REG-Smurfit Kappa Group PLC Half-year Report
27/07/2022 07:00
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Half-year Report
Smurfit Kappa Group plc (‘SKG’ or ‘the Group’) today announced results
for the half year ending 30 June 2022.
2022 Half Year | Key Financial Performance Measures
€m H1 H1 Change
2022
2021
Revenue €6,385 €4,679 36%
EBITDA (1) €1,174 €781 50%
EBITDA Margin (1) 18.4% 16.7%
Operating Profit before Exceptional Items (1) €839 €477 76%
Profit before Income Tax €769 €413 86%
Basic EPS (cent) 221.9 119.9 85%
Pre-exceptional Basic EPS (cent) (1) 221.9 119.9 85%
Free Cash Flow (1) (€28) €117 (123%)
Return on Capital Employed (1) 19.3% 14.8%
Net Debt (1) €3,309 €2,549 30%
Net Debt to EBITDA (LTM) (1) 1.6x 1.6x
Key Points:
* Revenue growth of 36% to €6,385 million
* EBITDA growth of 50% to €1,174 million with an EBITDA margin of 18.4%
* EPS growth of 85% to 221.9 cent
* ROCE of 19.3%
* Interim dividend increased by 8% to 31.6 cent per share
Performance Review and Outlook
Tony Smurfit, Group CEO, commented:
“I am pleased to report a strong first half performance with revenue growth
of 36%, EBITDA of €1,174 million, an EBITDA margin of 18.4%, EPS growth of
85% and ROCE of 19.3%.
“Our strong performance is a result of the many actions we have taken over a
number of years. These actions include significant customer-focused
investments to meet growth, providing the most innovative and sustainable
paper-based packaging in the marketplace and selective acquisitions ensuring
security of supply to our customers.
“In the first half of 2022, we have overcome many challenges including
sharply increasing input costs, logistics and supply chain constraints,
COVID-19 disruption and the impact of the war in Ukraine. SKG's integrated
model, our geographic diversity, our continued focus on efficiency through
investment and our bespoke business applications, have enabled us to offset
these challenges together with paper and corrugated price recovery.
“I am especially proud of the tremendous efforts of our people who continue
to deliver for our customers under these circumstances. Our performance-led
culture has allowed us to go from strength to strength, building on our
leadership position in the markets in which we operate.
“Both our regions performed strongly during the first six months, with
Europe reporting EBITDA of €926 million with an EBITDA margin of 18.7% and
the Americas reporting EBITDA of €271 million with an EBITDA margin of
18.8%. Box volume growth for the first six months versus last year was 2.5%.
“During the first half, we completed the acquisition of two corrugated
converting operations in the UK and Argentina and we announced the development
of our new corrugated operation in Morocco.
“In April, we published our 15(th) Sustainable Development Report which
highlighted the significant progress made in 2021 across our key metrics.
These included a further 6% reduction in carbon intensity, a reduction in
water consumption of over 6% and a decrease in waste to landfill intensity of
7% over the previous year.
“In Smurfit Kappa, we are very confident about our future prospects.
Inevitably, with the current global issues that surround us there are greater
uncertainties than we have seen for some time. Nevertheless, we continue to
see many opportunities for growth in the sustainable and innovative packaging
solutions that we offer customers and the unique footprint of the businesses
we operate. Our first half performance has set a strong foundation for the
remainder of 2022 and beyond.
“Reflecting the confidence in the quality of our business and its future
prospects, the Board has approved an 8% increase in the interim dividend.”
About Smurfit Kappa
Smurfit Kappa, a FTSE 100 company, is one of the leading providers of
paper-based packaging solutions in the world, with approximately 48,000
employees in over 350 production sites across 36 countries and with revenue of
€10.1 billion in 2021. We are located in 23 countries in Europe, and 13 in
the Americas. We are the only large-scale pan-regional player in Latin
America. Our products, which are 100% renewable and produced sustainably,
improve the environmental footprint of our customers.
With our proactive team, we relentlessly use our extensive experience and
expertise, supported by our scale, to open up opportunities for our customers.
We collaborate with forward-thinking customers by sharing superior product
knowledge, market understanding and insights in packaging trends to ensure
business success in their markets. We have an unrivalled portfolio of
paper-based packaging solutions, which is constantly updated with our
market-leading innovations. This is enhanced through the benefits of our
integration, with optimal paper design, logistics, timeliness of service, and
our packaging plants sourcing most of their raw materials from our own paper
mills.
We have a proud tradition of supporting social, environmental and community
initiatives in the countries where we operate. Through these projects we
support the UN Sustainable Development Goals, focusing on where we believe we
have the greatest impact.
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Forward Looking Statements
This Announcement contains certain statements that are forward-looking.
Forward-looking statements are prospective in nature and are not based on
historical facts, but rather on current expectations of the Group about future
events, and involve risks and uncertainties because they relate to events and
depend on circumstances that will occur in the future. Although the Group
believes that current expectations and assumptions with respect to these
forward-looking statements are reasonable, it can give no assurance that these
expectations will prove to be correct. There are a number of factors that
could cause actual results and developments to differ materially from those
expressed or implied by the forward-looking statements. Forward-looking
statements should therefore be construed in the light of such factors. You are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date made. Other than in accordance with legal or
regulatory obligations, the Group is not under any obligation, and expressly
disclaims any intention or obligation, to update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
Contacts
Ciarán Potts Melanie Farrell
Smurfit Kappa FTI Consulting
T: +353 1 202 71 27 T: +353 1 765 08 00
E: ir@smurfitkappa.com (mailto:ir@smurfitkappa.com) E: smurfitkappa@fticonsulting.com (mailto:smurfitkappa@fticonsulting.com)
2022 First Half | Performance Overview
The Group reported EBITDA for the first half of €1,174 million, up 50% on
2021. The Group EBITDA margin was 18.4%, up from 16.7% in the first half of
2021. The result reflects the resilience of the Group’s integrated model,
the benefits of our capital spend programme, customer-focused innovation and
pricing recovery, partly offset by higher year-on-year energy, recovered
fibre, labour, distribution and other raw material costs.
In Europe, EBITDA increased by 57% on the first half of 2021 to €926
million. The EBITDA margin was 18.7%, up from 16.2% on the same period in
2021, delivered against a backdrop of supply chain disruption and significant
cost inflation. Corrugated box demand was up approximately 1% against strong
comparatives. Corrugated pricing has continued to improve in line with our
expectations with continued progression into the second half.
European pricing for testliner and kraftliner has increased by €450 per
tonne and €390 per tonne respectively from the low of September 2020 to June
2022.
Our European business continued to build on its strong operating platform in
the first half with a number of projects across our paper and corrugated
divisions. In our paper division we announced the completion of a large-scale
sustainability project at our Zülpich mill in Germany, which will reduce
CO(2) annually by 55,000 tonnes, a 2% reduction for the Group. We have also
approved projects in our Facture, Wrexen and Verzuolo mills which will reduce
cost, increase efficiencies and improve the Group’s sustainability
footprint. In our corrugated division we approved projects in Belgium, France,
Germany, the Netherlands, Poland, Spain and the UK. The Group also announced
an investment in its first Moroccan facility and the acquisition of a
corrugated business in the UK.
In the Americas, EBITDA increased by 29% on the first half of 2021 to €271
million. The EBITDA margin was 18.8% in the first half of 2022 versus 20.4% in
the first half of 2021. Colombia, Mexico and the US accounted for 80% of the
region’s earnings with strong performances in all three countries.
Corrugated demand for the first half was up 8% year-on-year or 5% on an
underlying basis.
We have recently announced the acquisition of a corrugated business in
Argentina and we have approved expansion and sustainability focused projects
in our paper, corrugated and sack businesses in North, Central and South
America.
On 1 April 2022, the Group announced its decision to exit the Russian market
in an orderly manner. While this process is in the early stages, we hope to
conclude it by the end of the year.
Free cash flow for the first six months was a net outflow of €28 million
compared to a net inflow of €117 million in the first half of 2021. The
average maturity profile of the Group’s debt was 5.3 years at 30 June 2022
with an average interest rate of 2.86%. Net debt to EBITDA was 1.6x at the
half year versus 1.7x at the end of December 2021 and 1.6x at the first half
of 2021. The Group remains strongly positioned within its BBB-/BBB-/Baa3
credit rating.
