Smurfit Kappa GrpPLC UK Regulatory Announcement: Half-year Report – Business Wire

DUBLIN–(BUSINESS WIRE)– 

31 July: Smurfit Kappa Group plc (‘SKG’ or ‘the Group’) today announced results for the 6 months ending 30 June 2019.

2019 First Half | Key Financial Performance Measures

€m

H1
2019

H1
2018

Change

Revenue

€4,622

€4,428

4%

EBITDA 1

€847

€724

17%

EBITDA Margin 1

18.3%

16.4%

 

Operating Profit before Exceptional Items

€558

€529

5%

Profit before Income Tax

€456

€416

9%

Basic EPS (cent)

140.6

124.5

13%

Pre-exceptional Basic EPS (cent) 1

141.6

140.7

1%

Free Cash Flow 1

€159

€148

8%

Return on Capital Employed 1

18.7%

18.1%

 

 

 

 

 

Net Debt 1

€3,751

€2,871

 

Net Debt to EBITDA (LTM) 1

2.2x

2.1x

 

1 Additional information in relation to these Alternative Performance Measures (‘APMs’) is set out in Supplementary Financial Information on page 35.

Key Points

  • Revenue growth of over 4%
  • EBITDA of €847 million, up 17%, with a margin of 18.3%
  • ROCE of 18.7%
  • €190 million of acquisitions in Bulgaria, Colombia and Serbia
  • Interim dividend increased by 10% to 27.9 cent per share

Performance Review and Outlook
Tony Smurfit, Group CEO, commented:

“I am pleased to report, for the first half of 2019, another set of excellent results. Revenue grew by 4% with EBITDA increasing to €847 million, up 17% on the prior year. The continued execution of our Medium-Term Plan together with our resilient business model allows us to continue to progress and deliver consistently excellent performance.

“During the first six months, our European business continued to perform strongly, delivering an increased EBITDA margin of 19.3%, up from 17.3% in the same period in 2018. Box volumes grew by approximately 2% on an organic basis, or 4% when including acquisitions.

“The Americas region continued to perform well, delivering an increased EBITDA margin of 17.1% up from 15.2% in the first half of 2018. Volumes grew by 3% in the first half. The region had especially strong performances in our larger markets of Colombia, Mexico and the US.

“We continue to work with our existing customer base, and indeed our new customers, in solving their many business challenges. This includes finding alternatives to less sustainable packaging, helping drive increased sales using paper-based packaging as a merchandising medium, and reducing complexity and costs in their supply chain by leveraging our unique SMART applications.

“In May, the Group hosted over 350 customers from across the globe at its biennial innovation event in the Netherlands. The event highlighted both the sustainability challenges we all face and how Smurfit Kappa’s expertise is part of the solution. We expect our Better Planet Packaging initiative to be a source of future incremental demand.

“During the first half, the Group continued to expand and strengthen its geographic footprint with acquisitions in Bulgaria, Colombia and Serbia and we are excited about the opportunities these additions present.

“The Group understands that the Italian Competition Authority will shortly release the outcome of its work in relation to approximately 50 market participants in Italy, including one of the Group’s Italian subsidiaries. We await the outcome of its work and will update accordingly.

“In February 2018, we outlined our four year Medium-Term Plan. We have completed a number of projects across our corrugated and containerboard business since its announcement. With the acquisition of Reparenco in July 2018, we accelerated a central part of the plan linked to our integrated model and secured our paper supply for future growth opportunities. Our plan remains flexible and agile and is the foundation for our current and future performance. The qualities of Smurfit Kappa continue to be evident, not alone in terms of our performance but in our world class containerboard system, leadership in sustainable packaging, customer-focused innovation and disciplined, returns focused, capital allocation.

“While macro-economic and political risks remain, SKG continues to be highly confident of another year of progress and delivery.

“Reflecting this and the future prospects of the business the Board is recommending a 10% increase in the interim dividend to 27.9 cent per share.”

About Smurfit Kappa

Smurfit Kappa, a FTSE 100 company, is one of the leading providers of paper-based packaging solutions in the world, with around 46,000 employees in over 350 production sites across 35 countries and with revenue of €8.9 billion in 2018. We are located in 23 countries in Europe, and 12 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.

