Smurfit Kappa Annual Report 2009
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SMURFIT KAPPA GROUP PLC ANNUAL REPORT 2009 ANNUAL REPORT 2009 Raw materials The raw material for paper-based packaging comes from renewable sources and the end product is recycled many times making all forms of SKG’s paper-based packaging the most environmentally friendly available. SKG recovers almost 5 million tonnes of recycled paper each year in Europe where it is the European leader in recycling and 0.8 million tonnes in Latin America where it also holds a leading position. Almost all of this is sourced through our own recovery systems. Modern mills The Group produces well over 6 million tonnes of paper, primarily in the containerboard, solidboard and sackpaper grades, at its 38 mills across the world. The Group is the leading producer of containerboard in Europe and one of the largest in Latin America using wood and recovered paper to manufacture kraftliner and recycled paper grades respectively. Our containerboard production is integrated into our corrugated operations. Operating excellence The product range of our containerboard mills covers the complete spectrum of paper and board including features such as weight, colour and printability. On the packaging side, our extensive presence in 21 European and 9 Latin American countries allows us to offer customers a “one stop shop” for all their packaging needs and a differentiated quality of service. With a strong focus on innovative packaging solutions, our operations are supported by outstanding research and development facilities with a view to enhancing the customer offering. Design expertise/Innobook In SKG we have created “Innobook”, a library with over 3,000 proven design solutions, which is available to the more than 500 designers within our worldwide group and to both our sales and customer support people. This allows us to present our customers with advanced packaging and cost effective solutions and to ensure that our packaging provides safe, reliable and imaginative performance characteristics for our customer from factory fl oor through the distribution chain to the consumer. Diverse packaging/versatility Corrugated containers are a secure, economical and value added means of transporting and displaying a diverse range of consumer and industrial products. Approximately 60% of the Group’s corrugated customers are in food, beverage and household consumables. While corrugated is the most widely used form of paper- based packaging, solidboard and paper sacks are also suitable for certain products and the evolving “bag in box” business offers progressively innovative methods for selling and dispensing our customers’ products. Power to attract/POS impact Well designed and attractive packaging is important for brand owners and retailers in successfully promoting their products at the ultimate point of sale. We aim to increase the impact of our customers’ products by offering a broad range of innovative in-store shelf and stand alone display solutions. Back to the start Retailers and consumers recycle their used packaging which is then fed back into the recovered paper system thus restarting the whole paper and packaging process. Contents 2 2009 Financial Performance Overview 4 Group Profi le 6 Chairman’s Statement 8 Chief Executive’s Review 10 Operations Review 14 Finance Review 23 Sustainability 26 Board of Directors 28 Corporate Governance Statement 36 Directors’ Report 38 Remuneration Report 45 Statement of Directors’ Responsibilities 46 Independent Auditors’ Report 48 Group Income Statement 49 Group Statement of Comprehensive Income 50 Group Balance Sheet 52 Company Balance Sheet 53 Group Statement of Changes in Equity 54 Company Statement of Changes in Equity 55 Group Cash Flow Statement 57 Company Cash Flow Statement 58 Notes to the Consolidated Financial Statements 155 Shareholder Information Annual Report 2009 2009 FINANCIAL PERFORMANCE OVERVIEW 2009 2008 €m €m Revenue €6,057 €7,062 EBITDA before exceptional items and share-based payment expense (‘EBITDA’) €741 €941 EBITDA Margin 12.2% 13.3% Operating Profi t €267 €282 Loss before Tax (€52) (€11) Free Cash Flow €172 €281 Net Debt €3,052 €3,185 Net Debt to EBITDA (LTM) 4.1x 3.4x SMURFIT KAPPA GROUP 2 MISSION The Smurfi t Kappa Group strives to be a customer-oriented, market- led company where the satisfaction of customers, the personal development of employees and respect for local communities and the environment are seen as being inseparable from the aim of creating value for the shareholders. COMBINED TRANSPORT AND DISPLAY BOX SKG NET DEBT SIGNIFICANT AND CONTINUED NET DEBT REDUCTION 3,500 3,404 3,000 3,185 3,052 2,500 2,000 ANNUAL REPORT 2009 1,500 1,000 500 0 Dec 07 Dec 08 Dec 09 NET DEBT IN €m 3 GROUP PROFILE EUROPEAN OPERATIONS Virgin Mills (4) Recycled