Half-year Report

Half-year Report

Smurfit Kappa Group PLC

Smurfit Kappa Group plc (‘SKG’ or ‘the Group’) today announced results for the half year ending 30 June 2022.

2022 Half Year | Key Financial Performance Measures

€m	H1 2022		H1 2021		Change
Revenue	€6,385		€4,679		36%
EBITDA 1	€1,174		€781		50%
EBITDA Margin 1	18.4%		16.7%
Operating Profit before Exceptional Items 1	€839		€477		76%
Profit before Income Tax	€769		€413		86%
Basic EPS (cent)	221.9		119.9		85%
Pre-exceptional Basic EPS (cent) 1	221.9		119.9		85%
Free Cash Flow 1	(€28)		€117		(123%)
Return on Capital Employed 1	19.3%		14.8%
Net Debt 1	€3,309		€2,549		30%
Net Debt to EBITDA (LTM) 1	1.6x		1.6x

Key Points:

• Revenue growth of 36% to €6,385 million
• EBITDA growth of 50% to €1,174 million with an EBITDA margin of 18.4%
• EPS growth of 85% to 221.9 cent
• ROCE of 19.3%
• Interim dividend increased by 8% to 31.6 cent per share

Performance Review and Outlook

Tony Smurfit, Group CEO, commented:

“I am pleased to report a strong first half performance with revenue growth of 36%, EBITDA of €1,174 million, an EBITDA margin of 18.4%, EPS growth of 85% and ROCE of 19.3%.

“Our strong performance is a result of the many actions we have taken over a number of years. These actions include significant customer-focused investments to meet growth, providing the most innovative and sustainable paper-based packaging in the marketplace and selective acquisitions ensuring security of supply to our customers.

“In the first half of 2022, we have overcome many challenges including sharply increasing input costs, logistics and supply chain constraints, COVID-19 disruption and the impact of the war in Ukraine. SKG's integrated model, our geographic diversity, our continued focus on efficiency through investment and our bespoke business applications, have enabled us to offset these challenges together with paper and corrugated price recovery.

“I am especially proud of the tremendous efforts of our people who continue to deliver for our customers under these circumstances. Our performance-led culture has allowed us to go from strength to strength, building on our leadership position in the markets in which we operate.

“Both our regions performed strongly during the first six months, with Europe reporting EBITDA of €926 million with an EBITDA margin of 18.7% and the Americas reporting EBITDA of €271 million with an EBITDA margin of 18.8%. Box volume growth for the first six months versus last year was 2.5%.

“During the first half, we completed the acquisition of two corrugated converting operations in the UK and Argentina and we announced the development of our new corrugated operation in Morocco.

“In April, we published our 15^th Sustainable Development Report which highlighted the significant progress made in 2021 across our key metrics. These included a further 6% reduction in carbon intensity, a reduction in water consumption of over 6% and a decrease in waste to landfill intensity of 7% over the previous year.

“In Smurfit Kappa, we are very confident about our future prospects. Inevitably, with the current global issues that surround us there are greater uncertainties than we have seen for some time. Nevertheless, we continue to see many opportunities for growth in the sustainable and innovative packaging solutions that we offer customers and the unique footprint of the businesses we operate. Our first half performance has set a strong foundation for the remainder of 2022 and beyond.

“Reflecting the confidence in the quality of our business and its future prospects, the Board has approved an 8% increase in the interim dividend.”

About Smurfit Kappa

Smurfit Kappa, a FTSE 100 company, is one of the leading providers of paper-based packaging solutions in the world, with approximately 48,000 employees in over 350 production sites across 36 countries and with revenue of €10.1 billion in 2021. We are located in 23 countries in Europe, and 13 in the Americas. We are the only large-scale pan-regional player in Latin America. Our products, which are 100% renewable and produced sustainably, improve the environmental footprint of our customers.

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

We have a proud tradition of supporting social, environmental and community initiatives in the countries where we operate. Through these projects we support the UN Sustainable Development Goals, focusing on where we believe we have the greatest impact.

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Forward Looking Statements

This Announcement contains certain statements that are forward-looking. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations of the Group about future events, and involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. Although the Group believes that current expectations and assumptions with respect to these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements should therefore be construed in the light of such factors. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. Other than in accordance with legal or regulatory obligations, the Group is not under any obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Contacts
Ciarán Potts		Melanie Farrell
Smurfit Kappa		FTI Consulting
T: [phone]		T: [phone]
E: [e-mail]		E: [e-mail]

2022 First Half | Performance Overview

The Group reported EBITDA for the first half of €1,174 million, up 50% on 2021. The Group EBITDA margin was 18.4%, up from 16.7% in the first half of 2021. The result reflects the resilience of the Group’s integrated model, the benefits of our capital spend programme, customer-focused innovation and pricing recovery, partly offset by higher year-on-year energy, recovered fibre, labour, distribution and other raw material costs.

In Europe, EBITDA increased by 57% on the first half of 2021 to €926 million. The EBITDA margin was 18.7%, up from 16.2% on the same period in 2021, delivered against a backdrop of supply chain disruption and significant cost inflation. Corrugated box demand was up approximately 1% against strong comparatives. Corrugated pricing has continued to improve in line with our expectations with continued progression into the second half.

European pricing for testliner and kraftliner has increased by €450 per tonne and €390 per tonne respectively from the low of September 2020 to June 2022.

Our European business continued to build on its strong operating platform in the first half with a number of projects across our paper and corrugated divisions. In our paper division we announced the completion of a large-scale sustainability project at our Zülpich mill in Germany, which will reduce CO₂ annually by 55,000 tonnes, a 2% reduction for the Group. We have also approved projects in our Facture, Wrexen and Verzuolo mills which will reduce cost, increase efficiencies and improve the Group’s sustainability footprint. In our corrugated division we approved projects in Belgium, France, Germany, the Netherlands, Poland, Spain and the UK. The Group also announced an investment in its first Moroccan facility and the acquisition of a corrugated business in the UK.

In the Americas, EBITDA increased by 29% on the first half of 2021 to €271 million. The EBITDA margin was 18.8% in the first half of 2022 versus 20.4% in the first half of 2021. Colombia, Mexico and the US accounted for 80% of the region’s earnings with strong performances in all three countries. Corrugated demand for the first half was up 8% year-on-year or 5% on an underlying basis.

We have recently announced the acquisition of a corrugated business in Argentina and we have approved expansion and sustainability focused projects in our paper, corrugated and sack businesses in North, Central and South America.

On 1 April 2022, the Group announced its decision to exit the Russian market in an orderly manner. While this process is in the early stages, we hope to conclude it by the end of the year.

Free cash flow for the first six months was a net outflow of €28 million compared to a net inflow of €117 million in the first half of 2021. The average maturity profile of the Group’s debt was 5.3 years at 30 June 2022 with an average interest rate of 2.86%. Net debt to EBITDA was 1.6x at the half year versus 1.7x at the end of December 2021 and 1.6x at the first half of 2021. The Group remains strongly positioned within its BBB-/BBB-/Baa3 credit rating.

2022 First Half | Financial Performance

Revenue for the first half was €6,385 million, up 36% on the first half of 2021 or 32% on an underlying² basis.

EBITDA for the first half was €1,174 million, up 50% on the first half of 2021. On an underlyingbasis, Group EBITDA was up 46% year-on-year, with Europe up 55% and the Americas up 18%.

Operating profit before exceptional items for the first half of 2022 at €839 million was 76% higher than the €477 million for the same period of 2021.

There were no exceptional items charged within operating profit and no exceptional finance items in the first half of either 2022 and 2021.

Net finance costs at €71 million were €7 million higher than 2021 primarily due to an increase in net cash interest payable, a higher foreign currency translation loss on debt and a negative swing from a fair value gain on financial assets/liabilities in 2021 to a loss in 2022, partly offset by a fair value gain on derivatives.

