12 February 2014
SKG Fourth Quarter and Full Year Results 2013
Smurfit Kappa Group today announced results for the 3 months and 12 months ending 31 December 2013.
Full Year 2013 Highlights
Significantly strengthened capital profile and materially reduced cash interest
Revenue growth in 2013 of 8% and 30% increase in free cash flow
Return on capital employed of 13.1%
Successful integration and growth of Smurfit Kappa Orange County
2013 cost take-out target achieved with further €100 million for 2014
Final dividend per share increased by 50% from 20.50 cent to 30.75 cent
Performance Review & Outlook
Gary McGann, Smurfit Kappa Group CEO commented: “During 2013 the Group has completed its main financial restructuring activity moving from being a leveraged company to achieving a corporate credit profile. As a consequence, the profile of the Group has fundamentally changed and the progress made offers the company a wide range of strategic and financial options.
For 2013 the Group is pleased to announce a full year EBITDA performance of over €1.1 billion and a return on capital employed of over 13%. With a weaker though improving year-on-year performance in Europe, the Americas has been a strong source of earnings growth in 2013 and continues to provide the Group with geographic diversity and exposure to higher growth markets.
The Group’s European corrugated packaging operations showed good growth in 2013, with box volumes up 2% year-on-year and the Group is progressing with box price increases through the fourth quarter and into 2014. The good volume result was achieved despite low macroeconomic growth and reflects organic growth with our customers and specific market share wins.
SKG is clearly established as a committed partner to our customers, working in their industries and in many cases within their operations to define and meet their increasingly complex packaging needs. This is evidenced by the sizeable market share that SKG has with the major international branded companies.
Over the course of the year improved containerboard demand coupled with stable supply side conditions and a steady Old Corrugated Containers (‘OCC’) market supported a recovery in testliner prices, which has gone some way to addressing the relatively poor returns for the grade over the last number of years. However, in spite of increasing testliner pricing, margins have still not adequately recovered due to consistently higher input costs. Recent weakness in kraftliner pricing has abated and the strong recycled market should provide upward pricing pressure in the grade.
The operations in the Americas segment remain a very important part of the Group’s strategic goals. They performed well in 2013 with reported volume growth of over 2% year-on-year in spite of some economic difficulties. However, due to recent developments in Venezuela with regards to the possible exchange rate at which US dollars may be made available, the Group has updated its Principal Risks and Uncertainties disclosure on page 13.
SKG reports a full year 2013 net debt / EBITDA ratio of 2.37 times. The consistent progress on debt reduction has been made possible by the strong free cash flow generated through a robust operational performance and decisive capital allocation. Debt paydown and re-financing activities undertaken to date have resulted in a €120 million reduction in annualised cash interest since the IPO and boosts available free cash flow.
SKG will continue to progressively reward shareholders from earnings growth and interest savings resulting from the fundamental repositioning of the Group. In that context, the Board is recommending a final dividend of 30.75 cent for 2013, a 50% increase on last year, reflecting confidence in the business. It is the company’s intention to continue a progressive dividend policy within the context of the Group’s ongoing earnings profile.
SKG has a good pipeline of capital projects with very attractive returns. Utilising its strong free cash flow, SKG intends to invest in these projects, increasing its capital expenditure in a controlled manner to 120% of depreciation for a three year period. Once completed, these projects will deliver improved efficiencies, material earnings growth and are expected to deliver IRR’s of at least 20%
A priority focus of the Group is to seek to expand its operations in the high growth regions of the Americas and Eastern Europe through accretive acquisitions, together with innovation and differentiation initiatives already underway in our current business. While maintaining the strengthened capital structure and the strong cash flow dynamics, in the absence of sufficient accretive acquisitions, the company will return capital to the shareholders.
For 2014, based on the current macro-economic outlook, the Group expects to achieve continued earnings growth. This will be delivered in the context of the fundamental financial, strategic and differentiation initiatives commenced in 2013 and as the European packaging business progressively secures the recovery of input cost increases through higher box prices. Today, the Group is in a strong position to further optimise its integrated European operations and to increase its unique Americas exposure through the use of its strong balance sheet and its proven management thereby continuing to deliver earnings growth and improved returns to our shareholders.”
SKG Press Release Q4 2013.pdf