REG-Smurfit Kappa Group PLC Half-Year Report
02/08/2023 07:00
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Half-Year Report
Smurfit Kappa Group plc (‘SKG’, ‘Smurfit Kappa’ or ‘the Group’)
today announced results for the half year ending 30 June 2023.
2023 Half Year | Key Financial Performance Measures
€m H1 H1 Change
2023
2022
Revenue €5,837 €6,385 (9%)
EBITDA (1) €1,113 €1,174 (5%)
EBITDA Margin (1) 19.1% 18.4%
Operating Profit before Exceptional Items (1) €779 €839 (7%)
Profit before Income Tax €659 €769 (14%)
Basic EPS (cent) 184.0 221.9 (17%)
Pre-exceptional Basic EPS (cent) (1) 197.2 221.9 (11%)
Free Cash Flow (1) €119 (€28) -
Return on Capital Employed (1) 19.0% 19.3%
Net Debt (1) €3,175 €3,309 (4%)
Net Debt to EBITDA (LTM) (1) 1.4x 1.6x
Key points:
* Revenue of €5.8 billion
* EBITDA of €1.1 billion and an EBITDA margin of 19.1%
* Return on capital employed of 19.0%
* Free Cash Flow of €119 million
* Interim dividend increased by 6% to 33.5 cent per share
Tony Smurfit, Group CEO, commented:
“We are pleased to deliver an excellent outcome against a challenging macro
backdrop with a strong first half performance. In a declining volume
environment this reflects both the quality and resilience of SKG’s
integrated and geographically balanced business model. Although volumes
declined by 6% in the first half, we saw market share gains across many of the
countries in which we operate, and encouragingly, in Europe, during the second
quarter, we saw our shipments per day improve on the previous three quarters.
“The steps we have taken and continue to take, have positioned SKG for
long-term growth. These include expanding our geographic reach and product
portfolio, our unrelenting focus on customer-led innovation and promoting our
product’s natural sustainable advantage to advance new growth opportunities.
Additionally, through our integrated model, customers benefit from security of
supply even in the most challenging market conditions.
“As a result, SKG is the packaging partner of choice for the world’s
leading companies. Our team continues to excel in supplying market-leading,
innovative and sustainable packaging best reflected, within the period, by
market share gains across many of the countries in which we operate. The
significant number of design, innovation and sustainability awards received
over the years are recognition of our customer focus and continues to
demonstrate the quality and expertise of our people and the value they
provide.
“In March, the Group announced that it had sold its Russian operations to
local management, completing its exit from the Russian market. On a more
positive note, in July of this year we expanded our geographic reach with the
opening of our new integrated, state-of-the-art plant in Morocco and the
acquisition of a specialty packaging operation in Spain.
“Our 16(th) Sustainable Development Report emphasises the Group’s progress
and commitment to our 2030 targets. The Group continues to invest in
sustainability, minimising both our own and our customers’ environmental
impact and supporting the circular economy.
“With net debt to EBITDA at 1.4x, no significant debt maturities until 2026
and our most recent Green Bond issuance having achieved coupons of 0.50% and
1.0% for terms of 8 and 12 years respectively, our balance sheet continues to
provide long-term strategic and financial flexibility.
“While the global macro backdrop continues to be uncertain, there are some
encouraging signs of improvement and we are confident about our future
prospects. Smurfit Kappa has never been in better shape strategically,
operationally and financially. Reflecting the continued confidence in the
quality of our business and our prospects, the Board has approved a 6%
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 more than 47,000 employees
in over 350 production sites across 36 countries and with revenue of €12.8
billion in 2022. 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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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 Lorena Monsalves Melanie Farrell
Smurfit Kappa Smurfit Kappa FTI Consulting
T: +353 1 202 71 27 T: +353 1 202 70 00 T: +353 86 401 5250
E: ir@smurfitkappa.com (mailto:ir@smurfitkappa.com) E: pressoffice@smurfitkappa.com (mailto:pressoffice@smurfitkappa.com) E: smurfitkappa@fticonsulting.com (mailto:smurfitkappa@fticonsulting.com)
2023 First Half | Performance Overview
The Group reported EBITDA for the first half of €1,113 million, down 5% on
2022, with lower earnings in Europe and higher earnings in the Americas. The
Group EBITDA margin was 19.1%, up from 18.4% in the first half of 2022. This
result, achieved in a challenging macroeconomic environment and with strong
comparators in the prior year, demonstrates the strength of the Group’s
integrated model, the innovative and value-adding solutions we provide to our
resilient customer base, the benefits of our capital spend programme and is
testament to SKG’s culture of innovation and operational excellence.
In Europe, EBITDA decreased by 6% to €868 million and the EBITDA margin was
19.4%, up from 18.7% compared to the first half of 2022. Underlying corrugated
box volumes were 5.6% lower in the first half of 2023, with year-on-year
volume performance in the second quarter improving, as anticipated, upon the
levels seen in the preceding two quarters.
