3rd Quarter Results

3rd Quarter Results

Smurfit Kappa Group PLC

2 November 2016: Smurfit Kappa Group plc (‘SKG’ or ‘the Group’) today announced results for the 3 months and 9 months ending 30 September 2016.

2016 Third Quarter & First Nine Months | Key Financial Performance Measures

€m  

YTD
2016

 

YTD
2015

  Change  

Q3
2016

  Q3
2015 		  Change   Q2
2016 		  Change
Revenue €6,099 €6,020 1% €2,050 €2,024 1% €2,049 -

EBITDA before Exceptional Items and
Share-based Payment(1)(2)

€916 €855 7% €323 €305 6% €312 3%
EBITDA margin (1) 15.0% 14.2% 15.7% 15.0% 15.3%

Operating Profit before Exceptional
Items(1)

€609 €551 10% €219 €202 8% €211 4%
Profit before Income Tax €499 €408 22% €187 €165 13% €184 2%
Basic EPS (cent) 147.1 119.7 23% 56.4 46.4 22% 52.0 8%
Pre-exceptional Basic EPS (cent) (1) 142.0 138.0 3% 56.4 49.2 15% 46.9 20%
Return on Capital Employed (1) 16.1% 15.0% 15.4%
Free Cash Flow (1)   €199   €236   (16%)   €164   €162   1%   €28   480%
                                 
Net Debt (1) €2,953 €2,953 - €3,121 (5%)
Net Debt to EBITDA (LTM) (1)               2.4x   2.6x       2.5x    

1) Additional information in relation to these Alternative Performance Measures (‘APMs’) is set out in Supplementary Financial
Information on page 29.

2) EBITDA before exceptional items and share-based payment expense is denoted by EBITDA throughout the remainder of the
management commentary for ease of reference.

 

Third Quarter & First Nine Months Key Points

  • Third quarter Group revenue growth on a constant currency basis of 6%, with volume growth of 3%
  • Third quarter EBITDA growth of 6% year-on-year with a margin of 15.7% and sequential EPS growth
  • Increased ROCE of 16.1%
  • Third quarter free cash flow of €164 million supporting further deleveraging to 2.4 times
  • Increased quality of asset base delivering higher returns
  • On track to deliver record full year EBITDA

Performance Review and Outlook

Tony Smurfit, Group CEO, commented: “We are pleased to deliver good earnings growth for the quarter and the year to date. SKG continues to meet and exceed its ROCE target and has delivered improved EBITDA margins. This strong result reflects the high quality of our globally diversified operating platform, performance led culture, and the strength of our people and assets.

“In the third quarter, the Group delivered a strong 6% increase in revenue on a constant currency basis. The reported EBITDA for the quarter increased 6% year-on-year to €323 million. This performance was delivered against a backdrop of significantly higher than expected recovered fibre input costs and adverse currency movements.

“The Group’s global corrugated packaging volumes grew by 5% in the year to date and 3% during the quarter. SKG continues to prioritise our value and differentiation proposition to our global customers, driving disciplined growth. In Europe, corrugated box volumes are 2% greater than 2015. Our Americas business continues to progress with improved performance across most operations, offset by negative currency impacts in the quarter. The Americas provides the Group with valuable diversification of its end market exposure, with access to higher growth and higher margin markets.

“Today, the Group is well positioned and invested in all its chosen markets. The strength of our cash flow will enable us to continue to invest to support profitable growth while sustaining an attractive dividend stream for our shareholders. We continue to invest to further improve the quality of our asset base, and we will make acquisitions where we identify compelling long term value for our shareholders while continuing to maintain our balance sheet strength.

“Based on current operating conditions, the Group will deliver continued earnings growth and record EBITDA for 2016 in line with market expectations.”

About Smurfit Kappa

Smurfit Kappa is one of the leading providers of paper-based packaging solutions in the world, with around 45,000 employees in approximately 370 production sites across 34 countries and with revenue of €8.1 billion in 2015. We are located in 21 countries in Europe, and 13 in the Americas. We are the only large-scale pan-regional player in Latin America.

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

smurfitkappa.com

Check out our microsite: openthefuture.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

Smurfit Kappa

T: +353 1 202 71 80

E: ir@smurfitkappa.com

   

FTI Consulting

 

T: +353 1 663 36 80

E: smurfitkappa@fticonsulting.com

2016 Third Quarter & First Nine Months | Performance Overview

During the third quarter EBITDA margin improved sequentially to 15.7% as a result of a good operational performance across most countries and price increases achieved in the Americas. This margin, achieved despite the significant headwinds of higher old corrugated containers (‘OCC’) input costs and adverse currency impacts, underscores the Group’s capacity to deliver earnings through our integrated model and geographically diverse portfolio of businesses.

In Europe for the year to date, total corrugated volumes were up 1%, with boxes up 2% and the more commodity like sheet volumes down 6%.

The Group’s average corrugated pricing in Europe for the third quarter was broadly stable year-on-year on a constant currency basis. The Group’s differentiation programme continues to deliver tangible results with increased sales for our corrugated customers in their marketplace. This has been driven by our innovative and scientifically backed approach. Understanding consumer trends, consumer buying behaviour and how corrugated packaging plays a key role in this are key areas in which the Group is leading the way. SKG is the largest producer of corrugated packaging in Europe.

In the third quarter we saw further OCC increases with reference prices rising by over 10%. Although we have seen some softening in the export market price for OCC from its August high, and we expect some slight weakness into the last quarter, we believe the medium term trend is for OCC pricing to remain at a high level.

In recycled containerboard prices have remained stable in recent months. A €40 per tonne recycled price increase was announced in August for September implementation which has not been successful due to a combination of the OCC market softening somewhat and elevated inventory levels. In September the Group successfully implemented a £25 per tonne price increase in the UK market.

Demand for kraftliner remains robust. We successfully implemented a €20 per tonne price increase in the main North West European market and a £20 per tonne price increase in the UK market. Kraftliner is a vital part of today’s global supply chain requirements with its relative strengths against recycled alternatives, positioning it as a critical part of our customer’s requirements in certain industries and supply chain applications.

In the Americas, total corrugated volumes increased 17% for the quarter with organic volumes up 2% excluding Venezuela. Adverse currency movements impacted EBITDA in the region by approximately €11 million for the third quarter against the same period of 2015. This currency impact was offset in part by the positive contributions of acquisitions in the region and continued pricing initiatives in most markets. SKG is the largest producer of corrugated packaging in Latin America.

The Group delivered a strong free cash flow in the third quarter of €164 million. As a result net debt to EBITDA reduced to 2.4 times. Looking forward, the Group is focused on continuing to drive its free cash flow delivery, which in turn will support our programme of high return capital investments, acquisitions, dividend growth and an increasingly strong balance sheet.

