DUBLIN--(BUSINESS WIRE)--
Smurfit Kappa Group plc
2012 First Quarter Results
4 May 2012: Smurfit Kappa Group plc (“SKG” or the “Group”), 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 three months ending 31 March 2012.
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2012 First Quarter | Key Financial Performance Measures |
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| € m | Q1 2012 | Q1 2011 | Change | Q4 2011 | Change | |||||||||||||||
| Revenue | €1,823 | €1,803 | 1% | €1,819 | 0% | |||||||||||||||
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EBITDA before Exceptional Items and |
€246 | €243 | 1% | €245 | 1% | |||||||||||||||
| EBITDA Margin | 13.5% | 13.5% | - | 13.4% | - | |||||||||||||||
| Operating Profit | €177 | €147 | 20% | €149 | 19% | |||||||||||||||
| Basic EPS (cent) | 27.1 | 15.6 | 74% | 39.4 | (31%) | |||||||||||||||
| Pre-exceptional EPS (cent) | 15.3 | 16.0 | (4%) | 30.4 | (50%) | |||||||||||||||
| Free Cash Flow (2) | (€16) | €12 | - | €199 | - | |||||||||||||||
| Net Debt | €2,775 | €3,061 | (9%) | €2,752 | 1% | |||||||||||||||
| Net Debt to EBITDA (LTM) | 2.7x | 3.2x | - | 2.7x | - | |||||||||||||||
| (1) |
EBITDA before exceptional items and share-based payment expense is
denoted by EBITDA throughout the remainder of the |
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| (2) | Free cash flow is set out on page 8. The IFRS cash flow is set out on page 15. | |||
Highlights
- Strong EBITDA of €246 million despite significant cost pressures during the quarter
- Performance reflects the strength and efficiency of SKG’s integrated system
- Net debt/EBITDA of 2.7x stable versus year-end 2011 despite increased working capital
- High input costs and positive supply environment underpin continued pricing progress
- Expect full year 2012 EBITDA performance broadly similar to that achieved in 2011
Performance Review and Outlook
Gary McGann, Smurfit Kappa Group CEO, commented: “We are pleased to report a relatively strong EBITDA of €246 million for the first quarter. Despite significant increases in input costs and downward pressure on box prices in the period, our EBITDA margin of 13.5% reflects the efficiency of our integrated system in Europe. Our Latin American businesses also continued to perform well, contributing to 23% of the Group’s overall EBITDA in the quarter.
Basic EPS is 74% up compared to last year, primarily as a result of exceptional gains. Sequentially, both our basic and pre-exceptional EPS declined, largely as a result of a tax credit in the fourth quarter of 2011.
Notwithstanding increased working capital levels in the quarter, our net debt to EBITDA ratio was unchanged at 2.7x at the end of March, and well within our objective of remaining below 3.0x through the cycle. In the first quarter, we successfully completed amendments to our Senior Credit Facility, providing us with increased financial flexibility and extended debt maturities to 2016 and 2017.
During quarter one, 2012, box demand in Europe was stable compared to the fourth quarter, 2011 levels, and industry inventories reduced. This market backdrop combined with rising input costs allowed SKG to implement price increases for testliner and kraftliner during the first quarter and into April 2012 which should underpin some box price recovery during the second half of the year.
For the full year 2012, subject to macro-economic volatility and normal business risk, we expect to deliver an EBITDA performance broadly similar to that achieved in 2011. This will in turn support good free cash flow generation and further de-leveraging, thereby continuing to expand our available range of strategic and financial options.
This strong performance expectation is underpinned by our leadership position in packaging innovation and sustainability, our efficient integrated operating system, and our continued financial discipline at all levels of the company.”
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 21 countries in Europe and is the European leader in containerboard, solidboard, corrugated and solidboard packaging and has a key position in several other packaging and paper segments. Smurfit Kappa Group also has a growing base in Eastern Europe and operates in 9 countries in Latin America where it is the only pan-regional operator.
Forward Looking Statements
Some statements in this announcement are forward-looking. They represent expectations for the Group’s business, and involve risks and uncertainties. These forward-looking statements are based on current expectations and projections about future events. The Group believes that current expectations and assumptions with respect to these forward–looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Group’s control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.
Contacts
Smurfit Kappa Group
Bertrand Paulet, +353 1 202 71 80
ir@smurfitkappa.com
or
FTI
Consulting
+353 1 663 36 80
smurfitkappa@fticonsulting.com
2012 First Quarter | Performance Overview
Compared to the fourth quarter of 2011, demand for SKG’s packaging solutions in the first quarter was 3% higher on an absolute basis. However, when adjusted for a lower number of working days in the fourth quarter, demand in the first quarter was flat. Compared to the first quarter of 2011, SKG’s total corrugated volumes were approximately 1% lower.
Despite a sequential increase in input costs and a 2% average reduction in box prices in the first quarter, SKG’s EBITDA margin of 13.5% was in line with the fourth quarter 2011. In a challenging operating environment, this outcome highlights SKG’s particular ability to generate consistently strong margins and returns through the cycle, underpinned by a differentiated commercial offering, and a cost competitive, well invested, integrated system.
SKG’s relatively strong first quarter performance also reflects an ongoing focus on cost efficiency, with a further €30 million of cost take-out benefits delivered across its system in the period. SKG is benefiting from the increasing efficiency of its paper mills, as returns from the ongoing capital investment programme are being achieved. Recent investments included significant rebuilds in its Swedish kraftliner mill and in two of its German recycled mills, together with the closure of a higher cost recycled mill in France.
From an industry perspective, following widespread downtime at the end of 2011 and into 2012, inventories progressively reduced during the first quarter, despite the start-up of a new recycled machine by a competitor in the UK. The medium term supply outlook remains favourable, as limited availability and higher cost of fibre are increasing barriers to entry for new capacity. Currently, only one new machine is expected to be built in Europe over the next two years.
The supply outlook for kraftliner is also expected to remain tight in the near to medium term, reflecting the reduction in US imports since the end of 2011 and the recent bankruptcy of a European producer, which will remove approximately 7% of the relevant industry capacity. As the clear kraftliner market leader in Europe, and a net seller of approximately 500,000 tonnes per annum, SKG should strongly benefit from the resulting more consolidated market for that grade.
The sudden rise in input costs since the beginning of 2012, combined with a satisfactory market balance, has generated broad-based support for paper price increases in Europe. Overall, between February and April 2012, SKG has implemented price increases of €80 per tonne for recycled containerboard and €30 per tonne for kraftliner. Further kraftliner pricing progress is expected in quarter two. In line with the usual three to six months lag, higher paper prices should underpin in some box price recovery in the second half of 2012.
The Group’s Latin American EBITDA of €55 million in the first quarter was 11% higher year-on-year, primarily reflecting the absence of the maintenance downtime in SKG’s Colombian mill system that occurred in March 2011. While EBITDA in Colombia was higher year-on-year, Venezuela was broadly stable and Mexico and Argentina were lower.
Working capital increased by €88 million in the first quarter of 2012, broadly in line with the prior year outflow. Despite higher working capital levels, the Group’s net debt increased by only €23 million in the period. Compared with the end of March 2011, SKG’s net debt has reduced by €286 million, which demonstrates the strong cash flow generation capability of the business.
The marginal increase in net debt in the first quarter, combined with a strong EBITDA performance contributed to an unchanged net debt to EBITDA ratio of 2.7x at the end of March compared to the year-end 2011 level. The Group expects good cash flow generation and further de-leveraging in 2012.
