TIDMSKG TIDMSK3
10 February: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the full year ending 31 December
2020.
2020 Full Year | Key Financial Performance Measures
FY FY H2 H2 H1
EURm 2020 2019 Change 2020 2019 Change 2020 Change
Revenue EUR8,530 EUR9,048 (6%) EUR4,327 EUR4,426 (2%) EUR4,203 3%
EBITDA (1) EUR1,510 EUR1,650 (9%) EUR775 EUR803 (4%) EUR735 5%
EBITDA Margin
(1) 17.7% 18.2% 17.9% 18.2% 17.5%
Operating Profit
before
Exceptional
Items (1) EUR922 EUR1,062 (13%) EUR472 EUR504 (6%) EUR450 5%
Profit before
Income Tax EUR748 EUR677 10% EUR365 EUR221 65% EUR383 (5%)
Basic EPS (cent) 227.9 201.6 13% 111.1 61.1 82% 116.9 (5%)
Pre-exceptional
Basic EPS
(cent) (1) 236.9 274.8 (14%) 120.0 133.2 (10%) 116.9 3%
Free Cash Flow
(1) EUR675 EUR547 23% EUR437 EUR388 12% EUR238 83%
Return on
Capital
Employed (1) 14.6% 17.0% 14.8%
Net Debt (1) EUR2,375 EUR3,483 (32%) EUR3,257 (27%)
Net Debt to 1.6x 2.1x 2.1x
EBITDA (LTM)
(1)
Key Points
-- EBITDA of EUR1,510 million with an EBITDA margin of 17.7%
-- Strong Free Cash Flow of EUR675 million
-- ROCE of 14.6%
-- Increased sustainability targets including net zero CO2 emissions by 2050
-- Successful capital raise of EUR660 million to pursue attractive growth
opportunities
-- Final dividend increased by 8% to 87.4 cent per share
Performance Review and Outlook
Tony Smurfit, Group CEO, commented:
"Smurfit Kappa is pleased to report an EBITDA of EUR1,510
million for the year 2020, ahead of our stated guidance. Both
Europe and the Americas had strong demand in the fourth quarter
offsetting significantly higher input costs, predominantly in
recovered fibre. In what has been the most challenging year in
recent memory I would like to acknowledge the tremendous efforts by
all our 46,000 employees, and thank our over 65,000 customers for
their continued support.
"Over a number of years SKG has transformed its business through
disciplined capital allocation and a focus on innovation, further
demonstrated today by our strong performance with an EBITDA of
EUR1,510 million, an EBITDA margin of 17.7%, record free cash flow
of EUR675 million and a ROCE of 14.6%.
"In November, we successfully completed a share placing to
capitalise on structural drivers of growth; to invest in
sustainability; and to increase our operating efficiencies. SKG is
now increasingly well positioned to take advantage of these
opportunities, from a position of enhanced financial strength.
"Our European business delivered a very strong performance with
an EBITDA of EUR1,180 million and EBITDA margin of 17.8%. Demand
accelerated in the second half, with a particularly strong fourth
quarter driven by increased demand across our customer base.
"I am equally pleased with the performance in our Americas
region which delivered an EBITDA of EUR372 million and a record
EBITDA margin of 19.7%. This performance is as a result of our very
strong market positions, our successful acquisitions and the
high-return investments made in the region in recent years.
"SKG recognises the importance of dividends to shareholders and
we were pleased to meet all our dividend commitments during 2020.
In addition, we have repaid all specific government support schemes
related to the pandemic. As noted in our third quarter trading
update we initiated a programme during the fourth quarter to
further increase our operating efficiency and effectiveness through
new ways of working. We have taken an exceptional charge of EUR35
million in relation to this and expect to realise the benefits
within two years.
"In recognition of our employees' response to the pandemic, SKG
made a unique reward in the fourth quarter to every employee.
Furthermore, across our 35 countries, the Group has made donations
to charities, research and medical institutions and frontline
health professionals, in addition to our well established community
engagement programmes.
"Our product, paper-based packaging, is renewable, recyclable
and biodegradable and plays a fundamental part in addressing our
customers' sustainability challenges. In SKG, we produce our
products in an ever more sustainable manner and we have, again,
reset our targets in this area. We believe that all industries must
do their part in contributing to a better world and we remain
committed to using the best available technology to both help us
reduce our impact on the planet and to help our customers meet
their ambitions.
"Driven by strong secular trends such as e-commerce and
sustainability, the outlook for our industry is increasingly
positive. SKG has positioned itself as the leading company within
the industry, with great people, providing our customers with
unique packaging solutions centred around innovation, efficiency
and sustainability. The inherent strength of our business together
with the recent capital raise provides us with an unrivalled
platform to accelerate our vision and the Group's next phase of
growth and development.
"While there remains some uncertainty on the impact and duration
of COVID-19, the year has started well with the continuation of the
demand trends seen during the last quarter. Reflecting the Board's
confidence in this performance and prospects for the business
looking forward, the Board is proposing an increase in the final
dividend of 8% to 87.4 cent per share."
About Smurfit Kappa
Smurfit Kappa, a FTSE 100 company, is one of the leading
providers of paper-based packaging solutions in the world, with
approximately 46,000 employees in over 350 production sites across
35 countries and with revenue of EUR8.5 billion in 2020. We are
located in 23 countries in Europe, and 12 in the Americas. We are
the only large-scale pan--regional player in Latin America.
With our proactive 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-based packaging solutions, which is constantly updated
with our market-leading innovations. This is enhanced through the
benefits of our integration, with optimal paper design, logistics,
timeliness of service, and our packaging plants sourcing most of
their raw materials from our own paper mills.
Our products, which are 100% renewable and produced sustainably,
improve the environmental footprint of our customers.
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Forward Looking Statements
This Announcement contains certain statements that are
forward-looking. Forward-looking statements are prospective in
nature and are not based on historical facts, but rather on current
expectations of the Group about future events, and involve risks
and uncertainties because they relate to events and depend on
circumstances that will occur in the future. Although the Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to be correct. There
are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied
by the forward-looking statements. Forward-looking statements
should therefore be construed in the light of such factors. You are
cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date made. Other than in
accordance with legal or regulatory obligations, the Group is not
under any obligation, and expressly disclaims any intention or
obligation, to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
The forward-looking statements in this document do not constitute
reports or statements published in compliance with any of
Regulations 6 to 8 of the Transparency (Directive 2004/109/EC)
Regulations 2007.
Contacts
Garrett Quinn Melanie Farrell
Smurfit Kappa FTI Consulting
T: +353 1 202 71 80 T: +353 1 765 08 00
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2020 Full Year | Performance Overview
The Group reported EBITDA for the full year of EUR1,510 million,
down 9% on 2019. The Group EBITDA margin was 17.7%, down from 18.2%
in 2019. The result reflects the fall in box prices and the impact
of the COVID-19 pandemic, mitigated by the resilience of the
Group's integrated model, the benefits of our customer-focused,
industry-leading innovation and sustainability initiatives,
including the launch of new product portfolios to satisfy growing
demand in specific market segments, further engagement with
customers through virtual seminars, capital spend programme,
rigorous cost management and lower year--on-year recovered fibre
costs.
In Europe, EBITDA decreased by 11% to EUR1,180 million. The
EBITDA margin was 17.8%, down from 19.0% in 2019. Box demand was up
approximately 2% for the year with strong performances in
Scandinavia, Spain and Portugal, the UK and Eastern Europe. In the
second half, having been flat for the first six months, box volumes
were up over 3%, with approximately 6% growth in the fourth
quarter. Corrugated pricing was in line with our expectations.
In the Americas, EBITDA increased by 3% on 2019 to EUR372
million. The EBITDA margin also improved, up from 17.5% in 2019 to
19.7% in 2020. Colombia, Mexico and the US accounted for almost 90%
of the region's earnings with strong performances in all three
countries. Volumes in the region started the year strongly but were
subsequently heavily impacted by COVID-19 related lockdowns during
the second quarter. The third quarter showed positive volume growth
and in the fourth quarter demand was up over 9% versus the prior
year. As a result, volumes for the full year were up approximately
2% year-on-year.
Across Europe and the Americas, recovered fibre prices were
lower in 2020. However, prices rose rapidly in the second half of
the year and we continue to see prices increasing in early 2021.
Energy prices have also been increasing. Reflecting this,
containerboard prices have been rising and the supply of
containerboard remains very tight globally, both for kraftliner and
testliner.
The investment programmes we commenced during the year have been
completed in both regions and we continue to be at the forefront of
innovation in our sector with unique applications delivering
sustainable packaging solutions for our customers.