Our European business continued to build on its strong operating platform in
the first half of the year with a number of projects across our paper and
corrugated divisions. In our paper division, we have approved investments in
our Herzberg, Hoya, Nettingsdorf, Piteå and Verzuolo mills, which will reduce
costs, increase efficiencies and improve the Group’s overall sustainability
footprint. In our corrugated division, we are investing across the region in
ultra-modern and energy efficient equipment, including upgrades to corrugators
and printers 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 high-value, innovative,
sustainable packaging solutions. In May, the Group announced the completion of
a €40 million investment in state-of-the-art technology as part of our
strategic expansion in Poland. Our Pruszków corrugated plant now becomes
Smurfit Kappa’s largest in Poland and one of the most advanced packaging
plants in Europe.
Pricing for European containerboard in the first half of the year was lower
compared to the peak levels seen in the first half of 2022 as recovered fibre
and energy prices were also lower year-on-year and demand was lower from
corrugated box producers. On average, testliner prices were €200 per tonne
lower in the first six months of 2023 compared to the same period of last
year, while kraftliner was down €172 per tonne. Given the flexibility of our
integrated mill system in a period of subdued demand, the total commercial
downtime taken by our European mills was approximately 144,000 tonnes in the
first half of 2023. This is down significantly from the 260,000 tonnes taken
in the second half of 2022.
In the Americas, EBITDA increased by 1% on the first half of 2022 to €274
million. The EBITDA margin was 20.3%, compared to 18.8% in the first half of
2022 with Colombia, Mexico and the US accounting for almost 80% of the
region’s earnings. Box volumes in the Americas for the first half of 2023,
excluding acquisitions, were down 7.8% against a strong prior year
comparative.
SKG continued to invest in its Americas business during the first half of the
year, with growth and sustainability related investments primarily focused in
our corrugated, forestry and speciality businesses in Argentina, Colombia,
Mexico and Brazil. In our corrugated division, we are investing in
state-of-the-art converting equipment right across the region and in our
specialties business, we are expanding our portfolio in paper sacks.
On 20 March, the Group announced that it had sold its Russian operations to
local management thereby completing its exit from the Russian market.
On 12 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 in July, the Group acquired a specialty packaging operation in
Spain.
Free cash flow for the first six months was a net inflow of €119 million
compared to a net outflow of €28 million in the first half of 2022. The
average maturity profile of the Group’s debt was 4.4 years at 30 June 2023
with an average interest rate of 3.06%. Net debt to EBITDA was 1.4x at the end
of June 2023 versus 1.3x at the end of December 2022 and 1.6x at the end of
June 2022. SKG maintains investment grade credit ratings with Moody’s
Investors Service (Baa3/Stable), S&P Global Ratings (BBB-/Stable) and
Fitch Ratings (BBB-/Stable).
2023 First Half | Financial Performance
Revenue for the first half was €5,837 million, down 9% on the first half of
2022 or 7% lower on an underlying(2) basis.
EBITDA for the first half was €1,113 million, down 5% on the first half of
2022. On an underlying basis, Group EBITDA was down 3% year-on-year, with
Europe down 4% and the Americas up 3%.
Operating profit before exceptional items for the first half of 2023 at €779
million was 7% lower than the €839 million for the same period of 2022.
Exceptional items charged within operating profit in the first half of 2023
amounted to €34 million due to the recycling of currency, an impairment loss
on assets and other costs relating to the sale of our Russian operations.
There were no exceptional items charged within operating profit in the same
period of 2022.
There were no exceptional finance items in the first half of either 2023 and
2022.
Net finance costs at €87 million were €16 million higher than 2022
primarily due to a higher net foreign currency translation loss on debt, a
higher interest cost on net pension liabilities along with higher cash
interest.
After exceptional items of €34 million, the profit before tax for the first
half of 2023 was €659 million compared to a profit before tax of €769
million for the first half of 2022. The income tax expense was €183 million
compared to €195 million in 2022, resulting in a profit of €476 million
for the half year compared to €574 million in 2022.
Basic EPS for the first half of 2023 was 184.0 cent, compared to 221.9 cent in
2022.
2023 First Half | Free Cash Flow
Free cash flow in the first half of 2023 was a net inflow of €119 million
compared to a net outflow of €28 million for 2022, an increase of €147
million. The increase is primarily as a result of a lower working capital
outflow partly offset by a lower EBITDA and a higher outflow for the change in
employee benefits and other provisions.
The working capital outflow in 2023 was €262 million compared to €501
million in 2022. The outflow in 2023 was a combination of a significant
decrease in creditors along with an increase in debtors, partly offset by a
decrease in stock. The increase in debtors reflects higher box prices. The
decrease in creditors reflects considerably lower recovered fibre, energy and
other raw material costs. Working capital amounted to €1,326 million at 30
June 2023 and represented 11.7% of annualised revenue compared to 9.7% at 30
June 2022.
Capital expenditure in 2023 amounted to €429 million (equating to 142% of
depreciation) compared to €349 million (equating to 115% of depreciation) in
2022.
Cash interest amounted to €66 million in 2023 compared to €61 million in
2022. The increase in cash interest in the six months to June 2023 compared to
2022 is primarily due to an increased interest cost in certain of our higher
interest environments, which has more than offset increased interest income.
Tax payments of €173 million in 2023 were €15 million higher than in 2022
with higher payments in Europe.
