Half-yearly Report

Smurfit Kappa Group PLC Smurfit Kappa Group plc: 2007 Q2 and H1 Results Smurfit Kappa Group plc ('SKG' or the 'Group') (LSE:SKG) (ISE:SK3), one of the world's largest integrated manufacturers of paper-based packaging products, with operations in Europe and Latin America, today announced results for the 3 months and 6 months ending 30 June, 2007. 2007 Second Quarter & First Half - Key Financial Performance Measures -0- *T Q2, Q2, H1, H1, EUR m 2007 2006 Change 2007 2006 Change ---------------------------------------------------------------------- EUR EUR EUR EUR Revenue 1,831 1,754 4.4% 3,625 3,486 4.0% EBITDA before Exceptional Items and Share-based EUR EUR EUR EUR Payments 260 219 18.3% 514 400 28.4% EBITDA Margin 14.2% 12.5% 1.7 pts 14.2% 11.5% 2.7 pts EUR EUR EUR Free Cashflow EUR 3 (47) NM (37) (128) 71% ---------------------------------------------------------------------- EUR EUR EUR EUR Net Debt 3,605 5,022 28% 3,605 5,022 28% Net Debt to EBITDA (LTM) 3.6 5.5 1.9 pts 3.6 5.5 1.9 pts ---------------------------------------------------------------------- *T Highlights -- Year-on-year EBITDA increase of 18% in second quarter to EUR 260 million; 28% increase in first half to EUR 514 million -- Strong demand growth & pricing momentum in recycled containerboard & corrugated -- Solid financial performance despite higher than expected input cost increases resulting in near-term margin compression - strong EBITDA margin of 14.2% for second quarter and first half -- Successful debt re-pricing resulting in lower cost of debt and improved balance sheet -- Strong market conditions, balanced capacity and rising input costs are the basis to deliver continued corrugated price improvements Outlook Gary McGann, Smurfit Kappa Group CEO, commented: 'SKG is pleased to report a strong performance growth for the second quarter and the first half of 2007. This performance reflects continued, strong demand growth, balanced capacity across the Group's markets and a generally positive pricing environment. Increased input costs and paper prices have not yet fully translated into higher corrugated prices which are being progressively achieved. Increasing input costs, while causing margin pressure in the first half, underpin product price momentum and are expected to deliver continued corrugated price improvement and EBITDA growth in the second half and into 2008.' About Smurfit Kappa Group Smurfit Kappa Group is a world leader in paper-based packaging with operations in Europe and Latin America. Smurfit Kappa Group operates in 22 countries in Europe and is the European leader in containerboard, solid board, corrugated and solid board packaging and has a key position in several other packaging and paper market segments, including graphic board, sack paper and paper sacks. Smurfit Kappa Group also has a growing presence in Eastern Europe. Smurfit Kappa Group operates in 9 countries in Latin America and is the only pan-regional operator. Forward Looking Statements Some statements in this announcement are forward-looking. They represent expectations for SKG'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. 2007 Second Quarter and First Half - Performance Overview SKG's financial outcome for the second quarter and the first half of 2007 reflects a very solid financial performance. Revenue for the second quarter of 2007 of EUR 1,831 million increased 4% on the same period in 2006. The true underlying growth in revenue, however, was significantly higher in the second quarter. Allowing for the negative impact of currency (EUR 7 million) and for the impact of disposals and closures (EUR 37 million), revenue shows an underlying increase of EUR 121 million or 7% for the second quarter. Revenue for the first half, of EUR 3,625 million, also increased 4% on the same period in 2006. Again, allowing for the negative impact of currency (EUR 16 million) and for the impact of disposals and closures (EUR 61 million) revenue shows an underlying increase of EUR 216 million or 6.2% for the first half. This solid growth, in both the second quarter and first half of 2007, primarily reflects product price improvements in Europe but also a very strong performance from the Group's operations in Latin America. However, despite growth in underlying revenue, there were a number of factors during the first half which delayed EBITDA and EBITDA margin growth. During the first quarter, SKG experienced a rapid and higher than anticipated increase in recovered paper prices which contributed to margin compression in SKG's containerboard business. Anticipated kraftliner price increases were not sustained due to increased imports into the strong European market and this, together with higher wood costs, dampened kraftliner profit growth. During the second quarter, SKG implemented a second recycled containerboard price increase to recover rising input costs and this also had a short-term negative impact on the earnings momentum of the Group's corrugated business while price increases are passed through the system from containerboard to boxes. The consequent margin compression is reflected in the modest decline in SKG's EBITDA margin in the first and second quarters relative to the fourth quarter of 2006. On the positive side, corrugated demand growth remains strong in Europe. SKG is progressively implementing recovered paper and containerboard price increases in corrugated and achieved a total