REG-Smurfit Kappa Group PLC Final Results
07/02/2024 07:00
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Final Results
Smurfit Kappa Group plc (‘SKG’, 'Smurfit Kappa' or ‘the Group’) today
announced results for the full year ending 31 December 2023.
2023 Full Year | Key Financial Performance Measures
€m FY 2023 FY 2022 Change H2 2023 H2 2022 Change H1 23 Change
Revenue €11,272 €12,815 (12%) €5,435 €6,430 (15%) €5,837 (7%)
EBITDA (1) €2,080 €2,355 (12%) €967 €1,181 (18%) €1,113 (13%)
EBITDA Margin (1) 18.5% 18.4% 17.8% 18.4% 19.1%
Operating Profit before Exceptional Items (1) €1,403 €1,662 (16%) €624 €823 (24%) €779 (20%)
Profit before Income Tax €1,055 €1,293 (18%) €396 €524 (24%) €659 (40%)
Basic EPS (cent) 293.5 365.3 (20%) 109.5 143.4 (24%) 184.0 (40%)
Pre-exceptional Basic EPS (cent) (1) 348.7 444.1 (21%) 151.5 222.2 (32%) 197.2 (23%)
Free Cash Flow (1) €628 €545 15% €509 €573 (11%) €119 326%
Return on Capital Employed (1) 17.1% 21.8% 19.0%
Net Debt (1) €2,840 €2,992 (5%) €3,175 (11%)
Net Debt to EBITDA (LTM) (1) 1.4x 1.3x 1.4x
Key points:
* Revenue of €11.3 billion
* EBITDA of €2,080 million and an EBITDA margin of 18.5%
* Return on capital employed of 17.1%
* Free cash flow of €628 million
* Net Debt to EBITDA ratio of 1.4x
* Announced combination(2) with WestRock to create a global leader in
sustainable packaging
* Final dividend increased by 10% to 118.4 cent per share
Tony Smurfit, Group CEO, commented:
“We are pleased to deliver an excellent outcome for the Group in 2023 with
full year EBITDA of €2,080 million, an EBITDA margin of 18.5% and a ROCE
above our target. Our results, the second best in our 90 year history, reflect
the excellence of our people and their dedication in providing the most
innovative and sustainable packaging solutions for our customers. The results
also demonstrate the continuing benefits of SKG’s multi-year and highly
effective capital programmes.
“The demand environment for the industry in 2023 was difficult primarily due
to destocking and a lack of economic activity in certain sectors, particularly
durable goods. However, one trend in which we have seen strong acceleration,
is an increasing demand for sustainable packaging solutions. While full year
volumes for the Group were down 3.5%, we saw a progressive improvement in
demand during the year, with a return to growth in the fourth quarter.
“Our performance-led culture continues to drive our industry leading
performance, with our people living our values of Loyalty, Integrity, Respect
and Safety at work. We have a relentless focus on quality and delivery for our
customers. This, combined with an unparalleled offering across our 36
countries and our unique industry applications, gives us an unrivalled
advantage.
“As mentioned above, our disciplined capital allocation programme has been a
significant source of our success. During 2023 we invested over €1 billion,
which together with prior years’ spend, sets a strong platform for future
growth and delivery. Additionally, with the wide geographic and product
diversity that exists within SKG we continue to see opportunities for growth
and expansion. As an example, we are developing our Bag‑in-Box business
across multiple geographic regions and have expanded into Morocco with a new
state of the art corrugated facility.
“In SKG we have always been at the forefront of ensuring we provide the most
innovative and sustainable packaging for our customers as well as setting
ambitious sustainability targets for ourselves. We will shortly release our
17(th) Sustainable Development Report, illustrating progress towards our 2030
targets. The Group continued to be recognised in 2023 for its leading
sustainability credentials. Moreover in 2023, we received numerous awards
across multiple categories, best illustrated by our 12 most recent WorldStar
awards for innovation, significantly in excess of our peers.
“In September, we announced an agreement to combine with WestRock to form
Smurfit WestRock. Since then we have had the opportunity to expand our
knowledge of the WestRock organisation, and its people, and have visited many
of their facilities. With a deeper understanding of the WestRock business, we
are increasingly excited about the potential this combination presents.
“Our 2023 results again demonstrate Smurfit Kappa Group’s proven capacity
to perform across all market conditions. While there are, and will always be,
challenges in the macro environment, we look forward to the year ahead with
confidence and excitement. Reflecting the continuing confidence in the
strength, quality and performance of the Smurfit Kappa business, the Board is
recommending a 10% increase in the final dividend to 118.4 cent per share.”
About Smurfit Kappa
Smurfit Kappa, a FTSE 100 company, is one of the leading providers of
paper-based packaging solutions in the world, with approximately 47,000
employees in over 350 production sites across 36 countries and with revenue of
approximately €11.3 billion in 2023. We are located in 22 countries in
Europe, 13 in the Americas and one in Africa. We are the only large‑scale
pan-regional player in Latin America. Our products, which are 100% renewable
and produced sustainably, improve the environmental footprint of our
customers.
With our proactive team, we relentlessly use our extensive experience and
expertise, supported by our scale, to open up opportunities for our customers.
We collaborate with forward-thinking customers by sharing superior product
knowledge, market understanding and insights in packaging trends to ensure
business success in their markets. We have an unrivalled portfolio of
paper-based packaging solutions, which is constantly updated with our
market-leading innovations.
This is enhanced through the benefits of our integration, with optimal paper
design, logistics, timeliness of service, and our packaging plants sourcing
most of their raw materials from our own paper mills.
We have a proud tradition of supporting social, environmental and community
initiatives in the countries where we operate. Through these projects we
support the UN Sustainable Development Goals, focusing on where we believe we
have the greatest impact.
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Contacts
Ciarán Potts Melanie Farrell
Smurfit Kappa
FTI Consulting
T: +353 1 202 71 27
T: +353 86 401 5250
E: ir@smurfitkappa.com (mailto:ir@smurfitkappa.com)
E: smurfitkappa@fticonsulting.com (mailto:smurfitkappa@fticonsulting.com)
Important Additional Information
Neither this announcement nor any copy of it may be taken or transmitted
directly or indirectly into or from any jurisdiction where to do so would
constitute a violation of the relevant laws or regulations of such
jurisdiction. Any failure to comply with this restriction may constitute a
violation of such laws or regulations. Persons into whose possession this
announcement or other information referred to herein should inform themselves
about, and observe, any restrictions in such laws or regulations.
This announcement has been prepared for the purpose of complying with the
applicable law and regulation of the United Kingdom, the United States and
Ireland and information disclosed may not be the same as that which would have
been disclosed if this announcement had been prepared in accordance with the
laws and regulations of jurisdictions outside the United Kingdom, the United
States or Ireland.
Subject to the Market Abuse Regulation and the FCA’s Disclosure Guidance and
Transparency Rules and the UK Listing Rules, the delivery of this announcement
shall not create any implication that there has been no change in the affairs
of Smurfit Kappa since the date of this announcement or that the information
in this announcement is correct as at any time subsequent to its date.
Additional Information about the Proposed Combination and Where to Find It
In connection with the proposed combination (the “Combination”) of Smurfit
Kappa Group plc (“Smurfit Kappa”) and WestRock Company (“WestRock”),
the entity which will ultimately own the combined businesses of Smurfit Kappa
and WestRock following the Combination (“Smurfit WestRock”) will file with
the U.S. Securities and Exchange Commission (the “SEC”) a registration
statement, which will include a proxy statement of WestRock that will also
constitute a prospectus of Smurfit WestRock (the “proxy
statement/prospectus”). Each of Smurfit Kappa, WestRock and Smurfit WestRock
will also file other relevant documents in connection with the Combination.
The definitive proxy statement/prospectus will be sent to the stockholders of
WestRock. Smurfit Kappa will also publish a shareholder circular approved by
the UK Financial Conduct Authority (the “FCA”), which will be sent to
Smurfit Kappa’s shareholders or otherwise made available in accordance with
Smurfit Kappa’s articles of association and the UK Listing Rules. Smurfit
WestRock will publish a prospectus approved by the FCA, which will be made
available in accordance with Rule 3.2 of the UK Prospectus Regulation Rules
(the “UK listing prospectus”). This document is not a substitute for any
registration statement, proxy statement/prospectus, UK listing prospectus or
other document Smurfit Kappa, WestRock and/or Smurfit WestRock may file with
the SEC or applicable securities regulators in the United Kingdom and Ireland
in connection with the Combination. BEFORE MAKING ANY VOTING OR INVESTMENT
DECISIONS, INVESTORS, STOCKHOLDERS AND SHAREHOLDERS OF SMURFIT KAPPA AND
WESTROCK ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE REGISTRATION
STATEMENT, THE PROXY STATEMENT/PROSPECTUS, THE SHAREHOLDER CIRCULAR AND THE UK
LISTING PROSPECTUS, AS APPLICABLE, AND ANY OTHER RELEVANT DOCUMENTS THAT ARE
FILED OR WILL BE FILED WITH THE SEC OR APPLICABLE SECURITIES REGULATORS IN THE
UNITED KINGDOM AND IRELAND, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE
DOCUMENTS, IN CONNECTION WITH THE COMBINATION WHEN THEY BECOME AVAILABLE, AS
THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT SMURFIT KAPPA,
WESTROCK, SMURFIT WESTROCK, THE COMBINATION AND RELATED MATTERS. The
registration statement and proxy statement/prospectus and other documents
filed by Smurfit Kappa, WestRock and Smurfit WestRock with the SEC, when
filed, will be available free of charge at the SEC’s website at www.sec.gov
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. In addition, investors and shareholders will be able to obtain free copies
of the proxy statement/prospectus and other documents filed with the SEC by
WestRock online at ir.westrock.com/ir-home/, upon written request delivered to
1000 Abernathy Road, Atlanta, Georgia or by calling (770) 448-2193, and will
be able to obtain free copies of the registration statement, proxy
statement/prospectus, shareholder circular, UK listing prospectus and other
documents which will be filed with the SEC and applicable securities
regulators in the United Kingdom and Ireland by Smurfit WestRock or Smurfit
Kappa online at www.smurfitkappa.com/investors
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, upon written request delivered to Beech Hill, Clonskeagh, Dublin 4, D04
N2R2, Ireland or by calling +353 1 202 7000. The information included on, or
accessible through, Smurfit Kappa’s or WestRock’s website is not
incorporated by reference into this document.
