TIDMSKG
2 November 2016: Smurfit Kappa Group plc ('SKG' or 'the Group')
today announced results for the 3 months and 9 months ending 30
September 2016.
2016 Third Quarter & First Nine Months | Key Financial
Performance Measures
EURm YTD2016 YTD2015 Change Q32016 Q3 Change Q2 Change
2015 2016
Revenue EUR6,099 EUR6,020 1% EUR2,050 EUR2,024 1% EUR2,049 -
EBITDA before Exceptional Items andShare-based Payment (1)(2) EUR916 EUR855 7% EUR323 EUR305 6% EUR312 3%
EBITDA margin(1) 15.0% 14.2% 15.7% 15.0% 15.3%
Operating Profit before ExceptionalItems (1) EUR609 EUR551 10% EUR219 EUR202 8% EUR211 4%
Profit before Income Tax EUR499 EUR408 22% EUR187 EUR165 13% EUR184 2%
Basic EPS (cent) 147.1 119.7 23% 56.4 46.4 22% 52.0 8%
Pre-exceptional Basic EPS (cent)(1) 142.0 138.0 3% 56.4 49.2 15% 46.9 20%
Return on Capital Employed(1) 16.1% 15.0% 15.4%
Free Cash Flow(1) EUR199 EUR236 (16%) EUR164 EUR162 1% EUR28 480%
Net Debt(1) EUR2,953 EUR2,953 - EUR3,121 (5%)
Net Debt to EBITDA (LTM)(1) 2.4x 2.6x 2.5x
1) Additional information in relation to these Alternative Performance Measures ('APMs') is set out in Supplementary FinancialInformation on page 29.
2) EBITDA before exceptional items and share-based payment expense is denoted by EBITDA throughout the remainder of themanagement commentary for ease of reference.
Third Quarter & First Nine Months Key Points
-- Third quarter Group revenue growth on a constant currency basis of 6%,
with volume growth of 3%
-- Third quarter EBITDA growth of 6% year-on-year with a margin of 15.7%
and sequential EPS growth
-- Increased ROCE of 16.1%
-- Third quarter free cash flow of EUR164 million supporting further
deleveraging to 2.4 times
-- Increased quality of asset base delivering higher returns
-- On track to deliver record full year EBITDA
Performance Review and Outlook
Tony Smurfit, Group CEO, commented: "We are pleased to deliver
good earnings growth for the quarter and the year to date. SKG
continues to meet and exceed its ROCE target and has delivered
improved EBITDA margins. This strong result reflects the high
quality of our globally diversified operating platform, performance
led culture, and the strength of our people and assets.
"In the third quarter, the Group delivered a strong 6% increase
in revenue on a constant currency basis. The reported EBITDA for
the quarter increased 6% year-on-year to EUR323 million. This
performance was delivered against a backdrop of significantly
higher than expected recovered fibre input costs and adverse
currency movements.
"The Group's global corrugated packaging volumes grew by 5% in
the year to date and 3% during the quarter. SKG continues to
prioritise our value and differentiation proposition to our global
customers, driving disciplined growth. In Europe, corrugated box
volumes are 2% greater than 2015. Our Americas business continues
to progress with improved performance across most operations,
offset by negative currency impacts in the quarter. The Americas
provides the Group with valuable diversification of its end market
exposure, with access to higher growth and higher margin
markets.
"Today, the Group is well positioned and invested in all its
chosen markets. The strength of our cash flow will enable us to
continue to invest to support profitable growth while sustaining an
attractive dividend stream for our shareholders. We continue to
invest to further improve the quality of our asset base, and we
will make acquisitions where we identify compelling long term value
for our shareholders while continuing to maintain our balance sheet
strength.
"Based on current operating conditions, the Group will deliver
continued earnings growth and record EBITDA for 2016 in line with
market expectations."
About Smurfit Kappa
Smurfit Kappa is one of the leading providers of paper-based
packaging solutions in the world, with around 45,000 employees in
approximately 370 production sites across 34 countries and with
revenue of EUR8.1 billion in 2015. We are located in 21 countries
in Europe, and 13 in the Americas. We are the only large-scale
pan-regional player in Latin America.
With our pro-active 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-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.
smurfitkappa.com
Check out our microsite: openthefuture.info
Follow us on Twitter at @smurfitkappa and on LinkedIn at
'Smurfit Kappa'.
Forward Looking Statements
Some statements in this announcement are forward-looking. They
represent expectations for the Group's business, and involve risks
and uncertainties. These forward-looking statements are based on
current expectations and projections about future events. The Group
believes that current expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because
they involve known and unknown risks, uncertainties and other
factors, which are in some cases beyond the Group's control, actual
results or performance may differ materially from those expressed
or implied by such forward-looking statements.
Contacts
Garrett Quinn FTI Consulting
Smurfit Kappa
T: +353 1 202 71 80 T: +353 1 663 36 80
E: ir@smurfitkappa.com E: smurfitkappa@fticonsulting.com
2016 Third Quarter & First Nine Months | Performance
Overview
During the third quarter EBITDA margin improved sequentially to
15.7% as a result of a good operational performance across most
countries and price increases achieved in the Americas. This
margin, achieved despite the significant headwinds of higher old
corrugated containers ('OCC') input costs and adverse currency
impacts, underscores the Group's capacity to deliver earnings
through our integrated model and geographically diverse portfolio
of businesses.
In Europe for the year to date, total corrugated volumes were up
1%, with boxes up 2% and the more commodity like sheet volumes down
6%.
The Group's average corrugated pricing in Europe for the third
quarter was broadly stable year-on-year on a constant currency
basis. The Group's differentiation programme continues to deliver
tangible results with increased sales for our corrugated customers
in their marketplace. This has been driven by our innovative and
scientifically backed approach. Understanding consumer trends,
consumer buying behaviour and how corrugated packaging plays a key
role in this are key areas in which the Group is leading the way.
SKG is the largest producer of corrugated packaging in Europe.
In the third quarter we saw further OCC increases with reference
prices rising by over 10%. Although we have seen some softening in
the export market price for OCC from its August high, and we expect
some slight weakness into the last quarter, we believe the medium
term trend is for OCC pricing to remain at a high level.
In recycled containerboard prices have remained stable in recent
months. A EUR40 per tonne recycled price increase was announced in
August for September implementation which has not been successful
due to a combination of the OCC market softening somewhat and
elevated inventory levels. In September the Group successfully
implemented a GBP25 per tonne price increase in the UK market.
Demand for kraftliner remains robust. We successfully
implemented a EUR20 per tonne price increase in the main North West
European market and a GBP20 per tonne price increase in the UK
market. Kraftliner is a vital part of today's global supply chain
requirements with its relative strengths against recycled
alternatives, positioning it as a critical part of our customer's
requirements in certain industries and supply chain
applications.