2016 Third Quarter | Financial Performance

Revenue in the third quarter was up €26 million or 1% to €2,050 million. Revenues in Europe decreased by €42 million driven mainly by adverse currency moves. In the Americas revenues increased by €68 million in the quarter driven by both underlying revenue growth and the benefit of acquisitions, which were offset in part by currency. The underlying year-on-year move in revenue when adjusted for net negative currency movements and net acquisitions, was an increase of 2%.

EBITDA for the third quarter was €323 million, €18 million higher than the same period in 2015 with earnings growth from both Europe and the Americas and lower Group centre costs. Allowing for currency movements and net acquisitions, the underlying year-on-year move in EBITDA for the quarter was an increase of €27 million, or 9%.

There were no exceptional items charged within operating profit in the quarter.

Basic earnings per share was 56.4 cent for the third quarter of 2016 (2015: 46.4 cent), an increase of 22% year-on-year. Adjusting for exceptional items, pre-exceptional basic EPS was 56.4 cent (2015: 49.2 cent), an increase of 15% year-on-year.

2016 First Nine Months | Financial Performance

Revenue of €6,099 million for the first nine months of 2016 was €79 million (the equivalent of over 1%) higher than €6,020 million in 2015. Higher reported revenue in the Americas was partly offset by lower revenue in Europe predominantly due to negative currency impacts and net disposals. Allowing for currency movements and the contribution from acquisitions net of disposals, the underlying increase in revenue was €141 million (the equivalent of over 2%) with higher underlying revenue in both Europe and the Americas. As in the case of the quarter, revenue was 6% higher than the first nine months of 2015 on a constant currency basis.

EBITDA for the first nine months of 2016 was €916 million compared to €855 million in 2015 with higher earnings in both Europe and the Americas and broadly unchanged Group Centre costs.

Allowing for currency movements and the contribution from acquisitions net of disposals, comparable earnings in Europe and the Americas were €44 million and €33 million higher respectively in 2016. In the Americas, earnings were higher across the region with the exception of North America which has had both operational challenges and higher OCC costs.

Net negative currency movements, primarily in the Americas, reduced EBITDA by €35 million while acquisitions contributed €22 million. The absence of the solidboard operations for all but the first quarter of 2015 reduced EBITDA by €3 million. As a result, the underlying increase in EBITDA was €77 million (equating to 9%) with higher underlying earnings in both Europe and the Americas.

There were no exceptional items charged within operating profit in 2016. Exceptional items charged within operating profit in the first nine months of 2015 amounted to €54 million, €42 million of which represented the higher cost to our Venezuelan operations of discharging their non-Bolivar denominated payables following our adoption of the Simadi rate in March 2015. The remaining €12 million charge represented the further impairment of the solidboard operations held for sale of €8 million, reported within cost of sales in the first quarter, and a loss of €4 million booked mainly in the second quarter on their disposal.

The exceptional finance income in the nine months to September 2016 related to the gain of €12 million on the sale in the second quarter of our shareholding in the Swedish company, IL Recycling. Exceptional finance income of €12 million in 2015 represented the gain in Venezuela on their US Dollar denominated intra-group loans as a result of our adoption of the Simadi rate. This gain was partly offset by an exceptional finance cost of €2 million in respect of the accelerated amortisation of the issue costs relating to the debt within our Senior Credit Facility which was paid down with the proceeds of the €250 million bond issue in February 2015.

Basic earnings per share were 147.1 cent for the first nine months of 2016 (2015: 119.7 cent), an increase of 23% year-on-year. Adjusting for exceptional items, pre-exceptional basic EPS was 142.0 cent (2015: 138.0 cent), an increase of 3% year-on-year.

2016 Third Quarter & First Nine Months | Free Cash Flow

Free cash flow amounted to €199 million in the first nine months of 2016 compared to €236 million in 2015. The year-on-year decrease of €37 million reflected higher outflows mainly in respect of working capital, capital expenditure, retirement benefits, tax and cash interest.

In the third quarter, the Group reported a free cash flow of €164 million, an increase of 1% on the third quarter of 2015.

The working capital move in the nine months to September was an outflow of €109 million compared to €64 million in 2015. The outflow in 2016 was the combination of an increase in debtors and, to a lesser extent, stocks partly offset by an increase in creditors. Working capital amounted to €634 million at September 2016, representing 7.7% of annualised revenue compared to 8.5% at June 2016 and 7.0% at September 2015.

Capital expenditure amounted to €321 million in the nine months to September 2016, approximately 110% of depreciation, compared to 105% in 2015.

Cash interest in the nine months to September was €19 million higher in 2016 at €110 million, reflecting the increased level of net debt following our acquisition activity in 2015. Our average interest rate is also slightly higher year-on-year given our exposure now to the relatively high local interest rates in Brazil.

The Group made tax payments of €117 million in the nine months to September, €15 million higher than 2015 reflecting the impact of higher profitability and the timing of payments between years.

2016 Third Quarter & First Nine Months | Capital Structure

The reported net debt was €2,953 million at the end of the third quarter delivering a net debt to EBITDA ratio of 2.4 times at September 2016. In comparison to the same period in 2015, net debt is in line despite the significant acquisitions in Brazil at the end of 2015. The Group’s net debt continues to reduce in both absolute and in multiple terms positioning the Group with considerable financial strategic flexibility subject to the stated leverage range of 2.0 to 3.0 times through the cycle and SKG’s Ba1/BB+/BB+ credit rating.

At 30 September 2016 the Group’s average interest rate was 4.2%, slightly higher year-on-year as a result of the local currency Brazilian debt associated with the acquisitions of INPA and Paema in December 2015. The Group’s diversified funding base and long dated maturity profile (3.9 years) provide a stable funding outlook. In terms of liquidity, the Group held cash on the balance sheet of €487 million at the end of the quarter which was further supplemented by available commitments under its revolving credit facility of approximately €612 million.

The Group has a stable financing base with a long term and well spread maturity profile. The Group’s credit rating of Ba1/BB+/BB+ contributes to a lower cost of capital and access to the widest range of financing options available. These positions were achieved as a result of the Group’s consistent ability to generate strong free cash flows together with active management of its debt portfolio. The strength of the Group’s capital base together with consistent delivery of strong free cash flows provides a solid and cost effective support to the Group’s growth agenda over the medium term.

2016 Third Quarter & First Nine Months | Operating Efficiency

Cost Take-out Programme

The Group is confident of delivering in line with its full year cost take-out target of €75 million. In the year to September the programme has generated cost savings of €49 million, with significant operational efficiencies achieved across key cost areas such as raw materials usage, energy efficiency and labour costs.