of 3.7% for the first half of 2007. Increasing input costs, while causing margin pressure in the first half, underpin product price momentum and are expected to deliver continued corrugated price improvements in the second half and into 2008. Second Quarter, 2007: Year-on-year financial performance Revenue of EUR 1,831 million in the second quarter of 2007, represents a 4% increase on revenue of EUR 1,754 million in the second quarter of 2006. EBITDA, before exceptional items, of EUR 260 million increased 18% compared to EBITDA of EUR 220 million in the second quarter of 2006. This represents a margin of 14.2% and 12.5% respectively. Second Quarter, 2007: Quarter-on-quarter financial performance Revenue of EUR 1,831 million in the second quarter of 2007, represents a 2% increase on revenue of EUR 1,794 million in the first quarter of 2007. EBITDA, before exceptional items, of EUR 260 million increased 2.4% compared to EBITDA of EUR 254 million in the first quarter of 2007. This represents a margin of 14.2% for both periods. First Half, 2007: Year-on-year financial performance Revenue of EUR 3,625 million in the first half of 2007, represents a 4% increase on revenue of EUR 3,486 million in the first half of 2006. Excluding the impact of closures, disposal and currency, revenue increased over 6% year-on-year. EBITDA, before exceptional items, of EUR 514 million increased 28% compared to EBITDA of EUR 400 million in the first half of 2006. This represents a margin on revenue of 14.2% and 11.5% respectively. 2007 Second Quarter and First Half - Capital Structure & Debt Paydown SKG successfully returned to public equity markets through the completion of an all primary IPO in March, 2007. The Group raised gross proceeds of EUR 1,495 million through a global institutional offering which was significantly oversubscribed. This comprised an initial public offering of EUR 1,300 million and the full exercise of over-allotment arrangements which raised an additional EUR 195 million. Proceeds were applied to reduce debt and optimise SKG's capital structure. At 30 June, 2007, SKG's net debt was EUR 3,605 million which compares to EUR 3,549 million at 31 March, 2007 and EUR 4,882 million at 31 December, 2006. During the second quarter, SKG announced its intention to further reduce its overall cost of debt by seeking approval from its lenders to amend certain terms of its senior credit facilities including a reduction in margin across each of the Group's facilities. In July 2007, the Group successfully secured approval to amend its senior credit facilities. The amendment, together with a successful cash tender offer for SKG's US dollar denominated 9 5/8 % Senior Notes due 2012 and euro denominated 10 1/8 % Senior Notes due 2012, has resulted in a reduction in the Group's overall cost of debt by approximately EUR 10 million per annum and gives SKG greater financial flexibility. The Group's financial objective for 2007 remains equity accretion through debt pay down. SKG remains on track to deliver a net debt to EBITDA ratio of approximately 3.0x by the end of the 2007 financial year. Acquisitions and Disposals The Group acquired a corrugated box plant in Romania in the first half, with a market share of 5% in Romania. This acquisition provides SKG with an entry to the Romanian market and progress towards the Group's objective of growth in Eastern Europe. The Group also concluded an agreement subject to regulatory clearance to acquire a bag-in-box operation in Europe. On completion of this acquisition, this business will be merged with the Group's existing and fast growing bag-in-box division. It will provide a broader platform for further growth and development of this business in Europe. The higher growth regions of Eastern Europe and Latin America remain a key focus for the Group. The Group completed a number of asset and non-core business disposals during the first half including a number of property sales. Total consideration for these disposals was in excess of EUR 20 million. The Group continues to actively focus on disposing of non-core and non-strategic assets and expects to make further announcements in the second half. Efficient Capacity Management & Capital Expenditure Following the closure of significant, higher cost capacity during 2006, SKG announced further capacity closures during the first half of 2007. During the first quarter, SKG announced the closure of a mill in Alaincourt, France, with capacity of 90,000 tonnes of recycled containerboard. SKG will use the machine from this mill to replace another machine within its system resulting in a net annual reduction of approximately 50,000 tonnes. SKG also closed two corrugated plants, a solid board machine, and a solid board packaging operation during the first half. Operating cost reduction and further improving the quality of the Group's existing asset base was the basis for these disposals. Capital expenditure during the second quarter was approximately EUR 79 million. This compares to EUR 63 million in the second quarter of 2006 and EUR 68 million in the first quarter of 2007. The Group's first half capital expenditure of EUR 147 million equates to 84% of depreciation in the period. The Group's full year capital expenditure level is expected to be a little over 90% of depreciation and approximately 4% of full year net revenue. Synergies SKG's synergy programme delivered approximately EUR 87 million in 2006, ahead of the Group's target of EUR 60 million. SKG's annualised synergy run rate, at the end of 2006, was approximately EUR 124 million. This was also ahead of SKG's original expectation of a run rate of EUR 95 million per annum by the end of 2006. The momentum behind the synergy programme continues and the run rate at the end of June 2007 was approximately EUR 146 million. SKG's current objective is to deliver total synergy benefits, ahead of the original EUR 160 million estimate, and earlier than originally planned. 