2012 First Quarter | Financial Performance
At €1,823 million for the first quarter of 2012, sales revenue was €20 million higher than in the first quarter of 2011, the equivalent of 1%. However, allowing for the positive impact of currency and hyperinflation accounting of €10 million, and for the positive impact of acquisitions net of disposals of €8 million, the underlying sales revenue was broadly stable year-on-year. Compared to the fourth quarter of 2011, sales revenue in the first quarter of 2012 was marginally higher.
At €246 million, EBITDA in the first quarter of 2012 was €3 million higher than the first quarter of 2011. Currency, acquisitions and disposals had a marginally positive impact. Compared to the fourth quarter of 2011, EBITDA increased by €1 million.
Exceptional gains of €28 million were included in the first quarter’s 2012 operating profit. This included €10 million primarily relating to the sale of land at SKG’s former Valladolid mill in Spain (operation closed in 2008), together with €18 million relating to the disposal of a company in Slovakia. The gain primarily relates to the reclassification (under IFRS) of the cumulative translation differences within equity from reserves to retained earnings through the Income Statement. In the first quarter of 2011, exceptional charges of €1 million related to the on-going rationalisation of the European corrugated operations.
SKG’s basic EPS increased from 15.6 cent in the first quarter of 2011 to 27.1 cent in the first quarter of 2012, primarily as a result of the exceptional gains. On a pre-exceptional basis, EPS was slightly lower year on year at 15.3 cent compared to 16.0 cent. Compared with the fourth quarter of 2011 both SKG’s basic and pre-exceptional EPS declined, largely driven by a tax credit in the fourth quarter of 2011 (as a result of the recognition of deferred tax assets) compared to a tax expense in the first quarter of 2012.
2012 First Quarter | Free Cash Flow
Compared to a net inflow of €12 million in the first quarter of 2011, the Group reported a net outflow of €16 million in the first quarter of 2012. While EBITDA was 1% higher, the lower free cash flow primarily resulted from higher capital expenditure and cash tax outflows year-on-year.
Capital expenditure of €63 million in the first quarter of 2012 equated to 74% of depreciation, compared to 62% in the first quarter of 2011. For the full year 2012, SKG expects to maintain its capital expenditure at its normalised level of around 90% of depreciation.
Compared to an €86 million increase in the first quarter of 2011, working capital increased by €88 million in the first quarter of 2012. Higher absolute levels of working capital at the end of the first quarter primarily resulted from a rise in debtors and somewhat higher inventory values.
However, at 8.7% of annualised sales revenue, SKG’s working capital to sales ratio at the end of March 2012 actually improved compared to the 9.2% reported at March 2011, thereby demonstrating the Group’s continuing focus on tight working capital management.
Cash interest of €61 million in the first quarter of 2012 was the same as the first quarter of 2011. Following on from the successful amendments to its Senior Credit Facility in the first quarter of 2012, and subsequent use of cash on balance sheet to make early debt repayments of €330 million by the end of the second quarter, SKG expects its cash interest in 2012 to be slightly lower than in 2011.
Tax payments of €14 million in the first quarter of 2012 were €4 million higher than in 2011.
In 2012, subject to normal economic and business risks, the Group expects to deliver good free cash flow generation and further de-leveraging, supported by an anticipated strong EBITDA performance, continued discipline in capital expenditure and slightly lower cash interest year-on-year, somewhat offset by higher cash tax payments.
2012 First Quarter | Capital Structure
The Group’s net debt increased by €23 million to €2,775 million during the first quarter, primarily reflecting the negative free cash flow of €16 million, combined with a €13 million outflow in respect of the purchase of own shares for the Group’s Deferred Annual Bonus Plan, and a €6 million outlay for the acquisition of a bag-in-box operation in Argentina. These were somewhat offset by positive currency impacts of €11 million, mainly reflecting the relative strengthening of the euro against the US dollar towards the end of the first quarter.
Despite a slightly higher net debt, the Group’s net debt to EBITDA ratio of 2.7x at the end of March 2012 was unchanged compared to the 2011 year-end level. Through the cycle, the Group’s clear objective is to maintain its net debt to EBITDA ratio below 3.0x.
Compared with March 2011, SKG’s net debt at the end of March 2012 was €286 million lower, the equivalent of a 9% reduction. This positive outcome re-confirms SKG’s track record of delivering strong free cash flow generation through the cycle.
In line with its proactive approach to capital structure management, in the first quarter the Group successfully completed amendments to its Senior Credit Facility (‘SCF’), providing it with extended debt maturities and significantly enhanced financial flexibility.
Lenders comprising 98% of the SCF consented to the proposed amendments, while lenders holding 90% of Term Loans B & C and 77% of the Revolving Credit Facilities elected to extend their commitments to 2016 and 2017. The amendments became effective on 1 March 2012.
By the end of the second quarter of 2012, SKG will have prepaid €330 million of its SCF debt at par, funded from cash on balance sheet. This prepayment will effectively remove all of the Group’s remaining SCF maturities in 2012, 2013 and 2014.
As a result of the amendment and subsequent cash prepayment, the Group has no SCF maturities before 2016, and has increased flexibility to raise longer-dated capital, at a time of its choosing, to refinance its SCF in the future and/or its Senior Subordinated Notes due in 2015.
The Group’s average debt maturity profile at the end of March 2012 has increased from 4.4 years to 5.1 years (5.4 years pro-forma the cash prepayment). The Group’s liquidity remains strong, with €820 million of cash on its balance sheet at the end of March 2012, together with committed undrawn credit facilities of approximately €525 million.
2012 First Quarter | Operating efficiency
Commercial offering and innovation
In the first quarter of 2012, SKG’s business with pan-European customers continued to outperform, growing by 4.9% year-on-year in a generally flat market. This demonstrates the attractiveness of SKG’s offering in an increasingly international customer world. With approximately 90% of its pan-European business contracted from one to six years, SKG is building long-term sustainable partnerships with its customers.
Using the skills and experience acquired in servicing the increasing demands of international customers, SKG has continued to pay special attention to the recruitment and retention of local customers who benefit from the best international standards of the Group’s businesses.
SKG’s continuing commercial success is underpinned by its long-standing business positioning as a paper packaging “one-stop-shop”, characterised by a broad and expanding geographic footprint, a diversified product range, and unrivalled design and innovation capabilities.
During the first quarter, SKG showcased its “one-stop-shop” and extensive range of sustainable and innovative packaging offerings at its third innovation and sustainability conference held in the Netherlands. Approximately 150 of SKG’s key customers attended the event, recognising SKG’s critical role in adding value to their supply chain in an increasingly demanding market place.
A selection of these customers participated as part of the judging panel to choose the projects, products and employees to be awarded for producing SKG’s most innovative packaging solutions and sustainability ideas for the past year, among 200 pre-selected initiatives. A similar event will be organised in Latin America in the near future.
As witnessed at the awards ceremony, an increasing competitive advantage for SKG is its drive in the area of sustainability, with a stated objective to be the first European company to guarantee that all of its packaging solutions are coming from sustainable sources. The Group’s fourth annual sustainable development report will be published in June 2012 and will elaborate extensively on progress against SKG’s stated targets and on its work in the wider area of Corporate Social Responsibility.
Since the beginning of 2012, SKG received further independent testimony of its leadership position in innovation, sustainability and design. These included the development, for Philips, of an environmentally friendly paper-based packaging solution to replace the historical plastic package for the transport and handling of delicate electronic devices through its supply chain.
In February SKG was chosen by Danone Spain as its “Best Supplier for 2011” in the Raw Materials & Packaging Category. This award reflects SKG’s strong performance in all of the appraised areas, including “product quality and service”, “most innovative idea” and “best sustainable development idea”. For more than 11 years, Danone has placed its trust in SKG to develop innovative solutions to package its products.