In the Americas, total corrugated volumes increased 17% for the
quarter with organic volumes up 2% excluding Venezuela. Adverse
currency movements impacted EBITDA in the region by approximately
EUR11 million for the third quarter against the same period of
2015. This currency impact was offset in part by the positive
contributions of acquisitions in the region and continued pricing
initiatives in most markets. SKG is the largest producer of
corrugated packaging in Latin America.
The Group delivered a strong free cash flow in the third quarter
of EUR164 million. As a result net debt to EBITDA reduced to 2.4
times. Looking forward, the Group is focused on continuing to drive
its free cash flow delivery, which in turn will support our
programme of high return capital investments, acquisitions,
dividend growth and an increasingly strong balance sheet.
2016 Third Quarter | Financial Performance
Revenue in the third quarter was up EUR26 million or 1% to
EUR2,050 million. Revenues in Europe decreased by EUR42 million
driven mainly by adverse currency moves. In the Americas revenues
increased by EUR68 million in the quarter driven by both underlying
revenue growth and the benefit of acquisitions, which were offset
in part by currency. The underlying year-on-year move in revenue
when adjusted for net negative currency movements and net
acquisitions, was an increase of 2%.
EBITDA for the third quarter was EUR323 million, EUR18 million
higher than the same period in 2015 with earnings growth from both
Europe and the Americas and lower Group centre costs. Allowing for
currency movements and net acquisitions, the underlying
year-on-year move in EBITDA for the quarter was an increase of
EUR27 million, or 9%.
There were no exceptional items charged within operating profit
in the quarter.
Basic earnings per share was 56.4 cent for the third quarter of
2016 (2015: 46.4 cent), an increase of 22% year-on-year. Adjusting
for exceptional items, pre-exceptional basic EPS was 56.4 cent
(2015: 49.2 cent), an increase of 15% year-on-year.
2016 First Nine Months | Financial Performance
Revenue of EUR6,099 million for the first nine months of 2016
was EUR79 million (the equivalent of over 1%) higher than EUR6,020
million in 2015. Higher reported revenue in the Americas was partly
offset by lower revenue in Europe predominantly due to negative
currency impacts and net disposals. Allowing for currency movements
and the contribution from acquisitions net of disposals, the
underlying increase in revenue was EUR141 million (the equivalent
of over 2%) with higher underlying revenue in both Europe and the
Americas. As in the case of the quarter, revenue was 6% higher than
the first nine months of 2015 on a constant currency basis.
EBITDA for the first nine months of 2016 was EUR916 million
compared to EUR855 million in 2015 with higher earnings in both
Europe and the Americas and broadly unchanged Group Centre
costs.
Allowing for currency movements and the contribution from
acquisitions net of disposals, comparable earnings in Europe and
the Americas were EUR44 million and EUR33 million higher
respectively in 2016. In the Americas, earnings were higher across
the region with the exception of North America which has had both
operational challenges and higher OCC costs.
Net negative currency movements, primarily in the Americas,
reduced EBITDA by EUR35 million while acquisitions contributed
EUR22 million. The absence of the solidboard operations for all but
the first quarter of 2015 reduced EBITDA by EUR3 million. As a
result, the underlying increase in EBITDA was EUR77 million
(equating to 9%) with higher underlying earnings in both Europe and
the Americas.
There were no exceptional items charged within operating profit
in 2016. Exceptional items charged within operating profit in the
first nine months of 2015 amounted to EUR54 million, EUR42 million
of which represented the higher cost to our Venezuelan operations
of discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate in March 2015. The remaining EUR12
million charge represented the further impairment of the solidboard
operations held for sale of EUR8 million, reported within cost of
sales in the first quarter, and a loss of EUR4 million booked
mainly in the second quarter on their disposal.
The exceptional finance income in the nine months to September
2016 related to the gain of EUR12 million on the sale in the second
quarter of our shareholding in the Swedish company, IL Recycling.
Exceptional finance income of EUR12 million in 2015 represented the
gain in Venezuela on their US Dollar denominated intra-group loans
as a result of our adoption of the Simadi rate. This gain was
partly offset by an exceptional finance cost of EUR2 million in
respect of the accelerated amortisation of the issue costs relating
to the debt within our Senior Credit Facility which was paid down
with the proceeds of the EUR250 million bond issue in February
2015.
Basic earnings per share were 147.1 cent for the first nine
months of 2016 (2015: 119.7 cent), an increase of 23% year-on-year.
Adjusting for exceptional items, pre-exceptional basic EPS was
142.0 cent (2015: 138.0 cent), an increase of 3% year-on-year.
2016 Third Quarter & First Nine Months | Free Cash Flow
Free cash flow amounted to EUR199 million in the first nine
months of 2016 compared to EUR236 million in 2015. The year-on-year
decrease of EUR37 million reflected higher outflows mainly in
respect of working capital, capital expenditure, retirement
benefits, tax and cash interest.
In the third quarter, the Group reported a free cash flow of
EUR164 million, an increase of 1% on the third quarter of 2015.
The working capital move in the nine months to September was an
outflow of EUR109 million compared to EUR64 million in 2015. The
outflow in 2016 was the combination of an increase in debtors and,
to a lesser extent, stocks partly offset by an increase in
creditors. Working capital amounted to EUR634 million at September
2016, representing 7.7% of annualised revenue compared to 8.5% at
June 2016 and 7.0% at September 2015.
Capital expenditure amounted to EUR321 million in the nine
months to September 2016, approximately 110% of depreciation,
compared to 105% in 2015.
Cash interest in the nine months to September was EUR19 million
higher in 2016 at EUR110 million, reflecting the increased level of
net debt following our acquisition activity in 2015. Our average
interest rate is also slightly higher year-on-year given our
exposure now to the relatively high local interest rates in
Brazil.
The Group made tax payments of EUR117 million in the nine months
to September, EUR15 million higher than 2015 reflecting the impact
of higher profitability and the timing of payments between
years.
2016 Third Quarter & First Nine Months | Capital
Structure
The reported net debt was EUR2,953 million at the end of the
third quarter delivering a net debt to EBITDA ratio of 2.4 times at
September 2016. In comparison to the same period in 2015, net debt
is in line despite the significant acquisitions in Brazil at the
end of 2015. The Group's net debt continues to reduce in both
absolute and in multiple terms positioning the Group with
considerable financial strategic flexibility subject to the stated
leverage range of 2.0 to 3.0 times through the cycle and SKG's
Ba1/BB+/BB+ credit rating.
At 30 September 2016 the Group's average interest rate was 4.2%,
slightly higher year-on-year as a result of the local currency
Brazilian debt associated with the acquisitions of INPA and Paema
in December 2015. The Group's diversified funding base and long
dated maturity profile (3.9 years) provide a stable funding
outlook. In terms of liquidity, the Group held cash on the balance
sheet of EUR487 million at the end of the quarter which was further
supplemented by available commitments under its revolving credit
facility of approximately EUR612 million.