2022 First Half | Financial Performance
Revenue for the first half was €6,385 million, up 36% on the first half of
2021 or 32% on an underlying(2) basis.
EBITDA for the first half was €1,174 million, up 50% on the first half of
2021. On an underlying( )basis, Group EBITDA was up 46% year-on-year, with
Europe up 55% and the Americas up 18%.
Operating profit before exceptional items for the first half of 2022 at €839
million was 76% higher than the €477 million for the same period of 2021.
There were no exceptional items charged within operating profit and no
exceptional finance items in the first half of either 2022 and 2021.
Net finance costs at €71 million were €7 million higher than 2021
primarily due to an increase in net cash interest payable, a higher foreign
currency translation loss on debt and a negative swing from a fair value gain
on financial assets/liabilities in 2021 to a loss in 2022, partly offset by a
fair value gain on derivatives.
The profit before tax of €769 million was €356 million higher than the
€413 million in 2021. The income tax expense was €195 million compared to
€105 million in 2021, resulting in a profit of €574 million for the half
year compared to €308 million in 2021.
Basic EPS for the first half of 2022 was 221.9 cent, compared to 119.9 cent in
2021.
2022 First Half | Free Cash Flow
Free cash flow in the first half of 2022 was a net outflow of €28 million
compared to a net inflow of €117 million for 2021, a decrease of €145
million. The EBITDA increase of €393 million was more than offset by an
increase in capital outflows, working capital outflow and tax payments.
The working capital outflow in 2022 was €501 million compared to €195
million in 2021. The outflow in 2022 was a combination of a significant
increase in debtors and to a lesser extent stock, partly offset by an increase
in creditors. The increase in debtors reflects the combination of higher box
and paper prices. The increase in creditors reflects considerably higher
recovered fibre and energy costs along with higher other raw material costs.
Working capital amounted to €1,303 million at 30 June 2022 and represented
9.7% of annualised revenue compared to 8.1% at 30 June 2021 and 5.7% at 31
December 2021.
Capital expenditure in 2022 amounted to €349 million (equating to 115% of
depreciation) compared to €175 million (equating to 63% of depreciation) in
2021.
Cash interest amounted to €61 million in 2022 compared to €54 million in
2021, with the increase primarily due to the higher increase in interest rates
in currencies where we are in a net debt position compared to those where we
are in a net cash position.
Tax payments of €158 million in 2022 were €36 million higher than in 2021.
2022 First Half | Capital Structure
Net debt was €3,309 million at the end of June, resulting in a net debt to
EBITDA ratio of 1.6x compared to 1.7x at the end of December 2021 and 1.6x at
the end of June 2021. The Group’s balance sheet continues to provide
considerable long-term strategic and financial flexibility, subject to the
stated leverage range of 1.5x to 2.0x through the cycle and SKG’s
BBB-/BBB-/Baa3 credit rating.
At 30 June 2022, the Group’s average interest rate was 2.86% compared to
2.63% at 31 December 2021. The Group’s diversified funding base and
long-dated maturity profile of 5.3 years provide a stable funding outlook. In
terms of liquidity, the Group held cash balances of €491 million at the end
of June, which were further supplemented by available commitments of €1,342
million under its sustainability-linked Revolving Credit Facility (‘RCF’)
and €312 million under its sustainability-linked securitisation programmes.
Dividends
The Board has decided to pay an interim dividend of 31.6 cent per share, which
represents an increase of 8% on the prior year. It is proposed to pay this
dividend on 28 October 2022 to all ordinary shareholders on the share register
at the close of business on 30 September 2022.
2022 First Half | Sustainability
Smurfit Kappa continues to make significant progress on achieving its
sustainability goals as outlined in its 15(th) Sustainable Development Report
(‘SDR’). The report highlights the Group’s progress towards its
long‑standing goal of driving change and supporting a greener planet through
the three main pillars of Planet, People and Impactful Business. It shows that
the Group’s actions are delivering today, and together with its ongoing
investments and continuous improvement, it is well positioned to deliver on
its long-term ambition to have net zero emissions by 2050.
The Group made significant progress in reducing its fossil CO(2) emission
intensity in 2021. SKG is the first in its industry to have announced
targeting at least net zero emissions by 2050 and, compared to its baseline
year 2005, it reduced its emissions intensity by 41.3% by the end of 2021. The
reduction in 2021 versus 2020 was 6%, another significant step towards its net
zero target. Other highlights from the 2021 SDR include the reduction in water
consumption of over 6% year-on-year and a reduction in waste to landfill
intensity of 7% year-on-year.
During 2021, the Group delivered several landmark achievements highlighting
its continued leadership in sustainability, these include:
* In September, the Group launched its Green Finance Framework followed by the
launch of the Group’s inaugural green bond offering which was
over-subscribed multiple times and secured the lowest ever coupon for a
corporate issuer at SKG’s credit rating, along with a very strong
participation of 'green' investors including 'dark green' investors.
* In December, Smurfit Kappa had its emissions reduction targets validated by
the Science Based Target initiative (‘SBTi’) as consistent with the
objectives of the Paris Agreement, and well below 2°C. This validation is
further evidence of its long-term ambition coupled with delivery today.
The Group has published a significantly enhanced disclosure consistent with
the Task Force on Climate‑Related Financial Disclosures (‘TCFD’)
recommendations in its 2021 Annual Report, including a comprehensive top-down
identification and process review of climate-related risks and opportunities
and an evaluation of the potential impact on Smurfit Kappa assets from
physical and transition risks under different climate scenarios.
In February of this year, SKG was recognised as a top ESG performer by leading
research and analytics company Sustainalytics. Following analysis of more than
4,000 European-based companies, SKG was named a Regional Top Rated company and
is ranked in the top five of the Paper Packaging category globally.
SKG continues to be listed on various environmental, social and governance
indices and disclosure programmes, such as FTSE4Good, the Green Economy Mark
from the London Stock Exchange, Euronext Vigeo Europe 120, STOXX Global ESG
Leaders, ISS Solactive and Ethibel’s sustainable investment register. SKG
also performs strongly across a number of third party certification bodies,
including MSCI, ISS ESG and Sustainalytics.
2022 First Half | Commercial Offering and Innovation
SKG continues to lead the industry in its market offering. Utilising our
unique capabilities and expertise, underpinned by bespoke, scientifically
tested applications and delivered by our passionate people, our customers,
through our packaging, can increase sales, reduce costs and mitigate risk in
an increasingly disrupted and operationally challenging world.
In January, the Group demonstrated its leadership in innovation and
sustainable packaging by winning 13 WorldStar awards across a host of
categories including e-commerce solutions, point of sale displays,
ground‑breaking corrugated packaging for the transportation of fresh fish
and our increasingly popular TopClip solution for beverage cans. SKG’s 13
winning products originated from Brazil, the Czech Republic, Germany, Mexico,
Norway, Poland, Slovakia and Sweden.
In February, the Group launched the Design2Market Factory to facilitate the
development of rapid prototyping for pilot production, performance analysis
and field lab facilities under one roof.
In April, the Group launched the child-proof, FSC certified paper-based
TopLock Box for detergent pods and capsules, offering a 40% carbon footprint
reduction compared to the traditional rigid plastics alternative.
The Group developed and launched AquaStop, a sustainable water-resistant
paper, in May of this year. Designed to withstand exposure to water without
being damaged it is suitable for more demanding supply chains where temporary
protection against water is needed.
Summary Cash Flow
Summary cash flows for the first half are set out in the following table.
6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
EBITDA 1,174 781
Cash interest expense (61) (54)
Working capital change (501) (195)
Capital expenditure (349) (175)
Change in capital creditors (108) (80)
Tax paid (158) (122)
Change in employee benefits and other provisions (22) (43)
Other (3) 5
Free cash flow (28) 117
Purchase of own shares (net) (27) (22)
Sale of businesses and investments - 37
Purchase of businesses, investments and NCI* (48) (55)
Dividends (250) (226)
Derivative termination receipts - 10
Net cash outflow (353) (139)
Acquired net debt (5) (13)
Disposed net cash - (1)
Deferred debt issue costs amortised (4) (4)
Currency translation adjustment (62) (17)
Increase in net debt (424) (174)
*( )‘NCI’ refers to non-controlling interests
A reconciliation of the Summary Cash Flow to the Condensed Consolidated
Statement of Cash Flows and a reconciliation of Free Cash Flow to Cash
Generated from Operations are included in sections K and L in Alternative
Performance Measures in the Supplementary Financial Information on pages 30 to
37.