In April 2012, one of SKG’s innovative designs, called “Care bottle packaging” won a Gold award in Germany. The Care bottle packaging is a patent protected design, and has been approved by DHL for shipping wine bottles, amongst other products.
Cost take-out programme
In 2011, SKG commenced a new two year cost take-out initiative, with a target to generate €150 million of savings by the end of 2012. This programme is based on a detailed bottom-up approach and is subject to a formal reporting system. SKG generated €100 million of cost take-out benefits in 2011.
A further €30 million of cost take-out was delivered in the first quarter of 2012, partially mitigating the impact of significant increases in input costs during the period, thereby contributing to the delivery of the Group’s relatively strong EBITDA margin of 13.5%.
Having reviewed its cost base, SKG is satisfied that it can upscale its original two year (2011/12) cost take-out target from €150 million to over €200 million, implying an upscaled 2012 cost take-out objective of over €100 million.
2012 First Quarter | Performance Review
Europe
SKG’s total corrugated shipments in the first quarter of 2012 were 1% lower than in the first quarter of 2011. Within that number, SKG’s box volumes were generally flat, while sheet volumes, a more commoditised product offering, reduced by 8% as a result of SKG’s strong stance on pricing.
Following the decline in paper prices in the second half of 2011, renewed input cost pressure in December and into the new year generated significant margin compression for non-integrated producers. As a result, sizeable amounts of market-related downtime were announced at 2011 year-end and into 2012 which, combined with higher paper exports overseas, led to a progressive reduction in industry inventories during the first quarter.
On the cost side, OCC prices increased by approximately €35 per tonne through the first quarter, reflecting renewed Chinese demand. Energy and distribution costs also increased. Lower inventories combined with a steep rise in input costs generated broad-based support for paper price increases.
As a result, European recycled containerboard prices have increased by approximately €80 per tonne between February and April, the equivalent of a 20% increase. Despite that increase, in April the spread between OCC and testliner prices remained approximately €60 per tonne lower than at the 2007 peak, thereby clearly highlighting the challenges faced by less efficient capacity in the industry. In that context, the closure of three small recycled containerboard mills was announced in Europe since the beginning of 2012 (representing a combined 185,000 tonnes of capacity).
In the case of SKG, following the permanent closure of 10 less efficient containerboard mills since 2005, and in light of the significant ongoing investments in its “champion” mills, the Group is equipped with an efficient and fully integrated recycled containerboard system. As can be seen from the relatively strong EBITDA margin delivered in the quarter by the European operations, SKG’s system should deliver a strong performance in any operating environment.
On the kraftliner side, US imports into Europe were 22% lower year-on-year in the fourth quarter of 2011. Imports remained measured into 2012, which contributed to maintain an appropriate balance in the market through the first quarter. In April, one of the Group’s long-standing competitors announced the permanent closure of its 290,000 tonnes kraftliner mill in Norway, representing approximately 7% of the relevant industry capacity. This event is expected to further tighten the supply for that grade over the near to medium term, with SKG well positioned to benefit from it.
In the quarter SKG announced a kraftliner price increase of €60 per tonne, of which €30 per tonne has been implemented to the end of April. The Group currently expects to implement the remainder of this necessary kraftliner price increase during the second quarter.
On the corrugated side, as expected, prices came under downward pressure in the first quarter, reflecting the weaker paper prices that prevailed in the second half of 2011. On average, SKG’s European corrugated prices were 2% lower in the first quarter than in the fourth quarter of 2011. Into the second quarter, corrugated prices are expected to remain generally stable.
Latin America
In the first quarter, Latin American EBITDA of €55 million was 11% higher year-on-year, and represented 23% of the Group’s total EBITDA. The region delivered an EBITDA margin of 16.6% in the quarter, broadly in line with the prior year performance.
While SKG’s corrugated volumes in Colombia were 2% higher year-on-year, pricing was relatively stable, highlighting moderate inflation in the country. The country’s EBITDA was significantly higher year-on-year, primarily reflecting the absence of the planned maintenance downtime of its Cali mill that occurred in March 2011, combined with the benefits of SKG’s ongoing cost take-out efforts.
In the challenging Venezuelan market, demand declined in the first quarter of 2012. Continuing high inflation in the country was offset by the Group’s operating efficiency actions, as well as some necessary price recovery. SKG is planning downtime in its Venezuelan mill system during the second quarter of 2012.
Higher demand and 3% higher box prices in Mexico were not sufficient to fully offset the significant fibre and energy cost inflation, resulting in lower EBITDA in the first quarter on a year-on-year basis. The first quarter result was also negatively impacted by the planned downtime to upgrade the Group’s main containerboard machine in Mexico city.
The volumes and profitability of the Argentinian operation in the first quarter were negatively impacted by a prolonged strike in one of its packaging plants. Negotiations are continuing in an effort to resolve the dispute. Paper and box prices were significantly higher year-on-year, somewhat compensating for the high inflation level prevailing in the country.
Despite some country-specific challenges from time to time, the Group believes that the geographic diversity of its business in the Latin American region, together with the proven ability of its local management to drive the business forward, will allow it to continue to deliver a strong performance through the cycle. Latin America remains a key target region for SKG’s future growth.
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Summary Cash Flow(1) |
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Summary cash flows for the first quarter are set out in the following table. |
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3 months to |
3 months to |
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| €m | €m | ||||||||
| Pre-exceptional EBITDA | 246 | 243 | |||||||
| Cash interest expense | (61) | (61) | |||||||
| Working capital change | (88) | (86) | |||||||
| Current provisions | (4) | (3) | |||||||
| Capital expenditure | (63) | (54) | |||||||
| Change in capital creditors | (27) | (6) | |||||||
| Tax paid | (14) | (10) | |||||||
| Sale of fixed assets | 8 | 1 | |||||||
| Other | (13) | (12) | |||||||
| Free cash flow | (16) | 12 | |||||||
| Share issues | 4 | 7 | |||||||
| Ordinary shares purchased - own shares | (13) | - | |||||||
| Sale of businesses and investments | 1 | 4 | |||||||
| Purchase of investments | (6) | (1) | |||||||
| Dividends | (1) | - | |||||||
| Derivative termination receipts | 1 | - | |||||||
| Net cash (outflow)/inflow | (30) | 22 | |||||||
| Deferred debt issue costs amortised | (4) | (4) | |||||||
| Currency translation adjustments | 11 | 31 | |||||||
| (Increase)/decrease in net debt | (23) | 49 | |||||||
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(1) |
The summary cash flow is prepared on a different basis to the cash
flow statement under IFRS. The principal difference is that the |
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3 months to |
3 months to |
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| €m | €m | |||||||||||
| Free cash flow | (16) | 12 | ||||||||||
| Add back: | Cash interest | 61 | 61 | |||||||||
| Capital expenditure (net of change in capital creditors) | 90 | 60 | ||||||||||
| Tax payments | 14 | 10 | ||||||||||
| Less: | Sale of fixed assets | (8) | (1) | |||||||||
| Profit on sale of assets and businesses – non exceptional | (3) | (5) | ||||||||||
| Non-cash financing activities | (5) | - | ||||||||||
| Cash generated from operations | 133 | 137 | ||||||||||
Capital Resources
The Group's primary sources of liquidity are cash flow from operations and borrowings under the revolving credit facility. The Group's primary uses of cash are for debt service and capital expenditure.
At 31 March 2012 Smurfit Kappa Funding plc had outstanding €217.5 million 7.75% senior subordinated notes due 2015 and US$200 million 7.75% senior subordinated notes due 2015. In addition Smurfit Kappa Treasury Funding Limited had outstanding US$292.3 million 7.50% senior debentures due 2025 and the Group had outstanding €207 million variable funding notes issued under the new €250 million accounts receivable securitisation program maturing in November 2015.