The profit before tax of €769 million was €356 million higher than the €413 million in 2021. The income tax expense was €195 million compared to €105 million in 2021, resulting in a profit of €574 million for the half year compared to €308 million in 2021.

Basic EPS for the first half of 2022 was 221.9 cent, compared to 119.9 cent in 2021.

2022 First Half | Free Cash Flow

Free cash flow in the first half of 2022 was a net outflow of €28 million compared to a net inflow of €117 million for 2021, a decrease of €145 million. The EBITDA increase of €393 million was more than offset by an increase in capital outflows, working capital outflow and tax payments.

The working capital outflow in 2022 was €501 million compared to €195 million in 2021. The outflow in 2022 was a combination of a significant increase in debtors and to a lesser extent stock, partly offset by an increase in creditors. The increase in debtors reflects the combination of higher box and paper prices. The increase in creditors reflects considerably higher recovered fibre and energy costs along with higher other raw material costs. Working capital amounted to €1,303 million at 30 June 2022 and represented 9.7% of annualised revenue compared to 8.1% at 30 June 2021 and 5.7% at 31 December 2021.

Capital expenditure in 2022 amounted to €349 million (equating to 115% of depreciation) compared to €175 million (equating to 63% of depreciation) in 2021.

Cash interest amounted to €61 million in 2022 compared to €54 million in 2021, with the increase primarily due to the higher increase in interest rates in currencies where we are in a net debt position compared to those where we are in a net cash position.

Tax payments of €158 million in 2022 were €36 million higher than in 2021.

2022 First Half | Capital Structure

Net debt was €3,309 million at the end of June, resulting in a net debt to EBITDA ratio of 1.6x compared to 1.7x at the end of December 2021 and 1.6x at the end of June 2021. The Group’s balance sheet continues to provide considerable long-term strategic and financial flexibility, subject to the stated leverage range of 1.5x to 2.0x through the cycle and SKG’s BBB-/BBB-/Baa3 credit rating.

At 30 June 2022, the Group’s average interest rate was 2.86% compared to 2.63% at 31 December 2021. The Group’s diversified funding base and long-dated maturity profile of 5.3 years provide a stable funding outlook. In terms of liquidity, the Group held cash balances of €491 million at the end of June, which were further supplemented by available commitments of €1,342 million under its sustainability-linked Revolving Credit Facility (‘RCF’) and €312 million under its sustainability-linked securitisation programmes.

Dividends

The Board has decided to pay an interim dividend of 31.6 cent per share, which represents an increase of 8% on the prior year. It is proposed to pay this dividend on 28 October 2022 to all ordinary shareholders on the share register at the close of business on 30 September 2022.

2022 First Half | Sustainability

Smurfit Kappa continues to make significant progress on achieving its sustainability goals as outlined in its 15^th Sustainable Development Report (‘SDR’). The report highlights the Group’s progress towards its long‑standing goal of driving change and supporting a greener planet through the three main pillars of Planet, People and Impactful Business. It shows that the Group’s actions are delivering today, and together with its ongoing investments and continuous improvement, it is well positioned to deliver on its long-term ambition to have net zero emissions by 2050.

The Group made significant progress in reducing its fossil CO₂ emission intensity in 2021. SKG is the first in its industry to have announced targeting at least net zero emissions by 2050 and, compared to its baseline year 2005, it reduced its emissions intensity by 41.3% by the end of 2021. The reduction in 2021 versus 2020 was 6%, another significant step towards its net zero target. Other highlights from the 2021 SDR include the reduction in water consumption of over 6% year-on-year and a reduction in waste to landfill intensity of 7% year-on-year.

During 2021, the Group delivered several landmark achievements highlighting its continued leadership in sustainability, these include:

• In September, the Group launched its Green Finance Framework followed by the launch of the Group’s inaugural green bond offering which was over-subscribed multiple times and secured the lowest ever coupon for a corporate issuer at SKG’s credit rating, along with a very strong participation of 'green' investors including 'dark green' investors.
• In December, Smurfit Kappa had its emissions reduction targets validated by the Science Based Target initiative (‘SBTi’) as consistent with the objectives of the Paris Agreement, and well below 2°C. This validation is further evidence of its long-term ambition coupled with delivery today.

The Group has published a significantly enhanced disclosure consistent with the Task Force on Climate‑Related Financial Disclosures (‘TCFD’) recommendations in its 2021 Annual Report, including a comprehensive top-down identification and process review of climate-related risks and opportunities and an evaluation of the potential impact on Smurfit Kappa assets from physical and transition risks under different climate scenarios.

In February of this year, SKG was recognised as a top ESG performer by leading research and analytics company Sustainalytics. Following analysis of more than 4,000 European-based companies, SKG was named a Regional Top Rated company and is ranked in the top five of the Paper Packaging category globally.

SKG continues to be listed on various environmental, social and governance indices and disclosure programmes, such as FTSE4Good, the Green Economy Mark from the London Stock Exchange, Euronext Vigeo Europe 120, STOXX Global ESG Leaders, ISS Solactive and Ethibel’s sustainable investment register. SKG also performs strongly across a number of third party certification bodies, including MSCI, ISS ESG and Sustainalytics.

2022 First Half | Commercial Offering and Innovation

SKG continues to lead the industry in its market offering. Utilising our unique capabilities and expertise, underpinned by bespoke, scientifically tested applications and delivered by our passionate people, our customers, through our packaging, can increase sales, reduce costs and mitigate risk in an increasingly disrupted and operationally challenging world.

In January, the Group demonstrated its leadership in innovation and sustainable packaging by winning 13 WorldStar awards across a host of categories including e-commerce solutions, point of sale displays, ground‑breaking corrugated packaging for the transportation of fresh fish and our increasingly popular TopClip solution for beverage cans. SKG’s 13 winning products originated from Brazil, the Czech Republic, Germany, Mexico, Norway, Poland, Slovakia and Sweden.

In February, the Group launched the Design2Market Factory to facilitate the development of rapid prototyping for pilot production, performance analysis and field lab facilities under one roof.

In April, the Group launched the child-proof, FSC certified paper-based TopLock Box for detergent pods and capsules, offering a 40% carbon footprint reduction compared to the traditional rigid plastics alternative.

The Group developed and launched AquaStop, a sustainable water-resistant paper, in May of this year. Designed to withstand exposure to water without being damaged it is suitable for more demanding supply chains where temporary protection against water is needed.

Summary Cash Flow

Summary cash flows for the first half are set out in the following table.

		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
EBITDA		1,174		781
Cash interest expense		(61)		(54)
Working capital change		(501)		(195)
Capital expenditure		(349)		(175)
Change in capital creditors		(108)		(80)
Tax paid		(158)		(122)
Change in employee benefits and other provisions		(22)		(43)
Other		(3)		5
Free cash flow		(28)		117
Purchase of own shares (net)		(27)		(22)
Sale of businesses and investments		-		37
Purchase of businesses, investments and NCI*		(48)		(55)
Dividends		(250)		(226)
Derivative termination receipts		-		10
Net cash outflow		(353)		(139)
Acquired net debt		(5)		(13)
Disposed net cash		-		(1)
Deferred debt issue costs amortised		(4)		(4)
Currency translation adjustment		(62)		(17)
Increase in net debt		(424)		(174)

*‘NCI’ refers to non-controlling interests

A reconciliation of the Summary Cash Flow to the Condensed Consolidated Statement of Cash Flows and a reconciliation of Free Cash Flow to Cash Generated from Operations are included in sections K and L in Alternative Performance Measures in the Supplementary Financial Information on pages 30 to 37.