2007 Second Quarter and First Half - Performance Overview Overall trading in the first half of 2007 is significantly ahead of the same period in 2006. This reflects balanced capacity and tight market conditions in recycled containerboard in Europe, together with strong corrugated demand. Price increases in recycled containerboard have been implemented during the first half, in part to recover the consistent upward pressure on recovered paper and energy prices. Corrugated prices are being progressively increased to recover containerboard prices increases. The implementation of corrugated price increases is always a slower process than the implementation of containerboard price increases. While overall price momentum is good, there is some margin pressure within the Group's corrugated system as current box pricing does not yet fully reflect higher containerboard prices. In Latin America, the Group's operations benefited from a combination of higher sales volumes and higher average selling prices during the first half of the year relative to the comparable period in 2006, which contributed to increased earnings growth for the region. Packaging: Europe European packaging continues to benefit from the increasing balance between supply and demand in European recycled containerboard. Over the past 18 months, it is estimated that in excess of 1.5 million tonnes of higher cost capacity was removed from the market, representing close to 8% of available industry capacity. A more balanced market has allowed producers recover significant increases in input costs, primarily recovered paper and energy, by implementing containerboard price increases. Recovered paper prices have, for example, increased by approximately 30% (EUR 20 per tonne) for the first half of 2007. Two consecutive recycled containerboard price increases, of EUR 30 per tonne each, were also implemented in the first half of 2007. A further price increase of EUR 40 per tonne has been announced for September, 2007 as a result of tight markets and a further increase in recovered fibre costs. The kraftliner market in Europe is more difficult. US kraftliner imports increased 15% year-on-year during the first quarter of 2007 and this level of imports sustained during the second quarter. This increase in US imports reflects the relative weakness of the US dollar and slow domestic US demand. SKG's performance was also impacted by a fire at the Facture mill which resulted in significant unplanned downtime. The impact of this fire was covered by the Group's insurance arrangements. As a result of the sharp increase in US imports, the planned kraftliner price increase was not achieved during the first half. SKG's total European kraftliner volumes declined 10% in the first half compared to the same period in 2006. This primarily reflects fire related downtime at the Facture mill. Excluding the impact of Facture, volumes increased 3% in the first half compared to the same period in 2006 with demand proving to be strong. SKG's European recycled containerboard volumes, excluding the impact of disposals and closures, also increased 3% in the first half compared to the same period in 2006. As an integrated corrugated manufacturer, containerboard price increases have resulted in increasing input costs for SKG's corrugated operations resulting in near-term margin compression. In corrugated, SKG experienced lower volume growth than the market during the first quarter reflecting a strong and disciplined stance on pricing. However, SKG's volumes improved in the second quarter, reflecting strong corrugated demand, especially in the UK, Benelux & Germany, as a result of broader market growth. This strong demand environment, together with balanced capacity in containerboard and rising input costs, underpin price momentum and are expected to deliver continued corrugated price improvement in the second half of 2007 and into 2008. SKG's European corrugated volumes, excluding the impact of disposals and closures, increased approximately 1.3% in the first half compared to the same period in 2006. First half growth of 1.3% also compares to 2.6% broader market growth in the same period, with the lower SKG figures reflecting the strong continued push for price recovery. The clear priority for the second half of 2007 is to continue to implement the necessary corrugated price increases required to recover these input cost increases. SKG achieved an increase of approximately 4% in corrugated prices for the first half of 2007. Packaging: Latin America While market conditions vary from country to country, demand growth was generally strong across the Latin American region with SKG's operations reporting growth in revenue and earnings year-on-year. SKG's Latin American operations reported a good performance in the first and second quarter with containerboard volumes 6.8% higher in the first half than in the same period in 