The Group has a stable financing base with a long term and well
spread maturity profile. The Group's credit rating of Ba1/BB+/BB+
contributes to a lower cost of capital and access to the widest
range of financing options available. These positions were achieved
as a result of the Group's consistent ability to generate strong
free cash flows together with active management of its debt
portfolio. The strength of the Group's capital base together with
consistent delivery of strong free cash flows provides a solid and
cost effective support to the Group's growth agenda over the medium
term.
2016 Third Quarter & First Nine Months | Operating
Efficiency
Cost Take-out Programme
The Group is confident of delivering in line with its full year
cost take-out target of EUR75 million. In the year to September the
programme has generated cost savings of EUR49 million, with
significant operational efficiencies achieved across key cost areas
such as raw materials usage, energy efficiency and labour
costs.
It is imperative to consistently address inflation pressures in
order to support the Group's earnings growth. Each year the
programme adopts a bottom up approach, achieving savings through
continuous incremental improvements at an individual plant level
across our facilities worldwide.
Enhanced Capital Expenditure ('Quick Win') Programme
By the end of 2016, the programme is expected to deliver
incremental EBITDA of EUR25 million in 2016 with a further EUR33
million incremental EBITDA expected in 2017. The Group will
undertake a review of this programme in the coming months with a
view to announcing a new programme in the latter part of 2017.
2016 Third Quarter & First Nine Months | Regional
Performance Review
Europe
The Group's European operations performed well in the third
quarter, delivering an improved EBITDA margin of 15.6% compared to
15.1% in the same period of 2015. The EBITDA for the quarter
delivered an increase of EUR2 million year-on-year, despite adverse
currency impacts of EUR4 million. In the first nine months of 2016
the EBITDA margin was 15.1%, showing the improving trend in margins
as the year has progressed. The Group has achieved relatively
stable corrugated prices on a constant currency basis following
containerboard price decreases earlier in the year.
Box volumes increased by 2% year to date 2016. We continue to
drive growth in box volumes with our customers increasingly seeing
the benefits derived from our unique Shelfsmart approach, market
leading insights and Innotools, which are helping our customers
sell more in their marketplace. Box volumes remain approximately
88% of total corrugated volumes and are consistently growing at a
faster rate than the more commodity sheet volumes.
Recovered paper prices have continued to move upwards throughout
the third quarter, with prices up 13% in September against the
second quarter average 2016. Market indices have reported a
EUR30-35 per tonne increase in OCC year to date 2016. This increase
has been driven by strong domestic and overseas demand.
The Americas
In the third quarter the Group's Americas operations delivered
an EBITDA margin of 16.8% against 15.6% in the second quarter and
17.5% in the same period of 2015. The EBITDA for the quarter
delivered an increase of EUR8 million year-on-year, despite adverse
currency impacts of EUR11 million. In the first nine months of 2016
the EBITDA margin was 16.5%.
Organic corrugated volumes excluding Venezuela were up 2%
year-on-year for the third quarter. The Americas continues to
provide a geographically diversified source of resilient earnings
growth. The IMF recently released their GDP growth forecasts for
the next five years in October citing average growth rates of 3% or
above in Colombia, Mexico, Argentina and Chile, providing a solid
platform to generate further growth for the Group.
The Group's Pan-American sales volumes continue to grow, up 2%
for the first nine months of the year and up 6% when excluding
Venezuela. This increase in volumes further demonstrates the
effectiveness of SKG's pan-regional offering to its large blue-chip
customer base.
The Mexican business continues to grow well with corrugated
volumes up 6% for the third quarter and the year to date period.
The previously announced project to increase capacity by 100,000
tonnes per annum at the Los Reyes mill near Mexico City is expected
to be completed in the first quarter of 2017.
In Colombia corrugated volumes increased by 7% in the third
quarter of 2016 against the same period of 2015. After a successful
box price increase in the fourth quarter of 2015, necessary price
increases are being implemented in the second half of 2016 and we
expect further margin recovery in the fourth quarter.
Operational challenges in the Group's Californian operations are
starting to stabilise with some progress being made. Announced
containerboard price increases should be supportive into 2017.
In Brazil volumes continue to grow year-on-year for the nine
months. Margins remain under pressure due to higher OCC reference
prices up 60% in the nine months to September. Looking at 2017, the
expected recovery of the Brazilian economy combined with meaningful
business opportunities with our Pan-American customers in the
country and some relief on OCC cost pressures are expected to
support continued business performance.
The Group's operations in Argentina which faced a slowdown in
the third quarter are expected to grow again as we enter the last
quarter which should in turn drive volume growth into 2017. The
Group has announced a price increase for implementation in the
fourth quarter of 2016 in Argentina.
Aided by the ability to source raw materials locally, the
Venezuelan operations, management and all employees of SKG continue
to perform well in what is a very challenging business
environment.
Summary Cash Flow
Summary cash flows() 1for the third quarter and nine
months are set out in the following table.
3 3 9 9
months months months months
to30-Sep-16EURm to30-Sep-15EURm to30-Sep-16EURm to30-Sep-15EURm
EBITDA 323 305 916 855
Exceptional - (5) - (40)
items
Cash interest (38) (32) (110) (91)
expense
Working 51 55 (109) (64)
capital
change
Current - (10) (7) (20)
provisions
Capital (110) (118) (321) (287)
expenditure
Change in 9 15 1 8
capital
creditors
Tax paid (47) (39) (117) (102)
Sale of fixed 1 - 2 5
assets
Other (25) (9) (56) (28)
Free cash flow 164 162 199 236
Share issues - 1 - 2
Purchase - - (10) (15)
of own
shares (net)
Sale - (1) 13 29
of businesses
and
investments
Purchase of - (19) (40) (181)
businesses
and
investments
Dividends (1) (1) (116) (98)
Derivative - - - (2)
termination
payments
Net 163 142 46 (29)
cash
inflow/(outflow)
Net debt - (8) - (21)
acquired
Deferred debt (2) (2) (8) (8)
issue
costs
amortised
Currency 7 15 57 (136)
translation
adjustment
Decrease/(increase) 168 147 95 (194)
in net debt
(1) The summary cash flow is prepared on a different basis to
the Condensed Consolidated Statement of Cash Flows under IFRS
('IFRS cash flow') and as such the reconciling items between EBITDA
and decrease/increase in net debt may differ to amounts presented
in the IFRS cash flow. The principal differences are as
follows:
(a) The summary cash flow details movements in net debt. The
IFRS cash flow details movements in cash and cash equivalents.
(b) Free cash flow reconciles to cash generated from operations
in the IFRS cash flow as shown in the table on the next page. The
main adjustments are in respect of cash interest, capital
expenditure, tax payments and the sale of fixed assets and
businesses.
(c) The IFRS cash flow has different sub-headings to those used
in the summary cash flow.
