REG-Smurfit Kappa Group PLC Half-year Report
28/07/2021 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 2021.
2021 Half Year | Key Financial Performance Measures
€m H1 H1 Change
2021
2020
Revenue €4,679 €4,203 11%
EBITDA (1) €781 €735 6%
EBITDA Margin (1) 16.7% 17.5%
Operating Profit before Exceptional Items (1) €477 €450 6%
Profit before Income Tax €413 €383 8%
Basic EPS (cent) 119.9 116.9 3%
Pre-exceptional Basic EPS (cent) (1) 119.9 116.9 3%
Free Cash Flow (1) €117 €238 (51%)
Return on Capital Employed (1) 14.8% 14.8%
Net Debt (1) €2,549 €3,257
Net Debt to EBITDA (LTM) (1) 1.6x 2.1x
Key Points:
* Revenue growth of 11%
* EBITDA of €781 million with an EBITDA margin of 16.7%
* Corrugated growth of over 10% and over 9% versus 2020 and 2019 respectively
* Accelerating investment plans to meet customer needs and capitalise on growth
* Agreement to acquire 600,000 tonne recycled containerboard mill
* Strong and progressive corrugated price recovery offsetting significant input
cost increases
* Interim dividend increased by 5% to 29.3 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 11%, EBITDA of €781 million and an EBITDA margin of 16.7%. Growth in
corrugated was over 10% against the same period in 2020 and over 9% on 2019
and we continue to see strong demand for our core products.
“As a result of our past and current capital investments in our integrated
business model, we have, for the most part, been able to fulfil our
customers’ needs during this period of exceptionally strong demand. It has
also been a period of significant input cost pressures which we have and will
continue to recover through corrugated price increases.
“Against this backdrop our European business delivered a strong performance
with EBITDA of €591 million and an EBITDA margin of 16.2%. Our Americas
business equally delivered a strong performance with EBITDA of €211 million
and an EBITDA margin of 20.4%. These performances reflect the benefits of our
integrated business model, our investment programmes, strong market positions
and our performance culture which has come to the fore during these high
pressured times. I would like to pay a special tribute to all our people who
are going the extra mile to satisfy customer demands.
“To further strengthen the integration of the Group and the security of
supply for our customers we are pleased to announce today the acquisition,
subject to customary closing conditions, of a world-class recycled
containerboard mill with a capacity of 600,000 tonnes. This mill is
strategically well positioned in Northern Italy, it is highly complementary to
our existing operational footprint and will support the acceleration of the
significant investments we are making in our converting operations.
“In addition to our announced acquisition in Italy we were also delighted to
complete the acquisition of two operations in our Americas region in Peru and
Mexico. These two businesses further add to our geographic footprint,
including a new market through Peru, and customer offering, and I am delighted
to welcome a further 608 employees to Smurfit Kappa. We continue to be excited
by the opportunities presented by this region.
“We are accelerating our investment plans to capitalise on the significant
growth opportunities available to us. This growth is coming from the
structural drivers of paper-based packaging, as the sustainable product of
choice by consumers and customers alike, as well as the continued strong
growth in e-commerce. I am very proud of our product development teams in SKG
who have ensured our product offering in innovation and design is the best in
the industry globally.
“During the first half we also published our 14(th) Sustainable Development
Report, independently assured for over 10 years. Amongst the highlights of the
2020 report was significant action across our key metrics, such as, a further
7% reduction in our carbon intensity, an 18% reduction in waste to landfill
intensity and a 29% improvement in safety performance.
“I am also happy to report that both Moody’s and Standard & Poor’s
have upgraded our credit rating to Baa3 and BBB- respectively, in addition to
Fitch’s BBB- rating.
“The second half has continued the trend of strong demand and corrugated
price recovery. SKG remains very confident in our prospects and excited about
the opportunities for our business. Our first half performance has established
a platform for strong and accelerated earnings growth through the remainder of
2021.
“Reflecting this and the future prospects of the business the Board is
recommending a 5% 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 46,000
employees in over 350 production sites across 36 countries and with revenue of
€8.5 billion in 2020. 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 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
can 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)
2021 First Half | Performance Overview
The Group reported EBITDA for the first half of €781 million, up 6% on 2020.
The Group EBITDA margin was 16.7%, down from 17.5% in the first half of 2020.
The result reflects the resilience of the Group’s integrated model and the
benefits of our customer-focused innovation and capital spend programme,
offset by higher year-on-year recovered fibre, energy and other raw material
costs.
The second half has continued the trend of strong demand and corrugated price
recovery.
In Europe, EBITDA increased by 3% on the first half of 2020 to €591 million.
The EBITDA margin was 16.2%, down from 17.6% on the same period in 2020.
Corrugated demand was up approximately 10% on 2020 and 9% on 2019. Corrugated
pricing has continued to improve in line with expectations with continued
progression into the second half.
European pricing for testliner and kraftliner has increased by €220 per
tonne and €200 per tonne respectively from the low of September 2020 to June
2021. As we begin the second half of the year, inventories remain extremely
tight and demand remains strong.
Our European business continued to strengthen its operating platform in the
first half with the commencement of a number of significant projects across
our paper and corrugated divisions. In our paper division we announced growth
projects in Germany and a significant sustainability investment, also in
Germany, which upon completion will reduce our Group CO(2) emissions intensity
by 2%. In our corrugated division we announced significant expansion projects
in France, Czech Republic, Slovakia, Poland, and the UK. We have also recently
announced the completion of an increased capacity investment in our Spanish
bag-in-box plant.
In the Americas, EBITDA increased by 19% on the first half of 2020 to €211
million. The EBITDA margin increased from 19.0% in the first half of 2020 to
20.4% in the first half of 2021, delivered against a backdrop of difficult
weather conditions in the Southern US in the first quarter and a challenging
second quarter in Colombia due to national strikes. Colombia, Mexico and the
US accounted for over 78% of the region’s earnings with strong performances
in all three countries. Corrugated demand for the first half was up 11%
year-on-year.