2023 First Half | Capital Structure
Net debt was €3,175 million at the end of June 2023, resulting in a net debt
to EBITDA ratio of 1.4x compared to 1.3x at the end of December 2022 and 1.6x
at the end of June 2022. The Group’s balance sheet continues to provide
considerable long-term strategic and financial flexibility.
At 30 June 2023, the Group’s average interest rate was 3.06% compared to
2.89% at 31 December 2022. The Group’s diversified funding base and
long-dated maturity profile of 4.4 years provide a stable funding outlook. In
terms of liquidity, the Group held cash balances of €615 million at the end
of June 2023, which were further supplemented by undrawn available committed
facilities of €1,346 million on our sustainability‑linked Revolving Credit
Facility (‘RCF’) and €312 million on our sustainability-linked
securitisation programmes.
Dividends
The Board has decided to pay an interim dividend of 33.5 cent per share, which
represents an increase of 6% on the prior year. It is proposed to pay this
dividend on 27 October 2023 to all ordinary shareholders on the share register
at the close of business on 29 September 2023.
2023 First Half | 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 March. The report highlights the progress made
towards our long‑standing goal of driving change and nurturing a greener and
bluer planet through the three key 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 at least net zero
emissions by 2050.
The Group delivered several landmark achievements including:
* A world first in successfully trialling hydrogen in its Saillat paper mill in
France.
* Completion of a multi-fuel boiler in our Zülpich paper mill in Germany which
reduces the mill’s CO(2) emissions by 55,000 tonnes, or 2% for the Group.
* The announcement of an almost US$100 million investment in a sustainable
biomass boiler in our mill in Cali, Colombia, our largest single
decarbonisation project to date, which will reduce the Group’s emissions by
approximately 6%.
* Commencement of a district heating project in Austria to benefit 20,000 homes
across three communities.
In the SDR, the Group reported further progress in reducing its fossil CO(2)
emissions intensity having reduced emissions by 43.9% by the end of 2022,
compared to the baseline year of 2005. This marked a 4% improvement
year-on-year, leaving the Group well on its way to reach its 2030 target of a
55% reduction, in line with the EU Green deal and another step forward on our
journey to net zero.
Since 2005, SKG has invested €1.2 billion to make our operations more
sustainable. Of this, approximately €1 billion has been invested in
different energy efficiency and CO(2) reduction projects. These investments
have improved overall energy efficiency in our paper mill system by 20.6%.
The report also highlights our commitment to sustainable water stewardship and
how our efforts focus on continuing to decrease water in-take and further
improve the quality of the water discharged from our mills. Since 2005,
Smurfit Kappa has invested €129 million in best practice water treatment
systems, leading to a reduction in Chemical Oxygen Demand of 36.9%.
Compared to a 2013 baseline, SKG’s waste to landfill decreased by 24% in
2022 and our Chain of Custody certified packaging deliveries to customers
reached a level of 94.3%, a record level for the Group.
Other highlights include a 13.6% global reduction in the Total Recordable
Injury Rate compared to 2021 and the donation of €18.4 million to support
various social, environmental and community initiatives since 2020.
In January, the Group outlined its plan to install 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, Mexico and most recently, in our new facility in Morocco.
In February, Smurfit Kappa announced a €27 million investment in a new waste
management and recovery facility at its Nervión paper mill in Iurreta, Spain.
The investment will see the mill adopt a fully circular production process
involving the biggest landfill reduction project that SKG has undertaken to
date.
Also in February, SKG was further recognised for its strong ESG credentials
and continued improvement by the leading research and analytics company,
Sustainalytics. Following an analysis of more than 15,000 companies globally,
SKG was named as an Industry Top Rated company where it ranked in the top
percentile out of 99 companies, in addition to being awarded the Regional Top
Rated.
Smurfit Kappa 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.
2023 First Half | 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. Our unique packaging solutions help our
customers to increase sales, reduce cost, eliminate plastics and other less
sustainable substrates, mitigate risk in an essential element of their supply
chain and lower their carbon footprint.
Demonstrating this leadership in innovation, in the first half of the year SKG
won 21 awards across a host of categories including design, safety,
sustainability, community engagement and as a top employer. Most recently, the
Group was further recognised for its technical innovation and creativity by
winning 14 awards at the Flexographic Industry Association UK awards.
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 understand their specific requirements to develop bespoke
solutions which optimise functionality, cost-effectiveness, and consumer
appeal.
In February, the Group 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.
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 first half are set out in the following table.
6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
EBITDA 1,113 1,174
Cash interest expense (66) (61)
Working capital change (262) (501)
Capital expenditure (429) (349)
Change in capital creditors (35) (108)
Tax paid (173) (158)
Change in employee benefits and other provisions (46) (22)
Other 17 (3)
Free cash flow 119 (28)
Disposal of Russian operations 1 -
Purchase of own shares (net) (28) (27)
Purchase of businesses, investments and NCI* (4) (48)
Dividends (280) (250)
Net cash outflow (192) (353)
Acquired net debt - (5)
Deferred debt issue costs amortised (3) (4)
Currency translation adjustment 12 (62)
Increase in net debt (183) (424)
*( )‘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 33 to
35.