Smurfit Kappa Acquisitions had outstanding €500 million 7.25% senior secured notes due 2017 and €500 million 7.75% senior secured notes due 2019. Smurfit Kappa Acquisitions and certain subsidiaries are also party to a senior credit facility. The senior credit facility comprises a €94 million amortising Tranche A maturing in 2012, a €95 million Tranche B maturing in 2013, a €719 million Tranche B4 maturing in 2016, a €77 million Tranche C maturing in 2014 and a €727 million Tranche C4 maturing in 2017. In addition, as at 31 March 2012, the facility includes a €525 million revolving credit facility of which there were no drawings under facilities supported by letters of credit.
The following table provides the range of interest rates as of 31 March 2012 for each of the drawings under the various senior credit facility term loans.
| BORROWING ARRANGEMENT | CURRENCY | INTEREST RATE | ||||||
| Term Loan A | EUR | 3.049% | ||||||
| Term Loan B | EUR | 3.551% - 4.444% | ||||||
| USD | 3.708% | |||||||
| Term Loan B4 | EUR | 4.051% - 4.944% | ||||||
| USD | 4.208% | |||||||
| Term Loan C | EUR | 3.801% - 4.694% | ||||||
| USD | 3.958% | |||||||
| Term Loan C4 | EUR | 4.301% - 5.194% | ||||||
| USD | 4.458% | |||||||
Borrowings under the revolving credit facility are available to fund the Group's working capital requirements, capital expenditures and other general corporate purposes.
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. At 31 March 2012 the Group had fixed an average of 72% of its interest cost on borrowings over the following twelve months.
Our fixed rate debt comprised mainly €500 million 7.25% senior secured notes due 2017, €500 million 7.75% senior secured notes due 2019, €217.5 million 7.75% senior subordinated notes due 2015, US$200 million 7.75% senior subordinated notes due 2015 and US$292.3 million 7.50% senior debentures due 2025. In addition the Group also has €1,110 million in interest rate swaps with maturity dates ranging from April 2012 to July 2014.
Our earnings are affected by changes in short-term interest rates as a result of our floating rate borrowings. If LIBOR interest rates for these borrowings increase by one percent, our interest expense would increase, and income before taxes would decrease, by approximately €11 million over the following twelve months. Interest income on our cash balances would increase by approximately €8 million assuming a one percent increase in interest rates earned on such balances over the following twelve months.
The Group uses foreign currency borrowings, currency swaps, options and forward contracts in the management of its foreign currency exposures.
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Group Income Statement – First Quarter |
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Unaudited |
Unaudited |
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| 3 months to 31-Mar-12 | 3 months to 31-Mar-11 | ||||||||||||||||||||||||||
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Pre- |
Exceptional |
Total |
Pre- |
Exceptional |
Total |
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| €m | €m | €m | €m | €m | €m | ||||||||||||||||||||||
| Revenue | 1,823 | - | 1,823 | 1,803 | - | 1,803 | |||||||||||||||||||||
| Cost of sales | (1,296) | - | (1,296) | (1,296) | - | (1,296) | |||||||||||||||||||||
| Gross profit | 527 | - | 527 | 507 | - | 507 | |||||||||||||||||||||
| Distribution costs | (143) | - | (143) | (139) | - | (139) | |||||||||||||||||||||
| Administrative expenses | (235) | - | (235) | (220) | - | (220) | |||||||||||||||||||||
| Other operating income | - | 28 | 28 | - | - | - | |||||||||||||||||||||
| Other operating expenses | - | - | - | - | (1) | (1) | |||||||||||||||||||||
| Operating profit | 149 | 28 | 177 | 148 | (1) | 147 | |||||||||||||||||||||
| Finance costs | (106) | - | (106) | (114) | - | (114) | |||||||||||||||||||||
| Finance income | 34 | - | 34 | 43 | - | 43 | |||||||||||||||||||||
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Profit on disposal of |
- | - | - | 2 | - | 2 | |||||||||||||||||||||
| Profit before income tax | 77 | 28 | 105 | 79 | (1) | 78 | |||||||||||||||||||||
| Income tax expense | (42) | (49) | |||||||||||||||||||||||||
| Profit for the financial period | 63 | 29 | |||||||||||||||||||||||||
| Attributable to: | |||||||||||||||||||||||||||
| Owners of the Parent | 60 | 34 | |||||||||||||||||||||||||
| Non-controlling interests | 3 | (5) | |||||||||||||||||||||||||
| Profit for the financial period | 63 | 29 | |||||||||||||||||||||||||
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Earnings per share |
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Basic earnings per share - cent |
27.1 |
15.6 |
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Diluted earnings per share - cent |
26.5 |
15.3 |
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Group Statement of Comprehensive Income |
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Unaudited |
Unaudited |
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3 months to |
3 months to |
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€m |
€m |
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| Profit for the financial period | 63 | 29 | ||||||||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments | 35 | (47) | ||||||||||||||
| Defined benefit pension plans including payroll tax: | ||||||||||||||||
| - Actuarial loss | (31) | (24) | ||||||||||||||
| - Movement in deferred tax | 3 | 3 | ||||||||||||||
| Effective portion of changes in fair value of cash flow hedges: | ||||||||||||||||
| - Movement out of reserve | 6 | 6 | ||||||||||||||
| - New fair value adjustments into reserve | (4) | 21 | ||||||||||||||
| - Movement in deferred tax | - | (3) | ||||||||||||||
| Total other comprehensive income/(expense) | 9 | (44) | ||||||||||||||
| Total comprehensive income/(expense) for the financial period | 72 | (15) | ||||||||||||||
| Attributable to: | ||||||||||||||||
| Owners of the Parent | 64 | (2) | ||||||||||||||
| Non-controlling interests | 8 | (13) | ||||||||||||||
| 72 | (15) | |||||||||||||||
|
Group Balance Sheet |
||||||||||||||||||||||||
| Unaudited | Unaudited | Audited | ||||||||||||||||||||||
| 31-Mar-12 | 31-Mar-11 | 31-Dec-11 | ||||||||||||||||||||||
| €m | €m | €m | ||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Non-current assets | ||||||||||||||||||||||||
| Property, plant and equipment | 2,976 | 2,956 | 2,973 | |||||||||||||||||||||
| Goodwill and intangible assets | 2,231 | 2,193 | 2,210 | |||||||||||||||||||||
| Available-for-sale financial assets | 32 | 32 | 32 | |||||||||||||||||||||
| Investment in associates | 14 | 14 | 14 | |||||||||||||||||||||
| Biological assets | 120 | 85 | 114 | |||||||||||||||||||||
| Trade and other receivables | 4 | 4 | 5 | |||||||||||||||||||||
| Derivative financial instruments | 3 | - | 6 | |||||||||||||||||||||
| Deferred income tax assets | 164 | 125 | 177 | |||||||||||||||||||||
| 5,544 | 5,409 | 5,531 | ||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||
| Inventories | 704 | 685 | 690 | |||||||||||||||||||||
| Biological assets | 9 | 7 | 10 | |||||||||||||||||||||
| Trade and other receivables | 1,430 | 1,399 | 1,326 | |||||||||||||||||||||
| Derivative financial instruments | 4 | 5 | 7 | |||||||||||||||||||||
| Restricted cash | 9 | 12 | 12 | |||||||||||||||||||||
| Cash and cash equivalents | 811 | 541 | 845 | |||||||||||||||||||||
| 2,967 | 2,649 | 2,890 | ||||||||||||||||||||||
| Total assets | 8,511 | 8,058 | 8,421 | |||||||||||||||||||||
| EQUITY | ||||||||||||||||||||||||
| Capital and reserves attributable to the owners of the Parent | ||||||||||||||||||||||||
| Equity share capital | - | - | - | |||||||||||||||||||||
| Capital and other reserves | 2,350 | 2,308 | 2,336 | |||||||||||||||||||||
| Retained earnings | (296) | (524) | (341) | |||||||||||||||||||||
| Total equity attributable to the owners of the Parent | 2,054 | 1,784 | 1,995 | |||||||||||||||||||||
| Non-controlling interests | 200 | 162 | 191 | |||||||||||||||||||||