Funding and Liquidity
The Group's primary sources of liquidity are cash flow from operations and
borrowings under the RCF. The Group's primary uses of cash are for funding day
to day operations, capital expenditure, debt service, dividends and other
investment activity including acquisitions.
The Group has a €1,350 million RCF with a maturity of January 2026, which
incorporates five KPIs spanning the Group’s sustainability objectives
regarding climate change, forests, water, waste and people, with the level of
KPI achievement linked to the pricing on the facility. Borrowings under the
RCF are available to fund the Group's working capital requirements, capital
expenditure and other general corporate purposes. At 30 June 2022, the
Group’s drawings on this facility were US$8 million, at an interest rate of
2.264%.
At 30 June 2022, the Group had outstanding €250 million 2.75% senior notes
due 2025, US$292.3 million 7.50% senior debentures due 2025, €1,000 million
2.875% senior notes due 2026, €750 million 1.5% senior notes due 2027,
€500 million 0.5% senior green notes due 2029 and €500 million 1.0% senior
green notes due 2033.
Funding and Liquidity (continued)
At 30 June 2022, the Group had outstanding €13 million variable funding
notes (‘VFNs’) issued under the €230 million trade receivables
securitisation programme maturing in November 2026 and €5 million VFNs
issued under the €100 million trade receivables securitisation programme
maturing in January 2026. Both these securitisation programmes incorporate
five KPIs spanning the Group’s sustainability objectives regarding climate
change, forests, water, waste and people, with the level of KPI achievement
linked to the pricing on the programme.
Market Risk and Risk Management Policies
The Group is exposed to the impact of interest rate changes and foreign
currency fluctuations due to its investing and funding activities and its
operations in different foreign currencies. Interest rate risk exposure is
managed by achieving an appropriate balance of fixed and variable rate
funding. As at 30 June 2022, the Group had fixed an average of 96% of its
interest cost on borrowings over the following 12 months.
The Group’s fixed rate debt comprised €250 million 2.75% senior notes due
2025, US$292.3 million 7.50% senior debentures due 2025, €1,000 million
2.875% senior notes due 2026, €750 million 1.5% senior notes due 2027,
€500 million 0.5% senior green notes due 2029 and €500 million 1.0% senior
green notes due 2033.
The Group’s earnings are affected by changes in short-term interest rates on
its floating rate borrowings and cash balances. If interest rates for these
borrowings increased by one percent, the Group’s interest expense would
increase, and income before taxes would decrease, by approximately €2
million over the following 12 months. Interest income on the Group’s cash
balances would increase by approximately €5 million assuming a one percent
increase in interest rates earned on such balances over the following 12
months.
The Group uses foreign currency borrowings, currency swaps and forward
contracts in the management of its foreign currency exposures.
Principal Risks and Uncertainties
Risk assessment and evaluation is an integral part of the management process
throughout the Group. Risks are identified, evaluated and appropriate risk
management strategies are implemented at each level in the organisation.
The Board in conjunction with senior management identifies major business
risks faced by the Group and determines the appropriate course of action to
manage these risks.
The Board regularly monitors all of the Group’s risks, including emerging
risks, and appropriate actions are taken to mitigate those risks or address
their potential adverse consequences. As part of the half year assessment, the
COVID-19 pandemic and current global uncertainties were also considered.
The principal risks and uncertainties facing the Group for the remaining six
months of the financial year are summarised below.
* If the current economic climate were to deteriorate, for example as a result
of geopolitical uncertainty, trade tensions and/or the COVID-19 pandemic, it
could result in an increased economic slowdown which if sustained over any
significant length of time, could adversely affect the Group's financial
position and results of operations.
* The cyclical nature of the packaging industry could result in overcapacity and
consequently threaten the Group’s pricing structure.
* If operations at any of the Group’s facilities (in particular its key mills)
were interrupted for any significant length of time, it could adversely affect
the Group’s financial position and results of operations.
* Price fluctuations in energy and raw material costs could adversely affect the
Group’s manufacturing costs.
* The Group is exposed to currency exchange rate fluctuations.
* The Group may not be able to attract, develop and retain suitably qualified
employees as required for its business.
* Failure to maintain good health, safety and employee wellbeing practices may
have an adverse effect on the Group’s business.
* The Group is subject to a growing number of environmental and climate change
laws and regulations, and the cost of compliance or the failure to comply with
current and future laws and regulations may negatively affect the Group’s
business.
* The Group is subject to anti-trust and similar legislation in the
jurisdictions in which it operates.
* The Group, similar to other large global companies, is susceptible to
cyber-attacks with the threat to the confidentiality, integrity and
availability of data in its systems.
* The global impact of climate change in the long-term could adversely affect
the Group’s business and results of operations.
The principal risks and uncertainties faced by the Group, were outlined in our
2021 Annual Report on pages 36 to 38. The Annual Report is available on our
website; smurfitkappa.com
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.
Condensed Consolidated Income Statement
6 months to 30-Jun-22 6 months to 30-Jun-21
Unaudited Unaudited
Pre- Exceptional Total Pre- Exceptional Total
exceptional
exceptional
€m €m €m €m €m €m
Revenue 6,385 - 6,385 4,679 - 4,679
Cost of sales (4,383) - (4,383) (3,226) - (3,226)
Gross profit 2,002 - 2,002 1,453 - 1,453
Distribution costs (480) - (480) (390) - (390)
Administrative expenses (683) - (683) (586) - (586)
Operating profit 839 - 839 477 - 477
Finance costs (85) - (85) (73) - (73)
Finance income 14 - 14 9 - 9
Share of associates’ profit (after tax) 1 - 1 - - -
Profit before income tax 769 769 413 - 413
Income tax expense (195) (105)
Profit for the financial period 574 308
Attributable to:
Owners of the parent 574 308
Non-controlling interests - -
Profit for the financial period 574 308
Earnings per share
Basic earnings per share - cent 221.9 119.9
Diluted earnings per share - cent 220.9 119.2
Condensed Consolidated Statement of Comprehensive Income
6 months to 6 months to
30-Jun-22 30-Jun-21
Unaudited Unaudited
€m €m
Profit for the financial period 574 308
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial period 109 9
- Recycled to Condensed Consolidated Income Statement - 1
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve - (2)
- Fair value loss on cash flow hedges (6) -
Changes in fair value of cost of hedging:
- Movement out of reserve (1) -
102 8
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial gain 211 125
- Related tax (26) (15)
185 110
Total other comprehensive income 287 118
Total comprehensive income for the financial period 861 426
Attributable to:
Owners of the parent 861 426
Non-controlling interests - -
Total comprehensive income for the financial period 861 426
Condensed Consolidated Balance Sheet
30-Jun-22 30-Jun-21 31-Dec-21
Unaudited Unaudited Audited
€m €m €m
ASSETS
Non-current assets
Property, plant and equipment 4,452 3,795 4,265
Right-of-use assets 360 298 346
Goodwill and intangible assets 2,760 2,556 2,722
Other investments 10 11 11
Investment in associates 16 12 13
Biological assets 113 105 103
Other receivables 34 26 26
Employee benefit assets 64 - -
Derivative financial instruments 5 - 2
Deferred income tax assets 116 160 149
7,930 6,963 7,637
Current assets
Inventories 1,296 860 1,046
Biological assets 11 8 10
Trade and other receivables 2,801 1,901 2,137
Derivative financial instruments 26 6 8
Restricted cash 9 16 14
Cash and cash equivalents 482 621 855
4,625 3,412 4,070
Total assets 12,555 10,375 11,707
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital - - -
Share premium 2,646 2,646 2,646
Other reserves 375 219 260
Retained earnings 2,002 1,126 1,473
Total equity attributable to owners of the parent 5,023 3,991 4,379
Non-controlling interests 13 13 13
Total equity 5,036 4,004 4,392
LIABILITIES
Non-current liabilities
Borrowings 3,614 3,033 3,589