This document is for informational purposes only and is not intended to, and
shall not, constitute an offer to sell or buy or the solicitation of an offer
to sell or buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to appropriate registration or qualification under the securities laws
of any such jurisdiction. No offering of securities in the United States shall
be made except by means of a prospectus meeting the requirements of Section 10
of the U.S. Securities Act of 1933, as amended.
Participants in the Solicitation of Proxies
This document is not a solicitation of proxies in connection with the
Combination. However, under SEC rules, Smurfit Kappa, WestRock, Smurfit
WestRock, and certain of their respective directors, executive officers and
other members of the management and employees may be deemed to be participants
in the solicitation of proxies in connection with the Combination.
Information about (i) WestRock’s directors is set forth in the section
entitled “Board Composition” on page 8 of WestRock’s proxy statement on
Schedule 14A filed with the SEC on December 13, 2023 (and available here
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) and (ii) WestRock’s executive officers is set forth in the section
entitled “Executive Officers” on page 141 of WestRock’s Annual Report on
Form 10-K (the “WestRock 2023 Annual Report”) filed with the SEC on
November 17, 2023 (and available here
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). Information about the compensation of WestRock’s directors is set forth
in the section entitled “Director Compensation” starting on page 19 of
WestRock’s proxy statement on Schedule 14A filed with the SEC on December
13, 2023 (and available here
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) and on WestRock’s current report on Form 8-K filed with the SEC on
December 15, 2023 (and available here
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). Information about the compensation of WestRock’s executive officers is
set forth in the section entitled “Executive Compensation Tables” starting
on page 38 of WestRock’s proxy statement on Schedule 14A filed with the SEC
on December 13, 2023 (and available here
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). Transactions with related persons (as defined in Item 404 of Regulation S-K
promulgated under the Securities Act of 1933, as amended) are disclosed in the
section entitled “Certain Relationships and Related Person Transactions”
on page 20 of WestRock’s proxy statement on Schedule 14A filed with the SEC
on December 13, 2023 (and available here
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). Information about the beneficial ownership of WestRock’s securities by
WestRock’s directors and named executive officers is set forth in the
section entitled “Beneficial Ownership of Common Stock” starting on page
53 of WestRock’s proxy statement on Schedule 14A filed with the SEC on
December 13, 2023 (and available here
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). As of January 29, 2024, none of the participants (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) owned more
than 1% of shares of common stock, par value $0.01 per share, of WestRock.
Information about Smurfit Kappa’s directors and executive officers is set
forth in the section entitled “Board of Directors,” starting on page 100
of Smurfit Kappa’s 2022 Annual Report (the “Smurfit Kappa 2022 Annual
Report”) published on Smurfit Kappa’s website on March 28, 2023 (and
available here
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) which was filed with the FCA in the United Kingdom on March 28, 2023,
Euronext Dublin in Ireland on March 28, 2023 and the Irish Companies
Registration Office in Ireland on September 30, 2023. Information about the
compensation of Smurfit Kappa executive officers and directors is set forth in
the remuneration report starting on page 120 of the Smurfit Kappa 2022 Annual
Report (and available here
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). Transactions with related persons (as defined under Paragraph 24 of the
International Accounting Standards) are disclosed in the subsection entitled
“Related Party Transactions” to the section entitled “Notes to the
Consolidated Financial Statements,” on pages 219 and 220 of the Smurfit
Kappa 2022 Annual Report (and available here
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). Information about the beneficial ownership of Smurfit Kappa’s securities
by Smurfit Kappa’s directors and executive officers is set forth in the
section entitled “Executive Directors’ Interests in Share Capital at 31
December 2022,” on page 133 of the Smurfit Kappa 2022 Annual Report (and
available here
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). Additional information regarding the interests of such potential
participants in the solicitation of proxies in connection with the Combination
will be included in the proxy statement/prospectus and other relevant
materials filed with the SEC when they become available.
Information Regarding Forward-Looking Statements
This document contains forward-looking statements as that term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally
include statements regarding the Combination between WestRock and Smurfit
Kappa, including any statements regarding the Combination and the listing of
Smurfit WestRock, the rationale and expected benefits of the Combination
(including, but not limited to, synergies), and any other statements regarding
WestRock’s and Smurfit Kappa’s future expectations, beliefs, plans,
objectives, results of operations, financial condition and cash flows, or
future events or performance. Forward-looking statements can sometimes be
identified by the use of forward-looking terms such as “believes,”
“expects,” “may,” “will,” “shall,” “should,” “would,”
“could,” “potential,” “seeks,” “aims,” “projects,”
“predicts,” “is optimistic,” “intends,” “plans,”
“estimates,” “targets,” “anticipates,” “continues” or other
comparable terms or negatives of these terms or other variations or comparable
terminology or by discussions of strategy, plans, objectives, goals, future
events or intentions, but not all forward-looking statements include such
identifying words.
Forward-looking statements are based upon current plans, estimates and
expectations that are subject to risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
indicated or anticipated by such forward-looking statements. We can give no
assurance that such plans, estimates or expectations will be achieved and
therefore, actual results may differ materially from any plans, estimates or
expectations in such forward-looking statements. Important factors that could
cause actual results to differ materially from such plans, estimates or
expectations include: a condition to the closing of the Combination may not be
satisfied; the occurrence of any event that can give rise to termination of
the Combination; a regulatory approval that may be required for the
Combination is delayed, is not obtained in a timely manner or at all or is
obtained subject to conditions that are not anticipated; Smurfit Kappa is
unable to achieve the synergies and value creation contemplated by the
Combination; Smurfit WestRock’s availability of sufficient cash to
distribute to its shareholders in line with current expectations; Smurfit
Kappa is unable to promptly and effectively integrate WestRock’s businesses;
management’s time and attention is diverted on issues related to the
Combination; disruption from the Combination makes it more difficult to
maintain business, contractual and operational relationships; credit ratings
decline following the Combination; legal proceedings are instituted against
Smurfit Kappa or WestRock; Smurfit Kappa or WestRock are unable to retain or
hire key personnel; the announcement or the consummation of the Combination
has a negative effect on the market price of the capital stock of Smurfit
Kappa or WestRock or on Smurfit Kappa or WestRock’s operating results;
evolving legal, regulatory and tax regimes; changes in economic, financial,
political and regulatory conditions, in Ireland, the United Kingdom, the
United States and elsewhere, and other factors that contribute to uncertainty
and volatility, natural and man-made disasters, civil unrest, pandemics (e.g.,
the coronavirus (COVID-19) pandemic (the “COVID-19 pandemic”)),
geopolitical uncertainty, and conditions that may result from legislative,
regulatory, trade and policy changes associated with the current or subsequent
Irish, U.S. or U.K. administrations; the ability of Smurfit Kappa or WestRock
to successfully recover from a disaster or other business continuity problem
due to a hurricane, flood, earthquake, terrorist attack, war, pandemic,
security breach, cyber-attack, power loss, telecommunications failure or other
natural or man-made event, including the ability to function remotely during
long-term disruptions such as the COVID-19 pandemic; the impact of public
health crises, such as pandemics (including the COVID-19 pandemic) and
epidemics and any related company or governmental policies and actions to
protect the health and safety of individuals or governmental policies or
actions to maintain the functioning of national or global economies and
markets; actions by third parties, including government agencies; the risk
that disruptions from the Combination will harm Smurfit Kappa’s or
WestRock’s business, including current plans and operations; certain
restrictions during the pendency of the Combination that may impact Smurfit
Kappa’s or WestRock’s ability to pursue certain business opportunities or
strategic transactions; Smurfit Kappa’s or WestRock’s ability to meet
expectations regarding the accounting and tax treatments of the Combination;
the risks and uncertainties discussed in the “Risks and Uncertainties”
section in Smurfit Kappa’s reports available on the National Storage
Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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and on its website at https://www.smurfitkappa.com/investors
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; and the risks and uncertainties discussed in the “Risk Factors” and
“Information Regarding Forward-Looking Statements” sections in the
WestRock 2023 Annual Report (and available here
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.sec.gov%2Fixviewer%2Fix.html%3Fdoc%3D%2FArchives%2Fedgar%2Fdata%2F1732845%2F000095017023064855%2Fwrk-20230930.htm%23item_10_directors_executive_ficers_corpo&esheet=53893049&newsitemid=20240206695504&lan=en-US&anchor=here&index=21&md5=579aae87be6a0464e36d1ffcd9431e2c)
). These risks, as well as other risks associated with the Combination, will
be more fully discussed in the proxy statement/prospectus, the shareholder
circular, the UK listing prospectus and the other relevant materials filed
with the SEC and applicable securities regulators in the United Kingdom. The
list of factors presented here should not be considered to be a complete
statement of all potential risks and uncertainties. Unlisted factors may
present significant additional obstacles to the realization of forward-looking
statements. We caution you not to place undue reliance on any of these
forward-looking statements as they are not guarantees of future performance or
outcomes and that actual performance and outcomes, including, without
limitation, the actual results of operations, financial condition and
liquidity, and the development of new markets or market segments in which we
operate, may differ materially from those made in or suggested by the
forward-looking statements contained in this document. Except as required by
law, none of Smurfit Kappa, WestRock or Smurfit WestRock assume any obligation
to update or revise the information contained herein, which speaks only as of
the date hereof.
The forward-looking statements in this document do not constitute reports or
statements published in compliance with any of Regulations 6 to 8 of the
Transparency (Directive 2004/109/EC) Regulations 2007.
Nothing in this document should be construed as a profit estimate or profit
forecast. No statement in this document, including statements regarding the
potential effect of the Combination on cash flows and capital returns should
be interpreted to mean that cash flows or capital returns of Smurfit Kappa,
WestRock or Smurfit WestRock for the current or future financial years will
necessarily match or exceed the historical cash flows or capital returns of
Smurfit Kappa or WestRock.
Completion of the Combination will be subject to the satisfaction or waiver of
several conditions. Consequently, there can be no certainty that the
completion of the Combination will be forthcoming.
This document is not a prospectus for the purposes of the UK Prospectus
Regulation Rules or the EU Prospectus Regulation.
The contents of this document are not to be construed as legal, business or
tax advice. Each shareholder should consult its own legal adviser, financial
adviser or tax adviser for legal, financial or tax advice, respectively.
Except as explicitly stated in this document, none of the contents of Smurfit
Kappa’s or WestRock’s websites, nor any website accessible by hyperlinks
on Smurfit Kappa’s or WestRock’s websites, is incorporated in or forms
part of, this document.