| Total equity | 2,254 | 1,946 | 2,186 | |||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||
| Borrowings | 3,410 | 3,459 | 3,450 | |||||||||||||||||||||
| Employee benefits | 680 | 606 | 655 | |||||||||||||||||||||
| Derivative financial instruments | 55 | 104 | 54 | |||||||||||||||||||||
| Deferred income tax liabilities | 209 | 198 | 210 | |||||||||||||||||||||
| Non-current income tax liabilities | 13 | 9 | 10 | |||||||||||||||||||||
| Provisions for liabilities and charges | 60 | 47 | 55 | |||||||||||||||||||||
| Capital grants | 13 | 14 | 13 | |||||||||||||||||||||
| Other payables | 7 | 7 | 10 | |||||||||||||||||||||
| 4,447 | 4,444 | 4,457 | ||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||
| Borrowings | 185 | 155 | 159 | |||||||||||||||||||||
| Trade and other payables | 1,502 | 1,427 | 1,504 | |||||||||||||||||||||
| Current income tax liabilities | 47 | 42 | 36 | |||||||||||||||||||||
| Derivative financial instruments | 60 | 18 | 59 | |||||||||||||||||||||
| Provisions for liabilities and charges | 16 | 26 | 20 | |||||||||||||||||||||
| 1,810 | 1,668 | 1,778 | ||||||||||||||||||||||
| Total liabilities | 6,257 | 6,112 | 6,235 | |||||||||||||||||||||
| Total equity and liabilities | 8,511 | 8,058 | 8,421 | |||||||||||||||||||||
|
Group Statement of Changes in Equity |
||||||||||||||||||||||||||||||||||||||||||||
|
Capital and other reserves |
||||||||||||||||||||||||||||||||||||||||||||
|
Equity |
Share |
Own
|
Reverse |
Cash flow |
Foreign |
Share- |
Retained |
Total |
Non- |
Total |
||||||||||||||||||||||||||||||||||
| Unaudited | €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | |||||||||||||||||||||||||||||||||
| At 1 January 2012 | - | 1,945 | - | 575 | (35) | (228) | 79 | (341) | 1,995 | 191 | 2,186 | |||||||||||||||||||||||||||||||||
| Profit for the financial period | - | - | - | - | - | - | - | 60 | 60 | 3 | 63 | |||||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
|
Foreign currency translation |
- | - | - | - | - | 30 | - | - | 30 | 5 | 35 | |||||||||||||||||||||||||||||||||
|
Defined benefit pension plans |
- | - | - | - | - | - | - | (28) | (28) | - | (28) | |||||||||||||||||||||||||||||||||
|
Effective portion of changes in fair |
- | - | - | - | 2 | - | - | - | 2 | - | 2 | |||||||||||||||||||||||||||||||||
|
Total comprehensive income for |
- | - | - | - | 2 | 30 | - | 32 | 64 | 8 | 72 | |||||||||||||||||||||||||||||||||
| Shares issued | - | 4 | - | - | - | - | - | - | 4 | - | 4 | |||||||||||||||||||||||||||||||||
|
Shares acquired by Deferred |
- | - | (13) | - | - | - | - | - | (13) | - | (13) | |||||||||||||||||||||||||||||||||
| Hyperinflation adjustment | - | - | - | - | - | - | - | 13 | 13 | 2 | 15 | |||||||||||||||||||||||||||||||||
|
Dividends paid to non-controlling |
- | - | - | - | - | - | - | - | - | (1) | (1) | |||||||||||||||||||||||||||||||||
|
Recycling of cumulative foreign |
- | - | - | - | - | (17) | - | - | (17) | - | (17) | |||||||||||||||||||||||||||||||||
| Share-based payment | - | - | - | - | - | - | 8 | - | 8 | - | 8 | |||||||||||||||||||||||||||||||||
| At 31 March 2012 | - | 1,949 | (13) | 575 | (33) | (215) | 87 | (296) | 2,054 | 200 | 2,254 | |||||||||||||||||||||||||||||||||
|
Group Statement of Changes in Equity (continued) |
||||||||||||||||||||||||||||||||||||||||
| Capital and other reserves | ||||||||||||||||||||||||||||||||||||||||
|
Equity |
Share |
Reverse |
Cash flow |
Foreign |
Share-based |
Retained |
Total equity |
Non- |
Total |
|||||||||||||||||||||||||||||||
| Unaudited | €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||||||||||||||||||||||||||||||
| At 1 January 2011 | - | 1,937 | 575 | (45) | (216) | 64 | (552) | 1,763 | 173 | 1,936 | ||||||||||||||||||||||||||||||
|
Profit for the financial period |
- | - | - | - | - | - | 34 | 34 | (5) | 29 | ||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
|
Foreign currency translation |
- | - | - | - | (39) | - | - | (39) | (8) | (47) | ||||||||||||||||||||||||||||||
|
Defined benefit pension plans |
- | - | - | - | - | - | (21) | (21) | - | (21) | ||||||||||||||||||||||||||||||
|
Effective portion of changes in fair |
- | - | - | 24 | - | - | - | 24 | - | 24 | ||||||||||||||||||||||||||||||
|
Total comprehensive |
- | - | - | 24 | (39) | - | 13 | (2) | (13) | (15) | ||||||||||||||||||||||||||||||
| Shares issued | - | 7 | - | - | - | - | - | 7 | - | 7 | ||||||||||||||||||||||||||||||
| Hyperinflation adjustment | - | - | - | - | - | - | 15 | 15 | 2 | 17 | ||||||||||||||||||||||||||||||
| Share-based payment | - | - | - | - | - | 1 | - | 1 | - | 1 | ||||||||||||||||||||||||||||||
| At 31 March 2011 | - | 1,944 | 575 | (21) | (255) | 65 | (524) | 1,784 | 162 | 1,946 | ||||||||||||||||||||||||||||||
|
Group Cash Flow Statement |
||||||||
|
Unaudited |
Unaudited |
|||||||
|
3 months to |
3 months to |
|||||||
| €m | €m | |||||||
| Cash flows from operating activities | ||||||||
| Profit for the financial period | 63 | 29 | ||||||
| Adjustment for | ||||||||
| Income tax expense | 42 | 49 | ||||||
| Profit on sale of assets and businesses | (28) | (2) | ||||||
| Amortisation of capital grants | (1) | - | ||||||
| Equity settled share-based payment expense | 8 | 1 | ||||||
| Amortisation of intangible assets | 5 | 7 | ||||||
| Profit on disposal of associates | - | (2) | ||||||
| Depreciation charge | 80 | 82 | ||||||
| Net finance costs | 72 | 71 | ||||||
| Change in inventories | (8) | (55) | ||||||
| Change in biological assets | 4 | 5 | ||||||
| Change in trade and other receivables | (92) | (131) | ||||||
| Change in trade and other payables | 8 | 97 | ||||||
| Change in provisions | (9) | (3) | ||||||
| Change in employee benefits | (12) | (14) | ||||||
| Foreign currency translation adjustments | - | 1 | ||||||
| Other | 1 | 2 | ||||||
| Cash generated from operations | 133 | 137 | ||||||
| Interest paid | (47) | (46) | ||||||
| Income taxes paid: | ||||||||
| Overseas corporation tax (net of tax refunds) paid | (14) | (10) | ||||||
| Net cash inflow from operating activities | 72 | 81 | ||||||
| Cash flows from investing activities | ||||||||
| Interest received | 2 | 1 | ||||||
| Purchase of property, plant and equipment and biological assets | (88) | (60) | ||||||
| Purchase of intangible assets | (2) | - | ||||||
| Decrease/(increase) in restricted cash | 3 | (5) | ||||||
| Disposal of property, plant and equipment | 11 | 6 | ||||||
| Disposal of associates | - | 4 | ||||||
| Purchase of subsidiaries and non-controlling interests | (11) | - | ||||||
| Deferred consideration | 6 | (1) | ||||||
| Net cash outflow from investing activities | (79) | (55) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issue of new ordinary shares | 4 | 7 | ||||||
| Ordinary shares purchased - own shares | (13) | - | ||||||
| (Decrease)/increase in interest-bearing borrowings | (10) | 20 | ||||||
| Repayment of finance lease liabilities | (2) | (2) | ||||||
| Derivative termination receipts | 1 | - | ||||||
| Deferred debt issue costs | (10) | - | ||||||
| Dividends paid to non-controlling interests | (1) | - | ||||||
| Net cash (outflow)/inflow from financing activities | (31) | 25 | ||||||
| (Decrease)/increase in cash and cash equivalents | (38) | 51 | ||||||
| Reconciliation of opening to closing cash and cash equivalents | ||||||||
| Cash and cash equivalents at 1 January | 825 | 481 | ||||||
| Currency translation adjustment | 2 | (4) | ||||||
| (Decrease)/increase in cash and cash equivalents | (38) | 51 | ||||||
| Cash and cash equivalents at 31 March | 789 | 528 | ||||||
1. General Information
Smurfit Kappa Group plc (‘SKG plc’) (‘the Company’) (‘the Parent’) and its subsidiaries (together the ‘Group’) manufacture, distribute and sell containerboard, corrugated containers and other paper-based packaging products such as solidboard and graphicboard. The Company is a public limited company whose shares are publicly traded. It is incorporated and tax resident in Ireland. The address of its registered office is Beech Hill, Clonskeagh, Dublin 4, Ireland.
