TIDMSKG
Smurfit Kappa Group plc ('SKG' or 'the Group') today announced
results for the full year ending 31 December 2019.
2019 Full Year | Key Financial Performance Measures
EURm FY2019 FY2018 Change H22019 H22018 Change H12019 Change
Revenue EUR9,048 EUR8,946 1% EUR4,426 EUR4,518 (2%) EUR4,622 (4%)
EBITDA 1 EUR1,650 EUR1,545 7% EUR803 EUR821 (2%) EUR847 (5%)
EBITDA 18.2% 17.3% 18.2% 18.2% 18.3%
Margin
1
Operating EUR1,062 EUR1,105 (4%) EUR504 EUR576 (12%) EUR558 (9%)
Profit
before
Exceptional
Items 1
Profit/(loss) EUR677 (EUR404) EUR221 (EUR820) EUR456
before
Income Tax
Basic EPS 201.6 (273.7) 61.1 (397.8) 140.6
(cent)
Pre-exceptional 274.8 292.2 (6%) 133.2 151.5 (12%) 141.6 (6%)
Basic
EPS (cent)
1
Free Cash EUR547 EUR494 11% EUR388 EUR346 12% EUR159 144%
Flow 1
Return on 17.0% 19.3% 18.7%
Capital
Employed 1
Net Debt 1 EUR3,483 EUR3,122 12% EUR3,751 (7%)
Net Debt 2.1x 2.0x 2.2x
to
EBITDA
(LTM) 1
1 Additional information in relation to these Alternative
Performance Measures ('APMs') is set out in Supplementary Financial
Information on page 36.
Key Points
-- EBITDA of EUR1,650 million, up 7% with an increased margin of 18.2%
-- Strong free cash flow of EUR547 million, an increase of 11% on 2018
-- ROCE of 17.0%, in line with the Group's target
-- Increased geographic reach with acquisitions in Bulgaria and Serbia
-- Final dividend increased by 12% to 80.9 cent per share
Performance Review and OutlookTony Smurfit, Group CEO,
commented:
"2019 represents another period of strong delivery and
performance for SKG. EBITDA was EUR1,650 million, a 7% increase on
2018 with an increased EBITDA margin of 18.2%. Our vision is to be
a globally admired company, dynamically delivering secure and
superior returns for all stakeholders. Our recent performance shows
progress towards the realisation of our vision.
"Across 35 countries, we continue to create market leading
innovative solutions for over 65,000 customers, delivering
sustainable and optimised paper-based packaging. The 2019 outcome
also reflects our performance culture, which has, at its core, an
unrelenting customer focus.
"During the year, we continued to strengthen our integrated
model, following the acquisition of Reparenco in 2018, and our more
recent acquisitions in France, Bulgaria and Serbia. These
acquisitions significantly enhance our business and further expand
our geographic reach. As with previous mergers and acquisitions,
the new teams have integrated well and further strengthen the depth
and quality of the Group.
"Our European business continued to perform strongly, delivering
an EBITDA margin of 19.0%. Demand growth was ahead of the market
and in line with our expectations for the year with particularly
good performances in Iberia and Eastern Europe.
"The Americas region continued to perform well, delivering an
increased EBITDA margin of 17.5% up from 15.7% in 2018. Our three
main countries of Colombia, Mexico and the US had strong financial
performances with demand in Colombia particularly strong.
"A central element of our continued success is the quality of
our people. To ensure SKG attracts, retains and develops the best
talent, we partner with leading global business schools such as
INSEAD to develop global training programmes across our business.
In the last three years alone, over 1,400 have participated in
these programmes across the Group with many thousands more on local
educational training programmes.
"Through our unique market offering, our ESG credentials, and a
suite of industry leading applications that are impossible to
replicate, SKG is increasingly well positioned to capitalise on the
industry's long-term growth potential. Our product is renewable,
recyclable and biodegradable and is the most effective transport
and merchandising medium for our customers, while improving their
environmental footprint. The consistency of our delivery
strategically, operationally and financially, through our recent
Medium-Term Plan, reflects both the quality of our people and our
world-class asset base.
"From a demand perspective, the year has started well and, while
macro and economic risks remain, we expect another year of strong
free cash flow and consistent progress against our strategic
objectives.
"Reflecting the Board's confidence in the unique strengths of
SKG and its prospects, the Board is recommending a 12% increase in
the final dividend to 80.9 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 EUR9.0 billion in 2019. 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 1 765 08 00
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2019 Full Year | Performance Overview
The Group reported EBITDA for the year of EUR1,650 million, up
7% on 2018.
The Group EBITDA margin was 18.2%, up from 17.3% in 2018. The
result reflects the benefits of our customer-focused innovation,
the resilience of the Group's integrated model, the benefits of our
capital spend programme, the contribution from acquisitions, volume
growth, lower recovered fibre costs and the impact of IFRS 16,
Leases ('IFRS 16').
In Europe, EBITDA increased by EUR65 million or 5% to EUR1,332
million. The EBITDA margin was 19.0%, up from 18.3% in 2018.
Corrugated demand growth was approximately 4%, or approximately
1.5% for the year on an organic basis. On an operational basis,
demand growth was approximately 2% for the year. The Group
continued to advance its Medium-Term Plan ('MTP') in 2019 with the
implementation of a number of significant projects across our
corrugated and paper divisions. During 2020, the Group will
complete a number of major European paper projects and will
continue to invest in its market-facing corrugated division to
capitalise on the many opportunities and secular trends.
European pricing for testliner and kraftliner has reduced by
EUR145 per tonne and EUR185 per tonne respectively from the high of
October 2018 to December 2019. In light of strong demand for
recycled containerboard and tighter inventories, we have recently
informed our customers of a EUR60 per tonne price increase
effective for all new orders.
In 2019, the Group completed acquisitions in Bulgaria and Serbia
and completed the buyout of a significant portion of its
non-controlling interest in Colombia. SKG's entry into Bulgaria and
Serbia represents a further step in the Group's South Eastern
European strategy. The integration of these assets is progressing
well, complementing the Group's broader integrated system.
In August, the Italian Competition Authority ('ICA') notified
approximately 50 companies, of which Smurfit Kappa Italia S.p.A.
was one, that an investigation had found the companies to have
engaged in anti-competitive practices, in relation to which the ICA
levied a fine of EUR124 million on Smurfit Kappa Italia S.p.A.. We
are very disappointed with the decision of the ICA on many levels
and will vigorously appeal this decision on both administrative and
substantive grounds. This process may take a number of years. SKG
is committed to the highest standards of conduct in its business
and does not tolerate any actions that are inconsistent with its
values.
In the Americas, EBITDA increased 13% on 2018 to EUR360 million.
The EBITDA margin continues to improve, up from 15.7% in 2018 to
17.5% in 2019. Colombia, Mexico and the US delivered approximately
84% of the region's earnings with strong year-on-year performances
in all three countries. The increasing focus on sustainable
packaging solutions, together with the Group's unique Pan-American
offering, have continued to help strengthen relationships and drive
growth in the region.
In Colombia, volumes were up 9% for the year driven by continued
high growth in the FMCG sector and flower markets. In June, the
Group announced the successful tender offer to acquire the
non-controlling interest in Cartón de Colombia S.A.. The
consideration paid amounted to approximately EUR81 million. In
Mexico, EBITDA margin continued to improve versus 2018 supported by
our strong and developing market offering and position. In the US,
EBITDA and EBITDA margin continued to improve year-on-year due to a
strong operational performance in our mill system and lower
recovered fibre costs. Similar to Europe, the Group advanced its
MTP during the year with the successful completion of a number of
projects in Colombia, Mexico and the US. The region continues to
advance some significant and exciting projects for 2020 and
beyond.