-- Current provisions in the summary cash flow are included within change
in employee benefits and other provisions in the IFRS cash
flow.
-- The total of capital expenditure and change in capital creditors in
the summary cash flow includes additions to intangible assets
which is
shown separately in the IFRS cash flow.
-- Other in the summary cash flow includes changes in employee benefits
and other provisions (excluding current provisions),
amortisation of
capital grants, receipt of capital grants and dividends received
from
associates which are shown separately in the IFRS cash flow.
Reconciliation of Free Cash Flow to Cash Generated from
Operations
9 months to30-Sep-16EURm 9 months to
30-Sep-15
EURm
Free cash 199 236
flow
Add Cash interest 110 91
back:
Capital expenditure (net of change in capital creditors) 320 279
Tax payments 117 102
Less: Sale of fixed assets (2) (5)
Profit on sale of assets and businesses - non exceptional (6) (2)
Receipt of capital grants (in 'Other' in summary cash flow) (2) (2)
Dividends received from associates (in 'Other' in summary cash flow) (1) (1)
Non-cash financing activities - (1)
Cash generated from 735 697
operations
Capital Resources
The Group's primary sources of liquidity are cash flow from
operations and borrowings under the revolving credit facility. The
Group's primary uses of cash are for funding day to day operations,
capital expenditure, debt service, dividends and other investment
activity including acquisitions.
At 30 September 2016, Smurfit Kappa Treasury Funding Limited had
outstanding US$292.3 million 7.50% senior debentures due 2025. The
Group had outstanding EUR151.1 million and STGGBP63.1 million
variable funding notes issued under the EUR240 million accounts
receivable securitisation programme maturing in June 2019, together
with EUR175 million variable funding notes issued under the EUR175
million accounts receivable securitisation programme maturing in
April 2018.
Smurfit Kappa Acquisitions had outstanding EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018,
EUR400 million 4.125% senior notes due 2020, EUR250 million senior
floating rate notes due 2020, EUR500 million 3.25% senior notes due
2021 and EUR250 million 2.75% senior notes due 2025. Smurfit Kappa
Acquisitions and certain subsidiaries are also party to a senior
credit facility. At 30 September 2016, the Group's senior credit
facility comprised term drawings of EUR572.6 million, US$55.2
million and STGGBP106.9 million under the amortising Term A
facility maturing in 2020. In addition, as at 30 September 2016,
the facility included a EUR625 million revolving credit facility of
which EUR6 million was drawn in revolver loans, with a further EUR7
million in operational facilities including letters of credit drawn
under various ancillary facilities.
The following table provides the range of interest rates as of
30 September 2016 for each of the drawings under the various senior
credit facility loans.
Borrowing arrangement Currency Interest rate
Term A Facility EUR 1.228% - 1.309%
USD 2.127%
GBP 1.869%
Revolving Credit Facility EUR 0.978%
Borrowings under the revolving credit facility are available to
fund the Group's working capital requirements, capital expenditures
and other general corporate purposes.
Following acquisitions of over EUR380 million in 2015, including
the Brazilian acquisitions in December, the Group increased the
Term Loan under its Senior Credit Facility by EUR250 million, from
EUR500 million to EUR750 million on 5 February 2016. The terms
applicable to the increase, including margin, amortisation profile
and maturity date are the same as the existing Term A loan. The
proceeds were substantially applied to reduce drawings under the
revolving credit facility, thereby further improving the Group's
liquidity.
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 September
2016, the Group had fixed an average of 66% of its interest cost on
borrowings over the following twelve months.
The Group's fixed rate debt comprised EUR200 million 5.125%
senior notes due 2018, US$300 million 4.875% senior notes due 2018
(US$50 million swapped to floating), EUR400 million 4.125% senior
notes due 2020, EUR500 million 3.25% senior notes due 2021, EUR250
million 2.75% senior notes due 2025 and US$292.3 million 7.50%
senior debentures due 2025. In addition the Group had EUR349
million in interest rate swaps with maturity dates ranging from
October 2018 to January 2021.
The Group's earnings are affected by changes in short-term
interest rates as a result of its floating rate borrowings. If
LIBOR/EURIBOR interest rates for these borrowings increase by one
percent, the Group's interest expense would increase, and income
before taxes would decrease, by approximately EUR13 million over
the following twelve months. Interest income on the Group's cash
balances would increase by approximately EUR5 million assuming a
one percent increase in interest rates earned on such balances over
the following twelve months.
The Group uses foreign currency borrowings, currency swaps,
options and forward contracts in the management of its foreign
currency exposures.
Condensed Consolidated Income Statement - Nine Months
9 months to 30-Sep-16 9 months to 30-Sep-15
Unaudited Unaudited
Pre-exceptional 2016 Exceptional 2016 Total 2016 Pre-exceptional2015 Exceptional2015 Total2015
EURm EURm EURm EURm EURm EURm
Revenue 6,099 - 6,099 6,020 - 6,020
Cost of (4,257) - (4,257) (4,220) (8) (4,228)
sales
Gross 1,842 - 1,842 1,800 (8) 1,792
profit
Distribution (476) - (476) (482) - (482)
costs
Administrative (758) - (758) (768) - (768)
expenses
Other 1 - 1 1 - 1
operating
income
Other - - - - (46) (46)
operating
expenses
Operating 609 - 609 551 (54) 497
profit
Finance (160) - (160) (128) (2) (130)
costs
Finance 37 12 49 26 12 38
income
Share 1 - 1 3 - 3
of
associates'
profit(after
tax)
Profit 487 12 499 452 (44) 408
before
income tax
Income tax (147) (126)
expense
Profit for 352 282
the
financial
period
Attributable
to:
Owners 345 277
of the
parent
Non-controlling 7 5
interests
Profit for 352 282