2. Basis of Preparation
The annual consolidated financial statements of SKG plc are prepared in accordance with International Financial Reporting Standards (‘IFRS’) issued by the International Accounting Standards Board (‘IASB’) and adopted by the European Union (‘EU’); and, in accordance with Irish law.
The financial information presented in this report has been prepared to comply with the requirement to publish an ‘Interim management statement’ for the first quarter, in accordance with the Transparency Regulations. The Transparency Regulations do not require Interim management statements to be prepared in accordance with International Accounting Standard 34 – ‘Interim Financial Information’ (‘IAS 34’). Accordingly the Group has not prepared this financial information in accordance with IAS 34.
The financial information has been prepared in accordance with the Group’s accounting policies. Full details of the accounting policies adopted by the Group are contained in the financial statements included in the Group’s Annual Report for the year ended 31 December 2011 which is available on the Group’s website www.smurfitkappa.com. The accounting policies and methods of computation and presentation adopted in the preparation of the Group financial information are consistent with those described and applied in the Annual Report for the financial year ended 31 December 2011. No new standards, amendments or interpretations which became effective in 2012 will have an effect on the Group financial statements.
The condensed interim Group financial information includes all adjustments that management considers necessary for a fair presentation of such financial information. All such adjustments are of a normal recurring nature. Some tables in this interim statement may not add correctly due to rounding.
The condensed interim Group financial information presented does not constitute full group accounts within the meaning of Regulation 40(1) of the European Communities (Companies: Group Accounts) Regulations, 1992 of Ireland insofar as such group accounts would have to comply with all of the disclosure and other requirements of those Regulations. Full Group accounts for the year ended 31 December 2011 will be filed with the Irish Registrar of Companies in due course. The audit report on those Group accounts was unqualified.
3. Segmental Analyses
With effect from 1 September, 2011 the Group reorganised the way in which its European businesses are managed. As part of this reorganisation for commercial reasons, the businesses which previously formed part of the Specialties segment were operationally merged with the Europe segment (formally known as Packaging Europe) and are now managed on a combined basis to make decisions about the allocation of resources and in assessing performance. After this date, the Group ceased to produce financial information for Specialties as the financial information of all of its plants is now combined with the other Europe segment plants.
As a result, the Group has now two segments on the basis of which performance is assessed and resources are allocated: 1) Europe and 2) Latin America and segmental information is presented below on this basis. Prior year segmental information has been restated to conform to the current year segment presentation.
The Europe segment is highly integrated. It includes a system of mills and plants that produces a full line of containerboard that is converted into corrugated containers. It also includes the bag-in-box and solidboard businesses. The Latin America segment comprises all forestry, paper, corrugated and folding carton activities in a number of Latin American countries. Inter segment revenue is not material. No operating segments have been aggregated for disclosure purposes.
Segment disclosures are based on operating segments identified under IFRS 8. Segment profit is measured based on earnings before interest, tax, depreciation, amortisation, exceptional items and share-based payment expense (‘EBITDA before exceptional items’). Segmental assets consist primarily of property, plant and equipment, biological assets, goodwill and intangible assets, inventories, trade and other receivables, deferred income tax assets and cash and cash equivalents.
| 3 months to 31-Mar-12 | 3 months to 31-Mar-11 | ||||||||||||||||||||||||||
| Europe |
Latin |
Total | Europe |
Latin |
Total | ||||||||||||||||||||||
| €m | €m | €m | €m | €m | €m | ||||||||||||||||||||||
| Revenue and Results | |||||||||||||||||||||||||||
| Revenue | 1,490 | 333 | 1,823 | 1,507 | 296 | 1,803 | |||||||||||||||||||||
| EBITDA before exceptional items | 200 | 55 | 255 | 201 | 50 | 251 | |||||||||||||||||||||
| Segment exceptional items | 28 | - | 28 | (1) | - | (1) | |||||||||||||||||||||
| EBITDA after exceptional items | 228 | 55 | 283 | 200 | 50 | 250 | |||||||||||||||||||||
| Unallocated centre costs | (9) | (8) | |||||||||||||||||||||||||
| Share-based payment expense | (8) | (1) | |||||||||||||||||||||||||
| Depreciation and depletion (net) | (84) | (87) | |||||||||||||||||||||||||
| Amortisation | (5) | (7) | |||||||||||||||||||||||||
| Finance costs | (106) | (114) | |||||||||||||||||||||||||
| Finance income | 34 | 43 | |||||||||||||||||||||||||
| Profit on disposal of associate | - | 2 | |||||||||||||||||||||||||
| Profit before income tax | 105 | 78 | |||||||||||||||||||||||||
| Income tax expense | (42) | (49) | |||||||||||||||||||||||||
| Profit for the financial period | 63 | 29 | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Segment assets | 6,209 | 1,554 | 7,763 | 6,280 | 1,264 | 7,544 | |||||||||||||||||||||
| Investment in associates | 1 | 13 | 14 | 1 | 13 | 14 | |||||||||||||||||||||
| Group centre assets | 734 | 500 | |||||||||||||||||||||||||
| Total assets | 8,511 | 8,058 | |||||||||||||||||||||||||
4. Exceptional Items
| The following items are regarded as exceptional in nature: |
3 months to |
3 months to |
||||||||||||||
| €m | €m | |||||||||||||||
| Reorganisation and restructuring costs | - | (1) | ||||||||||||||
| Disposal of assets and operations | 28 | - | ||||||||||||||
| Exceptional items included in operating profit | 28 | (1) | ||||||||||||||
Exceptional gains of €28 million were included in the first quarter’s 2012 operating profit.