The Group reported free cash flow of EUR675 million in the full
year of 2020, up 23% from EUR547 million in 2019. The average
maturity profile of the Group's debt was 4.9 years at 31 December
2020 with an average interest rate of 3.13%. Net debt to EBITDA was
1.6x at the year-end versus 2.1x at the half year and at the end of
December 2019. Based on our strong business profile and ability to
consistently generate substantial free cash flow the Group is
revising its target leverage range to 1.5x to 2.0x from 1.75x to
2.50x and is targeting to achieve and maintain investment grade
credit ratings. During the fourth quarter of 2020, Fitch Ratings
upgraded the Group's long-term issuer rating to BBB- with stable
outlook from BB+ with positive outlook, highlighting the Group's
strengthened financial structure following the equity raise and
investment plan announced in November 2020 and the Group's plans to
finance these investments from equity and cash flow. In November
2020, Moody's and Standard & Poor's revised the Group ratings
outlook to positive from stable, with the Group strongly positioned
at the Ba1/BB+ credit rating level with both agencies.
2020 Full Year | Financial Performance
Revenue for the full year was EUR8,530 million, down 6% on the
full year of 2019 or 3% on an underlying(2) basis. This result
reflects the adverse impact of currency and the fall in box
prices.
EBITDA for the full year was EUR1,510 million, 9% down on the
full year of 2019 but ahead of our stated guidance from the third
quarter trading update due to a particularly strong finish to the
year. On an underlying basis Group EBITDA was down 7% year-on-year,
with Europe down 11% and the Americas up 12%.
Operating profit before exceptional items for the full year of
2020 at EUR922 million was 13% lower than EUR1,062 million for
2019.
Net exceptional items charged within operating profit in 2020
amounted to EUR31 million. EUR35 million related to
reorganisation and restructuring costs in Europe and the
Americas and EUR11 million related to the unique recognition reward
given to all permanent employees. These were partly offset by a
EUR15 million exceptional gain on the UK pension scheme.
Exceptional items charged within operating profit in 2019
amounted to EUR178 million, of which EUR124 million related to the
Italian Competition Authority fine levied on Smurfit Kappa Italia
S.p.A., EUR46 million related to the impairment of goodwill in
Brazil and EUR8 million to the impairment of property, plant and
equipment and customer related intangible assets in one of our
North American corrugated plants.
There were no exceptional finance costs charged in 2020.
Net exceptional finance costs charged in 2019 amounted to EUR17
million, comprised of a redemption premium of EUR31 million, and
accelerated amortisation of debt issue costs of EUR6 million
relating to the refinancing of the senior credit facility and the
early redemption of bonds. These were partly offset by a EUR20
million fair value gain on the put option over the remaining 25% of
our Serbian acquisition.
Pre-exceptional net finance costs at EUR144 million were EUR48
million lower in 2020 primarily as a result of a decrease in cash
interest of EUR38 million due predominantly to a lower level of
borrowing, a lower coupon on our more recent bonds and a lower
interest rate environment in general. Non-cash costs were EUR10
million lower, which was mainly due to a EUR5 million decrease in
interest cost on net pension liabilities and a reduction of EUR4
million on the net fair value loss on derivatives.
With the EUR140 million decrease in operating profit before
exceptional items partly offset by the EUR48 million decrease in
net finance costs, the pre-exceptional profit before income tax was
EUR779 million, EUR93 million lower than in 2019.
After exceptional items of EUR31 million, the profit before tax
for the full year of 2020 was EUR748 million compared to a profit
of EUR677 million in 2019. The income tax expense was EUR201
million compared to EUR193 million in 2019, resulting in a profit
of EUR547 million for 2020 compared to a profit of EUR484 million
in 2019.
Basic EPS for the full year of 2020 was 227.9 cent, compared to
201.6 cent in 2019. On a pre--exceptional basis, EPS was 236.9 cent
in 2020, 14% lower than the 274.8 cent in the full year of
2019.
2020 Full Year | Free Cash Flow
Free cash flow in the full year of 2020 was EUR675 million
compared to EUR547 million for 2019 -- an increase of EUR128
million. An EBITDA reduction of EUR140 million and exceptional
outflows were more than offset by lower outflows for capital
expenditure, cash interest expense and a higher working capital
inflow.
The working capital inflow in 2020 was EUR94 million compared to
EUR45 million in 2019. The inflow in 2020 was primarily driven by
an increase in creditors, a decrease in stocks along with a
decrease in debtors. Working capital amounted to EUR501 million at
December 2020, representing 5.6% of annualised revenue compared to
8.4% at June 2020 and 7.2% at December 2019.
Capital expenditure in 2020 amounted to EUR575 million (equating
to 104% of depreciation) compared to EUR730 million (equating to
134% of depreciation) in 2019.
Cash interest amounted to EUR118 million in 2020 compared to
EUR156 million in 2019 predominantly due to a lower level of
borrowing, a lower coupon on our more recent bonds and a lower
interest rate environment in general.
Tax payments in the full year of 2020 of EUR194 million were
EUR28 million lower than in 2019.
Share Placing
In November the Group successfully priced the non-pre-emptive
placing of new ordinary shares in the capital of the Company. A
total of 19,411,765 new ordinary shares in the Company were placed
at a price of EUR34.00 per placing share, raising gross proceeds of
approximately EUR660 million.
Net proceeds from the Placing, together with internally
generated cash flows, will enable us to accelerate investment over
the next three years and to deliver for our customers with enhanced
financial flexibility.
The continued development of e-commerce and the increasing
demand for sustainable, paper-based packaging continue to present
opportunities for Smurfit Kappa. Accelerated investment, at this
time, will allow us to increase our competitive advantage, align us
with the sustainability goals of our customers and enhance our
operational efficiency.
2020 Full Year | Capital Structure
Net debt was EUR2,375 million at the end of December, resulting
in a net debt to EBITDA ratio of 1.6x compared to 2.1x at the end
of June 2020 and December 2019. With net debt to EBITDA at 1.6x the
strength of the Group's balance sheet continues to secure long-term
strategic flexibility. With a revised target leverage range of 1.5x
to 2.0x, a strong business profile and our ability to consistently
deliver substantial free cash flow the Group is aiming to achieve
and maintain investment grade credit ratings.
During the fourth quarter of 2020, Fitch Ratings upgraded the
Group's long-term issuer rating to BBB- with stable outlook from
BB+ with positive outlook, highlighting the Group's strengthened
financial structure following the equity raise and investment plan
announced in November 2020 and the Group's plans to finance these
investments from equity and cash flow. In November 2020, Moody's
and Standard & Poor's revised the Group ratings outlook to
positive from stable, with the Group strongly positioned at the
Ba1/BB+ credit rating level with both agencies.
At 31 December 2020, the Group's average interest rate was 3.13%
compared to 3.18% at 31 December 2019. The Group's diversified
funding base and long-dated maturity profile of 4.9 years (31
December 2019: 5.5 years) provide a stable funding outlook. In
terms of liquidity, the Group held cash balances of EUR901 million
at the end of December, which were further supplemented by
available commitments of EUR1.25 billion under its Revolving Credit
Facility ('RCF') and EUR412 million under its securitisation
programmes.
Dividends
The Board is recommending a final dividend of 87.4 cent per
share (approximately EUR226 million). It is proposed to pay this
dividend on 7 May 2021 to all ordinary shareholders on the share
register at the close of business on 9 April 2021, subject to the
approval of the shareholders at the AGM.
2020 Full Year | Sustainability
SKG recently announced ambitious new sustainability targets as
part of 'Better Planet 2050', focusing on a further reduction of
our environmental footprint, increased support for the communities
in which we operate and further enhancement to the lives of our
employees. These targets build upon our well established
sustainability record, on which we have been reporting since
2005.
Better Planet 2050 quantifies our continued commitment to
sustainability, targeting environmental and social sustainability
in areas where the Group believes it can have the greatest impact.
These include delivering sustainable packaging to customers,
reducing our environmental footprint in water usage, waste and
carbon emissions and supporting our communities, promoting
inclusion and diversity as well as health and safety. The targets
identified are specific, measurable and provide a roadmap to
deliver results in the short, medium and longer term.
SKG is the undisputed industry leader in delivering Chain of
Custody certified sustainable packaging solutions to its customers.
The Group will further increase certified deliveries to customers
to 95%, up from the current 90% target. Chain of Custody certified
deliveries are essential in providing transparency and traceability
to customers who have trust and confidence that our raw materials
are sustainably sourced.