Funding and Liquidity

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

The Group has a €1,350 million RCF with a maturity of January 2026, which incorporates five KPIs spanning the Group’s sustainability objectives regarding climate change, forests, water, waste and people, with the level of KPI achievement linked to the pricing on the facility. Borrowings under the RCF are available to fund the Group's working capital requirements, capital expenditure and other general corporate purposes. At 30 June 2022, the Group’s drawings on this facility were US$8 million, at an interest rate of 2.264%.

At 30 June 2022, the Group had outstanding €250 million 2.75% senior notes due 2025, US$292.3 million 7.50% senior debentures due 2025, €1,000 million 2.875% senior notes due 2026, €750 million 1.5% senior notes due 2027, €500 million 0.5% senior green notes due 2029 and €500 million 1.0% senior green notes due 2033.

Funding and Liquidity (continued)

At 30 June 2022, the Group had outstanding €13 million variable funding notes (‘VFNs’) issued under the €230 million trade receivables securitisation programme maturing in November 2026 and €5 million VFNs issued under the €100 million trade receivables securitisation programme maturing in January 2026. Both these securitisation programmes incorporate five KPIs spanning the Group’s sustainability objectives regarding climate change, forests, water, waste and people, with the level of KPI achievement linked to the pricing on the programme.

Market Risk and Risk Management Policies

The Group is exposed to the impact of interest rate changes and foreign currency fluctuations due to its investing and funding activities and its operations in different foreign currencies. Interest rate risk exposure is managed by achieving an appropriate balance of fixed and variable rate funding. As at 30 June 2022, the Group had fixed an average of 96% of its interest cost on borrowings over the following 12 months.

The Group’s fixed rate debt comprised €250 million 2.75% senior notes due 2025, US$292.3 million 7.50% senior debentures due 2025, €1,000 million 2.875% senior notes due 2026, €750 million 1.5% senior notes due 2027, €500 million 0.5% senior green notes due 2029 and €500 million 1.0% senior green notes due 2033.

The Group’s earnings are affected by changes in short-term interest rates on its floating rate borrowings and cash balances. If interest rates for these borrowings increased by one percent, the Group’s interest expense would increase, and income before taxes would decrease, by approximately €2 million over the following 12 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 12 months.

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

Principal Risks and Uncertainties

Risk assessment and evaluation is an integral part of the management process throughout the Group. Risks are identified, evaluated and appropriate risk management strategies are implemented at each level in the organisation.

The Board in conjunction with senior management identifies major business risks faced by the Group and determines the appropriate course of action to manage these risks.

The Board regularly monitors all of the Group’s risks, including emerging risks, and appropriate actions are taken to mitigate those risks or address their potential adverse consequences. As part of the half year assessment, the COVID-19 pandemic and current global uncertainties were also considered.

The principal risks and uncertainties facing the Group for the remaining six months of the financial year are summarised below.

• If the current economic climate were to deteriorate, for example as a result of geopolitical uncertainty, trade tensions and/or the COVID-19 pandemic, it could result in an increased economic slowdown which if sustained over any significant length of time, could adversely affect the Group's financial position and results of operations.
• The cyclical nature of the packaging industry could result in overcapacity and consequently threaten the Group’s pricing structure.
• If operations at any of the Group’s facilities (in particular its key mills) were interrupted for any significant length of time, it could adversely affect the Group’s financial position and results of operations.
• Price fluctuations in energy and raw material costs could adversely affect the Group’s manufacturing costs.
• The Group is exposed to currency exchange rate fluctuations.
• The Group may not be able to attract, develop and retain suitably qualified employees as required for its business.
• Failure to maintain good health, safety and employee wellbeing practices may have an adverse effect on the Group’s business.
• The Group is subject to a growing number of environmental and climate change laws and regulations, and the cost of compliance or the failure to comply with current and future laws and regulations may negatively affect the Group’s business.
• The Group is subject to anti-trust and similar legislation in the jurisdictions in which it operates.
• The Group, similar to other large global companies, is susceptible to cyber-attacks with the threat to the confidentiality, integrity and availability of data in its systems.
• The global impact of climate change in the long-term could adversely affect the Group’s business and results of operations.

The principal risks and uncertainties faced by the Group, were outlined in our 2021 Annual Report on pages 36 to 38. The Annual Report is available on our website; smurfitkappa.com.

Condensed Consolidated Income Statement

		6 months to 30-Jun-22						6 months to 30-Jun-21
		Unaudited						Unaudited
		Pre- exceptional		Exceptional		Total		Pre- exceptional		Exceptional		Total
		€m		€m		€m		€m		€m		€m
Revenue		6,385		-		6,385		4,679		-		4,679
Cost of sales		(4,383)		-		(4,383)		(3,226)		-		(3,226)
Gross profit		2,002		-		2,002		1,453		-		1,453
Distribution costs		(480)		-		(480)		(390)		-		(390)
Administrative expenses		(683)		-		(683)		(586)		-		(586)
Operating profit		839		-		839		477		-		477
Finance costs		(85)		-		(85)		(73)		-		(73)
Finance income		14		-		14		9		-		9
Share of associates’ profit (after tax)		1		-		1		-		-		-
Profit before income tax		769				769		413		-		413
Income tax expense						(195)						(105)
Profit for the financial period						574						308
Attributable to:
Owners of the parent						574						308
Non-controlling interests						-						-
Profit for the financial period						574						308
Earnings per share
Basic earnings per share - cent						221.9						119.9
Diluted earnings per share - cent						220.9						119.2

Condensed Consolidated Statement of Comprehensive Income

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		Unaudited		Unaudited
		€m		€m
Profit for the financial period		574		308
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial period		109		9
- Recycled to Condensed Consolidated Income Statement		-		1
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve		-		(2)
- Fair value loss on cash flow hedges		(6)		-
Changes in fair value of cost of hedging:
- Movement out of reserve		(1)		-
		102		8
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial gain		211		125
- Related tax		(26)		(15)
		185		110
Total other comprehensive income		287		118
Total comprehensive income for the financial period		861		426
Attributable to:
Owners of the parent		861		426
Non-controlling interests		-		-
Total comprehensive income for the financial period		861		426

Condensed Consolidated Balance Sheet

		30-Jun-22		30-Jun-21		31-Dec-21
		Unaudited		Unaudited		Audited
		€m		€m		€m
ASSETS
Non-current assets
Property, plant and equipment		4,452		3,795		4,265
Right-of-use assets		360		298		346
Goodwill and intangible assets		2,760		2,556		2,722
Other investments		10		11		11
Investment in associates		16		12		13
Biological assets		113		105		103
Other receivables		34		26		26
Employee benefit assets		64		-		-
Derivative financial instruments		5		-		2
Deferred income tax assets		116		160		149
		7,930		6,963		7,637
Current assets
Inventories		1,296		860		1,046
Biological assets		11		8		10
Trade and other receivables		2,801		1,901		2,137
Derivative financial instruments		26		6		8
Restricted cash		9		16		14
Cash and cash equivalents		482		621		855
		4,625		3,412		4,070
Total assets		12,555		10,375		11,707
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital		-		-		-
Share premium		2,646		2,646		2,646
Other reserves		375		219		260
Retained earnings		2,002		1,126		1,473
Total equity attributable to owners of the parent		5,023		3,991		4,379
Non-controlling interests		13		13		13
Total equity		5,036		4,004		4,392
LIABILITIES
Non-current liabilities
Borrowings		3,614		3,033		3,589
Employee benefit liabilities		455		707		630
Derivative financial instruments		5		13		7
Deferred income tax liabilities		193		172		175
Non-current income tax liabilities		37		10		17
Provisions for liabilities		38		49		35
Capital grants		22		21		24
Other payables		8		11		11
		4,372		4,016		4,488
Current liabilities
Borrowings		186		153		165
Trade and other payables		2,828		2,006		2,563
Current income tax liabilities		30		15		27
Derivative financial instruments		45		8		14
Provisions for liabilities		58		173		58
		3,147		2,355		2,827
Total liabilities		7,519		6,371		7,315
Total equity and liabilities		12,555		10,375		11,707

