TIDMSKG
31 July: Smurfit Kappa Group plc ('SKG' or 'the Group') today
announced results for the 6 months ending 30 June 2019.
2019 First Half | Key Financial Performance Measures
EURm H12019 H12018 Change
Revenue EUR4,622 EUR4,428 4%
EBITDA 1 EUR847 EUR724 17%
EBITDA Margin 1 18.3% 16.4%
Operating Profit before Exceptional Items EUR558 EUR529 5%
Profit before Income Tax EUR456 EUR416 9%
Basic EPS (cent) 140.6 124.5 13%
Pre-exceptional Basic EPS (cent) 1 141.6 140.7 1%
Free Cash Flow 1 EUR159 EUR148 8%
Return on Capital Employed 1 18.7% 18.1%
Net Debt 1 EUR3,751 EUR2,871
Net Debt to EBITDA (LTM) 1 2.2x 2.1x
1 Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 35.
Key Points
-- Revenue growth of over 4%
-- EBITDA of EUR847 million, up 17%, with a margin of 18.3%
-- ROCE of 18.7%
-- EUR190 million of acquisitions in Bulgaria, Colombia and Serbia
-- Interim dividend increased by 10% to 27.9 cent per share
Performance Review and OutlookTony Smurfit, Group CEO,
commented:
"I am pleased to report, for the first half of 2019, another set
of excellent results. Revenue grew by 4% with EBITDA increasing to
EUR847 million, up 17% on the prior year. The continued execution
of our Medium-Term Plan together with our resilient business model
allows us to continue to progress and deliver consistently
excellent performance.
"During the first six months, our European business continued to
perform strongly, delivering an increased EBITDA margin of 19.3%,
up from 17.3% in the same period in 2018. Box volumes grew by
approximately 2% on an organic basis, or 4% when including
acquisitions.
"The Americas region continued to perform well, delivering an
increased EBITDA margin of 17.1% up from 15.2% in the first half of
2018. Volumes grew by 3% in the first half. The region had
especially strong performances in our larger markets of Colombia,
Mexico and the US.
"We continue to work with our existing customer base, and indeed
our new customers, in solving their many business challenges. This
includes finding alternatives to less sustainable packaging,
helping drive increased sales using paper-based packaging as a
merchandising medium, and reducing complexity and costs in their
supply chain by leveraging our unique SMART applications.
"In May, the Group hosted over 350 customers from across the
globe at its biennial innovation event in the Netherlands. The
event highlighted both the sustainability challenges we all face
and how Smurfit Kappa's expertise is part of the solution. We
expect our Better Planet Packaging initiative to be a source of
future incremental demand.
"During the first half, the Group continued to expand and
strengthen its geographic footprint with acquisitions in Bulgaria,
Colombia and Serbia and we are excited about the opportunities
these additions present.
"The Group understands that the Italian Competition Authority
will shortly release the outcome of its work in relation to
approximately 50 market participants in Italy, including one of the
Group's Italian subsidiaries. We await the outcome of its work and
will update accordingly.
"In February 2018, we outlined our four year Medium-Term Plan.
We have completed a number of projects across our corrugated and
containerboard business since its announcement. With the
acquisition of Reparenco in July 2018, we accelerated a central
part of the plan linked to our integrated model and secured our
paper supply for future growth opportunities. Our plan remains
flexible and agile and is the foundation for our current and future
performance. The qualities of Smurfit Kappa continue to be evident,
not alone in terms of our performance but in our world class
containerboard system, leadership in sustainable packaging,
customer-focused innovation and disciplined, returns focused,
capital allocation.
"While macro-economic and political risks remain, SKG continues
to be highly confident of another year of progress and
delivery.
"Reflecting this and the future prospects of the business the
Board is recommending a 10% increase in the interim dividend to
27.9 cent per share."
About Smurfit Kappa
Smurfit Kappa, a FTSE 100 company, is one of the leading
providers of paper-based packaging solutions in the world, with
around 46,000 employees in over 350 production sites across 35
countries and with revenue of EUR8.9 billion in 2018. 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 pro-active team, we relentlessly use our extensive
experience and expertise, supported by our scale, to open up
opportunities for our customers. We collaborate with
forward-thinking customers by sharing superior product knowledge,
market understanding and insights in packaging trends to ensure
business success in their markets. We have an unrivalled portfolio
of paper-packaging solutions, which is constantly updated with our
market-leading innovations. This is enhanced through the benefits
of our integration, with optimal paper design, logistics,
timeliness of service, and our packaging plants sourcing most of
their raw materials from our own paper mills.
Our products, which are 100% renewable and produced sustainably,
improve the environmental footprint of our customers.
smurfitkappa.com
Check out our microsite: openthefuture.info Follow us on Twitter
at @smurfitkappa and on LinkedIn at 'Smurfit Kappa'.
Forward Looking Statements
Some statements in this announcement are forward-looking. They
represent expectations for the Group's business, and involve risks
and uncertainties. These forward-looking statements are based on
current expectations and projections about future events. The Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because
they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the Group's control, actual
results or performance may differ materially from those expressed
or implied by such forward-looking statements.
Contacts
Garrett Quinn Melanie Farrell
Smurfit Kappa FTI Consulting
T: +353 1 202 71 80 T: +353 765 08 00
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2019 First Half | Performance Overview
The Group reported EBITDA for the first half of EUR847 million,
17% up on the same period in 2018, a record performance for the
Group.
The Group EBITDA margin was 18.3%, up from 16.4% in the first
half of 2018. The result reflects the resilience of the Group's
integrated model, the benefits of our capital spend programme,
volume growth, higher corrugated pricing, lower recovered fibre
costs and the impact of IFRS 16, Leases.
In Europe for the first half, EBITDA increased by EUR101 million
or 17% to EUR688 million. The EBITDA margin was 19.3%, up from
17.3% in the first half of 2018. The benefits of the prior years'
capital investments, organic box volume growth of approximately 2%,
higher corrugated prices, the benefits of acquisitions, the impact
of IFRS 16 and lower recovered fibre costs all contributed to the
strong result.
The price of recovered fibre in our European business was 9%
lower year-on-year for the first half, contributing EUR25 million
towards the European result.
European pricing for testliner and kraftliner has reduced by
EUR120 per tonne and EUR140 per tonne respectively from the high of
October 2018, and have shown signs of stabilisation in recent
months.
During the first half of 2019, the Group completed acquisitions
in Serbia and Bulgaria, a further step in its South Eastern
European strategy. The integration of these assets into the Smurfit
Kappa system is progressing well.
In the Americas for the first half, EBITDA increased 14% on the
same period last year to EUR179 million. The EBITDA margin also
improved, from 15.2% in the first half of 2018 to 17.1% in the
first half of 2019. 85% of the region's earnings were delivered by
Colombia, Mexico and the US with strong year-on-year performances
in all three countries.
The benefit of lower recovered fibre costs in the Americas for
the first half was approximately EUR7 million.
In Colombia, volumes were up 9% for the year driven by high
growth in the FMCG sector along with the agriculture and flower
markets. In June, the Group announced the successful tender offer
to acquire the minority shares in Cartón de Colombia S.A.. The
consideration payable under the Tender Offer amounted to
approximately EUR81 million.
In Mexico, we saw continued improvement on both an EBITDA and
EBITDA margin basis as well as continued volume growth. The growth
of e-commerce, the increasing focus on sustainable packaging
solutions, together with the Group's ability to provide a unique
Pan-American sales offering have continued to drive demand in our
Mexican business.
In the US, our margins continued progressing year-on-year in the
first half due to the strong mill performance and the benefit of
lower recovered fibre costs.
The Group reported free cash flow of EUR159 million in the first
half of 2019 compared to EUR148 million in the same period of 2018.
In January 2019, the Group successfully priced a EUR400 million
add-on offering to the June 2018 bond issue at a price of 100.75%
giving a yield of 2.756%. Also in January 2019, the Group signed
and completed a new 5 year EUR1,350 million revolving credit
facility ('RCF') with 21 of its existing relationship banks. The
new RCF refinances the Group's existing senior credit facility,
which was due to mature in March 2020. The average maturity profile
of the Group's debt (including the effect of our latest financing
activity) now stands at 4.2 years with an average interest rate of
3.78%. Net debt to EBITDA was 2.2x at the half year, with the
Group's net debt impacted by IFRS 16 and the Group's acquisition
activity. The Group remains well positioned within its Ba1/BB+/BB+
credit rating.
