on-year. Approximately, EUR6 million of this increase relates to additional interest following our EUR500 million 2.375% bond issue in January 2017. This funding has created additional Group liquidity which will allow for the refinancing of higher cost debt maturing in 2018 and will generate interest savings from mid-2018 onwards. The balance of EUR3 million is driven primarily by higher interest costs in the Americas and our capital programmes in the region.

 

The exceptional finance cost of EUR2 million in the first nine months of 2017 represented the accelerated amortisation of the issue costs relating to the debt within our senior credit facility which was paid down with the proceeds of the EUR500 million bond issue in January. In the first nine months of 2016, the Group reported exceptional finance income of EUR12 million in relation to the profit on the sale of our shareholding in the Swedish company IL Recycling.

 

Basic EPS for the first nine months of 2017 was 127.0 cent, 14% lower than the 147.1 cent earned in the same period of 2016. The third quarter basic EPS was 52.7 cent against 56.4 cent in the third quarter of 2016, a reduction of 7%. On a pre-exceptional basis, EPS was 127.7 cent for the first nine months, 10% lower than the 142.0 cent in 2016. On a pre-exceptional basis, EPS for the third quarter was 7% lower year-on-year at 52.7 cent compared to 56.4 cent in 2016.

 

2017 Third Quarter and First Nine Months | Free Cash Flow

 

Free cash flow for the third quarter of 2017 was EUR152 million compared to EUR164 million in 2016, a decrease of EUR12 million. With EBITDA EUR3 million lower, the year-on-year decrease was mainly driven by a lower working capital inflow partly offset by lower capital outflows, tax payments and 'other' outflows.

 

Free cash flow for the nine months to September 2017 was EUR198 million compared to EUR199 million in 2016.

 

Capital expenditure amounted to EUR260 million in the nine months to September 2017 and equated to 86% of depreciation compared to 110% in 2016.

 

The working capital movement in the nine months to September 2017 was an outflow of EUR120 million compared to an outflow of EUR109 million in 2016. The outflow in 2017 was the combination of an increase in debtors and stocks partly offset by an increase in creditors. These increases reflect the combination of higher corrugated prices, volume growth, strengthening European containerboard pricing and higher OCC costs. Working capital amounted to EUR686 million at September 2017, representing 8.1% of annualised revenue compared to 7.7% at September 2016.

 

Cash interest of EUR119 million in the nine months to September was EUR9 million higher year-on-year.

 

Tax payments of EUR107 million were EUR10 million lower than in 2016, primarily due to the timing of payments.

 

2017 Third Quarter and First Nine Months | Capital Structure

 

Net debt was EUR2,839 million at the end of September resulting in a net debt to EBITDA ratio of 2.3x compared to 2.5x at the end of June 2017 and 2.4x at the end of the third quarter of 2016. The Group's balance sheet continues to provide considerable financial strategic flexibility, subject to the stated leverage range of 2.0x to 3.0x through the cycle and SKG's Ba1/BB+/BB+ credit rating.

 

At 30 September 2017 the Group's average interest rate was 4.1% compared to 4.2% at 30 September 2016. The Group's diversified funding base and long dated maturity profile of 3.6 years provide a stable funding outlook. In terms of liquidity, the Group held cash balances of EUR597 million at the end of the quarter, which was further supplemented by available commitments under its revolving credit facility of approximately EUR834 million.

 

2017 Third Quarter and First Nine Months | Commercial Offering and Innovation

 

In September, the Group held its first Innovation Event in the Americas, 'Packaging in a Digital World', in its new Experience Centre in Dallas. Customers from across the 13 countries where the Group operates in the region, together with members of the SKG team, came together to discuss the challenges and more importantly the opportunities for corrugated packaging to make a difference in their world.

 

These events, along with our expanding network of Experience Centres, continue to help our customers succeed in their marketplace using our Smart portfolio of business applications, Shelfsmart and Supplysmart. During the third quarter, the Group strengthened its customer offering by adding eSmart to our Smart portfolio of business applications. Our enhanced Smart portfolio enables our customers to benefit from a range of unique solutions, from supply chain optimisation to e-commerce growth opportunities and finally supporting brand visibility and ultimately sales growth at the point of purchase.

 

The Group was awarded seven regional awards in the quarter for design in displays and packaging across Russia, the Netherlands and Germany. The Group's most recent success was four Popai awards for the UK and Ireland in October.

 

2017 Third Quarter and First Nine Months | Regional Performance Review

 

Europe

 

The EBITDA margin of the European business continued to improve in the third quarter to 15.3% from 14.2% in the second quarter and 13.6% in the first quarter. Reported EBITDA of EUR247 million for the quarter was EUR7 million higher year-on-year. For the first nine months of 2017, Europe reported EBITDA of EUR686 million, down EUR14 million or 2% year-on-year. The year-to-date result, on an underlying basis, was 1% lower compared to the same period last year, mainly reflecting the impact of higher input costs and the customary lag in recovering increased containerboard costs in corrugated prices.

 

The Group continues to recover input cost pressure through corrugated price recovery and expects further progression through the fourth quarter of 2017 and into 2018.

 

On a days adjusted basis, net of acquisitions, corrugated box volumes for the quarter increased by 4% year-on-year. Total reported corrugated box volumes for the first nine months were up close to 3%.

 

During the third quarter, the Group expanded its operational footprint in Russia through the acquisition of Soyuz, a corrugated plant in the greater Moscow area. This addition establishes SKG as the largest international corrugated packaging producer in Russia and the Soyuz site provides an opportunity for further organic expansion.

 

In October, the Group agreed to acquire a high-end display and box business in Greece, which upon completion will extend the Group's access to the South Eastern European market by combining SKG's expertise and scale with their product offering and geographic positioning.

 

In Europe, the Group's recovered fibre costs for the first nine months were up 18% on the same period in 2016. In the third quarter, the year-on-year increase was 16% or an impact of EUR26 million.

 

The Americas

 

In the Americas, the Group reported an increase in the sequential EBITDA margin from 14.2% to 15.4% in the third quarter. The underlying EBITDA result was 10% higher year-on-year. The currency impact was offset in part by the positive contribution from our pricing initiatives in the region.