We have recently announced the acquisition of two operations in the Americas,
in Peru and Mexico. We have also recently announced significant expansion and
sustainability focused projects in our paper, corrugated and sack businesses
in Colombia, North America and Central America.
The Group reported free cash flow of €117 million in the first half of 2021
compared to €238 million in the first half of 2020. The average maturity
profile of the Group’s debt was 4.4 years at 30 June 2021 with an average
interest rate of 3.17%. Net debt to EBITDA was 1.6x at the half year, in line
with the year end. The Group remains strongly positioned within its
BBB-/BBB-/Baa3 credit rating.
2021 First Half | Financial Performance
Revenue for the first half was €4,679 million, up 11% on the first half of
2020 or 13% on an underlying (2) basis.
EBITDA for the first half was €781 million, 6% up on the first half of 2020.
On an underlying( )basis, Group EBITDA was up 8% year-on-year, with Europe up
3% and the Americas up 26%.
Operating profit before exceptional items for the first half of 2021 at €477
million was 6% higher than the €450 million for the same period of 2020.
There were no exceptional items charged within operating profit and no
exceptional finance items in the first half of both 2021 and 2020.
Net finance costs at €64 million were €4 million lower than 2020,
reflecting a decrease in both cash interest and interest cost on net pension
liabilities along with the positive swing from a fair value loss on financial
assets/liabilities in 2020 to a gain in 2021, partly offset by a negative
swing from a foreign currency translation gain on debt in 2020 to a loss in
2021.
With the €27 million increase in operating profit together with the €4
million decrease in net finance costs, partly offset by a €1 million move in
share of associates’ profit, the profit before income tax was €413
million, €30 million higher than in 2020.The income tax expense of €105
million was in line with 2020, resulting in a profit of €308 million for
2021 compared to a profit of €278 million in 2020.
Basic EPS for the first half of 2021 was 119.9 cent, compared to 116.9 cent in
2020.
2021 First Half | Free Cash Flow
Free cash flow in the first half of 2021 was €117 million compared to €238
million for 2020, a decrease of €121 million. An EBITDA increase of €46
million and lower capital outflows of €26 million was more than offset by
higher outflows for working capital and tax payments of €163 million and
€24 million respectively.
Working capital increased by €280 million in the half year mainly due to the
significant increase in debtors and to a lesser extent, stock, partly offset
by the increase in creditors. Working capital amounted to €781 million at
June 2021, representing 8.1% of annualised revenue compared to 8.4% at June
2020 and 5.6% at December 2020.
Capital expenditure in 2021 amounted to €175 million (equating to 63% of
depreciation) compared to €230 million (equating to 84% of depreciation) in
2020.
Cash interest amounted to €54 million in 2021 compared to €61 million in
2020, with the decrease primarily relating to a lower average level of
borrowing.
Tax payments of €122 million in 2021 were €24 million higher than in 2020.
2021 First Half | Capital Structure
Net debt was €2,549 million at the end of June, resulting in a net debt to
EBITDA ratio of 1.6x compared to 1.6x at the end of December 2020 and 2.1x at
the end of June 2020. The Group’s balance sheet continues to provide
considerable financial strategic 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 2021, the Group’s average interest rate was 3.17% compared to
3.13% at 31 December 2020. 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 €637 million at the end
of June, which were further supplemented by available commitments of €1.34
billion under its Sustainability Linked Revolving Credit Facility (‘RCF’)
and €312 million under its securitisation programmes.
Dividends
The Board has decided to pay an interim dividend of 29.3 cent per share
(approximately €76 million). It is proposed to pay this dividend on 22
October 2021 to all ordinary shareholders on the share register at the close
of business on 24 September 2021.
2021 First Half | Sustainability
Smurfit Kappa continues to make significant and tangible progress on achieving
its sustainability targets as outlined in its 14(th) Sustainable Development
Report (‘SDR’). It highlights the Group’s long-standing objective to
drive change and nurture a greener planet through the three key pillars of
Planet, People and Impactful Business. Furthermore, Smurfit Kappa’s
end-to-end approach to sustainability is evident in its innovative products
and processes that support customers and positively impact the entire value
chain.
In our 2020 SDR Smurfit Kappa reported significant progress in reducing its
fossil CO(2) emission intensity. The Group 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 37.3% by the end
of 2020. The reduction in 2020 versus 2019 was 7% which is an acceleration
compared with the previous year. The Group is well on its way to reach its
intermediate 2030 target of 55% reduction, in line with the EU Green Deal
objectives.
Compared with 2019, the Group also made continued progress during 2020 on a
number of its other key sustainability targets:
* Water discharge quality improved by 5%
* Waste to landfill intensity decreased by 18%
* Chain of Custody certified packaging deliveries to customers increased by 2%
* Safety performance improved by 29%
* Social projects received €7.7 million in donations, including €3 million
in various COVID-related projects during the financial year
While the SDR has been independently assured since 2009, the 2020 SDR is the
Group’s first to report in line with recommendations of the Taskforce for
Climate related Financial Disclosures (‘TCFD’) and the Sustainable
Accounting Standards Board (‘SASB’) criteria.
Smurfit Kappa also aligned its sustainability ambitions and targets into its
financing by embedding its sustainability targets via Key Performance
Indicators (‘KPIs’) into its existing €1.35 billion RCF, creating a
Sustainability Linked RCF, at the end of 2020.
Smurfit Kappa has been contributing to making the UN 2030 Sustainable
Development Goals (‘SDGs’) a reality since 2015. This contribution was
recognised by the Support the Goals movement in 2021 when the Group became the
first FTSE 100 company to receive a five-star rating.