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 2023, the
Group’s drawings on this facility were €4 million, at an interest rate of
4.058%.
At 30 June 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.
Funding and Liquidity (continued)
At 30 June 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.
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. At 30 June 2023, 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 €6 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 half year assessment.
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 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
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.
Condensed Consolidated Income Statement
6 months to 30-Jun-23 6 months to 30-Jun-22
Unaudited Unaudited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
€m €m €m €m €m €m
Revenue 5,837 - 5,837 6,385 - 6,385
Cost of sales (3,881) - (3,881) (4,383) - (4,383)
Gross profit 1,956 - 1,956 2,002 - 2,002
Distribution costs (462) - (462) (480) - (480)
Administrative expenses (715) - (715) (683) - (683)
Other operating expenses - (34) (34) - - -
Operating profit 779 (34) 745 839 - 839
Finance costs (110) - (110) (85) - (85)
Finance income 23 - 23 14 - 14
Share of associates’ profit (after tax) 1 - 1 1 - 1
Profit before income tax 693 (34) 659 769 769
Income tax expense (183) (195)
Profit for the financial period 476 574
Attributable to:
Owners of the parent 476 574
Non-controlling interests - -
Profit for the financial period 476 574
Earnings per share
Basic earnings per share - cent 184.0 221.9
Diluted earnings per share - cent 183.3 220.9
Condensed Consolidated Statement of Comprehensive Income
6 months to 6 months to
30-Jun-23 30-Jun-22
Unaudited Unaudited
€m €m
Profit for the financial period 476 574
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial period 74 109
- Recycled to Condensed Consolidated Income Statement 28 -
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve 4 -
- Fair value loss on cash flow hedges (7) (6)
Changes in fair value of cost of hedging:
- Movement out of reserve - (1)
99 102
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (1) 211
- Related tax - (26)
(1) 185
Total other comprehensive income 98 287
Total comprehensive income for the financial period 574 861
Attributable to:
Owners of the parent 574 861
Non-controlling interests - -
Total comprehensive income for the financial period 574 861
Condensed Consolidated Balance Sheet
30-Jun-23 30-Jun-22 31-Dec-22
Unaudited Unaudited Audited
€m €m €m
ASSETS
Non-current assets
Property, plant and equipment 4,864 4,452 4,631
Right-of-use assets 328 360 345
Goodwill and intangible assets 2,661 2,760 2,672
Other investments 10 10 10
Investment in associates 20 16 16
Biological assets 125 113 100
Other receivables 50 34 39
Employee benefit assets 19 64 17
Derivative financial instruments - 5 2
Deferred income tax assets 147 116 141
8,224 7,930 7,973
Current assets
Inventories 1,110 1,296 1,231
Biological assets 12 11 10
Trade and other receivables 2,467 2,801 2,399
Derivative financial instruments 6 26 46
Cash and cash equivalents 615 491 788
4,210 4,625 4,474
Assets classified as held for sale - - 35
4,210 4,625 4,509
Total assets 12,434 12,555 12,482
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital - - -
Share premium 2,646 2,646 2,646
Other reserves 339 375 236
Retained earnings 2,372 2,002 2,143
Total equity attributable to owners of the parent 5,357 5,023 5,025
Non-controlling interests 13 13 13
Total equity 5,370 5,036 5,038
LIABILITIES
Non-current liabilities
Borrowings 3,594 3,614 3,600
Employee benefit liabilities 512 455 534
Derivative financial instruments 2 5 4
Deferred income tax liabilities 188 193 190
Non-current income tax liabilities 14 37 16
Provisions for liabilities 40 38 37
Capital grants 25 22 26
Other payables 11 8 10
4,386 4,372 4,417
Current liabilities
Borrowings 196 186 180
Trade and other payables 2,301 2,828 2,642
Current income tax liabilities 59 30 49
Derivative financial instruments 40 45 21
Provisions for liabilities 82 58 100
2,678 3,147 2,992
Liabilities associated with assets classified as held for sale - - 35
2,678 3,147 3,027
Total liabilities 7,064 7,519 7,444
Total equity and liabilities 12,434 12,555 12,482
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 2023 - 2,646 236 2,143 5,025 13 5,038
Profit for the financial period - - - 476 476 - 476
Other comprehensive income
Foreign currency translation adjustments - - 102 - 102 - 102
Defined benefit pension plans - - - (1) (1) - (1)
Effective portion of changes in fair value of cash flow hedges - - (3) - (3) - (3)
Total comprehensive income for the financial period - - 99 475 574 - 574
Hyperinflation adjustment - - - 34 34 - 34
Dividends paid - - - (280) (280) - (280)
Share‑based payment - - 32 - 32 - 32
Net shares acquired by SKG Employee Trust - - (28) - (28) - (28)
At 30 June 2023 - 2,646 339 2,372 5,357 13 5,370
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
An analysis of the movements in Other reserves is provided in Note 13.