 

In the Americas, total corrugated volumes increased 3% for the third quarter with strong demand in most markets.

 

In Colombia, the Group's operations have continued to perform well with corrugated volumes up 5% in the first nine months of the year over the same period in 2016.

 

In Mexico, corrugated volumes were up 4% year-on-year for the first nine months, maintaining the strong growth seen in the country in 2016 and 2015.

 

In the US, margins were impacted by a 49% increase in recovered fibre costs in the third quarter. Corrugated volumes were lower primarily as a result of natural events and rationalisation activities.

 

In Brazil, SKG's year-on-year corrugated volumes were up 11% for the first nine months, continuing a strong recovery. The Group also saw some signs of recovery in Argentina with corrugated volumes up 6% in the quarter year-on-year. In Chile, corrugated volumes were up 5% in the quarter year-on-year.

 

In Venezuela, the Group's corrugated shipments were down 43% in the nine months to September 2017 compared to the same period in 2016. However, the Group's operations continue to perform in extremely difficult circumstances. The macro situation remains uncertain and we continue to monitor events as they unfold. The business represented 2% of Group EBITDA in the first nine months. Net assets in Venezuela decreased to EUR83 million as at 30 September 2017 (31 December 2016: EUR91 million).

 

In recent months we have invested close to $100 million in two paper mill projects in Colombia and Mexico which combined will provide an additional 140,000 tonnes of recycled containerboard benefiting the region in 2018 and beyond.

 

Summary Cash Flow

 

Summary cash flows(1) for the third quarter and nine months are set out in the following table.

 
                         3 months to  3 months to  9 months to  9 months to 
                         30-Sep-17    30-Sep-16    30-Sep-17    30-Sep-16 
                         EURm           EURm           EURm           EURm 
EBITDA                   320          323          889          916 
Cash interest expense    (38)         (38)         (119)        (110) 
Working capital change   5            51           (120)        (109) 
Current provisions       (3)          -            (5)          (7) 
Capital expenditure      (83)         (110)        (260)        (321) 
Change in capital        (8)          9            (58)         1 
creditors 
Tax paid                 (31)         (47)         (107)        (117) 
Sale of fixed assets     2            1            5            2 
Other                    (12)         (25)         (27)         (56) 
Free cash flow           152          164          198          199 
Share issues             -            -            1            - 
Purchase of own shares   -            -            (11)         (10) 
Sale of businesses       -            -            5            13 
and investments 
Purchase of businesses   (36)         -            (46)         (40) 
and investments 
Dividends                (1)          (1)          (139)        (116) 
Derivative termination   -            -            (1)          - 
payments 
Net cash inflow          115          163          7            46 
Net cash acquired        3            -            3            - 
Deferred debt issue      (3)          (2)          (9)          (8) 
costs amortised 
Currency translation     31           7            101          57 
adjustment 
Decrease in net debt     146          168          102          95 
 
 

(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.

 
    -- The total of capital expenditure and change in capital creditors in 

the summary cash flow includes additions to intangible assets which is

shown separately in the IFRS cash flow. It also includes capitalised

leased assets which are excluded from additions to property, plant and

equipment and biological assets in the IFRS cash flow.

 
    -- Other in the summary cash flow includes changes in employee benefits 

and other provisions (excluding current provisions), amortisation of

capital grants, receipt of capital grants and dividends received from

associates which are shown separately in the IFRS cash flow.

 

Reconciliation of Free Cash Flow to Cash Generated from Operations

 
                                                                                   9 months to  9 months to 
                                                                                   30-Sep-17    30-Sep-16 
                                                                                   EURm           EURm 
Free cash                                                                          198          199 
flow 
Add                   Cash interest                                                119          110 
back: 
                      Capital expenditure (net of change in capital creditors)     318          320 
                      Tax payments                                                 107          117 
Less:                 Sale of fixed assets                                         (5)          (2) 
                      Profit on sale of assets and businesses - non-exceptional    (7)          (6) 
                      Receipt of capital grants (in 'Other' in summary cash flow)  (4)          (2) 
                      Dividends received from associates                           (1)          (1) 
Cash generated from                                                                725          735 
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 September 2017, Smurfit Kappa Treasury Funding Limited had outstanding US$292.3 million 7.50% senior debentures due 2025. The Group had outstanding EUR109 million and STGGBP66.7 million variable funding notes issued under the EUR240 million accounts receivable securitisation programme maturing in June 2019, together with EUR5 million variable funding notes issued under the EUR175 million accounts receivable securitisation programme maturing in February 2022.

 

Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125% senior notes due 2018, US$300 million 4.875% senior notes due 2018, EUR400 million 4.125% senior notes due 2020, EUR250 million senior floating rate notes due 2020, EUR500 million 3.25% senior notes due 2021, EUR500 million 2.375% senior notes due 2024 and EUR250 million 2.75% senior notes due 2025. Smurfit Kappa Acquisitions and certain subsidiaries are also party to a senior credit facility. At 30 September 2017, the Group's senior credit facility comprised term drawings of EUR312.6 million, US$55.8 million and STGGBP113.5 million under the amortising Term A facility maturing in 2020. In addition, as at 30 September 2017, the facility included an EUR845 million revolving credit facility of which EUR6 million was drawn in revolver loans, with a further EUR5 million in operational facilities including letters of credit drawn under various ancillary facilities.

 

The following table provides the range of interest rates at 30 September 2017 for each of the drawings under the various senior credit facility loans.

 
Borrowing arrangement       Currency  Interest Rate 
Term A Facility             EUR       1.227% - 1.271% USD 2.835% 
                            GBP       1.855% 
Revolving Credit Facility   EUR       0.977% 
 
 

Borrowings under the revolving credit facility are available to fund the Group's working capital requirements, capital expenditures and other general corporate purposes.

 

In January 2017 the Group issued EUR500 million of seven-year euro denominated senior notes at a coupon of 2.375%, the proceeds of which were used to prepay term debt under the senior credit facility, reduce indebtedness under existing securitisation facilities and for general corporate purposes. In February 2017 the Group increased the revolving credit facility under the senior credit facility by EUR220 million thereby further enhancing liquidity.