2006. SKG's corrugated volumes in Latin America increased in the second quarter and first half on 2006 with first half volumes increasing 7.2% year-on-year. Mexico, Colombia and Argentina experienced growth rates of between 6% and 15% in the first half of 2007, with positive price momentum in each market. In Venezuela and the Dominican Republic, volumes declined somewhat on 2006 levels. However, these declines were more than compensated for by higher product pricing. Argentina's growth rate slowed year-on-year reflecting the country's current energy crisis. However, the first half financial performance showed a small increase on the same period in 2006 Specialties: Europe The Group's specialties business comprises those European mills which produce grades of paper other than containerboard together with related converting operations. These principally comprise the Group's graphicboard mills, solidboard, boxboard and paper sack businesses and the Group's bag-in-box operations. The financial performance of SKG's specialties business, in the first half, declined on the comparable period in 2006. This primarily reflects a reduced level of profitability in the solidboard operations against a backdrop of competitive market conditions, SKG's strong focus on restoring acceptable end product pricing and the absence in 2007 of one solidboard operation, which was sold as required by the EU following the JSG/Kappa merger. The performance of the specialties business is also being impacted by rising recovered paper costs. While board prices have increased year-on-year, further price initiatives are required to recover the increase in input costs. SKG's strong and disciplined stance on pricing is having a consequent negative impact on volumes. SKG's sack business also operates in a highly competitive environment. Sack kraft paper prices continue to increase as a result of a very good balance between supply and demand. However, on the converting side, a fragmented competitive market means that paper price increases are not being effectively implemented. SKG's boxboard business had an improved second quarter and first half. Product prices are trending upwards under pressure from rising input costs, while market conditions remain competitive. SKG's bag-in-box business reported strong growth in volumes in the first half and is currently operating at full capacity. SKG has concluded an agreement to acquire a further business in this sphere subject only to regulatory clearance. This will further underpin the growth in this area. Second Quarter, 2007: Cash Flows & Capital Structure Free cash flow, for the second quarter of 2007, resulted in a net inflow of EUR 3 million compared to a net outflow of EUR 47 million in the same period in 2006. The improvement in free cash flow was achieved despite a higher level of capital expenditure in 2007 and the payment of EUR 17 million in respect of reorganisation and restructuring charges provided for in 2006. The improved cash flow reflected the higher profits generated by the Group in the second quarter. The reported profit is after charging further costs in respect of debt re-financing, which followed the IPO. The refinancing costs of EUR 18 million are added back in arriving at free cash flow but then deducted within the financing and investment section of the cash flow, while the non-cash interest expense of EUR 14 million includes EUR 10 million in respect of the accelerated write-off of debt costs relating to the debt paid down. Capital expenditure at EUR 79 million in the second quarter of 2007 was higher than in 2006, representing 91% of depreciation compared to 71% in 2006. This reflected a different phasing of the spend within the half-year with expenditure representing 84% and 78% respectively in the six months to June 2007 and 2006. Working capital increased by EUR 70 million in the second quarter of 2007 with higher debtors and stocks offset by higher creditors. The increase in working capital reflected the impact of higher average selling prices across SKG's business base, including the recycled containerboard increase implemented during May and June, as well as some seasonality factors. As a percentage of annualised revenue, working capital of EUR 759 million at June 2007 represented 10.4%, compared to 10.1% at June 2006. Cash flows from financing and investment activity amounted to a net outflow of EUR 52 million in the second quarter of 2007, with the main outflows being the EUR 14 million repayment of derivatives as part of the refinancing and the payment of IPO costs and additional refinancing costs. In the second quarter of 2006, cash flows from financing and investment activity were modest, giving a net outflow of EUR 1 million. With the free cash flow more than offset by the net outflow from financing and investment activity, the result for the second quarter of 2007 was a net cash outflow of EUR 49 million. This outflow was increased by EUR 13 million in respect of the amortisation of debt issuance costs (including the accelerated amortisation of EUR 10 million) but offset by a positive currency adjustment of EUR 6 million, reflecting a reduction in foreign currency borrowings as a result of the relative strength of the euro. Given the repayment of the PIK debt in the first quarter of 2007, no accrued non-cash interest arose in the second quarter. The overall result was an increase of EUR 56 million in net borrowing