Our products, which are 100% renewable and produced sustainably, improve the environmental footprint of our customers.

smurfitkappa.com

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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.

2019 First Half | Performance Overview

The Group reported EBITDA for the first half of €847 million, 17% up on the same period in 2018, a record performance for the Group.

The Group EBITDA margin was 18.3%, up from 16.4% in the first half of 2018. The result reflects the resilience of the Group’s integrated model, the benefits of our capital spend programme, volume growth, higher corrugated pricing, lower recovered fibre costs and the impact of IFRS 16, Leases.

In Europe for the first half, EBITDA increased by €101 million or 17% to €688 million. The EBITDA margin was 19.3%, up from 17.3% in the first half of 2018. The benefits of the prior years’ capital investments, organic box volume growth of approximately 2%, higher corrugated prices, the benefits of acquisitions, the impact of IFRS 16 and lower recovered fibre costs all contributed to the strong result.

The price of recovered fibre in our European business was 9% lower year-on-year for the first half, contributing €25 million towards the European result.

European pricing for testliner and kraftliner has reduced by €120 per tonne and €140 per tonne respectively from the high of October 2018, and have shown signs of stabilisation in recent months.

During the first half of 2019, the Group completed acquisitions in Serbia and Bulgaria, a further step in its South Eastern European strategy. The integration of these assets into the Smurfit Kappa system is progressing well.

In the Americas for the first half, EBITDA increased 14% on the same period last year to €179 million. The EBITDA margin also improved, from 15.2% in the first half of 2018 to 17.1% in the first half of 2019. 85% of the region’s earnings were delivered by Colombia, Mexico and the US with strong year-on-year performances in all three countries.

The benefit of lower recovered fibre costs in the Americas for the first half was approximately €7 million.

In Colombia, volumes were up 9% for the year driven by high growth in the FMCG sector along with the agriculture and flower markets. In June, the Group announced the successful tender offer to acquire the minority shares in Cartón de Colombia S.A.. The consideration payable under the Tender Offer amounted to approximately €81 million.

In Mexico, we saw continued improvement on both an EBITDA and EBITDA margin basis as well as continued volume growth. The growth of e-commerce, the increasing focus on sustainable packaging solutions, together with the Group’s ability to provide a unique Pan-American sales offering have continued to drive demand in our Mexican business.

In the US, our margins continued progressing year-on-year in the first half due to the strong mill performance and the benefit of lower recovered fibre costs.

The Group reported free cash flow of €159 million in the first half of 2019 compared to €148 million in the same period of 2018. In January 2019, the Group successfully priced a €400 million add-on offering to the June 2018 bond issue at a price of 100.75% giving a yield of 2.756%. Also in January 2019, the Group signed and completed a new 5 year €1,350 million revolving credit facility (‘RCF’) with 21 of its existing relationship banks. The new RCF refinances the Group’s existing senior credit facility, which was due to mature in March 2020. The average maturity profile of the Group’s debt (including the effect of our latest financing activity) now stands at 4.2 years with an average interest rate of 3.78%. Net debt to EBITDA was 2.2x at the half year, with the Group’s net debt impacted by IFRS 16 and the Group’s acquisition activity. The Group remains well positioned within its Ba1/BB+/BB+ credit rating.

2019 First Half | Financial Performance

Revenue for the first half was €4,622 million, up approximately 4% on the same period last year, on a reported and underlying2 basis, reflecting the benefits of higher prices and volume growth.

EBITDA for the first half was €847 million, €123 million ahead of the same period in 2018. While the positive impact of IFRS 16 accounted for €44 million of the increase, earnings were also higher in both Europe and the Americas.

Operating profit before exceptional items in the first half of 2019 at €558 million was 5% or €29 million higher than the €529 million for the same period in 2018.

There were no exceptional items charged within operating profit in the first half of 2019.

Exceptional items charged within operating profit in the first half of 2018 amounted to €31 million relating to the defence from the unsolicited approach by International Paper and a loss on the disposal of our Baden operations in Germany.

