3rd Quarter Results

3rd Quarter Results

Smurfit Kappa Group PLC

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

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

                                 
€m  

YTD
2017

 

YTD
2016

 

Change

 

Q3
2017

 

Q3
2016

 

Change

 

Q2
2017

 

Change

Revenue €6,354 €6,099 4% €2,121 €2,050 4% €2,104 1%
EBITDA (1) €889 €916 (3%) €320 €323 (1%) €292 10%
EBITDA Margin (1) 14.0% 15.0% 15.1% 15.7% 13.9%
Operating Profit before Exceptional Items €574 €609 (6%) €216 €219 (2%) €190 13%
Profit before Income Tax €415 €499 (17%) €170 €187 (9%) €136 25%
Basic EPS (cent) 127.0 147.1 (14%) 52.7 56.4 (7%) 42.8 23%
Pre-exceptional Basic EPS (cent) (1) 127.7 142.0 (10%) 52.7 56.4 (7%) 42.8 23%
Return on Capital Employed (1) 14.8% 16.1% 14.7%
Free Cash Flow (1)   €198   €199   -   €152   €164   (7%)   €30   408%
                                 
Net Debt (1) €2,839 €2,953 (4%) €2,985 (5%)
Net Debt to EBITDA (LTM) (1)               2.3x   2.4x       2.5x    

(1) Additional information in relation to these Alternative Performance Measures (‘APMs’) is set out in Supplementary Financial Information on page 28.

Third Quarter and First Nine Months Key Points

  • Group revenue growth of 4% for the third quarter and year-to-date
  • Continued box price progression in the third quarter
  • Increased sequential EBITDA margin of 15.1%
  • Solid free cash flow delivery of €152 million for the quarter
  • Acquisitions in Russia and Greece, expanding the Group’s packaging footprint

Performance Review and Outlook

Tony Smurfit, Group CEO, commented:

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

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

“In the third quarter, recovered fibre cost pressures remained, resulting in a headwind of almost €40 million for the quarter and €111 million for the year-to-date compared to 2016. SKG will continue to offset these cost pressures through further corrugated price recovery and ongoing efficiency improvements as we progress towards the year-end and into 2018.

“Reported third quarter EBITDA in Europe was up 3% year-on-year against a backdrop of increased recovered fibre costs of €26 million, with sequential margins expanding to 15.3% reflecting ongoing corrugated price recovery, strong demand in most markets, the continuation of our capital programmes and the strength of our integrated model.

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

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

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

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

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

About Smurfit Kappa

Smurfit Kappa, a FTSE 100 company, is one of the leading providers of paper-based packaging solutions in the world, with around 45,000 employees in approximately 370 production sites across 34 countries and with revenue of €8.2 billion in 2016. We are located in 21 countries in Europe, and 13 in the Americas. We are the only large-scale pan-regional player in Latin America.

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

smurfitkappa.com

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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

 

Melanie Farrell or Mark Kenny

FTI Consulting

T: +353 1 663 36 80

E: smurfitkappa@fticonsulting.com

2017 Third Quarter & First Nine Months | Performance Overview

The Group reported EBITDA for the quarter of €320 million, €3 million down on the same period last year. EBITDA in Europe was €7 million higher, offset by a shortfall of €7 million in the Americas and higher Group Centre costs. The underlying1 move in EBITDA was an increase of 4% reflecting higher earnings in both regions.

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

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

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

The main European markets for recycled containerboard increased again in August bringing the cumulative increase from January 2017 to an average of €105 per tonne. Continued demand strength for recycled containerboard has resulted in inventory levels being significantly below industry norms.

Global demand for kraftliner is very strong and supply remains extremely tight. SKG implemented a further price increase of €50 per tonne in August bringing the cumulative increase from January 2017 to €150 per tonne in North Western Europe and an additional €20 to €30 per tonne of increases in Southern European markets.

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

The Group reported a free cash flow in the third quarter of €152 million compared to €164 million in the same period of 2016 and an improved net debt to EBITDA ratio, both sequentially and year-on-year, of 2.3x.