 

In May 2017 the Group amended, restated and extended its EUR175 million 2018 receivables securitisation programme, which utilises the Group's receivables in Austria, Belgium, Italy and the Netherlands, extending the maturity to 2022 and reducing the margin on the variable funding notes from 1.70% to 1.375%.

 

Market Risk and Risk Management Policies

 

The Group is exposed to the impact of interest rate changes and foreign currency fluctuations due to its investing and funding activities and its operations in different foreign currencies. Interest rate risk exposure is managed by achieving an appropriate balance of fixed and variable rate funding. As at 30 September 2017, the Group had fixed an average of 81% of its interest cost on borrowings over the following twelve months.

 

The Group's fixed rate debt comprised EUR200 million 5.125% senior notes due 2018, US$300 million 4.875% senior notes due 2018 (US$50 million swapped to floating), EUR400 million 4.125% senior notes due 2020, EUR500 million 3.25% senior notes due 2021, EUR500 million 2.375% senior notes due 2024, EUR250 million 2.75% senior notes due 2025 and US$292.3 million 7.50% senior debentures due 2025. In addition the Group had EUR349 million in interest rate swaps with maturity dates ranging from October 2018 to January 2021.

 

The Group's earnings are affected by changes in short-term interest rates as a result of its floating rate borrowings. If LIBOR/EURIBOR interest rates for these borrowings increase by one percent, the Group's interest expense would increase, and income before taxes would decrease, by approximately EUR8 million over the following twelve months. Interest income on the Group's cash balances would increase by approximately EUR6 million assuming a one percent increase in interest rates earned on such balances over the following twelve months.

 

The Group uses foreign currency borrowings, currency swaps, options and forward contracts in the management of its foreign currency exposures.

 

Condensed Consolidated Income Statement - Nine Months

 
                  9 months to 30-Sep-17                               9 months to 30-Sep-16 
                  Unaudited                                           Unaudited 
                  Pre-exceptional 2017  Exceptional 2017  Total 2017  Pre-exceptional 2016  Exceptional 2016  Total 2016 
                  EURm                    EURm                EURm          EURm                    EURm                EURm 
Revenue           6,354                 -                 6,354       6,099                 -                 6,099 
Cost of sales     (4,482)               -                 (4,482)     (4,257)               -                 (4,257) 
Gross profit      1,872                 -                 1,872       1,842                 -                 1,842 
Distribution      (497)                 -                 (497)       (476)                 -                 (476) 
costs 
Administrative    (801)                 -                 (801)       (757)                 -                 (757) 
expenses 
Operating         574                   -                 574         609                   -                 609 
profit 
Finance costs     (178)                 (2)               (180)       (160)                 -                 (160) 
Finance income    21                    -                 21          37                    12                49 
Share             -                     -                 -           1                     -                 1 
of associates' 
profit (after 
tax) 
Profit before     417                   (2)               415         487                   12                499 
income tax 
Income tax                                                (112)                                               (147) 
expense 
Profit for the                                            303                                                 352 
financial 
period 
Attributable 
to: 
Owners of the                                             299                                                 345 
parent 
Non-controlling                                           4                                                   7 
interests 
Profit for the                                            303                                                 352 
financial 
period 
Attributable 
to: 
Owners of the                                             299                                                 345 
parent 
Non-controlling                                           4                                                   7 
interests 
Profit for the                                            303                                                 352 
financial 
period 
Earnings per 
share 
Basic earnings                                            127.0                                               147.1 
per 
share - cent 
Diluted                                                   126.2                                               145.9 
earnings 
per share 
- cent 
 
 

Condensed Consolidated Income Statement - Third Quarter

 
                  3 months to 30-Sep-17                               3 months to 30-Sep-16 
                  Unaudited                                           Unaudited 
                  Pre-exceptional 2017  Exceptional 2017  Total 2017  Pre-exceptional 2016  Exceptional 2016  Total 2016 
                  EURm                    EURm                EURm          EURm                    EURm                EURm 
Revenue           2,121                 -                 2,121       2,050                 -                 2,050 
Cost of sales     (1,471)               -                 (1,471)     (1,428)               -                 (1,428) 
Gross profit      650                   -                 650         622                   -                 622 
Distribution      (165)                 -                 (165)       (162)                 -                 (162) 
costs 
Administrative    (269)                 -                 (269)       (241)                 -                 (241) 
expenses 
Operating         216                   -                 216         219                   -                 219 
profit 
Finance costs     (48)                  -                 (48)        (43)                  -                 (43) 
Finance income    2                     -                 2           11                    -                 11 
Profit before     170                   -                 170         187                   -                 187 
income tax 
Income tax                                                (42)                                                (50) 
expense 
Profit for the                                            128                                                 137 
financial 
period 
Attributable 
to: 
Owners of the                                             124                                                 132 
parent 
Non-controlling                                           4                                                   5 
interests 
Profit for the                                            128                                                 137 
financial 
period 
Attributable 
to: 
Owners of the                                             124                                                 132 
parent 
Non-controlling                                           4                                                   5 
interests 
Profit for the                                            128                                                 137 
financial 
period 
Earnings per 
share 
Basic earnings                                            52.7                                                56.4 
per 
share - cent 
Diluted                                                   52.4                                                55.9 
earnings 
per share 
- cent 
 
 

Condensed Consolidated Statement of Comprehensive Income - Nine Months

 
                                            9 months to  9 months to 
                                            30-Sep-17    30-Sep-16 
                                            Unaudited    Unaudited 
                                            EURm           EURm 
Profit for the financial period             303          352 
Other comprehensive income: 
Items that may be subsequently 
reclassified to profit or loss 
Foreign currency translation adjustments: 
- Arising in the period                     (158)        (123) 
Effective portion of changes in fair 
value of cash flow hedges: 
- Movement out of reserve                   6            5 
- New fair value adjustments into reserve   (3)          (7) 
                                            (155)        (125) 
Items which will not be subsequently 
reclassified to profit or  loss 
Defined benefit pension plans: 
- Actuarial loss                            (7)          (191) 
- Movement in deferred tax                  1            28 
                                            (6)          (163) 
Total other comprehensive expense           (161)        (288) 
Total comprehensive income                  142          64 
for the financial period 
Attributable to: 
Owners of the parent                        160          56 
Non-controlling interests                   (18)         8 
Total comprehensive income                  142          64 
for the financial period 
 