As previously communicated, the Group has initiated
international arbitration proceedings to protect the interests of
its stakeholders and seek compensation from the government of
Venezuela. This continues to progress.
The Group reported free cash flow of EUR547 million in 2019
compared to EUR494 million in 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. Building on the EUR400 million add-on to the June 2018 bond,
SKG issued an 8-year, EUR750 million bond in September 2019 at a
coupon of 1.5%. The average maturity profile of the Group's debt
was 5.5 years at 31 December 2019 with an average interest rate of
3.18%. Net debt to EBITDA was 2.1x at the year-end, with the
Group's net debt impacted by IFRS 16 and the Group's acquisition
activity. The Group remains strongly positioned within its
Ba1/BB+/BB+ credit rating. On 13 January 2020, the Group secured
the agreement of all lenders in its RCF to extend the maturity date
by a further year to 28 January 2025.
2019 Full Year | Financial Performance
Revenue for the full year was EUR9,048 million, up over 1% on
2018 reflecting the benefits of resilient box pricing, volume
growth and the net contribution from acquisitions and
disposals.
EBITDA for the full year was EUR1,650 million, EUR105 million
ahead of 2018. In addition to the EUR92 million positive impact of
IFRS 16, both Europe and the Americas continued to perform well. On
an underlying2 basis, Group EBITDA was down 1% on 2018, with Europe
down 3% offset in part by the Americas up 7%.
Operating profit before exceptional items for the full year 2019
at EUR1,062 million was 4% or EUR43 million lower than EUR1,105
million in the same period of 2018.
Exceptional items charged within operating profit in 2019
amounted to EUR178 million, of which EUR124 million related to the
ICA 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.
Exceptional items charged within operating profit in 2018
amounted to EUR66 million. EUR28 million related to reorganisation
and restructuring costs in Europe, EUR18 million related to the
defence from the unsolicited approach by International Paper, EUR11
million to the loss on disposal of the Baden operations in Germany
and EUR9 million was due to the UK High Court ruling on
equalisation of guaranteed minimum pensions in the UK.
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.
Exceptional finance costs charged in 2018 amounted to EUR6
million, relating to the fee payable to the bondholders to secure
their consent to the Group's move from quarterly to semi-annual
reporting and the interest cost on the early termination of certain
US dollar/euro swaps.
Pre-exceptional net finance costs at EUR192 million were EUR25
million higher in 2019 primarily as a result of an increase in
non-cash costs of EUR18 million, reflecting a negative swing from a
currency translation gain of EUR22 million in 2018 to a EUR8
million loss in 2019. Cash interest was EUR7 million higher
year-on-year, mainly as a result of the interest now booked in
respect of leases.
With the EUR43 million decrease in operating profit before
exceptional items along with the EUR25 million increase in net
finance costs, the pre-exceptional profit before income tax of
EUR872 million was EUR66 million lower than in 2018.
After exceptional items of EUR195 million, the profit before tax
for the year 2019 was EUR677 million compared to a loss of EUR404
million (after exceptional items of EUR1,342 million primarily
relating to the deconsolidation of the Group's operations in
Venezuela) in 2018. The income tax expense was EUR193 million
compared to EUR235 million in 2018, resulting in a profit of EUR484
million for 2019 compared to a loss of EUR639 million in 2018.
Basic EPS for 2019 was 201.6 cent, compared to a loss per share
of 273.7 cent in 2018. On a pre-exceptional basis, EPS was 274.8
cent in 2019, 6% lower than the 292.2 cent in 2018.
2 Additional information on underlying performance is set out
within Supplementary Financial Information on page 36
2019 Full Year | Free Cash Flow
For the full year, free cash flow in 2019 was EUR547 million
compared to EUR494 million for 2018 - an increase of EUR53 million.
EBITDA growth of EUR105 million, a working capital inflow and the
absence of the exceptional outflow of EUR29 million in 2019, were
partly offset by higher outflows for capital expenditure and other
items.
Working capital amounted to EUR630 million at December 2019,
representing 7.2% of annualised revenue compared to 9.8% at June
2019 and 7.5% at December 2018. Working capital decreased by EUR53
million in the year, representing principally the net cash inflow
of EUR45 million and an inflow in capital creditors of EUR19
million, partly offset by working capital acquired of EUR12
million.
Capital expenditure in 2019 amounted to EUR730 million (equating
to 134% of depreciation) compared to EUR574 million (equating to
138%) in 2018. Excluding the impact of leases, capital expenditure
for the year was EUR651 million and represented 141% of
depreciation.
Cash interest was EUR156 million in 2019. Cash interest in 2018
was EUR155 million which included exceptional finance costs of EUR6
million. The year-on-year increase, net of exceptional costs mainly
reflects the interest now recognised in respect of IFRS 16.
Tax payments in the full year of EUR222 million were EUR29
million higher than in 2018.
2019 Full Year | Capital Structure
Net debt was EUR3,483 million at the end of December, resulting
in a net debt to EBITDA ratio of 2.1x compared to 2.2x at the end
of June 2019 and 2.0x at the end of December 2018. Our net debt to
EBITDA at December 2019 was negatively impacted by the adoption of
IFRS 16, increasing our net debt by EUR356 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 31 December 2019, the Group's average interest rate was 3.18%
compared to 3.63% at 31 December 2018. The Group's diversified
funding base and long dated maturity profile of 5.5 years provide a
stable funding outlook. In terms of liquidity, the Group held cash
balances of EUR203 million at the end of December, which was
further supplemented by available commitments of EUR1,004 million
under its new RCF and EUR330 million under its securitisation
programme.
Dividends
The Board is recommending a final dividend of 80.9 cent per
share, a 12% increase year-on-year. It is proposed to pay the final
dividend on 15 May 2020 to shareholders registered at the close of
business on 17 April 2020.
2019 Full Year | Sustainability
The Group continues to lead the way in sustainability reporting
and action. SKG has led through new cross-industry initiatives such
as 4evergreen, the development of electric trucks for its
German-Dutch paper system, the first full beverage carton recycling
plant in the Netherlands and over 8,000 SKG employees participating
in World Clean-up Day. The Group also continues to be recognised by
both NGOs and government bodies for its positive contribution to
corporate and social responsibility, the most recent example being
the Colombian government recognising SKG's 75 years of job
creation, innovation and sustainability activity in the
country.
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.
In September, SKG was recognised on the new Solactive and ISS
ESG Beyond Plastic Waste index which tracks companies that provide
solutions for the reduction, replacement, reuse and recycling of
plastic. Further recognition of the Group's efforts was received in
December with the London Stock Exchange awarding SKG with the Green
Economy mark.
With the increased consumer focus on waste in recent years,
paper-based packaging is increasingly seen as the most effective
solution due to its recyclable, renewable and bio-degradable
nature.
Smurfit Kappa is listed on the FTSE4Good, Euronext Vigeo Europe
120, STOXX Global ESG Leaders, Solactive and ISS index, and
Ethibel's sustainable investment register. SKG also performs
strongly across a variety of third party certification bodies,
including MSCI, Sustainalytics and EcoVadis.
2019 Full Year | Better Planet Packaging
Looking beyond our own operations, the Group continues to lead
in innovative, sustainable packaging solutions for our customers,
led by our 'Better Planet Packaging' initiative which provides our
customers with sustainable solutions today, ready for the
challenges of tomorrow.
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. SKG's engagement with
customers, both current and prospective, on this initiative was
best illustrated with two flagship events, our biennial innovation
event in May hosting over 350 customers from across the globe and
our inaugural 'Global Better Planet Packaging Day' on 21 November
which involved over 650 brand owners and retailers across our
global operations with our Global Experience centre network
providing a unique platform for the day.