It is imperative to consistently address inflation pressures in order to support the Group’s earnings growth. Each year the programme adopts a bottom up approach, achieving savings through continuous incremental improvements at an individual plant level across our facilities worldwide.

Enhanced Capital Expenditure (‘Quick Win’) Programme

By the end of 2016, the programme is expected to deliver incremental EBITDA of €25 million in 2016 with a further €33 million incremental EBITDA expected in 2017. The Group will undertake a review of this programme in the coming months with a view to announcing a new programme in the latter part of 2017.

2016 Third Quarter & First Nine Months | Regional Performance Review

Europe

The Group’s European operations performed well in the third quarter, delivering an improved EBITDA margin of 15.6% compared to 15.1% in the same period of 2015. The EBITDA for the quarter delivered an increase of €2 million year-on-year, despite adverse currency impacts of €4 million. In the first nine months of 2016 the EBITDA margin was 15.1%, showing the improving trend in margins as the year has progressed. The Group has achieved relatively stable corrugated prices on a constant currency basis following containerboard price decreases earlier in the year.

Box volumes increased by 2% year to date 2016. We continue to drive growth in box volumes with our customers increasingly seeing the benefits derived from our unique Shelfsmart approach, market leading insights and Innotools, which are helping our customers sell more in their marketplace. Box volumes remain approximately 88% of total corrugated volumes and are consistently growing at a faster rate than the more commodity sheet volumes.

Recovered paper prices have continued to move upwards throughout the third quarter, with prices up 13% in September against the second quarter average 2016. Market indices have reported a €30-35 per tonne increase in OCC year to date 2016. This increase has been driven by strong domestic and overseas demand.

The Americas

In the third quarter the Group’s Americas operations delivered an EBITDA margin of 16.8% against 15.6% in the second quarter and 17.5% in the same period of 2015. The EBITDA for the quarter delivered an increase of €8 million year-on-year, despite adverse currency impacts of €11 million. In the first nine months of 2016 the EBITDA margin was 16.5%.

Organic corrugated volumes excluding Venezuela were up 2% year-on-year for the third quarter. The Americas continues to provide a geographically diversified source of resilient earnings growth. The IMF recently released their GDP growth forecasts for the next five years in October citing average growth rates of 3% or above in Colombia, Mexico, Argentina and Chile, providing a solid platform to generate further growth for the Group.

The Group’s Pan-American sales volumes continue to grow, up 2% for the first nine months of the year and up 6% when excluding Venezuela. This increase in volumes further demonstrates the effectiveness of SKG’s pan-regional offering to its large blue-chip customer base.

The Mexican business continues to grow well with corrugated volumes up 6% for the third quarter and the year to date period. The previously announced project to increase capacity by 100,000 tonnes per annum at the Los Reyes mill near Mexico City is expected to be completed in the first quarter of 2017.

In Colombia corrugated volumes increased by 7% in the third quarter of 2016 against the same period of 2015. After a successful box price increase in the fourth quarter of 2015, necessary price increases are being implemented in the second half of 2016 and we expect further margin recovery in the fourth quarter.

Operational challenges in the Group’s Californian operations are starting to stabilise with some progress being made. Announced containerboard price increases should be supportive into 2017.

In Brazil volumes continue to grow year-on-year for the nine months. Margins remain under pressure due to higher OCC reference prices up 60% in the nine months to September. Looking at 2017, the expected recovery of the Brazilian economy combined with meaningful business opportunities with our Pan-American customers in the country and some relief on OCC cost pressures are expected to support continued business performance.

The Group’s operations in Argentina which faced a slowdown in the third quarter are expected to grow again as we enter the last quarter which should in turn drive volume growth into 2017. The Group has announced a price increase for implementation in the fourth quarter of 2016 in Argentina.

Aided by the ability to source raw materials locally, the Venezuelan operations, management and all employees of SKG continue to perform well in what is a very challenging business environment.

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

3 months to
30-Sep-16
€m

 

3 months to
30-Sep-15
€m

  

9 months to
30-Sep-16
€m

 

9 months to
30-Sep-15
€m
EBITDA 323 305 916 855
Exceptional items - (5) - (40)
Cash interest expense (38) (32) (110) (91)
Working capital change 51 55 (109) (64)
Current provisions - (10) (7) (20)
Capital expenditure (110) (118) (321) (287)
Change in capital creditors 9 15 1 8
Tax paid (47) (39) (117) (102)
Sale of fixed assets 1 - 2 5
Other (25)   (9)   (56)   (28)
Free cash flow 164 162 199 236
 
Share issues - 1 - 2
Purchase of own shares (net) - - (10) (15)
Sale of businesses and investments - (1) 13 29
Purchase of businesses and investments - (19) (40) (181)
Dividends (1) (1) (116) (98)
Derivative termination payments -   -   -   (2)
Net cash inflow/(outflow) 163 142 46 (29)
 
Net debt acquired - (8) - (21)
Deferred debt issue costs amortised (2) (2) (8) (8)
Currency translation adjustment 7   15   57   (136)
Decrease/(increase) in net debt 168   147   95   (194)
 

(1) The summary cash flow is prepared on a different basis to the Condensed Consolidated Statement of Cash Flows under IFRS (‘IFRS cash flow’) and as such the reconciling items between EBITDA and decrease/increase in net debt may differ to amounts presented in the IFRS cash flow. The principal differences are as follows:

(a) The summary cash flow details movements in net debt. The IFRS cash flow details movements in cash and cash equivalents.

(b) Free cash flow reconciles to cash generated from operations in the IFRS cash flow as shown in the table on the next page. The main adjustments are in respect of cash interest, capital expenditure, tax payments and the sale of fixed assets and businesses.

(c) The IFRS cash flow has different sub-headings to those used in the summary cash flow.

  • Current provisions in the summary cash flow are included within change in employee benefits and other provisions in the IFRS cash flow.
  • The total of capital expenditure and change in capital creditors in the summary cash flow includes additions to intangible assets which is shown separately in the IFRS cash flow.
  • Other in the summary cash flow includes changes in employee benefits and other provisions (excluding current provisions), amortisation of capital grants, receipt of capital grants and dividends received from associates which are shown separately in the IFRS cash flow.