As a large processor rather than a large consumer of water, the
new water target will see the Group reduce overall water intake. As
a manufacturer of products that are renewable, recyclable, recycled
and biodegradable, the Group will continue to seek alternative ways
to reuse, recycle and recover waste material to reduce waste to
landfill. In 2020, SKG set out the most ambitious target to date
when the Group announced a goal to achieve at least net zero CO(2)
emissions by 2050. The Group has also increased the existing
intermediate 2030 CO(2) reduction target from 40% to 55%, relative
to the 2005 baseline. The Group will have these targets validated
by the Science Based Target initiative ('SBTi') as being in line
with the objectives of the Paris Agreement.
Demonstrating our care for our people and support for the
communities in which we operate, the Group is targeting a range of
measures including a further annual reduction in our Total
Recordable Injury Rate ('TRIR'). Separately and in addition, the
Group's stated ambition is to ensure female gender representation
is above 30%. Finally, the Group is also committing to donate over
EUR24 million in the next five years to support community
initiatives, building upon the extensive volunteer and community
work done locally throughout the world.
By committing to these sustainability targets, the Group's
Better Planet Packaging ('BPP') portfolio of sustainable products
will continue to be produced using less resources, less energy and
create less waste. In providing and developing innovative
paper-based packaging solutions, reducing the Group's impact on the
planet, we can make a positive contribution to the world and help
our customers to deliver on their own short and long-term
sustainability goals.
In May, the Group released its 13(th) annual Sustainable
Development Report ('SDR'). The Group reported a 32.9% reduction in
fossil CO(2) emission intensity from its 2005 baseline. SKG has
committed to align its CO(2) target with the SBTi and we are
building on more than a decade of sustainability reporting by
supporting the recommendations of the Taskforce on Climate-related
Financial Disclosures.
During the full year of 2020, a significant achievement in our
CO(2) reduction programme was made with the successful start-up of
the new recovery boiler at the Nettingsdorf kraftliner mill in
Austria; a EUR134 million investment that cuts CO(2) emissions by
40,000 tonnes, a further 1.5% towards the Group's total CO(2)
emissions reduction target.
In May, the Group further demonstrated its thought leadership in
sustainability with the publication of the 'Balancing
Sustainability and Profitability Survey', which was conducted among
200 senior executives and 1,500 consumers in the UK, examining the
business community's and consumers' views on sustainability and how
they are adapting to create a more sustainable future.
Due to COVID-19, a number of Group-wide initiatives were put in
place including; multiple local employee safety and engagement
programmes, a global employee survey to help better understand the
challenges being faced by our employees and shape an appropriate
response, a health and safety day dedicated to staying safe during
the pandemic, weekly updates to help keep people informed, as well
as leadership webinars to help our managers deal with the
inevitable consequences of the pandemic on our people. SKG has also
looked outside of our organisation and made additional charitable
donations of approximately EUR3 million to support the local
communities in which we operate.
SKG has also recently aligned the Group's sustainability
ambitions and targets into its financing by embedding the
sustainability targets via Key Performance Indicators into the
existing EUR1.35 billion RCF, creating a Sustainability Linked
RCF.
The Group continues to be listed on various sustainability
indices, such as FTSE4Good, the Green Economy Mark from the London
Stock Exchange, Euronext Vigeo Europe 120, STOXX Global ESG
Leaders, ISS Solactive and Ethibel's sustainable investment
register. SKG also performs strongly across a number of third party
certification bodies, including MSCI and Sustainalytics.
2020 Full Year | Commercial Offering and Innovation
SKG has continued to deliver value to our customers through
2020, notwithstanding the impact of COVID-19. In the same way our
operations had to adapt to new ways of working, so too did our
commercial interactions with our customers. During the year the
Group, led by packaging engineers and sales people, delivered
virtual webinars on e-commerce packaging, Better Planet Packaging,
our Smart Applications, and many more, to thousands of customers
across hundreds of events.
Our market-led focus has meant SKG has continued to engage
digitally with its customers focusing on projects that deliver
greater impact to the consumer, using ShelfSmart to reduce costs
and our customers supply chain carbon footprint; using SupplySmart;
and using our broader SMART and Innotools portfolio of applications
to deliver against our customer specific projects, whether this is
moving elements of their supply chain online or responding to the
consumers drive for a more sustainable world.
The surge in e-commerce due to the COVID-19 pandemic has been
evident across all sectors and the beverage market has also seen a
significant impact. In particular, online sales for alcoholic
beverages have increased by 34% in Europe driving a demand for
sustainable, durable and consumer friendly packaging that protects
the product during shipment. In response to these growing customer
challenges, and in turn market opportunities, the Group launched a
new range of eBottle packaging solutions for the rapidly growing
online beverage and liquids market. The new portfolio includes a
variety of sustainable solutions for single and multi-pack
products, including the Rollor bottle pack, BiPack, and Pop-up
insert.
The Group has also been delighted to see the continued
development of its patented TopClip product. New customers have
started to use TopClip, and in partnership with KHS, we have the
first high speed packing line going to a customer in the first half
of 2021.
In March of this year the Group will host over 800 customers at
a virtual BPP Awards ceremony. Those attending will get the
opportunity to explore 17 unique BPP innovations, visit four
paper-based packaging facilities and observe the implementation of
various BPP solutions with existing customers.
Summary Cash Flow
Summary cash flows for the second half and full year are set out in the
following table.
H2 2020 H2 2019 FY 2020 FY 2019
EURm EURm EURm EURm
EBITDA 775 803 1,510 1,650
Exceptional items (18) - (18) -
Cash interest expense (57) (74) (118) (156)
Working capital change 126 214 94 45
Capital expenditure (345) (458) (575) (730)
Change in capital creditors 33 53 (18) 19
Tax paid (96) (130) (194) (222)
Change in employee benefits and other
provisions 7 (29) (20) (73)
Other 12 9 14 14
Free cash flow 437 388 675 547
Share issues (net) 648 2 648 2
Purchase of own shares (net) - 2 (16) (23)
Purchase of businesses, investments and
NCI* (4) - (25) (204)
Dividends (260) (67) (260) (242)
Derivative termination receipts - 1 9 1
Premium on early repayment of bonds - (31) - (31)
Net cash inflow 821 295 1,031 50
Net debt acquired - (3) (1) (7)
Adjustment on initial application of IFRS
16 - - - (361)
Deferred debt issue costs amortised (3) (7) (7) (14)
Currency translation adjustment 64 (17) 85 (29)
Decrease/(increase) in net debt 882 268 1,108 (361)
* 'NCI' refers to non-controlling interests
Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on pages 28 to 35.
Funding and Liquidity
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the RCF. The Group's primary uses
of cash are for funding day to day operations, capital expenditure,
debt service, dividends and other investment activity including
acquisitions.
Borrowings under the RCF are available to fund the Group's
working capital requirements, capital expenditures and other
general corporate purposes.
At 31 December 2020, the Group had outstanding, EUR500 million
2.375% senior notes due 2024, EUR250 million 2.75% senior notes due
2025, US$292.3 million 7.50% senior debentures due 2025, EUR1,000
million 2.875% senior notes due 2026 and EUR750 million 1.5% senior
notes due 2027.
The Group had outstanding EUR12.6 million variable funding notes
issued under the EUR230 million accounts receivable securitisation
programme maturing in June 2023, together with EUR5 million
variable funding notes issued under the EUR200 million accounts
receivable securitisation programme maturing in February 2022.
The Group also has a EUR1,350 million RCF with a maturity date
of 28 January 2026. At 31 December 2020, the Group's drawings on
this facility comprised EUR50 million and US$55.7 million, with a
further EUR5 million drawn in operational facilities including
letters of credit drawn under various ancillary facilities.
Funding and Liquidity (continued)
In December 2020, the Group aligned its sustainability ambitions
and targets into its financing by embedding its sustainability
targets via Key Performance Indicators ("KPIs") into its RCF,
creating a Sustainability Linked RCF. The Sustainability Linked RCF
incorporates five KPIs spanning the Group's sustainability
objectives regarding climate change, forests, water, waste and
people, with the level of KPI achievement linked to the pricing on
the facility.
The following table provides the interest rates at 31 December
2020 for the drawings under the Sustainability Linked RCF:
Currency Interest Rate
EUR 0.817%
USD 1.054%
In January 2020, the Group secured the agreement of all lenders
in its RCF to the exercise of its first extension option under the
terms of the facility, extending the maturity date by one year to
28 January 2025. In December 2020, the Group also secured the
agreement of all lenders to the exercise of its second extension
option under the terms of the facility, extending the maturity date
to 28 January 2026.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding
activities and its operations in different foreign currencies.
Interest rate risk exposure is managed by achieving an appropriate
balance of fixed and variable rate funding. As at 31 December 2020,
the Group had fixed an average of 94% of its interest cost on
borrowings over the following 12 months.