Condensed Consolidated Statement of Cash Flows
6 months to 6 months to
30-Jun-23 30-Jun-22
Unaudited Unaudited
€m €m
Cash flows from operating activities
Profit before income tax 659 769
Net finance costs 87 71
Depreciation charge 285 280
Amortisation of intangible assets 23 25
Amortisation of capital grants (1) (1)
Share‑based payment expense 33 31
Profit on sale of property, plant and equipment (1) (6)
Share of associates’ profit (after tax) (1) (1)
Net movement in working capital (254) (501)
Change in biological assets (7) (1)
Disposal of Russian operations 28 -
Change in employee benefits and other provisions (46) (22)
Other (primarily hyperinflation adjustments) 9 7
Cash generated from operations 814 651
Interest paid (75) (57)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (16) (11)
Overseas corporation tax (net of tax refunds) paid (157) (147)
Net cash inflow from operating activities 566 436
Cash flows from investing activities
Interest received 12 2
Additions to property, plant and equipment and biological assets (419) (418)
Additions to intangible assets (6) (8)
Receipt of capital grants 2 -
Disposal of property, plant and equipment 1 10
Purchase of subsidiaries (net of acquired cash) - (36)
Deferred consideration paid (4) (10)
Net cash outflow from investing activities (414) (460)
Cash flows from financing activities
Purchase of own shares (net) (28) (27)
Increase in other interest-bearing borrowings 29 7
Repayment of lease liabilities (53) (56)
Dividends paid to shareholders (280) (250)
Net cash outflow from financing activities (332) (326)
Decrease in cash and cash equivalents (180) (350)
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 771 841
Currency translation adjustment 15 (17)
Decrease in cash and cash equivalents (180) (350)
Cash and cash equivalents at 30 June 606 474
An analysis of the net movement in working capital is provided in Note 11.
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
2022 included in the Group’s 2022 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=53501535&newsitemid=20230801594260&lan=en-US&anchor=smurfitkappa.com&index=7&md5=dc307c40624b148cce7d028fd05f776c)
.
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 2022. The Group reassessed the classification of restricted cash
in 2022 as a result of an agenda decision by the IFRS Interpretations
Committee. Consequently, restricted cash is now included as cash and cash
equivalents in the Condensed Consolidated Balance Sheet and Condensed
Consolidated Statement of Cash Flows. The comparative balances for cash and
cash equivalents have increased at 1 January 2022 by €14 million and at 30
June 2022 by €9 million. A number of changes to IFRS became effective in
2023, however, they did not have a material effect on the Condensed
Consolidated Interim Financial Statements included in this report.
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 4.4
years provide a stable funding outlook. At 30 June 2023, the Group had a
strong liquidity position of approximately €2.27 billion comprising cash
balances of €615 million, undrawn available committed facilities of €1,346
million under its RCF and €312 million under its sustainability-linked
securitisation facilities. At 30 June 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 provide long-term strategic
and financial flexibility.
Having assessed the principal risks facing the Group on page 10, 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.
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 2022 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, machine glazed (‘MG’) and graphic
paper; and other paper-based packaging, such as honeycomb, 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, honeycomb 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-23 6 months to 30-Jun-22
Europe The Total Europe The Total
Americas
Americas
€m €m €m €m €m €m
Revenue and results
Revenue 4,484 1,353 5,837 4,939 1,446 6,385
EBITDA 868 274 1,142 926 271 1,197
Segment exceptional items (34) - (34) - - -
EBITDA after exceptional items 834 274 1,108 926 271 1,197
Unallocated centre costs (29) (23)
Share-based payment expense (33) (31)
Depreciation and depletion (net)* (278) (279)
Amortisation (23) (25)
Finance costs (110) (85)
Finance income 23 14
Share of associates’ profit (after tax) 1 1
Profit before income tax 659 769
Income tax expense (183) (195)
Profit for the financial period 476 574
*Depreciation and depletion is net of fair value adjustments arising on
biological assets.
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-23
30-Jun-22
€m €m
Ireland 57 55
Germany 838 936
France 725 773
Mexico 643 634
Other Europe - eurozone 1,713 1,900
Other Europe - non-eurozone 1,123 1,252
Other Americas 738 835
Total revenue by geographical area 5,837 6,385
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-23 6 months to 30-Jun-22
Paper Packaging Total Paper Packaging Total
€m €m €m €m €m €m
Europe 667 3,817 4,484 978 3,961 4,939
The Americas 74 1,279 1,353 135 1,311 1,446
Total revenue by product 741 5,096 5,837 1,113 5,272 6,385
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
Exceptional items charged within operating profit in the first half of 2023
amounted to €34 million which related to currency recycling, impairment of
assets and other costs associated with the disposal of our Russian operations.
There were no exceptional items within operating profit in the first half of
2022.
There were no exceptional finance items in either year.