This included €10 million primarily relating to the sale of land at SKG’s former Valladolid mill in Spain (operation closed in 2008), together with €18 million relating to the disposal of a company in Slovakia. The gain primarily relates to the reclassification (under IFRS) of the cumulative translation differences within equity from reserves to retained earnings through the Income Statement.
In the first quarter of 2011, exceptional charges of €1 million related to the on-going rationalisation of the European corrugated operations.
|
5. Finance Costs and Income |
||||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| €m | €m | |||||||||||||||
| Finance costs: | ||||||||||||||||
| Interest payable on bank loans and overdrafts | 33 | 33 | ||||||||||||||
| Interest payable on finance leases and hire purchase contracts | - | 1 | ||||||||||||||
| Interest payable on other borrowings | 33 | 33 | ||||||||||||||
| Foreign currency translation loss on debt | 2 | 3 | ||||||||||||||
| Fair value loss on derivatives not designated as hedges | 10 | 18 | ||||||||||||||
| Interest cost on employee benefit plan liabilities | 25 | 25 | ||||||||||||||
| Net monetary loss – hyperinflation | 3 | 1 | ||||||||||||||
| Total finance costs | 106 | 114 | ||||||||||||||
| Finance income: | ||||||||||||||||
| Other interest receivable | (2) | (1) | ||||||||||||||
| Foreign currency translation gain on debt | (11) | (19) | ||||||||||||||
| Fair value gain on derivatives not designated as hedges | (2) | (4) | ||||||||||||||
| Expected return on employee benefit plan assets | (19) | (19) | ||||||||||||||
| Total finance income | (34) | (43) | ||||||||||||||
|
Net finance costs |
72 | 71 | ||||||||||||||
|
6. Income Tax Expense |
||||||||||||||||
|
Income tax expense recognised in the Group Income Statement |
||||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| €m | €m | |||||||||||||||
| Current taxation: | ||||||||||||||||
| Europe | 17 | 15 | ||||||||||||||
| Latin America | 11 | 32 | ||||||||||||||
| 28 | 47 | |||||||||||||||
| Deferred taxation | 14 | 2 | ||||||||||||||
| Income tax expense | 42 | 49 | ||||||||||||||
| Current tax is analysed as follows: | ||||||||||||||||
| Ireland | 1 | 1 | ||||||||||||||
| Foreign | 27 | 46 | ||||||||||||||
| 28 | 47 | |||||||||||||||
|
Income tax recognised in the Group Statement of Comprehensive Income |
||||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| €m | €m | |||||||||||||||
| Arising on actuarial gains/losses on defined benefit plans including payroll tax | (3) | (3) | ||||||||||||||
| Arising on qualifying derivative cash flow hedges | - | 3 | ||||||||||||||
| (3) | - | |||||||||||||||
|
7. Employee Post Retirement Schemes – Defined Benefit Expense |
||||||||||||||||
|
The table below sets out the components of the defined benefit expense for the quarter: |
||||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| €m | €m | |||||||||||||||
| Current service cost | 7 | 7 | ||||||||||||||
| Expected return on plan assets | (19) | (19) | ||||||||||||||
| Interest cost on plan liabilities | 25 | 25 | ||||||||||||||
| Net financial expense | 6 | 6 | ||||||||||||||
| Defined benefit expense | 13 | 13 | ||||||||||||||
Included in cost of sales, distribution costs and administrative expenses is a defined benefit expense of €7 million for the quarter (2011: €7 million). Expected return on plan assets of €19 million (2011: €19 million) is included in finance income and interest cost on plan liabilities of €25 million (2011: €25 million) is included in finance costs in the Group Income Statement.
The amounts recognised in the Group Balance Sheet were as follows:
| 31-Mar-12 | 31-Dec-11 | |||||||||||||||
| €m | €m | |||||||||||||||
| Present value of funded or partially funded obligations | (1,751) | (1,715) | ||||||||||||||
| Fair value of plan assets | 1,518 | 1,486 | ||||||||||||||
| Deficit in funded or partially funded plans | (233) | (229) | ||||||||||||||
| Present value of wholly unfunded obligations | (447) | (426) | ||||||||||||||
| Net employee benefit liabilities | (680) | (655) | ||||||||||||||
The employee benefits provision has increased from €655 million at 31 December 2011 to €680 million at March 2012. The main reason for this is the increase in liabilities due to the lower Eurozone AA Corporate bond yields was not fully offset by plan assets return.
8. Earnings Per Share
Basic
Basic earnings per share is calculated by dividing the profit attributable to the owners of the Parent by the weighted average number of ordinary shares in issue during the period.
|
3 months to |
3 months to |
|||||||||||||||
| Profit attributable to the owners of the Parent (€ million) | 60 | 34 | ||||||||||||||
| Weighted average number of ordinary shares in issue (million) | 222 | 221 | ||||||||||||||
| Basic earnings per share – cent | 27.1 | 15.6 | ||||||||||||||
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares which comprise convertible shares issued under the management equity plans and matching shares issued under the Deferred Annual Bonus Plan.
|
|
|
|||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| Profit attributable to the owners of the Parent (€ million) | 60 | 34 | ||||||||||||||
| Weighted average number of ordinary shares in issue (million) | 222 | 221 | ||||||||||||||
| Potential dilutive ordinary shares assumed (million) | 5 | 5 | ||||||||||||||
| Diluted weighted average ordinary shares (million) | 227 | 226 | ||||||||||||||
| Diluted earnings per share – cent | 26.5 | 15.3 | ||||||||||||||
9. Property, Plant and Equipment
|
Land and |
Plant and |
Total | ||||||||||||||||||||||
| €m | €m | €m | ||||||||||||||||||||||
| Three months ended 31 March 2012 | ||||||||||||||||||||||||
| Opening net book amount | 1,115 | 1,858 | 2,973 | |||||||||||||||||||||
| Reclassification | 2 | (3) | (1) | |||||||||||||||||||||
| Additions | 10 | 47 | 57 | |||||||||||||||||||||
| Acquisitions | 1 | 1 | 2 | |||||||||||||||||||||
| Depreciation charge for the period | (12) | (68) | (80) | |||||||||||||||||||||
| Hyperinflation adjustment | 3 | 3 | 6 | |||||||||||||||||||||
| Foreign currency translation adjustment | 7 | 12 | 19 | |||||||||||||||||||||
| At 31 March 2012 | 1,126 | 1,850 | 2,976 | |||||||||||||||||||||
| Year ended 31 December 2011 | ||||||||||||||||||||||||
| Opening net book amount | 1,128 | 1,880 | 3,008 | |||||||||||||||||||||
| Reclassification | 19 | (25) | (6) | |||||||||||||||||||||
| Additions | 4 | 282 | 286 | |||||||||||||||||||||
| Acquisitions | 2 | 7 | 9 | |||||||||||||||||||||
| Depreciation charge for the year | (50) | (296) | (346) | |||||||||||||||||||||
| Impairments | (5) | (10) | (15) | |||||||||||||||||||||
| Retirements and disposals | (2) | (1) | (3) | |||||||||||||||||||||