during the second quarter of 2007. In the second quarter of 2006, the net cash outflow of EUR 48 million was increased by EUR 4 million and EUR 13 million in respect of the amortisation of debt issuance costs and PIK interest respectively and offset by positive currency movements of EUR 54 million. The overall result was an increase of EUR 11 million in net borrowing during the second quarter of 2006. Net borrowing amounted to EUR 3,605 million at June 2007 compared to EUR 3,549 million at March 2007. Reflecting the progressive strengthening of SKG's earnings, however, leverage (EBITDA to net debt ratio) has improved over the course of 2007 from 3.7x at March 2007 to 3.6x at June 2007. At December 2006, leverage was 5.5x. First Half, 2007: Cash Flows & Capital Structure Free cash flow, for the first six months of 2007 was a net outflow of EUR 37 million compared to a net outflow EUR 128 million in the same period in 2006. The improvement in free cash flow reflects a combination of the higher profits generated in 2007 and a lower working capital outflow as partly offset by higher outflows for capital creditors and current provisions, primarily in respect of reorganisation and restructuring charges provided for in 2006. The underlying improvement in year-on-year profitability is masked by the significant finance costs incurred in 2007 in respect of the early paydown of debt following the IPO in March. These costs comprise refinancing costs of EUR 74 million, which are added back in arriving at free cash flow but then deducted within the financing and investment section of the cash flow, and EUR 29 million in respect of the accelerated write-off of debt costs relating to the debt paid down. Capital expenditure at EUR 147 million in 2007 represented 84% of depreciation compared to 78% in 2006. Working capital increased by EUR 98 million in the half-year to June 2007 with higher debtors and stocks offset by higher creditors. The comparative increase in 2006 was EUR 136 million. The increase in working capital over the first six months of 2007 reflected the impact of higher average selling prices across SKG's business base and an element of seasonality as a result of the higher level of trading activity mid-year. As a percentage of annualised revenue, working capital of EUR 759 million at June 2007 represented 10.4%, compared to 8.9% at December 2006 and 10.1% at June 2006. As a result of the IPO, cash flows from financing and investment activity amounted to a net inflow of EUR 1,348 million in the first half of 2007. The share issue raised EUR 1,495 million while the costs of the IPO and those relating to the subsequent refinancing of borrowing amounted to EUR 58 million and EUR 74 million respectively. The repayment of derivatives resulted in an outflow of EUR 14 million. Apart from the payment of EUR 34 million in deferred consideration to the former Kappa shareholders, cash flows from financing and investment activity in the first half of 2006 were modest, giving a net outflow of EUR 38 million. With the large inflow from financing and investment activity more than offsetting the negative free cash flow, the result for the first half of 2007 was a net cash inflow of EUR 1,311 million. This inflow was increased by a positive currency movement of EUR 14 million while offset by EUR 37 million in respect of the amortisation of debt issuance costs (including the accelerated amortisation of EUR 29 million) and EUR 12 million in respect of non-cash interest in relation to the PIK debt prior to its paydown in late March. The overall result was a decrease of EUR 1,277 million in net borrowing in the first half of 2007. In the first half of 2006, the negative free cash flow and the outflow from financing and investment activity resulted in a net cash outflow of EUR 166 million. This outflow was increased by EUR 9 million in respect of the amortisation of debt issuance costs and EUR 25 million in respect of non-cash interest and offset by positive currency movements of EUR 72 million. The overall result was an increase of EUR 128 million in net borrowing in the first half of 2006. -0- *T Summary Cash Flows - SKG plc Summary cash flows for the second quarter and half year are set out in the following table. 3 months 3 months 6 months 6 months to 30- to 30- to 30- to 30- Jun-07 Jun-06 Jun-07 Jun-06 EUR EUR EUR EUR Million Million Million Million ----------------------------------- Profit/(loss) before tax - subsidiaries 37 (8) (6) (52) Exceptional items 17 25 17 50 Impairment of fixed assets 5 - 5 - Depreciation and depletion 87 89 176 180 Amortisation of intangible assets 10 10 21 21 Non-cash interest expense 14 - 45 (2) Refinancing costs 18 - 74 - Share-based payments 4 2 17 4 Working capital change (70) (67) (98) (136) Current provisions (23) (5) (61) (5) Capital expenditure (79) (63) (147) (140) Change in capital creditors (10) (5) (48) (9) Sale of fixed assets 16 - 18 9 Tax paid (14) (11) (25) (22) Dividends from associates 3 3 3 3 Other (12) (17) (28) (29) ----------------------------------- Free cash flow 3 (47) (37) (128) Investments (2) - (3) (34) Sale of businesses and investments 4 3 8 4 Shares issued through IPO - - 1,495 - Costs of IPO (19) - (58) - Repayment of derivatives (14) - (14) - Dividends paid to minorities (3) (2) (6) (5) Acquisition costs and fees - (2) - (3) Refinancing costs (18) - (74) - ----------------------------------- Net cash (outflow)/inflow (49) (48) 1,311 (166) Net cash disposed - - 1 - Deferred debt issue costs amortised (13) (4) (37) (9) Non-cash interest accrued - (13) (12) (25) Currency translation adjustments 6 54 14 72 ----------------------------------- (Increase)/decrease in net EUR EUR borrowing EUR (56) EUR (11) 1,277 (128) ----------------------------------- *T Group Income Statement - Second quarter -0- *T 3 Months to 30-Jun-07 -------------------------------------- Pre- Exceptional Exceptional 2007 2007 Total 2007 ------------- ------------ ----------- EUR '000 EUR '000 EUR '000 Continuing operations Revenue 1,831,034 - 1,831,034 Cost of sales (1,302,037) (4,662) (1,306,699) ------------- ------------ ----------- Gross profit 528,997 (4,662) 524,335 Distribution costs (149,048) - (149,048) Administrative expenses (228,783) - (228,783) Other operating income 7,915 5,141 13,056 Other operating expenses - (25,429) (25,429) ------------- ------------ ----------- Operating profit 159,081 (24,950) 134,131 Finance costs (117,208) (27,840) (145,048) Finance income 48,328 - 48,328 Share of associates' profit (after tax) 5,485 - 5,485 ------------- ------------ ----------- Profit/(loss) before income tax 95,686 (52,790) 42,896 Income tax expense (8,093) ------------- ------------ ----------- Profit/(loss) for the financial period EUR 34,803 ============= ============ =========== Attributable to: Equity holders of the Company 31,295 Minority interest 3,508 ------------- ------------ ----------- Profit/(loss) for the financial period EUR 34,803 ============= ============ =========== 3 Months to 30-Jun-06 -------------------------------------- Pre- Exceptional Exceptional 2006 2006 Total 2006 ------------- ------------ ----------- EUR '000 EUR '000 EUR '000 Continuing operations Revenue 1,754,467 - 1,754,467 Cost of sales (1,263,376) - (1,263,376) ------------- ------------ ----------- Gross profit 491,091 - 491,091 Distribution costs (152,983) - (152,983) Administrative expenses (219,750) - (219,750) Other operating income (508) 909 401 Other operating expenses - (44,764) (44,764) ------------- ------------ ----------- Operating profit 117,850 (43,855) 73,995 Finance costs (165,843) - (165,843) Finance income 83,570 - 83,570 Share of associates' profit (after tax) 2,262 - 2,262 ------------- ------------ ----------- Profit/(loss) before income tax 37,839 (43,855) (6,016) Income tax expense (3,211) ------------- ------------ ----------- Profit/(loss) for the financial period EUR (9,227) ============= ============ =========== Attributable to: Equity holders of the Company (10,900) Minority interest 1,673 ------------- ------------ ----------- Profit/(loss) for the financial period EUR (9,227) ============= ============ =========== *T Group Income Statement - Year to date -0- *T 6 Months to 30-Jun-07 -------------------------------------- Pre- Exceptional Exceptional 2007 2007 Total 2007 ------------- ------------ ----------- EUR '000 EUR '000 EUR '000 Continuing operations Revenue 3,624,739 - 3,624,739 Cost of sales (2,594,528) (4,662) (2,599,190) ------------- ------------ ----------- Gross profit 1,030,211 (4,662) 1,025,549 Distribution costs (298,241) - (298,241) Administrative expenses (468,226) - (468,226) Other operating income 36,236 5,870 42,106 Other operating expenses - (36,569) (36,569) ------------- ------------ ----------- Operating profit 299,980 (35,361) 264,619 Finance costs (253,654) (103,236) (356,890) Finance income 86,502 - 86,502 Share of associates' profit (after tax) 6,239 - 6,239 ------------- ------------ ----------- Profit/(loss) before income tax 139,067 (138,597) 470 Income tax expense (32,328) ------------- ------------ ----------- (Loss) for the financial EUR period (31,858) ============= ============ =========== Attributable to: Equity holders of the Company (39,095) Minority interest 7,237 ------------- ------------ ----------- (Loss) for the financial EUR period (31,858) ============= ============ =========== 6 Months to 30-Jun-06 -------------------------------------- Pre- Exceptional Exceptional 2006 2006 Total 2006 ------------- ------------ ----------- EUR '000 EUR '000 EUR '000 Continuing operations Revenue 3,485,502 - 3,485,502 Cost of sales (2,518,957) - (2,518,957) ------------- ------------ ----------- Gross profit 966,545 - 966,545 Distribution costs (309,191) - (309,191) Administrative expenses (462,825) - (462,825) Other operating income - 3,266 3,266 Other operating expenses - (86,032) (86,032) ------------- ------------ ----------- Operating profit 194,529 (82,766) 111,763 Finance costs (307,785) - (307,785) Finance income 144,164 - 144,164 Share of associates' profit (after tax) 2,846 - 2,846 ------------- ------------ ----------- Profit/(loss) before income tax 33,754 (82,766) (49,012) Income tax expense (8,515) ------------- ------------ ----------- (Loss) for the financial EUR period (57,527) ============= ============ =========== Attributable to: Equity holders of the Company (62,332) Minority interest 4,805 ------------- ------------ ----------- (Loss) for the financial EUR period (57,527) ============= ============ =========== *T Segmental Analyses - Second quarter -0- *T 3 months to 30-Jun-07 Packaging Specialties Total EUR '000 EUR '000 EUR '000 ---------- ----------- ---------- Group and third party revenue 2,313,717 336,839 2,650,556 Inter-segment revenue (728,974) (90,548) (819,522) ---------- ----------- ---------- EUR EUR Third