2019 First Half | Financial Performance
Revenue for the first half was EUR4,622 million, up
approximately 4% on the same period last year, on a reported and
underlying2 basis, reflecting the benefits of higher prices and
volume growth.
EBITDA for the first half was EUR847 million, EUR123 million
ahead of the same period in 2018. While the positive impact of IFRS
16 accounted for EUR44 million of the increase, earnings were also
higher in both Europe and the Americas.
Operating profit before exceptional items in the first half of
2019 at EUR558 million was 5% or EUR29 million higher than the
EUR529 million for the same period in 2018.
There were no exceptional items charged within operating profit
in the first half of 2019.
Exceptional items charged within operating profit in the first
half of 2018 amounted to EUR31 million relating to the defence from
the unsolicited approach by International Paper and a loss on the
disposal of our Baden operations in Germany.
Exceptional finance costs charged in the first half of 2019
amounted to EUR3 million reflecting the accelerated amortisation of
the debt issue costs relating to the refinancing of the senior
credit facility.
Exceptional finance costs charged in the six months to June 2018
amounted to EUR6 million, including EUR4 million in respect of the
fee payable to the bondholders to secure their consent to the
Group's move from quarterly to semi-annual reporting and EUR2
million representing the interest cost on the early termination of
certain US dollar/euro swaps. The swaps were terminated following
the paydown of the US dollar element of the 2018 bonds.
Pre-exceptional net finance costs at EUR100 million were EUR23
million higher in 2019 primarily as a result of an increase in
non-cash costs of EUR16 million reflecting a negative swing from a
currency translation gain of EUR23 million in 2018 to a small loss
in 2019. Cash interest was EUR7 million higher year-on-year mainly
as a result of the interest now recognised in respect of IFRS
16.
With the EUR29 million increase in pre-exceptional operating
profit, partly offset by the EUR23 million increase in net finance
costs, the pre-exceptional profit before income tax of EUR459
million was EUR6 million higher than in 2018.
After exceptional finance costs of EUR3 million, the profit
before tax in the first six months of 2019 was EUR456 million
compared to a profit of EUR416 million in 2018. The income tax
expense was EUR118 million compared to EUR121 million in 2018,
resulting in a profit of EUR338 million for the half year compared
to EUR295 million in 2018.
Basic EPS for the first half of 2019 was 140.6 cent, compared to
124.5 cent earned in the same period of 2018. On a pre-exceptional
basis, EPS was 141.6 cent in the first half, 1% higher than the
140.7 cent in the first half of 2018.
2 Underlying in relation to financial measures throughout this
report excludes acquisitions, disposals, currency and
hyperinflation movements where applicable
2019 First Half | Free Cash Flow
Free cash flow in the first half was EUR159 million compared to
EUR148 million in the first half of 2018. EBITDA growth of EUR123
million and the absence of the exceptional outflow of EUR17
million, were partly offset by higher outflows for capital
expenditure, working capital and other items.
Working capital amounted to EUR905 million at June 2019,
representing 9.8% of annualised revenue compared to 9.4% at March
2019 and 7.5% at December 2018. Working capital increased by EUR222
million in the half year, representing principally the net cash
outflow of EUR169 million, the reduction in capital creditors of
EUR34 million and working capital acquired of EUR13 million.
Capital expenditure in 2019 amounted to EUR272 million (equating
to 103% of depreciation) compared to EUR205 million (equating to
111%) in 2018. Excluding the impact of leases, capital expenditure
was EUR257 million and represented 115% of depreciation.
Cash interest was EUR82 million in the first half of 2019. Cash
interest in 2018 was EUR81 million but included exceptional finance
costs of EUR6 million. Excluding these amounts, our cash interest
amounted to EUR75 million in 2018. The year-on-year increase mainly
reflects the interest now recognised in respect of IFRS 16.
Tax payments in the first half of EUR92 million were EUR3
million higher than in 2018.
2019 First Half | Capital Structure
Net debt was EUR3,751 million at the end of June, resulting in a
net debt to EBITDA ratio of 2.2x compared to 2.0x at the end of
December 2018 and 2.1x at the end of June 2018. Our leverage at
June 2019 was negatively impacted by IFRS 16 with the Group's net
debt increasing by EUR338 million. The Group's balance sheet
continues to provide considerable financial strategic flexibility,
subject to the stated leverage range of 1.75x to 2.5x through the
cycle and SKG's Ba1/BB+/BB+ credit rating.
At 30 June 2019 the Group's average interest rate was 3.78%
compared to 3.63% at 31 December 2018. The Group's diversified
funding base and long dated maturity profile of 4.2 years provide a
stable funding outlook. In terms of liquidity, the Group held cash
balances of EUR247 million at the end of June, which was further
supplemented by available commitments under its new RCF of
approximately EUR1,132 million.
Dividends
The Board will increase the 2019 interim dividend by 10% to 27.9
cent per share. It is proposed to pay the interim dividend on 25
October 2019 to shareholders registered at the close of business on
27 September 2019.
2019 First Half | Sustainability
In May, the Group launched its 12th annual sustainability
report. An ambitious new set of sustainability goals was unveiled
having met or exceeded previous targets ahead of their 2020
deadline. Smurfit Kappa continues to have a long-term commitment to
making real and measurable progress against its five strategic
sustainability priorities of forest, climate change, water, waste
and people.
This report is evidence of our industry-leading transparency and
demonstrates how Smurfit Kappa is making progress in supporting the
UN's 2030 Sustainability Development Goals. For Smurfit Kappa,
sustainability is not only about mitigating climate change and
reducing inefficiency. For packaging to be truly sustainable, it
must be produced and designed in a sustainable fashion and be
biodegradable within a relatively short time. Paper-based packaging
is uniquely positioned to do this.
Smurfit Kappa continues to be listed on the FTSE4Good, Euronext
Vigeo Europe 120, STOXX Global ESG Leaders and Ethibel's
sustainable investment register. SKG also performs strongly across
a variety of third party cerification bodies, including MSCI,
Sustainalytics and EcoVadis.
2019 First Half | Commercial Offering and Innovation
The Group continues to progress its industry leading 'Better
Planet Packaging' initiative, which seeks to reduce packaging waste
by creating more sustainable packaging solutions through design,
innovation and recycling capabilities. The intensity of customer
and broader industry interest in this Smurfit Kappa initiative was
best highlighted at our biennial innovation event in May of this
year when the Group hosted over 350 customers from across the globe
and from a diverse array of businesses and functional
responsibility. Attendees heard how a change in packaging design
and a move to more sustainable packaging materials like corrugated
packaging can help them to meet their own sustainability
commitments.
Our innovation event was an industry-leading response to our
customer's request for help in moving away from less sustainable
packaging materials. The commercial pipeline in Smurfit Kappa has
grown considerably on the back of this and we expect it to be a
driver of incremental demand.
In the first six months of 2019, the Group's leadership in
innovation was recognised with 44 national or international awards
for packaging innovation, sustainability, design and print. The
Group's operations were awarded in Belgium, Colombia, the Czech
Republic, Ireland, Mexico, the Netherlands, Russia, and the UK.
The winning of two awards at the annual European e-Logistics
'Deliver' conference in Lisbon was particularly pleasing as there
were only five awards given, with SKG securing the 'Cool Vendor'
and 'Sustainability' awards.
In the Americas, SKG was awarded the 'Transforming Innovation'
award from Kellogg's which recognised suppliers from Canada through
to Brazil and the award itself reflected the work done by Smurfit
Kappa to identify a sustainable and innovative packaging solution
requiring fewer cases during transportation.