Employee benefit liabilities 455 707 630
Derivative financial instruments 5 13 7
Deferred income tax liabilities 193 172 175
Non-current income tax liabilities 37 10 17
Provisions for liabilities 38 49 35
Capital grants 22 21 24
Other payables 8 11 11
4,372 4,016 4,488
Current liabilities
Borrowings 186 153 165
Trade and other payables 2,828 2,006 2,563
Current income tax liabilities 30 15 27
Derivative financial instruments 45 8 14
Provisions for liabilities 58 173 58
3,147 2,355 2,827
Total liabilities 7,519 6,371 7,315
Total equity and liabilities 12,555 10,375 11,707
Condensed Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Equity Share Other Retained Total Non- Total
share
premium
reserves
earnings
controlling
equity
capital
interests
€m €m €m €m €m €m €m
Unaudited
At 1 January 2022 - 2,646 260 1,473 4,379 13 4,392
Profit for the financial period - - - 574 574 - 574
Other comprehensive income
Foreign currency translation adjustments - - 109 - 109 - 109
Defined benefit pension plans - - - 185 185 - 185
Effective portion of changes in fair value of cash flow hedges - - (6) - (6) - (6)
Changes in fair value of cost of hedging - - (1) - (1) - (1)
Total comprehensive income for the financial period - - 102 759 861 - 861
Derecognition of equity instruments - - 10 (10) - - -
Hyperinflation adjustment - - - 30 30 - 30
Dividends paid - - - (250) (250) - (250)
Share‑based payment - - 30 - 30 - 30
Net shares acquired by SKG Employee Trust - - (27) - (27) - (27)
At 30 June 2022 - 2,646 375 2,002 5,023 13 5,036
Unaudited
At 1 January 2021 - 2,646 207 917 3,770 13 3,783
Profit for the financial period - - - 308 308 - 308
Other comprehensive income
Foreign currency translation adjustments - - 10 - 10 - 10
Defined benefit pension plans - - - 110 110 - 110
Effective portion of changes in fair value of cash flow hedges - - (2) - (2) - (2)
Total comprehensive income for the financial period - - 8 418 426 - 426
Hyperinflation adjustment - - - 17 17 - 17
Dividends paid - - - (226) (226) - (226)
Share‑based payment - - 26 - 26 - 26
Net shares acquired by SKG Employee Trust - - (22) - (22) - (22)
At 30 June 2021 - 2,646 219 1,126 3,991 13 4,004
An analysis of the movements in Other reserves is provided in Note 12.
Condensed Consolidated Statement of Cash Flows
6 months to 6 months to
30-Jun-22 30-Jun-21
Unaudited Unaudited
€m €m
Cash flows from operating activities
Profit before income tax 769 413
Net finance costs 71 64
Depreciation charge 280 254
Amortisation of intangible assets 25 19
Amortisation of capital grants (1) (1)
Share‑based payment expense 31 28
Profit on sale of property, plant and equipment (6) (5)
Share of associates’ profit (after tax) (1) -
Net movement in working capital (501) (195)
Change in biological assets (1) 3
Change in employee benefits and other provisions (22) (43)
Other (primarily hyperinflation adjustments) 7 3
Cash generated from operations 651 540
Interest paid (57) (55)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (11) (9)
Overseas corporation tax (net of tax refunds) paid (147) (113)
Net cash inflow from operating activities 436 363
Cash flows from investing activities
Interest received 2 1
Business disposals (net of disposed cash) - 33
Additions to property, plant and equipment and biological assets (418) (228)
Additions to intangible assets (8) (6)
Receipt of capital grants - 1
Decrease/(increase) in restricted cash 5 (6)
Disposal of property, plant and equipment 10 7
Dividends received from associates - 1
Purchase of subsidiaries (net of acquired cash) (36) (20)
Deferred consideration paid (10) (35)
Net cash outflow from investing activities (455) (252)
Cash flows from financing activities
Purchase of own shares (net) (27) (22)
Increase/(decrease) in other interest-bearing borrowings 7 (100)
Repayment of lease liabilities (56) (41)
Derivative termination receipts - 10
Deferred debt issue costs paid - (1)
Dividends paid to shareholders (250) (226)
Net cash outflow from financing activities (326) (380)
Decrease in cash and cash equivalents (345) (269)
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 827 876
Currency translation adjustment (17) (2)
Decrease in cash and cash equivalents (345) (269)
Cash and cash equivalents at 30 June 465 605
An analysis of the net movement in working capital is provided in Note 10.
Notes to the Condensed Consolidated Interim Financial Statements
1. General Information
Smurfit Kappa Group plc (‘SKG plc’ or ‘the Company’) and its
subsidiaries (together ‘SKG’ or ‘the Group’) primarily manufacture,
distribute and sell containerboard, corrugated containers and other
paper-based packaging products. The Company is a public limited company with a
premium listing on the London Stock Exchange and a secondary listing on
Euronext Dublin. It is incorporated and domiciled in Ireland. The address of
its registered office is Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland.
2. Basis of Preparation and Accounting Policies
Basis of preparation and accounting policies
The Condensed Consolidated Interim Financial Statements included in this
report have been prepared in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, the related Transparency Rules of the Central
Bank of Ireland and with IAS 34, Interim Financial Reporting as adopted by the
European Union. This report should be read in conjunction with the
Consolidated Financial Statements for the financial year ended 31 December
2021 included in the Group’s 2021 Annual Report which is available on the
Group’s website; smurfitkappa.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.smurfitkappa.com&esheet=52792919&newsitemid=20220726006163&lan=en-US&anchor=smurfitkappa.com&index=7&md5=6da15432ae03e0f1a504657053fbc044)
.
The accounting policies adopted by the Group and the significant accounting
judgements, estimates and assumptions made by management in the preparation of
the Condensed Consolidated Interim Financial Statements are consistent with
those described and applied in the Annual Report for the financial year ended
31 December 2021. A number of changes to IFRS became effective in 2022,
however, they did not have a material effect on the Condensed Consolidated
Interim Financial Statements included in this report.
Operations in Russia
On 1 April 2022, the Group announced its decision to exit the Russian market
in an orderly manner. Support for the Group’s Russian operations has been
suspended including any imports and exports and short or long-term funding.
The Group has appointed advisors to identify potential purchasers for the
Russian operations. This process is in the early stages and there are a number
of uncertainties surrounding the sales process. As a result, the conditions
required to be met to classify the assets/liabilities as held for sale have
not been satisfied at 30 June 2022.
The Group’s Russian operations are not material to the Group representing
approximately 1% of each of Revenue, EBITDA and Profit before Tax in the six
month period to 30 June 2022 and less than 3% of each of Total Assets and Net
Assets as at 30 June 2022. Accordingly, the Group’s significant accounting
judgements, estimates and assumptions did not change.
Going concern
The Group is a highly integrated manufacturer of paper-based packaging
solutions with leading market positions, quality assets and broad geographic
reach. The financial position of the Group, its cash generation, capital
resources and liquidity continue to provide a stable financing platform.
The Group’s diversified funding base and long-dated maturity profile of 5.3
years provide a stable funding outlook. At 30 June 2022, the Group had a
strong liquidity position of approximately €2.15 billion comprising cash
balances of €491 million (including €9 million of restricted cash),
undrawn available committed facilities of €1,342 million under its RCF and
€312 million under its sustainability-linked securitisation programmes. At
30 June 2022, the strength of the Group’s balance sheet, a net debt to
EBITDA ratio of 1.6x (31 December 2021: 1.7x) and its BBB-/BBB-/Baa3 credit
rating, continues to provide considerable long-term strategic flexibility.
Having assessed the principal risks facing the Group on page 9, together with
the Group’s forecasts and significant financial headroom, the Directors
believe that the Group is well placed to manage these risks successfully and
have a reasonable expectation that the Company, and the Group as a whole, have
adequate resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going concern basis in
preparing the Condensed Consolidated Interim Financial Statements.
2. Basis of Preparation and Accounting Policies (continued)
Statutory financial statements and audit opinion
The Group’s auditors have not audited or reviewed the Condensed Consolidated
Interim Financial Statements contained in this report.