Exceptional finance costs charged in the first half of 2019 amounted to €3 million reflecting the accelerated amortisation of the debt issue costs relating to the refinancing of the senior credit facility.

Exceptional finance costs charged in the six months to June 2018 amounted to €6 million, including €4 million in respect of the fee payable to the bondholders to secure their consent to the Group’s move from quarterly to semi-annual reporting and €2 million representing the interest cost on the early termination of certain US dollar/euro swaps. The swaps were terminated following the paydown of the US dollar element of the 2018 bonds.

Pre-exceptional net finance costs at €100 million were €23 million higher in 2019 primarily as a result of an increase in non-cash costs of €16 million reflecting a negative swing from a currency translation gain of €23 million in 2018 to a small loss in 2019. Cash interest was €7 million higher year-on-year mainly as a result of the interest now recognised in respect of IFRS 16.

With the €29 million increase in pre-exceptional operating profit, partly offset by the €23 million increase in net finance costs, the pre-exceptional profit before income tax of €459 million was €6 million higher than in 2018.

After exceptional finance costs of €3 million, the profit before tax in the first six months of 2019 was €456 million compared to a profit of €416 million in 2018. The income tax expense was €118 million compared to €121 million in 2018, resulting in a profit of €338 million for the half year compared to €295 million in 2018.

Basic EPS for the first half of 2019 was 140.6 cent, compared to 124.5 cent earned in the same period of 2018. On a pre-exceptional basis, EPS was 141.6 cent in the first half, 1% higher than the 140.7 cent in the first half of 2018.

2 Underlying in relation to financial measures throughout this report excludes acquisitions, disposals, currency and hyperinflation movements where applicable

2019 First Half | Free Cash Flow

Free cash flow in the first half was €159 million compared to €148 million in the first half of 2018. EBITDA growth of €123 million and the absence of the exceptional outflow of €17 million, were partly offset by higher outflows for capital expenditure, working capital and other items.

Working capital amounted to €905 million at June 2019, representing 9.8% of annualised revenue compared to 9.4% at March 2019 and 7.5% at December 2018. Working capital increased by €222 million in the half year, representing principally the net cash outflow of €169 million, the reduction in capital creditors of €34 million and working capital acquired of €13 million.

Capital expenditure in 2019 amounted to €272 million (equating to 103% of depreciation) compared to €205 million (equating to 111%) in 2018. Excluding the impact of leases, capital expenditure was €257 million and represented 115% of depreciation.

Cash interest was €82 million in the first half of 2019. Cash interest in 2018 was €81 million but included exceptional finance costs of €6 million. Excluding these amounts, our cash interest amounted to €75 million in 2018. The year-on-year increase mainly reflects the interest now recognised in respect of IFRS 16.

Tax payments in the first half of €92 million were €3 million higher than in 2018.

2019 First Half | Capital Structure

Net debt was €3,751 million at the end of June, resulting in a net debt to EBITDA ratio of 2.2x compared to 2.0x at the end of December 2018 and 2.1x at the end of June 2018. Our leverage at June 2019 was negatively impacted by IFRS 16 with the Group’s net debt increasing by €338 million. The Group’s balance sheet continues to provide considerable financial strategic flexibility, subject to the stated leverage range of 1.75x to 2.5x through the cycle and SKG’s Ba1/BB+/BB+ credit rating.

At 30 June 2019 the Group’s average interest rate was 3.78% compared to 3.63% at 31 December 2018. The Group’s diversified funding base and long dated maturity profile of 4.2 years provide a stable funding outlook. In terms of liquidity, the Group held cash balances of €247 million at the end of June, which was further supplemented by available commitments under its new RCF of approximately €1,132 million.

Dividends

The Board will increase the 2019 interim dividend by 10% to 27.9 cent per share. It is proposed to pay the interim dividend on 25 October 2019 to shareholders registered at the close of business on 27 September 2019.