2019 First Half | Medium-Term Plan
To date, over EUR600 million of capital projects has been
approved under the Medium-Term Plan. This includes 15 case-makers,
20 die-cutters for the creation of complex designs, seven printers
and the upgrade of 13 of our corrugators to bring them up to the
standards expected by Smurfit Kappa, as well as multiple paper
related debottlenecking projects. The plan is being implemented in
a controlled, disciplined manner. The agile nature of the plan has
been demonstrated with the acquisition of Reparenco, replacing the
need for the construction of paper capacity in Europe with reduced
risk and immediate earnings, while future proofing the Group's
European containerboard requirements.
Summary Cash Flow
Summary cash flowsfor the six months are set out in the
following table
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
EBITDA 847 724
Exceptional items - (17)
Cash interest expense (82) (81)
Working capital change (169) (149)
Current provisions (17) (3)
Capital expenditure (272) (205)
Change in capital creditors (34) (26)
Tax paid (92) (89)
Sale of property, plant and equipment 2 -
Other (24) (6)
Free cash flow 159 148
Purchase of own shares (net) (25) (10)
Sale of businesses and investments - (11)
Purchase of businesses and investments (204) (16)
Dividends (175) (155)
Derivative termination receipts - 17
Net cash outflow (245) (27)
Net debt acquired (4) -
Adjustment on initial application of IFRS 16 (361) -
Deferred debt issue costs amortised (7) (5)
Currency translation adjustment (12) (34)
Increase in net debt (629) (66)
Funding and Liquidity
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the RCF. The Group's primary uses
of cash are for funding day to day operations, capital expenditure,
debt service, dividends and other investment activity including
acquisitions.
At 30 June 2019, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR120 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.
Smurfit Kappa Acquisitions had outstanding EUR400 million 4.125%
senior notes due 2020, EUR250 million senior floating rate notes
due 2020, EUR500 million 3.25% senior notes due 2021, EUR500
million 2.375% senior notes due 2024, EUR250 million 2.75% senior
notes due 2025 and EUR1,000 million 2.875% senior notes due 2026.
Smurfit Kappa Treasury is also party to a EUR1,350 million RCF
maturing in 2024. At 30 June 2019, the Group's drawings on this
facility comprised of EUR124 million, US$23.6 million and STGGBP60
million, with a further EUR6 million drawn in operational
facilities including letters of credit drawn under various
ancillary facilities.
Funding and Liquidity (continued)
The following table provides the interest rates at 30 June 2019
for each of the drawings under the RCF loans:
Borrowing Arrangement Currency Interest Rate
Revolving Credit Facility EUR 0.900%
USD 3.294%
GBP 1.627%
Borrowings under the RCF are available to fund the Group's
working capital requirements, capital expenditures and other
general corporate purposes.
In January 2019, the Group successfully priced a EUR400 million
add-on offering to the June 2018 EUR600 million 2.875% bond issue
at a price of 100.75 giving a yield of 2.756%. Also, in January
2019, the Group signed and completed the new 5-year EUR1,350
million RCF. This new RCF refinanced the Group's existing senior
credit facility which was due to mature in March 2020.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and
foreign currency fluctuations due to its investing and funding
activities and its operations in different foreign currencies.
Interest rate risk exposure is managed by achieving an appropriate
balance of fixed and variable rate funding. As at 30 June 2019, the
Group had fixed an average of 82% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised EUR400 million 4.125%
senior notes due 2020, EUR500 million 3.25% senior notes due 2021,
EUR500 million 2.375% senior notes due 2024, EUR250 million 2.75%
senior notes due 2025, US$292.3 million 7.50% senior debentures due
2025 and EUR1,000 million 2.875% senior notes due 2026. In
addition, the Group had EUR174 million in interest rate swaps
converting variable rate borrowings to fixed rate with maturity
dates ranging from October 2020 to January 2021.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR/EURIBOR interest rates for these borrowings increased by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR8 million over the
following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR2 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the
management process throughout the Group. Risks are identified,
evaluated and appropriate risk management strategies are
implemented at each level.
The Board in conjunction with senior management identifies major
business risks faced by the Group and determines the appropriate
course of action to manage these risks.
The principal risks and uncertainties faced by the Group were
outlined in our 2018 Annual Report on pages 32-35. The Annual
Report is available on our website smurfitkappa.com. The principal
risks and uncertainties for the remaining six months of the
financial year are summarised below.
-- If the current economic climate were to deteriorate, especially as a result of Brexit or changes in free trade agreements, and result in an economic slowdown which was sustained over any significant length of time, or the sovereign debt crisis (including its impact on the euro) were to re-emerge or exacerbate as a result of Brexit or changes in free trade agreements, it could adversely affect the Group's financial position and results of the operations.
-- The cyclical nature of the packaging industry could result in overcapacity and consequently threaten the Group's pricing structure.
-- If operations at any of the Group's facilities (in particular its key mills) were interrupted for any significant length of time it could adversely affect the Group's financial position and results of operations.
-- Price fluctuations in raw materials and energy costs could adversely affect the Group's manufacturing costs.
-- The Group is exposed to currency exchange rate fluctuations.
-- The Group may not be able to attract and retain suitably qualified employees as required for its business.
-- Failure to maintain good health and safety practices may have an adverse effect on the Group's business.
-- The Group is subject to a growing number of environmental laws and regulations, and the cost of compliance or the failure to comply with current and future laws and regulations may negatively affect the Group's business.
-- The Group is subject to anti-trust and similar legislation in the jurisdictions in which it operates.
-- The Group, similar to other large global companies, is susceptible to cyber-attacks with the threat to the confidentiality, integrity and availability of data in its systems.
The Board regularly monitors all of the above risks and
appropriate actions are taken to mitigate those risks or address
their potential adverse consequences.
Condensed Consolidated Income Statement - Six Months
6 months to 30-Jun-19 6 months to 30-Jun-18
Unaudited Unaudited
Pre-exceptional2019 Exceptional2019 Total2019 Pre-exceptional2018 Exceptional2018 Total2018
EURm EURm EURm EURm EURm EURm
Revenue 4,622 - 4,622 4,428 - 4,428
Cost of (3,089) - (3,089) (2,984) - (2,984)
sales
Gross 1,533 - 1,533 1,444 - 1,444
profit
Distribution (363) - (363) (351) - (351)
costs
Administrative (612) - (612) (564) - (564)
expenses
Other - - - - (31) (31)
operating
expenses
Operating 558 - 558 529 (31) 498
profit
Finance (107) (3) (110) (115) (6) (121)
costs
Finance 7 - 7 38 - 38
income
Share 1 - 1 1 - 1
of
associates'
profit
(after
tax)
Profit 459 (3) 456 453 (37) 416
before
income tax
Income tax (118) (121)
expense
Profit for 338 295
the
financial
period
Attributable
to:
Owners 332 294
of the
parent
Non-controlling 6 1
interests
Profit for 338 295
the
financial
period
Earnings
per
share
Basic 140.6 124.5
earnings
per
share -
cent
Diluted 139.8 123.8
earnings
per share
- cent
Condensed Consolidated Statement of Comprehensive Income - Six
Months
6 months to 6 months to
30-Jun-19 30-Jun-18
Unaudited Unaudited
EURm EURm
Profit for the financial period 338 295
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period 4 (178)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 4 7
- New fair value adjustments into reserve - (16)
- Movement in hedging reserve (1) -
Changes in fair value of cost of hedging:
- Movement out of reserve - (1)
- New fair value adjustments into reserve (1) 2
6 (186)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (78) (35)
- Movement in deferred tax 9 6
(69) (29)
Total other comprehensive expense (63) (215)
Total comprehensive income 275 80
for the financial period
Attributable to:
Owners of the parent 268 88
Non-controlling interests 7 (8)
Total comprehensive income 275 80
for the financial period
Condensed Consolidated Balance Sheet
30-Jun-19 30-Jun-18 31-Dec-18
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 4,055 3,159 3,613