 

Condensed Consolidated Statement of Comprehensive Income - Third Quarter

 
                                            3 months to  3 months to 
                                            30-Sep-17    30-Sep-16 
                                            Unaudited    Unaudited 
                                            EURm           EURm 
Profit for the financial period             128          137 
Other comprehensive income: 
Items that may be subsequently 
reclassified to profit or loss 
Foreign currency translation adjustments: 
- Arising in the period                     (29)         (25) 
Effective portion of changes in fair 
value of cash flow hedges: 
- Movement out of reserve                   3            2 
- New fair value adjustments into reserve   (3)          (3) 
                                            (29)         (26) 
Items which will not be subsequently 
reclassified to profit or  loss 
Defined benefit pension plans: 
- Actuarial loss                            (23)         (62) 
- Movement in deferred tax                  4            7 
                                            (19)         (55) 
Total other comprehensive expense           (48)         (81) 
Total comprehensive income                  80           56 
for the financial period 
Attributable to: 
Owners of the parent                        77           51 
Non-controlling interests                   3            5 
Total comprehensive income                  80           56 
for the financial period 
 
 

Condensed Consolidated Balance Sheet

 
                                         30-Sep-17  30-Sep-16  31-Dec-16 
                                         Unaudited  Unaudited  Audited 
                                         EURm         EURm         EURm 
ASSETS 
Non-current assets 
Property, plant and equipment            3,194      3,129      3,261 
Goodwill and intangible assets           2,414      2,468      2,478 
Available-for-sale financial assets      21         21         21 
Investment in associates                 15         17         17 
Biological assets                        96         95         114 
Trade and other receivables              26         34         29 
Derivative financial instruments         -          28         42 
Deferred income tax assets               191        200        190 
                                         5,957      5,992      6,152 
Current assets 
Inventories                              791        755        779 
Biological assets                        12         10         10 
Trade and other receivables              1,628      1,518      1,470 
Derivative financial instruments         18         11         10 
Restricted cash                          8          8          7 
Cash and cash equivalents                589        479        436 
                                         3,046      2,781      2,712 
Total assets                             9,003      8,773      8,864 
EQUITY 
Capital and reserves attributable 
to owners of the parent 
Equity share capital                     -          -          - 
Share premium                            1,984      1,983      1,983 
Other reserves                           (639)      (547)      (507) 
Retained earnings                        1,083      756        853 
Total equity attributable                2,428      2,192      2,329 
to owners of the parent 
Non-controlling interests                147        164        174 
Total equity                             2,575      2,356      2,503 
LIABILITIES 
Non-current liabilities 
Borrowings                               2,765      3,295      3,247 
Employee benefits                        858        941        884 
Derivative financial instruments         24         27         12 
Deferred income tax liabilities          144        167        183 
Non-current income tax liabilities       31         32         30 
Provisions for liabilities and charges   58         49         69 
Capital grants                           17         14         14 
Other payables                           13         13         13 
                                         3,910      4,538      4,452 
Current liabilities 
Borrowings                               671        145        137 
Trade and other payables                 1,759      1,673      1,705 
Current income tax liabilities           45         29         21 
Derivative financial instruments         20         12         27 
Provisions for liabilities and charges   23         20         19 
                                         2,518      1,879      1,909 
Total liabilities                        6,428      6,417      6,361 
Total equity and liabilities             9,003      8,773      8,864 
 
 

Condensed Consolidated Statement of Changes in Equity

 
                   Attributable to owners 
                   of the parent 
                   Equity share            Share premium  Other reserves  Retained earnings  Total  Non-controlling  Total equity 
                   capital                                                                          interests 
                   EURm                      EURm             EURm              EURm                 EURm     EURm               EURm 
Unaudited 
At 1 January       -                       1,983          (507)           853                2,329  174              2,503 
2017 
Profit for the     -                       -              -               299                299    4                303 
financial 
period 
Other 
comprehensive 
income 
Foreign            -                       -              (136)           -                  (136)  (22)             (158) 
currency 
translation 
adjustments 
Defined benefit    -                       -              -               (6)                (6)    -                (6) 
pension plans 
Effective          -                       -              3               -                  3      -                3 
portion 
of changes in 
fair value 
of cash 
flow hedges 
Total              -                       -              (133)           293                160    (18)             142 
comprehensive 
(expense)/income 
for 
the financial 
period 
Shares issued      -                       1              -               -                  1      -                1 
Purchase           -                       -              -               -                  -      (15)             (15) 
of 
non-controlling 
interests 
Hyperinflation     -                       -              -               73                 73     9                82 
adjustment 
Dividends paid     -                       -              -               (136)              (136)  (3)              (139) 
Share-based        -                       -              12              -                  12     -                12 
payment 
Shares acquired    -                       -              (11)            -                  (11)   -                (11) 
by 
SKG Employee 
Trust 
At 30 September    -                       1,984          (639)           1,083              2,428  147              2,575 
2017 
Unaudited 
At 1 January       -                       1,983          (425)           619                2,177  151              2,328 
2016 
Profit for the     -                       -              -               345                345    7                352 
financial 
period 
Other 
comprehensive 
income 
Foreign            -                       -              (124)           -                  (124)  1                (123) 
currency 
translation 
adjustments 
Defined benefit    -                       -              -               (163)              (163)  -                (163) 
pension plans 
Effective          -                       -              (2)             -                  (2)    -                (2) 
portion 
of changes in 
fair value 
of cash 
flow hedges 
Total              -                       -              (126)           182                56     8                64 
comprehensive 
(expense)/income 
for 
the financial 
period 
Hyperinflation     -                       -              -               68                 68     8                76 
adjustment 
Dividends paid     -                       -              -               (113)              (113)  (3)              (116) 
Share-based        -                       -              14              -                  14     -                14 
payment 
Shares acquired    -                       -              (10)            -                  (10)   -                (10) 
by 
SKG Employee 
Trust 
At 30 September    -                       1,983          (547)           756                2,192  164              2,356 
2016 
 
 

An analysis of the movements in Other reserves is provided in Note 13.