2019 First Half | Sustainability

In May, the Group launched its 12th annual sustainability report. An ambitious new set of sustainability goals was unveiled having met or exceeded previous targets ahead of their 2020 deadline. Smurfit Kappa continues to have a long-term commitment to making real and measurable progress against its five strategic sustainability priorities of forest, climate change, water, waste and people.

This report is evidence of our industry-leading transparency and demonstrates how Smurfit Kappa is making progress in supporting the UN’s 2030 Sustainability Development Goals. For Smurfit Kappa, sustainability is not only about mitigating climate change and reducing inefficiency. For packaging to be truly sustainable, it must be produced and designed in a sustainable fashion and be biodegradable within a relatively short time. Paper-based packaging is uniquely positioned to do this.

Smurfit Kappa continues to be listed on the FTSE4Good, Euronext Vigeo Europe 120, STOXX Global ESG Leaders and Ethibel’s sustainable investment register. SKG also performs strongly across a variety of third party cerification bodies, including MSCI, Sustainalytics and EcoVadis.

2019 First Half | Commercial Offering and Innovation

The Group continues to progress its industry leading ‘Better Planet Packaging’ initiative, which seeks to reduce packaging waste by creating more sustainable packaging solutions through design, innovation and recycling capabilities. The intensity of customer and broader industry interest in this Smurfit Kappa initiative was best highlighted at our biennial innovation event in May of this year when the Group hosted over 350 customers from across the globe and from a diverse array of businesses and functional responsibility. Attendees heard how a change in packaging design and a move to more sustainable packaging materials like corrugated packaging can help them to meet their own sustainability commitments.

Our innovation event was an industry-leading response to our customer’s request for help in moving away from less sustainable packaging materials. The commercial pipeline in Smurfit Kappa has grown considerably on the back of this and we expect it to be a driver of incremental demand.

In the first six months of 2019, the Group’s leadership in innovation was recognised with 44 national or international awards for packaging innovation, sustainability, design and print. The Group’s operations were awarded in Belgium, Colombia, the Czech Republic, Ireland, Mexico, the Netherlands, Russia, and the UK.

The winning of two awards at the annual European e-Logistics ‘Deliver’ conference in Lisbon was particularly pleasing as there were only five awards given, with SKG securing the ‘Cool Vendor’ and ‘Sustainability’ awards.

In the Americas, SKG was awarded the ‘Transforming Innovation’ award from Kellogg’s which recognised suppliers from Canada through to Brazil and the award itself reflected the work done by Smurfit Kappa to identify a sustainable and innovative packaging solution requiring fewer cases during transportation.

2019 First Half | Medium-Term Plan

To date, over €600 million of capital projects has been approved under the Medium-Term Plan. This includes 15 case-makers, 20 die-cutters for the creation of complex designs, seven printers and the upgrade of 13 of our corrugators to bring them up to the standards expected by Smurfit Kappa, as well as multiple paper related debottlenecking projects. The plan is being implemented in a controlled, disciplined manner. The agile nature of the plan has been demonstrated with the acquisition of Reparenco, replacing the need for the construction of paper capacity in Europe with reduced risk and immediate earnings, while future proofing the Group’s European containerboard requirements.

Summary Cash Flow

Summary cash flows for the six months are set out in the following table

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

EBITDA

847

724

Exceptional items

(17)

Cash interest expense

(82)

(81)

Working capital change

(169)

(149)

Current provisions

(17)

(3)

Capital expenditure

(272)

(205)

Change in capital creditors

(34)

(26)

Tax paid

(92)

(89)

Sale of property, plant and equipment

2

Other

(24)

(6)

Free cash flow

159

148

 

 

 

Purchase of own shares (net)

(25)

(10)

Sale of businesses and investments

(11)

Purchase of businesses and investments

(204)

(16)

Dividends

(175)

(155)

Derivative termination receipts

17

Net cash outflow

(245)

(27)

 

 

 

Net debt acquired

(4)

Adjustment on initial application of IFRS 16

(361)

Deferred debt issue costs amortised

(7)

(5)

Currency translation adjustment

(12)

(34)

Increase in net debt

(629)

(66)

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.