Reconciliation of Free Cash Flow to Cash Generated from Operations

   

9 months to
30-Sep-16
€m

9 months to
30-Sep-15
€m
Free cash flow 199 236
 
Add back: Cash interest 110 91
Capital expenditure (net of change in capital creditors) 320 279
Tax payments 117 102
 
Less: Sale of fixed assets (2) (5)
Profit on sale of assets and businesses – non exceptional (6) (2)
Receipt of capital grants (in ‘Other’ in summary cash flow) (2) (2)
Dividends received from associates (in ‘Other’ in summary cash flow) (1) (1)
Non-cash financing activities -   (1)
Cash generated from operations 735   697
 

Capital Resources

The Group's primary sources of liquidity are cash flow from operations and borrowings under the revolving credit facility. The Group's primary uses of cash are for funding day to day operations, capital expenditure, debt service, dividends and other investment activity including acquisitions.

At 30 September 2016, Smurfit Kappa Treasury Funding Limited had outstanding US$292.3 million 7.50% senior debentures due 2025. The Group had outstanding €151.1 million and STG£63.1 million variable funding notes issued under the €240 million accounts receivable securitisation programme maturing in June 2019, together with €175 million variable funding notes issued under the €175 million accounts receivable securitisation programme maturing in April 2018.

Smurfit Kappa Acquisitions had outstanding €200 million 5.125% senior notes due 2018, US$300 million 4.875% senior notes due 2018, €400 million 4.125% senior notes due 2020, €250 million senior floating rate notes due 2020, €500 million 3.25% senior notes due 2021 and €250 million 2.75% senior notes due 2025. Smurfit Kappa Acquisitions and certain subsidiaries are also party to a senior credit facility. At 30 September 2016, the Group’s senior credit facility comprised term drawings of €572.6 million, US$55.2 million and STG£106.9 million under the amortising Term A facility maturing in 2020. In addition, as at 30 September 2016, the facility included a €625 million revolving credit facility of which €6 million was drawn in revolver loans, with a further €7 million in operational facilities including letters of credit drawn under various ancillary facilities.

The following table provides the range of interest rates as of 30 September 2016 for each of the drawings under the various senior credit facility loans.

       

Borrowing arrangement

Currency

Interest rate

 
Term A Facility EUR 1.228% - 1.309%
USD 2.127%
GBP 1.869%
 
Revolving Credit Facility EUR 0.978%
 

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

Following acquisitions of over €380 million in 2015, including the Brazilian acquisitions in December, the Group increased the Term Loan under its Senior Credit Facility by €250 million, from €500 million to €750 million on 5 February 2016. The terms applicable to the increase, including margin, amortisation profile and maturity date are the same as the existing Term A loan. The proceeds were substantially applied to reduce drawings under the revolving credit facility, thereby further improving the Group’s liquidity.

Market Risk and Risk Management Policies

The Group is exposed to the impact of interest rate changes and foreign currency fluctuations due to its investing and funding activities and its operations in different foreign currencies. Interest rate risk exposure is managed by achieving an appropriate balance of fixed and variable rate funding. As at 30 September 2016, the Group had fixed an average of 66% of its interest cost on borrowings over the following twelve months.

The Group’s fixed rate debt comprised €200 million 5.125% senior notes due 2018, US$300 million 4.875% senior notes due 2018 (US$50 million swapped to floating), €400 million 4.125% senior notes due 2020, €500 million 3.25% senior notes due 2021, €250 million 2.75% senior notes due 2025 and US$292.3 million 7.50% senior debentures due 2025. In addition the Group had €349 million in interest rate swaps with maturity dates ranging from October 2018 to January 2021.

The Group’s earnings are affected by changes in short-term interest rates as a result of its floating rate borrowings. If LIBOR/EURIBOR interest rates for these borrowings increase by one percent, the Group’s interest expense would increase, and income before taxes would decrease, by approximately €13 million over the following twelve months. Interest income on the Group’s cash balances would increase by approximately €5 million assuming a one percent increase in interest rates earned on such balances over the following twelve months.

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

Condensed Consolidated Income Statement – Nine Months

   
9 months to 30-Sep-16 9 months to 30-Sep-15
Unaudited Unaudited

Pre-
exceptional
2016

 

Exceptional
2016

 

Total
2016

Pre-
exceptional
2015

  

Exceptional
2015

  

Total
2015
    €m   €m   €m   €m   €m   €m
Revenue 6,099 - 6,099 6,020 - 6,020
Cost of sales (4,257)   -   (4,257)   (4,220)   (8)   (4,228)
Gross profit 1,842 - 1,842 1,800 (8) 1,792
Distribution costs (476) - (476) (482) - (482)
Administrative expenses (758) - (758) (768) - (768)
Other operating income 1 - 1 1 - 1
Other operating expenses -   -   -   -   (46)   (46)
Operating profit 609 - 609 551 (54) 497
Finance costs (160) - (160) (128) (2) (130)
Finance income 37 12 49 26 12 38

Share of associates’ profit
(after tax)

 1   -   1   3   -   3
Profit before income tax 487   12 499 452   (44) 408
Income tax expense (147) (126)
Profit for the financial period 352 282
 
Attributable to:
Owners of the parent 345 277
Non-controlling interests 7 5
Profit for the financial period 352 282
 

Earnings per share

Basic earnings per share - cent

147.1

119.7

Diluted earnings per share - cent

145.9

118.2

 

Condensed Consolidated Income Statement – Third Quarter

   
3 months to 30-Sep-16 3 months to 30-Sep-15
Unaudited Unaudited

Pre-
exceptional
2016

 

Exceptional
2016

 

Total
2016

Pre-
exceptional
2015

  

Exceptional
2015

  

Total
2015
    €m   €m   €m   €m   €m   €m
Revenue 2,050 - 2,050 2,024 - 2,024
Cost of sales (1,428)   -   (1,428)   (1,417)   (1)   (1,418)
Gross profit 622 - 622 607 (1) 606
Distribution costs (162) - (162) (161) - (161)
Administrative expenses (241) - (241) (244) - (244)
Other operating expenses -   -   -   -   (6)   (6)
Operating profit 219 - 219 202 (7) 195
Finance costs (43) - (43) (42) - (42)
Finance income 11 - 11 10 - 10

Share of associates’ profit
(after tax)

 -   -   -   2   -   2
Profit before income tax 187   - 187 172   (7) 165
Income tax expense (50) (53)
Profit for the financial period 137 112
 
Attributable to:
Owners of the parent 132 108
Non-controlling interests 5 4
Profit for the financial period 137 112
 

Earnings per share

Basic earnings per share - cent

56.4

46.4

Diluted earnings per share - cent

55.9

45.8

 

Condensed Consolidated Statement of Comprehensive Income – Nine Months

   
    9 months to
30-Sep-16
Unaudited
€m 		  9 months to
30-Sep-15
Unaudited
€m
 
Profit for the financial period 352   282
 
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (123) (505)
 