5. Finance Costs and Income
6 months to 6 months to
30-Jun-23 30-Jun-22
€m €m
Finance costs:
Interest payable on bank loans and overdrafts 25 19
Interest payable on leases 5 5
Interest payable on other borrowings 51 43
Foreign currency translation loss on debt 18 12
Fair value loss on derivatives 1 -
Fair value loss on financial assets - 1
Net interest cost on net pension liability 10 4
Net monetary loss – hyperinflation - 1
Total finance costs 110 85
Finance income:
Other interest receivable (12) (2)
Foreign currency translation gain on debt (7) (8)
Fair value gain on derivatives not designated as hedges (2) (4)
Net monetary gain - hyperinflation (2) -
Total finance income (23) (14)
Net finance costs 87 71
6. Income Tax Expense
Income tax expense recognised in the Condensed Consolidated Income Statement
6 months to 6 months to
30-Jun-23 30-Jun-22
€m €m
Current tax:
Europe 146 128
The Americas 39 54
185 182
Deferred tax (2) 13
Income tax expense 183 195
Current tax is analysed as follows:
Ireland 15 8
Foreign 170 174
185 182
Income tax recognised in the Condensed Consolidated Statement of Comprehensive
Income
6 months to 6 months to
30-Jun-23 30-Jun-22
€m €m
Arising on defined benefit pension plans - (26)
6. Income Tax Expense (continued)
The income tax expense in 2023 is €12 million lower than in the comparable
period in 2022, primarily due to lower profitability.
In Europe, the current tax expense is €18 million higher and in the Americas
the current tax expense is €15 million lower. This is mainly due to changes
in profitability and other timing differences.
The movement in deferred tax from a net expense of €13 million in 2022 to a
credit of €2 million in 2023 is largely due to the reversal of timing
differences on which deferred tax was previously recognised and the
recognition of tax benefits on losses and other tax credits.
There is no income tax expense or credit associated with exceptional items in
either 2023 or 2022.
7. 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-23 30-Jun-22
€m €m
Current service cost 14 20
Net interest cost on net pension liability 10 4
Defined benefit cost 24 24
Analysis of actuarial (losses)/gains recognised in the Condensed Consolidated
Statement of Comprehensive Income:
6 months to 6 months to
30-Jun-23
30-Jun-22
€m €m
Return on plan assets (excluding interest income) (25) (458)
Actuarial gain due to changes in financial assumptions 24 669
Total (loss)/gain recognised in the Condensed Consolidated Statement of (1) 211
Comprehensive Income
The following is a summary of the Group’s employee benefit obligations and
their related funding status:
30-Jun-23 31-Dec-22
€m €m
Present value of funded or partially funded obligations (1,723) (1,713)
Fair value of plan assets 1,640 1,608
Deficit in funded or partially funded plans (83) (105)
Present value of wholly unfunded obligations (407) (410)
Amounts not recognised as assets due to asset ceiling (3) (2)
Net pension liability (493) (517)
Defined Benefit Asset (for overfunded plans) 19 17
Defined Benefit Liability (for unfunded and partially funded plans) (512) (534)
The key assumptions relating to discount and inflation rates were reassessed
at 30 June 2023 and updated to reflect market conditions at that date.
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
period less own shares.
6 months to 6 months to
30-Jun-23 30-Jun-22
Profit attributable to owners of the parent (€ million) 476 574
Weighted average number of ordinary shares in issue (million) 258 258
Basic EPS (cent) 184.0 221.9
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-23 30-Jun-22
Profit attributable to owners of the parent (€ million) 476 574
Weighted average number of ordinary shares in issue (million) 258 258
Potential dilutive ordinary shares assumed (million) 1 1
Diluted weighted average ordinary shares (million) 259 259
Diluted EPS (cent) 183.3 220.9
Pre-exceptional
6 months to 6 months to
30-Jun-23
30-Jun-22
Profit attributable to owners of the parent (€ million) 476 574
Exceptional items included in profit before income tax (€ million) 34 -
Pre-exceptional profit attributable to owners of the parent (€ million) 510 574
Weighted average number of ordinary shares in issue (million) 258 258
Pre-exceptional basic EPS (cent) 197.2 221.9
Diluted weighted average ordinary shares (million) 259 259
Pre-exceptional diluted EPS (cent) 196.3 220.9
9. Dividends
During the period, the final dividend for 2022 of 107.6 cent per share was
paid to the holders of ordinary shares. The Board has decided to pay an
interim dividend of 33.5 cent per share (approximately €87 million). It is
proposed to pay this dividend on 27 October 2023 to all ordinary shareholders
on the share register at the close of business on 29 September 2023.
10. Property, Plant and Equipment
Land and Plant and Total
buildings
equipment
€m €m €m
Six months ended 30 June 2023
Opening net book amount 1,269 3,362 4,631
Reclassifications 47 (47) -
Additions - 379 379
Acquisitions 6 7 13
Depreciation charge (31) (204) (235)
Hyperinflation adjustment 8 16 24
Foreign currency translation adjustment 9 43 52
At 30 June 2023 1,308 3,556 4,864
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
6 months to 6 months to
30-Jun-23 30-Jun-22
€m €m
Change in inventories 124 (220)
Change in trade and other receivables (40) (533)
Change in trade and other payables (338) 252
Net movement in working capital (254) (501)
12. Analysis of Net Debt
30-Jun-23 31-Dec-22
€m €m
Revolving credit facility due 2026 ((1)) 1 4
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest) 271 276
Bank loans and overdrafts 143 110
€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) 252 252
€1,000 million 2.875% senior notes due 2026 (including accrued interest) 1,009 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) 498 496
€500 million 1.0% senior green notes due 2033 (including accrued interest) 499 497
Gross debt before leases 3,437 3,406
Leases 353 374
Gross debt including leases 3,790 3,780
Cash and cash equivalents (615) (788)
Net debt including leases 3,175 2,992
(1) At 30 June 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 30 June 2023, the amount drawn under this facility was €5 million.