At 30 June 2019, Smurfit Kappa Treasury Funding Limited had outstanding US$292.3 million 7.50% senior debentures due 2025. The Group had outstanding €120 million variable funding notes issued under the €230 million accounts receivable securitisation programme maturing in June 2023, together with €5 million variable funding notes issued under the €200 million accounts receivable securitisation programme maturing in February 2022.

Smurfit Kappa Acquisitions had outstanding €400 million 4.125% senior notes due 2020, €250 million senior floating rate notes due 2020, €500 million 3.25% senior notes due 2021, €500 million 2.375% senior notes due 2024, €250 million 2.75% senior notes due 2025 and €1,000 million 2.875% senior notes due 2026. Smurfit Kappa Treasury is also party to a €1,350 million RCF maturing in 2024. At 30 June 2019, the Group’s drawings on this facility comprised of €124 million, US$23.6 million and STG£60 million, with a further €6 million drawn in operational facilities including letters of credit drawn under various ancillary facilities.

Funding and Liquidity (continued)

The following table provides the interest rates at 30 June 2019 for each of the drawings under the RCF loans:

Borrowing Arrangement

Currency

Interest Rate

Revolving Credit Facility

EUR

0.900%

 

USD

3.294%

 

GBP

1.627%

Borrowings under the RCF are available to fund the Group’s working capital requirements, capital expenditures and other general corporate purposes.

In January 2019, the Group successfully priced a €400 million add-on offering to the June 2018 €600 million 2.875% bond issue at a price of 100.75 giving a yield of 2.756%. Also, in January 2019, the Group signed and completed the new 5-year €1,350 million RCF. This new RCF refinanced the Group’s existing senior credit facility which was due to mature in March 2020.

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 2019, the Group had fixed an average of 82% of its interest cost on borrowings over the following twelve months.

The Group’s fixed rate debt comprised €400 million 4.125% senior notes due 2020, €500 million 3.25% senior notes due 2021, €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 and €1,000 million 2.875% senior notes due 2026. In addition, the Group had €174 million in interest rate swaps converting variable rate borrowings to fixed rate with maturity dates ranging from October 2020 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 increased by one percent, the Group’s interest expense would increase, and income before taxes would decrease, by approximately €8 million over the following twelve months. Interest income on the Group’s cash balances would increase by approximately €2 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.

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.

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 principal risks and uncertainties faced by the Group were outlined in our 2018 Annual Report on pages 32-35. The Annual Report is available on our website smurfitkappa.com. 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, especially as a result of Brexit or changes in free trade agreements, and result in an economic slowdown which was sustained over any significant length of time, or the sovereign debt crisis (including its impact on the euro) were to re-emerge or exacerbate as a result of Brexit or changes in free trade agreements, it could adversely affect the Group’s financial position and results of the 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 raw materials and energy 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 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 Board regularly monitors all of the above risks and appropriate actions are taken to mitigate those risks or address their potential adverse consequences.

Condensed Consolidated Income Statement – Six Months

 

6 months to 30-Jun-19

6 months to 30-Jun-18

 

Unaudited

Unaudited

 

Pre-
exceptional
2019

Exceptional
2019

Total
2019

Pre-
exceptional
2018

Exceptional
2018

Total
2018

 

€m

€m

€m

€m

€m

€m

Revenue

4,622

4,622

4,428

4,428

Cost of sales

(3,089)

(3,089)

(2,984)

(2,984)

Gross profit

1,533

1,533

1,444

1,444

Distribution costs

(363)

(363)

(351)

(351)

Administrative expenses

(612)

(612)

(564)

(564)

Other operating expenses

(31)

(31)

Operating profit

558

558

529

(31)

498

Finance costs

(107)

(3)

(110)

(115)

(6)

(121)

Finance income

7

7

38

38

Share of associates’ profit (after tax)

1

1

1

1

Profit before income tax

459

(3)

456

453

(37)

416

Income tax expense

 

 

(118)

 

 

(121)

Profit for the financial period

 

338

 

 

295

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Owners of the parent

 

332

 

 

294

Non-controlling interests

 

 

6

 

 

1

Profit for the financial period

 

338

 

 

295

 

Earnings per share

 