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 2022		-		2,646		260		1,473		4,379		13		4,392
Profit for the financial period		-		-		-		574		574		-		574
Other comprehensive income
Foreign currency translation adjustments		-		-		109		-		109		-		109
Defined benefit pension plans		-		-		-		185		185		-		185
Effective portion of changes in fair value of cash flow hedges		-		-		(6)		-		(6)		-		(6)
Changes in fair value of cost of hedging		-		-		(1)		-		(1)		-		(1)
Total comprehensive income for the financial period		-		-		102		759		861		-		861
Derecognition of equity instruments		-		-		10		(10)		-		-		-
Hyperinflation adjustment		-		-		-		30		30		-		30
Dividends paid		-		-		-		(250)		(250)		-		(250)
Share‑based payment		-		-		30		-		30		-		30
Net shares acquired by SKG Employee Trust		-		-		(27)		-		(27)		-		(27)
At 30 June 2022		-		2,646		375		2,002		5,023		13		5,036
Unaudited
At 1 January 2021		-		2,646		207		917		3,770		13		3,783
Profit for the financial period		-		-		-		308		308		-		308
Other comprehensive income
Foreign currency translation adjustments		-		-		10		-		10		-		10
Defined benefit pension plans		-		-		-		110		110		-		110
Effective portion of changes in fair value of cash flow hedges		-		-		(2)		-		(2)		-		(2)
Total comprehensive income for the financial period		-		-		8		418		426		-		426
Hyperinflation adjustment		-		-		-		17		17		-		17
Dividends paid		-		-		-		(226)		(226)		-		(226)
Share‑based payment		-		-		26		-		26		-		26
Net shares acquired by SKG Employee Trust		-		-		(22)		-		(22)		-		(22)
At 30 June 2021		-		2,646		219		1,126		3,991		13		4,004

An analysis of the movements in Other reserves is provided in Note 12.

Condensed Consolidated Statement of Cash Flows

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		Unaudited		Unaudited
		€m		€m
Cash flows from operating activities
Profit before income tax		769		413
Net finance costs		71		64
Depreciation charge		280		254
Amortisation of intangible assets		25		19
Amortisation of capital grants		(1)		(1)
Share‑based payment expense		31		28
Profit on sale of property, plant and equipment		(6)		(5)
Share of associates’ profit (after tax)		(1)		-
Net movement in working capital		(501)		(195)
Change in biological assets		(1)		3
Change in employee benefits and other provisions		(22)		(43)
Other (primarily hyperinflation adjustments)		7		3
Cash generated from operations		651		540
Interest paid		(57)		(55)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid		(11)		(9)
Overseas corporation tax (net of tax refunds) paid		(147)		(113)
Net cash inflow from operating activities		436		363
Cash flows from investing activities
Interest received		2		1
Business disposals (net of disposed cash)		-		33
Additions to property, plant and equipment and biological assets		(418)		(228)
Additions to intangible assets		(8)		(6)
Receipt of capital grants		-		1
Decrease/(increase) in restricted cash		5		(6)
Disposal of property, plant and equipment		10		7
Dividends received from associates		-		1
Purchase of subsidiaries (net of acquired cash)		(36)		(20)
Deferred consideration paid		(10)		(35)
Net cash outflow from investing activities		(455)		(252)
Cash flows from financing activities
Purchase of own shares (net)		(27)		(22)
Increase/(decrease) in other interest-bearing borrowings		7		(100)
Repayment of lease liabilities		(56)		(41)
Derivative termination receipts		-		10
Deferred debt issue costs paid		-		(1)
Dividends paid to shareholders		(250)		(226)
Net cash outflow from financing activities		(326)		(380)
Decrease in cash and cash equivalents		(345)		(269)
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January		827		876
Currency translation adjustment		(17)		(2)
Decrease in cash and cash equivalents		(345)		(269)
Cash and cash equivalents at 30 June		465		605

An analysis of the net movement in working capital is provided in Note 10.

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’) primarily manufacture, distribute and sell containerboard, corrugated containers and other paper-based packaging products. The Company is a public limited company with a premium listing on the London Stock Exchange and a secondary listing on Euronext Dublin. It is incorporated and domiciled in Ireland. The address of its registered office is Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland.

2. Basis of Preparation and Accounting Policies

Basis of preparation and accounting policies
The Condensed Consolidated Interim Financial Statements included in this report have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency Rules of the Central Bank of Ireland and with IAS 34, Interim Financial Reporting as adopted by the European Union. This report should be read in conjunction with the Consolidated Financial Statements for the financial year ended 31 December 2021 included in the Group’s 2021 Annual Report which is available on the Group’s website; smurfitkappa.com.

The accounting policies adopted by the Group and the significant accounting judgements, estimates and assumptions made by management in the preparation of the Condensed Consolidated Interim Financial Statements are consistent with those described and applied in the Annual Report for the financial year ended 31 December 2021. A number of changes to IFRS became effective in 2022, however, they did not have a material effect on the Condensed Consolidated Interim Financial Statements included in this report.

Operations in Russia
On1 April 2022, the Group announced its decision to exit the Russian market in an orderly manner. Support for the Group’s Russian operations has been suspended including any imports and exports and short or long-term funding. The Group has appointed advisors to identify potential purchasers for the Russian operations. This process is in the early stages and there are a number of uncertainties surrounding the sales process. As a result, the conditions required to be met to classify the assets/liabilities as held for sale have not been satisfied at 30 June 2022.

The Group’s Russian operations are not material to the Group representing approximately 1% of each of Revenue, EBITDA and Profit before Tax in the six month period to 30 June 2022 and less than 3% of each of Total Assets and Net Assets as at 30 June 2022. Accordingly, the Group’s significant accounting judgements, estimates and assumptions did not change.

Going concern
The Group is a highly integrated manufacturer of paper-based packaging solutions with leading market positions, quality assets and broad geographic reach. The financial position of the Group, its cash generation, capital resources and liquidity continue to provide a stable financing platform.

The Group’s diversified funding base and long-dated maturity profile of 5.3 years provide a stable funding outlook. At 30 June 2022, the Group had a strong liquidity position of approximately €2.15 billion comprising cash balances of €491 million (including €9 million of restricted cash), undrawn available committed facilities of €1,342 million under its RCF and €312 million under its sustainability-linked securitisation programmes. At 30 June 2022, the strength of the Group’s balance sheet, a net debt to EBITDA ratio of 1.6x (31 December 2021: 1.7x) and its BBB-/BBB-/Baa3 credit rating, continues to provide considerable long-term strategic flexibility.

Having assessed the principal risks facing the Group on page 9, together with the Group’s forecasts and significant financial headroom, the Directors believe that the Group is well placed to manage these risks successfully and have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements.

2. Basis of Preparation and Accounting Policies (continued)

Statutory financial statements and audit opinion
The Group’s auditors have not audited or reviewed the Condensed Consolidated Interim Financial Statements contained in this report.

The Condensed Consolidated Interim Financial Statements presented do not constitute full statutory financial statements. Full statutory financial statements for the year ended 31 December 2021 will be filed with the Irish Registrar of Companies in due course. The audit report on those statutory financial statements was unqualified.

3. Segment and Revenue Information

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

The Europe and the Americas segments are each highly integrated. They include a system of mills and plants that primarily produce a full line of containerboard that is converted into corrugated containers within each segment. In addition, the Europe segment also produces other types of paper, such as solidboard, sack kraft paper and graphic paper; and other paper-based packaging, such as solidboard packaging and folding cartons; and bag-in-box packaging. The Americas segment, which includes a number of Latin American countries and the United States, also comprises forestry; other types of paper, such as boxboard and sack paper; and paper-based packaging, such as folding cartons and paper sacks. Inter‑segment revenue is not material. No operating segments have been aggregated for disclosure purposes.