 

Condensed Consolidated Statement of Cash Flows

 
                                                   9 months to  9 months to 
                                                   30-Sep-17    30-Sep-16 
                                                   Unaudited    Unaudited 
                                                   EURm           EURm 
Cash flows from operating activities 
Profit before income tax                           415          499 
Net finance costs                                  159          111 
Depreciation charge                                265          259 
Amortisation of intangible assets                  30           25 
Amortisation of capital grants                     (1)          (1) 
Equity settled share-based payment expense         12           14 
Profit on sale/purchase of assets and businesses   (7)          (11) 
Share of associates' profit (after tax)            -            (1) 
Net movement in working capital                    (119)        (109) 
Change in biological assets                        7            9 
Change in employee benefits and other provisions   (47)         (72) 
Other (primarily hyperinflation adjustments)       11           12 
Cash generated from operations                     725          735 
Interest paid                                      (122)        (113) 
Income taxes paid: 
Irish corporation tax paid                         (6)          (22) 
Overseas corporation tax (net                      (101)        (95) 
of tax refunds) paid 
Net cash inflow from operating activities          496          505 
Cash flows from investing activities 
Interest received                                  2            3 
Business disposals                                 4            - 
Additions to property, plant and                   (311)        (311) 
equipment and biological assets 
Additions to intangible assets                     (7)          (9) 
Receipt of capital grants                          4            2 
Disposal of available-for-sale financial assets    1            13 
Increase in restricted cash                        (1)          (4) 
Disposal of property, plant and equipment          12           8 
Dividends received from associates                 1            1 
Purchase of subsidiaries and                       (40)         (32) 
non-controlling interests 
Deferred consideration paid                        (3)          (8) 
Net cash outflow from investing activities         (338)        (337) 
Cash flows from financing activities 
Proceeds from issue of new ordinary shares         1            - 
Proceeds from bond issue                           500          - 
Proceeds from other debt issues                    -            250 
Purchase of own shares                             (11)         (10) 
Increase in other interest-bearing borrowings      12           33 
Repayment of finance leases                        (2)          (3) 
Repayment of borrowings                            (366)        (169) 
Derivative termination payments                    (1)          - 
Deferred debt issue costs paid                     (10)         (2) 
Dividends paid to shareholders                     (136)        (113) 
Dividends paid to non-controlling interests        (3)          (3) 
Net cash outflow from financing activities         (16)         (17) 
Increase in cash and cash equivalents              142          151 
Reconciliation of opening to closing 
cash and cash equivalents 
Cash and cash equivalents at 1 January             402          263 
Currency translation adjustment                    19           22 
Increase in cash and cash equivalents              142          151 
Cash and cash equivalents at 30 September          563          436 
 
 

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 domiciled in Ireland. The address of its registered office is Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland.

 

2.Basis of Preparation and Accounting Policies

 

The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB') as adopted by the European Union ('EU'); and those parts of the Companies Act 2014 applicable to companies reporting under IFRS. The financial information presented in this report has not been prepared in accordance with International Accounting Standard 34 - 'Interim Financial Reporting' ('IAS 34').

 

The financial information presented in this report has been prepared in accordance with the Group's accounting policies. Full details of the accounting policies adopted by the Group are contained in the financial statements included in the Group's annual report for the year ended 31 December 2016 which is available on the Group's website; smurfitkappa.com. The accounting policies and methods of computation and presentation adopted in the preparation of the condensed consolidated interim financial statements are consistent with those described and applied in the annual report for the financial year ended 31 December 2016. There are no new IFRS effective from 1 January 2017 which have a material effect on the condensed consolidated interim financial information included in this report.

 

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 condensed consolidated interim financial statements presented do not constitute full statutory accounts. Full statutory accounts for the year ended 31 December 2016 have been filed with the Irish Registrar of Companies. 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 EBITDA(1)

 
                  9 months to 30-Sep-17        9 months to 30-Sep-16 
                  Europe  The Americas  Total  Europe  The Americas  Total 
                  EURm      EURm            EURm     EURm      EURm            EURm 
Revenue and 
results 
Revenue           4,774   1,580         6,354  4,639   1,460         6,099 
EBITDA            686     225           911    700     241           941 
Unallocated                             (22)                         (25) 
centre 
costs 
Share-based                             (13)                         (14) 
payment 
expense 
Depreciation                            (272)                        (268) 
and 
depletion (net) 
Amortisation                            (30)                         (25) 
Finance costs                           (180)                        (160) 
Finance income                          21                           49 
Share                                   -                            1 
of associates' 
profit (after 
tax) 
Profit before                           415                          499 
income tax 
Income tax                              (112)                        (147) 
expense 
Profit for the                          303                          352 
financial 
period 
 
 
                 3 months to 30-Sep-17        3 months to 30-Sep-16 
                 Europe  The Americas  Total  Europe  The Americas  Total 
                 EURm      EURm            EURm     EURm      EURm            EURm 
Revenue and 
results 
Revenue          1,610   511           2,121  1,537   513           2,050 
EBITDA           247     79            326    240     86            326 
Unallocated                            (6)                          (3) 
centre 
costs 
Share-based                            (4)                          (4) 
payment 
expense 
Depreciation                           (90)                         (91) 
and 
depletion 
(net) 
Amortisation                           (10)                         (9) 
Finance costs                          (48)                         (43) 
Finance income                         2                            11 
Profit before                          170                          187 
income tax 
Income tax                             (42)                         (50) 
expense 
Profit for the                         128                          137 
financial 
period 
 
 

(1) EBITDA is defined within Alternative Performance Measures set out in Supplementary Financial Information.

 

4.Exceptional Items

 
                                                  9 months to  9 months to 
The following items are regarded                  30-Sep-17    30-Sep-16 
as exceptional in nature: 
                                                  EURm           EURm 
Exceptional finance costs                         2            - 
Exceptional finance income                        -            (12) 
Exceptional items included in net finance costs   2            (12) 
 
 

Exceptional finance costs of EUR2 million arose in the first quarter of 2017 and represented the accelerated amortisation of the issue costs relating to the debt within our senior credit facility which was paid down with the proceeds of January's EUR500 million bond issue.