2023 Full Year | Performance Overview
The Group reported EBITDA for the full year of €2,080 million, 12% lower
than 2022. However, the Group EBITDA margin for the year was 18.5%, up from
18.4% in 2022. In what has been a challenging year for the wider sector, this
result reflects the effectiveness of our capital allocation program, the
security of SKG’s integrated operating model and the commitment and
dedication of our people in providing our customers with industry-leading,
innovative and sustainable packaging solutions.
In Europe, EBITDA decreased by 14% to €1,593 million in 2023. The EBITDA
margin was 18.8%, up from 18.6% in 2022 with the move reflecting lower box
volumes and lower average box prices, which were more than compensated by the
impact of lower recovered fibre, energy and other raw material costs. While
box volumes in Europe were down 3.3% year-on-year, each quarter showed
sequential improvement in demand and box volumes in the fourth quarter of the
year remained flat compared to the same period of 2022. Demand weakness in
Western European markets was partly offset by a more resilient performance in
our operations in Southern and Eastern Europe.
Our European business continued to build on its strong operating platform
during the year with a number of projects across our paper, corrugated and
specialty divisions. In our paper division, we approved investments right
across our mill network which will take out costs, increase efficiencies and
enhance the Group’s leadership position in sustainability. In our corrugated
division, we are investing in modern, energy efficient equipment, including
upgrades to corrugators, new converting equipment and expanding capacity in
our Bag‑in-Box division. These investments will allow the Group to increase
production, reduce our environmental footprint and expand our portfolio of
value-added packaging solutions.
In the first half of the year, the Group completed its strategic expansion in
Poland with our Pruszków corrugated plant now becoming one of the most
advanced packaging plants in Europe. In the second half of the year, the Group
completed important sustainability projects including a pioneering
purification and wastewater treatment plant in Serbia, the first of its kind
in the country.
In 2023, the average price of testliner was €221 per tonne lower and the
average price of kraftliner was €188 per tonne lower compared to the prior
year. Commercial downtime taken by our recycled containerboard mills in Europe
was approximately 330,000 tonnes in 2023 with almost no commercial downtime
taken in our kraftliner mills. In order to maintain our position as a key
player in the market and to address the weak demand backdrop, SKG announced
the closure of its 75,000 tonnes per year Alfa d’Avignon recycled
containerboard mill in Le Pontet, France.
In the Americas, EBITDA increased by 1% on 2022 to €557 million. The EBITDA
margin improved to 20.1% from 19.0% in 2022 with Colombia, Mexico and the US
accounting for over 75% of the region’s earnings. Box volumes in the
Americas, excluding acquisitions, were down by 4.3% compared to 2022 with
sequential demand improvement seen through each quarter and a return to growth
realised in the fourth quarter of 1.6% year-on-year.
SKG continued to invest in its Americas business during the year, with growth
and sustainability related investments across our forestry, paper and
packaging businesses in Brazil, Colombia, Mexico and the US. We approved
investments in our paper division to upgrade machines and increase production
efficiencies, investing in automation in our forestry division to take out
costs, while investing in state-of-the-art converting equipment in our
corrugated division. We are also expanding our capacity in Bag-in-Box in the
region.
Earlier in the year, the Group announced that it had sold its Russian
operations to local management thereby completing its exit from the Russian
market. In July, the Group opened a new integrated corrugated plant in
Morocco, making this SKG’s first operation in the attractive growth market
of North Africa. Also during the year, the Group acquired a specialty
packaging operation in Spain and a folding carton business in Poland.
The Group reported free cash flow of €628 million in the full year of 2023,
up 15% on the €545 million reported in 2022. The average maturity profile of
the Group’s debt was 4.0 years at 31 December 2023 with an average interest
rate of 2.79%. Net debt to EBITDA was 1.4x at the year-end versus 1.4x at the
half year and 1.3x at the end of December 2022. The Group remains strongly
positioned within its BBB-/BBB-/Baa3 credit rating. Following the announcement
of the combination with WestRock on 12 September 2023, Moody’s placed our
credit rating on Review for Upgrade, S&P Global Ratings placed our credit
rating on CreditWatch Positive and Fitch Ratings placed our long-term issuer
default rating on Rating Watch Positive.
2023 Full Year | Financial Performance
Revenue for the full year was €11,272 million, down 12% on the prior year on
a reported basis and down 11% on an underlying basis(3). Revenue in Europe was
down 14%, driven primarily by lower paper and box pricing year-on-year and
lower box volumes. On an underlying basis, revenue in Europe was down 12%. In
the Americas, revenue was down 5% on 2022, or 6% on an underlying basis.
EBITDA for the full year was €2,080 million, down 12% on the prior year. On
an underlying basis, Group EBITDA was down 9% year‑on‑year, with Europe
down 10% and the Americas was flat.
Operating profit before exceptional items for the full year of 2023 at
€1,403 million was 16% lower than €1,662 million in 2022.
Exceptional items charged within operating profit in 2023 amounted to €152
million, €58 million of this related to costs associated with the WestRock
combination, €34 million related to currency recycling, impairment of
residual assets up to the date of disposal and other costs associated with the
disposal of our Russian operations, €30 million due to the devaluation of
the Argentinian Peso, €11 million related to redundancy and reorganisation
costs in the Americas and €14 million and €5 million respectively for the
closure of our operations and impairment of property, plant and equipment in
Alfa d’Avignon, France.
Exceptional items charged within operating profit in 2022 amounted to €223
million, of which €128 million related to the impairment of assets in our
Russian operations, €56 million and €11 million respectively for the
impairment of goodwill in Argentina and Peru, €14 million for redundancy and
reorganisation costs in the Americas along with €14 million for the
impairment of property, plant and equipment in our North American operations.
Pre-exceptional net finance costs at €185 million were €36 million higher
than 2022 primarily due to a negative swing in the net monetary
hyperinflationary gain in 2022 to a loss in 2023 and a higher interest cost on
net pension liabilities, partly offset by lower cash interest.
Net exceptional finance items charged in 2023 amounted to €13 million and
related to bond consent and bridge facility fees regarding the combination
with WestRock, partly offset by an exceptional item in relation to the
devaluation of the Argentinian Peso.
There were no exceptional finance items charged in 2022.
With the €259 million decrease in operating profit before exceptional items,
combined with the €36 million increase in pre-exceptional net finance costs,
the pre-exceptional profit before income tax was €1,220 million, or €296
million lower than in 2022.
After exceptional items of €165 million, the profit before tax for the full
year of 2023 was €1,055 million compared to a profit before tax of €1,293
million in 2022. The income tax expense was €296 million compared to €348
million in 2022, resulting in a profit of €759 million for the year to
December 2023 compared to a profit of €945 million in 2022.
Basic EPS for the full year of 2023 was 293.5 cent, compared to 365.3 cent in
2022. On a pre‑exceptional basis, EPS was 348.7 cent in 2023, compared to
444.1 cent in the full year of 2022.
2023 Full Year | Free Cash Flow
Free cash flow for the full year of 2023 was €628 million compared to €545
million for 2022, an increase of €83 million. Lower EBITDA of €275 million
combined with higher outflows on exceptional items, higher tax payments and a
higher outflow for changes in employee benefits and other provisions were more
than offset by a positive swing in working capital from an outflow in 2022 to
an inflow in 2023 with capital outflows remaining broadly stable.
The working capital inflow in 2023 was €148 million compared to an outflow
of €358 million in 2022. The working capital inflow in 2023 was a
combination of a significant decrease in debtors and stock, partly offset by a
decrease in creditors. These movements reflected the combination of lower box
prices, lower paper prices and lower energy, recovered fibre and other raw
material prices. Working capital amounted to €768 million at December 2023
and represented 7.0% of annualised revenue compared to 8.3% at December 2022.
Capital expenditure in 2023 amounted to €1,056 million (equating to 171% of
depreciation) compared to €970 million (equating to 155% of depreciation) in
2022.
Cash interest amounted to €123 million in 2023 compared to €132 million in
2022, with the decrease largely as a result of additional interest income
earned on our deposits due to the higher interest rate environment. This was
partly offset by higher interest costs on our variable rate debt balances.
Tax payments of €406 million in 2023 were €85 million higher than in 2022.
The increase in 2023 mainly arises due to high taxable profits generated in
prior periods and the associated timing of tax payments.
2023 Full Year | Capital Structure
Net debt was €2,840 million at the end of December 2023, resulting in a net
debt to EBITDA ratio of 1.4x compared to 1.4x at the end of June 2023 and 1.3x
at the end of December 2022. The Group’s balance sheet continues to provide
considerable long-term strategic and financial flexibility, subject to the
stated leverage range of 1.5x to 2.0x through the cycle.
At 31 December 2023, the Group’s average interest rate was 2.79% compared to
2.89% at 31 December 2022. The decrease in our average interest rate on debt
is primarily due to the repayment of debt during the year in certain of our
higher interest rate environments. At 31 December 2023, over 95% of the
Group’s gross borrowings were at fixed interest rates.
The Group’s diversified funding base and long-dated maturity profile of 4.0
years (31 December 2022: 4.9 years) provide a stable funding outlook. At 31
December 2023, we had a strong liquidity position of approximately €2.56
billion comprising cash balances of €905 million, undrawn available
committed facilities of €1,346 million on our sustainability-linked
Revolving Credit Facility (‘RCF’) and €312 million on our
sustainability-linked securitisation facilities.
Dividends
The Board is recommending a 10% increase in the final dividend to 118.4 cent
per share. It is proposed to pay this dividend on 10 May 2024 to all ordinary
shareholders on the share register at the close of business on 12 April 2024,
subject to the approval of the shareholders at the AGM.
2023 Full Year | Sustainability
Smurfit Kappa continues to make significant progress towards achieving its
sustainability goals as outlined in its 16(th) Sustainable Development Report
(‘SDR’) published in 2023. The report shows that the Group’s actions are
delivering today, and together with its ongoing investments and continuous
improvement, we are well positioned to deliver on our long-term ambition to
have at least net zero emissions by 2050.
Several landmark achievements are noted in the report including the
announcement of a US$100 million investment in a sustainable biomass boiler in
our paper mill in Cali, Colombia, our largest single decarbonisation project
to date, which will reduce our Group emissions by approximately 6%. Further
progress is also outlined across key metrics including CO(2) emissions
reduction, water consumption, chain‑of‑custody certification, waste
reduction and health and safety.
An example of some of the important sustainability projects undertaken during
the year include the installation of 12,000 solar panels at our Sanguesa paper
mill in Spain. This solar energy project is the latest for Smurfit Kappa which
has launched similar green energy initiatives at plants in Spain, Colombia
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.smurfitkappa.com%2Fnewsroom%2F2020%2Fsmurfit-kappa-launches-innovative-solar-energy-initiative-in-colombia&esheet=53893049&newsitemid=20240206695504&lan=en-US&anchor=Colombia&index=22&md5=e064440f2285cb59c0f36251cbc023a1)
, Mexico and most recently, in our new facility in Morocco.