The Group's fixed rate debt comprised EUR500 million 2.375%
senior notes due 2024, EUR250 million 2.75% senior notes due 2025,
US$292.3 million 7.50% senior debentures due 2025, EUR1,000 million
2.875% senior notes due 2026 and EUR750 million 1.5% senior notes
due 2027. EUR100 million in interest rate swaps converting variable
rate borrowings to fixed rate matured in January 2021.
The Group's earnings are affected by changes in short-term
interest rates on its floating rate borrowings and cash balances.
If interest rates for these borrowings increased by one percent,
the Group's interest expense would increase, and income before
taxes would decrease, by approximately EUR3 million over the
following 12 months. Interest income on the Group's cash balances
would increase by approximately EUR9 million assuming a one percent
increase in interest rates earned on such balances over the
following 12 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 in the organisation.
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 Board regularly monitors all of the Group's risks and
appropriate actions are taken to mitigate those risks or address
their potential adverse consequences. As part of the year-end risk
assessment, the Board has considered the impact of the COVID-19
pandemic on the principal risks of the Group.
The Group is an integral part of the supply chain for essential
and critical supplies and as a result there has been no significant
disruption to our business during 2020. In addition, a number of
measures and mitigations have been introduced to ensure the ongoing
safety of our employees.
Our assessment has concluded that our principal risks remain
unchanged. The Board will continue to monitor the potential impact
of the COVID-19 pandemic.
The principal risks and uncertainties for the current financial
year are summarised below.
-- If the current economic climate were to deteriorate, for example as a
result of geopolitical uncertainty (including Brexit), trade tensions
and/or the current COVID-19 pandemic, it could result in an increased
economic slowdown which if sustained over any significant length of time,
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.
-- Failure to maintain good health and safety practices may have an adverse
effect on the Group's business.
-- The Group is subject to a growing number of environmental laws and
regulations, and the cost of compliance or the failure to comply with
current and future laws and regulations may negatively affect the Group's
business.
-- The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
-- The Group, similar to other large global companies, is susceptible to
cyber-attacks with the threat to the confidentiality, integrity and
availability of data in its systems.
The principal risks and uncertainties faced by the Group were
outlined in our 2019 Annual Report on pages 32--33. The Annual
Report is available on our website; smurfitkappa.com.
Consolidated Income Statement
For the Financial Year Ended 31 December 2020
2020 2019
Unaudited Audited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
EURm EURm EURm EURm EURm EURm
Revenue 8,530 - 8,530 9,048 - 9,048
Cost of sales (5,656) - (5,656) (6,043) (8) (6,051)
Gross profit 2,874 - 2,874 3,005 (8) 2,997
Distribution
costs (725) - (725) (730) - (730)
Administrative
expenses (1,227) - (1,227) (1,213) - (1,213)
Other operating
expenses - (31) (31) - (170) (170)
Operating profit 922 (31) 891 1,062 (178) 884
Finance costs (179) - (179) (210) (37) (247)
Finance income 35 - 35 18 20 38
Share of
associates'
profit (after
tax) 1 - 1 2 - 2
Profit before
income tax 779 (31) 748 872 (195) 677
Income tax
expense (201) (193)
Profit for the financial year 547 484
Attributable to:
Owners of the parent 545 476
Non-controlling
interests 2 8
Profit for the financial year 547 484
Earnings per
share
Basic earnings per share - cent 227.9 201.6
Diluted earnings per share - cent 225.7 200.0
Consolidated Statement of Comprehensive Income
For the Financial Year Ended 31 December 2020
2020 2019
Unaudited Audited
EURm EURm
Profit for the financial year 547 484
Other comprehensive income:
Items that may be subsequently reclassified to profit or
loss
Foreign currency translation adjustments:
- Arising in the financial year (165) 12
- Recycled to Consolidated Income Statement 1 -
Effective portion of changes in fair value of cash flow
hedges:
- Movement out of reserve 1 8
- Fair value gain on cash flow hedges 6 5
- Movement in deferred tax (1) (1)
Changes in fair value of cost of hedging:
- Movement out of reserve (1) (1)
- New fair value adjustments into reserve 1 -
(158) 23
Items which will not be subsequently reclassified to
profit or loss
Defined benefit pension plans:
- Actuarial loss (9) (117)
- Movement in deferred tax 7 26
Net change in fair value of investment in equity
instruments - (11)
(2) (102)
Total other comprehensive expense (160) (79)
Total comprehensive income for the financial year 387 405
Attributable to:
Owners of the parent 388 394
Non-controlling interests (1) 11
Total comprehensive income for the financial year 387 405
Consolidated Balance Sheet
At 31 December 2020
2020 2019
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,839 3,920
Right-of-use assets 311 346
Goodwill and intangible assets 2,552 2,616
Other investments 11 10
Investment in associates 12 16
Biological assets 107 106
Other receivables 28 40
Derivative financial instruments - 6
Deferred income tax assets 172 185
7,032 7,245
Current assets
Inventories 773 819
Biological assets 11 11
Trade and other receivables 1,535 1,634
Derivative financial instruments 38 13
Restricted cash 10 14
Cash and cash equivalents 891 189
3,258 2,680
Total assets 10,290 9,925
EQUITY
Capital and reserves attributable to owners of the
parent
Equity share capital - -
Share premium 2,646 1,986
Other reserves 207 351
Retained earnings 917 615
Total equity attributable to owners of the parent 3,770 2,952
Non-controlling interests 13 41
Total equity 3,783 2,993
LIABILITIES
Non-current liabilities
Borrowings 3,122 3,501
Employee benefits 853 899
Derivative financial instruments 17 9
Deferred income tax liabilities 191 175
Non-current income tax liabilities 14 27
Provisions for liabilities 50 78
Capital grants 21 18
Other payables 9 10
4,277 4,717
Current liabilities
Borrowings 154 185
Trade and other payables 1,835 1,863
Current income tax liabilities 7 13
Derivative financial instruments 13 7
Provisions for liabilities 221 147
2,230 2,215
Total liabilities 6,507 6,932
Total equity and liabilities 10,290 9,925
Consolidated Statement of Changes in Equity
For the Financial Year Ended 31 December 2020
Attributable to owners of the parent
Equity
share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2020 - 1,986 351 615 2,952 41 2,993
Profit for the
financial year - - - 545 545 2 547
Other
comprehensive
income
Foreign currency
translation
adjustments - - (161) - (161) (3) (164)
Defined benefit
pension plans - - - (2) (2) - (2)
Effective portion
of changes in
fair value of
cash flow hedges - - 6 - 6 - 6
Total
comprehensive
income/(expense)
for the financial
year - - (155) 543 388 (1) 387
Shares issued - 660 - (12) 648 - 648
Purchase of
non-controlling
interests - - (8) 12 4 (27) (23)
Hyperinflation
adjustment - - - 19 19 - 19
Dividends paid - - - (260) (260) - (260)
Share--based
payment - - 35 - 35 - 35
Net shares
acquired by SKG
Employee Trust - - (16) - (16) - (16)
At 31 December
2020 - 2,646 207 917 3,770 13 3,783
Audited
At 1 January 2019 - 1,984 355 399 2,738 131 2,869
Profit for the
financial year - - - 476 476 8 484
Other
comprehensive
income
Foreign currency
translation
adjustments - - 9 - 9 3 12
Defined benefit
pension plans - - - (91) (91) - (91)
Effective portion
of changes in
fair value of
cash flow hedges - - 12 - 12 - 12
Changes in fair
value of cost of
hedging - - (1) - (1) - (1)
Net change in fair
value of
investment in
equity
instruments - - (11) - (11) - (11)
Total
comprehensive
income for the
financial year - - 9 385 394 11 405
Shares issued - 2 - - 2 - 2
Purchase of
non-controlling
interests - - (29) 45 16 (97) (81)
Hyperinflation
adjustment - - - 24 24 - 24
Dividends paid - - - (238) (238) (4) (242)
Share--based
payment - - 39 - 39 - 39
Net shares
acquired by SKG
Employee Trust - - (23) - (23) - (23)
At 31 December
2019 - 1,986 351 615 2,952 41 2,993
An analysis of the movements in Other reserves is provided in
Note 13.