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve 5 8
- New fair value adjustments into reserve (7)   2
(125) (495)
 
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (191) 43
- Movement in deferred tax 28   (4)
(163) 39
     
Total other comprehensive expense (288)   (456)
 
Total comprehensive income/(expense) for the financial period 64   (174)
 
Attributable to:
Owners of the parent 56 (112)
Non-controlling interests 8   (62)
Total comprehensive income/(expense) for the financial period 64   (174)
 

Condensed Consolidated Statement of Comprehensive Income – Third Quarter

   
    3 months to
30-Sep-16
Unaudited
€m 		  3 months to
30-Sep-15
Unaudited
€m
 
Profit for the financial period 137   112
 
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (25) (117)
 
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve 2 3
- New fair value adjustments into reserve (3)   (3)
(26) (117)
 
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (62) (47)
- Movement in deferred tax 7   10
(55) (37)
     
Total other comprehensive expense (81)   (154)
 
Total comprehensive income/(expense) for the financial period 56   (42)
 
Attributable to:
Owners of the parent 51 (24)
Non-controlling interests 5   (18)
Total comprehensive income/(expense) for the financial period 56   (42)
 

Condensed Consolidated Balance Sheet

       
      30-Sep-16
Unaudited
€m 		  30-Sep-15
Unaudited
€m		   31-Dec-15
Audited
€m
ASSETS
Non-current assets
Property, plant and equipment 3,129 2,963 3,103
Goodwill and intangible assets 2,468 2,353 2,508
Available-for-sale financial assets 21 21 21
Investment in associates 17 18 17
Biological assets 95 81 98
Trade and other receivables 34 27 34
Derivative financial instruments 28 35 34
Deferred income tax assets 200   204   200
5,992   5,702   6,015
Current assets
Inventories 755 726 735
Biological assets 10 8 8
Trade and other receivables 1,518 1,516 1,451
Derivative financial instruments 11 5 28
Restricted cash 8 8 5
Cash and cash equivalents 479   263   270
2,781   2,526   2,497
Total assets 8,773   8,228   8,512
 
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital - - -
Share premium 1,983 1,983 1,983
Other reserves (547) (446) (425)
Retained earnings 756   509   619
Total equity attributable to owners of the parent 2,192 2,046 2,177
Non-controlling interests 164   135   151
Total equity 2,356   2,181   2,328
 
LIABILITIES
Non-current liabilities
Borrowings 3,295 3,138 3,238
Employee benefits 941 821 818
Derivative financial instruments 27 17 15
Deferred income tax liabilities 167 133 179
Non-current income tax liabilities 32 22 25
Provisions for liabilities and charges 49 46 52
Capital grants 14 13 13
Other payables 13   6   13
4,538   4,196   4,353
Current liabilities
Borrowings 145 86 85
Trade and other payables 1,673 1,699 1,672
Current income tax liabilities 29 23 30
Derivative financial instruments 12 10 10
Provisions for liabilities and charges 20   33   34
1,879   1,851   1,831
Total liabilities 6,417   6,047   6,184
Total equity and liabilities 8,773   8,228   8,512
 

Condensed Consolidated Statement of Changes in Equity

     
Attributable to owners of the parent

Equity
share
capital

 

Share
premium

 

Other
reserves

 

Retained
earnings

 

Total

Non-
controlling

interests

Total
equity

    €m   €m   €m   €m   €m   €m   €m
Unaudited
At 1 January 2016 - 1,983 (425) 619 2,177 151 2,328
 
Profit for the financial period - - - 345 345 7 352
Other comprehensive income

Foreign currency translation
adjustments

 - - (124) - (124) 1 (123)
Defined benefit pension plans - - - (163) (163) - (163)

Effective portion of changes in fair
value of cash flow hedges

 -   -   (2)   -   (2)   -   (2)

Total comprehensive
(expense)/income for the
financial period

-   -   (126)   182   56   8   64
 
Hyperinflation adjustment - - - 68 68 8 76
Dividends paid - - - (113) (113) (3) (116)
Share-based payment - - 14 - 14 - 14

Shares acquired by SKG Employee
Trust

 -   -   (10)   -   (10)   -   (10)
At 30 September 2016 -   1,983   (547)   756   2,192   164   2,356
 
Unaudited
At 1 January 2015 - 1,981 (30) 271 2,222 197 2,419
 
Profit for the financial period - - - 277 277 5 282
Other comprehensive income

Foreign currency translation
adjustments

 - - (438) - (438) (67) (505)
Defined benefit pension plans - - - 39 39 - 39

Effective portion of changes in fair
value of cash flow hedges

 -   -   10   -   10   -   10

Total comprehensive
(expense)/income for the
financial period

-   -   (428)   316   (112)   (62)   (174)
 
Shares issued - 2 - - 2 - 2
Hyperinflation adjustment - - - 16 16 3 19
Dividends paid - - - (94) (94) (4) (98)
Share-based payment - - 27 - 27 - 27

Shares acquired by SKG Employee
Trust

 - - (15) - (15) - (15)
Acquired non-controlling interest -   -   -   -   -   1   1
At 30 September 2015 -   1,983   (446)   509   2,046   135   2,181
 

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

Condensed Consolidated Statement of Cash Flows

   
    9 months to
30-Sep-16
Unaudited
€m 		  9 months to
30-Sep-15
Unaudited
€m
Cash flows from operating activities
Profit before income tax 499 408
 
Net finance costs 111 92
Depreciation charge 259 246
Impairment of assets - 8
Amortisation of intangible assets 25 24
Amortisation of capital grants (1) (1)
Equity settled share-based payment expense 14 27
(Profit)/loss on sale of assets and businesses (11) 2
Share of associates’ profit (after tax) (1) (3)
Net movement in working capital (109) (60)
Change in biological assets 9 3
Change in employee benefits and other provisions (72) (59)
Other 12   10
Cash generated from operations 735 697
Interest paid (113) (97)
Income taxes paid:
Irish corporation tax paid (22) (2)
Overseas corporation tax (net of tax refunds) paid (95)   (100)
Net cash inflow from operating activities 505   498
 
Cash flows from investing activities
Interest received 3 4
Business disposals - 30
Additions to property, plant and equipment and biological assets (311) (273)
Additions to intangible assets (9) (6)
Receipt of capital grants 2 2
Disposal of available-for-sale financial assets 13 -
Increase in restricted cash (4) (1)
Disposal of property, plant and equipment 8 7
Dividends received from associates 1 1
Purchase of subsidiaries and non-controlling interests (32) (180)
Deferred consideration paid (8)   (8)
Net cash outflow from investing activities (337)   (424)
 
Cash flows from financing activities
Proceeds from issue of new ordinary shares - 2
Proceeds from bond issue - 250
Proceeds from other debt issues 250 -
Purchase of own shares (net) (10) (15)
Increase in other interest-bearing borrowings 33 17
Payment of finance leases (3) (3)
Repayment of borrowings (169) (258)
Derivative termination payments - (2)
Deferred debt issue costs paid (2) (9)
Dividends paid to shareholders (113) (94)
Dividends paid to non-controlling interests (3)   (4)
Net cash outflow from financing activities (17)   (116)
Increase/(decrease) in cash and cash equivalents 151   (42)
 
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 263 361
Currency translation adjustment 22 (86)
Increase/(decrease) in cash and cash equivalents 151   (42)
Cash and cash equivalents at 30 September 436   233
 

An analysis of the net movement in working capital is provided in Note 11.