The Condensed Consolidated Interim Financial Statements presented do not
constitute full statutory financial statements. Full statutory financial
statements for the year ended 31 December 2021 will be filed with the Irish
Registrar of Companies in due course. The audit report on those statutory
financial statements was unqualified.
3. Segment and Revenue Information
The Group has identified operating segments based on the manner in which
reports are reviewed by the chief operating decision maker (‘CODM’). The
CODM is determined to be the executive management team responsible for
assessing performance, allocating resources and making strategic decisions.
The Group has identified two operating segments: 1) Europe and 2) the
Americas.
The Europe and the Americas segments are each highly integrated. They include
a system of mills and plants that primarily produce a full line of
containerboard that is converted into corrugated containers within each
segment. In addition, the Europe segment also produces other types of paper,
such as solidboard, sack kraft paper and graphic paper; and other paper-based
packaging, such as solidboard packaging and folding cartons; and bag-in-box
packaging. The Americas segment, which includes a number of Latin American
countries and the United States, also comprises forestry; other types of
paper, such as boxboard and sack paper; and paper-based packaging, such as
folding cartons and paper sacks. Inter‑segment revenue is not material. No
operating segments have been aggregated for disclosure purposes.
Segment profit is measured based on EBITDA.
6 months to 30-Jun-22 6 months to 30-Jun-21
Europe The Total Europe The Total
Americas
Americas
€m €m €m €m €m €m
Revenue and results
Revenue 4,939 1,446 6,385 3,649 1,030 4,679
EBITDA 926 271 1,197 591 211 802
Unallocated centre costs (23) (21)
Share-based payment expense (31) (28)
Depreciation and depletion (net) (279) (257)
Amortisation (25) (19)
Finance costs (85) (73)
Finance income 14 9
Share of associates’ profit (after tax) 1 -
Profit before income tax 769 413
Income tax expense (195) (105)
Profit for the financial period 574 308
3. Segment and Revenue Information (continued)
Revenue information about geographical areas
The Group has a presence in 36 countries worldwide. The following information
is a geographical revenue analysis about country of domicile (Ireland) and
countries with material revenue.
6 months to 6 months to
30-Jun-22
30-Jun-21
€m €m
Ireland 55 55
Germany 936 658
France 773 527
Mexico 634 466
Italy 572 347
Other Europe - eurozone 1,328 1,065
Other Europe - non-eurozone 1,252 980
Other Americas 835 581
Total revenue by geographical area 6,385 4,679
Revenue is derived almost entirely from the sale of goods and is disclosed
based on the location of production.
Disaggregation of revenue
The Group derives revenue from the following major product lines. The economic
factors which affect the nature, amount, timing and uncertainty of revenue and
cash flows from the sub categories of both paper and packaging products are
similar.
6 months to 30-Jun-22 6 months to 30-Jun-21
Paper Packaging Total Paper Packaging Total
€m €m €m €m €m €m
Europe 978 3,961 4,939 577 3,072 3,649
The Americas 135 1,311 1,446 86 944 1,030
Total revenue by product 1,113 5,272 6,385 663 4,016 4,679
Packaging revenue is derived mainly from the sale of corrugated products. The
remainder of packaging revenue is comprised of bag-in-box and other
paper-based packaging products.
4. Finance Costs and Income
6 months to 6 months to
30-Jun-22 30-Jun-21
€m €m
Finance costs:
Interest payable on bank loans and overdrafts 19 12
Interest payable on leases 5 5
Interest payable on other borrowings 43 43
Foreign currency translation loss on debt 12 7
Fair value loss on financial assets 1 -
Net interest cost on net pension liability 4 4
Net monetary loss – hyperinflation 1 2
Total finance costs 85 73
Finance income:
Other interest receivable (2) (1)
Foreign currency translation gain on debt (8) (6)
Fair value gain on derivatives not designated as hedges (4) -
Fair value gain on financial assets/liabilities - (2)
Total finance income (14) (9)
Net finance costs 71 64
5. Income Tax Expense
Income tax expense recognised in the Condensed Consolidated Income Statement
6 months to 6 months to
30-Jun-22 30-Jun-21
€m €m
Current tax:
Europe 128 89
The Americas 54 37
182 126
Deferred tax 13 (21)
Income tax expense 195 105
Current tax is analysed as follows:
Ireland 8 7
Foreign 174 119
182 126
Income tax recognised in the Condensed Consolidated Statement of Comprehensive
Income
6 months to 6 months to
30-Jun-22 30-Jun-21
€m €m
Arising on defined benefit pension plans 26 15
The income tax expense in 2022 is €90 million higher than in the comparable
period in 2021, primarily due to higher profitability.
5. Income Tax Expense (continued)
There is a €56 million increase in the current tax expense. In Europe, the
current tax expense is €39 million higher and in the Americas the current
tax expense is €17 million higher. This is mainly due to changes in
profitability and other timing differences.
The deferred tax charge is €34 million higher than in the comparable period
in 2021. The increase is largely due to the reversal of timing differences on
which deferred tax was previously recognised and is partly offset by the
recognition of tax benefits on losses and other tax credits.
6. Employee Benefits – Defined Benefit Plans
The table below sets out the components of the defined benefit cost for the
period:
6 months to 6 months to
30-Jun-22 30-Jun-21
€m €m
Current service cost 20 18
Gain on settlement - (3)
Net interest cost on net pension liability 4 4
Defined benefit cost 24 19
Analysis of actuarial (losses)/gains recognised in the Condensed Consolidated
Statement of Comprehensive Income:
6 months to 6 months to
30-Jun-22
30-Jun-21
€m €m
Return on plan assets (excluding interest income) (458) 3
Actuarial gain due to experience adjustments - 2
Actuarial gain due to changes in financial assumptions 669 120
Total gain recognised in the Condensed Consolidated Statement of Comprehensive 211 125
Income
The amounts recognised in the Condensed Consolidated Balance Sheet were as
follows:
30-Jun-22 31-Dec-21
€m €m
Present value of funded or partially funded obligations (1,786) (2,384)
Fair value of plan assets 1,818 2,276
Surplus/(deficit) in funded or partially funded plans 32 (108)
Present value of wholly unfunded obligations (422) (520)
Amounts not recognised as assets due to asset ceiling (1) (2)
Net pension liability (391) (630)
Reconciliation to the Condensed Consolidated Balance Sheet:
30-Jun-22 31-Dec-21
€m €m
Employee benefit assets 64 -
Employee benefit liabilities (455) (630)
Net pension liability (391) (630)
The key assumptions relating to discount and inflation rates were reassessed
at 30 June 2022 and updated to reflect market conditions at that date.
7. Earnings per Share (‘EPS’)
Basic
Basic EPS is calculated by dividing the profit attributable to owners of the
parent by the weighted average number of ordinary shares in issue during the
period less own shares.
6 months to 6 months to
30-Jun-22 30-Jun-21
Profit attributable to owners of the parent (€ million) 574 308
Weighted average number of ordinary shares in issue (million) 258 257
Basic EPS (cent) 221.9 119.9
Diluted
Diluted EPS is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary
shares. These comprise deferred shares issued under the Group’s long-term
incentive plans. Where the conditions governing exercisability and vesting of
these shares have been satisfied as at the end of the reporting period, they
are included in the computation of diluted earnings per ordinary share.
6 months to 6 months to
30-Jun-22 30-Jun-21
Profit attributable to owners of the parent (€ million) 574 308
Weighted average number of ordinary shares in issue (million) 258 257
Potential dilutive ordinary shares assumed (million) 1 1
Diluted weighted average ordinary shares (million) 259 258
Diluted EPS (cent) 220.9 119.2
Pre-exceptional
With no exceptional items reported in the first half of 2022 or 2021,
pre-exceptional basic and diluted EPS were 221.9 cent (2021: 119.9 cent) and
220.9 cent (2021: 119.2 cent) respectively.
8. Dividends
During the period, the final dividend for 2021 of 96.1 cent per share was paid
to the holders of ordinary shares. The Board has decided to pay an interim
dividend of 31.6 cent per share (approximately €82 million). It is proposed
to pay this dividend on 28 October 2022 to all ordinary shareholders on the
share register at the close of business on 30 September 2022.