 

The exceptional finance income in 2016 related to the gain of EUR12 million on the sale of our shareholding in the Swedish company, IL Recycling, in the second quarter.

 

5.Finance Costs and Income

 
                                                9 months to  9 months to 
                                                30-Sep-17    30-Sep-16 
                                                EURm           EURm 
Finance costs: 
Interest payable on bank loans and overdrafts   40           41 
Interest payable on other borrowings            88           79 
Exceptional finance costs associated            2            - 
with debt restructuring 
Unwinding discount element of provision         1            1 
Foreign currency translation loss on debt       21           9 
Fair value loss on derivatives                  -            13 
not designated as hedges 
Net interest cost on net pension liability      16           17 
Net monetary loss - hyperinflation              12           - 
Total finance costs                             180          160 
Finance income: 
Other interest receivable                       (2)          (3) 
Foreign currency translation gain on debt       (10)         (20) 
Exceptional gain on sale of investment          -            (12) 
Fair value gain on derivatives                  (9)          (2) 
not designated as hedges 
Net monetary gain - hyperinflation              -            (12) 
Total finance income                            (21)         (49) 
Net finance costs                               159          111 
 
 

6.Income Tax Expense

 

Income tax expense recognised in the Condensed Consolidated Income Statement

 
                                      9 months to  9 months to 
                                      30-Sep-17    30-Sep-16 
                                      EURm           EURm 
Current tax: 
Europe                                101          80 
The Americas                          40           51 
                                      141          131 
Deferred tax                          (29)         16 
Income tax expense                    112          147 
Current tax is analysed as follows: 
Ireland                               12           12 
Foreign                               129          119 
                                      141          131 
 
 

Income tax recognised in the Condensed Consolidated Statement of Comprehensive Income

 
                                   9 months to  9 months to 
                                   30-Sep-17    30-Sep-16 
                                   EURm           EURm 
Arising on defined benefit plans   (1)          (28) 
 
 

The income tax expense in 2017 is EUR35 million lower than in the comparable period in 2016, primarily due to the tax effects of lower earnings and a deferred tax credit of EUR29 million in 2017 compared to a deferred tax charge of EUR16 million in 2016.

 

The current tax expense has increased by EUR10 million compared to the prior period. The Group's historic tax losses have now been fully utilised in a number countries and the impact of this, together with other timing items, is included in the increased current tax expense in 2017.

 

7.Employee Benefits - Defined Benefit Plans

 

The table below sets out the components of the defined benefit cost for the period:

 
                                             9 months to  9 months to 
                                             30-Sep-17    30-Sep-16 
                                             EURm           EURm 
Current service cost                         20           23 
Past service cost                            -            (21) 
Gain on settlement                           -            (5) 
Actuarial loss arising on other              -            1 
long-term employee benefits 
Net interest cost on net pension liability   14           16 
Defined benefit cost                         34           14 
 
 

Included in cost of sales, distribution costs and administrative expenses is a defined benefit cost of EUR20 million (2016: EUR2 million gain). Net interest cost on net pension liability of EUR14 million (2016: EUR16 million) is included in finance costs in the Condensed Consolidated Income Statement.

 

The amounts recognised in the Condensed Consolidated Balance Sheet were as follows:

 
                                               30-Sep-17  31-Dec-16 
                                               EURm         EURm 
Present value of funded or partially           (2,240)    (2,320) 
funded obligations 
Fair value of plan assets                      1,888      1,953 
Deficit in funded or partially funded plans    (352)      (367) 
Present value of wholly unfunded obligations   (506)      (517) 
Net pension liability                          (858)      (884) 
 
 

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.

 
                                      9 months to  9 months to 
                                      30-Sep-17    30-Sep-16 
Profit attributable to owners         299          345 
of the parent (EUR million) 
Weighted average number of ordinary   235          234 
shares in issue (million) 
Basic earnings per share (cent)       127.0        147.1 
 
 

Diluted

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. These comprise convertible shares issued under the Share Incentive Plan, which were based on performance and the passage of time, and deferred shares held in trust issued under the Deferred Annual Bonus Plan, which are based on the passage of time.

 
                                      9 months to  9 months to 
                                      30-Sep-17    30-Sep-16 
Profit attributable to owners         299          345 
of the parent (EUR million) 
Weighted average number of ordinary   235          234 
shares in issue (million) 
Potential dilutive ordinary           2            2 
shares assumed (million) 
Diluted weighted average ordinary     237          236 
shares (million) 
Diluted earnings per share (cent)     126.2        145.9 
 
 

Pre-exceptional

 
                                              9 months to  9 months to 
                                              30-Sep-17    30-Sep-16 
Profit attributable to owners                 299          345 
of the parent (EUR million) 
Exceptional items included in profit before   2            (12) 
income tax (Note 4) (EUR  million) 
Pre-exceptional profit attributable to        301          333 
owners of the parent (EUR  million) 
Weighted average number of ordinary           235          234 
shares in issue (million) 
Pre-exceptional basic earnings                127.7        142.0 
per share (cent) 
Diluted weighted average ordinary             237          236 
shares (million) 
Pre-exceptional diluted earnings              126.9        140.8 
per share (cent) 
 
 

9.Dividends

 

During the year, the final dividend for 2016 of 57.6 cent per share was paid to the holders of ordinary shares. In October, an interim dividend for 2017 of 23.1 cent per share was paid to the holders of ordinary shares.