2017 Third Quarter & First Nine Months | Financial Performance

Revenue for the first nine months of 2017 was €6,354 million, €255 million or 4% higher than last year, with Europe higher by €135 million and the Americas higher by €120 million. On an underlying basis, Europe increased by €162 million year-on-year while the Americas increased by €163 million. For the quarter, revenue was €2,121 million, up 4% on the same period last year, or 7% on an underlying basis.

EBITDA for the first nine months of 2017 was €889 million, €27 million down on the same period in 2016, with lower earnings in both Europe and the Americas partly offset by marginally lower Group centre costs.

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

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

Net pre-exceptional finance costs for the first nine months of 2017 of €157 million were €34 million higher than in 2016, primarily as the result of an increase in cash interest and a net monetary loss of €12 million relating to hyperinflation in 2017 compared to a net monetary gain of €12 million in 2016.

Cash interest was €9 million higher year-on-year. Approximately, €6 million of this increase relates to additional interest following our €500 million 2.375% bond issue in January 2017. This funding has created additional Group liquidity which will allow for the refinancing of higher cost debt maturing in 2018 and will generate interest savings from mid-2018 onwards. The balance of €3 million is driven primarily by higher interest costs in the Americas and our capital programmes in the region.

The exceptional finance cost of €2 million in the first nine months of 2017 represented the accelerated amortisation of the issue costs relating to the debt within our senior credit facility which was paid down with the proceeds of the €500 million bond issue in January. In the first nine months of 2016, the Group reported exceptional finance income of €12 million in relation to the profit on the sale of our shareholding in the Swedish company IL Recycling.

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

2017 Third Quarter and First Nine Months | Free Cash Flow

Free cash flow for the third quarter of 2017 was €152 million compared to €164 million in 2016, a decrease of €12 million. With EBITDA €3 million lower, the year-on-year decrease was mainly driven by a lower working capital inflow partly offset by lower capital outflows, tax payments and ‘other’ outflows.

Free cash flow for the nine months to September 2017 was €198 million compared to €199 million in 2016.

Capital expenditure amounted to €260 million in the nine months to September 2017 and equated to 86% of depreciation compared to 110% in 2016.

The working capital movement in the nine months to September 2017 was an outflow of €120 million compared to an outflow of €109 million in 2016. The outflow in 2017 was the combination of an increase in debtors and stocks partly offset by an increase in creditors. These increases reflect the combination of higher corrugated prices, volume growth, strengthening European containerboard pricing and higher OCC costs. Working capital amounted to €686 million at September 2017, representing 8.1% of annualised revenue compared to 7.7% at September 2016.

Cash interest of €119 million in the nine months to September was €9 million higher year-on-year.

Tax payments of €107 million were €10 million lower than in 2016, primarily due to the timing of payments.

2017 Third Quarter and First Nine Months | Capital Structure

Net debt was €2,839 million at the end of September resulting in a net debt to EBITDA ratio of 2.3x compared to 2.5x at the end of June 2017 and 2.4x at the end of the third quarter of 2016. The Group’s balance sheet continues to provide considerable financial strategic flexibility, subject to the stated leverage range of 2.0x to 3.0x through the cycle and SKG’s Ba1/BB+/BB+ credit rating.

At 30 September 2017 the Group’s average interest rate was 4.1% compared to 4.2% at 30 September 2016. The Group’s diversified funding base and long dated maturity profile of 3.6 years provide a stable funding outlook. In terms of liquidity, the Group held cash balances of €597 million at the end of the quarter, which was further supplemented by available commitments under its revolving credit facility of approximately €834 million.

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

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

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

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

2017 Third Quarter and First Nine Months | Regional Performance Review

Europe

The EBITDA margin of the European business continued to improve in the third quarter to 15.3% from 14.2% in the second quarter and 13.6% in the first quarter. Reported EBITDA of €247 million for the quarter was €7 million higher year-on-year. For the first nine months of 2017, Europe reported EBITDA of €686 million, down €14 million or 2% year-on-year. The year-to-date result, on an underlying basis, was 1% lower compared to the same period last year, mainly reflecting the impact of higher input costs and the customary lag in recovering increased containerboard costs in corrugated prices.