9. Property, Plant and Equipment
Land and Plant and Total
buildings
equipment
€m €m €m
Six months ended 30 June 2022
Opening net book amount 1,175 3,090 4,265
Reclassifications 34 (37) (3)
Additions 18 287 305
Acquisitions 27 9 36
Depreciation charge (32) (201) (233)
Retirements and disposals (1) (1) (2)
Hyperinflation adjustment 4 5 9
Foreign currency translation adjustment 23 52 75
At 30 June 2022 1,248 3,204 4,452
Financial year ended 31 December 2021
Opening net book amount 1,090 2,749 3,839
Reclassifications 63 (64) (1)
Additions 1 570 571
Acquisitions 73 186 259
Depreciation charge (56) (369) (425)
Retirements and disposals (9) (17) (26)
Hyperinflation adjustment 4 10 14
Foreign currency translation adjustment 9 25 34
At 31 December 2021 1,175 3,090 4,265
10. Net Movement in Working Capital
6 months to 6 months to
30-Jun-22 30-Jun-21
€m €m
Change in inventories (220) (78)
Change in trade and other receivables (533) (306)
Change in trade and other payables 252 189
Net movement in working capital (501) (195)
11. Analysis of Net Debt
30-Jun-22 31-Dec-21
€m €m
Revolving credit facility – interest at relevant interbank rate (interest 3 2
rate floor of 0%) + 0.64%((1))
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest) 283 260
Bank loans and overdrafts 111 101
€100 million receivables securitisation VFNs due 2026 (including accrued 4 4
interest)((2))
€230 million receivables securitisation VFNs due 2026((3)) 11 11
€250 million 2.75% senior notes due 2025 (including accrued interest) 252 251
€1,000 million 2.875% senior notes due 2026 (including accrued interest) 1,008 1,007
€750 million 1.5% senior notes due 2027 (including accrued interest) 747 747
€500 million 0.5% senior green notes due 2029 (including accrued interest) 497 495
€500 million 1.0% senior green notes due 2033 (including accrued interest) 499 496
Gross debt before leases 3,415 3,374
Leases 385 380
Gross debt including leases 3,800 3,754
Cash and cash equivalents (including restricted cash) (491) (869)
Net debt including leases 3,309 2,885
1. The Group’s RCF has a maturity of January 2026. At 30 June 2022, the
following amounts were drawn under this facility:
1. Revolver loans - €8 million
2. Drawn under ancillary facilities and facilities supported by letters of
credit
– nil
3. Other operational facilities including letters of credit - nil
2. Drawn under ancillary facilities and facilities supported by letters of credit
– nil
3. Other operational facilities including letters of credit - nil
* At 30 June 2022, the amount drawn under this facility was €5 million.
* At 30 June 2022, the amount drawn under this facility was €13 million.
12. Other Reserves
Other reserves included in the Condensed Consolidated Statement of Changes in
Equity are comprised of the following:
Reverse Cash Cost of Foreign Share- Own FVOCI
acquisition
flow
hedging
currency
based
shares
reserve
reserve
hedging
reserve
translation
payment
reserve
reserve
reserve
Total
€m €m €m €m €m €m €m €m
At 1 January 2022 575 1 1 (541) 293 (59) (10) 260
Other comprehensive income
Foreign currency translation adjustments - - - 109 - - - 109
Effective portion of changes in fair value of cash flow hedges - (6) - - - - - (6)
Changes in fair value of cost of hedging - - (1) - - - - (1)
Total other comprehensive (expense)/income - (6) (1) 109 - - - 102
Derecognition of equity instruments - - - - - - 10 10
Share-based payment - - - - 30 - - 30
Net shares acquired by SKG Employee Trust - - - - - (27) - (27)
Shares distributed by SKG Employee Trust - - - - (21) 21 - -
At 30 June 2022 575 (5) - (432) 302 (65) - 375
At 1 January 2021 575 4 2 (556) 241 (49) (10) 207
Other comprehensive income
Foreign currency translation adjustments - - - 10 - - - 10
Effective portion of changes in fair value of cash flow hedges - (2) - - - - - (2)
Total other comprehensive (expense)/income - (2) - 10 - - - 8
Share‑based payment - - - - 26 - - 26
Net shares acquired by SKG Employee Trust - - - - - (22) - (22)
Shares distributed by SKG Employee Trust - - - - (12) 12 - -
At 30 June 2021 575 2 2 (546) 255 (59) (10) 219
13. Business Combinations
The acquisitions completed by the Group during the period, together with
percentages acquired and completion dates were as follows:
* Argencraft, (100%, 1 April 2022) a corrugated facility in Argentina; and
* Atlas Packaging, (100%, 29 April 2022), a corrugated packaging company in the
UK.
The table below reflects the provisional fair values of the identifiable net
assets acquired in respect of the acquisitions completed during the period.
Any amendments to fair values will be made within the twelve month period from
the date of acquisition, as permitted by IFRS 3, Business Combinations and
disclosed in the 2022 Annual Report. None of the business combinations
completed during the year were considered sufficiently material to warrant
separate disclosure of the fair values attributable to those combinations.
Total*
€m
Non-current assets
Property, plant and equipment 36
Right-of-use assets 2
Intangible assets 23
Current assets
Inventories 4
Trade and other receivables 14
Cash and cash equivalents 2
Non-current liabilities
Deferred income tax liabilities (14)
Provisions (1)
Borrowings (1)
Current liabilities
Borrowings (6)
Trade and other payables (11)
Current income tax liability (2)
Net assets acquired 46
Goodwill (6)
Consideration 40
Settled by:
Cash 38
Deferred consideration 2
40
* In addition to the 2022 acquisitions, the amounts also include fair value
adjustments in relation to 2021 acquisitions.
During 2022 the Group made an amendment to the fair values assigned to the
Verzuolo acquisition completed in late 2021. Given the proximity of the
transaction to the year-end, the accounting treatment for the acquisition at
31 December 2021 was provisional, and on completion of the fair value exercise
in 2022 the Group identified adjustments that were required as outlined below.
The adjustments were not of a material nature and therefore have been
recognised as movements within 2022 acquisitions in the 2022 financial
statements.
2022
€m
Increase in property, plant and equipment 26
Increase in intangible assets 21
Increase in deferred tax liability (12)
Other (1)
Increase in net assets 34
Decrease in purchase price 1
Decrease in goodwill 35
13. Business Combinations (continued)
The principal factors contributing to the recognition of goodwill are the
realisation of cost savings and other synergies with existing entities in the
Group which do not qualify for separate recognition as intangible assets.
None of the goodwill arising on business combinations completed in the
reporting period is expected to be deductible for tax purposes.
Net cash outflow arising on acquisition €m
Cash consideration 38
Less cash & cash equivalents acquired (2)
Total 36
The gross contractual value of trade and other receivables as at the
respective dates of acquisition amounted to €14 million. The fair value of
these receivables is estimated at €14 million (all of which is expected to
be recoverable).
Acquisition-related costs of €0.5 million were incurred and are included
within administrative expenses in the Condensed Consolidated Income Statement.
The Group’s acquisitions in 2022 have contributed €20 million to revenue
and €3 million to profit after tax. The proforma revenue and profit after
tax of the Group for the period ended 30 June 2022 would have been €6,410
million and €577 million respectively, had the acquisitions taken place at
the start of the reporting period.
There have been no acquisitions completed subsequent to the balance sheet date
which would be individually material to the Group, thereby requiring
disclosure under either IFRS 3 or IAS 10, Events after the Balance Sheet Date.
14. Fair Value Hierarchy
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 30 June 2022:
Level 1 Level 2 Level 3 Total
€m €m €m €m
Other investments:
Listed 2 - - 2
Unlisted - 8 - 8
Derivative financial instruments:
Assets at fair value through profit or loss - 25 - 25
Derivatives used for hedging - 6 - 6
Derivative financial instruments:
Liabilities at fair value through profit or loss - (38) - (38)
Derivatives used for hedging - (12) - (12)
2 (11) - (9)
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 31 December 2021:
Level 1 Level 2 Level 3 Total
€m €m €m €m
Other investments:
Listed 2 - - 2
Unlisted - 9 - 9
Derivative financial instruments:
Assets at fair value through profit or loss - 8 - 8
Derivatives used for hedging - 2 - 2
Derivative financial instruments:
Liabilities at fair value through profit or loss - (13) - (13)
Derivatives used for hedging - (8) - (8)
2 (2) - -
The fair value of listed investments is determined by reference to their bid
price at the reporting date. Unlisted investments are valued using recognised
valuation techniques for the underlying security, including discounted cash
flows and similar unlisted equity valuation models.