In 2023 we also completed a €27 million investment in a new waste management
and recovery facility at our Nervión paper mill in Iurreta, Spain. This
investment sees the mill adopt a fully circular production process involving
the biggest landfill reduction project that SKG has undertaken to date.
In September, we inaugurated a pioneering purification and wastewater
treatment plant in Belgrade, Serbia, the first of its kind in the country.
This innovative treatment purifies water to the highest standards before it
can be returned to the environment. It also reduces electricity usage and
CO(2) emissions by up to 80% and the purified water can be reused thereby
further reducing water consumption by up to 90%.
During the year, we approved significant investments to upgrade a combined
heat and power plant in one of our European paper mills which will further
reduce our carbon emissions alongside upgrading a number of water treatment
plants and systems right across our operations.
Having been awarded in 2023 as both a Regional Top Rated and Industry Top
Rated company by Morningstar Sustainalytics, SKG has retained both honours
this year for its strong ESG credentials and continuous improvement. SKG is
now ranked 1(st) in Paper & Packaging in 2024, up from 2(nd) in 2023 and
4(th) in 2022.
Smurfit Kappa continues to be listed on various environmental, social and
governance indices and disclosure programmes, such as, CDP, FTSE4Good, the
Green Economy Mark from the London Stock Exchange, Euronext Vigeo Europe 120,
STOXX Global ESG Leaders, ISS Solactive and Ethibel’s sustainable investment
register. SKG also performs strongly across a number of third party
certification bodies, including MSCI, ISS ESG and Morningstar Sustainalytics.
2023 Full Year | Commercial Offering and Innovation
SKG’s leadership in innovation and unrivalled market offering is a defining
characteristic of our business. With over 1,000 designers across the Group,
supported by a network of laboratories, design facilities and unique
applications, we continued to deliver the most innovative and sustainable
packaging solutions for our customers in 2023. The Group continues to invest
in research and development to push the boundaries of paper-based packaging
and our design teams work closely with our customers to develop bespoke
solutions which optimise functionality, cost-effectiveness and consumer
appeal.
Demonstrating our industry leadership, SKG won 74 awards across a host of
categories including design, safety, sustainability, community engagement and
as a top employer. Smurfit Kappa was recognised for its technical innovation
and creativity by winning 14 awards at the Flexographic Industry Association
UK awards in addition to eight WorldStar 2023 awards. The latter was followed
up by winning an impressive 12 WorldStar 2024 awards in January of this year,
more than any other entrant. The Group was also the proud winner of
PepsiCo’s prestigious ‘Supplier of the Year’ award. This award
recognises excellence across sustainability, speed to market and overall
business performance and is the latest milestone in a fifteen-year partnership
during which PepsiCo and Smurfit Kappa have collaborated on various stand-out
projects.
During the year, SKG launched its patented Vitop Uno tap which is the first
tap in the Bag-in-Box market to have attached tamper protection. Vitop is the
leading provider of Bag-in-Box closure solutions with over six billion taps
sold worldwide and the Uno tap is now patented in Europe, the USA and a number
of other countries.
In 2023, the Group announced the expansion of its Design2Market Factory after
a successful first year in operation in the Netherlands. This unique facility,
which provides customers with tangible packaging prototypes that can be tested
in the market in just two weeks before moving into large-scale production,
will be replicated across Germany, Italy, Poland and the UK.
SKG also launched its new digital solution for our existing SupplySmart
application. With SupplySmart, we create a digital model of our customer’s
supply chains which allows us to stress-test their processes in a completely
risk-free way. This helps us to optimise their packaging solutions, enhance
efficiencies, reduce CO(2) emissions during transport and drive business
growth.
The Group continues to experience strong levels of pipeline development across
our business as customers strive for more sustainable packaging solutions.
Summary Cash Flow
Summary cash flows( )for the second half and full year are set out in the
following table.
H2 2023 H2 2022 FY 2023 FY 2022
€m €m €m €m
EBITDA 967 1,181 2,080 2,355
Exceptional items (49) (3) (49) (3)
Cash interest expense (57) (71) (123) (132)
Working capital change 410 143 148 (358)
Capital expenditure (627) (621) (1,056) (970)
Change in capital creditors 108 84 73 (24)
Tax paid (233) (163) (406) (321)
Change in employee benefits and other provisions (20) (3) (66) (25)
Other 10 26 27 23
Free cash flow 509 573 628 545
Disposal of Russian operations - (50) 1 (50)
Share buyback - (41) - (41)
Purchase of own shares - (1) (28) (28)
Purchase of businesses, investments and NCI* (26) (62) (30) (110)
Dividends (87) (83) (367) (333)
Bond consent and bridge facility fees (23) - (23) -
Derivative termination (payments)/receipts (3) 1 (3) 1
Net cash inflow/(outflow) 370 337 178 (16)
Acquired net cash/(debt) - 2 - (3)
Deferred debt issue costs amortised (4) (3) (7) (7)
Currency translation adjustment (31) (19) (19) (81)
Decrease/(increase) in net debt 335 317 152 (107)
*( )‘NCI’ refers to non-controlling interests
A reconciliation of the Summary Cash Flow to the Consolidated Statement of
Cash Flows and a reconciliation of Free Cash Flow to Cash Generated from
Operations are included in sections K and L in Alternative Performance
Measures in the Supplementary Financial Information on pages 35 to 38.
Funding and Liquidity
The Group's primary sources of liquidity are cash flow from operations and
borrowings under the RCF. The Group's primary uses of cash are for funding day
to day operations, capital expenditure, debt service, dividends and other
investment activity including acquisitions.
The Group has a €1,350 million sustainability-linked RCF with a maturity of
January 2026, which incorporates five KPIs spanning the Group’s
sustainability objectives regarding climate change, forests, water, waste and
people, with the level of KPI achievement linked to the pricing on the
facility. Borrowings under the RCF are available to fund the Group's working
capital requirements, capital expenditure and other general corporate
purposes. At 31 December 2023, the Group’s drawings on this facility were
€4 million, at an interest rate of 4.595%.
At 31 December 2023, the Group had outstanding €250 million 2.75% senior
notes due 2025, US$292.3 million 7.50% senior debentures due 2025, €1,000
million 2.875% senior notes due 2026, €750 million 1.5% senior notes due
2027, €500 million 0.5% senior green notes due 2029 and €500 million 1.0%
senior green notes due 2033.
At 31 December 2023, the Group had outstanding €13 million variable funding
notes (‘VFNs’) issued under the €230 million trade receivables
securitisation programme maturing in November 2026 and €5 million VFNs
issued under the €100 million trade receivables securitisation programme
maturing in January 2026.
Funding and Liquidity (continued)
Both these securitisation programmes are sustainability-linked and incorporate
five KPIs spanning the Group’s sustainability objectives regarding climate
change, forests, water, waste and people, with the level of KPI achievement
linked to the pricing on the programmes.
In connection with the proposed WestRock combination, we entered into a Bridge
facility agreement in the amount of US$1,500 million which is available to
finance the cash consideration and any fees, commissions, costs and expenses
in connection with the proposed combination. At 31 December 2023, the facility
was undrawn.
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 December 2023, the Group had fixed an average of 98% of its
interest cost on borrowings over the following 12 months.
The Group’s fixed rate debt comprised €250 million 2.75% senior notes due
2025, US$292.3 million 7.50% senior debentures due 2025, €1,000 million
2.875% senior notes due 2026, €750 million 1.5% senior notes due 2027,
€500 million 0.5% senior green notes due 2029 and €500 million 1.0% senior
green notes due 2033.
The Group’s earnings are affected by changes in short-term interest rates on
its floating rate borrowings and cash balances. If interest rates for these
borrowings increased by one percent, the Group’s interest expense would
increase, and income before taxes would decrease, by approximately €2
million over the following 12 months. Interest income on the Group’s cash
balances would increase by approximately €9 million assuming a one percent
increase in interest rates earned on such balances over the following 12
months.
The Group uses foreign currency borrowings, currency swaps and forward
contracts in the management of its foreign currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the management process
throughout the Group. Risks are identified, evaluated and appropriate risk
management strategies are implemented at each level in the organisation.
The Board in conjunction with senior management identifies major business
risks faced by the Group and determines the appropriate course of action to
manage these risks.
The Board regularly monitors all of the Group’s risks and appropriate
actions are taken to mitigate those risks or address their potential adverse
consequences. In addition, emerging risks and the current global uncertainties
were also considered as part of the year-end assessment. The process completed
for risk at the year-end focused on the principal risks and uncertainties for
Smurfit Kappa as a standalone entity.
However, consideration was also given to risks which arise specifically as a
result of the proposed Combination with WestRock, which included the
following: (1) Smurfit Kappa has incurred, and will incur, further fees and
costs in connection with the Combination, regardless of whether it is
completed, and these fees and costs may be greater than anticipated. Any delay
in the completion of the Combination would likely incur additional fees and
costs. In the event of a valid termination of the Combination by Smurfit
Kappa, termination fees may be payable by Smurfit Kappa to WestRock; and (2)
Smurfit Kappa has been, and will continue to, invest resources in the
Combination and the associated integration planning activities. In the event
that the Combination was not to complete, these resources could otherwise have
been spent in connection with other activities of Smurfit Kappa.
The principal risks and uncertainties facing the Group are summarised below.
* If the current economic climate were to deteriorate, for example as a result
of geopolitical uncertainty, trade tensions and/or a pandemic, it could result
in an increased economic slowdown which if sustained over any significant
length of time, could adversely affect the Group's financial position and
results of operations.
* The cyclical nature of the packaging industry could result in overcapacity and
consequently threaten the Group’s pricing structure.
* If operations at any of the Group’s facilities (in particular its key mills)
were interrupted for any significant length of time, it could adversely affect
the Group’s financial position and results of operations.
* Price fluctuations in energy and raw material costs could adversely affect the
Group’s manufacturing costs.
* The Group is exposed to currency exchange rate fluctuations.
* The Group may not be able to attract, develop and retain suitably qualified
employees as required for its business.
* Failure to maintain good health, safety and employee wellbeing practices may
have an adverse effect on the Group’s business.
* The Group is subject to a growing number of environmental and climate change
laws and regulations, and the cost of compliance or the failure to comply with
current and future laws and regulations may negatively affect the Group’s
business.