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

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

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

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

In Europe, the Group’s recovered fibre costs for the first nine months were up 18% on the same period in 2016. In the third quarter, the year-on-year increase was 16% or an impact of €26 million.

The Americas

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

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

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

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

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

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

In Venezuela, the Group’s corrugated shipments were down 43% in the nine months to September 2017 compared to the same period in 2016. However, the Group’s operations continue to perform in extremely difficult circumstances. The macro situation remains uncertain and we continue to monitor events as they unfold. The business represented 2% of Group EBITDA in the first nine months. Net assets in Venezuela decreased to €83 million as at 30 September 2017 (31 December 2016: €91 million).

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

Summary Cash Flow

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

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

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

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

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

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

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

Reconciliation of Free Cash Flow to Cash Generated from Operations

    9 months to   9 months to
30-Sep-17 30-Sep-16
        €m   €m
Free cash flow 198 199
 
Add back: Cash interest 119 110
Capital expenditure (net of change in capital creditors) 318 320
Tax payments 107 117
 
Less: Sale of fixed assets (5) (2)
Profit on sale of assets and businesses – non-exceptional (7) (6)
Receipt of capital grants (in ‘Other’ in summary cash flow) (4) (2)
Dividends received from associates (1)   (1)
Cash generated from operations 725   735

Capital Resources

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

At 30 September 2017, Smurfit Kappa Treasury Funding Limited had outstanding US$292.3 million 7.50% senior debentures due 2025. The Group had outstanding €109 million and STG£66.7 million variable funding notes issued under the €240 million accounts receivable securitisation programme maturing in June 2019, together with €5 million variable funding notes issued under the €175 million accounts receivable securitisation programme maturing in February 2022.

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, €500 million 2.375% senior notes due 2024 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 2017, the Group’s senior credit facility comprised term drawings of €312.6 million, US$55.8 million and STG£113.5 million under the amortising Term A facility maturing in 2020. In addition, as at 30 September 2017, the facility included an €845 million revolving credit facility of which €6 million was drawn in revolver loans, with a further €5 million in operational facilities including letters of credit drawn under various ancillary facilities.

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

Borrowing arrangement

 

Currency

 

Interest Rate

Term A Facility EUR 1.227% - 1.271% USD 2.835%
GBP 1.855%
 
Revolving Credit Facility EUR 0.977%

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

In January 2017 the Group issued €500 million of seven-year euro denominated senior notes at a coupon of 2.375%, the proceeds of which were used to prepay term debt under the senior credit facility, reduce indebtedness under existing securitisation facilities and for general corporate purposes. In February 2017 the Group increased the revolving credit facility under the senior credit facility by €220 million thereby further enhancing liquidity.

In May 2017 the Group amended, restated and extended its €175 million 2018 receivables securitisation programme, which utilises the Group’s receivables in Austria, Belgium, Italy and the Netherlands, extending the maturity to 2022 and reducing the margin on the variable funding notes from 1.70% to 1.375%.

Market Risk and Risk Management Policies

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

The Group’s fixed rate debt comprised €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, €500 million 2.375% senior notes due 2024, €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 €8 million over the following twelve months. Interest income on the Group’s cash balances would increase by approximately €6 million assuming a one percent increase in interest rates earned on such balances over the following twelve months.

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

Condensed Consolidated Income Statement – Nine Months

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

Attributable to:

Owners of the parent

299

345

Non-controlling interests

4

7

Profit for the financial period

303

352

 

Earnings per share

Basic earnings per share - cent

127.0

147.1

Diluted earnings per share - cent

126.2

145.9

Condensed Consolidated Income Statement – Third Quarter

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

Attributable to:

Owners of the parent

124

132

Non-controlling interests

4

5

Profit for the financial period

128

137

 