Notes to the Condensed Consolidated Interim Financial Statements

1. General Information

Smurfit Kappa Group plc (‘SKG plc’ or ‘the Company’) and its subsidiaries (together ‘SKG’ or ‘the Group’) manufacture, distribute and sell containerboard, corrugated containers and other paper-based packaging products such as solidboard, graphicboard and bag-in-box. The Company is a public limited company whose shares are publicly traded. It is incorporated and tax resident in Ireland. The address of its registered office is Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland.

2. Basis of Preparation and Accounting Policies

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

The financial information presented in this report has been prepared in accordance with the Group’s accounting policies. Full details of the accounting policies adopted by the Group are contained in the financial statements included in the Group’s annual report for the year ended 31 December 2015 which is available on the Group’s website; smurfitkappa.com. The accounting policies and methods of computation and presentation adopted in the preparation of the condensed consolidated interim financial statements are consistent with those described and applied in the annual report for the financial year ended 31 December 2015. There are no new IFRS standards effective from 1 January 2016 which have a material effect on the condensed consolidated interim financial information included in this report.

The condensed consolidated interim financial statements include all adjustments that management considers necessary for a fair presentation of such financial information. All such adjustments are of a normal recurring nature. Certain tables in this interim statement may not add precisely due to rounding.

The condensed consolidated interim financial statements presented do not constitute full statutory accounts. Full statutory accounts for the year ended 31 December 2015 have been filed with the Irish Registrar of Companies. The audit report on those statutory accounts was unqualified.

3. Segmental Analyses

The Group has determined operating segments based on the manner in which reports are reviewed by the chief operating decision maker (‘CODM’). The CODM is determined to be the executive management team responsible for assessing performance, allocating resources and making strategic decisions. The Group has identified two operating segments: 1) Europe and 2) The Americas.

The Europe segment is highly integrated. It includes a system of mills and plants that primarily produces a full line of containerboard that is converted into corrugated containers. The Americas segment comprises all forestry, paper, corrugated and folding carton activities in a number of Latin American countries and the United States. Inter-segment revenue is not material. No operating segments have been aggregated for disclosure purposes.

Segment profit is measured based on earnings before interest, tax, depreciation, amortisation, exceptional items and share-based payment expense (‘EBITDA before exceptional items’).

   
9 months to 30-Sep-16 9 months to 30-Sep-15
Europe  

The
Americas

  Total Europe  

The
Americas

   Total
    €m   €m   €m   €m   €m   €m
Revenue and results
Revenue 4,639   1,460   6,099   4,707   1,313   6,020
 
EBITDA before exceptional items 700 241 941 663 217 880
Segment exceptional items -   -   -   (5)   (40)   (45)
EBITDA after exceptional items 700   241 941 658   177 835
 
Unallocated centre costs (25) (25)
Share-based payment expense (14) (32)
Depreciation and depletion (net) (268) (249)
Amortisation (25) (24)
Impairment of assets - (8)
Finance costs (160) (130)
Finance income 49 38
Share of associates’ profit (after tax) 1 3
Profit before income tax 499 408
Income tax expense (147) (126)
Profit for the financial period 352 282
 

3. Segmental Analyses (continued)

   
3 months to 30-Sep-16 3 months to 30-Sep-15
Europe  

The
Americas

  Total Europe  

The
Americas

   Total
    €m   €m   €m   €m   €m   €m
Revenue and results
Revenue 1,537   513   2,050   1,579   445   2,024
 
EBITDA before exceptional items 240 86 326 238 78 316
Segment exceptional items -   -   -   (1)   (5)   (6)
EBITDA after exceptional items 240   86 326 237   73 310
 
Unallocated centre costs (3) (11)
Share-based payment expense (4) (6)
Depreciation and depletion (net) (91) (89)
Amortisation (9) (8)
Impairment of assets - (1)
Finance costs (43) (42)
Finance income 11 10
Share of associates’ profit (after tax) - 2
Profit before income tax 187 165
Income tax expense (50) (53)
Profit for the financial period 137 112
 

4. Exceptional Items

   
The following items are regarded as exceptional in nature: 9 months to
30-Sep-16
€m 		9 months to
30-Sep-15
€m
 
Impairment of assets - 8
Loss on the disposal of the solidboard operations - 4
Currency trading loss on change in Venezuelan translation rate -   42
Exceptional items included in operating profit -   54
 
Exceptional finance costs - 2
Exceptional finance income (12)   (12)
Exceptional items included in net finance costs (12)   (10)
 

The exceptional finance income in 2016 related to the gain of €12 million on the sale of our shareholding in the Swedish company, IL Recycling, in the second quarter.

Exceptional items charged within operating profit in the nine months to September 2015 amounted to €54 million, €42 million of which represented the higher cost to our Venezuelan operations of discharging their non-Bolivar denominated payables following our adoption of the Simadi rate. The remaining €12 million related to the solidboard operations in Europe, comprising an impairment of €8 million booked within cost of sales in the first quarter and a loss of €4 million booked in the second quarter on their disposal.

Exceptional finance income of €12 million in the nine months to September 2015 represented the gain in Venezuela on their US dollar denominated intra-group loans as a result of our adoption of the Simadi rate. This gain was partly offset by an exceptional finance cost of €2 million. This represented the accelerated amortisation of the issue costs relating to the debt within our senior credit facility which was paid down with the proceeds of the €250 million bond issue in February 2015.