Basic earnings per share – cent

140.6

124.5

Diluted earnings per share – cent

139.8

123.8

Condensed Consolidated Statement of Comprehensive Income – Six Months

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

Unaudited

Unaudited

 

€m

€m

 

 

 

Profit for the financial period

338

295

 

 

 

Other comprehensive income:

 

 

Items that may be subsequently reclassified to profit or loss

 

 

Foreign currency translation adjustments:

 

 

– Arising in the period

4

(178)

 

 

 

Effective portion of changes in fair value of cash flow hedges:

 

 

– Movement out of reserve

4

7

– New fair value adjustments into reserve

(16)

– Movement in hedging reserve

(1)

 

 

 

Changes in fair value of cost of hedging:

 

 

– Movement out of reserve

(1)

– New fair value adjustments into reserve

(1)

2

 

6

(186)

 

 

 

Items which will not be subsequently reclassified to profit or loss

 

 

Defined benefit pension plans:

 

 

– Actuarial loss

(78)

(35)

– Movement in deferred tax

9

6

 

 

 

 

(69)

(29)

 

 

 

Total other comprehensive expense

(63)

(215)

 

 

 

Total comprehensive income for the financial period

275

80

 

 

 

Attributable to:

 

 

Owners of the parent

268

88

Non-controlling interests

7

(8)

Total comprehensive income for the financial period

275

80

Condensed Consolidated Balance Sheet

 

 

 

 

 

30-Jun-19

30-Jun-18

31-Dec-18

 

Unaudited

Unaudited

Audited

 

€m

€m

€m

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

4,055

3,159

3,613

Goodwill and intangible assets

2,672

2,382

2,590

Other investments

21

21

20

Investment in associates

15

14

14

Biological assets

103

118

100

Other receivables

36

35

40

Derivative financial instruments

4

9

8

Deferred income tax assets

149

128

153

 

7,055

5,866

6,538

Current assets

 

 

 

Inventories

856

819

847

Biological assets

11

12

11

Trade and other receivables

1,845

1,789

1,667

Derivative financial instruments

11

10

13

Restricted cash

13

15

10

Cash and cash equivalents

234

1,051

407

 

2,970

3,696

2,955

Total assets

10,025

9,562

9,493

 

 

 

 

EQUITY

 

 

 

Capital and reserves attributable to owners of the parent

 

 

 

Equity share capital

Share premium

1,984

1,984

1,984

Other reserves

331

(855)

355

Retained earnings

549

1,352

420

Total equity attributable to owners of the parent

2,864

2,481

2,759

Non-controlling interests

38

147

131

Total equity

2,902

2,628

2,890

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Borrowings

3,393

3,749

3,372

Employee benefits

865

841

804

Derivative financial instruments

13

26

17

Deferred income tax liabilities

164

81

173

Non-current income tax liabilities

39

39

36

Provisions for liabilities

98

52

47

Capital grants

18

17

18

Other payables

16

15

14

 

4,606

4,820

4,481

Current liabilities

 

 

 

Borrowings

605

188

167

Trade and other payables

1,832

1,859

1,871

Current income tax liabilities

41

31

24

Derivative financial instruments

12

19

10

Provisions for liabilities

27

17

50

 

2,517

2,114

2,122

Total liabilities

7,123

6,934

6,603

Total equity and liabilities

10,025

9,562

9,493

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
interests

Total
equity

 

€m

€m

€m

€m

€m

€m

€m

Unaudited

 

 

 

 

 

 

 

At 31 December 2018

1,984

355

420

2,759

131

2,890

Adjustment on initial application of IFRS 16 (net of tax) (Note 3)

(21)

(21)

(21)

At 1 January 2019

1,984

355

399

2,738

131

2,869

 

 

 

 

 

 

 

 

Profit for the financial period

332

332

6

338

Other comprehensive income

 

 

 

 

 

 

 

Foreign currency translation adjustments

3

3

1

4

Defined benefit pension plans

(69)

(69)

(69)

Effective portion of changes in fair value of cash flow hedges

3

3

3

Changes in fair value of cost of hedging

(1)

(1)