Goodwill and intangible assets 2,672 2,382 2,590
Other investments 21 21 20
Investment in associates 15 14 14
Biological assets 103 118 100
Other receivables 36 35 40
Derivative financial instruments 4 9 8
Deferred income tax assets 149 128 153
7,055 5,866 6,538
Current assets
Inventories 856 819 847
Biological assets 11 12 11
Trade and other receivables 1,845 1,789 1,667
Derivative financial instruments 11 10 13
Restricted cash 13 15 10
Cash and cash equivalents 234 1,051 407
2,970 3,696 2,955
Total assets 10,025 9,562 9,493
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - - -
Share premium 1,984 1,984 1,984
Other reserves 331 (855) 355
Retained earnings 549 1,352 420
Total equity attributable 2,864 2,481 2,759
to owners of the parent
Non-controlling interests 38 147 131
Total equity 2,902 2,628 2,890
LIABILITIES
Non-current liabilities
Borrowings 3,393 3,749 3,372
Employee benefits 865 841 804
Derivative financial instruments 13 26 17
Deferred income tax liabilities 164 81 173
Non-current income tax liabilities 39 39 36
Provisions for liabilities 98 52 47
Capital grants 18 17 18
Other payables 16 15 14
4,606 4,820 4,481
Current liabilities
Borrowings 605 188 167
Trade and other payables 1,832 1,859 1,871
Current income tax liabilities 41 31 24
Derivative financial instruments 12 19 10
Provisions for liabilities 27 17 50
2,517 2,114 2,122
Total liabilities 7,123 6,934 6,603
Total equity and liabilities 10,025 9,562 9,493
CondensedConsolidated Statement of Changes in Equity
Attributable to owners of the parent
Equitysharecapital Sharepremium Otherreserves Retainedearnings Total Non-controllinginterests Totalequity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 31 December - 1,984 355 420 2,759 131 2,890
2018
Adjustment on initial - - - (21) (21) - (21)
application
of IFRS 16 (net of
tax) (Note 3)
At 1 January - 1,984 355 399 2,738 131 2,869
2019
Profit for the financial - - - 332 332 6 338
period
Other comprehensive
income
Foreign currency translation - - 3 - 3 1 4
adjustments
Defined benefit - - - (69) (69) - (69)
pension plans
Effective portion of changes in - - 3 - 3 - 3
fair value of cash flow hedges
Changes in fair value - - (1) - (1) - (1)
of cost of hedging
Total comprehensive income - - 5 263 268 7 275
for the financial period
Purchase of non-controlling - - (29) 45 16 (97) (81)
interests
Hyperinflation - - - 14 14 - 14
adjustment
Dividends - - - (172) (172) (3) (175)
paid
Share-based - - 25 - 25 - 25
payment
Net Shares acquired by - - (25) - (25) - (25)
SKG Employee Trust
At 30 June - 1,984 331 549 2,864 38 2,902
2019
Unaudited
At 1 January - 1,984 (678) 1,202 2,508 151 2,659
2018
Profit for the financial - - - 294 294 1 295
period
Other comprehensive
income
Foreign currency translation - - (169) - (169) (9) (178)
adjustments
Defined benefit - - - (29) (29) - (29)
pension plans
Effective portion of changes in - - (9) - (9) - (9)
fair value of cash flow hedges
Changes in fair value - - 1 - 1 - 1
of cost of hedging
Total comprehensive - - (177) 265 88 (8) 80
(expense)/income
for the financial period
Purchase of non-controlling - - - (5) (5) (3) (8)
interests
Hyperinflation - - - 43 43 9 52
adjustment
Dividends - - - (153) (153) (2) (155)
paid
Share-based - - 10 - 10 - 10
payment
Net Shares acquired by - - (10) - (10) - (10)
SKG Employee Trust
At 30 June - 1,984 (855) 1,352 2,481 147 2,628
2018
An analysis of the movements in Other reserves is provided in
Note 14.
Condensed Consolidated Statement of Cash Flows
6 months to 6 months to
30-Jun-19 30-Jun-18
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 456 416
Net finance costs 103 83
Depreciation charge 238 177
Amortisation of intangible assets 21 18
Amortisation of capital grants (1) (1)
Equity settled share-based payment expense 25 10
(Profit)/loss on sale/purchase (2) 13
of assets and businesses
Share of associates' profit (after tax) (1) (1)
Net movement in working capital (169) (152)
Change in biological assets 5 (10)
Change in employee benefits (44) (27)
and other provisions
Other (primarily hyperinflation adjustments) 3 18
Cash generated from operations 634 544
Interest paid (98) (100)
Income taxes paid:
Irish corporation tax paid (7) (7)
Overseas corporation tax (net (85) (82)
of tax refunds) paid
Net cash inflow from operating activities 444 355
Cash flows from investing activities
Interest received 2 2
Business disposals - (11)
Additions to property, plant and (282) (219)
equipment and biological assets
Additions to intangible assets (8) (12)
Receipt of capital grants 1 1
Increase in restricted cash (3) (6)
Disposal of property, plant and equipment 4 1
Purchase of subsidiaries (99) -
Deferred consideration paid (14) -
Net cash outflow from investing activities (399) (244)
Cash flows from financing activities
Proceeds from bond issue 403 600
Proceeds from issue of other debt 417 -
Purchase of own shares (net) (25) (10)
Purchase of non-controlling interests (81) (16)
Repayment of borrowings (399) (526)
(Decrease)/increase in other (306) 533
interest-bearing borrowings
Repayment of lease liabilities (39) (2)
(2018: repayment
of finance lease liabilities)
Derivative termination receipts - 17
Deferred debt issue costs paid (13) (6)
Dividends paid to shareholders (172) (153)
Dividends paid to non-controlling interests (3) (2)
Net cash (outflow)/inflow from (218) 435
financing activities
(Decrease)/increase in cash (173) 546
and cash equivalents
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 390 503
Currency translation adjustment (5) (20)
(Decrease)/increase in cash (173) 546
and cash equivalents
Cash and cash equivalents at 30 June 212 1,029
An analysis of the Net movement in working capital is provided
in Note 12.
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
Basis of preparation and accounting policiesThe condensed
consolidated interim financial statements included in this report
have been prepared in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, the related Transparency Rules of
the Central Bank of Ireland and with IAS 34, Interim Financial
Reporting as adopted by the European Union. The balance sheet as at
30 June 2018 has been included in this report; this information is
supplementary and not required by IAS 34. This report should be
read in conjunction with the consolidated financial statements for
the year ended 31 December 2018 included in the Group's 2018 Annual
Report which is available on the Group's website;
smurfitkappa.com.
The accounting policies and methods of computation and
presentation adopted in the preparation of the condensed
consolidated interim financial statements are consistent with those
described and applied in the Annual Report for the financial year
ended 31 December 2018 with the exception of IFRS 16, Leases. The
impact of the adoption of IFRS 16 and the new accounting policies
are disclosed in Note 3 Changes in Significant Accounting Policies.
A number of other changes to IFRS became effective in 2019, however
they did not have a material effect on the condensed consolidated
interim financial statements included in this report.
Going concernThe Group is a highly integrated manufacturer of
paper-based packaging products with leading market positions,
quality assets and broad geographic reach. The financial position
of the Group, its cash generation, capital resources and liquidity
continue to provide a stable financing platform. Having assessed
the principal risks facing the Group, 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 condensed consolidated
interim financial statements.
Statutory financial statements and audit opinionThe Group's
auditors have not audited or reviewed the condensed consolidated
interim financial statements contained in this report.
The condensed consolidated interim financial statements
presented do not constitute full statutory financial statements.
Full statutory financial statements for the year ended 31 December
2018 will be filed with the Irish Registrar of Companies in due
course. The audit report on those statutory financial statements
was unqualified.
3. Changes in Significant Accounting Policies
IFRS 16, Leases, issued in January 2016 by the IASB replaces IAS
17, Leases, and related interpretations. IFRS 16 sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both the lessee and the lessor. For
lessees, IFRS 16 eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee
accounting model with some exemptions for short-term and low-value
leases. The lessee recognises a right-of-use asset representing its
right to use the underlying asset and a lease liability
representing its obligation to make lease payments.
The Group has adopted IFRS 16 using the modified retrospective
approach, with the date of initial application of 1 January 2019.
Under this method, the impact of the standard is calculated
retrospectively, however, the cumulative effect arising from the
new leasing rules is recognised in the opening balance sheet at the
date of initial application. Accordingly, the comparative
information presented for 2018 has not been restated.