Segment profit is measured based on EBITDA.

		6 months to 30-Jun-22						6 months to 30-Jun-21
		Europe		The Americas		Total		Europe		The Americas		Total
		€m		€m		€m		€m		€m		€m
Revenue and results
Revenue		4,939		1,446		6,385		3,649		1,030		4,679
EBITDA		926		271		1,197		591		211		802
Unallocated centre costs						(23)						(21)
Share-based payment expense						(31)						(28)
Depreciation and depletion (net)						(279)						(257)
Amortisation						(25)						(19)
Finance costs						(85)						(73)
Finance income						14						9
Share of associates’ profit (after tax)						1						-
Profit before income tax						769						413
Income tax expense						(195)						(105)
Profit for the financial period						574						308

3. Segment and Revenue Information (continued)

Revenue information about geographical areas

The Group has a presence in 36 countries worldwide. The following information is a geographical revenue analysis about country of domicile (Ireland) and countries with material revenue.

		6 months to 30-Jun-22		6 months to 30-Jun-21
		€m		€m
Ireland		55		55
Germany		936		658
France		773		527
Mexico		634		466
Italy		572		347
Other Europe - eurozone		1,328		1,065
Other Europe - non-eurozone		1,252		980
Other Americas		835		581
Total revenue by geographical area		6,385		4,679

Revenue is derived almost entirely from the sale of goods and is disclosed based on the location of production.

Disaggregation of revenue

The Group derives revenue from the following major product lines. The economic factors which affect the nature, amount, timing and uncertainty of revenue and cash flows from the sub categories of both paper and packaging products are similar.

		6 months to 30-Jun-22						6 months to 30-Jun-21
		Paper		Packaging		Total		Paper		Packaging		Total
		€m		€m		€m		€m		€m		€m
Europe		978		3,961		4,939		577		3,072		3,649
The Americas		135		1,311		1,446		86		944		1,030
Total revenue by product		1,113		5,272		6,385		663		4,016		4,679

Packaging revenue is derived mainly from the sale of corrugated products. The remainder of packaging revenue is comprised of bag-in-box and other paper-based packaging products.

4. Finance Costs and Income

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		€m		€m
Finance costs:
Interest payable on bank loans and overdrafts		19		12
Interest payable on leases		5		5
Interest payable on other borrowings		43		43
Foreign currency translation loss on debt		12		7
Fair value loss on financial assets		1		-
Net interest cost on net pension liability		4		4
Net monetary loss – hyperinflation		1		2
Total finance costs		85		73
Finance income:
Other interest receivable		(2)		(1)
Foreign currency translation gain on debt		(8)		(6)
Fair value gain on derivatives not designated as hedges		(4)		-
Fair value gain on financial assets/liabilities		-		(2)
Total finance income		(14)		(9)
Net finance costs		71		64

5. Income Tax Expense

Income tax expense recognised in the Condensed Consolidated Income Statement

			6 months to			6 months to
			30-Jun-22			30-Jun-21
			€m			€m
Current tax:
Europe			128			89
The Americas			54			37
			182			126
Deferred tax			13			(21)
Income tax expense			195			105
Current tax is analysed as follows:
Ireland			8			7
Foreign			174			119
			182			126

Income tax recognised in the Condensed Consolidated Statement of Comprehensive Income

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		€m		€m
Arising on defined benefit pension plans		26		15

The income tax expense in 2022 is €90 million higher than in the comparable period in 2021, primarily due to higher profitability.

5. Income Tax Expense (continued)

There is a €56 million increase in the current tax expense. In Europe, the current tax expense is €39 million higher and in the Americas the current tax expense is €17 million higher. This is mainly due to changes in profitability and other timing differences.

The deferred tax charge is €34 million higher than in the comparable period in 2021. The increase is largely due to the reversal of timing differences on which deferred tax was previously recognised and is partly offset by the recognition of tax benefits on losses and other tax credits.

6. Employee Benefits – Defined Benefit Plans

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

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		€m		€m
Current service cost		20		18
Gain on settlement		-		(3)
Net interest cost on net pension liability		4		4
Defined benefit cost		24		19

Analysis of actuarial (losses)/gains recognised in the Condensed Consolidated Statement of Comprehensive Income:

		6 months to 30-Jun-22		6 months to 30-Jun-21
		€m		€m
Return on plan assets (excluding interest income)		(458)		3
Actuarial gain due to experience adjustments		-		2
Actuarial gain due to changes in financial assumptions		669		120
Total gain recognised in the Condensed Consolidated Statement of Comprehensive Income		211		125

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

		30-Jun-22		31-Dec-21
		€m		€m
Present value of funded or partially funded obligations		(1,786)		(2,384)
Fair value of plan assets		1,818		2,276
Surplus/(deficit) in funded or partially funded plans		32		(108)
Present value of wholly unfunded obligations		(422)		(520)
Amounts not recognised as assets due to asset ceiling		(1)		(2)
Net pension liability		(391)		(630)

Reconciliation to the Condensed Consolidated Balance Sheet:

		30-Jun-22		31-Dec-21
		€m		€m
Employee benefit assets		64		-
Employee benefit liabilities		(455)		(630)
Net pension liability		(391)		(630)

The key assumptions relating to discount and inflation rates were reassessed at 30 June 2022 and updated to reflect market conditions at that date.

7. Earnings per Share (‘EPS’)

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

		6 months to		6 months to
		30-Jun-22		30-Jun-21
Profit attributable to owners of the parent (€ million)		574		308
Weighted average number of ordinary shares in issue (million)		258		257
Basic EPS (cent)		221.9		119.9

Diluted
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. These comprise deferred shares issued under the Group’s long-term incentive plans. Where the conditions governing exercisability and vesting of these shares have been satisfied as at the end of the reporting period, they are included in the computation of diluted earnings per ordinary share.

		6 months to		6 months to
		30-Jun-22		30-Jun-21
Profit attributable to owners of the parent (€ million)		574		308
Weighted average number of ordinary shares in issue (million)		258		257
Potential dilutive ordinary shares assumed (million)		1		1
Diluted weighted average ordinary shares (million)		259		258
Diluted EPS (cent)		220.9		119.2

Pre-exceptional
With no exceptional items reported in the first half of 2022 or 2021, pre-exceptional basic and diluted EPS were 221.9 cent (2021: 119.9 cent) and 220.9 cent (2021: 119.2 cent) respectively.

8. Dividends

During the period, the final dividend for 2021 of 96.1 cent per share was paid to the holders of ordinary shares. The Board has decided to pay an interim dividend of 31.6 cent per share (approximately €82 million). It is proposed to pay this dividend on 28 October 2022 to all ordinary shareholders on the share register at the close of business on 30 September 2022.