the
financial
period
Earnings
per
share
Basic 147.1 119.7
earnings
per
share -
cent
Diluted 145.9 118.2
earnings
per share
- cent
Condensed Consolidated Income Statement - Third Quarter
3 months to 30-Sep-16 3 months to 30-Sep-15
Unaudited Unaudited
Pre-exceptional 2016 Exceptional 2016 Total 2016 Pre-exceptional2015 Exceptional2015 Total2015
EURm EURm EURm EURm EURm EURm
Revenue 2,050 - 2,050 2,024 - 2,024
Cost of (1,428) - (1,428) (1,417) (1) (1,418)
sales
Gross 622 - 622 607 (1) 606
profit
Distribution (162) - (162) (161) - (161)
costs
Administrative (241) - (241) (244) - (244)
expenses
Other - - - - (6) (6)
operating
expenses
Operating 219 - 219 202 (7) 195
profit
Finance (43) - (43) (42) - (42)
costs
Finance 11 - 11 10 - 10
income
Share - - - 2 - 2
of
associates'
profit(after
tax)
Profit 187 - 187 172 (7) 165
before
income tax
Income tax (50) (53)
expense
Profit for 137 112
the
financial
period
Attributable
to:
Owners 132 108
of the
parent
Non-controlling 5 4
interests
Profit for 137 112
the
financial
period
Earnings
per
share
Basic 56.4 46.4
earnings
per
share -
cent
Diluted 55.9 45.8
earnings
per share
- cent
Condensed Consolidated Statement of Comprehensive Income - Nine
Months
9 months to 9 months to
30-Sep-16 30-Sep-15
Unaudited Unaudited
EURm EURm
Profit for the financial period 352 282
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (123) (505)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 5 8
- New fair value adjustments into reserve (7) 2
(125) (495)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial (loss)/gain (191) 43
- Movement in deferred tax 28 (4)
(163) 39
Total other comprehensive expense (288) (456)
Total comprehensive income/(expense) 64 (174)
for the financial period
Attributable to:
Owners of the parent 56 (112)
Non-controlling interests 8 (62)
Total comprehensive income/(expense) 64 (174)
for the financial period
Condensed Consolidated Statement of Comprehensive Income - Third
Quarter
3 months to 3 months to
30-Sep-16 30-Sep-15
Unaudited Unaudited
EURm EURm
Profit for the financial period 137 112
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Foreign currency translation adjustments:
- Arising in the period (25) (117)
Effective portion of changes in fair
value of cash flow hedges:
- Movement out of reserve 2 3
- New fair value adjustments into reserve (3) (3)
(26) (117)
Items which will not be subsequently
reclassified to profit or loss
Defined benefit pension plans:
- Actuarial loss (62) (47)
- Movement in deferred tax 7 10
(55) (37)
Total other comprehensive expense (81) (154)
Total comprehensive income/(expense) 56 (42)
for the financial period
Attributable to:
Owners of the parent 51 (24)
Non-controlling interests 5 (18)
Total comprehensive income/(expense) 56 (42)
for the financial period
Condensed Consolidated Balance Sheet
30-Sep-16 30-Sep-15 31-Dec-15
Unaudited Unaudited Audited
EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 3,129 2,963 3,103
Goodwill and intangible assets 2,468 2,353 2,508
Available-for-sale financial assets 21 21 21
Investment in associates 17 18 17
Biological assets 95 81 98
Trade and other receivables 34 27 34
Derivative financial instruments 28 35 34
Deferred income tax assets 200 204 200
5,992 5,702 6,015
Current assets
Inventories 755 726 735
Biological assets 10 8 8
Trade and other receivables 1,518 1,516 1,451
Derivative financial instruments 11 5 28
Restricted cash 8 8 5
Cash and cash equivalents 479 263 270
2,781 2,526 2,497
Total assets 8,773 8,228 8,512
EQUITY
Capital and reserves attributable
to owners of the parent
Equity share capital - - -
Share premium 1,983 1,983 1,983
Other reserves (547) (446) (425)
Retained earnings 756 509 619
Total equity attributable 2,192 2,046 2,177
to owners of the parent
Non-controlling interests 164 135 151
Total equity 2,356 2,181 2,328
LIABILITIES
Non-current liabilities
Borrowings 3,295 3,138 3,238
Employee benefits 941 821 818
Derivative financial instruments 27 17 15
Deferred income tax liabilities 167 133 179
Non-current income tax liabilities 32 22 25
Provisions for liabilities and charges 49 46 52
Capital grants 14 13 13
Other payables 13 6 13
4,538 4,196 4,353
Current liabilities
Borrowings 145 86 85
Trade and other payables 1,673 1,699 1,672
Current income tax liabilities 29 23 30
Derivative financial instruments 12 10 10
Provisions for liabilities and charges 20 33 34
1,879 1,851 1,831
Total liabilities 6,417 6,047 6,184
Total equity and liabilities 8,773 8,228 8,512
CondensedConsolidated 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
EURm EURm EURm EURm EURm EURm EURm
Unaudited
At 1 January 2016 - 1,983 (425) 619 2,177 151 2,328
Profit for the - - - 345 345 7 352
financial
period
Other
comprehensive
income
Foreign - - (124) - (124) 1 (123)
currency
translationadjustments
Defined benefit - - - (163) (163) - (163)
pension plans
Effective portion - - (2) - (2) - (2)
of changes in
fairvalue of cash
flow hedges
Total - - (126) 182 56 8 64
comprehensive
(expense)/income
for the financial
period
Hyperinflation - - - 68 68 8 76
adjustment
Dividends paid - - - (113) (113) (3) (116)
Share-based - - 14 - 14 - 14
payment
Shares acquired - - (10) - (10) - (10)
by
SKG EmployeeTrust
At 30 September - 1,983 (547) 756 2,192 164 2,356
2016
Unaudited
At 1 January 2015 - 1,981 (30) 271 2,222 197 2,419
Profit for the - - - 277 277 5 282
financial
period
Other
comprehensive
income
Foreign - - (438) - (438) (67) (505)
currency
translationadjustments
Defined benefit - - - 39 39 - 39
pension plans
Effective portion - - 10 - 10 - 10
of changes in
fairvalue of cash
flow hedges
Total - - (428) 316 (112) (62) (174)
comprehensive
(expense)/income
for the financial
period
Shares issued - 2 - - 2 - 2
Hyperinflation - - - 16 16 3 19
adjustment
Dividends paid - - - (94) (94) (4) (98)
Share-based - - 27 - 27 - 27
payment
Shares acquired - - (15) - (15) - (15)
by
SKG EmployeeTrust
Acquired - - - - - 1 1
non-controlling
interest
At 30 September - 1,983 (446) 509 2,046 135 2,181
2015
An analysis of the movements in Other reserves is provided in
Note 13.