The fair value of the derivative financial instruments set out above has been
measured in accordance with level 2 of the fair value hierarchy. All are plain
derivative instruments, valued with reference to observable foreign exchange
rates, interest rates or broker prices.
There were no reclassifications or transfers between the levels of the fair
value hierarchy during the period.
15. Fair Value
The following table sets out the fair value of the Group's principal financial
assets and liabilities. The determination of these fair values is based on the
descriptions set out within Note 2 to the Consolidated Financial Statements of
the Group’s 2021 Annual Report.
30-Jun-22 31-Dec-21
Carrying value Fair value Carrying value Fair value
€m €m €m €m
Trade and other receivables( (1)) 2,598 2,598 2,006 2,006
Listed and unlisted debt instruments((2)) 10 10 11 11
Cash and cash equivalents ((3)) 482 482 855 855
Derivative assets ((4)) 31 31 10 10
Restricted cash((3)) 9 9 14 14
3,130 3,130 2,896 2,896
Trade and other payables((1)) 2,327 2,327 2,082 2,082
Revolving credit facility((5)) 3 3 2 2
2026 €100 million receivables securitisation((3)) 4 4 4 4
2026 €230 million receivables securitisation((3)) 11 11 11 11
Bank overdrafts((3)) 111 111 101 101
2025 debentures((6)) 283 310 260 318
2025 notes((6)) 252 251 251 270
2026 notes((6)) 1,008 997 1,007 1,103
2027 notes ((6)) 747 671 747 786
2029 green notes ((6)) 497 398 495 489
2033 green notes ((6)) 499 359 496 490
5,742 5,442 5,456 5,656
Derivative liabilities((4)) 50 50 21 21
Deferred consideration((7)) 3 3 10 10
5,795 5,495 5,487 5,687
Total net position (2,665) (2,365) (2,591) (2,791)
(1) The fair value of trade and other receivables and payables is estimated as the
present value of future cash flows, discounted at the market rate of interest
at the reporting date.
(2) The fair value of listed financial assets is determined by reference to their
bid price at the reporting date. Unlisted financial assets are valued using
recognised valuation techniques for the underlying security including
discounted cash flows and similar unlisted equity valuation models.
(3) The carrying amount reported in the Condensed Consolidated Balance Sheet is
estimated to approximate to fair value because of the short-term maturity of
these instruments and, in the case of the receivables securitisation, the
variable nature of the facility and repricing dates.
(4) The fair value of forward foreign currency, energy and commodity contracts is
based on their listed market price if available. If a listed market price is
not available, then fair value is estimated by discounting the difference
between the contractual forward price and the current forward price for the
residual maturity of the contract using a risk-free interest rate (based on
government bonds).
(5) The fair value (level 2) of the RCF is based on the present value of its
estimated future cash flows discounted at an appropriate market discount rate
at the balance sheet date.
(6) Fair value (level 2) is based on broker prices at the balance sheet date.
(7) The fair value of deferred consideration is based on the present value of the
expected payment, discounted using an appropriate market discount rate as at
the balance sheet date.
16. Related Party Transactions
Details of related party transactions in respect of the year ended 31 December
2021 are contained in Note 30 to the Consolidated Financial Statements of the
Group’s 2021 Annual Report. The Group continued to enter into transactions
in the normal course of business with its associates and other related parties
during the period. There were no transactions with related parties in the
first half of 2022 or changes to transactions with related parties disclosed
in the 2021 Consolidated Financial Statements that had a material effect on
the financial position or the performance of the Group.
17. Board Approval
This interim report was approved by the Board of Directors on 26 July 2022.
18. Distribution of the Interim Report
This 2022 interim report is available on the Group’s website;
smurfitkappa.com
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.
Responsibility Statement in Respect of the Six Months Ended 30 June 2022
The Directors, whose names and functions are listed on pages 78 to 81 in the
Group’s 2021 Annual Report, are responsible for preparing this interim
management report and the Condensed Consolidated Interim Financial Statements
in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007,
the related Transparency Rules of the Central Bank of Ireland and with IAS 34,
Interim Financial Reporting as adopted by the European Union.
The Directors confirm that, to the best of their knowledge:
* the Condensed Consolidated Interim Financial Statements for the half year
ended 30 June 2022 have been prepared in accordance with the international
accounting standard applicable to interim financial reporting, IAS 34, adopted
pursuant to the procedure provided for under Article 6 of the Regulation (EC)
No. 1606/2002 of the European Parliament and of the Council of 19 July 2002;
* the interim management report includes a fair review of the important events
that have occurred during the first six months of the financial year, and
their impact on the Condensed Consolidated Interim Financial Statements for
the half year ended 30 June 2022, and a description of the principal risks and
uncertainties for the remaining six months;
* the interim management report includes a fair review of related party
transactions that have occurred during the first six months of the current
financial year and that have materially affected the financial position or the
performance of the Group during that period, and any changes in the related
party transactions described in the last Annual Report that could have a
material effect on the financial position or performance of the Group in the
first six months of the current financial year.
Signed on behalf of the Board
A. Smurfit, Director and Chief Executive Officer
K. Bowles, Director and Chief Financial Officer
26 July 2022.
Supplementary Financial Information
Alternative Performance Measures
The Group uses certain financial measures as set out below in order to
evaluate the Group’s financial performance. These Alternative Performance
Measures (‘APMs’) are not defined under IFRS and are presented because we
believe that they, and similar measures, provide both SKG management and users
of the Condensed Consolidated Interim Financial Statements with useful
additional financial information when evaluating the Group’s operating and
financial performance.
These measures may not be comparable to other similarly titled measures used
by other companies, and are not measurements under IFRS or other generally
accepted accounting principles, and they should not be considered in isolation
or as substitutes for the information contained in our Condensed Consolidated
Interim Financial Statements.
Please note where referenced ‘CIS’ refers to Condensed Consolidated Income
Statement, ‘CBS’ refers to Condensed Consolidated Balance Sheet and
‘CSCF’ refers to Condensed Consolidated Statement of Cash Flows.
The principal APMs used by the Group, together with reconciliations where the
non-IFRS measures are not readily identifiable from the Condensed Consolidated
Interim Financial Statements, are as follows:
A. EBITDA
Definition
EBITDA is earnings before exceptional items, share-based payment expense,
share of associates’ profit (after tax), net finance costs, income tax
expense, depreciation and depletion (net) and intangible assets amortisation.
It is an appropriate and useful measure used to compare recurring financial
performance between periods.
Reconciliation of Profit to EBITDA
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Profit for the financial period CIS 574 308
Income tax expense (after exceptional items) CIS 195 105
Net finance costs (after exceptional items) Note 4 71 64
Share of associates’ profit (after tax) CIS (1) -
Share-based payment expense Note 3 31 28
Depreciation, depletion (net) and amortisation Note 3 304 276
EBITDA 1,174 781
B. EBITDA margin
Definition
EBITDA margin is a measure of profitability by taking our EBITDA divided by
revenue.
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
EBITDA A 1,174 781
Revenue CIS 6,385 4,679
EBITDA margin 18.4% 16.7%
Alternative Performance Measures (continued)
C. Operating profit before exceptional items
Definition
Operating profit before exceptional items represents operating profit as
reported in the Condensed Consolidated Income Statement before exceptional
items. Exceptional items are excluded in order to assess the underlying
financial performance of our operations.
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Operating profit CIS 839 477
Exceptional items CIS - -
Operating profit before exceptional items CIS 839 477
D. Pre-exceptional basic earnings per share
Definition
Pre-exceptional basic EPS serves as an effective indicator of our
profitability as it excludes exceptional one‑off items and, in conjunction
with other metrics such as ROCE, is a measure of our financial strength.