By committing to these sustainability targets, the Group’s Better Planet
Packaging portfolio of sustainable products will continue to help its
customers to deliver on their own short and long-term sustainability goals.
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, Ethibel’s sustainable investment register, CDP,
SEDEX and EcoVadis. SKG also performs strongly across a number of third party
certification bodies, including MSCI, ISS ESG and Sustainalytics.
2021 First Half | Commercial Offering and Innovation
SKG continues to lead the industry in its market offering, helping our
customers win in their marketplace. Our unique insights and capabilities allow
our customers to increase sales, reduce costs and mitigate risk in an ever
more complex world where reputation is key.
The Group continued to deliver innovation for our customers through the
pandemic, adapting ways of working and moving most of our activity onto
virtual platforms. This was best captured by our first virtual Better Planet
Packaging event held in March which hosted over 2,700 attendees.
During the first half the Group launched a world first, a pre-certified,
Frustration Free Packaging (‘FFP’) compliant packaging for Amazon
supply-chains. This means customers can access one of the world’s leading
trading platforms quicker and in confidence of meeting Amazon’s strict
packaging requirements, a significant advantage as global e-commerce sales
continue to grow.
In April the Group’s Brazilian business won a prestigious Red Dot Award in
the area of product design. The packaging challenge came from Wine & Bite
Box to secure and protect bottles of wine and food for a growing trend of
tasting boxes being delivered to customers for an at home gourmet experience.
The award recognises this packaging as one of the most innovative design
projects in the world.
The Group continues to experience intense levels of pipeline development
across our business as customers strive for more sustainable packaging
solutions. This structural trend towards more sustainable solutions is
expected to be a multi-year trend given the need in many cases for changes to
our customers’ manufacturing halls to accommodate a move to paper-based
packaging. Some examples are outlined below.
The unique TopClip product that was launched last year continues to grow with
the first fully automated packing line being commissioned at a customer’s
site in the second quarter. This provides an exciting proof of concept for
other prospective customers as they look for more sustainable packaging
solutions.
The launch of our Safe & Closed product, a sustainable corrugated
alternative to rigid plastic tubs has also generated significant interest
through the first half and we expect to deliver proof of concept to the market
by the end of the year.
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-21 30-Jun-20
€m €m
EBITDA 781 735
Cash interest expense (54) (61)
Working capital change (195) (32)
Capital expenditure (175) (230)
Change in capital creditors (80) (51)
Tax paid (122) (98)
Change in employee benefits and other provisions (43) (26)
Other 5 1
Free cash flow 117 238
Purchase of own shares (net) (22) (16)
Sale of businesses and investments 37 -
Purchase of businesses, investments and NCI* (55) (21)
Dividends (226) -
Derivative termination receipts 10 9
Net cash (outflow)/inflow (139) 210
Acquired net (debt)/cash (13) (1)
Disposed net (cash)/debt (1) -
Deferred debt issue costs amortised (4) (4)
Currency translation adjustment (17) 21
(Increase)/decrease in net debt (174) 226
*( )‘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
36.
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.
Borrowings under the RCF are available to fund the Group's working capital
requirements, capital expenditure and other general corporate purposes.
At 30 June 2021, the Group had outstanding, €500 million 2.375% senior notes
due 2024, €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 and
€750 million 1.5% senior notes due 2027.
At 30 June 2021, the Group had outstanding €12.6 million variable funding
notes issued under the €230 million trade receivables securitisation
programme maturing in June 2023 and €5 million variable funding notes issued
under the €100 million trade receivables securitisation programme maturing
in January 2026.
In April 2021, the Group amended and extended its €200 million 2022 trade
receivables securitisation programme, which utilises the Group’s receivables
in Austria, Belgium, Italy and the Netherlands. The programme was extended to
January 2026 at a reduced facility size of €100 million and with a margin
reduction from 1.375% to 1.1%.
Funding and Liquidity (continued)
As part of the amendment process, the Group further aligned its sustainability
ambitions and targets into its financing by embedding its sustainability
targets via KPIs into the amended and extended trade receivables programme.
The 2026 trade receivables securitisation programme 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 programme.
The Group also has a €1,350 million Sustainability Linked RCF with a
maturity date of 28 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. At 30 June 2021, the Group’s drawings on this facility were
US$8 million, at an interest rate of 0.732%.
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 2021, the Group had fixed an average of 97% of its
interest cost on borrowings over the following 12 months.
The Group’s fixed rate debt comprised €500 million 2.375% senior notes due
2024, €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 and
€750 million 1.5% senior notes due 2027. €100 million in interest rate
swaps converting variable rate borrowings to fixed rate matured in January
2021.
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. As part of the half year risk assessment, the Board has again
considered the impact of the COVID-19 pandemic on the principal risks of the
Group.
The Group is an integral part of the supply chain for essential and critical
supplies and as a result there has been no significant impact on any of our
risks for the half year ended 30 June 2021. The measures and mitigations
introduced as a result of the pandemic continue to be maintained and further
enhanced across the Group’s operations to ensure the ongoing safety of our
employees.
Our assessment has concluded that our principal risks remain unchanged. The
Board will continue to monitor any future impact of the COVID-19 pandemic.
The principal risks and uncertainties 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 current 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 materials 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 and safety practices may have an adverse
effect on the Group’s business.
* The Group is subject to a growing number of environmental 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 principal risks and uncertainties faced by the Group were outlined in our
2020 Annual Report on pages 34‑35. The Annual Report is available on our
website; smurfitkappa.com
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.