* The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
* The Group, similar to other large global companies, is susceptible to
cyber-attacks with the threat to the confidentiality, integrity and
availability of data in its systems.
* The global impact of climate change in the long-term could adversely affect
the Group’s business and results of operations.
The principal risks and uncertainties faced by the Group, were outlined in our
2022 Annual Report on pages 34 to 36. The Annual Report is available on our
website; smurfitkappa.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.smurfitkappa.com&esheet=53893049&newsitemid=20240206695504&lan=en-US&anchor=smurfitkappa.com&index=23&md5=98385e0fbcb1cf30826a99dc0b990c9d)
.
Consolidated Income Statement
For the Financial Year Ended 31 December 2023
2023 2022
Unaudited Audited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
€m €m €m €m €m €m
Revenue 11,272 - 11,272 12,815 - 12,815
Cost of sales (7,485) - (7,485) (8,752) - (8,752)
Gross profit 3,787 - 3,787 4,063 - 4,063
Distribution costs (927) - (927) (961) - (961)
Administrative expenses (1,457) - (1,457) (1,440) - (1,440)
Other operating expenses - (152) (152) - (223) (223)
Operating profit 1,403 (152) 1,251 1,662 (223) 1,439
Finance costs (234) (23) (257) (184) - (184)
Finance income 49 10 59 35 - 35
Share of associates’ profit (after tax) 2 - 2 3 - 3
Profit before income tax 1,220 (165) 1,055 1,516 (223) 1,293
Income tax expense (296) (348)
Profit for the financial year 759 945
Attributable to:
Owners of the parent 758 944
Non-controlling interests 1 1
Profit for the financial year 759 945
Earnings per share
Basic earnings per share - cent 293.5 365.3
Diluted earnings per share - cent 291.2 361.8
Consolidated Statement of Comprehensive Income
For the Financial Year Ended 31 December 2023
2023 2022
Unaudited Audited
€m €m
Profit for the financial year 759 945
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial year 12 (63)
- Recycled to Consolidated Income Statement 28 -
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve 5 -
- Fair value loss on cash flow hedges (1) (5)
Changes in fair value of cost of hedging:
- Movement out of reserve - (1)
44 (69)
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (46) 51
- Related tax 11 (8)
(35) 43
Total other comprehensive income/(expense) 9 (26)
Total comprehensive income for the financial year 768 919
Attributable to:
Owners of the parent 767 918
Non-controlling interests 1 1
Total comprehensive income for the financial year 768 919
Consolidated Balance Sheet
At 31 December 2023
2023 2022
Unaudited Audited
€m €m
ASSETS
Non-current assets
Property, plant and equipment 5,129 4,631
Right-of-use assets 353 345
Goodwill and intangible assets 2,670 2,672
Other investments 10 10
Investment in associates 19 16
Biological assets 156 100
Other receivables 39 39
Employee benefits assets 21 17
Derivative financial instruments - 2
Non-current income tax assets 12 -
Deferred income tax assets 138 141
8,547 7,973
Current assets
Inventories 1,023 1,231
Biological assets 13 10
Trade and other receivables 2,084 2,399
Derivative financial instruments 17 46
Current income tax assets 39 -
Cash and cash equivalents 905 788
4,081 4,474
Assets classified as held for sale - 35
4,081 4,509
Total assets 12,628 12,482
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital - -
Share premium 2,646 2,646
Other reserves 311 236
Retained earnings 2,603 2,143
Total equity attributable to owners of the parent 5,560 5,025
Non-controlling interests 14 13
Total equity 5,574 5,038
LIABILITIES
Non-current liabilities
Borrowings 3,570 3,600
Employee benefits liabilities 532 534
Derivative financial instruments 1 4
Deferred income tax liabilities 171 190
Non-current income tax liabilities - 16
Provisions for liabilities 41 37
Capital grants 34 26
Other payables 11 10
4,360 4,417
Current liabilities
Borrowings 175 180
Trade and other payables 2,378 2,642
Current income tax liabilities - 49
Derivative financial instruments 17 21
Provisions for liabilities 124 100
2,694 2,992
Liabilities associated with assets classified as held for sale - 35
2,694 3,027
Total liabilities 7,054 7,444
Total equity and liabilities 12,628 12,482
Consolidated Statement of Changes in Equity
For the Financial Year Ended 31 December 2023
Attributable to owners of the parent
Share Other Retained Total Total
Equity
premium
reserves
earnings
Non-
equity
share
controlling
capital
interests
€m €m €m €m €m €m €m
Unaudited
At 1 January 2023 - 2,646 236 2,143 5,025 13 5,038
Profit for the financial year - - - 758 758 1 759
Other comprehensive income -
Foreign currency translation adjustments - - 40 - 40 - 40
Defined benefit pension plans - - - (35) (35) - (35)
Effective portion of changes in fair value of cash flow hedges - - 4 - 4 - 4
Total comprehensive income for the financial year - - 44 723 767 1 768
Hyperinflation adjustment - - - 104 104 - 104
Dividends paid - - - (367) (367) - (367)
Share‑based payment - - 59 - 59 - 59
Shares acquired by SKG Employee Trust - - (28) - (28) - (28)
At 31 December 2023 - 2,646 311 2,603 5,560 14 5,574
Audited
At 1 January 2022 - 2,646 260 1,473 4,379 13 4,392
Profit for the financial year - - - 944 944 1 945
Other comprehensive income
Foreign currency translation adjustments - - (63) - (63) - (63)
Defined benefit pension plans - - - 43 43 - 43
Effective portion of changes in fair value of cash flow hedges - - (5) - (5) - (5)
Changes in fair value of cost of hedging - - (1) - (1) - (1)
Total comprehensive (expense)/income for the financial year - - (69) 987 918 1 919
Hyperinflation adjustment - - - 66 66 - 66
Dividends paid - - - (332) (332) (1) (333)
Share‑based payment - - 63 - 63 - 63
Share buyback - - (41) - (41) - (41)
Share cancellation - - 41 (41) - - -
Shares acquired by SKG Employee Trust - - (28) - (28) - (28)
Derecognition of equity instruments - - 10 (10) - - -
At 31 December 2022 - 2,646 236 2,143 5,025 13 5,038
An analysis of the movements in Other reserves is provided in Note 13.
Consolidated Statement of Cash Flows
For the Financial Year Ended 31 December 2023 2023 2022
Unaudited Audited
€m €m
Cash flows from operating activities
Profit before income tax 1,055 1,293
Net finance costs 198 149
Depreciation charge 587 581
Impairment of non-current assets 5 66
Impairment of goodwill - 85
Disposal of Russian operations 28 -
Amortisation of intangible assets 48 49
Amortisation of capital grants (4) (4)
Share‑based payment expense 61 65
Profit on sale of property, plant and equipment (12) (7)
Devaluation of the Argentinian Peso 30 -
Lease modifications (1) (3)
Share of associates’ profit (after tax) (2) (3)
Net movement in working capital 167 (350)
Change in biological assets (19) (2)
Change in employee benefits and other provisions (43) (19)
Other (primarily hyperinflation adjustments) 3 8
Cash generated from operations 2,101 1,908
Interest paid (178) (135)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (34) (24)
Overseas corporation tax (net of tax refunds) paid (372) (297)
Net cash inflow from operating activities 1,517 1,452
Cash flows from investing activities
Interest received 28 9
Additions to property, plant and equipment and biological assets (841) (873)
Additions to intangible assets (18) (17)
Receipt of capital grants 13 6
Purchase of investments - (1)
Disposal of property, plant and equipment 16 12
Dividends received from associates 1 1
Purchase of subsidiaries (net of acquired cash) (26) (90)
Deferred consideration paid (4) (14)
Net cash outflow from investing activities (831) (967)
Cash flows from financing activities
Share buyback - (41)
Purchase of own shares (28) (28)
(Decrease)/increase in other interest-bearing borrowings (46) 8
Repayment of lease liabilities (106) (103)
Derivative termination (payments)/receipts (3) 1
Dividends paid to non-controlling interests - (1)
Dividends paid to shareholders (367) (332)
Net cash outflow from financing activities (550) (496)
Increase/(decrease) in cash and cash equivalents 136 (11)
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 771 841
Currency translation adjustment (17) (59)
Increase/(decrease) in cash and cash equivalents 136 (11)
Cash and cash equivalents at 31 December 890 771
An analysis of the net movement in working capital is provided in Note 11.
Selected Explanatory Notes to the Consolidated Financial Statements
1. General Information
Smurfit Kappa Group plc (‘SKG plc’ or ‘the Company’) and its
subsidiaries (together ‘SKG’, ‘Smurfit Kappa’ or ‘the Group’)
primarily manufacture, distribute and sell containerboard, corrugated
containers and other paper-based packaging products. The Company is a public
limited company with a premium listing on the London Stock Exchange and a
secondary listing on Euronext Dublin. It is incorporated and domiciled in
Ireland. The address of its registered office is Beech Hill, Clonskeagh,
Dublin 4, D04 N2R2, Ireland.
Transaction Agreement with WestRock
On 12 September, 2023, the Company and WestRock Company, a public company
incorporated in Delaware (‘WestRock’) announced they had reached a
definitive agreement on the terms of a proposed combination (the
‘Transaction Agreement’) to be implemented through (i) an acquisition by
Smurfit WestRock Limited (to be renamed Smurfit WestRock plc) (‘Smurfit
WestRock’) of the entire issued share capital of Smurfit Kappa by means of a
scheme of arrangement under Section 450 of the Companies Act 2014 of Ireland
(the ‘Scheme’); and (ii) a merger of a subsidiary of Smurfit WestRock
(‘Merger Sub’) with and into WestRock (the ‘Merger’ and together with
the Scheme, the ‘Combination’).
Under the terms of the Transaction Agreement:
1. for each share of common stock of WestRock (a ‘WestRock Share’), the
common stockholders of WestRock will receive one new Smurfit WestRock share
and $5.00 in cash; and
2. for each ordinary share of the Company (a ‘Smurfit Kappa Share’), the
shareholders of the Company will receive one new Smurfit WestRock share.
Following completion of the Combination (‘Completion’), Smurfit WestRock
will be the parent company of the combined group. The combined group will be
headquartered and domiciled in Dublin, Ireland, with North and South American
headquarters in Atlanta, Georgia, U.S. Smurfit WestRock will have a dual
listing on the New York Stock Exchange (‘NYSE’) and the standard listing
segment of the Official List of the Financial Conduct Authority (‘FCA’),
and the shares of Smurfit WestRock (the ‘Smurfit WestRock Shares’) will be
admitted to trading on the NYSE and the main market for listed securities of
the London Stock Exchange (‘LSE’).