Pre‑exceptional basic EPS is calculated by dividing profit attributable to
owners of the parent, adjusted for exceptional items included in profit before
income tax and income tax on exceptional items, by the weighted average number
of ordinary shares in issue. The calculation of pre-exceptional basic EPS is
shown in Note 7.
E. Underlying EBITDA and revenue
Definition
Underlying EBITDA and revenue are arrived at by excluding the incremental
EBITDA and revenue contributions from current and prior year acquisitions and
disposals and the impact of currency translation, hyperinflation and any
non-recurring items.
The Group uses underlying EBITDA and underlying revenue as additional
performance indicators to assess performance on a like-for-like basis each
year.
Europe The Americas Total Europe The Americas Total
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-21
30-Jun-21
30-Jun-21
EBITDA
Currency - 8% 2% - (7%) (2%)
Acquisitions/disposals 2% 3% 2% - - -
Underlying EBITDA change 55% 18% 46% 3% 26% 8%
Reported EBITDA change 57% 29% 50% 3% 19% 6%
Revenue
Currency - 7% 2% - (9%) (2%)
Hyperinflation - 1% - - - -
Acquisitions/disposals 2% 4% 2% - 1% -
Underlying revenue change 33% 28% 32% 12% 18% 13%
Reported revenue change 35% 40% 36% 12% 10% 11%
Alternative Performance Measures (continued)
F. Net debt
Definition
Net debt comprises borrowings net of cash and cash equivalents and restricted
cash. We believe that this measure highlights the overall movement resulting
from our operating and financial performance.
Reference 30-Jun-22 30-Jun-21 31-Dec-21
€m
€m
€m
Borrowings Note 11 3,800 3,186 3,754
Less:
Restricted cash CBS (9) (16) (14)
Cash and cash equivalents CBS (482) (621) (855)
Net debt 3,309 2,549 2,885
G. Net debt to EBITDA
Definition
Leverage (ratio of net debt to EBITDA for the last twelve months (‘LTM’))
is an important measure of our overall financial position.
Reference 30-Jun-22 30-Jun-21 30-Dec-21
€m
€m
€m
Net debt F 3,309 2,549 2,885
EBITDA LTM 2,095 1,556 1,702
Net debt to EBITDA LTM (times) 1.6 1.6 1.7
H. Return on capital employed (‘ROCE’)
Definition
ROCE measures profit from capital employed. It is calculated as operating
profit before exceptional items plus share of associates’ profit (after tax)
LTM divided by the average capital employed (where average capital employed is
the average of total equity and net debt at the current and prior year-end).
Reference 30-Jun-22 30-Jun-21
€m
€m
Operating profit before exceptional items plus share of associates’ profit 1,436 950
(after tax) LTM
Total equity – current period-end CBS 5,036 4,004
Net debt – current period-end F 3,309 2,549
Capital employed – current period-end 8,345 6,553
Total equity – prior period-end CBS 4,004 3,063
Net debt – prior period-end F 2,549 3,257
Capital employed – prior period-end 6,553 6,320
Average capital employed 7,449 6,436
Return on capital employed 19.3% 14.8%
Alternative Performance Measures (continued)
I. Working capital
Definition
Working capital represents total inventories, trade and other receivables and
trade and other payables.
Reference 30-Jun-22 30-Jun-21
€m
€m
Inventories CBS 1,296 860
Trade and other receivables (current and non-current) CBS 2,835 1,927
Trade and other payables CBS (2,828) (2,006)
Working capital 1,303 781
J. Working capital as a percentage of sales
Definition
Working capital as a percentage of sales represents working capital as defined
above shown as a percentage of annualised quarterly revenue.
Reference 30-Jun-22 30-Jun-21
€m
€m
Working capital I 1,303 781
Annualised quarterly revenue 13,442 9,640
Working capital as a percentage of sales 9.7% 8.1%
Alternative Performance Measures (continued)
K. Summary cash flow
Definition
The summary cash flow is prepared on a different basis to the Condensed
Consolidated Statement of Cash Flows and as such the reconciling items between
EBITDA and increase in net debt may differ from amounts presented in the
Condensed Consolidated Statement of Cash Flows. The summary cash flow details
movements in net debt. The Condensed Consolidated Statement of Cash Flows
details movements in cash and cash equivalents.
Reconciliation of the Summary Cash Flow to the Condensed Consolidated
Statement of Cash Flows
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
EBITDA A 1,174 781
Cash interest expense K.1 (61) (54)
Working capital change CSCF (501) (195)
Capital expenditure K.2 (349) (175)
Change in capital creditors K.2 (108) (80)
Tax paid CSCF (158) (122)
Change in employee benefits and other provisions CSCF (22) (43)
Other K.4 (3) 5
Free cash flow L (28) 117
Purchase of own shares (net) CSCF (27) (22)
Sale of businesses and investments K.5 - 37
Purchase of businesses, investments and NCI K.6 (48) (55)
Dividends CSCF (250) (226)
Derivative termination receipts CSCF - 10
Net cash outflow (353) (139)
Acquired net debt K.7 (5) (13)
Disposed net cash K.8 - (1)
Deferred debt issue costs amortised (4) (4)
Currency translation adjustment (62) (17)
Increase in net debt (424) (174)
K.1 Cash interest expense
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Interest paid CSCF (57) (55)
Interest received CSCF 2 1
Move in accrued interest (6) -
Per summary cash flow (61) (54)
Alternative Performance Measures (continued)
K.2 Capital expenditure
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Additions to property, plant and equipment and biological assets CSCF (418) (228)
Additions to intangible assets CSCF (8) (6)
Net additions to right-of-use assets (31) (21)
Change in capital creditors K 108 80
Per summary cash flow (349) (175)
K.3 Capital expenditure as a percentage of depreciation
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Capital expenditure K.2 349 175
Depreciation, depletion (net) and amortisation A 304 276
Capital expenditure as a percentage of depreciation 115% 63%
K.4 Other
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Other within the summary cash flow comprises the following
Amortisation of capital grants CSCF (1) (1)
Profit on sale of property, plant and equipment CSCF (6) (5)
Other (primarily hyperinflation adjustments) CSCF 7 3
Receipt of capital grants CSCF - 1
Disposal of property, plant and equipment CSCF 10 7
Dividends received from associates CSCF - 1
Lease terminations/modifications L (13) (1)
Per summary cash flow (3) 5
Alternative Performance Measures (continued)
K.5 Sale of businesses and investments
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Business disposals (net of disposed cash) CSCF - 33
Disposed cash and cash equivalents K.8 - 4
Per summary cash flow - 37
K.6 Purchase of businesses, investments and NCI
Reference 6 months to 6 months to
30-Jun-22
€m 30-Jun-21
€m
Purchase of subsidiaries (net of acquired cash) CSCF (36) (20)
Deferred consideration paid CSCF (10) (35)
Acquired cash and cash equivalents K.7 (2) -
Per summary cash flow (48) (55)
K.7 Acquired net debt
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Debt acquired (7) (13)
Acquired cash and cash equivalents K.6 2 -
Per summary cash flow (5) (13)
K.8 Disposed net cash
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Disposed debt - 3
Disposed cash and cash equivalents K.5 - (4)
Per summary cash flow - (1)
Alternative Performance Measures (continued)
L. Free cash flow (‘FCF’)
Definition
FCF is the result of the cash inflows and outflows from our operating
activities, and is before those arising from acquisition and disposal of
businesses. We use FCF to assess and understand the total operating
performance of the business and to identify underlying trends.
Reconciliation of Free Cash Flow to Cash Generated from Operations
Reference 6 months to 6 months to
30-Jun-22
30-Jun-21
€m
€m
Free cash flow K (28) 117
Reconciling items:
Cash interest expense K.1 61 54
Capital expenditure (net of change in capital creditors) K.2 457 255
Tax payments CSCF 158 122
Disposal of property, plant and equipment CSCF (10) (7)
Lease terminations/modifications K.4 13 1
Receipt of capital grants CSCF - (1)
Dividends received from associates CSCF - (1)
Cash generated from operations CSCF 651 540
__________________________
(1) Additional information in relation to these Alternative Performance
Measures is set out in Supplementary Financial Information on pages 30 to 37.
(2) Additional information on underlying performance is set out within
Supplementary Financial Information on pages 30 to 37.
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