Consolidated Statement of Cash Flows
For the Financial Year Ended 31 December 2020 2020 2019
Unaudited Audited
EURm EURm
Cash flows from operating activities
Profit before income tax 748 677
Net finance costs 144 209
Depreciation charge 514 496
Impairment of property, plant and equipment and intangible
assets - 8
Impairment of goodwill - 46
Amortisation of intangible assets 43 45
Amortisation of capital grants (2) (2)
Equity settled share--based payment expense 35 39
Profit on sale of property, plant and equipment (2) (3)
Profit on purchase/disposal of businesses (4) (4)
Share of associates' profit (after tax) (1) (2)
Net movement in working capital 95 48
Change in biological assets (6) 6
Change in employee benefits and other provisions (7) 51
Other (primarily hyperinflation adjustments) 6 4
Cash generated from operations 1,563 1,618
Interest paid (122) (233)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (14) (5)
Overseas corporation tax (net of tax refunds) paid (180) (217)
Net cash inflow from operating activities 1,247 1,163
Cash flows from investing activities
Interest received 3 4
Additions to property, plant and equipment and biological
assets (493) (612)
Additions to intangible assets (21) (20)
Receipt of capital grants 5 2
Decrease/(increase) in restricted cash 4 (4)
Disposal of property, plant and equipment 5 7
Dividends received from associates 1 1
Purchase of subsidiaries (net of acquired cash) (2) (99)
Deferred consideration paid - (14)
Net cash outflow from investing activities (498) (735)
Cash flows from financing activities
Proceeds from issue of new ordinary shares (net) 648 2
Proceeds from bond issuance - 1,153
Proceeds from other debt issuance - 417
Purchase of own shares (net) (16) (23)
Purchase of non-controlling interests (23) (81)
Decrease in other interest-bearing borrowings (329) (222)
Repayment of lease liabilities (91) (83)
Repayment of borrowings - (1,528)
Derivative termination receipts 9 1
Deferred debt issue costs paid (2) (23)
Dividends paid to shareholders (260) (238)
Dividends paid to non-controlling interests - (4)
Net cash outflow from financing activities (64) (629)
Increase/(decrease) in cash and cash equivalents 685 (201)
Reconciliation of opening to closing cash and cash
equivalents
Cash and cash equivalents at 1 January 172 390
Currency translation adjustment 19 (17)
Increase/(decrease) in cash and cash equivalents 685 (201)
Cash and cash equivalents at 31 December 876 172
An analysis of the net movement in working capital is provided
in Note 11.
Selected Explanatory Notes to the Consolidated Financial
Statements
1. General Information
Smurfit Kappa Group plc ('SKG plc' or 'the Company') and its
subsidiaries (together 'SKG' or 'the Group') primarily manufacture,
distribute and sell containerboard, corrugated containers and other
paper-based packaging products. The Company is a public limited
company with a premium listing on the London Stock Exchange and a
secondary listing on Euronext Dublin. It is incorporated and
domiciled in Ireland. The address of its registered office is Beech
Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland.
2. Basis of Preparation and Accounting Policies
Basis of preparation and accounting policies
The Consolidated Financial Statements of the Group are prepared
in accordance with International Financial Reporting Standards
('IFRS') issued by the International Accounting Standards Board
('IASB') as adopted by the European Union ('EU'); and those parts
of the Companies Act 2014 applicable to companies reporting under
IFRS.
The financial information in this report has been prepared in
accordance with the Group's accounting policies. Full details of
the accounting policies adopted by the Group are contained in the
Consolidated Financial Statements included in the Group's Annual
Report for the year ended 31 December 2019 which is available on
the Group's website; smurfitkappa.com. The accounting policies
adopted by the Group and the significant accounting judgements,
estimates and assumptions made by management in the preparation of
the Group financial information are consistent with those described
and applied in the Annual Report for the year ended 31 December
2019. A number of changes to IFRS became effective in 2020,
however, they did not have a material effect on the Consolidated
Financial Statements included in this report.
Impact of COVID-19
The Group has considered the impact of the COVID-19 pandemic
with respect to all judgements and estimates it makes in the
application of its accounting policies. This included assessing the
recoverability of trade receivables and inventory. The Group's
customers primarily operate in the FMCG sector, which has proved
resilient during the COVID-19 pandemic to date. There has been no
significant deterioration in the aging of trade receivables or
extension of debtor days in the year. The expected credit loss
provision for trade receivables was adjusted to reflect
forward-looking information on macroeconomic factors including the
impact of the COVID-19 pandemic. As a result of these reviews,
there was no material increase in the trade receivables or
inventory provisions. The Group also assessed non-financial assets
for indicators of impairment. No impairments were identified.
The Group tested goodwill for impairment at 31 December 2020.
Cash flow forecasts were updated to incorporate future COVID-19
impacts to reflect risks associated with each cash generating unit
('CGU'). The testing did not result in an impairment.
Going concern
The Group is a highly integrated manufacturer of paper-based
packaging solutions 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.
The Directors have assessed the principal risks and
uncertainties outlined on page 10, which include the deterioration
of the current economic climate due to the COVID-19 pandemic. The
Group is an integral part of the supply chain for essential and
critical supplies and as a result there has been no significant
disruption to our business to date. In addition, a number of
measures and mitigations have been introduced to ensure the ongoing
safety of our employees. The Group took into consideration the
potential impact of the pandemic and the range of outcomes that it
could have on the Group's financial position and results of
operations. In the scenarios reviewed, the Group continues to have
significant headroom in relation to its financial covenants.
2. Basis of Preparation and Accounting Policies (continued)
The Group's diversified funding base and long-dated maturity
profile of 4.9 years at 31 December 2020 provide a stable funding
outlook. At 31 December 2020, the Group had a very strong liquidity
position of approximately EUR2.56 billion comprising cash balances
of EUR901 million (including EUR10 million of restricted cash),
undrawn available committed facilities of EUR1.25 billion under its
RCF and EUR412 million under its securitisation facilities. In
November 2020, the Group raised gross proceeds of approximately
EUR660 million following the pricing of the non-pre-emptive placing
of new ordinary shares. The proceeds were used to repay variable
rate debt under its RCF and securitisation facilities, increasing
available liquidity under these facilities. The proceeds from the
share placing together with the Group's internally generated cash
flows (cash generated from operations of EUR1.6 billion in 2020),
give the Group enhanced financial strength and flexibility. At 31
December 2020 the strength of the Group's balance sheet and a net
debt to EBITDA ratio of 1.6x (2019: 2.1x) continues to secure
long-term strategic flexibility.
Having assessed the principal risks facing the Group, together
with the Group's forecasts and significant financial headroom, the
Directors believe that the Group is well placed to manage these
risks successfully and 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 Consolidated Financial Statements.
Statutory financial statements and audit opinion
The financial information presented in this preliminary release
does not constitute full statutory financial statements. The Annual
Report and Financial Statements will be approved by the Board of
Directors and reported on by the Auditor in due course.
Accordingly, the financial information is unaudited. Full statutory
financial statements for the year ended 31 December 2019 have been
filed with the Irish Registrar of Companies. The audit report on
those statutory financial statements was unqualified.
This preliminary release was approved by the Board of
Directors.
3. Segment and Revenue Information
The Group has identified 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 and the Americas segments are each highly integrated.
They include a system of mills and plants that primarily produce a
full line of containerboard that is converted into corrugated
containers within each segment. In addition, the Europe segment
also produces other types of paper, such as solidboard, sack kraft
paper and graphic paper; and other paper-based packaging, such as
solidboard packaging and folding cartons; and bag-in-box packaging.
The Americas segment, which includes a number of Latin American
countries and the United States, also comprises forestry; other
types of paper, such as boxboard, sack paper and graphic paper; and
paper-based packaging, such as folding cartons and paper sacks.
Inter--segment revenue is not material. No operating segments have
been aggregated for disclosure purposes.
Segment profit is measured based on EBITDA.
3. Segment and Revenue Information (continued)
FY 2020 FY 2019
Europe The Americas Total Europe The Americas Total
EURm EURm EURm EURm EURm EURm
Revenue and results
Revenue 6,645 1,885 8,530 6,994 2,054 9,048
EBITDA 1,180 372 1,552 1,332 360 1,692
Segment exceptional
items (19) (12) (31) (124) - (124)
EBITDA after
exceptional items 1,161 360 1,521 1,208 360 1,568
Unallocated centre costs (42) (42)
Share-based payment expense (37) (41)
Depreciation and depletion
(net) (508) (502)
Amortisation (43) (45)
Impairment of assets
(exceptional) - (8)
Impairment of
goodwill
(exceptional) - (46)
Finance costs (179) (247)
Finance income 35 38
Share of associates'
profit (after tax) 1 2
Profit before income tax 748 677
Income tax expense (201) (193)
Profit for the financial
year 547 484
H2 2020 H2 2019
Europe The Americas Total Europe The Americas Total
EURm EURm EURm EURm EURm EURm
Revenue and results
Revenue 3,377 950 4,327 3,420 1,006 4,426
EBITDA 605 194 799 644 181 825
Segment exceptional
items (19) (12) (31) (124) - (124)
EBITDA after
exceptional items 586 182 768 520 181 701
Unallocated centre costs (24) (22)
Share-based payment expense (26) (16)
Depreciation and depletion
(net) (256) (259)
Amortisation (21) (24)
Impairment of assets
(exceptional) - (8)
Impairment of
goodwill
(exceptional) - (46)
Finance costs (94) (137)
Finance income 18 31
Share of associates'
profit (after tax) - 1
Profit before income tax 365 221
Income tax expense (96) (75)
Profit for the financial
period 269 146
3. Segment and Revenue Information (continued)
Revenue information about geographical areas
The Group has a presence in 35 countries worldwide. The
following information is a geographical analysis presented in
accordance with IFRS 8, Operating Segments, which requires
disclosure of information about country of domicile (Ireland) and
countries with material revenue.