Containerboard Mills (15) Other Paper and Board Mills (8) Corrugated (162) Paper Sacks (10) Other (76) Virgin Mills Recycled Containerboard Mills Corrugated Specialty Recovered Fibre SMURFIT KAPPA GROUP 4 PACKAGING EUROPE SPECIALTIES EUROPE LATIN AMERICA Sales Volumes (million tonnes) Sales Volumes (million tonnes) Sales Volumes (million tonnes) Recycled Containerboard 2.8 Solidboard & Graphicboard 0.9 Containerboard 0.7 Kraftliner 1.4 Solidboard Packaging 0.3 Corrugated 0.7 Corrugated 4.1 Sack Paper 0.1 Sacks 0.1 LATIN AMERICAN OPERATIONS Virgin Mills (2) Recycled Paper and Board Mills (9) Corrugated (28) Paper Sacks (5) Other (30) Virgin Mills Recycled Mills Corrugated Specialty Recovered Fibre Forestry SKG at a Glance ANNUAL REPORT 2009 The Group is an integrated paper and paperboard manufacturer and converter with operations in Europe and Latin America. The Group’s operations are divided Given the high degree of integration between the into Packaging Europe, Specialties Europe and Latin mills and its conversion plants, particularly in terms of America. In Europe, the Packaging segment, which is containerboard, the Group’s end customers are primarily highly integrated, includes a system of mills and plants in the corrugated container market. The corrugated that produce a full line of containerboard that market is a localised market and corrugated box plants is converted into corrugated containers. The Specialties need to be close to customers (generally no more than segment comprises paper-based activities dedicated 250 to 300 kilometres), due to the relatively high cost to the needs of specifi c and sometimes niche markets. of transporting the product. Approximately 60% of the 5 These include bag-in-box, solidboard and paper sacks. Group’s corrugated customers are in food, beverage, The Latin American segment comprises forestry, paper, and household consumables, the remainder being split corrugated and folding carton activities in a number of across a wide range of different industries. Latin American countries. In 2009, the Group’s European Packaging and Specialties The Group operates in 21 countries in Europe and is segments accounted for 69% and 14% of third the European leader in containerboard, corrugated party sales revenue respectively, with Latin America containers, solidboard and solidboard packaging and accounting for 17% of third party sales revenue. has a key position in several other paper packaging At the date of this report, the Group owns 38 mills (27 of market segments. The Group operates in 9 countries in which produce containerboard), 240 converting plants Latin America where it is the only pan-regional operator. (most of which convert containerboard into corrugated In terms of world market positions, the Group is the boxes), 42 reclamation facilities (which provide recovered second largest producer of corrugated containers, one of paper for the Group’s mills) and 29 other production the two largest producers of graphicboard and the third facilities carrying on other related activities. In addition, largest producer of containerboard. the Group owns approximately 105,000 hectares of forest plantations. CHAIRMAN’S STATEMENT “Strengthened balance sheet and enhanced fi nancial fl exibility” The Combined Code recommends that, apart from the Chairman, at least half of the Board of Directors of a listed company should comprise non-executive Directors determined by the Board to be independent. Mindful of the rights of our two major shareholders to appoint four directors in total and the need to keep the Board at a size that is not unwieldy, the Company is continuing its work towards enhancing the composition of the Board to comply with this recommendation. 2009 was my fi rst full year as your Chairman and Year in Review I would like to thank all of the Directors for their Against the backdrop of a global downturn and a support and their contributions to the development signifi cant collapse in market demand and pricing, and effectiveness of the Board and its various SKG has reported EBITDA of €741 million, free cash Committees during the year. fl ow generation of €172 million and net debt reduction of €133 million. SKG further strengthened its balance Operational Visits SMURFIT KAPPA GROUP sheet and enhanced fi nancial fl exibility during the During 2009, I visited a range of our mills, corrugated year by extending its average debt maturity profi le, plants and specialty operations in Germany, the diversifying its sources of funding through the Netherlands, Belgium and Mexico, and while in the 6 € successful conclusion of a 1 billion bond offering Netherlands I visited the SKG Development Centre for and increasing its covenant headroom. Service and Innovation, a state-of-the-art facility which hosts many of our customers throughout the year. On