Condensed Consolidated Income Statement
6 months to 30-Jun-21 6 months to 30-Jun-20
Unaudited Unaudited
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
€m €m €m €m €m €m
Revenue 4,679 - 4,679 4,203 - 4,203
Cost of sales (3,226) - (3,226) (2,794) - (2,794)
Gross profit 1,453 - 1,453 1,409 - 1,409
Distribution costs (390) - (390) (357) - (357)
Administrative expenses (586) - (586) (602) - (602)
Operating profit 477 - 477 450 - 450
Finance costs (73) - (73) (85) - (85)
Finance income 9 - 9 17 - 17
Share of associates’ profit (after tax) - - - 1 - 1
Profit before income tax 413 - 413 383 - 383
Income tax expense (105) (105)
Profit for the financial period 308 278
Attributable to:
Owners of the parent 308 277
Non-controlling interests - 1
Profit for the financial period 308 278
Earnings per share
Basic earnings per share - cent 119.9 116.9
Diluted earnings per share - cent 119.2 116.4
Condensed Consolidated Statement of Comprehensive Income
6 months to 6 months to
30-Jun-21 30-Jun-20
Unaudited Unaudited
€m €m
Profit for the financial period 308 278
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the financial period 9 (181)
- Recycled to Condensed Consolidated Income Statement 1 1
Effective portion of changes in fair value of cash flow hedges:
- Movement out of reserve (2) 1
- Fair value gain on cash flow hedges - 8
- Movement in deferred tax - (1)
Changes in fair value of cost of hedging:
- New fair value adjustments into reserve - (1)
8 (173)
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
- Actuarial gain/(loss) 125 (29)
- Movement in deferred tax (15) 9
110 (20)
Total other comprehensive income/(expense) 118 (193)
Total comprehensive income for the financial period 426 85
Attributable to:
Owners of the parent 426 87
Non-controlling interests - (2)
Total comprehensive income for the financial period 426 85
Condensed Consolidated Balance Sheet
30-Jun-21 30-Jun-20 31-Dec-20
Unaudited Unaudited Audited
€m €m €m
ASSETS
Non-current assets
Property, plant and equipment 3,795 3,779 3,839
Right-of-use assets 298 321 311
Goodwill and intangible assets 2,556 2,572 2,552
Other investments 11 10 11
Investment in associates 12 12 12
Biological assets 105 96 107
Other receivables 26 29 28
Deferred income tax assets 160 220 172
6,963 7,039 7,032
Current assets
Inventories 860 832 773
Biological assets 8 10 11
Trade and other receivables 1,901 1,585 1,535
Derivative financial instruments 6 29 38
Restricted cash 16 7 10
Cash and cash equivalents 621 639 891
3,412 3,102 3,258
Total assets 10,375 10,141 10,290
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital - - -
Share premium 2,646 1,986 2,646
Other reserves 219 169 207
Retained earnings 1,126 894 917
Total equity attributable to owners of the parent 3,991 3,049 3,770
Non-controlling interests 13 14 13
Total equity 4,004 3,063 3,783
LIABILITIES
Non-current liabilities
Borrowings 3,033 3,729 3,122
Employee benefits 707 900 853
Derivative financial instruments 13 3 17
Deferred income tax liabilities 172 212 191
Non-current income tax liabilities 10 25 14
Provisions for liabilities 49 76 50
Capital grants 21 16 21
Other payables 11 9 9
4,016 4,970 4,277
Current liabilities
Borrowings 153 174 154
Trade and other payables 2,006 1,767 1,835
Current income tax liabilities 15 19 7
Derivative financial instruments 8 8 13
Provisions for liabilities 173 140 221
2,355 2,108 2,230
Total liabilities 6,371 7,078 6,507
Total equity and liabilities 10,375 10,141 10,290
Condensed Consolidated Statement of Changes in Equity
Attributable to owners of the parent
Equity share capital Share premium Other reserves Retained earnings Total Non-controlling Total equity
interests
€m €m €m €m €m €m €m
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
Unaudited
At 1 January 2020 - 1,986 351 615 2,952 41 2,993
Profit for the financial period - - - 277 277 1 278
Other comprehensive income
Foreign currency translation adjustments - - (177) - (177) (3) (180)
Defined benefit pension plans - - - (20) (20) - (20)
Effective portion of changes in fair value of cash flow hedges - - 8 - 8 - 8
Changes in fair value of cost of hedging - - (1) - (1) - (1)
Total comprehensive (expense)/income for the financial period - - (170) 257 87 (2) 85
Purchase of non-controlling interests - - (7) 12 5 (25) (20)
Hyperinflation adjustment - - - 10 10 - 10
Share‑based payment - - 11 - 11 - 11
Net Shares acquired by SKG Employee Trust - - (16) - (16) - (16)
At 30 June 2020 - 1,986 169 894 3,049 14 3,063
An analysis of Other reserves is provided in Note 12
Condensed Consolidated Statement of Cash Flows
6 months to 6 months to
30-Jun-21 30-Jun-20
Unaudited Unaudited
€m €m
Cash flows from operating activities
Profit before income tax 413 383
Net finance costs 64 68
Depreciation charge 254 251
Amortisation of intangible assets 19 22
Amortisation of capital grants (1) (2)
Share‑based payment expense 28 11
Profit on sale of property, plant and equipment (5) -
Profit on purchase of businesses - (4)
Share of associates’ profit (after tax) - (1)
Net movement in working capital (195) (33)
Change in biological assets 3 1
Change in employee benefits and other provisions (43) (26)
Other (primarily hyperinflation adjustments) 3 3
Cash generated from operations 540 673
Interest paid (55) (63)
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (9) (6)
Overseas corporation tax (net of tax refunds) paid (113) (92)
Net cash inflow from operating activities 363 512
Cash flows from investing activities
Interest received 1 1
Business disposals (net of disposed cash) 33 -
Additions to property, plant and equipment and biological assets (228) (246)
Additions to intangible assets (6) (9)
Receipt of capital grants 1 -
(Increase)/decrease in restricted cash (6) 7
Disposal of property, plant and equipment 7 1
Dividends received from associates 1 -
Purchase of subsidiaries (net of acquired cash) (20) (1)
Deferred consideration paid (35) -
Net cash outflow from investing activities (252) (247)
Cash flows from financing activities
Purchase of own shares (net) (22) (16)
Purchase of non-controlling interests - (20)
(Decrease)/increase in other interest-bearing borrowings (100) 241
Repayment of lease liabilities (41) (35)
Derivative termination receipts 10 9
Deferred debt issue costs paid (1) (1)
Dividends paid to shareholders (226) -
Net cash (outflow)/inflow from financing activities (380) 178
(Decrease)/increase in cash and cash equivalents (269) 443
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 876 172
Currency translation adjustment (2) 12
(Decrease)/increase in cash and cash equivalents (269) 443
Cash and cash equivalents at 30 June 605 627
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
2020 included in the Group’s 2020 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=52467103&newsitemid=20210727006163&lan=en-US&anchor=smurfitkappa.com&index=7&md5=4d97ae360da2032ff4d7796f664ae8b3)
.