2020 2019
EURm EURm
Ireland 111 117
Germany 1,207 1,291
France 969 1,095
Mexico 850 878
The Netherlands 760 758
United Kingdom 743 774
Rest of world 3,890 4,135
Total revenue by geographical area 8,530 9,048
Revenue is derived almost entirely from the sale of goods and is
disclosed based on the location of production.
Disaggregation of revenue
The Group derives revenue from the following major product
lines. The economic factors which affect the nature, amount, timing
and uncertainty of revenue and cash flows from the sub categories
of both paper and packaging products are similar.
2020 2019
Paper Packaging Total Paper Packaging Total
EURm EURm EURm EURm EURm EURm
Europe 1,005 5,640 6,645 1,134 5,860 6,994
The Americas 207 1,678 1,885 285 1,769 2,054
Total revenue by product 1,212 7,318 8,530 1,419 7,629 9,048
Packaging revenue is derived mainly from the sale of corrugated
products. The remainder of packaging revenue is comprised of
bag-in-box and other paper-based packaging products.
4. Exceptional Items
2020 2019
EURm EURm
The following items are regarded as exceptional in nature:
Redundancy and reorganisation costs 35 -
Recognition reward 11 -
Gain on UK pension scheme (15) -
Impairment of assets - 8
Italian Competition Authority fine - 124
Goodwill impairment - 46
Exceptional items included in operating profit 31 178
Exceptional finance costs (net) - 17
Exceptional items included in net finance costs - 17
Total exceptional items 31 195
Exceptional items charged within operating profit in 2020
amounted to EUR31 million of which EUR35 million related to
redundancy and reorganisation costs in both Europe and the Americas
and EUR11 million related to a company-wide COVID-19 employee
recognition reward, partly offset by a EUR15 million gain on the UK
pension scheme as a result of future pension increases being linked
to CPIH instead of RPI.
There were no exceptional finance items in 2020.
In 2019, exceptional items charged within operating profit
amounted to EUR178 million, of which EUR8 million related to the
impairment of property, plant and equipment and customer related
intangible assets in one of our North American corrugated plants
and EUR124 million to the Italian Competition Authority fine levied
on Smurfit Kappa Italia S.p.A.. The remaining EUR46 million related
to the impairment of goodwill in Brazil.
The exceptional finance costs of EUR17 million in 2019 comprised
of a redemption premium of EUR31 million and the accelerated
amortisation of the debt issue costs of EUR6 million relating to
the refinancing of the senior credit facility and the early
redemption of bonds, partly offset by a fair value gain of EUR20
million on the valuation of the Serbian put option at 31 December
2019.
5. Finance Costs and Income
2020 2019
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 29 45
Interest payable on leases 10 11
Interest payable on other borrowings 89 114
Exceptional finance costs associated with debt restructuring - 37
Foreign currency translation loss on debt 36 18
Fair value loss on derivatives not designated as hedges 1 4
Fair value loss on financial assets/liabilities 2 -
Net interest cost on net pension liability 12 17
Unwinding discount element of provisions - 1
Total finance costs 179 247
Finance income:
Other interest receivable (3) (4)
Foreign currency translation gain on debt (29) (10)
Fair value gain on derivatives not designated as hedges (1) -
Exceptional fair value gain on financial liabilities - (20)
Fair value gain on financial assets (1) (1)
Net monetary gain -- hyperinflation (1) (3)
Total finance income (35) (38)
Net finance costs 144 209
6. Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
2020 2019
EURm EURm
Current tax:
Europe 127 145
The Americas 49 55
176 200
Deferred tax 25 (7)
Income tax expense 201 193
Current tax is analysed as follows:
Ireland 21 7
Foreign 155 193
176 200
Income tax recognised in the Consolidated Statement of
Comprehensive Income
2020 2019
EURm EURm
Arising on defined benefit pension plans (7) (26)
Arising on derivative cash flow hedges 1 1
(6) (25)
The income tax expense for the financial year 2020 is EUR8
million higher than in the comparable period in 2019.
There is a net EUR24 million decrease in current tax. The net
decrease is mainly due to changes in profitability and geographical
mix, as well as the impact of non-recurring items and foreign
currency.
The movement in deferred tax from a credit of EUR7 million in
2019 to a tax charge of EUR25 million in 2020 includes the effects
of movements in timing differences on which tax was previously
recognised, as well as the use and net recognition of tax losses
and credits. The deferred tax in 2019 included a non-recurring tax
credit associated with the impairment of goodwill.
There is a net tax credit of EUR9 million on exceptional items
in 2020 compared to a EUR22 million tax credit in the prior
year.
7. Employee Benefits -- Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the year:
2020 2019
EURm EURm
Current service cost 34 29
Actuarial loss arising on other long-term employee benefits 1 -
Past service cost -- UK(1) (15) -
Past service cost - other 3 1
Gain on settlement (2) (2)
Net interest cost on net pension liability 12 17
Defined benefit cost 33 45
(1) Future pension increases are now linked to CPIH instead of
RPI in the UK which resulted in an exceptional income in past
service cost for the Group of EUR15 million.
Analysis of actuarial (losses)/gains recognised in the
Consolidated Statement of Comprehensive Income:
2020 2019
EURm EURm
Return on plan assets (excluding interest income) 170 228
Actuarial gain/(loss) due to experience adjustments 34 (9)
Actuarial loss due to changes in financial assumptions (224) (348)
Actuarial gain due to changes in demographic assumptions 11 12
Total loss recognised in the Consolidated Statement of
Comprehensive Income (9) (117)
The amounts recognised in the Consolidated Balance Sheet were as
follows:
2020 2019
EURm EURm
Present value of funded or partially funded obligations (2,529) (2,473)
Fair value of plan assets 2,224 2,109
Deficit in funded or partially funded plans (305) (364)
Present value of wholly unfunded obligations (546) (534)
Amounts not recognised as assets due to asset ceiling (2) (1)
Net pension liability (853) (899)
8. Earnings per Share ('EPS')
Basic
Basic EPS is calculated by dividing the profit attributable to
owners of the parent by the weighted average number of ordinary
shares in issue during the year less own shares.
2020 2019
Profit attributable to owners of the parent (EUR million) 545 476
Weighted average number of ordinary shares in issue (million) 239 236
Basic EPS (cent) 227.9 201.6
Diluted
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all
dilutive potential ordinary shares. These comprise convertible,
deferred and performance shares issued under the Group's long-term
incentive plans. Where the conditions governing exercisability and
vesting of these shares have been satisfied as at the end of the
reporting period, they are included in the computation of diluted
earnings per ordinary share.
2020 2019
Profit attributable to owners of the parent (EUR million) 545 476
Weighted average number of ordinary shares in issue (million) 239 236
Potential dilutive ordinary shares assumed (million) 2 2
Diluted weighted average ordinary shares (million) 241 238
Diluted EPS (cent) 225.7 200.0
Pre-exceptional
2020 2019
Profit attributable to owners of the parent (EUR million) 545 476
Exceptional items included in profit before income tax (EUR
million) 31 195
Income tax on exceptional items (EUR million) (9) (22)
Pre-exceptional profit attributable to owners of the parent (EUR
million) 567 649
Weighted average number of ordinary shares in issue (million) 239 236
Pre-exceptional basic EPS (cent) 236.9 274.8
Diluted weighted average ordinary shares (million) 241 238
Pre-exceptional diluted EPS (cent) 234.6 272.6
9. Dividends
The following dividends were declared and paid by the Group.