2019 Full Year | Commercial Offering and Innovation
As consumer purchasing habits evolve, the importance of how our
customer's product looks on the shop shelf, or, how it arrives when
ordered online, is a key merchandising consideration in today's
world. SKG is uniquely positioned to capitalise on these trends
with its unrivalled market offering that enables our customers to
increase sales, reduce costs and reduce risk. Customers benefit
from SKG's innovative business applications, such as ShelfSmart,
SupplySmart and eSmart, along with our geographic coverage, global
experience centre network and depth of data to provide innovative
packaging solutions whilst also delivering sustainable
solutions.
Our innovation event noted above, was an industry-leading
response to our customers' 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 2019, the Group's leadership in innovation was recognised
with 63 national or international awards for packaging innovation,
sustainability, design and print. The Group's operations received
awards in Argentina, Austria, Belgium, Brazil, Bulgaria, Colombia,
the Czech Republic, France, Ireland, Mexico, the Netherlands,
Russia, Sweden and the UK.
2019 Full Year | Medium-Term Plan
To date, over EUR700 million of capital projects have been
approved or spent under the MTP covering almost 100 projects. In
Europe, the main paper projects have either been started or
completed in most instances. The most significant achievement was
the acquisition of Reparenco in 2018, delivering in year one, what
would otherwise have been a multi-year capital project through to
2021. This again highlights the flexibility of the plan.
In looking at our more consumer-oriented corrugated division,
progress has been made across a number of investments, installing a
variety of machinery to cater for high growth trends requiring
speciality gluing machines, casemakers with 'shelf-ready packaging'
functionality or high quality print machines to create greater
impact for our customers' products at the point of purchase in the
retailer.
Having achieved many of our objectives ahead of plan, and in
light of a number of new opportunities that we have, supported by
mega-trends, a new iteration of our strategic investments plan is
under way and we will update the market in due course.
Summary Cash Flow
Summary cash flows for the second half and full year are set out in the following table.
H2 2019 H2 2018 FY 2019 FY 2018
EURm EURm EURm EURm
EBITDA 803 821 1,650 1,545
Exceptional items - (12) - (29)
Cash interest expense (74) (74) (156) (155)
Working capital change 214 55 45 (94)
Current provisions (6) 2 (23) (1)
Capital expenditure (458) (369) (730) (574)
Change in capital creditors 53 39 19 13
Tax paid (130) (104) (222) (193)
Sale of property, plant and equipment 2 4 4 4
Other (16) (16) (40) (22)
Free cash flow 388 346 547 494
Share issues 2 - 2 -
Purchase of own shares (net) 2 - (23) (10)
Sale of businesses and investments - 3 - (8)
Deconsolidation of Venezuela - (17) - (17)
Purchase of businesses, investments and NCI* - (500) (204) (516)
Dividends (67) (64) (242) (219)
Derivative termination receipts 1 - 1 17
Early repayment of bonds (31) - (31) -
Net cash inflow/(outflow) 295 (232) 50 (259)
Net debt acquired (3) (3) (7) (3)
Adjustment on initial application of IFRS 16 - - (361) -
Deferred debt issue costs amortised (7) (5) (14) (10)
Currency translation adjustment (17) (11) (29) (45)
Decrease/(increase) in net debt 268 (251) (361) (317)
*'NCI' refers to non-controlling interests
Funding and Liquidity
The Group's primary sources of liquidity are cash flows from
operations and borrowings under the revolving credit facility. The
Group's primary uses of cash are for funding day to day operations,
capital expenditure, debt service, dividends and other investment
activity including acquisitions.
At 31 December 2019, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR70 million variable funding notes issued
under the EUR230 million accounts receivable securitisation
programme maturing in June 2023, together with EUR30 million
variable funding notes issued under the EUR200 million accounts
receivable securitisation programme maturing in February 2022.
Smurfit Kappa Acquisitions had outstanding 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 had outstanding EUR750 million 1.5% senior notes due 2027.
Smurfit Kappa Treasury is also party to a EUR1,350 million
revolving credit facility with an original maturity date of 28
January 2024. In January 2020, the Group secured the agreement of
all lenders to extend the maturity date by a further year to 28
January 2025. At 31 December 2019, the Group's drawings on this
facility comprised EUR124 million and US$241.2 million, with a
further EUR7 million drawn in operational facilities including
letters of credit drawn under various ancillary facilities.
The following table provides the interest rates at 31 December
2019 for each of the drawings under the revolving credit facility
loans:
Borrowing Arrangement Currency Interest Rate
Revolving Credit Facility EUR 0.900%
USD 2.806% - 2.853%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
In January 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 a 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.
In September 2019, the Group successfully priced a EUR750
million 1.5% bond issuance. The proceeds were used to finance the
early redemption in October 2019 of EUR250 million senior floating
rate notes due 2020 and EUR500 million 3.25% senior notes due
2021.
In October 2019, the Group redeemed EUR400 million 4.125% senior
notes due 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 31 December 2019,
the Group had fixed an average of 90% of its interest cost on
borrowings over the following twelve 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. 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 EUR5 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 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 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 current financial year are
summarised below.
-- If the current economic climate were to deteriorate as a result of geopolitical uncertainty (including Brexit) and trade tensions it could result in an economic slowdown which if sustained over any significant length of time 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.