3. Changes in Significant Accounting Policies (continued)
The Group's leasing activities and how these are accounted
forThe Group leases a range of assets including property, plant and
equipment and vehicles.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Payments made under operating leases (net of any
incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease. Under IFRS
16, the Group applies a single recognition and measurement approach
for all leases, except for short-term and low-value assets and
recognises right-of-use assets and lease liabilities.
The Group presents right-of-use assets in 'property, plant and
equipment', in the same line item as it presents underlying assets
of the same nature that it owns. The carrying amounts of
right-of-use assets are as below.
Land andbuildings Plant andequipment Total
EURm EURm EURm
At 1 January 2019 255 95 350
At 30 June 2019 240 91 331
The Group presents lease liabilities in 'borrowings' in the
balance sheet. The carrying amounts of lease liabilities are as
below.
Current leaseliabilities Non-currentleaseliabilities Total
EURm EURm EURm
At 1 January 2019 73 307 380
At 30 June 2019 74 288 362
Significant accounting policiesUnder IFRS 16, a contract is, or
contains a lease if the contract conveys a right to control the use
of an identified asset for a period of time in exchange for
consideration. The Group recognises a right-of-use asset and a
lease liability at the lease commencement date.
The right-of-use asset is initially measured at cost, and
subsequently at cost less any accumulated depreciation and
impairment losses and adjusted for certain remeasurements of the
lease liability. The cost of right-of-use assets includes the
amount of lease liabilities recognised, initial direct costs
incurred, restoration costs and lease payments made at or before
the commencement date less any lease incentives received. The
right-of-use asset is depreciated on a straight-line basis over the
shorter of its estimated useful life and the lease term. Where the
lease contains a purchase option the asset is written off over the
useful life of the asset when it is reasonably certain that the
purchase option will be exercised. Right-of-use assets are subject
to impairment testing.
3. Changes in Significant Accounting Policies (continued)
The lease liability is initially measured at the present value
of certain lease payments to be made over the lease term. The lease
payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to
be paid under residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably certain
to be exercised by the Group and payments of penalties for
terminating a lease, if the lease term reflects the Group
exercising the option to terminate. The variable lease payments
that do not depend on an index or a rate are recognised as an
expense in the period in which the event or condition that triggers
the payment occurs. The Group has elected to avail of the practical
expedient not to separate lease components from any associated
non-lease components.
The lease payments are discounted using the lessee's incremental
borrowing rate as the interest rate implicit in the lease is
generally not readily determinable.
After the commencement date, the lease liability is subsequently
increased by the interest cost on the lease liability and decreased
by the lease payments made. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
a change in the estimate of the amount expected to be payable under
a residual value guarantee, or as appropriate, changes in the
assessment of whether a purchase or extension option is reasonably
certain to be exercised or a termination option is reasonably
certain not to be exercised.
The Group has elected to apply the recognition exemptions for
short-term and low-value leases and recognises the lease payments
associated with these leases as an expense in profit or loss on a
straight-line basis over the lease term. Short-term leases are
leases with a lease term of 12 months or less. Low-value assets
comprise certain items of IT equipment and small items of office
furniture.
Significant accounting judgementsThe Group has applied judgement
to determine the lease term for some lease contracts in which it is
a lessee that include renewal options. The assessment of whether
the Group is reasonably certain to exercise such options impacts
the lease term, which significantly affects the amount of lease
liabilities and right-of-use assets recognised.
TransitionOn transition to IFRS 16, the Group has elected to
apply the practical expedient to grandfather the assessment of
which transactions are leases. It applied IFRS 16 only to contracts
that were previously identified as leases. Contracts that were not
identified as leases under IAS 17 and IFRIC 4 were not
reassessed.
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the lessee's incremental
borrowing rate as at 1 January 2019. Right-of-use assets were
measured at either:
-- their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee's incremental borrowing rate at the date of initial application - the Group applied this approach for certain property leases; or
-- an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments - the Group applied this approach to all other leases.
3. Changes in Significant Accounting Policies (continued)
The Group applied the following practical expedients when
applying IFRS 16 to leases previously classified as operating
leases under IAS 17.
-- Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.
-- Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
-- Relied on its assessment of whether leases are onerous under IAS 37 immediately before the date of initial application to meet the impairment requirement.
For leases previously classified as finance leases under IAS 17,
the carrying amount of the right-of-use asset and the lease
liability at 1 January 2019 were determined as the carrying amount
of lease asset and lease liability under IAS 17 immediately before
that date.
Impacts on financial statements
Impacts on transitionOn transition to IFRS 16, the Group
recognised additional right-of-use assets and additional lease
liabilities, recognising the difference in retained earnings. The
right-of use asset was adjusted by the onerous lease contract which
was previously reported in 'Provisions for liabilities'. The impact
on transition is summarised below.
1 January 2019
EURm
Right-of-use assets presented in 331
property, plant and equipment
Deferred tax asset 4
Provisions for liabilities (5)
Lease liabilities 361
Retained earnings (21)
When measuring lease liabilities for leases that were classified
as operating leases, the Group discounted lease payments using the
lessee's incremental borrowing rate at 1 January 2019. The weighted
average rate applied was 3%.
The lease liabilities as at 1 January 2019 can be reconciled to
the operating lease commitments as at 31 December 2018 as
follows:
EURm
Operating lease commitments at 31 December 2018 332
Add:
Extension options reasonably certain to be exercised 71
Non-lease components 23
Less:
Commitments relating to short-term and low-value leases (1)
Total future lease payments 425
Effect of discounting (64)
Finance lease liabilities recognised at 31 December 2018 19
Lease liabilities at 1 January 2019 380
3. Changes in Significant Accounting Policies (continued)
Impacts for the periodAs a result of initially applying IFRS 16,
in relation to the leases that were previously classified as
operating leases, the Group recognised EUR307 million of
right-of-use assets and EUR338 million of lease liabilities at 30
June 2019.
Also in relation to those leases under IFRS 16, the Group has
recognised depreciation and interest costs instead of an operating
lease expense. During the six months ended 30 June 2019, the Group
recognised EUR40 million of depreciation charges and EUR5 million
of interest costs from these leases.
4. Segment and Revenue Analyses
The Group has determined operating segments based on the manner
in which reports are reviewed by the chief operating decision maker
('CODM'). The CODM is determined to be the executive management
team responsible for assessing performance, allocating resources
and making strategic decisions. The Group has identified two
operating segments: 1) Europe and 2) The Americas.
The Europe segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Americas segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries
and the United States. Inter-segment revenue is not material. No
operating segments have been aggregated for disclosure
purposes.
Segment profit is measured based on EBITDA.
6 months to 30-Jun-19 6 months to 30-Jun-18
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and results
Revenue 3,574 1,048 4,622 3,397 1,031 4,428
EBITDA before 688 179 867 587 157 744
exceptional
items
Segment exceptional - - - (14) - (14)
items
EBITDA after 688 179 867 573 157 730
exceptional
items
Unallocated centre (20) (20)
costs
Share-based payment (25) (10)
expense
Depreciation and (243) (167)
depletion (net)
Amortisation (21) (18)
Exceptional items - (17)
Finance costs (110) (121)
Finance income 7 38
Share of associates' 1 1
profit (after tax)
Profit before 456 416
income tax
Income tax expense (118) (121)
Profit for the 338 295
financial
period
4. Segment and Revenue Analyses (continued)
Assets
6 months to 30-Jun-19 6 months to 30-Jun-18
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Segment assets 7,622 2,180 9,802 6,502 2,025 8,527
Investment in 1 14 15 1 13 14
associates
Group centre assets 208 1,021
Total assets 10,025 9,562
Liabilities
6 months to 30-Jun-19 6 months to 30-Jun-18
Europe The Americas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Segment liabilities 2,820 579 3,399 2,503 388 2,891
Group centre 3,724 4,043
liabilities
Total liabilities 7,123 6,934
Revenue information about geographical areas
The following 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.