 

10.Property, Plant and Equipment

 
                          Land and buildings  Plant and equipment  Total 
                          EURm                  EURm                   EURm 
Nine months ended 30 
September 2017 
Opening net book amount   1,004               2,257                3,261 
Reclassifications         36                  (37)                 (1) 
Additions                 1                   245                  246 
Acquisitions              28                  6                    34 
Depreciation charge       (36)                (229)                (265) 
Retirements and           (3)                 (1)                  (4) 
disposals 
Hyperinflation            24                  19                   43 
adjustment 
Foreign currency          (42)                (78)                 (120) 
translation 
adjustment 
At 30 September 2017      1,012               2,182                3,194 
Year ended 31 December 
2016 
Opening net book amount   988                 2,115                3,103 
Reclassifications         42                  (43)                 (1) 
Additions                 11                  465                  476 
Acquisitions              10                  56                   66 
Depreciation charge       (48)                (309)                (357) 
Retirements and           (1)                 (11)                 (12) 
disposals 
Hyperinflation            25                  21                   46 
adjustment 
Foreign currency          (23)                (37)                 (60) 
translation 
adjustment 
At 31 December 2016       1,004               2,257                3,261 
 
 

11.Net Movement in Working Capital

 
                                        9 months to  9 months to 
                                        30-Sep-17    30-Sep-16 
                                        EURm           EURm 
Change in inventories                   (58)         (42) 
Change in trade and other receivables   (194)        (103) 
Change in trade and other payables      133          36 
Net movement in working capital         (119)        (109) 
 
 

12.Analysis of Net Debt

 
                                                    30-Sep-17  31-Dec-16 
                                                    EURm         EURm 
Senior credit facility: 
Revolving credit facility(1)- interest at           2          1 
relevant  interbank rate + 1.35%(6) 
Term loan facility(2)- interest at relevant         486        741 
interbank  rate + 1.60%(6) 
US$292.3 million 7.50% senior debentures            254        279 
due 2025 (including accrued  interest) 
Bank loans and overdrafts                           149        167 
Cash                                                (597)      (443) 
2019 receivables securitisation                     184        182 
variable funding notes 
2022 receivables securitisation variable funding    4          114 
notes (including  accrued interest)(3) 
2018 senior notes (including accrued interest)(4)   453        488 
EUR400 million 4.125% senior notes due                400        404 
2020 (including accrued  interest) 
EUR250 million senior floating rate notes due         250        249 
2020 (including accrued  interest)(5) 
EUR500 million 3.25% senior notes due                 501        496 
2021 (including accrued interest) 
EUR500 million 2.375% senior notes due                494        - 
2024 (including accrued  interest) 
EUR250 million 2.75% senior notes due                 248        249 
2025 (including accrued interest) 
Net debt before finance leases                      2,828      2,927 
Finance leases                                      11         14 
Net debt including leases                           2,839      2,941 
 
 

(1) Revolving credit facility ('RCF') of EUR845 million (available under the senior credit facility) to be repaid in 2020. The RCF was increased by EUR220 million in February 2017. (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 - EUR5 million.

 

(2) Term loan facility due to be repaid in certain instalments from 2018 to 2020. In January and February 2017, the Group prepaid EUR260 million of drawings under the term loan facility.

 

(3) In May 2017, the EUR175 million receivables securitisation programme was amended and restated, extending the maturity to 2022 and reducing the variable funding notes margin from 1.70% to 1.375%.

 

(4) EUR200 million 5.125% senior notes due 2018 and US$300 million 4.875% senior notes due 2018.

 

(5) Interest at EURIBOR + 3.5%.

 

(6) The margins applicable under the senior credit facility are determined as follows:

 
Net debt/EBITDA ratio                   RCF    Term Loan Facility 
Greater than 3.0 : 1                    1.85%  2.10% 
3.0 : 1 or less but more than 2.5 : 1   1.35%  1.60% 
2.5 : 1 or less but more than 2.0 : 1   1.10%  1.35% 
2.0 : 1 or less                         0.85%  1.10% 
 
 

13.Other Reserves

 

Other reserves included in the Condensed Consolidated Statement of Changes in Equity are comprised of the following:

 
                   Reverse      Cash flow        Foreign      Share-   Own shares  Available-for-sale 
                   acquisition  hedging reserve  currency     based                reserve             Total 
                   reserve                       translation  payment 
                                                 reserve      reserve 
                   EURm           EURm               EURm           EURm       EURm          EURm                  EURm 
At 1 January       575          (22)             (1,193)      165      (33)        1                   (507) 
2017 
Other 
comprehensive 
income 
Foreign            -            -                (136)        -        -           -                   (136) 
currency 
translation 
adjustments 
Effective          -            3                -            -        -           -                   3 
portion 
of changes in 
fair value 
of cash 
flow hedges 
Total              -            3                (136)        -        -           -                   (133) 
other 
comprehensive 
income/(expense) 
Share-based        -            -                -            12       -           -                   12 
payment 
Shares             -            -                -            -        (11)        -                   (11) 
acquired 
by 
SKG Employee 
Trust 
Shares             -            -                -            (11)     11          -                   - 
distributed 
by 
SKG Employee 
Trust 
At                 575          (19)             (1,329)      166      (33)        1                   (639) 
30 September 
2017 
At 1 January       575          (22)             (1,109)      168      (38)        1                   (425) 
2016 
Other 
comprehensive 
income 
Foreign            -            -                (124)        -        -           -                   (124) 
currency 
translation 
adjustments 
Effective          -            (2)              -            -        -           -                   (2) 
portion 
of changes in 
fair value 
of cash 
flow hedges 
Total              -            (2)              (124)        -        -           -                   (126) 
other 
comprehensive 
expense 
Share-based        -            -                -            14       -           -                   14 
payment 
Shares             -            -                -            -        (10)        -                   (10) 
acquired 
by 
SKG Employee 
Trust 
Shares             -            -                -            (15)     15          -                   - 
distributed 
by 
SKG Employee 
Trust 
At                 575          (24)             (1,233)      167      (33)        1                   (547) 
30 September 
2016 
 
 

14.Venezuela

 

Hyperinflation

 

As discussed more fully in the 2016 annual report, Venezuela became hyperinflationary during 2009 when its cumulative inflation rate for the past three years exceeded 100%. As a result, the Group applied the hyperinflationary accounting requirements of IAS 29 - Financial Reporting in Hyperinflationary Economies to its Venezuelan operations at 31 December 2009 and for all subsequent accounting periods.

 

In 2017 and 2016 management engaged an independent expert to determine an estimate of the annual inflation rate. The level of and movement in the price index at September 2017 and 2016 are as follows:

 
                      30-Sep-17  30-Sep-16 
Index at period-end   57,780.7   10,179.0 
Movement in period    418.0%     295.3% 
 
 

As a result of the entries recorded in respect of hyperinflationary accounting under IFRS, the Condensed Consolidated Income Statement is impacted as follows: Revenue EUR25 million decrease (2016: EUR24 million increase), EBITDA EUR24 million decrease (2016: EUR4 million decrease) and profit after taxation EUR27 million decrease (2016: EUR12 million decrease). In 2017, a net monetary loss of EUR12 million (2016: EUR12 million net monetary gain) was recorded in the Condensed Consolidated Income Statement. The impact on our net assets and our total equity is an increase of EUR150 million (2016: EUR70 million increase).