party revenue (external) 1,584,743 EUR 246,291 1,831,034 ========== =========== ========== Segment results-pre exceptionals 151,677 16,394 168,071 Exceptional items (16,302) (7,362) (23,664) ---------- ----------- ---------- Segment results-post exceptionals 135,375 9,032 144,407 Unallocated centre costs-pre exceptionals (8,990) Group centre exceptional items (1,286) ---------- Operating profit 134,131 Share of associates' profit/(loss) (after tax) 6,156 (671) 5,485 Finance costs (128,361) Finance income 31,641 ---------- Profit/(loss) before income tax EUR 42,896 ========== 3 months to 30-Jun-06 Packaging Specialties Total EUR '000 EUR '000 EUR '000 ---------- ----------- ---------- Group and third party revenue 2,241,549 338,334 2,579,883 Inter-segment revenue (738,377) (87,039) (825,416) ---------- ----------- ---------- EUR EUR 251,295 EUR Third party revenue (external) 1,503,172 1,754,467 ========== =========== ========== Segment results-pre exceptionals 107,646 15,826 123,472 Exceptional items (42,700) (1,062) (43,762) ---------- ----------- ---------- Segment results-post exceptionals 64,946 14,764 79,710 Unallocated centre costs-pre exceptionals (5,622) Group centre exceptional items (93) ---------- Operating profit 73,995 Share of associates' profit/(loss) (after tax) 2,448 (186) 2,262 Finance costs (130,050) Finance income 47,777 ---------- EUR Profit/(loss) before income tax (6,016) ========== *T Segmental Analyses - Year to date -0- *T 6 months to 30-Jun-07 Packaging Specialties Total EUR '000 EUR '000 EUR '000 ----------- ----------- ----------- Group and third party revenue 4,635,809 643,039 5,278,848 Inter-segment revenue (1,481,945) (172,164) (1,654,109) ----------- ----------- ----------- EUR EUR Third party revenue (external) 3,153,864 EUR 470,875 3,624,739 =========== =========== =========== Segment results-pre exceptionals 301,867 23,805 325,672 Exceptional items (18,172) (7,284) (25,456) ----------- ----------- ----------- Segment results-post exceptionals 283,695 16,521 300,216 Unallocated centre costs-pre exceptionals (25,692) Group centre exceptional items (9,905) ----------- Operating profit 264,619 Share of associates' profit/(loss) (after tax) 7,568 (1,329) 6,239 Finance costs (356,890) Finance income 86,502 ----------- Profit/(loss) before income tax EUR 470 =========== 6 months to 30-Jun-06 Packaging Specialties Total EUR '000 EUR '000 EUR '000 ----------- ----------- ----------- Group and third party revenue 4,461,938 646,450 5,108,388 Inter-segment revenue (1,458,485) (164,401) (1,622,886) ----------- ----------- ----------- EUR EUR Third party revenue (external) 3,003,453 EUR 482,049 3,485,502 =========== =========== =========== Segment results-pre exceptionals 183,205 25,828 209,033 Exceptional items (81,611) (1,062) (82,673) ----------- ----------- ----------- Segment results-post exceptionals 101,594 24,766 126,360 Unallocated centre costs-pre exceptionals (14,504) Group centre exceptional items (93) ----------- Operating profit 111,763 Share of associates' profit/(loss) (after tax) 3,409 (563) 2,846 Finance costs (307,785) Finance income 144,164 ----------- EUR Profit/(loss) before income tax (49,012) =========== *T Group Balance Sheet -0- *T 30-Jun-07 30-Jun-06 EUR '000 EUR '000 ---------- ---------- Non-current assets Property, plant and equipment 3,337,455 3,376,470 Goodwill and intangible assets 2,448,016 2,476,462 Biological assets 79,608 56,059 Investment in associates 76,463 78,645 Available for sale financial assets 43,329 73,418 Trade and other receivables 5,512 16,439 Derivative financial instruments 10,545 6,532 Deferred income tax assets 270,851 321,807 ---------- ---------- 6,271,779 6,405,832 ---------- ---------- Current assets Inventories 694,543 659,122 Biological assets 7,083 5,544 Trade and other receivables 1,535,997 1,413,169 Derivative financial instruments 28,054 15,447 Restricted cash 15,385 13,901 Cash and cash equivalents 262,003 151,836 ---------- ---------- 2,543,065 2,259,019 Assets held for sale 5,000 78,613 ---------- ---------- 2,548,065 2,337,632 ---------- ---------- Total assets EUR EUR 8,819,844 8,743,464 ========== ========== Equity Equity share capital 227 136 Capital reserves 2,604,233 1,085,626 Retained earnings (612,872) (652,530) ---------- ---------- Total shareholders equity 1,991,588 433,232 Minority interest 146,214 128,024 ---------- ---------- Total equity 2,137,802 561,256 ---------- ---------- Non-current liabilities Interest-bearing loans and borrowings 3,729,973 5,042,277 Deferred income 1,120 - Employee benefits 447,386 700,046 Deferred income tax liabilities 535,293 559,177 Non-current taxes payable 3,027 28,935 Provisions for liabilities and charges 79,294 53,865 Government grants 12,877 13,751 ---------- ---------- Total non-current liabilities 4,808,970 6,398,051 ---------- ---------- Current liabilities Interest-bearing loans and borrowings 152,639 145,710 Trade payables and other payables 1,476,752 1,378,094 Current income tax liabilities 54,499 18,149 Derivative financial instruments 119,704 108,958 Provisions for liabilities and charges 69,478 105,948 ---------- ---------- 1,873,072 1,756,859 Liabilities held for sale - 27,298 ---------- ---------- 1,873,072 1,784,157 ---------- ---------- Total liabilities 6,682,042 8,182,208 ---------- ---------- Total equity and liabilities EUR EUR 8,819,844 8,743,464 ========== ========== *T -0- *T Group Statement of Recognised