6 months to30-Jun-19 6 months to30-Jun-18
EURm EURm
Ireland 55 54
Germany 658 677
France 571 528
Mexico 451 390
Spain 393 376
United Kingdom 388 385
Rest of the world 2,106 2,018
Total revenue by geographical 4,622 4,428
area
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.
6 months to 30-Jun-19 6 months to 30-Jun-18
Paper Packaging Total Paper Packaging Total
EURm EURm EURm EURm EURm EURm
Europe 600 2,974 3,574 540 2,857 3,397
The Americas 146 902 1,048 149 882 1,031
Total revenue 746 3,876 4,622 689 3,739 4,428
by product
5. Exceptional Items
6 months to 6 months to
The following items are regarded 30-Jun-19 30-Jun-18
as exceptional in nature:
EURm EURm
International Paper defence costs - 17
Loss on the disposal of Baden operations - 14
Exceptional items included in operating profit - 31
Exceptional finance costs 3 6
Exceptional items included in net finance costs 3 6
Total exceptional items 3 37
The exceptional finance cost of EUR3 million, which arose in the
first half of 2019, represented the accelerated amortisation of the
debt issue costs relating to the refinancing of the senior credit
facility.
Exceptional items charged within operating profit in 2018
amounted to EUR31 million. This comprised the cost of countering
the unsolicited approach from International Paper and the loss on
the disposal of the Baden operations in Germany.
Exceptional finance costs charged in 2018 amounted to EUR6
million, including EUR4 million in respect of the fee payable to
the bondholders to secure their consent to the Group's move from
quarterly to semi-annual reporting and EUR2 million representing
interest cost on the early termination of certain US dollar/euro
swaps. The swaps were terminated following the paydown of the US
dollar element of the 2018 bonds.
6. Finance Costs and Income
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 23 25
Interest payable on leases 6 -
Interest payable on other borrowings 59 57
Exceptional finance costs associated 3 -
with debt restructuring
Exceptional consent fee - reporting waiver - 4
Exceptional interest on early termination - 2
of cross currency swaps
Unwinding of discount element of provisions 1 -
Foreign currency translation loss on debt 6 11
Fair value loss on derivatives 3 -
not designated as hedges
Net interest cost on net pension liability 9 11
Net monetary loss - hyperinflation - 11
Total finance costs 110 121
Finance income:
Other interest receivable (2) (2)
Foreign currency translation gain on debt (3) (33)
Fair value gain on derivatives - (3)
not designated as hedges
Fair value gain on financial assets (1) -
Net monetary gain - hyperinflation (1) -
Total finance income (7) (38)
Net finance costs 103 83
7. Income Tax Expense
Income tax expense recognised in the Condensed Consolidated
Income Statement
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Current tax:
Europe 81 62
The Americas 30 35
111 97
Deferred tax 7 24
Income tax expense 118 121
Current tax is analysed as follows:
Ireland 4 9
Foreign 107 88
111 97
Income tax recognised in the Condensed Consolidated Statement of
Comprehensive Income
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Arising on defined benefit pension plans (9) (6)
The income tax expense in 2019 is EUR3 million lower than in the
comparable period in 2018. However, in 2018 the expense includes a
EUR13 million charge for Venezuela which does not occur in 2019.
The resulting EUR10 million net increase on a like-for-like basis
is mainly attributable to higher profitability in 2019 but it also
includes the benefit of an investment tax credit.
There is a EUR14 million increase in the current tax expense. In
Europe, the expense is EUR19 million higher due to changes in
profitability, timing differences and an investment tax credit. In
the Americas, the current tax expense is EUR5 million lower.
However, after adjusting for the deconsolidation of Venezuela in
2018, there is a EUR7 million net increase on a like-for-like
basis. This is primarily due to changes in profitability.
The deferred tax charge is EUR17 million lower than in the
comparable period in 2018. The decrease is largely due to the
reversal of timing differences on which deferred tax liabilities
were previously recognised.
There is no income tax expense or credit from exceptional items
in 2019 compared to a EUR1 million expense in 2018.
8. Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Current service cost 14 15
Gain on settlement (1) -
Past service cost - (2)
Net interest cost on net pension liability 9 8
Defined benefit cost 22 21
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR13 million (2018: EUR13
million). Net interest cost on net pension liability of EUR9
million (2018: EUR8 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-Jun-19 31-Dec-18
EURm EURm
Present value of funded or partially (2,349) (2,145)
funded obligations
Fair value of plan assets 2,002 1,831
Deficit in funded or partially funded plans (347) (314)
Present value of wholly unfunded obligations (516) (489)
Amounts not recognised as assets (2) (1)
due to asset ceiling
Net pension liability (865) (804)
The employee benefit provision has increased from EUR804 million
at 31 December 2018 to EUR865 million at 30 June 2019 due to lower
discount rates as a result of lower euro and Sterling AA corporate
bond yields.
9. Earnings per Share
BasicBasic earnings per share is calculated by dividing the
profit attributable to owners of the parent by the weighted average
number of ordinary shares in issue during the period less own
shares.
6 months to 6 months to
30-Jun-19 30-Jun-18
Profit attributable to owners 332 294
of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Basic earnings per share (cent) 140.6 124.5
DilutedDiluted 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.
6 months to 6 months to
30-Jun-19 30-Jun-18
Profit attributable to owners 332 294
of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Potential dilutive ordinary 1 1
shares assumed (million)
Diluted weighted average ordinary shares (million) 237 237
Diluted earnings per share (cent) 139.8 123.8
Pre-exceptional 6 months to 6 months to
30-Jun-19 30-Jun-18
Profit attributable to owners 332 294
of the parent (EUR million)
Exceptional items included in profit before 3 37
income tax (Note 5) (EUR million)
Income tax on exceptional items (EUR million) - 1
Pre-exceptional profit attributable to 335 332
owners of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Pre-exceptional basic earnings per share (cent) 141.6 140.7
Diluted weighted average ordinary shares (million) 237 237
Pre-exceptional diluted earnings per share (cent) 140.8 140.0
10. Dividends
During the period, the final dividend for 2018 of 72.2 cent per
share was paid to the holders of ordinary shares. The Board has
decided to pay an interim dividend of 27.9 cent per share for 2019
and it is proposed to pay this dividend on 25 October 2019 to all
ordinary shareholders on the share register at the close of
business on 27 September 2019.
11. Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Six months ended
30 June 2019
Opening net book amount 1,059 2,554 3,613
Adjustment on initial 246 85 331
application
of IFRS 16 (Note 3)
Restated balance at 1,305 2,639 3,944
1 January 2019
Reclassifications 15 (17) (2)
Additions 5 254 259
Acquisitions 40 40 80
Depreciation charge (47) (191) (238)
Retirements and (1) (1) (2)
disposals
Hyperinflation 2 4 6
adjustment
Foreign currency 5 3 8
translation
adjustment
At 30 June 2019 1,324 2,731 4,055
Year ended 31 December
2018
Opening net book amount 1,023 2,219 3,242
Reclassifications 60 (65) (5)
Additions 2 537 539
Acquisitions 88 237 325
Depreciation charge (51) (328) (379)
Retirements and (14) (7) (21)
disposals
Deconsolidation (11) (8) (19)
of Venezuela
Hyperinflation 17 24 41
adjustment
Foreign currency (55) (55) (110)
translation
adjustment
At 31 December 2018 1,059 2,554 3,613
12. Net Movement in Working Capital
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Change in inventories 2 (39)
Change in trade and other receivables (132) (264)
Change in trade and other payables (39) 151
Net movement in working capital (169) (152)
13. Analysis of Net Debt
30-Jun-19 31-Dec-18
EURm EURm
Revolving credit facility - interest 205 -
at relevant interbank
rate (interest rate floor of 0%) + 0.9%(1)
Senior credit facility(2):
Revolving credit facility- interest - 4
at relevant interbank rate + 1.10%
Facility A term loan - interest at - 407
relevant interbank rate + 1.35%
US$292.3 million 7.50% senior debentures 258 257
due 2025 (including accrued interest)
Bank loans and overdrafts 142 119
EUR200 million receivables securitisation 4 49
variable funding
notes due 2022 (including accrued interest)
EUR230 million receivables securitisation 119 179
variable funding notes due 2023
EUR400 million 4.125% senior notes due 406 406
2020 (including accrued interest)
EUR250 million senior floating rate notes due 251 251
2020 (including accrued interest)(3)
EUR500 million 3.25% senior notes due 499 498
2021 (including accrued interest)
EUR500 million 2.375% senior notes due 499 499
2024 (including accrued interest)
EUR250 million 2.75% senior notes due 250 250
2025 (including accrued interest)
EUR1,000 million 2.875% senior notes due 1,003 601
2026 (including accrued interest)(4)
Gross debt before leases 3,636 3,520
Lease liabilities(5) 362 19
Gross debt including leases 3,998 3,539
Cash and cash equivalents (247) (417)
Net debt including leases 3,751 3,122
(1) Revolving credit facility ("RCF") of
EUR1,350 million maturing in 2024.