2020 2019
EURm EURm
Final: no final dividend was paid in 2020 (2019: paid 72.2 cent
per ordinary share on 10 May 2019) - 172
Interim: paid 80.9 cent per ordinary share on 11 September 2020
and a further 27.9 cent on 11 December 2020 (2019: paid 27.9 cent
per ordinary share on 25 October 2019) 260 66
260 238
The Board is recommending a final dividend of 87.4 cent per
share (approximately EUR226 million). It is proposed to pay this
dividend on 7 May 2021 to all ordinary shareholders on the share
register at the close of business on 9 April 2021, subject to the
approval of the shareholders at the AGM.
10. Property, Plant and Equipment
Land and buildings Plant and equipment Total
EURm EURm EURm
Financial year ended
31 December 2020
Opening net book
amount 1,106 2,814 3,920
Reclassifications 73 (68) 5
Additions 1 465 466
Acquisitions 2 1 3
Depreciation charge (56) (373) (429)
Retirements and
disposals (1) (2) (3)
Hyperinflation
adjustment 2 6 8
Foreign currency
translation
adjustment (37) (94) (131)
At 31 December 2020 1,090 2,749 3,839
Financial year ended
31 December 2019
Opening net book
amount 1,050 2,544 3,594
Reclassifications 57 (58) (1)
Additions 2 618 620
Acquisitions 42 47 89
Depreciation charge (54) (355) (409)
Impairments - (4) (4)
Retirements and
disposals (1) (3) (4)
Hyperinflation
adjustment 3 8 11
Foreign currency
translation
adjustment 7 17 24
At 31 December 2019 1,106 2,814 3,920
11. Net Movement in Working Capital
2020 2019
EURm EURm
Change in inventories 14 40
Change in trade and other receivables 22 52
Change in trade and other payables 59 (44)
Net movement in working capital 95 48
12. Analysis of Net Debt
2020 2019
EURm EURm
Revolving credit facility -- interest at relevant interbank rate
(interest rate floor of 0%) + 0.817%(1) (2) 89 333
US$292.3 million 7.5% senior debentures due 2025 (including
accrued interest) 240 262
Bank loans and overdrafts 83 118
EUR200 million receivables securitisation variable funding notes
due 2022 (including accrued interest) 4 29
EUR230 million receivables securitisation variable funding notes
due 2023 11 69
EUR500 million 2.375% senior notes due 2024 (including accrued
interest) 501 500
EUR250 million 2.75% senior notes due 2025 (including accrued
interest) 251 250
EUR1,000 million 2.875% senior notes due 2026 (including accrued
interest) 1,005 1,004
EUR750 million 1.5% senior notes due 2027 (including accrued
interest) 746 744
Gross debt before leases 2,930 3,309
Leases 346 377
Gross debt including leases 3,276 3,686
Cash and cash equivalents (including restricted cash) (901) (203)
Net debt including leases 2,375 3,483
1. In January 2020, the Group secured the agreement of all lenders in its
RCF of EUR1,350 million to extend the maturity date by a further year to
28 January 2025. In December 2020, all lenders agreed to further extend
this to 28 January 2026 and to include sustainability elements; creating
a Sustainability Linked RCF. At 31 December 2020, the following amounts
were drawn under this facility:
1. Revolver loans - EUR95 million
2. Drawn under ancillary facilities and facilities supported by
letters of credit -- nil
3. Other operational facilities including letters of credit - EUR5
million
2. Following the Fitch Ratings upgrade in December 2020, the margin on the
RCF reduced from 0.9% to 0.817%.
13. Other Reserves
Other reserves included in the Consolidated Statement of Changes
in Equity are comprised of the following:
Cash Foreign Share-
Reverse flow Cost of currency based
acquisition hedging hedging translation payment Own FVOCI
reserve reserve reserve reserve reserve shares reserve Total
EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 2020 575 (2) 2 (387) 215 (42) (10) 351
Other
comprehensive
income
Foreign currency
translation
adjustments - - - (161) - - - (161)
Effective portion
of changes in
fair value of
cash flow
hedges - 6 - - - - - 6
Total other
comprehensive
income/(expense) - 6 - (161) - - - (155)
Purchase of
non-controlling
interest - - - (8) - - - (8)
Share--based
payment - - - - 35 - - 35
Net shares
acquired by SKG
Employee Trust - - - - - (16) - (16)
Shares
distributed by
SKG Employee
Trust - - - - (9) 9 - -
At 31 December
2020 575 4 2 (556) 241 (49) (10) 207
At 1 January 2019 575 (14) 3 (367) 185 (28) 1 355
Other
comprehensive
income
Foreign currency
translation
adjustments - - - 9 - - - 9
Effective portion
of changes in
fair value of
cash flow
hedges - 12 - - - - - 12
Changes in fair
value of cost of
hedging - - (1) - - - - (1)
Net change in
fair value of
investment in
equity
instruments - - - - - - (11) (11)
Total other
comprehensive
income/(expense) - 12 (1) 9 - - (11) 9
Purchase of
non-controlling
interest - - - (29) - - - (29)
Share--based
payment - - - - 39 - - 39
Net shares
acquired by SKG
Employee Trust - - - - - (23) - (23)
Shares
distributed by
SKG Employee
Trust - - - - (9) 9 - -
At 31 December
2019 575 (2) 2 (387) 215 (42) (10) 351
Supplementary Financial Information
Alternative Performance Measures
The Group uses certain financial measures as set out below in
order to evaluate the Group's financial performance. These
Alternative Performance Measures ('APMs') are not defined under
IFRS and are presented because we believe that they, and similar
measures, provide both SKG management and users of the Consolidated
Financial Statements with useful additional financial information
when evaluating the Group's operating and financial
performance.
These measures may not be comparable to other similarly titled
measures used by other companies, and are not measurements under
IFRS or other generally accepted accounting principles, and they
should not be considered in isolation or as substitutes for the
information contained in our Consolidated Financial Statements.
Please note where referenced 'CIS' refers to Consolidated Income
Statement, 'CBS' refers to Consolidated Balance Sheet and 'CSCF'
refers to Consolidated Statement of Cash Flows.
The principal APMs used by the Group, together with
reconciliations where the non-IFRS measures are not readily
identifiable from the Consolidated Financial Statements, are as
follows:
A. EBITDA
Definition
EBITDA is 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. It is an appropriate and useful
measure used to compare recurring financial performance between
periods.
Reconciliation of Profit to EBITDA
2020 2019
Reference EURm EURm
Profit for the financial year CIS 547 484
Income tax expense (after exceptional items) CIS 201 193
Exceptional items charged in operating profit CIS 31 178
Net finance costs (after exceptional items) Note 5 144 209
Share of associates' profit (after tax) CIS (1) (2)
Share-based payment expense Note 3 37 41
Depreciation, depletion (net) and amortisation Note 3 551 547
EBITDA 1,510 1,650
B. EBITDA margin
Definition
EBITDA margin is a measure of profitability by taking our EBITDA
divided by revenue.
2020 2019
Reference EURm EURm
EBITDA A 1,510 1,650
Revenue CIS 8,530 9,048
EBITDA margin 17.7% 18.2%
Alternative Performance Measures (continued)
C. Operating profit before exceptional items
Definition
Operating profit before exceptional items represents operating
profit as reported in the Consolidated Income Statement before
exceptional items. Exceptional items are excluded in order to
assess the underlying financial performance of our operations.
2020 2019
Reference EURm EURm
Operating profit CIS 891 884
Exceptional items CIS 31 178
Operating profit before exceptional items CIS 922 1,062
D. Pre-exceptional basic earnings per share
Definition
Pre-exceptional basic EPS serves as an effective indicator of
our profitability as it excludes exceptional one--off items and, in
conjunction with other metrics such as ROCE, is a measure of our
financial strength. Pre--exceptional basic EPS is calculated by
dividing profit attributable to owners of the parent, adjusted for
exceptional items included in profit before income tax and income
tax on exceptional items, by the weighted average number of
ordinary shares in issue. The calculation of pre-exceptional basic
EPS is shown in Note 8.
E. Underlying EBITDA and revenue
Definition
Underlying EBITDA and revenue are arrived at by excluding the
incremental EBITDA and revenue contributions from current and prior
year acquisitions and disposals and the impact of currency
translation, hyperinflation and any non-recurring items.
The Group uses underlying EBITDA and underlying revenue as
additional performance indicators to assess performance on a
like-for-like basis each year.
The The
Europe Americas Total Europe Americas Total
2020 2020 2020 2019 2019 2019
EBITDA
Currency - (9%) (2%) - - -
Hyperinflation - - - - (1%) -
Acquisitions/disposals - - - 3% (2%) 2%
IFRS 16 - - - 5% 9% 6%
Underlying EBITDA
change (11%) 12% (7%) (3%) 7% (1%)
Reported EBITDA change (11%) 3% (9%) 5% 13% 7%
Revenue
Currency (1%) (10%) (3%) - - -
Acquisitions/disposals - - - 3% (4%) 1%
Underlying revenue
change (4%) 2% (3%) (2%) 6% -
Reported revenue change (5%) (8%) (6%) 1% 2% 1%
Alternative Performance Measures (continued)
F. Net debt
Definition
Net debt comprises borrowings net of cash and cash equivalents
and restricted cash. We believe that this measure highlights the
overall movement resulting from our operating and financial
performance.