Income and Expense 6 months to 6 months to 30-Jun-07 30-Jun-06 -------------- ----------- EUR '000 EUR '000 Items of income and expense recognised directly within equity: Foreign currency translation adjustments on foreign operations (4,451) (113,342) Net change in fair value of available for sale financial assets 610 6 Net movement to cash flow hedge reserve 5,573 24,127 Actuarial gain/(loss) on defined benefit plans 120,134 (23,860) Income tax on income and expense recognised directly within equity (30,206) 801 (Loss) for the financial period (31,858) (57,527) -------------- ----------- Total recognised income and expense for the financial period 59,802 (169,795) ============== =========== Attributable to: Equity holders of the company 44,643 (165,396) Minority interest 15,159 (4,399) -------------- ----------- EUR EUR 59,802 (169,795) ============== =========== *T -0- *T Reconciliation of Movements in Shareholder's Funds 6 months to 6 months to 30-Jun-07 30-Jun-06 ----------------- ------------------ EUR '000 EUR '000 At beginning of period 631,521 729,869 Total recognised gains and losses 59,802 (169,795) Shares issued 91 - Share premium on shares issued 1,434,780 - Share-based payment expense 16,896 3,979 Purchase of minorities (1,256) - Dividends paid to minorities (4,032) (2,797) ----------------- ------------------ EUR EUR At end of period 2,137,802 561,256 ================= ================== *T -0- *T Reconciliation of Net Losses to EBITDA, before Exceptional Items and Share-based Payments 3 months 3 months 6 months 6 months to 30- to 30- to 30- to 30- Jun-07 Jun-06 Jun-07 Jun-06 -------- -------- -------- -------- EUR '000 EUR '000 EUR '000 EUR '000 Net losses 31,295 (10,900) (39,095) (62,332) Equity minority interests 3,508 1,673 7,237 4,805 Income tax expense 8,093 3,211 32,328 8,515 Share of associates' operating income (5,485) (2,262) (6,239) (2,846) Total net interest 96,720 82,273 270,388 163,621 Depreciation, depletion and amortisation 96,928 99,643 196,816 201,566 Share-based payments 3,659 1,970 16,896 3,979 (Income) on sale of assets and operations -subsidiaries (5,141) (909) (5,870) (3,266) Impairment of fixed assets 4,662 - 4,662 - Reorganisation and restructuring costs 25,429 44,764 36,569 86,032 -------- -------- -------- -------- EBITDA before exceptional items EUR EUR EUR EUR and share-based payments 259,668 219,463 513,692 400,074 ======== ======== ======== ======== *T Analysis of Net Debt -0- *T 30-Jun-07 31-Dec-06 ---------- ---------- EUR '000 EUR '000 Senior credit facility: Revolving credit facility (1) - interest at relevant interbank rate + 2% (6,238) (6,982) Restructuring facility (2) - interest at relevant interbank rate + 2% until conversion to Term loan 103,200 103,200 Tranche A Term loan (3a) - interest at relevant interbank rate + 2% 442,822 442,492 Tranche B Term loan (3b) - interest at relevant interbank rate + 2.25% Eur & 2.125% Usd 1,143,221 1,142,998 Tranche C Term loan (3c) - interest at relevant interbank rate + 2.75% Eur & 2.750% Usd 1,142,561 1,142,547 Yankee bonds (including accrued interest) (4) 216,514 219,764 Bank loans and overdrafts/(cash) (186,354) (246,715) 2011 Receivables securitisation floating rate notes (including accrued interest) (5) 205,130 204,656 ---------- ---------- 3,060,856 3,001,960 2012 Bonds (including accrued interest) (6) 87,071 922,218 2015 Cash pay subordinated notes (including accrued interest) (7) 364,957 368,299 ---------- ---------- Net Debt before finance leases 3,512,884 4,292,477 Finance leases 86,790 91,281 ---------- ---------- Net Debt including leases - Smurfit Kappa Funding plc 3,599,674 4,383,758 Balance of revolving credit facility reclassified to debtors 6,238 6,982 Deferred debt issuance costs other - (1,994) ---------- ---------- Net Debt after reclassification - Smurfit Kappa Funding plc 3,605,912 4,388,746 2015 Senior PIK Notes - Smurfit Kappa Holdings plc (including accrued interest) (8) - 396,344 Smurfit Finance Luxembourg Sarl PIK (9) - 97,700 SKG plc, SK Investments Ltd, SK Holdings plc, SK Corporation Ltd & Smurfit Finance Lux cash (688) (460) ---------- ---------- Net Debt including leases - Smurfit Kappa Group EUR EUR plc 3,605,224 4,882,330 ========== ========== *T -0- *T (1) Revolving credit facility of EUR 600 million (available under the senior credit facility) to be repaid in full in 2012 (Revolver Loans = EUR 0 million, Drawn under Ancillary Facilities and Facilities supported by Letters of Credit = EUR 4.25 million) (2) Restructuring credit facility of EUR 275 million (available under the senior credit facility) (3a) Term loan A due to be repaid in certain instalments up to 2012 (3b) Term loan B due to be repaid in full in 2013 (3c) Term loan C due to be repaid in full in 2014 (4) 7.50% senior debentures due 2025 of USD 292.3 million (5) Receivables securitisation floating rate notes mature September 2011 (6) 10.125% senior notes due 2012 of EUR 33 million and 9.625% senior notes due 2012 of USD 72 million (7) EUR 217.5 million 7.75% senior subordinated notes due 2015 and USD 200.0 million of 7.75% senior subordinated notes due 2015 (8) 11.5% Senior PIK Notes due 2015 (9) 9% Shareholder PIK *T -0- *T Smurfit Kappa Group +353 1 202 7000 or K Capital Source +353 1 631 5500 smurfitkappa@kcapitalsource.com *T

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Smurfit Kappa Group (CDI) (SKG)
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