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 2020. A number of changes to IFRS became effective in 2021,
however, they did not have a material effect on the Condensed Consolidated
Interim Financial Statements included in this report.
Impact of COVID-19
The Group has again considered the impact of the COVID-19 pandemic with
respect to all judgements and estimates it makes in the application of its
accounting policies. This included assessing the recoverability of trade
receivables and inventory. The Group’s customers primarily operate in the
FMCG sector, which has proved resilient during the COVID-19 pandemic to date.
There has been no significant deterioration in the aging of trade receivables
or extension of debtor days in the period. As a result of these reviews, there
was no material increase in the trade receivables or inventory provisions. The
Group also assessed non-financial assets for indicators of impairment. No
impairments were identified.
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 Directors have assessed the principal risks and uncertainties outlined on
page 10, which include the deterioration of the current economic climate due
to the COVID-19 pandemic. The Group is an integral part of the supply chain
for essential and critical supplies and as a result there continues to be no
significant disruption to our business to date. The measures and mitigations
introduced as a result of the pandemic continue to be maintained and further
enhanced across the Group’s operations to ensure the ongoing safety of our
employees. The Group took into consideration the potential impact of the
pandemic and the effect that it could have on the Group’s financial position
and results of operations. The Group continues to have significant headroom in
relation to its financial covenants.
The Group’s diversified funding base and long dated maturity profile of 4.4
years provide a stable funding outlook. At 30 June 2021, the Group had a very
strong liquidity position of approximately €2.3 billion comprising cash
balances of €637 million (including €16 million of restricted cash),
undrawn available committed facilities of €1.34 billion under its RCF and
€312 million under its securitisation programmes. At 30 June 2021, the
strength of the Group’s balance sheet, a net debt to EBITDA ratio of 1.6x
(31 December 2020: 1.6x) and the upgrading by Moody’s and Standard &
Poor’s of our credit rating to Baa3 and BBB- respectively, in addition to
Fitch’s BBB- rating, continues to secure long-term strategic flexibility.
Having assessed the principal risks facing the Group, 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 2020 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, sack paper and graphic paper; and paper-based
packaging, such as folding cartons and paper sacks. Inter‑segment revenue is
not material. No operating segments have been aggregated for disclosure
purposes.
Segment profit is measured based on EBITDA.
6 months to 30-Jun-21 6 months to 30-Jun-20
Europe The Americas Total Europe The Americas Total
€m €m €m €m €m €m
Revenue and results
Revenue 3,649 1,030 4,679 3,268 935 4,203
EBITDA 591 211 802 575 178 753
Unallocated centre costs (21) (18)
Share-based payment expense (28) (11)
Depreciation and depletion (net) (257) (252)
Amortisation (19) (22)
Finance costs (73) (85)
Finance income 9 17
Share of associates’ profit (after tax) - 1
Profit before income tax 413 383
Income tax expense (105) (105)
Profit for the financial period 308 278
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 30-Jun-21 6 months to 30-Jun-20
€m €m
Ireland 55 52
Germany 658 604
France 527 474
Mexico 466 418
The Netherlands 421 373
United Kingdom 416 355
Rest of world 2,136 1,927
Total revenue by geographical area 4,679 4,203
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-21 6 months to 30-Jun-20
Paper Packaging Total Paper Packaging Total
€m €m €m €m €m €m
Europe 577 3,072 3,649 499 2,769 3,268
The Americas 86 944 1,030 106 829 935
Total revenue by product 663 4,016 4,679 605 3,598 4,203
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-21 30-Jun-20
€m €m
Finance costs:
Interest payable on bank loans and overdrafts 12 16
Interest payable on leases 5 5
Interest payable on other borrowings 43 45
Foreign currency translation loss on debt 7 10
Fair value loss on derivatives not designated as hedges - 1
Fair value loss on financial assets - 1
Net interest cost on net pension liability 4 6
Net monetary loss - hyperinflation 2 1
Total finance costs 73 85
Finance income:
Other interest receivable (1) (1)
Foreign currency translation gain on debt (6) (15)
Fair value gain on derivatives not designated as hedges - (1)
Fair value gain on financial assets/liabilities (2) -
Total finance income (9) (17)
Net finance costs 64 68
5. Income Tax Expense
Income tax expense recognised in the Condensed Consolidated Income Statement
6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Current tax:
Europe 89 74
The Americas 37 30
126 104
Deferred tax (21) 1
Income tax expense 105 105
Current tax is analysed as follows:
Ireland 7 8
Foreign 119 96
126 104
Income tax recognised in the Condensed Consolidated Statement of Comprehensive
Income
6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Arising on defined benefit pension plans (15) (9)
Arising on derivative cash flow hedges - 1
(15) (8)
The income tax expense in 2021 is the same as the income tax expense in the
comparable period in 2020.