9. Property, Plant and Equipment

		Land and buildings		Plant and equipment		Total
		€m		€m		€m
Six months ended 30 June 2022
Opening net book amount		1,175		3,090		4,265
Reclassifications		34		(37)		(3)
Additions		18		287		305
Acquisitions		27		9		36
Depreciation charge		(32)		(201)		(233)
Retirements and disposals		(1)		(1)		(2)
Hyperinflation adjustment		4		5		9
Foreign currency translation adjustment		23		52		75
At 30 June 2022		1,248		3,204		4,452
Financial year ended 31 December 2021
Opening net book amount		1,090		2,749		3,839
Reclassifications		63		(64)		(1)
Additions		1		570		571
Acquisitions		73		186		259
Depreciation charge		(56)		(369)		(425)
Retirements and disposals		(9)		(17)		(26)
Hyperinflation adjustment		4		10		14
Foreign currency translation adjustment		9		25		34
At 31 December 2021		1,175		3,090		4,265

10. Net Movement in Working Capital

		6 months to		6 months to
		30-Jun-22		30-Jun-21
		€m		€m
Change in inventories		(220)		(78)
Change in trade and other receivables		(533)		(306)
Change in trade and other payables		252		189
Net movement in working capital		(501)		(195)

11. Analysis of Net Debt

		30-Jun-22		31-Dec-21
		€m		€m
Revolving credit facility – interest at relevant interbank rate (interest rate floor of 0%) + 0.64%(1)		3		2
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest)		283		260
Bank loans and overdrafts		111		101
€100 million receivables securitisation VFNs due 2026 (including accrued interest)(2)		4		4
€230 million receivables securitisation VFNs due 2026(3)		11		11
€250 million 2.75% senior notes due 2025 (including accrued interest)		252		251
€1,000 million 2.875% senior notes due 2026 (including accrued interest)		1,008		1,007
€750 million 1.5% senior notes due 2027 (including accrued interest)		747		747
€500 million 0.5% senior green notes due 2029 (including accrued interest)		497		495
€500 million 1.0% senior green notes due 2033 (including accrued interest)		499		496
Gross debt before leases		3,415		3,374
Leases		385		380
Gross debt including leases		3,800		3,754
Cash and cash equivalents (including restricted cash)		(491)		(869)
Net debt including leases		3,309		2,885

1. The Group’s RCF has a maturity of January 2026. At 30 June 2022, the following amounts were drawn under this facility:
   1. Revolver loans - €8 million
   2. Drawn under ancillary facilities and facilities supported by letters of credit – nil
   3. Other operational facilities including letters of credit - nil
2. At 30 June 2022, the amount drawn under this facility was €5 million.
3. At 30 June 2022, the amount drawn under this facility was €13 million.

12. 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		Cost of hedging reserve		Foreign currency translation reserve		Share- based payment reserve		Own shares		FVOCI reserve		Total
		€m		€m		€m		€m		€m		€m		€m		€m
At 1 January 2022		575		1		1		(541)		293		(59)		(10)		260
Other comprehensive income
Foreign currency translation adjustments		-		-		-		109		-		-		-		109
Effective portion of changes in fair value of cash flow hedges		-		(6)		-		-		-		-		-		(6)
Changes in fair value of cost of hedging		-		-		(1)		-		-		-		-		(1)
Total other comprehensive (expense)/income		-		(6)		(1)		109		-		-		-		102
Derecognition of equity instruments		-		-		-		-		-		-		10		10
Share-based payment		-		-		-		-		30		-		-		30
Net shares acquired by SKG Employee Trust		-		-		-		-		-		(27)		-		(27)
Shares distributed by SKG Employee Trust		-		-		-		-		(21)		21		-		-
At 30 June 2022		575		(5)		-		(432)		302		(65)		-		375
At 1 January 2021		575		4		2		(556)		241		(49)		(10)		207
Other comprehensive income
Foreign currency translation adjustments		-		-		-		10		-		-		-		10
Effective portion of changes in fair value of cash flow hedges		-		(2)		-		-		-		-		-		(2)
Total other comprehensive (expense)/income		-		(2)		-		10		-		-		-		8
Share‑based payment		-		-		-		-		26		-		-		26
Net shares acquired by SKG Employee Trust		-		-		-		-		-		(22)		-		(22)
Shares distributed by SKG Employee Trust		-		-		-		-		(12)		12		-		-
At 30 June 2021		575		2		2		(546)		255		(59)		(10)		219

13. Business Combinations

The acquisitions completed by the Group during the period, together with percentages acquired and completion dates were as follows:

• Argencraft, (100%, 1 April 2022) a corrugated facility in Argentina; and
• Atlas Packaging, (100%, 29 April 2022), a corrugated packaging company in the UK.

The table below reflects the provisional fair values of the identifiable net assets acquired in respect of the acquisitions completed during the period. Any amendments to fair values will be made within the twelve month period from the date of acquisition, as permitted by IFRS 3, Business Combinations and disclosed in the 2022 Annual Report. None of the business combinations completed during the year were considered sufficiently material to warrant separate disclosure of the fair values attributable to those combinations.

		Total*
		€m
Non-current assets
Property, plant and equipment		36
Right-of-use assets		2
Intangible assets		23
Current assets
Inventories		4
Trade and other receivables		14
Cash and cash equivalents		2
Non-current liabilities
Deferred income tax liabilities		(14)
Provisions		(1)
Borrowings		(1)
Current liabilities
Borrowings		(6)
Trade and other payables		(11)
Current income tax liability		(2)
Net assets acquired		46
Goodwill		(6)
Consideration		40
Settled by:
Cash		38
Deferred consideration		2
		40

* In addition to the 2022 acquisitions, the amounts also include fair value adjustments in relation to 2021 acquisitions.

During 2022 the Group made an amendment to the fair values assigned to the Verzuolo acquisition completed in late 2021. Given the proximity of the transaction to the year-end, the accounting treatment for the acquisition at 31 December 2021 was provisional, and on completion of the fair value exercise in 2022 the Group identified adjustments that were required as outlined below. The adjustments were not of a material nature and therefore have been recognised as movements within 2022 acquisitions in the 2022 financial statements.

		2022
		€m
Increase in property, plant and equipment		26
Increase in intangible assets		21
Increase in deferred tax liability		(12)
Other		(1)
Increase in net assets		34
Decrease in purchase price		1
Decrease in goodwill		35

13. Business Combinations (continued)

The principal factors contributing to the recognition of goodwill are the realisation of cost savings and other synergies with existing entities in the Group which do not qualify for separate recognition as intangible assets.

None of the goodwill arising on business combinations completed in the reporting period is expected to be deductible for tax purposes.

Net cash outflow arising on acquisition		€m
Cash consideration		38
Less cash & cash equivalents acquired		(2)
Total		36

The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to €14 million. The fair value of these receivables is estimated at €14 million (all of which is expected to be recoverable).

Acquisition-related costs of €0.5 million were incurred and are included within administrative expenses in the Condensed Consolidated Income Statement.

The Group’s acquisitions in 2022 have contributed €20 million to revenue and €3 million to profit after tax. The proforma revenue and profit after tax of the Group for the period ended 30 June 2022 would have been €6,410 million and €577 million respectively, had the acquisitions taken place at the start of the reporting period.

There have been no acquisitions completed subsequent to the balance sheet date which would be individually material to the Group, thereby requiring disclosure under either IFRS 3 or IAS 10, Events after the Balance Sheet Date.

14. Fair Value Hierarchy

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 30 June 2022:

		Level 1		Level 2		Level 3		Total
		€m		€m		€m		€m
Other investments:
Listed		2		-		-		2
Unlisted		-		8		-		8
Derivative financial instruments:
Assets at fair value through profit or loss		-		25		-		25
Derivatives used for hedging		-		6		-		6
Derivative financial instruments:
Liabilities at fair value through profit or loss		-		(38)		-		(38)
Derivatives used for hedging		-		(12)		-		(12)
		2		(11)		-		(9)

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2021:

		Level 1		Level 2		Level 3		Total
		€m		€m		€m		€m
Other investments:
Listed		2		-		-		2
Unlisted		-		9		-		9
Derivative financial instruments:
Assets at fair value through profit or loss		-		8		-		8
Derivatives used for hedging		-		2		-		2
Derivative financial instruments:
Liabilities at fair value through profit or loss		-		(13)		-		(13)
Derivatives used for hedging		-		(8)		-		(8)
		2		(2)		-		-

The fair value of listed investments is determined by reference to their bid price at the reporting date. Unlisted investments are valued using recognised valuation techniques for the underlying security, including discounted cash flows and similar unlisted equity valuation models.

