Gary McGann, Smurfit Kappa CEO commented: “The Group’s solid operating performance through 2014 is strong evidence of the resilience of our integrated and geographically diverse business model. As a result we are pleased to report higher returns and good earnings growth year-on-year in 2014, driven by new business wins, a continued focus on cost efficiencies, judicious capital investments and accretive acquisitions. Progress against these measures has increased our ROCE to 15% and supports the Group’s revised ROCE target of an average of 15% through the cycle.
“In Europe, the Group has reported 2% corrugated volume growth year-on-year for the full year. Pricing in our end corrugated market improved by 1% year-on-year and was generally stable at this level throughout the year in spite of a more volatile pricing environment for recycled containerboard. The implementation of containerboard price increases in the third quarter, in particular, provided good support to corrugated prices at their current level.
“Following the launch of our ‘Open the Future’ differentiation initiative in June, we are working with customers on the re-evaluation of the impact of Smurfit Kappa’s expertise on their business. To this end the Group released a white paper in December 2014 – Marketing on the shelf: exactly how in control are you? – demonstrating the impact of packaging in the retail environment and the powerful marketing opportunities presented by SKG to brand owners in their retail environments. As the next step in this process, we will formally launch our ‘Point of Purchase’ strategy at our Innovation and Capital Markets Day in April, which will further enunciate the tangible impact of this process on the business and our customers.
“SKG’s businesses in the Americas performed well with volume growth and good margins in most countries. The Group’s larger Latin American operations in Colombia and Mexico delivered strong earnings progression during the year and the growth of our US footprint has enhanced our exposure to the improving US market. In Venezuela, economic volatility continues to drive currency uncertainty which impacted our business in 2014. However, to put our operations there into context, our 2014 Venezuelan earnings amounted to approximately 7% of Group EBITDA. Consistent with previous periods the Group has updated its Principal Risks and Uncertainties disclosure in relation to Venezuela on page 13.
“The Group outperformed its cost take-out target in 2014 with the delivery of €117 million in cost reduction initiatives during the year. In 2015, the Group expects to continue to further reduce its cost base by €75 million.
“In recent years, the Group has fundamentally repositioned itself. SKG is now regarded as a corporate credit in the debt markets following debt paydown of over €600 million and annual cash interest savings of €150 million since 2007. The Group will preserve its solid credit metrics through the cycle while continuing to enhance the cost, sustainability and structure of its capital base where appropriate. “As a consequence of this process of sustained deleveraging, in February 2014 the Group announced a strategy to deploy its capital towards growth opportunities through internal investment, an active M&A focus and increasing returns to shareholders. We have been steadily delivering against our objectives.
“Firstly, our targeted programme of high return capital investments will support organic earnings growth into 2015. In this context, a number of our ‘Quick Win’ projects, approved in 2014, will begin to directly boost EBITDA by €18 million in 2015.
“The Group’s refurbished 250,000 tonne recycled containerboard mill in Kent, UK, will commence production in the first quarter of 2015 with an estimated 2015 volume of 150,000 tonnes entering the market commencing in the second quarter. SKG’s 80,000 tonne testliner mill in Viersen, Germany will cease production in the first quarter as part of a previously announced rationalisation programme encompassing the mill and four converting plants across Europe and this programme will be substantially completed within the first nine months of 2015. In the fourth quarter, the Group began a process to potentially dispose of its Solidboard operations in Belgium, the Netherlands and the UK and an exceptional impairment charge of €46 million has been recognised in the quarter.
“Secondly, the Group has progressed its acquisition agenda in 2014, completing four accretive acquisitions in the higher growth Americas region totalling over €160 million. In each case the Group expects returns significantly above its cost of capital and this disciplined approach will continue to underpin our evaluation of opportunities in 2015.
“Finally, the Group remains committed to driving returns for our shareholders, and to that end SKG is increasing its ordinary dividend by 30%. Furthermore, in the absence of accretive acquisitions the Group will evaluate alternative uses of capital, including returns of surplus capital to shareholders. However, our stated preference is to build durable, long-term value through the continued delivery of accretive acquisitions in our target markets. Capital allocation decisions will be taken in the context of staying within the scope of our Ba1 / BB+ credit rating.
“Looking to 2015, assuming no material dis-improvement in European economic conditions, we expect to grow the business through continued superior operating performance, high return internal investments and targeted acquisitions. The Group expects to deliver earnings growth, stronger free cash flows, and through the judicious use of capital to continue to improve returns for our shareholders.”
In the picture: Gary McGann, Smurfit Kappa CEO.