(3) At 30 June 2023, the amount drawn under this facility was €13 million.
13. Other Reserves
Other reserves included in the Condensed Consolidated Statement of Changes in
Equity are comprised of the following:
Reverse Cash Cost Foreign Share- Own FVOCI
acquisition
flow
of
currency
based
shares
reserve
reserve
hedging
hedging
translation
payment
reserve
reserve
reserve
reserve
Total
€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 - - - 102 - - - 102
Effective portion of changes in fair value of cash flow hedges - (3) - - - - - (3)
Total other comprehensive (expense)/income - (3) - 102 - - - 99
Share-based payment - - - - 32 - - 32
Net shares acquired by SKG Employee Trust - - - - - (28) - (28)
Shares distributed by SKG Employee Trust - - - - (15) 15 - -
At 30 June 2023 575 (7) - (502) 351 (78) - 339
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
14. Fair Value Hierarchy
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 30 June 2023:
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 - 6 - 6
Derivative financial instruments:
Liabilities at fair value through profit or loss - (23) - (23)
Derivatives used for hedging - (19) - (19)
2 (28) - (26)
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 31 December 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 - 44 - 44
Derivatives used for hedging - 4 - 4
Derivative financial instruments:
Liabilities at fair value through profit or loss - (16) - (16)
Derivatives used for hedging - (9) - (9)
2 31 - 33
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 2022 Annual Report.
30-Jun-23 31-Dec-22
Carrying value Fair value Carrying value Fair value
€m €m €m €m
Trade and other receivables( (1)) 2,260 2,260 2,228 2,228
Listed and unlisted debt instruments((2)) 10 10 10 10
Cash and cash equivalents ((3)) 615 615 788 788
Derivative assets ((4)) 6 6 48 48
2,891 2,891 3,074 3,074
Trade and other payables((1)) 1,810 1,810 2,121 2,121
Revolving credit facility((5)) 1 1 4 4
2026 €100 million receivables securitisation((3)) 4 4 4 4
2026 €230 million receivables securitisation((3)) 11 11 11 11
Bank loans and overdrafts((3)) 143 143 110 110
2025 debentures((6)) 271 281 276 297
2025 notes((6)) 252 248 252 246
2026 notes((6)) 1,009 977 1,008 981
2027 notes ((6)) 749 674 748 672
2029 green notes ((6)) 498 405 496 385
2033 green notes ((6)) 499 374 497 349
5,247 4,928 5,527 5,180
Derivative liabilities((4)) 42 42 25 25
Deferred consideration((7)) 1 1 5 5
5,290 4,971 5,557 5,210
Total net position (2,399) (2,080) (2,483) (2,136)
(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) The 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 at the
balance sheet date.
16. Related Party Transactions
Details of related party transactions in respect of the year ended 31 December
2022 are contained in Note 30 to the Consolidated Financial Statements of the
Group’s 2022 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.
During the first half of 2023, the Group provided funding of €3 million to
the Smurfit Kappa Foundation. There were no other transactions with related
parties in the first half of 2023 or changes to transactions with related
parties disclosed in the 2022 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 1 August 2023.
18. Distribution of the Interim Report
This 2023 interim report 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=53501535&newsitemid=20230801594260&lan=en-US&anchor=smurfitkappa.com&index=8&md5=dafc6177547773147ed3624e9bd7a182)
.
Responsibility Statement in Respect of the Six Months Ended 30 June 2023
The Directors, whose names and functions are listed on pages 100 to 103 in the
Group’s 2022 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 2023 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 2023, 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
1 August 2023
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-23
30-Jun-22
€m
€m
Profit for the financial period CIS 476 574
Income tax expense (after exceptional items) CIS 183 195
Exceptional items charged in operating profit CIS 34 -
Net finance costs (after exceptional items) Note 5 87 71
Share of associates’ profit (after tax) CIS (1) (1)
Share-based payment expense Note 3 33 31
Depreciation, depletion (net) and amortisation Note 3 301 304
EBITDA 1,113 1,174
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-23
30-Jun-22
€m
€m
EBITDA A 1,113 1,174
Revenue CIS 5,837 6,385
EBITDA margin 19.1% 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 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-23
30-Jun-22
€m
€m
Operating profit CIS 745 839
Exceptional items CIS 34 -
Operating profit before exceptional items CIS 779 839
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
30-Jun-23
30-Jun-23
30-Jun-23
30-Jun-22
30-Jun-22
30-Jun-22
EBITDA
Currency (1%) (3%) (2%) - 8% 2%
Hyperinflation - (1%) - - - -
Acquisitions/disposals - 2% - 2% 3% 2%
Underlying EBITDA change (4%) 3% (3%) 55% 18% 46%
Reported EBITDA change (5%) 1% (5%) 57% 29% 50%
Revenue
Currency - (3%) (1%) - 7% 2%
Hyperinflation - 1% - - 1% -
Acquisitions/disposals (1%) 2% (1%) 2% 4% 2%
Underlying revenue change (8%) (6%) (7%) 33% 28% 32%
Reported revenue change (9%) (6%) (9%) 35% 40% 36%
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
30-Jun-23
30-Jun-22
31-Dec-22
€m
€m
€m
Borrowings Note 12 3,790 3,800 3,780
Less:
Cash and cash equivalents CBS (615) (491) (788)
Net debt 3,175 3,309 2,992
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-23
30-Jun-22
31-Dec-22
€m
€m
€m
Net debt F 3,175 3,309 2,992
EBITDA LTM 2,294 2,095 2,355
Net debt to EBITDA LTM (times) 1.4 1.6 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)
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 period-end).