Consolidated Income Statement
For the Financial Year Ended 31 December 2019
2019 2018
Unaudited Audited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
EURm EURm EURm EURm EURm EURm
Revenue 9,048 - 9,048 8,946 - 8,946
Cost of sales (6,043) (8) (6,051) (5,989) - (5,989)
Gross profit 3,005 (8) 2,997 2,957 - 2,957
Distribution costs (730) - (730) (705) - (705)
Administrative expenses (1,213) - (1,213) (1,147) - (1,147)
Other operating expenses - (170) (170) - (66) (66)
Operating profit 1,062 (178) 884 1,105 (66) 1,039
Finance costs (210) (37) (247) (214) (6) (220)
Finance income 18 20 38 47 - 47
Share of associates' profit (after tax) 2 - 2 - - -
Deconsolidation of Venezuela - - - - (1,270) (1,270)
Profit/(loss) before income tax 872 (195) 677 938 (1,342) (404)
Income tax expense (193) (235)
Profit/(loss) for the financial year 484 (639)
Attributable to:
Owners of the parent 476 (646)
Non-controlling interests 8 7
Profit/(loss) for the financial year 484 (639)
Earnings per share
Basic earnings per share - cent 201.6 (273.7)
Diluted earnings per share - cent 200.0 (273.7)
Consolidated Statement of Comprehensive Income
For the Financial Year Ended 31 December 2019
2019 2018
Unaudited Audited
EURm EURm
Profit/(loss) for the financial year 484 (639)
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial year 12 (201)
- Recycled to Consolidated Income Statement - 1,196
on deconsolidation of Venezuela
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 8 11
- Fair value gain/(loss) on cash flow hedges 5 (6)
- Movement in deferred tax (1) -
Changes in fair value of cost of hedging:
- Movement out of reserve (1) (1)
- New fair value adjustments into reserve - 2
23 1,001
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (117) (6)
- Movement in deferred tax 26 -
Net change in fair value of investment (11) -
in equity instruments
(102) (6)
Total other comprehensive (expense)/income (79) 995
Total comprehensive income for the financial year 405 356
Attributable to:
Owners of the parent 394 370
Non-controlling interests 11 (14)
Total comprehensive income for the financial year 405 356
Consolidated Balance Sheet
At 31 December 2019
2019 2018
Unaudited Audited
EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,920 3,613
Right-of-use assets 346 -
Goodwill and intangible assets 2,616 2,590
Other investments 10 20
Investment in associates 16 14
Biological assets 106 100
Other receivables 40 40
Derivative financial instruments 6 8
Deferred income tax assets 185 153
7,245 6,538
Current assets
Inventories 819 847
Biological assets 11 11
Trade and other receivables 1,634 1,667
Derivative financial instruments 13 13
Restricted cash 14 10
Cash and cash equivalents 189 407
2,680 2,955
Total assets 9,925 9,493
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - -
Share premium 1,986 1,984
Other reserves 351 355
Retained earnings 615 420
Total equity attributable to owners of the parent 2,952 2,759
Non-controlling interests 41 131
Total equity 2,993 2,890
LIABILITIES
Non-current liabilities
Borrowings 3,501 3,372
Employee benefits 899 804
Derivative financial instruments 9 17
Deferred income tax liabilities 175 173
Non-current income tax liabilities 27 36
Provisions for liabilities 78 47
Capital grants 18 18
Other payables 10 14
4,717 4,481
Current liabilities
Borrowings 185 167
Trade and other payables 1,863 1,871
Current income tax liabilities 13 24
Derivative financial instruments 7 10
Provisions for liabilities 147 50
2,215 2,122
Total liabilities 6,932 6,603
Total equity and liabilities 9,925 9,493
Consolidated Statement
of Changes in Equity
For the Financial Year
Ended 31 December 2019
Attributable to owners of the parent
Equity Non-
share Share Other Retained controlling Total
capital premium reserves earnings Total interests equity
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 31 December 2018 - 1,984 355 420 2,759 131 2,890
Adjustment on initial - - - (21) (21) - (21)
application
of IFRS 16 (net of
tax) (Note 3)
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 - - 9 - 9 3 12
adjustments
Defined benefit pension plans - - - (91) (91) - (91)
Effective portion of changes in - - 12 - 12 - 12
fair value of cash flow hedges
Changes in fair value - - (1) - (1) - (1)
of cost of hedging
Net change in fair value - - (11) - (11) - (11)
of investment
in equity instruments
Total comprehensive income - - 9 385 394 11 405
for the financial year
Shares issued - 2 - - 2 - 2
Purchase of non-controlling - - (29) 45 16 (97) (81)
interests
Hyperinflation adjustment - - - 24 24 - 24
Dividends paid - - - (238) (238) (4) (242)
Share-based payment - - 39 - 39 - 39
Net shares acquired by - - (23) - (23) - (23)
SKG Employee Trust
At 31 December 2019 - 1,986 351 615 2,952 41 2,993
Audited
At 1 January 2018 - 1,984 (678) 1,202 2,508 151 2,659
(Loss)/profit for the - - - (646) (646) 7 (639)
financial year
Other comprehensive income
Foreign currency translation - - 1,015 - 1,015 (20) 995
adjustments
Defined benefit pension plans - - - (5) (5) (1) (6)
Effective portion of changes in - - 5 - 5 - 5
fair value of cash flow hedges
Changes in fair value - - 1 - 1 - 1
of cost of hedging
Total comprehensive - - 1,021 (651) 370 (14) 356
income/(expense)
for the financial year
Purchase of non-controlling - - - (5) (5) (3) (8)
interests
Hyperinflation adjustment - - - 87 87 10 97
Dividends paid - - - (213) (213) (6) (219)
Share-based payment - - 22 - 22 - 22
Net shares acquired by - - (10) - (10) - (10)
SKG Employee Trust
Venezuela deconsolidation - - - - - (7) (7)
At 31 December 2018 - 1,984 355 420 2,759 131 2,890
An analysis of the
movements in Other
reserves is provided
in Note 14.
Consolidated Statement of Cash Flows
For the Financial Year Ended 31 December 2019 2019 2018
Unaudited Audited
EURm EURm
Cash flows from operating activities
Profit/(loss) before income tax 677 (404)
Net finance costs 209 173
Depreciation charge 496 379
Impairment of property, plant and 8 -
equipment and intangible assets
Impairment of goodwill 46 -
Amortisation of intangible assets 45 40
Amortisation of capital grants (2) (2)
Equity settled share-based payment expense 39 22
Profit on sale of property, plant and equipment (3) (3)
(Profit)/loss on purchase/disposal of businesses (4) 11
Deconsolidation of Venezuela - exceptional items - 1,270
Share of associates' profit (after tax) (2) -
Net movement in working capital 48 (93)
Change in biological assets 6 (3)
Change in employee benefits and other provisions 51 (26)
Other (primarily hyperinflation adjustments) 4 29
Cash generated from operations 1,618 1,393
Interest paid (233) (167)
Income taxes paid:
Irish corporation tax paid (5) (10)
Overseas corporation tax (net of tax refunds) paid (217) (183)
Net cash inflow from operating activities 1,163 1,033
Cash flows from investing activities
Interest received 4 4
Business disposals - (8)
Deconsolidation of Venezuela - (17)
Additions to property, plant and (612) (528)
equipment and biological assets
Additions to intangible assets (20) (25)
Receipt of capital grants 2 2
Increase in restricted cash (4) (1)
Disposal of property, plant and equipment 7 7
Dividends received from associates 1 -
Purchase of subsidiaries (net of acquired cash) (99) (482)
Deferred consideration paid (14) (1)
Net cash outflow from investing activities (735) (1,049)
Cash flows from financing activities
Proceeds from issue of new ordinary shares 2 -
Proceeds from bond issuance 1,153 600
Proceeds from other debt issuance 417 -
Purchase of own shares (net) (23) (10)
Purchase of non-controlling interests (81) (16)
(Decrease)/increase in other (222) 94
interest-bearing borrowings
Repayment of lease liabilities (2018: repayment (83) (2)
of finance lease liabilities)
Repayment of borrowings (1,528) (525)
Derivative termination receipts 1 17
Deferred debt issue costs paid (23) (9)
Dividends paid to shareholders (238) (213)
Dividends paid to non-controlling interests (4) (6)
Net cash outflow from financing activities (629) (70)
Decrease in cash and cash equivalents (201) (86)
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 390 503
Currency translation adjustment (17) (27)
Decrease in cash and cash equivalents (201) (86)
Cash and cash equivalents at 31 December 172 390
An analysis of the net movement in working
capital is provided in Note 12.
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') 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 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 2018 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
2018 with the exception of the accounting policy for put and call
options arising in business combinations (described below) and IFRS
16, Leases. The impact of the adoption of IFRS 16 and the new
leases accounting policy 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 Consolidated Financial Statements included in this
report.
Put and call options arising in business combinations
Where a put option is held by a non-controlling interest in a
subsidiary whereby that party can require the Group to acquire the
non-controlling interest's shareholding in the subsidiary at a
future date and the non-controlling interest does not retain
present access to the results of the subsidiary, the Group applies
the anticipated acquisition method of accounting to the
arrangement. The Group recognises a contingent consideration
liability at fair value, being the Group's estimate of the amount
required to settle that liability, which is included in the
consideration transferred. Any subsequent remeasurements required
due to changes in the fair value of the put liability are
recognised in the Consolidated Income Statement. Where the Group
has a call option over the shares held by a non-controlling
interest in a subsidiary, whereby the Group can require the
non-controlling interest to sell its shareholding in the subsidiary
at a future date, the option is classified as a derivative and is
recognised as a financial instrument on inception with fair value
movements recognised in the Consolidated Income Statement.
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 auditors in due course.