Condensed Consolidated Statement of Cash Flows
9 months to 9 months to
30-Sep-16 30-Sep-15
Unaudited Unaudited
EURm EURm
Cash flows from operating activities
Profit before income tax 499 408
Net finance costs 111 92
Depreciation charge 259 246
Impairment of assets - 8
Amortisation of intangible assets 25 24
Amortisation of capital grants (1) (1)
Equity settled share-based payment expense 14 27
(Profit)/loss on sale of (11) 2
assets and businesses
Share of associates' profit (after tax) (1) (3)
Net movement in working capital (109) (60)
Change in biological assets 9 3
Change in employee benefits (72) (59)
and other provisions
Other 12 10
Cash generated from operations 735 697
Interest paid (113) (97)
Income taxes paid:
Irish corporation tax paid (22) (2)
Overseas corporation tax (net (95) (100)
of tax refunds) paid
Net cash inflow from operating activities 505 498
Cash flows from investing activities
Interest received 3 4
Business disposals - 30
Additions to property, plant and (311) (273)
equipment and biological assets
Additions to intangible assets (9) (6)
Receipt of capital grants 2 2
Disposal of available-for-sale 13 -
financial assets
Increase in restricted cash (4) (1)
Disposal of property, plant and equipment 8 7
Dividends received from associates 1 1
Purchase of subsidiaries and (32) (180)
non-controlling interests
Deferred consideration paid (8) (8)
Net cash outflow from investing activities (337) (424)
Cash flows from financing activities
Proceeds from issue of new ordinary shares - 2
Proceeds from bond issue - 250
Proceeds from other debt issues 250 -
Purchase of own shares (net) (10) (15)
Increase in other interest-bearing 33 17
borrowings
Payment of finance leases (3) (3)
Repayment of borrowings (169) (258)
Derivative termination payments - (2)
Deferred debt issue costs paid (2) (9)
Dividends paid to shareholders (113) (94)
Dividends paid to non-controlling interests (3) (4)
Net cash outflow from financing activities (17) (116)
Increase/(decrease) in cash 151 (42)
and cash equivalents
Reconciliation of opening to closing
cash and cash equivalents
Cash and cash equivalents at 1 January 263 361
Currency translation adjustment 22 (86)
Increase/(decrease) in cash 151 (42)
and cash equivalents
Cash and cash equivalents at 30 September 436 233
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') manufacture,
distribute and sell containerboard, corrugated containers and other
paper-based packaging products such as solidboard, graphicboard and
bag-in-box. The Company is a public limited company whose shares
are publicly traded. It is incorporated and tax resident in
Ireland. The address of its registered office is Beech Hill,
Clonskeagh, Dublin 4, D04 N2R2, Ireland.
2.Basis of Preparation and Accounting Policies
The consolidated financial statements of the Group are prepared
in accordance with International Financial Reporting Standards
('IFRS') issued by the International Accounting Standards Board
('IASB') as adopted by the European Union ('EU'); and those parts
of the Companies Act 2014 applicable to companies reporting under
IFRS. The financial information presented in this report has not
been prepared in accordance with International Accounting Standard
34 - 'Interim Financial Reporting' ('IAS 34').
The financial information presented in this report has been
prepared in accordance with the Group's accounting policies. Full
details of the accounting policies adopted by the Group are
contained in the financial statements included in the Group's
annual report for the year ended 31 December 2015 which is
available on the Group's website; smurfitkappa.com. The accounting
policies and methods of computation and presentation adopted 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 2015. There
are no new IFRS standards effective from 1 January 2016 which have
a material effect on the condensed consolidated interim financial
information included in this report.
The condensed consolidated interim financial statements include
all adjustments that management considers necessary for a fair
presentation of such financial information. All such adjustments
are of a normal recurring nature. Certain tables in this interim
statement may not add precisely due to rounding.
The condensed consolidated interim financial statements
presented do not constitute full statutory accounts. Full statutory
accounts for the year ended 31 December 2015 have been filed with
the Irish Registrar of Companies. The audit report on those
statutory accounts was unqualified.
3.Segmental Analyses
The Group has determined 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 segment is highly integrated. It includes a system of
mills and plants that primarily produces a full line of
containerboard that is converted into corrugated containers. The
Americas segment comprises all forestry, paper, corrugated and
folding carton activities in a number of Latin American countries
and the United States. Inter-segment revenue is not material. No
operating segments have been aggregated for disclosure
purposes.
Segment profit is measured based on earnings before interest,
tax, depreciation, amortisation, exceptional items and share-based
payment expense ('EBITDA before exceptional items').
9 months to 30-Sep-16 9 months to 30-Sep-15
Europe The Americas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 4,639 1,460 6,099 4,707 1,313 6,020
EBITDA before 700 241 941 663 217 880
exceptional
items
Segment - - - (5) (40) (45)
exceptional
items
EBITDA after 700 241 941 658 177 835
exceptional
items
Unallocated (25) (25)
centre
costs
Share-based (14) (32)
payment
expense
Depreciation (268) (249)
and
depletion (net)
Amortisation (25) (24)
Impairment - (8)
of assets
Finance costs (160) (130)
Finance income 49 38
Share 1 3
of associates'
profit (after
tax)
Profit before 499 408
income tax
Income tax (147) (126)
expense
Profit for the 352 282
financial
period
3.Segmental Analyses (continued)
3 months to 30-Sep-16 3 months to 30-Sep-15
Europe The Americas Total Europe TheAmericas Total
EURm EURm EURm EURm EURm EURm
Revenue and
results
Revenue 1,537 513 2,050 1,579 445 2,024
EBITDA before 240 86 326 238 78 316
exceptional
items
Segment - - - (1) (5) (6)
exceptional
items
EBITDA after 240 86 326 237 73 310
exceptional
items
Unallocated (3) (11)
centre
costs
Share-based (4) (6)
payment
expense
Depreciation (91) (89)
and
depletion (net)
Amortisation (9) (8)
Impairment - (1)
of assets
Finance costs (43) (42)
Finance income 11 10
Share - 2
of associates'
profit (after
tax)
Profit before 187 165
income tax
Income tax (50) (53)
expense
Profit for the 137 112
financial
period
4.Exceptional Items
The following items are regarded 9 months to 9 months to
as exceptional in nature: 30-Sep-16 30-Sep-15
EURm EURm
Impairment of assets - 8
Loss on the disposal of the - 4
solidboard operations
Currency trading loss on change - 42
in Venezuelan translation rate
Exceptional items included - 54
in operating profit
Exceptional finance costs - 2
Exceptional finance income (12) (12)
Exceptional items included (12) (10)
in net finance costs
The exceptional finance income in 2016 related to the gain of
EUR12 million on the sale of our shareholding in the Swedish
company, IL Recycling, in the second quarter.
Exceptional items charged within operating profit in the nine
months to September 2015 amounted to EUR54 million, EUR42 million
of which represented the higher cost to our Venezuelan operations
of discharging their non-Bolivar denominated payables following our
adoption of the Simadi rate. The remaining EUR12 million related to
the solidboard operations in Europe, comprising an impairment of
EUR8 million booked within cost of sales in the first quarter and a
loss of EUR4 million booked in the second quarter on their
disposal.
Exceptional finance income of EUR12 million in the nine months
to September 2015 represented the gain in Venezuela on their US
dollar denominated intra-group loans as a result of our adoption of
the Simadi rate. This gain was partly offset by an exceptional
finance cost of EUR2 million. This represented the accelerated
amortisation of the issue costs relating to the debt within our
senior credit facility which was paid down with the proceeds of the
EUR250 million bond issue in February 2015.