There is a €22 million increase in the current tax expense. In Europe the
expense is €15 million higher and in the Americas the current tax expense is
€7 million higher. This mainly reflects the tax effects of higher
profitability and other timing differences.
The €22 million reduction in deferred tax includes the effects from the
reversal of timing differences on which deferred tax has been previously
recorded, the recognition of tax benefits on losses and other tax credits
which were partly offset by a non-recurring deferred tax expense as a result
of tax law changes.
6. Employee Benefits – Defined Benefit Plans
Analysis of the defined benefit cost charged in the Condensed Consolidated
Income Statement:
6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Current service cost 18 17
Actuarial loss arising on other long-term employee benefits - 1
Gain on settlement (3) -
Net interest cost on net pension liability 4 6
Defined benefit cost 19 24
Analysis of actuarial gains/(losses) recognised in the Condensed Consolidated
Statement of Comprehensive Income:
6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Return on plan assets (excluding interest income) 3 22
Actuarial gain due to experience adjustments 2 -
Actuarial gain/(loss) due to changes in financial assumptions 120 (50)
Actuarial loss due to changes in demographic assumptions - (1)
Total gain/(loss) recognised in the Condensed Consolidated Statement of 125 (29)
Comprehensive Income
The amounts recognised in the Condensed Consolidated Balance Sheet were as
follows:
30-Jun-21 31-Dec-20
€m €m
Present value of funded or partially funded obligations (2,325) (2,529)
Fair value of plan assets 2,138 2,224
Deficit in funded or partially funded plans (187) (305)
Present value of wholly unfunded obligations (518) (546)
Amounts not recognised as assets due to asset ceiling (2) (2)
Net pension liability (707) (853)
The key assumptions relating to discount and inflation rates were reassessed
at 30 June 2021 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-21 30-Jun-20
Profit attributable to owners of the parent (€ million) 308 277
Weighted average number of ordinary shares in issue (million) 257 237
Basic EPS (cent) 119.9 116.9
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 convertible and 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-21 30-Jun-20
Profit attributable to owners of the parent (€ million) 308 277
Weighted average number of ordinary shares in issue (million) 257 237
Potential dilutive ordinary shares assumed (million) 1 1
Diluted weighted average ordinary shares (million) 258 238
Diluted EPS (cent) 119.2 116.4
Pre-exceptional
With no exceptional items reported in the first half of 2021 or 2020,
pre-exceptional basic and diluted EPS were 119.9 cent (2020: 116.9 cent) and
119.2 cent (2020: 116.4 cent) respectively.
8. Dividends
During the period, the final dividend for 2020 of 87.4 cent per share was paid
to the holders of ordinary shares. The Board has decided to pay an interim
dividend of 29.3 cent per share for 2021 (approximately €76 million) and it
is proposed to pay this dividend on 22 October 2021 to all ordinary
shareholders on the share register at the close of business on 24 September
2021.
9. Property, Plant and Equipment
Land and buildings Plant and equipment Total
€m €m €m
Six months ended 30 June 2021
Opening net book amount 1,090 2,749 3,839
Reclassifications 22 (22) -
Additions - 143 143
Acquisitions 5 11 16
Depreciation charge (27) (184) (211)
Retirements and disposals (4) (16) (20)
Hyperinflation adjustment 2 5 7
Foreign currency translation adjustment 5 16 21
At 30 June 2021 1,093 2,702 3,795
Financial year ended 31 December 2020
Opening net book amount 1,106 2,814 3,920
Reclassifications 73 (68) 5
Additions 1 465 466
Acquisitions 2 1 3
Depreciation charge (56) (373) (429)
Retirements and disposals (1) (2) (3)
Hyperinflation adjustment 2 6 8
Foreign currency translation adjustment (37) (94) (131)
At 31 December 2020 1,090 2,749 3,839
10. Net Movement in Working Capital
6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Change in inventories (78) (37)
Change in trade and other receivables (306) 2
Change in trade and other payables 189 2
Net movement in working capital (195) (33)
11. Analysis of Net Debt
30-Jun-21 31-Dec-20
€m €m
Revolving credit facility – interest at relevant interbank rate (interest 1 89
rate floor of 0%) + 0.65%((1) (2))
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest) 248 240
Bank loans and overdrafts 82 83
€230 million receivables securitisation variable funding notes due 2023 12 11
€100 million receivables securitisation variable funding notes due 2026 4 4
(including accrued interest)((3))
€500 million 2.375% senior notes due 2024 (including accrued interest) 502 501
€250 million 2.75% senior notes due 2025 (including accrued interest) 251 251
€1,000 million 2.875% senior notes due 2026 (including accrued interest) 1,006 1,005
€750 million 1.5% senior notes due 2027 (including accrued interest) 746 746
Gross debt before leases 2,852 2,930
Leases 334 346
Gross debt including leases 3,186 3,276
Cash and cash equivalents (including restricted cash) (637) (901)
Net debt including leases 2,549 2,375
1. The Group’s RCF has a maturity date of January 2026. At 30 June 2021, the
following amounts were drawn under this facility:
1. Revolver loans - €7 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
* Following the upgrade to Baa3 and BBB- by Moody's and Standard & Poor’s
respectively in February 2021, the margin on the RCF reduced from 0.817% to
0.65%.
* In April 2021, the Group amended and extended its €200 million 2022 trade
receivables securitisation programme, which utilises the Group’s receivables
in Austria, Belgium, Italy and the Netherlands. The programme was extended to
January 2026 at a reduced facility size of €100 million and with a margin
reduction from 1.375% to 1.1%. As part of the amendment process, the Group
further aligned its sustainability ambitions and targets into its financing by
embedding its sustainability targets via KPIs into the amended and extended
trade receivables programme. The 2026 trade receivables securitisation
programme 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 programme.