Accordingly, the financial information is unaudited. Full statutory
financial statements for the year ended 31 December 2018 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. Changes in Significant Accounting Policies
IFRS 16, Leases, 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 a 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 at the date of initial application.
Accordingly, the comparative information presented for 2018 has not
been restated.
The Group's leasing activities and how these are accounted
for
The Group leases a range of assets including property, vehicles
and plant and equipment. Further information regarding the Group's
leasing activities is disclosed in Note 16.
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
to the Group. 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.
Significant accounting policies
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. 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 which is the date at
which the asset is made available for use by the Group.
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.
The lease liability is initially measured at the present value
of the lease payments to be made over the lease term. The lease
payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index or a
rate known at the commencement date, payments for a purchase
option, payments for an optional renewal period and termination
option payments if the Group is reasonably certain to exercise
those options. The lease term is the non-cancellable period of the
lease adjusted for any renewal or termination options which are
reasonably certain to be exercised. Management applies judgement in
determining whether it is reasonably certain that a renewal or
termination option will be exercised. 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. Lease liabilities are included in
borrowings.
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. Incremental borrowing rates are
determined using a build-up approach that uses externally
benchmarked information adjusted to take consideration of the
lessee's risk profile and the specific lease characteristics. These
characteristics include the type of leased asset, the term of the
lease and the currency of the lease.
After the commencement date, the lease liability is measured at
amortised cost using the effective interest method. It is
remeasured if there is a modificiation, a change in future lease
payments arising from a change in an index or rate, or if the Group
changes its assessment of whether it is reasonably certain to
exercise an option within the contract.
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.
Transition
On transition to IFRS 16, the Group has elected to apply the
practical expedient to grandfather the assessment of which
transactions are or contain 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.
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 contained options to extend or terminate the lease.
-- Relied on its assessment of whether leases were onerous under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, 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 the lease asset and lease liability under IAS 17 immediately
before that date.
Impact on Consolidated Financial Statements
Impact on transition
On transition to IFRS 16, the Group recognised additional
right-of-use assets and additional lease liabilities relating to
operating leases, recognising the difference in retained earnings.
Right-of-use assets were adjusted by an 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 331
Deferred income tax assets 4
Provisions for liabilities (5)
Lease liabilities presented in borrowings 361
Retained earnings (21)
When measuring lease liabilities for leases that were classified
as operating leases, the Group discounted lease payments using the
lessees' incremental borrowing rates 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 80
certain to be exercised
Non-lease components 13
Less:
Commitments relating to short-term (2)
and low-value leases
Total future lease payments 423
Effect of discounting (62)
Finance lease liabilities recognised 19
at 31 December 2018
Lease liabilities at 1 January 2019 380
* Following the finalisation of the implementation
of IFRS 16 in 2019, the reconciliation
has been updated from that presented
in the Interim Financial Statements.
The impact of IFRS 16 on the Consolidated Financial Statements
is set out in Note 16. The impact of IFRS 16 on our APMs is set out
in the Supplementary Financial Information section.
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 of 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.
FY 2019 FY 2018
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 6,994 2,054 9,048 6,922 2,024 8,946
EBITDA 1,332 360 1,692 1,267 317 1,584
Segment (124) - (124) (48) (1,270) (1,318)
exceptional
items
EBITDA after 1,208 360 1,568 1,219 (953) 266
exceptional
items
Unallocated (42) (39)
centre
costs
Share-based (41) (24)
payment
expense
Depreciation (502) (376)
and
depletion
(net)
Amortisation (45) (40)
Impairment (8) -
of assets
(exceptional)
Impairment (46) -
of
goodwill
(exceptional)
Other - (18)
exceptional
items
Finance (247) (220)
costs
Finance 38 47
income
Share 2 -
of
associates'
profit
(after
tax)
Profit/(loss) 677 (404)
before
income tax
Income tax (193) (235)
expense
Profit/(loss) 484 (639)
for the
financial
year
H2 2019 H2 2018
Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 3,420 1,006 4,426 3,525 993 4,518
EBITDA 644 181 825 680 160 840
Segment (124) - (124) (34) (1,270) (1,304)
exceptional
items
EBITDA after 520 181 701 646 (1,110) (464)
exceptional
items
Unallocated (22) (19)
centre
costs
Share-based (16) (14)
payment
expense
Depreciation (259) (209)
and
depletion
(net)
Amortisation (24) (22)
Impairment (8) -
of assets
(exceptional)
Impairment (46) -
of
goodwill
(exceptional)
Other - (1)
exceptional
items
Finance (137) (99)
costs
Finance 31 9
income
Share 1 (1)
of
associates'
profit/(loss)
(after tax)
Profit/(loss) 221 (820)
before
income tax
Income tax (75) (114)
expense
Profit/(loss) 146 (934)
for the
financial
period
2019 2018
Assets Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Segment assets 7,610 2,128 9,738 7,101 1,973 9,074
Investment in 1 15 16 1 13 14
associates
Group centre 171 405
assets
Total assets 9,925 9,493
2019 2018
Liabilities Europe TheAmericas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Segment 2,965 604 3,569 2,549 442 2,991
liabilities
Group centre 3,363 3,612
liabilities
Total 6,932 6,603
liabilities
Revenue information about geographical areas
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.
2019 2018
EURm EURm
Ireland 117 119
Germany 1,291 1,325
France 1,095 1,053
Mexico 878 794
United Kingdom 774 797
The Netherlands 758 696
Rest of world 4,135 4,162
Total revenue by geographical area 9,048 8,946
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.
2019 2018
Paper Packaging Total Paper Packaging Total
EURm EURm EURm EURm EURm EURm
Europe 1,134 5,860 6,994 1,204 5,718 6,922
The Americas 285 1,769 2,054 306 1,718 2,024
Total revenue by product 1,419 7,629 9,048 1,510 7,436 8,946
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.
5. Exceptional Items
2019 2018
EURm EURm
The following items are regarded as exceptional in nature:
Impairment of assets 8 -
Italian Competition Authority fine 124 -
Goodwill impairment 46 -
International Paper defence costs - 18
Loss on the disposal of Baden operations - 11
GMP equalisation pension adjustment - 9
Reorganisation and restructuring costs - 28
Exceptional items included in operating profit 178 66
Exceptional finance costs (net) 17 6
Exceptional items included in net finance costs 17 6
Venezuela deconsolidation - currency recycling - 1,196
Venezuela deconsolidation - write-off net assets - 61
Venezuela deconsolidation - legal and reorganisation costs - 13
Total Venezuela deconsolidation costs - 1,270
Total exceptional items 195 1,342
Exceptional items charged within operating profit in 2019
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. Management has reassessed
the expected future business performance in the country as a result
of the continuing difficult economic conditions and consequently
the projected cashflows are lower, giving rise to an impairment
charge.
The net exceptional finance costs of EUR17 million 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.
In 2018, exceptional items related mainly to the deconsolidation
of our Venezuelan operations. The remainder comprised of redundancy
costs in Europe, a pension adjustment related to guaranteed minimum
pension equalisation ('GMP') in the UK, the cost of countering the
unsolicited approach from International Paper and the loss on the
disposal of the Baden operations.
The exceptional finance cost of EUR6 million in 2018 related to
the fee of EUR4 million payable to the bondholders to secure their
consent to the Group's move from quarterly to semi-annual reporting
and EUR2 million in relation to 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.