Earnings per share

Basic earnings per share - cent

52.7

56.4

Diluted earnings per share - cent

52.4

55.9

Condensed Consolidated Statement of Comprehensive Income – Nine Months

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

Condensed Consolidated Statement of Comprehensive Income – Third Quarter

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

Condensed Consolidated Balance Sheet

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

Condensed Consolidated Statement of Changes in Equity

  Attributable to owners of the parent    
Equity share capital   Share premium   Other reserves   Retained earnings   Total Non-controlling

interests

Total equity
    €m   €m   €m   €m   €m   €m   €m
Unaudited
At 1 January 2017 - 1,983 (507) 853 2,329 174 2,503
 
Profit for the financial period - - - 299 299 4 303
Other comprehensive income
Foreign currency translation adjustments - - (136) - (136) (22) (158)
Defined benefit pension plans - - - (6) (6) - (6)
Effective portion of changes in fair value of cash flow hedges -   -   3   -   3   -   3
Total comprehensive (expense)/income for the financial period -   -   (133)   293   160   (18)   142
 
Shares issued - 1 - - 1 - 1
Purchase of non-controlling interests - - - - - (15) (15)
Hyperinflation adjustment - - - 73 73 9 82
Dividends paid - - - (136) (136) (3) (139)
Share-based payment - - 12 - 12 - 12
Shares acquired by SKG Employee Trust -   -   (11)   -   (11)   -   (11)
At 30 September 2017 -   1,984   (639)   1,083   2,428   147   2,575
 
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

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

Condensed Consolidated Statement of Cash Flows

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

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

Notes to the Condensed Consolidated Interim Financial Statements

1. General Information

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

2. Basis of Preparation and Accounting Policies

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

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

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

The condensed consolidated interim financial statements presented do not constitute full statutory accounts. Full statutory accounts for the year ended 31 December 2016 have been filed with the Irish Registrar of Companies. The audit report on those statutory accounts was unqualified.

3. Segmental Analyses

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

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

Segment profit is measured based on EBITDA(1)

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

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

4. Exceptional Items

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

Exceptional finance costs of €2 million arose in the first quarter of 2017 and represented the accelerated amortisation of the issue costs relating to the debt within our senior credit facility which was paid down with the proceeds of January's €500 million bond issue.

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.

5. Finance Costs and Income

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

6. Income Tax Expense

Income tax expense recognised in the Condensed Consolidated Income Statement

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

Income tax recognised in the Condensed Consolidated Statement of Comprehensive Income

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

The income tax expense in 2017 is €35 million lower than in the comparable period in 2016, primarily due to the tax effects of lower earnings and a deferred tax credit of €29 million in 2017 compared to a deferred tax charge of €16 million in 2016.

The current tax expense has increased by €10 million compared to the prior period. The Group’s historic tax losses have now been fully utilised in a number countries and the impact of this, together with other timing items, is included in the increased current tax expense in 2017.

7. Employee Benefits – Defined Benefit Plans

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

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

Included in cost of sales, distribution costs and administrative expenses is a defined benefit cost of €20 million (2016: €2 million gain). Net interest cost on net pension liability of €14 million (2016: €16 million) is included in finance costs in the Condensed Consolidated Income Statement.

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

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

8. Earnings per Share

Basic

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

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

Diluted

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

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

Pre-exceptional

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

9. Dividends

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

10. Property, Plant and Equipment

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

11. Net Movement in Working Capital

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

12. Analysis of Net Debt

  30-Sep-17   31-Dec-16
    €m   €m
Senior credit facility:
Revolving credit facility(1) – interest at relevant interbank rate + 1.35%(6) 2 1
Term loan facility(2) – interest at relevant interbank rate + 1.60%(6) 486 741
US$292.3 million 7.50% senior debentures due 2025 (including accrued interest) 254 279
Bank loans and overdrafts 149 167
Cash (597) (443)
2019 receivables securitisation variable funding notes 184 182
2022 receivables securitisation variable funding notes (including accrued interest)(3) 4 114
2018 senior notes (including accrued interest)(4) 453 488
€400 million 4.125% senior notes due 2020 (including accrued interest) 400 404
€250 million senior floating rate notes due 2020 (including accrued interest)(5) 250 249
€500 million 3.25% senior notes due 2021 (including accrued interest) 501 496
€500 million 2.375% senior notes due 2024 (including accrued interest) 494 -
€250 million 2.75% senior notes due 2025 (including accrued interest) 248   249
Net debt before finance leases 2,828 2,927
Finance leases 11   14
Net debt including leases 2,839   2,941

(1) Revolving credit facility ('RCF') of €845 million (available under the senior credit facility) to be repaid in 2020. The RCF was increased by €220 million in February 2017. (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 - €5 million.