5.Finance Costs and Income
9 months to 9 months to
30-Sep-16 30-Sep-15
EURm EURm
Finance costs:
Interest payable on bank loans and overdrafts 41 27
Interest payable on other borrowings 79 74
Exceptional finance costs associated - 2
with debt restructuring
Unwinding discount element of provision 1 1
Foreign currency translation loss on debt 9 11
Fair value loss on derivatives 13 -
not designated as hedges
Net interest cost on net pension liability 17 15
Total finance costs 160 130
Finance income:
Other interest receivable (3) (4)
Foreign currency translation gain on debt (20) (13)
Exceptional foreign currency translation gain - (12)
Exceptional gain on sale of investment (12) -
Fair value gain on derivatives (2) (8)
not designated as hedges
Net monetary gain - hyperinflation (12) (1)
Total finance income (49) (38)
Net finance costs 111 92
6.Income Tax Expense
Income tax expense recognised in the Condensed Consolidated
Income Statement
9 months to 9 months to
30-Sep-16 30-Sep-15
EURm EURm
Current tax:
Europe 80 63
The Americas 51 42
131 105
Deferred tax 16 21
Income tax expense 147 126
Current tax is analysed as follows:
Ireland 12 10
Foreign 119 95
131 105
Income tax recognised in the Condensed Consolidated Statement of
Comprehensive Income
9 months to 9 months to
30-Sep-16 30-Sep-15
EURm EURm
Arising on actuarial (loss)/gain (28) 4
on defined benefit plans
The tax expense in 2016 is EUR21 million higher than in the
comparable period in 2015 primarily due to an increase in earnings.
The tax expense is higher in Europe by approximately EUR16 million
and higher in the Americas by EUR5 million. The movement in
deferred tax arises from the reversal of timing differences
including the use and recognition of tax losses and credits. The
tax expense includes a EUR1 million tax credit on exceptional items
in 2015. There is a nil tax effect on exceptional items in
2016.
7.Employee Benefits - Defined Benefit Plans
The table below sets out the components of the defined benefit
cost for the period:
9 months to 9 months to
30-Sep-16 30-Sep-15
EURm EURm
Current service cost 23 33
Past service cost (21) (8)
Gain on settlement (5) (1)
Actuarial loss arising on other 1 3
long-term employee benefits
Net interest cost on net pension liability 16 15
Defined benefit cost 14 42
Included in cost of sales, distribution costs and administrative
expenses is a defined benefit gain of EUR2 million (2015: cost of
EUR27 million). Net interest cost on net pension liability of EUR16
million (2015: EUR15 million) is included in finance costs in the
Consolidated Income Statement.
The negative past service cost of EUR21 million in 2016 relates
to the change from defined benefit to defined contribution in a
number of countries in Europe.
The amounts recognised in the Condensed Consolidated Balance
Sheet were as follows:
30-Sep-16 31-Dec-15
EURm EURm
Present value of funded or partially (2,361) (2,195)
funded obligations
Fair value of plan assets 1,966 1,884
Deficit in funded or partially funded plans (395) (311)
Present value of wholly unfunded obligations (546) (507)
Net pension liability (941) (818)
The employee benefits provision has increased from EUR818
million at 31 December 2015 to EUR941 million at 30 September 2016,
mainly as a result of lower Eurozone and Sterling corporate bond
yields which have decreased the discount rates in the Eurozone and
Sterling area.
8.Earnings per Share
Basic
Basic earnings per share 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.
9 months to 9 months to
30-Sep-16 30-Sep-15
Profit attributable to owners 345 277
of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Basic earnings per share (cent) 147.1 119.7
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares which comprise
convertible shares issued under the 2007 Share Incentive Plan and
deferred shares held in trust under the Deferred Annual Bonus
Plan.
9 months to 9 months to
30-Sep-16 30-Sep-15
Profit attributable to owners 345 277
of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Potential dilutive ordinary 2 3
shares assumed (million)
Diluted weighted average ordinary 236 234
shares (million)
Diluted earnings per share (cent) 145.9 118.2
Pre-exceptional
9 months to 9 months to
30-Sep-16 30-Sep-15
Profit attributable to owners 345 277
of the parent (EUR million)
Exceptional items included in profit before (12) 44
income tax (Note 4) (EUR million)
Income tax on exceptional items (EUR million) - (1)
Pre-exceptional profit attributable to 333 320
owners of the parent (EUR million)
Weighted average number of ordinary 234 231
shares in issue (million)
Pre-exceptional basic earnings 142.0 138.0
per share (cent)
Diluted weighted average ordinary 236 234
shares (million)
Pre-exceptional diluted earnings 140.8 136.3
per share (cent)
9.Dividends
During the year, the final dividend for 2015 of 48 cent per
share was paid to the holders of ordinary shares. In October, an
interim dividend for 2016 of 22 cent per share was paid to the
holders of ordinary shares.
10.Property, Plant and Equipment
Land and buildingsEURm Plant and equipmentEURm TotalEURm
Nine months
ended 30
September 2016
Opening net book 988 2,115 3,103
amount
Reclassifications 21 (22) (1)
Additions 1 305 306
Acquisitions - 40 40
Depreciation (35) (224) (259)
charge
Retirements and (1) (10) (11)
disposals
Hyperinflation 24 21 45
adjustment
Foreign currency (30) (64) (94)
translation
adjustment
At 30 September 968 2,161 3,129
2016
Year ended 31
December
2015
Opening net book 1,079 1,954 3,033
amount
Reclassifications 19 (21) (2)
Additions 7 421 428
Acquisitions 46 116 162
Depreciation (47) (291) (338)
charge
Retirements and (18) (2) (20)
disposals
Hyperinflation 17 13 30
adjustment
Foreign currency (115) (75) (190)
translation
adjustment
At 31 December 988 2,115 3,103
2015
11.Net Movement in Working Capital
9 months to 9 months to
30-Sep-16 30-Sep-15
EURm EURm
Change in inventories (42) (73)
Change in trade and other receivables (103) (126)
Change in trade and other payables 36 139
Net movement in working capital (109) (60)
12.Analysis of Net Debt
30-Sep-16 31-Dec-15
EURm EURm
Senior credit facility:
Revolving credit facility(1)- interest at 1 149
relevant interbank rate + 1.35%(5)
Facility A term loan(2)- interest at 740 494
relevant interbank rate + 1.60%(5)
US$292.3 million 7.50% senior debentures 268 270
due 2025 (including accrued interest)
Bank loans and overdrafts 167 124
Cash (487) (275)
2018 receivables securitisation 174 174
variable funding notes
2019 receivables securitisation 223 232
variable funding notes
2018 senior notes (including accrued interest)(3) 466 477
EUR400 million 4.125% senior notes due 400 403
2020 (including accrued interest)
EUR250 million senior floating rate notes due 249 249
2020 (including accrued interest)(4)
EUR500 million 3.25% senior notes due 500 495
2021 (including accrued interest)
EUR250 million 2.75% senior notes due 247 248
2025 (including accrued interest)
Net debt before finance leases 2,948 3,040
Finance leases 5 8
Net debt including leases 2,953 3,048
(1) Revolving credit facility ('RCF') of EUR625 million
(available under the senior credit
facility) to be repaid in 2020.(a) Revolver
loans - EUR6 million, (b) drawn
under ancillary facilities and facilities
supported by letters of credit - nil
and (c) otheroperational facilities including
letters of credit - EUR7 million.