6. Finance Costs and Income
2019 2018
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 45 47
Interest payable on leases 11 1
Interest payable on other borrowings 114 115
Exceptional finance costs associated with debt restructuring 37 -
Exceptional consent fee - reporting waiver - 4
Exceptional interest on early termination - 2
of cross currency swaps
Foreign currency translation loss on debt 18 19
Fair value loss on derivatives not designated as hedges 4 -
Fair value loss on financial assets - 1
Net interest cost on net pension liability 17 18
Net monetary loss - hyperinflation - 12
Unwinding discount element of provision 1 1
Total finance costs 247 220
Finance income:
Other interest receivable (4) (4)
Foreign currency translation gain on debt (10) (41)
Fair value gain on derivatives not designated as hedges - (2)
Exceptional fair value gain on financial liabilities (20) -
Fair value gain on financial assets (1) -
Net monetary gain - hyperinflation (3) -
Total finance income (38) (47)
Net finance costs 209 173
7. Income Tax Expense
Income tax expense recognised in the Consolidated Income
Statement
2019 2018
EURm EURm
Current tax:
Europe 145 145
The Americas 55 54
200 199
Deferred tax (7) 36
Income tax expense 193 235
Current tax is analysed as follows:
Ireland 7 18
Foreign 193 181
200 199
Income tax recognised in the Consolidated Statement of
Comprehensive Income
2019 2018
EURm EURm
Arising on defined benefit pension plans (26) -
Arising on derivative cash flow hedges 1 -
(25) -
The income tax expense for the financial year 2019 is EUR42
million lower than in the comparable period in 2018. However, in
2018 the income tax expense included a EUR14 million charge for
Venezuela which does not occur in 2019 as it was deconsolidated for
the full year. The remaining EUR28 million net reduction in tax
expense is mainly attributable to lower profitability in 2019 and
other tax credits, offset in part by the tax effect of
non-deductible exceptional items.
There is a net EUR1 million increase in current tax. In Europe,
the current tax is in line with 2018 due to lower profitability and
other tax credits, partly offset by the tax effect of
non-deductible exceptional items. In the Americas, the current tax
expense is EUR1 million higher than in the comparable period.
However, after adjusting for the deconsolidation of Venezuela,
there is an overall EUR15 million net increase in current tax
expense on a like-for-like basis. This is primarily due to the mix
of profits and exceptional items, with the tax credit on those
exceptional items being recorded in deferred tax.
The movement in deferred tax from a charge of EUR36 million in
2018 to a tax credit of EUR7 million in 2019 includes the effects
of the reversal of timing differences on which tax was previously
recognised, as well as the use and recognition of tax losses and
credits and a tax credit associated with the impairment of goodwill
in Brazil.
There is a net tax credit of EUR22 million on exceptional items
in 2019 compared to a EUR7 million tax credit in the prior
year.
8. Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the year:
2019 2018
EURm EURm
Current service cost 29 29
Past service cost - GMP equalisation - 9
Past service cost - Other 1 (2)
Actuarial loss arising on other long-term employee benefits - 1
Gain on settlement (2) -
Net interest cost on net pension liability 17 16
Defined benefit cost 45 53
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit cost of EUR28 million (2018: EUR37
million). Net interest cost on net pension liability of EUR17
million (2018: EUR16 million) is included in finance costs in the
Consolidated Income Statement.
In 2018, a High Court ruling in the UK required pension schemes
to equalise benefits for the effect of GMP, which resulted in an
exceptional past service cost for the Group of EUR9 million.
Analysis of actuarial (losses)/gains recognised in the
Consolidated Statement of Comprehensive Income:
2019 2018
EURm EURm
Return on plan assets (excluding interest income) 228 (107)
Actuarial loss due to experience adjustments (9) (2)
Actuarial (loss)/gain due to changes (348) 81
in financial assumptions
Actuarial gain due to changes in demographic assumptions 12 22
Total loss recognised in the Consolidated (117) (6)
Statement of Comprehensive Income
The amounts recognised in the Consolidated Balance Sheet were as
follows:
2019 2018
EURm EURm
Present value of funded or partially funded obligations (2,473) (2,145)
Fair value of plan assets 2,109 1,831
Deficit in funded or partially funded plans (364) (314)
Present value of wholly unfunded obligations (534) (489)
Amounts not recognised as assets due to asset ceiling (1) (1)
Net pension liability (899) (804)
The employee benefit provision has increased from EUR804 million
at 31 December 2018 to EUR899 million at 31 December 2019,
primarily due to lower discount rates as a result of significantly
lower Euro and Sterling AA corporate bond yields.
9. Earnings per Share
Basic
Basic earnings per share is calculated by dividing the
profit/(loss) attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the year less own
shares.
2019 2018
Profit/(loss) attributable to owners 476 (646)
of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Basic earnings per share (cent) 201.6 (273.7)
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. These
comprise convertible shares issued under the Share Incentive Plan,
which were based on performance and continuing service, deferred
shares held in trust, which are based on continuing service, and
matching shares, which are performance-based in addition to
continuing service. Both deferred shares held in trust and matching
shares are issued under the Deferred Annual Bonus Plan. Where the
conditions governing exercisability 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.
2019 2018
Profit/(loss) attributable to owners 476 (646)
of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Potential dilutive ordinary shares assumed (million) 2 -
Diluted weighted average ordinary shares (million) 238 236
Diluted earnings per share (cent) 200.0 (273.7)
At 31 December 2018, there were 1,563,662 potential ordinary
shares in issue that could dilute earnings per share ('EPS') in the
future, but these were not included in the computation of diluted
EPS in that year because they would have had the effect of reducing
the loss per share. Accordingly, there was no difference between
basic and diluted loss per share in 2018.
Pre-exceptional
2019 2018
Profit/(loss) attributable to owners 476 (646)
of the parent (EUR million)
Exceptional items included in profit before 195 1,342
income tax (Note 5) (EUR million)
Income tax on exceptional items (EUR million) (22) (7)
Pre-exceptional profit attributable to 649 689
owners of the parent (EUR million)
Weighted average number of ordinary 236 236
shares in issue (million)
Pre-exceptional basic earnings per share (cent) 274.8 292.2
Weighted average number of ordinary 236 236
shares in issue (million)
Dilutive potential ordinary shares assumed (million) 2 2
Diluted weighted average ordinary shares (million) 238 238
Pre-exceptional diluted earnings per share (cent) 272.6 290.2
10. Dividends
The following dividends were declared and paid by the Group.
2019 2018
EURm EURm
Final: paid 72.2 cent per ordinary share on 10 May 2019 (2018: 172 153
paid 64.5 cent per ordinary share on 11 May 2018)
Interim: paid 27.9 cent per ordinary share on 25 October 2019 66 60
(2018: paid 25.4 cent per ordinary share on 26 October 2018)
238 213
The Board is recommending a final dividend of 80.9 cent per
ordinary share for 2019 (approximately EUR193 million) to all
ordinary shareholders on the share register at the close of
business on 17 April 2020 subject to the approval of the
shareholders at the AGM.