5. Finance Costs and Income

   
    9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
Finance costs:
Interest payable on bank loans and overdrafts 41 27
Interest payable on other borrowings 79 74
Exceptional finance costs associated with debt restructuring - 2
Unwinding discount element of provision 1 1
Foreign currency translation loss on debt 9 11
Fair value loss on derivatives not designated as hedges 13 -
Net interest cost on net pension liability 17   15
Total finance costs 160   130
 
Finance income:
Other interest receivable (3) (4)
Foreign currency translation gain on debt (20) (13)
Exceptional foreign currency translation gain - (12)
Exceptional gain on sale of investment (12) -
Fair value gain on derivatives not designated as hedges (2) (8)
Net monetary gain - hyperinflation (12)   (1)
Total finance income (49)   (38)
Net finance costs 111   92
 

6. Income Tax Expense

Income tax expense recognised in the Condensed Consolidated Income Statement

     
      9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
Current tax:
Europe 80 63
The Americas 51   42
131 105
Deferred tax 16   21
Income tax expense 147   126
 
Current tax is analysed as follows:
Ireland 12 10
Foreign 119   95
131   105
 

Income tax recognised in the Condensed Consolidated Statement of Comprehensive Income

     
      9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
Arising on actuarial (loss)/gain on defined benefit plans (28)   4
 

The tax expense in 2016 is €21 million higher than in the comparable period in 2015 primarily due to an increase in earnings. The tax expense is higher in Europe by approximately €16 million and higher in the Americas by €5 million. The movement in deferred tax arises from the reversal of timing differences including the use and recognition of tax losses and credits. The tax expense includes a €1 million tax credit on exceptional items in 2015. There is a nil tax effect on exceptional items in 2016.

7. Employee Benefits – Defined Benefit Plans

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

   
    9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
 
Current service cost 23 33
Past service cost (21) (8)
Gain on settlement (5) (1)
Actuarial loss arising on other long-term employee benefits 1 3
Net interest cost on net pension liability 16   15
Defined benefit cost 14   42
 

Included in cost of sales, distribution costs and administrative expenses is a defined benefit gain of €2 million (2015: cost of €27 million). Net interest cost on net pension liability of €16 million (2015: €15 million) is included in finance costs in the Consolidated Income Statement.

The negative past service cost of €21 million in 2016 relates to the change from defined benefit to defined contribution in a number of countries in Europe.

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

   
    30-Sep-16
€m 		  31-Dec-15
€m
Present value of funded or partially funded obligations (2,361) (2,195)
Fair value of plan assets 1,966   1,884
Deficit in funded or partially funded plans (395) (311)
Present value of wholly unfunded obligations (546)   (507)
Net pension liability (941)   (818)
 

The employee benefits provision has increased from €818 million at 31 December 2015 to €941 million at 30 September 2016, mainly as a result of lower Eurozone and Sterling corporate bond yields which have decreased the discount rates in the Eurozone and Sterling area.

8. Earnings per Share

Basic

Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period less own shares.

   
9 months to 9 months to
    30-Sep-16   30-Sep-15
Profit attributable to owners of the parent (€ million) 345 277
 
Weighted average number of ordinary shares in issue (million) 234 231
 
Basic earnings per share (cent) 147.1   119.7
 

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 which comprise convertible shares issued under the 2007 Share Incentive Plan and deferred shares held in trust under the Deferred Annual Bonus Plan.

   
9 months to 9 months to
    30-Sep-16   30-Sep-15
Profit attributable to owners of the parent (€ million) 345 277
 
Weighted average number of ordinary shares in issue (million) 234 231
Potential dilutive ordinary shares assumed (million) 2   3
Diluted weighted average ordinary shares (million) 236   234
 
Diluted earnings per share (cent) 145.9   118.2
 

Pre-exceptional

   
9 months to 9 months to
    30-Sep-16   30-Sep-15
Profit attributable to owners of the parent (€ million) 345 277
Exceptional items included in profit before income tax (Note 4) (€ million) (12) 44
Income tax on exceptional items (€ million) -   (1)
Pre-exceptional profit attributable to owners of the parent (€ million) 333   320
 
Weighted average number of ordinary shares in issue (million) 234 231
 
Pre-exceptional basic earnings per share (cent) 142.0   138.0
 
Diluted weighted average ordinary shares (million) 236 234
 
Pre-exceptional diluted earnings per share (cent) 140.8   136.3
 

9. Dividends

During the year, the final dividend for 2015 of 48 cent per share was paid to the holders of ordinary shares. In October, an interim dividend for 2016 of 22 cent per share was paid to the holders of ordinary shares.

10. Property, Plant and Equipment

     
   

Land and
buildings
€m

 

Plant and
equipment
€m

 

Total
€m

Nine months ended 30 September 2016
Opening net book amount 988 2,115 3,103
Reclassifications 21 (22) (1)
Additions 1 305 306
Acquisitions - 40 40
Depreciation charge (35) (224) (259)
Retirements and disposals (1) (10) (11)
Hyperinflation adjustment 24 21 45
Foreign currency translation adjustment (30)   (64)   (94)
At 30 September 2016 968   2,161   3,129

 

Year ended 31 December 2015

Opening net book amount

1,079

1,954

3,033

Reclassifications

19

(21)

(2)

Additions

7

421

428

Acquisitions

46

116

162

Depreciation charge

(47)

(291)

(338)

Retirements and disposals

(18)

(2)

(20)

Hyperinflation adjustment

17

13

30

Foreign currency translation adjustment

(115)

 

(75)

 

(190)

At 31 December 2015

988

 

2,115

 

3,103

 

11. Net Movement in Working Capital

   
    9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
 
Change in inventories (42) (73)
Change in trade and other receivables (103) (126)
Change in trade and other payables 36   139
Net movement in working capital (109)   (60)
 

12. Analysis of Net Debt

   
    30-Sep-16
€m 		  31-Dec-15
€m
Senior credit facility:
Revolving credit facility(1) – interest at relevant interbank rate + 1.35%(5) 1 149
Facility A term loan(2) – interest at relevant interbank rate + 1.60%(5) 740 494
US$292.3 million 7.50% senior debentures due 2025 (including accrued interest) 268 270
Bank loans and overdrafts 167 124
Cash (487) (275)
2018 receivables securitisation variable funding notes 174 174
2019 receivables securitisation variable funding notes 223 232
2018 senior notes (including accrued interest)(3) 466 477
€400 million 4.125% senior notes due 2020 (including accrued interest) 400 403
€250 million senior floating rate notes due 2020 (including accrued interest)(4) 249 249
€500 million 3.25% senior notes due 2021 (including accrued interest) 500 495
€250 million 2.75% senior notes due 2025 (including accrued interest) 247   248
Net debt before finance leases 2,948 3,040
Finance leases 5   8
Net debt including leases 2,953   3,048
 
(1)    

Revolving credit facility ('RCF') of €625 million (available under the senior credit facility) to be repaid in 2020.
(a) Revolver loans - €6 million, (b) drawn under ancillary facilities and facilities supported by letters of credit – nil and (c) other
operational facilities including letters of credit - €7 million.