12. Other Reserves
Other reserves included in the Condensed Consolidated Statement of Changes in
Equity are comprised of the following:
Reverse acquisition reserve Cash flow hedging reserve Cost of hedging reserve Foreign Share- Own shares FVOCI reserve
currency based
translation payment Total
reserve reserve
€m €m €m €m €m €m €m €m
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
At 1 January 2020 575 (2) 2 (387) 215 (42) (10) 351
Other comprehensive income
Foreign currency translation adjustments - - - (177) - - - (177)
Effective portion of changes in fair value of cash flow hedges - 8 - - - - - 8
Changes in fair value of cost of hedging - - (1) - - - - (1)
Total other comprehensive income/(expense) - 8 (1) (177) - - - (170)
Purchase of non-controlling interest - - - (7) - - - (7)
Share‑based payment - - - - 11 - - 11
Net shares acquired by SKG Employee Trust - - - - - (16) - (16)
Shares distributed by SKG Employee Trust - - - - (9) 9 - -
At 30 June 2020 575 6 1 (571) 217 (49) (10) 169
13. Fair Value Hierarchy
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 30 June 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 Condensed Consolidated Income Statement - 4 - 4
Derivatives used for hedging - 2 - 2
Derivative financial instruments:
Liabilities at fair value through Condensed Consolidated Income Statement - (7) - (7)
Derivatives used for hedging - (14) - (14)
2 (6) - (4)
The following table presents the Group’s financial assets and liabilities
that are measured at fair value at 31 December 2020:
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 Condensed Consolidated Income Statement - 19 - 19
Derivatives used for hedging - 19 - 19
Derivative financial instruments:
Liabilities at fair value through Condensed Consolidated Income Statement - (9) - (9)
Derivatives used for hedging - (21) - (21)
Deferred contingent consideration - - (35) (35)
2 17 (35) (16)
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.
Deferred contingent consideration arose in relation to the put option on our
Serbian acquisition in 2019. During the second quarter of 2021, the Group
purchased the remaining 25% of the company to which the put option related. A
fair value gain of €1 million has been recognised in the Condensed
Consolidated Income Statement in 2021 in respect of this deferred contingent
consideration and is included within finance income.
There were no reclassifications or transfers between the levels of the fair
value hierarchy during the period.
14. 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 2020 Annual Report.
30-Jun-21 31-Dec-20
Carrying value Fair value Carrying value Fair value
€m €m €m €m
Trade and other receivables( (1)) 1,759 1,759 1,465 1,465
Listed and unlisted debt instruments((2)) 11 11 11 11
Cash and cash equivalents ((3)) 621 621 891 891
Derivative assets ((4)) 6 6 38 38
Restricted cash((3)) 16 16 10 10
2,413 2,413 2,415 2,415
Trade and other payables((1)) 1,557 1,557 1,408 1,408
Revolving credit facility((5) ) 1 1 89 89
2026 receivables securitisation((3)) 4 4 4 4
2023 receivables securitisation((3)) 12 12 11 11
Bank overdrafts((3)) 82 82 83 83
2025 debentures((6)) 248 308 240 298
2024 notes((6)) 502 532 501 535
2025 notes((6)) 251 274 251 274
2026 notes((6) ) 1,006 1,115 1,005 1,118
2027 notes ((6)) 746 792 746 786
4,409 4,677 4,338 4,606
Derivative liabilities((4)) 21 21 30 30
Deferred consideration((7)) 11 11 12 12
Deferred contingent consideration((8)) - - 35 35
4,441 4,709 4,415 4,683
Total net position (2,028) (2,296) (2,000) (2,268)
(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). The fair value of interest rate swaps is based on
discounting estimated future cash flows based on the terms and maturity of
each contract and using market interest rates for a similar instrument at the
measurement date.
(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.
(8) The fair value of deferred contingent consideration at 31 December 2020 was
based on the present value of the expected payment, discounted using a
risk-adjusted discount rate. During the second quarter of 2021, the Group
purchased the remaining 25% of the company to which the deferred contingent
consideration related.
15. Related Party Transactions
Details of related party transactions in respect of the year ended 31 December
2020 are contained in Note 30 to the Consolidated Financial Statements of the
Group’s 2020 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 2021 or changes to transactions with related parties disclosed
in the 2020 Consolidated Financial Statements that had a material effect on
the financial position or the performance of the Group.
16. Events after the Balance Sheet date
On 28 July, the Group announced its agreement to acquire Verzuolo, a recycled
containerboard business in Northern Italy, for a cash consideration of €360
million. It is expected that the acquisition will complete during the fourth
quarter, subject to customary closing conditions including regulatory
approval.
17. Board Approval
This interim report was approved by the Board of Directors on 27 July 2021.
18. Distribution of the Interim Report
This 2021 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 2021
The Directors, whose names and functions are listed on pages 64 to 67 in the
Group’s 2020 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 2021 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 2021, 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
27 July 2021.
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-21 30-Jun-20
€m €m
Profit for the financial period CIS 308 278
Income tax expense (after exceptional items) CIS 105 105
Net finance costs (after exceptional items) Note 4 64 68
Share of associates’ profit (after tax) CIS - (1)
Share-based payment expense Note 3 28 11
Depreciation, depletion (net) and amortisation Note 3 276 274
EBITDA 781 735
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-21 30-Jun-20
€m €m
EBITDA A 781 735
Revenue CIS 4,679 4,203
EBITDA margin 16.7% 17.5%
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-21 30-Jun-20
€m €m
Operating profit CIS 477 450
Exceptional items CIS - -
Operating profit before exceptional items CIS 477 450
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.