The fair value of the derivative financial instruments set out above has been measured in accordance with level 2 of the fair value hierarchy. All are plain derivative instruments, valued with reference to observable foreign exchange rates, interest rates or broker prices.

There were no reclassifications or transfers between the levels of the fair value hierarchy during the period.

15. Fair Value

The following table sets out the fair value of the Group's principal financial assets and liabilities. The determination of these fair values is based on the descriptions set out within Note 2 to the Consolidated Financial Statements of the Group’s 2021 Annual Report.

		30-Jun-22				31-Dec-21
		Carrying value		Fair value		Carrying value		Fair value
		€m		€m		€m		€m
Trade and other receivables (1)		2,598		2,598		2,006		2,006
Listed and unlisted debt instruments(2)		10		10		11		11
Cash and cash equivalents (3)		482		482		855		855
Derivative assets (4)		31		31		10		10
Restricted cash(3)		9		9		14		14
		3,130		3,130		2,896		2,896
Trade and other payables(1)		2,327		2,327		2,082		2,082
Revolving credit facility(5)		3		3		2		2
2026 €100 million receivables securitisation(3)		4		4		4		4
2026 €230 million receivables securitisation(3)		11		11		11		11
Bank overdrafts(3)		111		111		101		101
2025 debentures(6)		283		310		260		318
2025 notes(6)		252		251		251		270
2026 notes(6)		1,008		997		1,007		1,103
2027 notes (6)		747		671		747		786
2029 green notes (6)		497		398		495		489
2033 green notes (6)		499		359		496		490
		5,742		5,442		5,456		5,656
Derivative liabilities(4)		50		50		21		21
Deferred consideration(7)		3		3		10		10
		5,795		5,495		5,487		5,687
Total net position		(2,665)		(2,365)		(2,591)		(2,791)

(1)		The fair value of trade and other receivables and payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
(2)		The fair value of listed financial assets is determined by reference to their bid price at the reporting date. Unlisted financial assets are valued using recognised valuation techniques for the underlying security including discounted cash flows and similar unlisted equity valuation models.
(3)		The carrying amount reported in the Condensed Consolidated Balance Sheet is estimated to approximate to fair value because of the short-term maturity of these instruments and, in the case of the receivables securitisation, the variable nature of the facility and repricing dates.
(4)		The fair value of forward foreign currency, energy and commodity contracts is based on their listed market price if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds).
(5)		The fair value (level 2) of the RCF is based on the present value of its estimated future cash flows discounted at an appropriate market discount rate at the balance sheet date.
(6)		Fair value (level 2) is based on broker prices at the balance sheet date.
(7)		The fair value of deferred consideration is based on the present value of the expected payment, discounted using an appropriate market discount rate as at the balance sheet date.

16. Related Party Transactions

Details of related party transactions in respect of the year ended 31 December 2021 are contained in Note 30 to the Consolidated Financial Statements of the Group’s 2021 Annual Report. The Group continued to enter into transactions in the normal course of business with its associates and other related parties during the period. There were no transactions with related parties in the first half of 2022 or changes to transactions with related parties disclosed in the 2021 Consolidated Financial Statements that had a material effect on the financial position or the performance of the Group.

17. Board Approval

This interim report was approved by the Board of Directors on 26 July 2022.

18. Distribution of the Interim Report

This 2022 interim report is available on the Group’s website; smurfitkappa.com.

Responsibility Statement in Respect of the Six Months Ended 30 June 2022

The Directors, whose names and functions are listed on pages 78 to 81 in the Group’s 2021 Annual Report, are responsible for preparing this interim management report and the Condensed Consolidated Interim Financial Statements in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency Rules of the Central Bank of Ireland and with IAS 34, Interim Financial Reporting as adopted by the European Union.

The Directors confirm that, to the best of their knowledge:

• the Condensed Consolidated Interim Financial Statements for the half year ended 30 June 2022 have been prepared in accordance with the international accounting standard applicable to interim financial reporting, IAS 34, adopted pursuant to the procedure provided for under Article 6 of the Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002;
• the interim management report includes a fair review of the important events that have occurred during the first six months of the financial year, and their impact on the Condensed Consolidated Interim Financial Statements for the half year ended 30 June 2022, and a description of the principal risks and uncertainties for the remaining six months;
• the interim management report includes a fair review of related party transactions that have occurred during the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

Signed on behalf of the Board

A. Smurfit, Director and Chief Executive Officer
K. Bowles, Director and Chief Financial Officer

26 July 2022.

Supplementary Financial Information

Alternative Performance Measures

The Group uses certain financial measures as set out below in order to evaluate the Group’s financial performance. These Alternative Performance Measures (‘APMs’) are not defined under IFRS and are presented because we believe that they, and similar measures, provide both SKG management and users of the Condensed Consolidated Interim Financial Statements with useful additional financial information when evaluating the Group’s operating and financial performance.

These measures may not be comparable to other similarly titled measures used by other companies, and are not measurements under IFRS or other generally accepted accounting principles, and they should not be considered in isolation or as substitutes for the information contained in our Condensed Consolidated Interim Financial Statements.

Please note where referenced ‘CIS’ refers to Condensed Consolidated Income Statement, ‘CBS’ refers to Condensed Consolidated Balance Sheet and ‘CSCF’ refers to Condensed Consolidated Statement of Cash Flows.

The principal APMs used by the Group, together with reconciliations where the non-IFRS measures are not readily identifiable from the Condensed Consolidated Interim Financial Statements, are as follows:

A. EBITDA
Definition
EBITDA is earnings before exceptional items, share-based payment expense, share of associates’ profit (after tax), net finance costs, income tax expense, depreciation and depletion (net) and intangible assets amortisation. It is an appropriate and useful measure used to compare recurring financial performance between periods.

Reconciliation of Profit to EBITDA

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Profit for the financial period		CIS		574		308
Income tax expense (after exceptional items)		CIS		195		105
Net finance costs (after exceptional items)		Note 4		71		64
Share of associates’ profit (after tax)		CIS		(1)		-
Share-based payment expense		Note 3		31		28
Depreciation, depletion (net) and amortisation		Note 3		304		276
EBITDA				1,174		781

B. EBITDA margin
Definition
EBITDA margin is a measure of profitability by taking our EBITDA divided by revenue.

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
EBITDA		A		1,174		781
Revenue		CIS		6,385		4,679
EBITDA margin				18.4%		16.7%

Alternative Performance Measures (continued)

C. Operating profit before exceptional items
Definition
Operating profit before exceptional items represents operating profit as reported in the Condensed Consolidated Income Statement before exceptional items. Exceptional items are excluded in order to assess the underlying financial performance of our operations.

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Operating profit		CIS		839		477
Exceptional items		CIS		-		-
Operating profit before exceptional items		CIS		839		477

D. Pre-exceptional basic earnings per share
Definition
Pre-exceptional basic EPS serves as an effective indicator of our profitability as it excludes exceptional one‑off items and, in conjunction with other metrics such as ROCE, is a measure of our financial strength. Pre‑exceptional basic EPS is calculated by dividing profit attributable to owners of the parent, adjusted for exceptional items included in profit before income tax and income tax on exceptional items, by the weighted average number of ordinary shares in issue. The calculation of pre-exceptional basic EPS is shown in Note 7.

E. Underlying EBITDA and revenue
Definition
Underlying EBITDA and revenue are arrived at by excluding the incremental EBITDA and revenue contributions from current and prior year acquisitions and disposals and the impact of currency translation, hyperinflation and any non-recurring items.

The Group uses underlying EBITDA and underlying revenue as additional performance indicators to assess performance on a like-for-like basis each year.