11. Property, Plant and Equipment
Land andbuildings Plant andequipment Total
EURm EURm EURm
Financial year ended
31 December 2019
Opening net book amount 1,059 2,554 3,613
Adjustment on initial (9) (10) (19)
application
of IFRS 16 (Note 3)*
Restated balance at 1,050 2,544 3,594
1 January 2019
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 7 17 24
adjustment
At 31 December 2019 1,106 2,814 3,920
Financial 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 disposals (14) (7) (21)
Deconsolidation of Venezuela (11) (8) (19)
Hyperinflation adjustment 17 24 41
Foreign currency translation adjustment (55) (55) (110)
At 31 December 2018 1,059 2,554 3,613
*Capitalised leased assets in relation to leases that were classified as 'finance leases' under IAS 17
12. Net Movement in Working Capital
2019 2018
EURm EURm
Change in inventories 40 (84)
Change in trade and other receivables 52 (99)
Change in trade and other payables (44) 90
Net movement in working capital 48 (93)
13. Analysis of Net Debt
2019 2018
EURm EURm
Revolving credit facility - interest at relevant interbank 333 -
rate (interest rate floor of 0%) + 0.9%(1)
Senior credit facility(2):
Revolving credit facility- interest - 4
at relevant interbank rate + 1.1%
Facility A term loan- interest at - 407
relevant interbank rate + 1.35%
US$292.3 million 7.5% senior debentures 262 257
due 2025 (including accrued interest)
Bank loans and overdrafts 118 119
EUR200 million receivables securitisation variable funding 29 49
notes due 2022 (including accrued interest)
EUR230 million receivables securitisation 69 179
variable funding notes due 2023
EUR400 million 4.125% senior notes due - 406
2020 (including accrued interest)(3)
EUR250 million senior floating rate notes due - 251
2020 (including accrued interest)(3)
EUR500 million 3.25% senior notes due 2021 - 498
(including accrued interest)(3)
EUR500 million 2.375% senior notes due 500 499
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 1,004 601
2026 (including accrued interest)(4)
EUR750 million 1.5% senior notes due 2027 744 -
(including accrued interest)(5)
Gross debt before leases 3,309 3,520
Leases(6) 377 19
Gross debt including leases 3,686 3,539
Cash and cash equivalents (including restricted cash) (203) (417)
Net debt including leases 3,483 3,122
14. 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 Available-
acquisition hedging hedging translation payment Own for-sale FVOCI
reserve reserve reserve reserve reserve shares reserve reserve Total
EURm EURm EURm EURm EURm EURm EURm EURm EURm
At 575 (14) 3 (367) 185 (28) - 1 355
1 January
2019
Other
comprehensive
income
Foreign - - - 9 - - - - 9
currency
translation
adjustments
Effective - 12 - - - - - - 12
portion
of changes
in
fair value
of cash
flow hedges
Changes in - - (1) - - - - - (1)
fair value
of cost of
hedging
Net change - - - - - - - (11) (11)
in
fair value
of
investment
in
equity
instruments
Total - 12 (1) 9 - - - (11) 9
other
comprehensive
income/(expense)
Purchase - - - (29) - - - - (29)
of
non-controlling
interest
Share-based - - - - 39 - - - 39
payment
expense
Net shares - - - - - (23) - - (23)
acquired
by
SKG
Employee
Trust
Shares - - - - (9) 9 - - -
distributed
by
SKG
Employee
Trust
At 575 (2) 2 (387) 215 (42) - (10) 351
31 December
2019
At 575 (17) - (1,382) 176 (31) 1 - (678)
31 December
2017
Adjustment - (2) 2 - - - (1) 1 -
on initial
application
of IFRS
9 (net
of tax)
At 575 (19) 2 (1,382) 176 (31) - 1 (678)
1 January
2018
Other
comprehensive
income
Foreign - - - 1,015 - - - - 1,015
currency
translation
adjustments
Effective - 5 - - - - - - 5
portion
of changes
in
fair value
of cash
flow hedges
Changes in - - 1 - - - - - 1
fair value
of cost of
hedging
Total - 5 1 1,015 - - - - 1,021
other
comprehensive
income
Share-based - - - - 22 - - - 22
payment
expense
Net shares - - - - - (10) - - (10)
acquired
by
SKG
Employee
Trust
Shares - - - - (13) 13 - - -
distributed
by
SKG
Employee
Trust
At 575 (14) 3 (367) 185 (28) - 1 355
31 December
2018
15. Business Combinations
The acquisitions completed by the Group in 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
year. 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 year were considered sufficiently material to warrant
separate disclosure of the fair values attributable to those
combinations.
Total*
EURm
Non-current assets 89
Property, plant
and equipment
Right-of-use assets 8
Intangible assets 30
Current assets
Inventories 7
Trade and other receivables 23
Cash and cash equivalents 10
Non-current liabilities
Employee benefits (1)
Deferred income tax (9)
liabilities
Borrowings (11)
Current liabilities
Borrowings (6)
Trade and other payables (18)
Current income tax (1)
liabilities
Net assets acquired 121
Goodwill 55
Negative goodwill (4)
Consideration 172
Settled by:
Cash 109
Deferred consideration 10
Deferred contingent 53
consideration
172
* In addition to the 2019 acquisitions, the amounts also include
fair value adjustments in relation to 2018 acquisitions.
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.
During the year, the Group recognised EUR4 million of negative
goodwill from the Papcart acquisition in 2018. This is included
within administrative expenses in the Consolidated Income
Statement.
None of the goodwill recognised is expected to be deductible for
tax purposes.
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).
Acquisition-related costs of EUR1 million were incurred and are
included within administrative expenses in the Consolidated Income
Statement.
The Group's acquisitions in 2019 have contributed EUR76 million
to revenue and EUR5 million to profit after tax.
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.
16. Leases
Amounts recognised in the Consolidated Balance Sheet
1 January
2019 2019*
EURm EURm
Right-of-use assets:
Land and buildings 250 255
Vehicles 62 61
Plant and equipment 34 34
346 350
The Group presents lease liabilities in borrowings in the
Consolidated Balance Sheet. The amounts included within borrowings
are as follows:
1 January
2019 2019*
EURm EURm
Lease liabilities:
Current 78 73
Non-current 299 307
377 380
* In 2018, the Group recognised lease assets and lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17 only. For adjustments recognised on adoption of IFRS 16 on 1 January 2019 please refer to Note 3.
Additions to the right-of-use assets during 2019 were EUR87
million, of which EUR8 million related to acquired right-of-use
assets (Note 15).
Amounts recognised in the Consolidated Income Statement
The Consolidated Income Statement includes the following amounts
relating to leases:
2019
EURm
Depreciation charge of right-of-use assets:
Land and buildings 44
Vehicles 31
Plant and equipment 12
87
Interest expense on lease liabilities 11
Expenses relating to short-term leases 11
Expenses relating to leases of low-value assets 2
Expenses relating to variable lease payments 6
not included in the lease liabilities
Lease commitments for short-term leases are similar to the
portfolio of short-term leases for which the costs were expensed to
the Consolidated Income Statement.
Amounts recognised in the Consolidated Statement of Cash Flows
2019
EURm
Total cash outflow for leases 113
Leasing activities
The Group enters into leases for a range of assets, principally
relating to property. These property leases, which consist of
office buildings and warehouses, have varying terms, renewal rights
and escalation clauses, including periodic rent reviews linked with
indices. The Group also leases vehicles which include motor
vehicles for management and sales functions and trucks for
distribution. Plant and equipment includes a lease for a
cogeneration facility (previously classified as a finance lease
under IAS 17).
The effect of excluding future cash outflows arising from
variable lease payments, termination options, residual value
guarantees, and leases not yet commenced from lease liabilities was
not material for the Group. Income from subleasing and gains/losses
on sale and leaseback transactions were not material for the Group.
The terms and conditions of these leases do not impose significant
financial restrictions on the Group.
Extension and termination options
Extension and termination options are included in a number of
property, equipment and vehicle leases throughout the Group. They
are used to maximise operational flexibility in terms of managing
the assets used in the Group's operations. In determining the lease
term, management considers all facts and circumstances that create
an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the
lease is reasonably certain to be extended (or not terminated).
In determining whether or not a renewal or termination option
will be taken, the following factors are normally the most
relevant.
-- If there are significant penalties to terminate (or not to extend), the Group is typically reasonably certain to extend (or not terminate).
-- If leasehold improvements are expected to have a significant remaining value, when the option becomes exercisable, the Group is typically reasonably certain to extend (or not to terminate).