 

Exchange Control

 

The Group consolidates its Venezuelan operations at the variable DICOM rate. The Group believes that DICOM is the most appropriate rate for accounting and consolidation, as it believes that this is the rate at which the Group extracts economic benefit. On this basis, in accordance with IFRS, the financial statements of the Group's operations in Venezuela were translated at 30 September 2017 using the DICOM rate of VEF 3,345.00 per US dollar and the closing euro/US dollar rate of 1 euro = US$1.1806.

 

Control

 

The nationalisation of foreign owned companies or assets by the Venezuelan government remains a risk. Market value compensation is either negotiated or arbitrated under applicable laws or treaties in these cases. However, the amount and timing of such compensation is necessarily uncertain.

 

The Group continues to control operations in Venezuela and, as a result, continues to consolidate all of the results and net assets of these operations at the period end in accordance with the requirements of IFRS 10.

 

In 2017, the Group's operations in Venezuela represented approximately 2% (2016: 2%) of its EBITDA, 2% (2016: 2%) of its total assets and 3% (2016: 4%) of its net assets. Cumulative foreign translation losses arising on its net investment in these operations amounting to EUR1,081 million (2016: EUR988 million) are included in the foreign currency translation reserve.

 

Supplementary Financial Information

 

Alternative Performance Measures

 

Certain financial measures set out in this report are not defined under International Financial Reporting Standards ('IFRS'). An explanation for the use of these Alternative Performance Measures ('APMs') is set out within Financial Key Performance Indicators on pages 40-42 of the Group's 2016 annual report. The key APMs of the Group are set out below.

 
APM                                Description 
EBITDA                             Earnings before exceptional items, 
                                   share-based payment expense, 
                                   share of associates' profit 
                                   (after tax), net 
                                   finance costs, income  tax expense, 
                                   depreciation and depletion 
                                   (net) and intangible assets 
                                   amortisation. 
                                   EBITDA 
EBITDA Margin %                    x 100 
                                   Revenue 
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 
                                   x  100 
                                   Weighted average number of 
                                   ordinary shares in issue 
Return on Capital Employed %       Last twelve months ('LTM') 
                                   pre-exceptional 
                                   operating 
                                   profit plus share of associates' 
                                   profit (after tax) 
                                   x  100 
                                   Average capital employed 
                                   (where capital 
                                   employed is the average of 
                                   total equity and net debt at the 
                                   beginning and end of the LTM) 
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 
                                   Financial Statements. 
Net Debt                           Net debt is comprised of 
                                   borrowings net of cash 
                                   and cash  equivalents 
                                   and restricted cash. 
Net Debt to EBITDA (LTM) times     Net debtEBITDA (LTM) 
 
 
Reconciliation of 
Profit to EBITDA 
                      3 months to  3 months to  9 months to  9 months to 
                      30-Sep-17    30-Sep-16    30-Sep-17    30-Sep-16 
                      EURm           EURm           EURm           EURm 
Profit for the        128          137          303          352 
financial 
period 
Income tax expense    42           50           112          147 
Share                 -            -            -            (1) 
of associates' 
profit (after tax) 
Net finance costs     46           32           159          111 
(after 
exceptional items) 
Share-based payment   4            4            13           14 
expense 
Depreciation,         100          100          302          293 
depletion 
(net) 
and amortisation 
EBITDA                320          323          889          916 
 
 

Return on Capital Employed

 
                                              Q3, 2017  Q3, 2016  Q2, 2017 
                                              EURm        EURm        EURm 
Pre-exceptional operating profit plus share   795       838       799 
of associates' profit  (after tax) (LTM) 
Total equity - current period end             2,575     2,356     2,488 
Net debt - current period end                 2,839     2,953     2,985 
Capital employed - current period end         5,414     5,309     5,473 
Total equity - prior period end               2,356     2,181     2,252 
Net debt - prior period end                   2,953     2,953     3,121 
Capital employed - prior period end           5,309     5,134     5,373 
Average capital employed                      5,361     5,221     5,423 
Return on capital employed                    14.8%     16.1%     14.7% 
 
 

Supplementary Historical Financial Information

 
EURm            Q3, 2016  Q4, 2016  FY, 2016  Q1, 2017  Q2, 2017  Q3, 2017 
Group and     3,424     3,441     13,521    3,573     3,590     3,667 
third 
party 
revenue 
Third         2,050     2,060     8,159     2,129     2,104     2,121 
party 
revenue 
EBITDA        323       320       1,236     278       292       320 
EBITDA        15.7%     15.5%     15.1%     13.0%     13.9%     15.1% 
margin 
Operating     219       206       815       168       190       216 
profit 
Profit        187       155       654       109       136       170 
before 
income tax 
Free cash     164       104       303       16        30        152 
flow 
Basic         56.4      42.3      189.4     31.5      42.8      52.7 
earnings 
per 
share - 
cent 
Weighted      234       235       235       235       235       235 
average 
number 
of shares 
used 
in 
EPS 
calculation 
(million) 
Net debt      2,953     2,941     2,941     2,931     2,985     2,839 
EBITDA        1,242     1,236     1,236     1,233     1,212     1,209 
(LTM) 
Net debt      2.38      2.38      2.38      2.38      2.46      2.35 
to 
EBITDA 
(LTM) 
 
 

LEI: 635400CPLP8H5ITDVT56Classification: Additional regulated information required to be disclosed under the laws of a Member State

 
 

View source version on businesswire.com: http://www.businesswire.com/news/home/20171101005487/en/

 
This information is provided by Business Wire 
 
 

(END) Dow Jones Newswires

November 01, 2017 03:00 ET (07:00 GMT)

1 Year Smurfit Kappa Chart

1 Year Smurfit Kappa Chart

1 Month Smurfit Kappa Chart

1 Month Smurfit Kappa Chart

Your Recent History

Delayed Upgrade Clock