 

 

(2)

Facility A term loan (‘Facility A’) due to be repaid in certain instalments from 2018 to 2020. In February 2016, the Group increased
Facility A by €250 million. The proceeds were substantially applied to reduce the Group’s drawings under the RCF.

 
(3) €200 million 5.125% senior notes due 2018 and US$300 million 4.875% senior notes due 2018.
 
(4) Interest at EURIBOR + 3.5%.
 
(5) The margins applicable under the senior credit facility are determined as follows:
Net debt/EBITDA ratio         RCF       Facility A
 
Greater than 3.00 : 1 1.85% 2.10%
3.00 : 1 or less but more than 2.50 : 1 1.35% 1.60%
2.50 : 1 or less but more than 2.00 : 1 1.10% 1.35%
2.00 : 1 or less 0.85% 1.10%
 

13. Other Reserves

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

             

Reverse
acquisition
reserve

Cash flow

hedging
reserve

Foreign

currency

translation

reserve

Share-

based

payment

reserve

Own
shares

Available-
for-sale
reserve

 

Total

    €m   €m   €m   €m   €m   €m   €m
 
At 1 January 2016 575 (22) (1,109) 168 (38) 1 (425)

Other comprehensive
income

Foreign currency
translation adjustments

 - - (124) - - - (124)

Effective portion of
changes in fair value of
cash flow hedges

-   (2)   -   -   -   -   (2)

Total other
comprehensive expense

-   (2)   (124)   -   -   -   (126)
 
Share-based payment - - - 14 - - 14

Shares acquired by SKG
Employee Trust

 - - - - (10) - (10)

Shares distributed by SKG
Employee Trust

 -   -   -   (15)   15   -   -
At 30 September 2016 575   (24)   (1,233)   167   (33)   1   (547)
 
At 1 January 2015 575 (33) (689) 156 (40) 1 (30)

Other comprehensive
income

Foreign currency
translation adjustments

 - - (438) - - - (438)

Effective portion of
changes in fair value of
cash flow hedges

-   10   -   -   -   -   10

Total other
comprehensive
income/(expense)

-   10   (438)   -   -   -   (428)
 
Share-based payment - - - 27 - - 27

Shares acquired by SKG
Employee Trust

 - - - - (15) - (15)

Shares distributed by SKG
Employee Trust

 -   -   -   (16)   16   -   -
At 30 September 2015 575   (23)   (1,127)   167   (39)   1   (446)
 

Supplementary Financial Information

Alternative Performance Measures

Certain financial measures set out in this interim report are not defined under International Financial Reporting Standards (‘IFRS’) An explanation for the use of these Alternative Performance Measures (‘APMs’) is set out within Financial Performance Indicators on pages 26-28 of the Group’s 2015 annual report The key APMs of the Group are set out below.

 
APM Description
 
EBITDA

Earnings before exceptional items, share-based payment
expense, net finance costs, income tax expense, depreciation
and depletion (net) and intangible assets amortisation

EBITDA Margin

EBITDA x 100

Revenue

Operating Profit before Exceptional
Items

Profit before exceptional items, net finance costs, share of
associates’ profit (after tax) and income tax expense

Pre-exceptional Basic EPS (cent)

Profit attributable to owners of the parent, adjusted
for exceptional items included in profit before tax and
income tax on exceptional items x 100

Weighted average number of ordinary shares in
issue

Return on Capital Employed

LTM (last twelve months) pre-exceptional operating
profit plus share of associates’ profit (after tax) x 100

Average capital employed (where capital employed
is the sum of total equity and net debt at each period
end)

Free Cash Flow

Free cash flow is the result of the cash inflows and outflows
from our operating activities, and is before those arising from
acquisition and disposal activities.

 

Free cash flow (APM) and a reconciliation of free cash flow to
cash generated from operations (IFRS measure) are included
in the management commentary. The IFRS cash flow is
included in the Condensed Consolidated Interim Financial
Statements.

Net Debt

Net debt is comprised of borrowings net of cash and cash
equivalents and restricted cash

Net Debt to EBITDA (LTM)

Net debt

EBITDA (LTM)

 
       
Reconciliation of Profit to EBITDA
    3 months to
30-Sep-16
€m 		  3 months to
30-Sep-15
€m		   9 months to
30-Sep-16
€m 		  9 months to
30-Sep-15
€m
 
Profit for the financial period 137 112 352 282
Income tax expense 50 53 147 126
Exceptional items charged in operating profit - 7 - 54
Share of associates’ profit (after tax) - (2) (1) (3)
Net finance costs (after exceptional items) 32 32 111 92
Share-based payment expense 4 6 14 31
Depreciation, depletion (net) and amortisation 100   97   293   273
EBITDA 323   305   916   855
 

Return on Capital Employed

     
    Q3, 2016
€m 		  Q3, 2015
€m		   Q2, 2016
€m

Pre-exceptional operating profit plus share of associates’ profit (after
tax) (LTM)

 838 767 823
 
Total equity – current period end 2,356 2,181 2,252
Net debt – current period end 2,953   2,953   3,121
Capital employed – current period end 5,309   5,134   5,373
 
Total equity – prior period end 2,181 2,517 2,210
Net debt – prior period end 2,953   2,578   3,100
Capital employed – prior period end 5,134   5,095   5,310
 
Average capital employed 5,221   5,114   5,342
 
Return on capital employed 16.1%   15.0%   15.4%
 
Supplementary Historical Financial Information
           
€m   Q3, 2015   Q4, 2015   FY, 2015   Q1, 2016   Q2, 2016   Q3, 2016
 
Group and third party revenue 3,347 3,422 13,309 3,280 3,375 3,424
Third party revenue 2,024 2,089 8,109 2,001 2,049 2,050
EBITDA 305 326 1,182 281 312 323
EBITDA margin 15.0% 15.6% 14.6% 14.0% 15.3% 15.7%
Operating profit 195 214 711 179 211 219
Profit before income tax 165 191 599 128 184 187
Free cash flow 162 152 388 7 28 164
Basic earnings per share - cent 46.4 52.9 172.6 38.8 52.0 56.4

Weighted average number of shares used in
EPS calculation (million)

231 233 232 234 234 234
Net debt 2,953 3,048 3,048 3,029 3,121 2,953
EBITDA (LTM) 1,150 1,182 1,182 1,197 1,224 1,242
Net debt to EBITDA (LTM) 2.57 2.58 2.58 2.53 2.55 2.38
 

Companies

Smurfit Kappa Group (CDI) (SKG)
UK 100
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