-- Strategic importance of the asset to the Group.
-- Past practice.
-- Costs and business disruption to replace the asset.
The lease term is reassessed if an option is actually exercised
(or not exercised) and this decision has not already been reflected
in the lease term as part of a previous determination. The
assessment of reasonable certainty is revised only if a significant
change in circumstances occurs, which affects this assessment, and
this is within the control of the lessee.
Comparative lease disclosures under IAS 17
Operating leases
Future minimum lease payments under non-cancellable operating
leases were as follows:
2018
EURm
Within one year 82
Within two to five years 166
Over five years 84
332
The Group leased properties, plant and equipment and vehicles
under operating leases. The leases had various terms, escalation
clauses and renewal rights.
Finance leases
Future minimum lease payments under finance leases together with
the present value of the net minimum lease payments were as
follows:
2018
Present
value
Minimum of minimum
payments payments
EURm EURm
Within one year 2 2
Within two to five years 8 5
Over five years 14 12
Total minimum lease payments 24 19
Less: amounts allocated to future finance costs (5) -
Present value of minimum lease payments 19 19
The Group had an arrangement in place in relation to a
cogeneration facility that did not take the legal form of a lease
but conveyed the right to use the underlying assets in return for a
series of payments. This arrangement had been assessed as having
the substance of a finance lease arrangement.
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.
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:
EBITDA
DefinitionEBITDA 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. A reconciliation of profit/(loss) to
EBITDA is included below:
Reconciliation of Profit/(Loss) to EBITDA
2019 2018
EURm EURm
Profit/(loss) for the financial year 484 (639)
Income tax expense (after exceptional items) 193 235
Deconsolidation of Venezuela - 1,270
Exceptional items charged in operating profit 178 66
Net finance costs (after exceptional items) 209 173
Share of associates' profit (after tax) (2) -
Share-based payment expense 41 24
Depreciation, depletion (net) and amortisation 547 416
EBITDA 1,650 1,545
EBITDA margin
DefinitionEBITDA margin is a measure of profitability by taking
our EBITDA divided by revenue.
2019 2018
EURm EURm
EBITDA 1,650 1,545
Revenue 9,048 8,946
EBITDA margin 18.2% 17.3%
Operating profit before exceptional items
DefinitionOperating 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.
2019 2018
EURm EURm
Operating profit 884 1,039
Exceptional items 178 66
Operating profit before exceptional items 1,062 1,105
Pre-exceptional basic earnings per share
DefinitionPre-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 9.
Free cash flow ('FCF')
DefinitionFree 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. We use free cash flow to
assess and understand the total operating performance of the
business and to identify underlying trends.
The summary cash flow is prepared on a different basis to the
Consolidated Statement of Cash Flows under IFRS ('IFRS cash flow')
and as such the reconciling items between EBITDA and
(increase)/decrease in net debt may differ from amounts presented
in the IFRS cash flow. The principal differences are as
follows:
A reconciliation of free cash flow (APM) to cash generated from
operations (IFRS measure) is included below:
Reconciliation of Free Cash Flow to
Cash Generated from Operations
2019 2018
EURm EURm
Free cash flow 547 494
Reconciling items:
Cash interest 156 155
Capital expenditure (net of change in capital creditors) 711 561
Tax payments 222 193
Sale of property, plant and equipment (4) (4)
Lease terminations/modifications (in (9) -
'Other' in summary cash flow)
Profit on sale of property, plant (3) (3)
and equipment - non-exceptional
Receipt of capital grants (in 'Other' in summary cash flow) (2) (2)
Dividends received from associates (1) -
(in 'Other' in summary cash flow)
Non-cash financing activities 1 (1)
Cash generated from operations 1,618 1,393
Return on capital employed ('ROCE')
DefinitionROCE 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).
2019 2018
EURm EURm
Operating profit before exceptional items plus 1,064 1,105
share of associates' profit (after tax)
Total equity - current year end 2,993 2,890
Net debt - current year end 3,483 3,122
Capital employed - current year end 6,476 6,012
Total equity - prior year end 2,890 2,659
Net debt - prior year end 3,122 2,805
Capital employed - prior year end 6,012 5,464
Average capital employed 6,244 5,738
Return on capital employed 17.0% 19.3%
Net debt
DefinitionNet 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.
2019 2018
EURm EURm
Borrowings (see Note 13) 3,686 3,539
Less:
Restricted cash (14) (10)
Cash and cash equivalents (189) (407)
Net debt 3,483 3,122
Net debt to EBITDA
DefinitionLeverage (ratio of net debt to EBITDA) is an important
measure of our overall financial position.
2019 2018
EURm EURm
Net debt 3,483 3,122
EBITDA 1,650 1,545
Net debt to EBITDA (times) 2.1 2.0
Capital expenditure
DefinitionCapital expenditure comprises additions to property,
plant and equipment, right-of-use assets, biological assets and
intangible assets.
2019 2018
EURm EURm
Property, plant and equipment 620 530
Right-of-use assets 79 8
Biological assets 11 11
Intangible assets 20 25
Total capital expenditure 730 574
Capital expenditure as a percentage of depreciation
DefinitionCapital expenditure as defined above as a percentage
of total depreciation. Total depreciation includes depreciation of
property, plant and equipment, right-of-use assets, change in
biological assets and amortisation of intangible assets.
2019 2018
EURm EURm
Capital expenditure 730 574
Depreciation 547 416
Capital expenditure as a percentage of depreciation 134% 138%
Working capital
DefinitionWorking capital represents total inventories, trade
and other receivables and trade and other payables.
2019 2018
EURm EURm
Inventories 819 847
Trade and other receivables (current and non-current) 1,674 1,707
Trade and other payables (1,863) (1,871)
Working capital 630 683
Working capital as a percentage of sales
DefinitionWorking capital as a percentage of sales represents
working capital as defined above shown as a percentage of
annualised quarterly revenue.
2019 2018
EURm EURm
Working capital 630 683
Annualised revenue 8,790 9,096
Working capital as a percentage of sales 7.2% 7.5%
Underlying EBITDA and revenue
DefinitionUnderlying 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.
Europe The Americas Total Europe The Americas Total
2019 2019 2019 2018 2018 2018
EBITDA
Currency - - - (1%) (9%) (3%)
Hyperinflation - (1%) - - (3%) -
Acquisitions/disposals 3% (2%) 2% 4% (6%) 1%
IFRS 16 5% 9% 6% - - -
Underlying EBITDA (3%) 7% (1%) 30% 20% 27%
change
Reported EBITDA 5% 13% 7% 33% 2% 25%
change
Revenue
Currency - - - (1%) (12%) (3%)
Hyperinflation - - - - 4% 1%
Acquisitions/disposals 3% (4%) 1% 2% (6%) -
Underlying (2%) 6% - 7% 8% 7%
revenue
change
Reported revenue 1% 2% 1% 8% (6%) 5%
change
The impact of new accounting standards
The application of IFRS 16, Leases had the following impact on
our APMs:
2019
EBITDA (million) EUR92
EBITDA margin (%) 100 bps
Operating profit before exceptional items (million) EUR8
Pre-exceptional basic EPS (cent) (0.9)
Return on capital employed (%) (40) bps
Free cash flow (million) EUR11
Net debt (million) EUR356
Net debt to EBITDA (LTM) 0.1 x
Capital expenditure (million) 79
Capital expenditure/depreciation (%) (714) bps
View source version on businesswire.com:
https://www.businesswire.com/news/home/20200204006122/en/
This information is provided by Business Wire
(END) Dow Jones Newswires
February 05, 2020 02:00 ET (07:00 GMT)
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