Reference 30-Jun-23 30-Jun-22
€m
€m
Operating profit before exceptional items plus share of associates’ profit 1,605 1,436
(after tax) LTM
Total equity – current period-end CBS 5,370 5,036
Net debt – current period-end F 3,175 3,309
Capital employed – current period-end 8,545 8,345
Total equity – prior period-end CBS 5,036 4,004
Net debt – prior period-end F 3,309 2,549
Capital employed – prior period-end 8,345 6,553
Average capital employed 8,445 7,449
Return on capital employed 19.0% 19.3%
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-23 30-Jun-22
€m
€m
Inventories CBS 1,110 1,296
Trade and other receivables (current and non-current) CBS 2,517 2,835
Trade and other payables CBS (2,301) (2,828)
Working capital 1,326 1,303
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-23 30-Jun-22
€m
€m
Working capital I 1,326 1,303
Annualised quarterly revenue 11,367 13,442
Working capital as a percentage of sales 11.7% 9.7%
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-23
30-Jun-22
€m
€m
EBITDA A 1,113 1,174
Cash interest expense K.1 (66) (61)
Working capital change K.2 (262) (501)
Capital expenditure K.3 (429) (349)
Change in capital creditors K.3 (35) (108)
Tax paid CSCF (173) (158)
Change in employee benefits and other provisions CSCF (46) (22)
Other K.5 17 (3)
Free cash flow L 119 (28)
Disposal of Russian operations L 1 -
Purchase of own shares (net) CSCF (28) (27)
Purchase of businesses, investments and NCI K.6 (4) (48)
Dividends CSCF (280) (250)
Net cash outflow (192) (353)
Acquired net debt K.7 - (5)
Deferred debt issue costs amortised (3) (4)
Currency translation adjustment 12 (62)
Increase in net debt (183) (424)
K.1 Cash interest expense
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Interest paid CSCF (75) (57)
Interest received CSCF 12 2
Move in accrued interest (3) (6)
Per summary cash flow (66) (61)
Alternative Performance Measures (continued)
K.2 Working capital change
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Net movement in working capital CSCF (254) (501)
Impairment loss on Russian trade receivables (8) -
Per summary cash flow (262) (501)
K.3 Capital expenditure
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Additions to property, plant and equipment and biological assets CSCF (419) (418)
Additions to intangible assets CSCF (6) (8)
Net additions to right-of-use assets (39) (31)
Change in capital creditors K 35 108
Per summary cash flow (429) (349)
K.4 Capital expenditure as a percentage of depreciation
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Capital expenditure K.3 429 349
Depreciation, depletion (net) and amortisation A 301 304
Capital expenditure as a percentage of depreciation 142% 115%
K.5 Other
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€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 (1) (6)
Other (primarily hyperinflation adjustments) CSCF 9 7
Receipt of capital grants CSCF 2 -
Disposal of property, plant and equipment CSCF 1 10
Right-of-use asset terminations/modifications L 7 (13)
Per summary cash flow 17 (3)
Alternative Performance Measures (continued)
K.6 Purchase of businesses, investments and NCI
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Purchase of subsidiaries (net of acquired cash) CSCF - (36)
Deferred consideration paid CSCF (4) (10)
Acquired cash and cash equivalents K.7 - (2)
Per summary cash flow (4) (48)
K.7 Acquired net debt
Reference 6 months to 6 months to
30-Jun-23
30-Jun-22
€m
€m
Debt acquired - (7)
Acquired cash and cash equivalents K.6 - 2
Per summary cash flow - (5)
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-23
30-Jun-22
€m
€m
Free cash flow K 119 (28)
Reconciling items:
Cash interest expense K.1 66 61
Capital expenditure (net of change in capital creditors) K.3 464 457
Tax payments CSCF 173 158
Disposal of property, plant and equipment CSCF (1) (10)
Right-of-use asset terminations/modifications K.5 (7) 13
Receipt of capital grants CSCF (2) -
Disposal of Russian operations K 1 -
Non-cash financing activities 1 -
Cash generated from operations CSCF 814 651
________________________________
(1) Additional information in relation to these Alternative Performance
Measures is set out in Supplementary Financial Information on pages 29 to 35.
(2) Additional information on underlying performance is set out within
Supplementary Financial Information on pages 29 to 35.
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