(a) Revolver loans - EUR212 million
(b) Drawn under ancillary facilities and facilities
supported by letters of credit - nil
(c) Other operational facilities including
letters of credit - EUR6 million
(2) In January 2019, the senior credit facility which was due to
mature in March 2020 was refinanced with a new 5-year RCF.
(3) Interest at EURIBOR + 3.5%.
(4) In February 2019, the Group issued EUR400 million senior notes which
form a single series with the existing EUR600 million senior notes.
(5) The adoption of IFRS 16 effective 1 January 2019 increases
reported leases by EUR338 million at 30 June 2019.
14. Other Reserves
Other reserves included in the Condensed Consolidated Statement
of Changes in Equity are comprised of the following:
Reverseacquisitionreserve Cash flowhedgingreserve Cost ofhedgingreserve Foreigncurrencytranslationreserve Share-basedpaymentreserve Ownshares Available-for-salereserve FVOCIreserve
Total
EURm EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 2019 575 (14) 3 (367) 185 (28) - 1 355
Other comprehensive income
Foreign currency translation - - - 3 - - - - 3
adjustments
Effective portion of changes in - 3 - - - - - - 3
fair value of cash flow hedges
Changes in fair value - - (1) - - - - - (1)
of cost of hedging
Total other comprehensive - 3 (1) 3 - - - - 5
income/(expense)
Purchase of non-controlling - - - (29) - - - - (29)
interest
Share-based payment - - - - 25 - - - 25
Net shares acquired by - - - - - (25) - - (25)
SKG Employee Trust
Shares distributed by - - - - (9) 9 - - -
SKG Employee Trust
At 30 June 2019 575 (11) 2 (393) 201 (44) - 1 331
At 31 December 2017 575 (17) - (1,382) 176 (31) 1 - (678)
Adjustment on initial - (2) 2 - - - (1) 1 -
application
of IFRS 9 (net of tax)
At 1 January 2018 575 (19) 2 (1,382) 176 (31) - 1 (678)
Other comprehensive income
Foreign currency translation - - - (169) - - - - (169)
adjustments
Effective portion of changes in - (9) - - - - - - (9)
fair value of cash flow hedges
Changes in fair value - - 1 - - - - - 1
of cost of hedging
Total other comprehensive - (9) 1 (169) - - - - (177)
(expense)/income
Share-based payment - - - - 10 - - - 10
Net shares acquired by - - - - - (10) - - (10)
SKG Employee Trust
Shares distributed by - - - - (12) 12 - - -
SKG Employee Trust
At 30 June 2018 575 (28) 3 (1,551) 174 (29) - 1 (855)
15. Fair Value Hierarchy
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 30 June 2019:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Other investments:
Listed 1 - - 1
Unlisted - 8 12 20
Derivative financial instruments:
Assets at fair value through Condensed - 8 - 8
Consolidated Income Statement
Derivatives used for hedging - 7 - 7
Derivative financial instruments:
Liabilities at fair value through Condensed - (3) - (3)
Consolidated Income Statement
Derivatives used for hedging - (22) - (22)
Deferred contingent consideration - - (53) (53)
1 (2) (41) (42)
The following table presents the Group's financial assets and
liabilities that are measured at fair value at 31 December
2018:
Level 1 Level 2 Level 3 Total
EURm EURm EURm EURm
Other investments:
Listed 1 - - 1
Unlisted - 7 12 19
Derivative financial instruments:
Assets at fair value through Condensed - 12 - 12
Consolidated Income Statement
Derivatives used for hedging - 9 - 9
Derivative financial instruments:
Liabilities at fair value through Condensed - (3) - (3)
Consolidated Income Statement
Derivatives used for hedging - (24) - (24)
1 1 12 14
The fair value of listed investments is determined by reference
to their bid price at the reporting date. Unlisted investments are
valued using recognised valuation techniques for the underlying
security including discounted cash flows and similar unlisted
equity valuation models.
The valuation model for the unlisted investment measured in
accordance with level 3 of the fair value hierarchy is based on
market multiples derived from quoted prices of companies comparable
to the investee, adjusted for the effect of the non-marketability
of the equity securities and the revenue and EBITDA of the
investee. The estimate is adjusted for the net debt of the
investee. A 5% movement in the adjusted market multiple would
increase/decrease the fair value of the unlisted investment by
approximately EUR3 million.
The fair value of the derivative financial instruments has been
measured in accordance with level 2 of the fair value hierarchy.
All are plain derivative instruments, valued with reference to
observable foreign exchange rates, interest rates or broker
prices.
Deferred contingent consideration arose in relation to the put
option on our Serbian acquisition (Note 18) in the period. The
valuation model for the deferred contingent consideration measured
in accordance with level 3 of the fair value hierarchy is based on
the present value of the expected payment discounted using a
risk-adjusted discount rate. The unobservable input in determining
the fair value is the underlying profitability of the business unit
to which the consideration relates. A 5% movement in the
unobservable input would increase/decrease the fair value of the
deferred contingent consideration by approximately EUR3
million.
There were no other material changes to the fair values of the
level 3 instruments during the period.
There were no reclassifications or transfers between the levels
of the fair value hierarchy during the period.
16. Fair Value
The following table sets out the fair value of the Group's
principal financial assets and liabilities. The determination of
these fair values is based on the descriptions set out within Note
2 to the consolidated financial statements of the Group's 2018
Annual Report.
30-Jun-19 31-Dec-18
Carrying value Fair value Carrying value Fair value
EURm EURm EURm EURm
Trade and other 1,757 1,757 1,612 1,612
receivables
(1)
Equity 10 10 10 10
instruments(2)
Listed and unlisted 11 11 10 10
debt
instruments(2)
Cash and cash 234 234 407 407
equivalents
(3)
Derivative 15 15 21 21
assets (4)
Restricted cash(3) 13 13 10 10
2,040 2,040 2,070 2,070
Trade and other 1,455 1,455 1,483 1,483
payables(1)
Senior credit 205 205 411 411
facility(5)
2022 4 4 49 49
receivables
securitisation(3)
2023 119 119 179 179
receivables
securitisation(3)
Bank overdrafts(3) 142 142 119 119
2025 debentures(6) 258 305 257 296
2020 fixed rate 406 416 406 421
notes(6)
2020 floating rate 251 261 251 260
notes(6)
2021 notes(6) 499 529 498 521
2024 notes(6) 499 537 499 505
2025 notes(6) 250 273 250 254
2026 notes(6) 1,003 1,097 601 600
5,091 5,343 5,003 5,098
Lease liabilities 362 362 19 19
5,453 5,705 5,022 5,117
Derivative 25 25 27 27
liabilities(4)
Deferred contingent 53 53 - -
consideration(7)
5,531 5,783 5,049 5,144
Total net position (3,491) (3,743) (2,979) (3,074)
(1) The fair value of trade and other receivables and
payables is estimated as the present value
of future cash flows, discounted at the market
rate of interest at the reporting date.
(2) The fair value of listed financial assets
is determined by reference to their
bid price at the reporting date. Unlisted
financial assets are valued
using recognised valuation techniques for
the underlying security including
discounted cash flows and similar unlisted
equity valuation models.