(2) Facility A term loan ('Facility A') due to be repaid in certain
instalments from 2018 to 2020. In February 2016, the Group
increasedFacility A by EUR250 million.
The proceeds were substantially
applied to reduce the Group's drawings under the RCF.
(3) EUR200 million 5.125% senior notes due 2018 and US$300
million 4.875% senior notes due 2018.
(4) Interest at EURIBOR + 3.5%.
(5) The margins applicable under the senior credit
facility are determined as follows:
Net debt/EBITDA ratio RCF Facility A
Greater than 3.00 : 1 1.85% 2.10%
3.00 : 1 or less but more than 2.50 : 1 1.35% 1.60%
2.50 : 1 or less but more than 2.00 : 1 1.10% 1.35%
2.00 : 1 or less 0.85% 1.10%
13.Other Reserves
Other reserves included in the Condensed Consolidated Statement
of Changes in Equity are comprised of the following:
Reverseacquisitionreserve Cash flow Foreign Share- Own shares Available-for-sale
hedging reserve currency based reserve Total
translation payment
reserve reserve
EURm EURm EURm EURm EURm EURm EURm
At 1 January 2016 575 (22) (1,109) 168 (38) 1 (425)
Other comprehensive
income
Foreign - - (124) - - - (124)
currencytranslation
adjustments
Effective portion - (2) - - - - (2)
ofchanges
in fair
value ofcash flow
hedges
Total - (2) (124) - - - (126)
other comprehensive
expense
Share-based payment - - - 14 - - 14
Shares acquired by - - - - (10) - (10)
SKGEmployee Trust
Shares distributed by - - - (15) 15 - -
SKGEmployee Trust
At 30 September 2016 575 (24) (1,233) 167 (33) 1 (547)
At 1 January 2015 575 (33) (689) 156 (40) 1 (30)
Other comprehensive
income
Foreign - - (438) - - - (438)
currencytranslation
adjustments
Effective portion - 10 - - - - 10
ofchanges
in fair
value ofcash flow
hedges
Total - 10 (438) - - - (428)
other comprehensive
income/(expense)
Share-based payment - - - 27 - - 27
Shares acquired by - - - - (15) - (15)
SKGEmployee Trust
Shares distributed by - - - (16) 16 - -
SKGEmployee Trust
At 30 September 2015 575 (23) (1,127) 167 (39) 1 (446)
Supplementary Financial Information
Alternative Performance Measures
Certain financial measures set out in this interim report are
not defined under International Financial Reporting Standards
('IFRS') An explanation for the use of these Alternative
Performance Measures ('APMs') is set out within Financial
Performance Indicators on pages 26-28 of the Group's 2015 annual
report The key APMs of the Group are set out below.
APM Description
EBITDA Earnings before exceptional
items, share-based
paymentexpense, net finance
costs, income
tax expense, depreciationand
depletion
(net) and intangible
assets amortisation
EBITDA Margin EBITDA x 100
Revenue
Operating Profit before Profit before exceptional items, net
ExceptionalItems finance costs, share ofassociates'
profit (after tax) and
income tax expense
Pre-exceptional Basic EPS (cent) Profit attributable to
owners of the parent,
adjustedfor exceptional items
included in profit before tax andincome
tax on exceptional items x 100
Weighted average number of
ordinary shares inissue
Return on Capital Employed LTM (last twelve months)
pre-exceptional
operatingprofit
plus share of associates'
profit (after tax) x 100
Average capital employed (where
capital employedis the
sum of total equity and net
debt at each periodend)
Free Cash Flow Free cash flow is the result
of the cash inflows
and outflowsfrom our
operating activities,
and is before those arising
fromacquisition
and disposal activities.
Free cash flow (APM)
and a reconciliation
of free cash flow tocash
generated from operations (IFRS
measure) are includedin
the management commentary. The
IFRS cash flow isincluded in
the Condensed Consolidated
Interim FinancialStatements.
Net Debt Net debt is comprised of
borrowings net of cash
and cashequivalents
and restricted cash
Net Debt to EBITDA (LTM) Net debt
EBITDA (LTM)
Reconciliation of
Profit to EBITDA
3 months to 3 months to 9 months to 9 months to
30-Sep-16 30-Sep-15 30-Sep-16 30-Sep-15
EURm EURm EURm EURm
Profit for the 137 112 352 282
financial
period
Income tax 50 53 147 126
expense
Exceptional items - 7 - 54
charged
in operating
profit
Share - (2) (1) (3)
of associates'
profit (after
tax)
Net finance costs 32 32 111 92
(after
exceptional
items)
Share-based 4 6 14 31
payment
expense
Depreciation, 100 97 293 273
depletion
(net)
and amortisation
EBITDA 323 305 916 855
Return on Capital Employed
Q3, 2016 Q3, 2015 Q2, 2016
EURm EURm EURm
Pre-exceptional operating profit plus share 838 767 823
of associates' profit (aftertax) (LTM)
Total equity - current period end 2,356 2,181 2,252
Net debt - current period end 2,953 2,953 3,121
Capital employed - current period end 5,309 5,134 5,373
Total equity - prior period end 2,181 2,517 2,210
Net debt - prior period end 2,953 2,578 3,100
Capital employed - prior period end 5,134 5,095 5,310
Average capital employed 5,221 5,114 5,342
Return on capital employed 16.1% 15.0% 15.4%
Supplementary Historical Financial Information
EURm Q3, 2015 Q4, 2015 FY, 2015 Q1, 2016 Q2, 2016 Q3, 2016
Group and 3,347 3,422 13,309 3,280 3,375 3,424
third
party
revenue
Third 2,024 2,089 8,109 2,001 2,049 2,050
party
revenue
EBITDA 305 326 1,182 281 312 323
EBITDA 15.0% 15.6% 14.6% 14.0% 15.3% 15.7%
margin
Operating 195 214 711 179 211 219
profit
Profit 165 191 599 128 184 187
before
income
tax
Free cash 162 152 388 7 28 164
flow
Basic 46.4 52.9 172.6 38.8 52.0 56.4
earnings
per
share -
cent
Weighted 231 233 232 234 234 234
average
number
of shares
used
inEPS
calculation
(million)
Net debt 2,953 3,048 3,048 3,029 3,121 2,953
EBITDA 1,150 1,182 1,182 1,197 1,224 1,242
(LTM)
Net debt 2.57 2.58 2.58 2.53 2.55 2.38
to
EBITDA
(LTM)
View source version on businesswire.com:
http://www.businesswire.com/news/home/20161102005376/en/
This information is provided by Business Wire
(END) Dow Jones Newswires
November 02, 2016 03:00 ET (07:00 GMT)
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