(2) Term loan facility due to be repaid in certain instalments from 2018 to 2020. In January and February 2017, the Group prepaid €260 million of drawings under the term loan facility.

(3) In May 2017, the €175 million receivables securitisation programme was amended and restated, extending the maturity to 2022 and reducing the variable funding notes margin from 1.70% to 1.375%.

(4) €200 million 5.125% senior notes due 2018 and US$300 million 4.875% senior notes due 2018.

(5) Interest at EURIBOR + 3.5%.

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

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

13. Other Reserves

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

  Reverse 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 2017 575 (22) (1,193) 165 (33) 1 (507)
Other comprehensive income
Foreign currency translation adjustments - - (136) - - - (136)
Effective portion of changes in fair value of cash flow hedges -   3   -   -   -   -   3
Total other comprehensive income/(expense) -   3   (136)   -   -   -   (133)
 
Share-based payment - - - 12 - - 12
Shares acquired by SKG Employee Trust - - - - (11) - (11)
Shares distributed by SKG Employee Trust -   -   -   (11)   11   -   -
At 30 September 2017 575   (19)   (1,329)   166   (33)   1   (639)
 
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)

14. Venezuela

Hyperinflation

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

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

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

As a result of the entries recorded in respect of hyperinflationary accounting under IFRS, the Condensed Consolidated Income Statement is impacted as follows: Revenue €25 million decrease (2016: €24 million increase), EBITDA €24 million decrease (2016: €4 million decrease) and profit after taxation €27 million decrease (2016: €12 million decrease). In 2017, a net monetary loss of €12 million (2016: €12 million net monetary gain) was recorded in the Condensed Consolidated Income Statement. The impact on our net assets and our total equity is an increase of €150 million (2016: €70 million increase).

Exchange Control

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

Control

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

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

In 2017, the Group’s operations in Venezuela represented approximately 2% (2016: 2%) of its EBITDA, 2% (2016: 2%) of its total assets and 3% (2016: 4%) of its net assets. Cumulative foreign translation losses arising on its net investment in these operations amounting to €1,081 million (2016: €988 million) are included in the foreign currency translation reserve.

Supplementary Financial Information

Alternative Performance Measures

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

APM   Description
 
EBITDA Earnings before exceptional items, share-based payment expense, share of associates’ profit (after tax), net finance costs, income tax expense, depreciation and depletion (net) and intangible assets amortisation.

 

EBITDA

EBITDA Margin %

               x 100

Revenue

 

 

Pre-exceptional Basic EPS (cent)

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

                                                                  x 100

Weighted average number of ordinary shares in issue

 

 

Return on Capital Employed %

Last twelve months (‘LTM’) pre-exceptional operating profit plus share of associates’ profit (after tax)

                                                                                       x 100

Average capital employed (where capital employed is the average of total equity and net debt at the beginning and end of the LTM)

 

 

Free Cash Flow

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

 

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

Net Debt

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

Net Debt to EBITDA (LTM) times

Net debt
EBITDA (LTM)
Reconciliation of Profit to EBITDA
  3 months to   3 months to   9 months to   9 months to
30-Sep-17 30-Sep-16 30-Sep-17 30-Sep-16
    €m   €m   €m   €m
 
Profit for the financial period 128 137 303 352
Income tax expense 42 50 112 147
Share of associates’ profit (after tax) - - - (1)
Net finance costs (after exceptional items) 46 32 159 111
Share-based payment expense 4 4 13 14
Depreciation, depletion (net) and amortisation 100   100   302   293
EBITDA 320   323   889   916

Return on Capital Employed

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

Supplementary Historical Financial Information

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

LEI: 635400CPLP8H5ITDVT56
Classification: Additional regulated information required to be disclosed under the laws of a Member State

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