(3) The carrying amount reported in the Condensed
Consolidated Balance Sheet
is estimated to approximate to fair
value because of the short-term
maturity of these instruments and, in the
case of the receivables securitisation,
the variable nature of the facility and repricing dates.
(4) The fair value of forward foreign currency
and energy contracts is based on their
listed market price if available. If a
listed market price is not available,
then fair value is estimated by discounting
the difference between the contractual
forward price and the current forward
price for the residual maturity
of the contract using a risk-free interest
rate (based on government bonds).
The fair value of interest rate swaps
is based on discounting estimated
future cash flows based on the terms and
maturity of each contract and using
market interest rates for a similar instrument
at the measurement date.
(5) The fair value (level 2) of the senior credit facility
is based on the present value of its estimated
future cash flows discounted at an appropriate market
discount rate at the balance sheet date.
(6) Fair value (level 2) is based on broker
prices at the balance sheet date.
(7) The fair value of deferred contingent consideration
is based on the present value
of the expected payment, discounted using
a risk-adjusted discount rate.
17. Related Party Transactions
Details of related party transactions in respect of the year
ended 31 December 2018 are contained in Note 30 to the consolidated
financial statements of the Group's 2018 Annual Report. The Group
continued to enter into transactions in the normal course of
business with its associates and other related parties during the
period. There were no transactions with related parties in the
first half of 2019 or changes to transactions with related parties
disclosed in the 2018 consolidated financial statements that had a
material effect on the financial position or the performance of the
Group.
18. Business Combinations
The acquisitions completed by the Group in the first half of
2019, together with percentages acquired and completion dates were
as follows:
-- Fabrika Hartije d.o.o. Beograd ('FHB') and Avala Ada d.o.o. Beograd ('Avala Ada'), (75%, 1 January 2019 with put and call options in place over the remaining 25%), respectively a paper mill and a corrugated plant in Serbia;
-- Balkanpack EOOD ('Balkanpack'), (100%, 28 February 2019), an integrated corrugated plant in Bulgaria; and
-- Vitavel AD ('Vitavel'), (100%, 30 April 2019), an integrated corrugated plant in Bulgaria.
The table below reflects the fair value of the identifiable net
assets acquired in respect of the acquisitions completed during the
period. Any amendments to fair values will be made within the
twelve month period from the date of acquisition, as permitted by
IFRS 3, Business Combinations. None of the business combinations
completed during the period were considered sufficiently material
to warrant separate disclosure of the fair values attributable to
those combinations.
Total1
EURm
Non-current assets
Property, plant and equipment 80
Current assets
Inventories 6
Trade and other receivables 23
Cash and cash equivalents 10
Non-current liabilities
Deferred income tax liabilities (3)
Provisions for liabilities (1)
Borrowings (11)
Current liabilities
Borrowings (3)
Trade and other payables (16)
Current income tax liabilities (1)
Net assets acquired 84
Goodwill 88
Consideration 172
Settled by:
Cash 109
Deferred consideration 10
Deferred contingent consideration 53
172
1 In addition to the 2019 acquisitions,
the amounts also include fair value
adjustments in relation to 2018 acquisitions.
The Group has considered the
size of these adjustments and does not
deem them to be sufficiently material
to warrant a restatement of the 2018 consolidated financial statements.
The principal factors contributing to the recognition of
goodwill are the realisation of cost savings and other synergies
with existing entities in the Group which do not qualify for
separate recognition as intangible assets.
Net cash outflow arising on acquisition EURm
Cash consideration 109
Less cash & cash equivalents acquired (10)
Total 99
The gross contractual value of trade and other receivables as at
the respective dates of acquisition amounted to EUR24 million. The
fair value of these receivables is estimated at EUR23 million (all
of which is expected to be recoverable).
The Group's acquisitions in 2019 have contributed EUR35 million
to revenue and EUR4 million to profit for the first half of
2019.
The deferred contingent consideration is for the remaining 25%
of our Serbian acquisition. Put and call options are in place over
this non-controlling interest and the Group has applied the
anticipated acquisition method of accounting for this arrangement.
The present value is based on a multiple of underlying
profitability.
There have been no acquisitions completed subsequent to the
balance sheet date which would be individually material to the
Group, thereby requiring disclosure under either IFRS 3 or IAS 10,
Events after the Balance Sheet Date.
19. Other Information
The Group understands that the Italian Competition Authority
will shortly release the outcome of its work in relation to
approximately 50 market participants in Italy, including one of the
Group's Italian subsidiaries. We await the outcome of its work.
20. Board Approval
This interim report was approved by the Board of Directors on 30
July 2019.
21. Distribution of the Interim Report
This 2019 interim report is available on the Group's website
smurfitkappa.com.
Responsibility Statement in Respect of the Six Months Ended 30
June 2019
The Directors, whose names and functions are listed on pages 60
to 62 in the Group's 2018 Annual Report, are responsible for
preparing this interim management report and the condensed
consolidated interim financial statements in accordance with the
Transparency (Directive 2004/109/EC) Regulations 2007, the related
Transparency Rules of the Central Bank of Ireland and with IAS 34,
Interim Financial Reporting as adopted by the European Union.
The Directors confirm that, to the best of their knowledge:
-- the condensed consolidated interim financial statements for the half year ended 30 June 2019 have been prepared in accordance with the international accounting standard applicable to interim financial reporting, IAS 34, adopted pursuant to the procedure provided for under Article 6 of the Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002;
-- the interim management report includes a fair review of the important events that have occurred during the first six months of the financial year, and their impact on the condensed consolidated interim financial statements for the half year ended 30 June 2019, and a description of the principal risks and uncertainties for the remaining six months;
-- the interim management report includes a fair review of related party transactions that have occurred during the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.
Signed on behalf of the Board
A. Smurfit, Director and Chief Executive OfficerK. Bowles,
Director and Chief Financial Officer
30 July 2019.
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 Key Performance Indicators on
pages 28-31 of the Group's 2018 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.
x 100
EBITDA Margin % EBITDA
Revenue
x 100
Pre-exceptional Basic EPS (cent) Profit attributable to owners of the parent, adjusted for exceptional items included in profit before income tax and income tax on exceptional items
Weighted average number of ordinary shares in issue
x 100
Return on Capital Employed % Last twelve months ('LTM') pre-exceptional operating profit plus share of associates' profit (after tax)
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) is included in the interim management report. The IFRS cash flow is included in the condensed consolidated interim financial statements. A reconciliation of free cash flow to cash generated from operations (IFRS measure) is included below.
Net Debt Net debt is comprised of borrowings net of cash and cash equivalents and restricted cash.
Net Debt to EBITDA (LTM) times Net debt
EBITDA (LTM)
Reconciliation of Profit to EBITDA
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Profit for the financial period 338 295
Income tax expense 118 121
Exceptional items charged - 31
in operating profit
Share of associates' profit (after tax) (1) (1)
Net finance costs (after 103 83
exceptional items)
Share-based payment expense 25 10
Depreciation, depletion 264 185
(net) and amortisation
EBITDA 847 724
Return on Capital Employed
30-Jun-19 30-Jun-18
EURm EURm
Pre-exceptional operating profit plus share 1,134 991
of associates' profit (after tax) (LTM)
Total equity - current period end 2,902 2,628
Net debt - current period end 3,751 2,871
Capital employed - current period end 6,653 5,499
Total equity - prior period end 2,628 2,488
Net debt - prior period end 2,871 2,985
Capital employed - prior period end 5,499 5,473
Average capital employed 6,076 5,486
Return on capital employed 18.7% 18.1%
Reconciliation of Free Cash Flow to Cash Generated from
Operations
6 months to 6 months to
30-Jun-19 30-Jun-18
EURm EURm
Free cash 159 148
flow
Add Cash interest 82 81
back:
Capital expenditure (net of change in capital creditors) 306 231
Tax payments 92 89
Less: Sale of property, plant and equipment (2) -
Profit on sale of assets and businesses - non-exceptional (2) (1)
Receipt of capital grants (in 'Other' in summary cash flow) (1) (1)
Non-cash financing activities - (3)
Cash generated from 634 544
operations
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:
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(END) Dow Jones Newswires
July 31, 2019 02:00 ET (06:00 GMT)
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