| Hyperinflation adjustment | 21 | 23 | 44 | |||||||||||||||||||||
| Foreign currency translation adjustment | (2) | (2) | (4) | |||||||||||||||||||||
| At 31 December 2011 | 1,115 | 1,858 | 2,973 | |||||||||||||||||||||
10. Analysis of Net Debt
| 31-Mar-12 | 31-Dec-11 | |||||||
| €m | €m | |||||||
| Senior credit facility | ||||||||
|
Revolving credit facility(1) – interest at relevant
interbank rate + 2.5% on RCF1, |
(9) | (6) | ||||||
| Tranche A term loan(2a) – interest at relevant interbank rate + 2.5%(8) | 94 | 94 | ||||||
| Tranche B term loan(2b) – interest at relevant interbank rate + 3.125%(8) | 95 | 822 | ||||||
| Tranche B4 term loan(2c) – interest at relevant interbank rate + 3.625%(8) | 719 | - | ||||||
| Tranche C term loan(2d) – interest at relevant interbank rate + 3.375%(8) | 77 | 819 | ||||||
| Tranche C4 term loan(2e) – interest at relevant interbank rate + 3.875%(8) | 727 | - | ||||||
| US Yankee bonds (including accrued interest)(3) | 223 | 226 | ||||||
| Bank loans and overdrafts | 78 | 71 | ||||||
| Cash | (820) | (857) | ||||||
| 2015 receivables securitisation variable funding notes(4) | 204 | 206 | ||||||
| 2015 cash pay subordinated notes (including accrued interest)(5) | 364 | 376 | ||||||
| 2017 senior secured notes (including accrued interest)(6) | 500 | 490 | ||||||
| 2019 senior secured notes (including accrued interest)(7) | 502 | 492 | ||||||
| Net debt before finance leases | 2,754 | 2,733 | ||||||
| Finance leases | 12 | 13 | ||||||
| Net debt including leases | 2,766 | 2,746 | ||||||
| Balance of revolving credit facility reclassified to debtors | 9 | 6 | ||||||
| Net debt after reclassification | 2,775 | 2,752 | ||||||
| (1) |
Revolving credit facility (‘RCF’) of €525 million split into RCF1,
RCF2 and RCF3 of €60 million, €62 million and €403 million |
|||
| (2a) | Tranche A term loan due to be repaid in certain instalments in 2012 | |||
| (2b) | Tranche B term loan due to be repaid in full in 2013 | |||
| (2c) | Tranche B4 term loan due to be repaid in full in 2016 | |||
| (2d) | Tranche C term loan due to be repaid in full in 2014 | |||
| (2e) | Tranche C4 term loan due to be repaid in full in 2017 | |||
| (3) | US$292.3 million 7.50% senior debentures due 2025 | |||
| (4) | Receivables securitisation variable funding notes due 2015 | |||
| (5) | €217.5 million 7.75% senior subordinated notes due 2015 and US$200 million 7.75% senior subordinated notes due 2015 | |||
| (6) | €500 million 7.25% senior secured notes due 2017 | |||
| (7) | €500 million 7.75% senior secured notes due 2019 | |||
| (8) | The margins applicable to the senior credit facility are determined as follows: | |||
|
Net debt/EBITDA ratio |
Tranche A |
Tranche B | Tranche C | RCF2 | RCF3 | Tranche B4 | Tranche C4 | |||||||||||||||||||||||||||
| Greater than 4.0 : 1 | 3.250% | 3.375% | 3.625% | 3.500% | 4.000% | 3.875% | 4.125% | |||||||||||||||||||||||||||
|
4.0 : 1 or less but more |
3.000% | 3.125% | 3.375% | 3.250% |
3.750% |
3.625% |
3.875% |
|||||||||||||||||||||||||||
|
3.5 : 1 or less but more |
2.750% | 3.125% | 3.375% | 3.000% |
3.500% |
3.625% |
3.875% |
|||||||||||||||||||||||||||
|
3.0 : 1 or less but more |
2.500% | 3.125% | 3.375% | 2.750% | 3.250% | 3.625% | 3.875% | |||||||||||||||||||||||||||
| 2.5 : 1 or less | 2.500% | 3.125% | 3.375% | 2.750% | 3.125% | 3.500% | 3.750% | |||||||||||||||||||||||||||
11. Venezuela
Hyperinflation
As discussed more fully in the 2011 annual report, Venezuela became hyperinflationary during 2009 when its cumulative inflation rate for the past three years exceeded 100%. As a result, the Group applied the hyperinflationary accounting requirements of IAS 29 to its Venezuelan operations at 31 December 2009 and for all subsequent accounting periods.
The index used to reflect current values is derived from a combination of Banco Central de Venezuela’s National Consumer Price Index from its initial publication in December 2007 and the Consumer Price Index for the metropolitan area of Caracas for earlier periods. The level of and movement in the price index at March 2012 and 2011 are as follows:
| 31-Mar-12 | 31-Mar-11 | |||||||||||||||
| Index at period end | 275.0 | 220.7 | ||||||||||||||
| Movement in period | 3.5% | 6.0% | ||||||||||||||
As a result of the entries recorded in respect of hyperinflationary accounting under IFRS, the Group Income Statement is impacted as follows: Revenue €1 million decrease (2011: €2 million decrease), pre-exceptional EBITDA €2 million decrease (2011: €2 million decrease) and profit after taxation €10 million decrease (2011: €8 million decrease). In 2012, a net monetary loss of €3 million (2011: €1 million loss) was recorded in the Group Income Statement. The impact on our net assets and our total equity is an increase of €5 million (2011: €9 million increase).
Supplemental Financial Information
EBITDA before exceptional items and share-based payment expense is denoted by EBITDA in the following schedules for ease of reference.
|
Reconciliation of Profit to EBITDA |
||||||||||||||||
|
3 months to |
3 months to |
|||||||||||||||
| €m | €m | |||||||||||||||
| Profit for the financial period | 63 | 29 | ||||||||||||||
| Income tax expense | 42 | 49 | ||||||||||||||
| Reorganisation and restructuring costs | - | 1 | ||||||||||||||
| Disposal of assets and operations | (28) | - | ||||||||||||||
| Profit on disposal of associate | - | (2) | ||||||||||||||
| Net finance costs | 72 | 71 | ||||||||||||||
| Share-based payment expense | 8 | 1 | ||||||||||||||
| Depreciation, depletion (net) and amortisation | 89 | 94 | ||||||||||||||
| EBITDA | 246 | 243 | ||||||||||||||
|
Supplemental Historical Financial Information |
||||||||||||||||||||||||
| €m | Q1, 2011 | Q2, 2011 | Q3, 2011 | Q4, 2011 | FY, 2011 | Q1, 2012 | ||||||||||||||||||
| Group and third party revenue | 2,956 | 3,124 | 3,109 | 2,919 | 12,108 | 2,950 | ||||||||||||||||||
| Third party revenue | 1,803 | 1,867 | 1,868 | 1,819 | 7,357 | 1,823 | ||||||||||||||||||
| EBITDA | 243 | 264 | 264 | 245 | 1,015 | 246 | ||||||||||||||||||
| EBITDA margin | 13.5% | 14.2% | 14.1% | 13.4% | 13.8% | 13.5% | ||||||||||||||||||
| Operating profit | 147 | 132 | 162 | 149 | 590 | 177 | ||||||||||||||||||
| Profit before tax | 78 | 58 | 85 | 77 | 299 | 105 | ||||||||||||||||||
| Free cash flow | 12 | 66 | 117 | 199 | 394 | (16) | ||||||||||||||||||
| Basic earnings per share - cent | 15.6 | 15.7 | 22.2 | 39.4 | 93.0 | 27.1 | ||||||||||||||||||
|
Weighted average number of shares |
221 | 222 | 222 | 222 | 222 | 222 | ||||||||||||||||||
| Net debt | 3,061 | 3,003 | 2,921 | 2,752 | 2,752 | 2,775 | ||||||||||||||||||
| Net debt to EBITDA (LTM) | 3.18 | 2.98 | 2.84 | 2.71 | 2.70 | 2.73 | ||||||||||||||||||