		Europe 30-Jun-22		The Americas 30-Jun-22		Total 30-Jun-22		Europe 30-Jun-21		The Americas 30-Jun-21		Total 30-Jun-21
EBITDA
Currency		-		8%		2%		-		(7%)		(2%)
Acquisitions/disposals		2%		3%		2%		-		-		-
Underlying EBITDA change		55%		18%		46%		3%		26%		8%
Reported EBITDA change		57%		29%		50%		3%		19%		6%
Revenue
Currency		-		7%		2%		-		(9%)		(2%)
Hyperinflation		-		1%		-		-		-		-
Acquisitions/disposals		2%		4%		2%		-		1%		-
Underlying revenue change		33%		28%		32%		12%		18%		13%
Reported revenue change		35%		40%		36%		12%		10%		11%

Alternative Performance Measures (continued)

F. Net debt
Definition
Net debt comprises borrowings net of cash and cash equivalents and restricted cash. We believe that this measure highlights the overall movement resulting from our operating and financial performance.

		Reference		30-Jun-22 €m		30-Jun-21 €m		31-Dec-21 €m
Borrowings		Note 11		3,800		3,186		3,754
Less:
Restricted cash		CBS		(9)		(16)		(14)
Cash and cash equivalents		CBS		(482)		(621)		(855)
Net debt				3,309		2,549		2,885

G. Net debt to EBITDA
Definition
Leverage (ratio of net debt to EBITDA for the last twelve months (‘LTM’)) is an important measure of our overall financial position.

		Reference		30-Jun-22 €m		30-Jun-21 €m		30-Dec-21 €m
Net debt		F		3,309		2,549		2,885
EBITDA LTM				2,095		1,556		1,702
Net debt to EBITDA LTM (times)				1.6		1.6		1.7

H. Return on capital employed (‘ROCE’)
Definition
ROCE measures profit from capital employed. It is calculated as operating profit before exceptional items plus share of associates’ profit (after tax) LTM divided by the average capital employed (where average capital employed is the average of total equity and net debt at the current and prior year-end).

		Reference		30-Jun-22 €m		30-Jun-21 €m
Operating profit before exceptional items plus share of associates’ profit (after tax) LTM				1,436		950
Total equity – current period-end		CBS		5,036		4,004
Net debt – current period-end		F		3,309		2,549
Capital employed – current period-end				8,345		6,553
Total equity – prior period-end		CBS		4,004		3,063
Net debt – prior period-end		F		2,549		3,257
Capital employed – prior period-end				6,553		6,320
Average capital employed				7,449		6,436
Return on capital employed				19.3%		14.8%

Alternative Performance Measures (continued)

I. Working capital
Definition
Working capital represents total inventories, trade and other receivables and trade and other payables.

		Reference		30-Jun-22 €m		30-Jun-21 €m
Inventories		CBS		1,296		860
Trade and other receivables (current and non-current)		CBS		2,835		1,927
Trade and other payables		CBS		(2,828)		(2,006)
Working capital				1,303		781

J. Working capital as a percentage of sales
Definition
Working capital as a percentage of sales represents working capital as defined above shown as a percentage of annualised quarterly revenue.

		Reference		30-Jun-22 €m		30-Jun-21 €m
Working capital		I		1,303		781
Annualised quarterly revenue				13,442		9,640
Working capital as a percentage of sales				9.7%		8.1%

Alternative Performance Measures (continued)

K. Summary cash flow
Definition
The summary cash flow is prepared on a different basis to the Condensed Consolidated Statement of Cash Flows and as such the reconciling items between EBITDA and increase in net debt may differ from amounts presented in the Condensed Consolidated Statement of Cash Flows. The summary cash flow details movements in net debt. The Condensed Consolidated Statement of Cash Flows details movements in cash and cash equivalents.

Reconciliation of the Summary Cash Flow to the Condensed Consolidated Statement of Cash Flows

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
EBITDA		A		1,174		781
Cash interest expense		K.1		(61)		(54)
Working capital change		CSCF		(501)		(195)
Capital expenditure		K.2		(349)		(175)
Change in capital creditors		K.2		(108)		(80)
Tax paid		CSCF		(158)		(122)
Change in employee benefits and other provisions		CSCF		(22)		(43)
Other		K.4		(3)		5
Free cash flow		L		(28)		117
Purchase of own shares (net)		CSCF		(27)		(22)
Sale of businesses and investments		K.5		-		37
Purchase of businesses, investments and NCI		K.6		(48)		(55)
Dividends		CSCF		(250)		(226)
Derivative termination receipts		CSCF		-		10
Net cash outflow				(353)		(139)
Acquired net debt		K.7		(5)		(13)
Disposed net cash		K.8		-		(1)
Deferred debt issue costs amortised				(4)		(4)
Currency translation adjustment				(62)		(17)
Increase in net debt				(424)		(174)

K.1 Cash interest expense

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Interest paid		CSCF		(57)		(55)
Interest received		CSCF		2		1
Move in accrued interest				(6)		-
Per summary cash flow				(61)		(54)

Alternative Performance Measures (continued)

K.2 Capital expenditure

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Additions to property, plant and equipment and biological assets		CSCF		(418)		(228)
Additions to intangible assets		CSCF		(8)		(6)
Net additions to right-of-use assets				(31)		(21)
Change in capital creditors		K		108		80
Per summary cash flow				(349)		(175)

K.3 Capital expenditure as a percentage of depreciation

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Capital expenditure		K.2		349		175
Depreciation, depletion (net) and amortisation		A		304		276
Capital expenditure as a percentage of depreciation				115%		63%

K.4 Other

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Other within the summary cash flow comprises the following
Amortisation of capital grants		CSCF		(1)		(1)
Profit on sale of property, plant and equipment		CSCF		(6)		(5)
Other (primarily hyperinflation adjustments)		CSCF		7		3
Receipt of capital grants		CSCF		-		1
Disposal of property, plant and equipment		CSCF		10		7
Dividends received from associates		CSCF		-		1
Lease terminations/modifications		L		(13)		(1)
Per summary cash flow				(3)		5

Alternative Performance Measures (continued)

K.5 Sale of businesses and investments

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Business disposals (net of disposed cash)		CSCF		-		33
Disposed cash and cash equivalents		K.8		-		4
Per summary cash flow				-		37

K.6 Purchase of businesses, investments and NCI

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Purchase of subsidiaries (net of acquired cash)		CSCF		(36)		(20)
Deferred consideration paid		CSCF		(10)		(35)
Acquired cash and cash equivalents		K.7		(2)		-
Per summary cash flow				(48)		(55)

K.7 Acquired net debt

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Debt acquired				(7)		(13)
Acquired cash and cash equivalents		K.6		2		-
Per summary cash flow				(5)		(13)

K.8 Disposed net cash

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Disposed debt				-		3
Disposed cash and cash equivalents		K.5		-		(4)
Per summary cash flow				-		(1)

Alternative Performance Measures (continued)

L. Free cash flow (‘FCF’)
Definition
FCF is the result of the cash inflows and outflows from our operating activities, and is before those arising from acquisition and disposal of businesses. We use FCF to assess and understand the total operating performance of the business and to identify underlying trends.

Reconciliation of Free Cash Flow to Cash Generated from Operations

		Reference		6 months to 30-Jun-22 €m		6 months to 30-Jun-21 €m
Free cash flow		K		(28)		117
Reconciling items:
Cash interest expense		K.1		61		54
Capital expenditure (net of change in capital creditors)		K.2		457		255
Tax payments		CSCF		158		122
Disposal of property, plant and equipment		CSCF		(10)		(7)
Lease terminations/modifications		K.4		13		1
Receipt of capital grants		CSCF		-		(1)
Dividends received from associates		CSCF		-		(1)
Cash generated from operations		CSCF		651		540

__________________________
¹ Additional information in relation to these Alternative Performance Measures is set out in Supplementary Financial Information on pages 30 to 37.
² Additional information on underlying performance is set out within Supplementary Financial Information on pages 30 to 37.

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