2020 2019
Reference EURm EURm
Borrowings Note 12 3,276 3,686
Less:
Restricted cash CBS (10) (14)
Cash and cash equivalents CBS (891) (189)
Net debt 2,375 3,483
G. Net debt to EBITDA
Definition
Leverage (ratio of net debt to EBITDA) is an important measure
of our overall financial position.
2020 2019
Reference EURm EURm
Net debt F 2,375 3,483
EBITDA A 1,510 1,650
Net debt to EBITDA (times) 1.6 2.1
H. Return on capital employed ('ROCE')
Definition
ROCE measures profit from capital employed. It is calculated as
operating profit before exceptional items plus share of associates'
profit (after tax) divided by the average capital employed (where
average capital employed is the average of total equity and net
debt at the current and prior year-end).
2020 2019
Reference EURm EURm
Operating profit before exceptional items C 922 1,062
Share of associates' profit (after tax) CIS 1 2
Operating profit before exceptional items plus share of
associates' profit (after tax) 923 1,064
Total equity -- current year-end CBS 3,783 2,993
Net debt -- current year-end F 2,375 3,483
Capital employed -- current year-end 6,158 6,476
Total equity -- prior year-end CBS 2,993 2,890
Net debt -- prior year-end F 3,483 3,122
Capital employed -- prior year-end 6,476 6,012
Average capital employed 6,317 6,244
Return on capital employed 14.6% 17.0%
Alternative Performance Measures (continued)
I. Working capital
Definition
Working capital represents total inventories, trade and other
receivables and trade and other payables.
2020 2019
Reference EURm EURm
Inventories CBS 773 819
Trade and other receivables (current and
non-current) CBS 1,563 1,674
Trade and other payables CBS (1,835) (1,863)
Working capital 501 630
J. Working capital as a percentage of sales
Definition
Working capital as a percentage of sales represents working
capital as defined above shown as a percentage of annualised
quarterly revenue.
2020 2019
Reference EURm EURm
Working capital I 501 630
Annualised revenue 8,875 8,790
Working capital as a percentage of sales 5.6% 7.2%
Alternative Performance Measures (continued)
K. Summary cash flow
Definition
The summary cash flow is prepared on a different basis to the
Consolidated Statement of Cash Flows and as such the reconciling
items between EBITDA and (increase)/decrease in net debt may differ
from amounts presented in the Consolidated Statement of Cash Flows.
The summary cash flow details movements in net debt. The
Consolidated Statement of Cash Flows details movements in cash and
cash equivalents.
Reconciliation of the summary cash flow to the Consolidated
Statement of Cash Flows
2020 2019
Reference EURm EURm
EBITDA A 1,510 1,650
Exceptional items K.1 (18) -
Cash interest expense K.2 (118) (156)
Working capital change K.3 94 45
Capital expenditure K.4 (575) (730)
Change in capital creditors K.4 (18) 19
Tax paid CSCF (194) (222)
Change in employee benefits and other provisions K.6 (20) (73)
Other K.7 14 14
Free cash flow L 675 547
Share issues (net) CSCF 648 2
Purchase of own shares (net) CSCF (16) (23)
Purchase of businesses, investments and NCI K.8 (25) (204)
Dividends CSCF (260) (242)
Derivative termination receipts CSCF 9 1
Premium on early repayment of bonds K.2 - (31)
Net cash inflow 1,031 50
Net debt acquired K.9 (1) (7)
Adjustment on initial application of IFRS 16 - (361)
Deferred debt issue costs amortised (7) (14)
Currency translation adjustment 85 (29)
Decrease/(increase) in net debt 1,108 (361)
K.1 Exceptional items
2020 2019
Reference EURm EURm
Redundancy and reorganisation costs - paid (7) -
Recognition reward - paid Note 4 (11) -
Per summary cash flow (18) -
Alternative Performance Measures (continued)
K.2 Cash interest expense
2020 2019
Reference EURm EURm
Interest paid CSCF (122) (233)
Interest received CSCF 3 4
Move in accrued interest 1 3
Initial cost of bonds repaid - 39
Premium on early repayment of bonds K - 31
Per summary cash flow (118) (156)
K.3 Working capital change
2020 2019
Reference EURm EURm
Net movement in working capital CSCF 95 48
Other (1) (3)
Per summary cash flow 94 45
K.4 Capital expenditure
2020 2019
Reference EURm EURm
Additions to property, plant and equipment,
biological and intangible assets CSCF (514) (632)
Additions to right-of-use assets (79) (79)
Change in capital creditors K 18 (19)
Per summary cash flow (575) (730)
K.5 Capital expenditure as a percentage of depreciation
2020 2019
Reference EURm EURm
Capital expenditure K.4 575 730
Depreciation, depletion (net) and amortisation A 551 547
Capital expenditure as a percentage of depreciation 104% 134%
Alternative Performance Measures (continued)
K.6 Change in employee benefits and other provisions
2020 2019
Reference EURm EURm
Change in employee benefits and other provisions CSCF (7) 51
Redundancy and reorganisation costs - unpaid K.6.1 (28) -
Gain on UK pension scheme K.6.2 15 -
Italian Competition Authority fine provision K.6.3 - (124)
Per summary cash flow (20) (73)
K.6.1 Redundancy and reorganisation costs
The change in the provision relating to exceptional redundancy
and reorganisation costs is not included in the summary cash flow
as it is not within EBITDA. Exceptional redundancy and
reorganisation costs which were paid in 2020 are shown as a
separate line item within 'Exceptional items' in the summary cash
flow.
K.6.2 Gain on UK pension scheme
The change in employee benefits relating to the exceptional gain
on the UK pension scheme is not included in the summary cash flow
as it is not within EBITDA.
K.6.3 Italian Competition Authority fine provision
The change in the provision relating to the Italian Competition
Authority fine ruling of EUR124 million is not included within the
summary cash flow as it is not within EBITDA.
K.7 Other
2020 2019
Reference EURm EURm
Other within the summary cash flow comprises the
following
Amortisation of capital grants CSCF (2) (2)
Profit on sale of property, plant and equipment CSCF (2) (3)
Profit on purchase/disposal of businesses CSCF (4) (4)
Other (primarily hyperinflation adjustments) CSCF 6 4
Receipt of capital grants CSCF 5 2
Disposal of property, plant and equipment CSCF 5 7
Dividends received from associates CSCF 1 1
Lease terminations/modifications L 5 9
Per summary cash flow 14 14
Alternative Performance Measures (continued)
K.8 Purchase of businesses, investments and NCI
2020 2019
Reference EURm EURm
Purchase of subsidiaries (net of acquired cash) CSCF (2) (99)
Purchase of non-controlling interests CSCF (23) (81)
Deferred consideration paid CSCF - (14)
Cash and cash equivalents acquired K.9 - (10)
Per summary cash flow (25) (204)
K.9 Net debt acquired
2020 2019
Reference EURm EURm
Debt acquired (1) (17)
Cash and cash equivalents acquired K.8 - 10
Per summary cash flow (1) (7)
L. Free cash flow ('FCF')
Definition
FCF is the result of the cash inflows and outflows from our
operating activities, and is before those arising from acquisition
and disposal of businesses. We use FCF to assess and understand the
total operating performance of the business and to identify
underlying trends.
Reconciliation of Free Cash Flow to Cash Generated from
Operations
2020 2019
Reference EURm EURm
Free cash flow K 675 547
Reconciling items:
Cash interest expense K.2 118 156
Capital expenditure (net of change in capital
creditors) K.4 593 711
Tax payments CSCF 194 222
Disposal of property, plant and equipment CSCF (5) (7)
Lease terminations/modifications K.7 (5) (9)
Receipt of capital grants CSCF (5) (2)
Dividends received from associates CSCF (1) (1)
Non-cash financing activities (1) 1
Cash generated from operations CSCF 1,563 1,618
(1) Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on pages 28 to 35.
(2) Additional information on underlying performance is set out
within Supplementary Financial Information on pages 28 to 35.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20210209006242/en/
CONTACT:
Smurfit Kappa Group PLC
SOURCE: Smurfit Kappa Group PLC
Copyright Business Wire 2021
(END) Dow Jones Newswires
February 10, 2021 02:00 ET (07:00 GMT)
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