The Combination is subject to certain conditions set forth in the Transaction
Agreement, including, but not limited to: certain regulatory clearances,
approval by the shareholders of the Company and stockholders of WestRock,
sanction of the Scheme by the High Court of Ireland, the US registration
statement for the offer of the shares of Smurfit WestRock being declared
effective by the Securities and Exchange Commission (‘SEC’), approval of
the shares of Smurfit WestRock for listing on the NYSE, and approval of the
shares of Smurfit WestRock for listing on the Official List of the FCA.
Subject to shareholder approval and other closing conditions, the Combination
is expected to close in early July 2024.
The Transaction Agreement contains certain termination rights for both
parties. Each of the Company and WestRock may be required to make payments to
the other party in connection with the termination of the Transaction
Agreement under specified circumstances.
2. Basis of Preparation and Accounting Policies
Basis of preparation and accounting policies
The Consolidated Financial Statements of the Group are prepared in accordance
with International Financial Reporting Standards (‘IFRS’) issued by the
International Accounting Standards Board (‘IASB’) as adopted by the
European Union (‘EU’); and those parts of the Companies Act 2014
applicable to companies reporting under IFRS.
The financial information in this report has been prepared in accordance with
the Group’s accounting policies. Full details of the accounting policies
adopted by the Group are contained in the Consolidated Financial Statements
included in the Group’s Annual Report for the year ended 31 December 2022
which is available on the Group’s website; smurfitkappa.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.smurfitkappa.com&esheet=53893049&newsitemid=20240206695504&lan=en-US&anchor=smurfitkappa.com&index=24&md5=9048bf81dafef51be1384de4b85ec115)
. The accounting policies adopted by the Group and the significant accounting
judgements, estimates and assumptions made by management in the preparation of
the Group financial information are consistent with those described and
applied in the Annual Report for the year ended 31 December 2022. A number of
changes to IFRS became effective in 2023, however, they did not have a
material effect on the Consolidated Financial Statements included in this
report.
2. Basis of Preparation and Accounting Policies (continued)
Going concern
The Group is a highly integrated manufacturer of paper-based packaging
solutions with leading market positions, quality assets and broad geographic
reach. The financial position of the Group, its cash generation, capital
resources and liquidity continue to provide a stable financing platform.
The Group’s diversified funding base and long-dated maturity profile of 4.0
years at 31 December 2023 provide a stable funding outlook. At 31 December
2023, the Group had a strong liquidity position of approximately €2.56
billion comprising cash balances of €905 million, undrawn available
committed facilities of €1,346 million on its RCF and €312 million on its
sustainability-linked securitisation facilities. At 31 December 2023, the
strength of the Group’s balance sheet, a net debt to EBITDA ratio of 1.4x
(31 December 2022: 1.3x) and its investment grade credit ratings, continues to
secure long-term strategic and financial flexibility.
Having assessed the principal risks facing the Group on page 13, together with
the Group’s forecasts and significant financial headroom, the Directors
believe that the Group is well placed to manage these risks successfully and
have a reasonable expectation that the Company, and the Group as a whole, have
adequate resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going concern basis in
preparing the Consolidated Financial Statements.
The financial model upon which the stress test scenarios are applied to assess
the viability of the Group do not incorporate financial modelling resulting
from the proposed combination with WestRock, or the finance bridging facility
put in place.
Statutory financial statements and audit opinion
The financial information presented in this preliminary release does not
constitute full statutory financial statements. The Annual Report and
Financial Statements will be approved by the Board of Directors and reported
on by the Auditor in due course. Accordingly, the financial information is
unaudited. Full statutory financial statements for the year ended 31 December
2022 have been filed with the Irish Registrar of Companies. The audit report
on those statutory financial statements was unqualified.
This preliminary release was approved by the Board of Directors.
3. Segment and Revenue Information
The Group has identified operating segments based on the manner in which
reports are reviewed by the chief operating decision maker (‘CODM’). The
CODM is determined to be the executive management team responsible for
assessing performance, allocating resources and making strategic decisions.
The Group has identified two operating segments: 1) Europe and 2) the
Americas.
The Europe and the Americas segments are each highly integrated. They include
a system of mills and plants that primarily produce a full line of
containerboard that is converted into corrugated containers within each
segment. In addition, the Europe segment also produces other types of paper,
such as solidboard, sack kraft paper and graphic paper; and other paper-based
packaging, such as solidboard packaging and folding cartons; and Bag-in-Box
packaging. The Americas segment, which includes a number of Latin American
countries and the United States, also comprises forestry; other types of
paper, such as boxboard, sack paper and graphic paper; and paper-based
packaging, such as folding cartons and paper sacks. Inter-segment revenue is
not material. No operating segments have been aggregated for disclosure
purposes.
Segment profit is measured based on EBITDA.
FY 2023 FY 2022
Europe The Total Europe The Total
Americas
Americas
€m €m €m €m €m €m
Revenue and results
Revenue 8,496 2,776 11,272 9,900 2,915 12,815
EBITDA 1,593 557 2,150 1,846 553 2,399
Segment exceptional items (49) (40) (89) (58) (14) (72)
EBITDA after exceptional items 1,544 517 2,061 1,788 539 2,327
Unallocated centre costs (70) (44)
Share-based payment expense (61) (65)
Depreciation and depletion (net)* (568) (579)
Amortisation (48) (49)
Impairment of non-current assets (5) (66)
Impairment of goodwill - (85)
Exceptional costs (58) -
Finance costs (257) (184)
Finance income 59 35
Share of associates’ profit (after tax) 2 3
Profit before income tax 1,055 1,293
Income tax expense (296) (348)
Profit for the financial year 759 945
* Depreciation and depletion is net of fair value adjustments arising on
biological assets.
3. Segment and Revenue Information (continued)
H2 2023 H2 2022
Unaudited Unaudited
Europe The Total Europe The Total
Americas
Americas
€m €m €m €m €m €m
Revenue and results
Revenue 4,012 1,423 5,435 4,961 1,469 6,430
EBITDA 725 283 1,008 920 282 1,202
Segment exceptional items (15) (40) (55) (58) (14) (72)
EBITDA after exceptional items 710 243 953 862 268 1,130
Unallocated centre costs (41) (21)
Share-based payment expense (28) (34)
Depreciation and depletion (net)* (290) (300)
Amortisation (25) (24)
Impairment of non-current assets (5) (66)
Impairment of goodwill - (85)
Exceptional items (58) -
Finance costs (147) (99)
Finance income 36 21
Share of associates’ profit (after tax) 1 2
Profit before income tax 396 524
Income tax expense (113) (153)
Profit for the financial period 283 371
* Depreciation and depletion is net of fair value adjustments arising on
biological assets.
Revenue information about geographical areas
The Group has a presence in 36 countries worldwide. The following information
is a geographical revenue analysis about country of domicile (Ireland) and
countries with material revenue.
2023 2022
€m €m
Ireland 118 118
Germany 1,567 1,861
France 1,379 1,521
Mexico 1,242 1,296
Other Europe* - eurozone 3,192 3,787
Other Europe* - non-eurozone 2,181 2,566
Other Americas* 1,593 1,666
Total revenue by geographical area 11,272 12,815
* No individual country represents greater than 10% of revenue.
Revenue is derived almost entirely from the sale of goods and is disclosed
based on the location of production.
3. Segment and Revenue Information (continued)
Disaggregation of revenue
The Group derives revenue from the following major product lines. The economic
factors which affect the nature, amount, timing and uncertainty of revenue and
cash flows from the sub categories of both paper and packaging products are
similar.
2023 2022
Paper Packaging Total Paper Packaging Total
€m €m €m €m €m €m
Europe 1,276 7,220 8,496 1,828 8,072 9,900
The Americas 148 2,628 2,776 254 2,661 2,915
Total revenue by product 1,424 9,848 11,272 2,082 10,733 12,815
Packaging revenue is derived mainly from the sale of corrugated products. The
remainder of packaging revenue is comprised of Bag-in-Box and other
paper-based packaging products.
4. Exceptional Items
2023 2022
€m €m
The following items are regarded as exceptional in nature:
Costs associated with the proposed WestRock combination 58 -
Disposal of Russian operations 34 128
Devaluation of the Argentinian Peso 30 -
Redundancy and reorganisation costs 11 14
Closure of operations 19 -
Impairment of goodwill - 67
Impairment of non-current assets - 14
Exceptional items included in operating profit 152 223
Exceptional finance costs 23 -
Exceptional finance income (10) -
Exceptional items included in net finance costs 13 -
Total exceptional items 165 223
Exceptional items charged within operating profit in 2023 amounted to €152
million, €58 million of this related to costs associated with the proposed
WestRock combination, €34 million related to currency recycling, impairment
of residual assets up to the date of disposal and other costs associated with
the disposal of our Russian operations, €30 million due to the devaluation
of the Argentinian Peso, €11 million related to redundancy and
reorganisation costs in the Americas and €14 million and €5 million
respectively for the closure of our operations and impairment of property,
plant and equipment in Alfa d’Avignon, France.
Exceptional items charged within operating profit in 2022 amounted to €223
million, of which €128 million related to the impairment of assets in our
Russian operations, €56 million and €11 million respectively for the
impairment of goodwill in Argentina and Peru, €14 million for redundancy and
reorganisation costs in the Americas along with €14 million for the
impairment of property, plant and equipment in our North American operations.
Net exceptional finance items charged in 2023 amounted to €13 million and
related to bond consent and bridge facility fees regarding the proposed
combination with WestRock, partly offset by an exceptional item in relation to
the devaluation of the Argentinian Peso.
There were no exceptional finance items in 2022.
5. Finance Costs and Income
2023 2022
€m €m
Finance costs:
Interest payable on bank loans and overdrafts 46 49
Interest payable on leases 12 10
Interest payable on other borrowings 101 91
Bond consent and bridge facility fees – exceptional 23 -
Foreign currency translation loss on debt 30 24
Fair value loss on financial assets - 2
Interest cost on net pension liability 19 8
Net monetary loss - hyperinflation 26 -
Total finance costs 257 184
Finance income:
Other interest receivable (30) (9)
Foreign currency translation gain on debt (18) (13)
Fair value gain on derivatives not designated as hedges (1) (4)
Devaluation of the Argentinian Peso – exceptional (10) -
Net monetary gain - hyperinflation - (9)
Total finance income (59) (35)
Net finance cost 198 149
6. Income Tax Expense
Income tax expense recognised in the Consolidated Income Statement
2023 2022
€m €m
Current tax:
Europe 221 249
The Americas 78 100
299 349
Deferred tax (3) (1)
Income tax expense 296 348
Current tax is analysed as follows:
Ireland 41 31
Foreign 258 318
299 349
Income tax recognised in the Consolidated Statement of Comprehensive Income
2023 2022
€m €m
Arising on defined benefit pension plans (11) 8
The income tax expense for the financial year 2023 is €52 million lower than
in the comparable period in 2022, primarily due to lower profitability.