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-21 30-Jun-21 30-Jun-21 30-Jun-20 30-Jun-20 30-Jun-20
EBITDA
Currency - (7%) (2%) - (6%) (1%)
Underlying EBITDA change 3% 26% 8% (16%) 5% (12%)
Reported EBITDA change 3% 19% 6% (16%) (1%) (13%)
Revenue
Currency - (9%) (2%) - (8%) (2%)
Acquisitions/disposals - 1% - - - -
Underlying revenue change 12% 18% 13% (9%) (3%) (7%)
Reported revenue change 12% 10% 11% (9%) (11%) (9%)
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-21 30-Jun-20 31-Dec-20
€m €m €m
Borrowings Note 11 3,186 3,903 3,276
Less:
Restricted cash CBS (16) (7) (10)
Cash and cash equivalents CBS (621) (639) (891)
Net debt 2,549 3,257 2,375
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-21 30-Jun-20 30-Dec-20
€m €m €m
Net debt F 2,549 3,257 2,375
EBITDA LTM 1,556 1,538 1,510
Net debt to EBITDA (times) 1.6 2.1 1.6
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-21
€m 30-Jun-20
€m
Operating profit before exceptional items plus share of associates’ profit 950 957
(after tax) LTM
Total equity – current period-end CBS 4,004 3,063
Net debt – current period-end F 2,549 3,257
Capital employed – current period-end 6,553 6,320
Total equity – prior period-end CBS 3,063 2,902
Net debt – prior period-end F 3,257 3,751
Capital employed – prior period-end 6,320 6,653
Average capital employed 6,436 6,486
Return on capital employed 14.8% 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-21 30-Jun-20
€m €m
Inventories CBS 860 832
Trade and other receivables (current and non-current) CBS 1,927 1,614
Trade and other payables CBS (2,006) (1,767)
Working capital 781 679
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-21 30-Jun-20
€m €m
Working capital I 781 679
Annualised revenue 9,640 8,038
Working capital as a percentage of sales 8.1% 8.4%
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)/decrease 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
6 months to 6 months to
30-Jun-21 30-Jun-20
Reference €m €m
EBITDA A 781 735
Cash interest expense K.1 (54) (61)
Working capital change K.2 (195) (32)
Capital expenditure K.3 (175) (230)
Change in capital creditors K.3 (80) (51)
Tax paid CSCF (122) (98)
Change in employee benefits and other provisions CSCF (43) (26)
Other K.5 5 1
Free cash flow L 117 238
Purchase of own shares (net) CSCF (22) (16)
Sale of businesses and investments K.6 37 -
Purchase of businesses, investments and NCI K.7 (55) (21)
Dividends CSCF (226) -
Derivative termination receipts CSCF 10 9
Net cash (outflow)/inflow (139) 210
Acquired net (debt)/cash (13) (1)
Disposed net (cash)/debt K.8 (1) -
Deferred debt issue costs amortised (4) (4)
Currency translation adjustment (17) 21
(Increase)/decrease in net debt (174) 226
K.1 Cash interest expense
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Interest paid CSCF (55) (63)
Interest received CSCF 1 1
Move in accrued interest - 1
Per summary cash flow (54) (61)
Alternative Performance Measures (continued)
K.2 Working capital change
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Net movement in working capital CSCF (195) (33)
Other - 1
Per summary cash flow (195) (32)
K.3 Capital expenditure
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Additions to property, plant and equipment and biological assets CSCF (228) (246)
Additions to intangible assets CSCF (6) (9)
Additions to right-of-use assets (21) (26)
Change in capital creditors K 80 51
Per summary cash flow (175) (230)
K.4 Capital expenditure as a percentage of depreciation
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Capital expenditure K.3 175 230
Depreciation, depletion (net) and amortisation A 276 274
Capital expenditure as a percentage of depreciation 63% 84%
K.5 Other
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Other within the summary cash flow comprises the following
Amortisation of capital grants CSCF (1) (2)
Profit on sale of property, plant and equipment CSCF (5) -
Profit on purchase of businesses CSCF - (4)
Other (primarily hyperinflation adjustments) CSCF 3 3
Receipt of capital grants CSCF 1 -
Disposal of property, plant and equipment CSCF 7 1
Dividends received from associates CSCF 1 -
Lease terminations/modifications L (1) 3
Per summary cash flow 5 1
Alternative Performance Measures (continued)
K.6 Sale of businesses and investments
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Business disposals (net of disposed cash) CSCF 33 -
Disposed cash and cash equivalents K.8 4 -
Per summary cash flow 37 -
K.7 Purchase of businesses, investments and NCI
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Purchase of subsidiaries (net of acquired cash) CSCF (20) (1)
Purchase of non-controlling interests CSCF - (20)
Deferred consideration paid CSCF (35) -
Per summary cash flow (55) (21)
K.8 Disposed net (cash)/debt
Reference 6 months to 6 months to
30-Jun-21 30-Jun-20
€m €m
Disposed debt 3 -
Disposed cash and cash equivalents K.6 (4) -
Per summary cash flow (1) -
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-21 30-Jun-20
€m €m
Free cash flow K 117 238
Reconciling items:
Cash interest expense K.1 54 61
Capital expenditure (net of change in capital creditors) K.3 255 281
Tax payments CSCF 122 98
Disposal of property, plant and equipment CSCF (7) (1)
Lease terminations/modifications K.5 1 (3)
Receipt of capital grants CSCF (1) -
Dividends received from associates CSCF (1) -
Non-cash financing activities - (1)
Cash generated from operations CSCF 540 673
(1) Additional information in relation to these Alternative Performance
Measures (‘APMs’) is set out in Supplementary Financial Information on
pages 30 to 36.
(2) Additional information on underlying performance is set out within
Supplementary Financial Information on pages 30 to 36.
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