There is a €2 million increase in the deferred tax credit compared to the
prior year. The movement is largely due to the reversal of timing differences
on which deferred tax was previously recognised, offset by the recognition of
other tax benefits and credits.
In 2023, there is a tax credit of €22 million on exceptional items compared
to a €20 million tax credit in the prior year.
7. Employee Benefits – Defined Benefit Plans
The table below sets out the components of the defined benefit cost for the
year:
2023 2022
€m €m
Current service cost 28 39
Actuarial gain arising on other long-term employee benefits - (4)
Past service cost 3 -
Net interest cost on net pension liability 19 8
Defined benefit cost 50 43
Analysis of actuarial (losses)/gains recognised in the Consolidated Statement
of Comprehensive Income:
2023 2022
€m €m
Gain/(loss) on plan assets (excluding interest income) 57 (660)
Actuarial loss due to experience adjustments (30) (41)
Actuarial (loss)/gain due to changes in financial assumptions (70) 746
Actuarial gain due to changes in demographic assumptions - 6
Effect of asset ceiling (3) -
Total (loss)/gain recognised in the Consolidated Statement of Comprehensive (46) 51
Income
The following is a summary of the Group’s employee benefit obligations and
their related funding status:
2023 2022
€m €m
Present value of funded or partially funded obligations (1,807) (1,713)
Fair value of plan assets 1,736 1,608
Deficit in funded or partially funded plans (71) (105)
Present value of wholly unfunded obligations (435) (410)
Amounts not recognised as assets due to asset ceiling (5) (2)
Net pension liability (511) (517)
Defined Benefit Asset (for overfunded plans) 21 17
Defined Benefit Liability (for unfunded and partially funded plans) (532) (534)
8. Earnings per Share (‘EPS’)
Basic
Basic EPS is calculated by dividing the profit attributable to owners of the
parent by the weighted average number of ordinary shares in issue during the
year less own shares.
2023 2022
Profit attributable to owners of the parent (€ million) 758 944
Weighted average number of ordinary shares in issue (million) 258 258
Basic EPS (cent) 293.5 365.3
Diluted
Diluted EPS is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary
shares. These comprise deferred and performance shares issued under the
Group’s long-term incentive plans. Where the conditions governing
exercisability and vesting of these shares have been satisfied as at the end
of the reporting period, they are included in the computation of diluted
earnings per ordinary share.
2023 2022
Profit attributable to owners of the parent (€ million) 758 944
Weighted average number of ordinary shares in issue (million) 258 258
Potential dilutive ordinary shares assumed (million) 2 3
Diluted weighted average ordinary shares (million) 260 261
Diluted EPS (cent) 291.2 361.8
Pre-exceptional
2023 2022
Profit attributable to owners of the parent (€ million) 758 944
Exceptional items included in profit before income tax (€ million) 165 223
Income tax on exceptional items (€ million) (22) (20)
Pre-exceptional profit attributable to owners of the parent (€ million) 901 1,147
Weighted average number of ordinary shares in issue (million) 258 258
Pre-exceptional basic EPS (cent) 348.7 444.1
Diluted weighted average ordinary shares (million) 260 261
Pre-exceptional diluted EPS (cent) 346.0 439.8
9. Dividends
The following dividends were declared and paid by the Group.
2023 2022
€m €m
Final: paid 107.6 cent per ordinary share on 12 May 2023 (2022: paid 96.1 cent 280 250
per ordinary share on 6 May 2022)
Interim: paid 33.5 cent per ordinary share on 27 October 2023 (2022: paid 31.6 87 82
cent per ordinary share on 28 October 2022)
367 332
The Board is recommending a 10% increase in the final dividend to 118.4 cent
per share (approximately €309 million). It is proposed to pay this dividend
on 10 May 2024 to all ordinary shareholders on the share register at the close
of business on 12 April 2024, subject to the approval of the shareholders at
the AGM.
10. Property, Plant and Equipment
Land and Plant and Total
buildings
equipment
€m €m €m
Financial year ended 31 December 2023
Opening net book amount 1,269 3,362 4,631
Reclassifications 190 (188) 2
Additions - 901 901
Acquisitions 8 9 17
Depreciation charge (64) (420) (484)
Impairments - (5) (5)
Retirements and disposals (1) (3) (4)
Hyperinflation adjustment 17 49 66
Foreign currency translation adjustment (6) 11 5
At 31 December 2023 1,413 3,716 5,129
Financial year ended 31 December 2022
Opening net book amount 1,175 3,090 4,265
Reclassifications 115 (112) 3
Additions 21 817 838
Acquisitions 43 15 58
Depreciation charge (62) (421) (483)
Impairments (25) (37) (62)
Retirements and disposals (1) (2) (3)
Hyperinflation adjustment 8 36 44
Foreign currency translation adjustment (5) (24) (29)
At 31 December 2022 1,269 3,362 4,631
11. Net Movement in Working Capital
2023 2022
€m €m
Change in inventories 196 (187)
Change in trade and other receivables 267 (238)
Change in trade and other payables (296) 75
Net movement in working capital 167 (350)
12. Analysis of Net Debt
2023 2022
€m €m
Revolving credit facility due 2026 ((1)) 1 4
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest) 267 276
Bank loans and overdrafts 76 110
€100 million receivables securitisation VFNs due 2026 (including accrued 5 4
interest) ((2))
€230 million receivables securitisation VFNs due 2026 ((3)) 11 11
€250 million 2.75% senior notes due 2025 (including accrued interest) 252 252
€1,000 million 2.875% senior notes due 2026 (including accrued interest) 1,010 1,008
€750 million 1.5% senior notes due 2027 (including accrued interest) 749 748
€500 million 0.5% senior green notes due 2029 (including accrued interest) 497 496
€500 million 1.0% senior green notes due 2033 (including accrued interest) 497 497
Gross debt before leases 3,365 3,406
Leases 380 374
Gross debt including leases 3,745 3,780
Cash and cash equivalents (905) (788)
Net debt including leases 2,840 2,992
(1) At 31 December 2023, the following amounts were drawn under this facility:
(a) Revolver loans - €4 million
(b) Drawn under ancillary facilities and facilities supported by letters of credit – nil
(c) Other operational facilities including letters of credit - nil
(2) At 31 December 2023, the amount drawn under this facility was €5 million.
(3) At 31 December 2023, the amount drawn under this facility was €13 million.
In connection with the proposed WestRock combination, we entered into a Bridge
facility agreement in the amount of US$1,500 million which is available to
finance the cash consideration and any fees, commissions, costs and expenses
in connection with the proposed combination. At 31 December 2023, the facility
was undrawn.
13. Other Reserves
Other reserves included in the Consolidated Statement of Changes in Equity are
comprised of the following:
Reverse Cash Cost of Foreign Share- Own FVOCI
acquisition
flow
hedging
currency
based
shares
reserve
reserve
hedging
reserve
translation
payment
Total
reserve
reserve
reserve
€m €m €m €m €m €m €m €m
At 1 January 2023 575 (4) - (604) 334 (65) - 236
Other comprehensive income
Foreign currency translation adjustments - - - 40 - - - 40
Effective portion of changes in fair value of cash flow hedges - 4 - - - - - 4
Total other comprehensive income - 4 - 40 - - - 44
Share‑based payment - - - - 59 - - 59
Shares acquired by SKG Employee Trust - - - - - (28) - (28)
Shares distributed by SKG Employee Trust - - - - (16) 16 - -
At 31 December 2023 575 - - (564) 377 (77) - 311
At 1 January 2022 575 1 1 (541) 293 (59) (10) 260
Other comprehensive income
Foreign currency translation adjustments - - - (63) - - - (63)
Effective portion of changes in fair value of cash flow hedges - (5) - - - - - (5)
Changes in fair value of cost of hedging - - (1) - - - - (1)
Total other comprehensive expense - (5) (1) (63) - - - (69)
Share‑based payment - - - - 63 - - 63
Shares acquired by SKG Employee Trust - - - - - (28) - (28)
Shares distributed by SKG Employee Trust - - - - (22) 22 - -
Share buyback - - - - - (41) - (41)
Share cancellation - - - - - 41 - 41
Derecognition of equity instruments - - - - - - 10 10
At 31 December 2022 575 (4) - (604) 334 (65) - 236
Supplementary Financial Information
Alternative Performance Measures
The Group uses certain financial measures as set out below in order to
evaluate the Group’s financial performance. These Alternative Performance
Measures (‘APMs’) are not defined under IFRS and are presented because we
believe that they, and similar measures, provide both SKG management and users
of the Consolidated Financial Statements with useful additional financial
information when evaluating the Group’s operating and financial performance.
These measures may not be comparable to other similarly titled measures used
by other companies, and are not measurements under IFRS or other generally
accepted accounting principles, and they should not be considered in isolation
or as substitutes for the information contained in our Consolidated Financial
Statements.
Please note where referenced ‘CIS’ refers to Consolidated Income
Statement, ‘CBS’ refers to Consolidated Balance Sheet and ‘CSCF’
refers to Consolidated Statement of Cash Flows.
The principal APMs used by the Group, together with reconciliations where the
non-IFRS measures are not readily identifiable from the Consolidated Financial
Statements, are as follows:
A. EBITDA
Definition
EBITDA is earnings before exceptional items, share-based payment expense,
share of associates’ profit (after tax), net finance costs, income tax
expense, depreciation and depletion (net) and intangible assets amortisation.
It is an appropriate and useful measure used to compare recurring financial
performance between periods.
Reconciliation of Profit to EBITDA
Reference 2023 2022
€m
€m
Profit for the financial year CIS 759 945
Income tax expense (after exceptional items) CIS 296 348
Exceptional items charged in operating profit CIS 152 223
Net finance costs (after exceptional items) Note 5 198 149
Share of associates’ profit (after tax) CIS (2) (3)
Share-based payment expense Note 3 61 65
Depreciation, depletion (net) and amortisation Note 3 616 628
EBITDA 2,080 2,355
B. EBITDA margin
Definition
EBITDA margin is a measure of profitability by taking our EBITDA divided by
revenue.
Reference 2023 2022
€m
€m
EBITDA A 2,080 2,355
Revenue CIS 11,272 12,815
EBITDA margin 18.5% 18.4%
Alternative Performance Measures (continued)
C. Operating profit before exceptional items
Definition
Operating profit before exceptional items represents operating profit as
reported in the Consolidated Income Statement before exceptional items.
Exceptional items are excluded in order to assess the underlying financial
performance of our operations.
Reference 2023 2022
€m
€m
Operating profit CIS 1,251 1,439
Exceptional items CIS 152 223
Operating profit before exceptional items CIS 1,403 1,662
D. Pre-exceptional basic earnings per share
Definition
Pre-exceptional basic EPS serves as an effective indicator of our
profitability as it excludes exceptional one‑off items and, in conjunction
with other metrics such as ROCE, is a measure of our financial strength.
Pre‑exceptional basic EPS is calculated by dividing profit attributable to
owners of the parent, adjusted for exceptional items included in profit before
income tax and income tax on exceptional items, by the weighted average number
of ordinary shares in issue. The calculation of pre-exceptional basic EPS is
shown in Note 8.
E. Underlying EBITDA and revenue
Definition
Underlying EBITDA and revenue are arrived at by excluding the incremental
EBITDA and revenue contributions from current and prior year acquisitions and
disposals and the impact of currency translation, hyperinflation and any
non-recurring items.
The Group uses underlying EBITDA and underlying revenue as additional
performance indicators to assess performance on a like-for-like basis each
year.
Europe The Americas Total Europe The Americas Total
2023
2023
2023
2022
2022
2022
EBITDA
Currency (2%) (2%) (2%) - 7% 2%
Hyperinflation - 2% - - - -
Acquisitions/disposals (2%) 1% (1%) 1% 5% 2%
Underlying EBITDA change (10%) - (9%) 41% 13% 34%
Reported EBITDA change (14%) 1% (12%) 42% 25% 38%
Revenue
Currency (1%) (4%) (1%) - 7% 2%
Hyperinflation - 4% 1% - 2% -
Acquisitions/disposals (1%) 1% (1%) 2% 4% 2%
Underlying revenue change (12%) (6%) (11%) 24% 16% 23%
Reported revenue change (14%) (5%) (12%) 26% 29% 27%
Alternative Performance Measures (continued)
F. Net debt
Definition
Net debt comprises borrowings net of cash and cash equivalents. We believe
that this measure highlights the overall movement resulting from our operating
and financial performance.
Reference 2023 2022
€m
€m
Borrowings Note 12 3,745 3,780
Less:
Cash and cash equivalents CBS (905) (788)
Net debt 2,840 2,992
G. Net debt to EBITDA
Definition
Leverage (ratio of net debt to EBITDA) is an important measure of our overall
financial position.
Reference 2023 2022
€m
€m
Net debt F 2,840 2,992
EBITDA A 2,080 2,355
Net debt to EBITDA (times) 1.4 1.3
H. Return on capital employed (‘ROCE’)
Definition
ROCE measures profit from capital employed. It is calculated as operating
profit before exceptional items plus share of associates’ profit (after tax)
divided by the average capital employed (where average capital employed is the
average of total equity and net debt at the current and prior year-end).
Reference 2023 2022
€m
€m
Operating profit before exceptional items C 1,403 1,662
Share of associates’ profit (after tax) CIS 2 3
Operating profit before exceptional items plus share of associates’ profit 1,405 1,665
(after tax)
Total equity – current year-end CBS 5,574 5,038
Net debt – current year-end F 2,840 2,992
Capital employed – current year-end 8,414 8,030
Total equity – prior year-end CBS 5,038 4,392
Net debt – prior year-end F 2,992 2,885
Capital employed – prior year-end 8,030 7,277
Average capital employed 8,222 7,654
Return on capital employed 17.1% 21.8%
Alternative Performance Measures (continued)
I. Working capital
Definition
Working capital represents total inventories, trade and other receivables and
trade and other payables.
Reference 2023 2022
€m
€m
Inventories CBS 1,023 1,231
Trade and other receivables (current and non-current) CBS 2,123 2,438
Trade and other payables CBS (2,378) (2,642)
Working capital 768 1,027
J. Working capital as a percentage of sales
Definition
Working capital as a percentage of sales represents working capital as defined
above shown as a percentage of annualised quarterly revenue.
Reference 2023 2022
€m
€m
Working capital I 768 1,027
Annualised quarterly revenue 10,958 12,361
Working capital as a percentage of sales 7.0% 8.3%
Alternative Performance Measures (continued)
K. Summary cash flow
Definition
The summary cash flow is prepared on a different basis to the Consolidated
Statement of Cash Flows and as such the reconciling items between EBITDA and
increase in net debt may differ from amounts presented in the Consolidated
Statement of Cash Flows. The summary cash flow details movements in net debt.
The Consolidated Statement of Cash Flows details movements in cash and cash
equivalents.
Reconciliation of the Summary Cash Flow to the Consolidated Statement of Cash
Flows
2023 2022
Reference €m €m
EBITDA A 2,080 2,355
Exceptional items K.1 (49) (3)
Cash interest expense K.2 (123) (132)
Working capital change K.3 148 (358)
Capital expenditure K.4 (1,056) (970)
Change in capital creditors K.4 73 (24)
Tax paid CSCF (406) (321)
Change in employee benefits and other provisions K.6 (66) (25)
Other K.7 27 23
Free cash flow L 628 545
Disposal of Russian operations L 1 (50)
Share buyback CSCF - (41)
Purchase of own shares CSCF (28) (28)
Purchase of businesses, investments and NCI K.8 (30) (110)
Dividends CSCF (367) (333)
Derivative termination (payments)/receipts CSCF (3) 1
Bond consent and bridge facility fees K.2 (23) -
Net cash inflow/(outflow) 178 (16)
Acquired net debt K.9 - (3)
Deferred debt issue costs amortised (7) (7)
Currency translation adjustment (19) (81)
Decrease/(increase) in net debt 152 (107)
K.1 Exceptional items
2023 2022
€m
€m
Redundancy and reorganisation costs - paid (2) (3)
Costs associated with the proposed WestRock combination – paid (47) -
Per summary cash flow (49) (3)
Alternative Performance Measures (continued)
K.2 Cash interest expense
Reference 2023 2022
€m
€m
Interest paid CSCF (178) (135)
Interest received CSCF 28 9
Move in accrued interest 4 (6)
Bond consent and bridge facility fees K 23 -
Per summary cash flow (123) (132)
K.3 Working capital change
Reference 2023 2022
€m
€m
Net movement in working capital CSCF 167 (350)
Impairment loss on Russian trade receivables (8) (8)
Costs associated with the proposed WestRock combination – unpaid (11) -
Per summary cash flow 148 (358)
K.4 Capital expenditure
Reference 2023 2022
€m
€m
Additions to property, plant and equipment and biological assets CSCF (841) (873)
Additions to intangible assets CSCF (18) (17)
Additions to right-of-use assets (124) (104)
Change in capital creditors K (73) 24
Per summary cash flow 1,056 (970)
K.5 Capital expenditure as a percentage of depreciation
Reference 2023 2022
€m
€m
Capital expenditure K.4 1,056 970
Depreciation, depletion (net) and amortisation A 616 628
Capital expenditure as a percentage of depreciation 171% 155%
Alternative Performance Measures (continued)
K.6 Change in employee benefits and other provisions
Reference 2023 2022
€m
€m
Change in employee benefits and other provisions CSCF (43) (19)
Reorganisation and restructuring costs - unpaid K.6.1 (9) (11)
Closure of operations – unpaid K.6.2 (14) -
Right-of-use asset retirement obligation L - 5
Per summary cash flow (66) (25)
K.6.1 Reorganisation and restructuring costs
The change in the provision relating to exceptional redundancy and
reorganisation costs is not included in the summary cash flow as it is not
within EBITDA. Exceptional redundancy and reorganisation costs which were paid
in 2023 and 2022 are shown as a separate line item within ‘Exceptional
items’ in the summary cash flow.
K.6.2 Closure of operations
The change in the provision relating to exceptional closure of operations
costs is not included in the summary cash flow as it is not within EBITDA.
K.7 Other
Reference 2023 2022
€m
€m
Other within the summary cash flow comprises the following:
Amortisation of capital grants CSCF (4) (4)
Profit on sale of property, plant and equipment CSCF (12) (7)
Other (primarily hyperinflation adjustments) CSCF 3 8
Receipt of capital grants CSCF 13 6
Disposal of property, plant and equipment CSCF 16 12
Dividends received from associates CSCF 1 1
Right-of-use asset terminations/modifications L 10 7
Per summary cash flow 27 23
K.8 Purchase of businesses, investments and NCI
Reference 2023 2022
€m
€m
Purchase of subsidiaries (net of acquired cash) CSCF (26) (90)
Deferred consideration paid CSCF (4) (14)
Acquired cash and cash equivalents K.9 - (6)
Per summary cash flow (30) (110)
Alternative Performance Measures (continued)
K.9 Acquired net debt
Reference 2023 2022
€m
€m
Acquired debt - (9)
Acquired cash and cash equivalents K.8 - 6
Per summary cash flow - (3)
L. Free cash flow (‘FCF’)
Definition
FCF is the result of the cash inflows and outflows from our operating
activities, and is before those arising from acquisition and disposal of
businesses. We use FCF to assess and understand the total operating
performance of the business and to identify underlying trends.
Reconciliation of Free Cash Flow to Cash Generated from Operations
Reference 2023 2022
€m
€m
Free cash flow K 628 545
Reconciling items:
Cash interest expense K.2 123 132
Capital expenditure (net of change in capital creditors) K.4 983 994
Tax payments CSCF 406 321
Disposal of property, plant and equipment CSCF (16) (12)
Right-of-use asset terminations/modifications K.7 (10) (7)
Receipt of capital grants CSCF (13) (6)
Dividends received from associates CSCF (1) (1)
Disposal of Russian operations K 1 (50)
Right-of-use asset retirement obligation K.6 - (5)
Lease modifications CSCF (1) (3)
Non-cash financing activities 1 -
Cash generated from operations CSCF 2,101 1,908
________________________________
(1) Additional information in relation to these Alternative Performance Measures is set out in Supplementary Financial Information on pages 31 to 38.
(2) On 12 September 2023, Smurfit Kappa and WestRock Company (‘WestRock’)
announced that they had reached a definitive agreement on the terms of a
proposed combination (‘the ‘Combination’).
(3) Additional information on underlying performance is set out within
Supplementary Financial Information on pages 31 to 38.
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