(1)

Total comprehensive income for the financial period

5

263

268

7

275

 

 

 

 

 

 

 

 

Purchase of non-controlling interests

(29)

45

16

(97)

(81)

Hyperinflation adjustment

14

14

14

Dividends paid

(172)

(172)

(3)

(175)

Share-based payment

25

25

25

Net Shares acquired by SKG Employee Trust

(25)

(25)

(25)

At 30 June 2019

1,984

331

549

2,864

38

2,902

 

 

 

 

 

 

 

 

Unaudited

 

 

 

 

 

 

 

At 1 January 2018

1,984

(678)

1,202

2,508

151

2,659

 

 

 

 

 

 

 

 

Profit for the financial period

294

294

1

295

Other comprehensive income

 

 

 

 

 

 

 

Foreign currency translation adjustments

(169)

(169)

(9)

(178)

Defined benefit pension plans

(29)

(29)

(29)

Effective portion of changes in fair value of cash flow hedges

(9)

(9)

(9)

Changes in fair value of cost of hedging

1

1

1

Total comprehensive (expense)/income for the financial period

(177)

265

88

(8)

80

 

 

 

 

 

 

 

 

Purchase of non-controlling interests

(5)

(5)

(3)

(8)

Hyperinflation adjustment

43

43

9

52

Dividends paid

(153)

(153)

(2)

(155)

Share-based payment

10

10

10

Net Shares acquired by SKG Employee Trust

(10)

(10)

(10)

At 30 June 2018

1,984

(855)

1,352

2,481

147

2,628

An analysis of the movements in Other reserves is provided in Note 14.

Condensed Consolidated Statement of Cash Flows

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

Unaudited

Unaudited

 

€m

€m

Cash flows from operating activities

 

 

Profit before income tax

456

416

 

 

 

Net finance costs

103

83

Depreciation charge

238

177

Amortisation of intangible assets

21

18

Amortisation of capital grants

(1)

(1)

Equity settled share-based payment expense

25

10

(Profit)/loss on sale/purchase of assets and businesses

(2)

13

Share of associates’ profit (after tax)

(1)

(1)

Net movement in working capital

(169)

(152)

Change in biological assets

5

(10)

Change in employee benefits and other provisions

(44)

(27)

Other (primarily hyperinflation adjustments)

3

18

Cash generated from operations

634

544

Interest paid

(98)

(100)

Income taxes paid:

 

 

Irish corporation tax paid

(7)

(7)

Overseas corporation tax (net of tax refunds) paid

(85)

(82)

Net cash inflow from operating activities

444

355

 

 

 

Cash flows from investing activities

 

 

Interest received

2

2

Business disposals

(11)

Additions to property, plant and equipment and biological assets

(282)

(219)

Additions to intangible assets

(8)

(12)

Receipt of capital grants

1

1

Increase in restricted cash

(3)

(6)

Disposal of property, plant and equipment

4

1

Purchase of subsidiaries

(99)

Deferred consideration paid

(14)

Net cash outflow from investing activities

(399)

(244)

 

 

 

Cash flows from financing activities

 

 

Proceeds from bond issue

403

600

Proceeds from issue of other debt

417

Purchase of own shares (net)

(25)

(10)

Purchase of non-controlling interests

(81)

(16)

Repayment of borrowings

(399)

(526)

(Decrease)/increase in other interest-bearing borrowings

(306)

533

Repayment of lease liabilities (2018: repayment of finance lease liabilities)

(39)

(2)

Derivative termination receipts

17

Deferred debt issue costs paid

(13)

(6)

Dividends paid to shareholders

(172)

(153)

Dividends paid to non-controlling interests

(3)

(2)

Net cash (outflow)/inflow from financing activities

(218)

435

(Decrease)/increase in cash and cash equivalents

(173)

546

 

 

 

Reconciliation of opening to closing cash and cash equivalents

 

 

Cash and cash equivalents at 1 January

390

503

Currency translation adjustment

(5)

(20)

(Decrease)/increase in cash and cash equivalents

(173)

546

Cash and cash equivalents at 30 June

212

1,029

An analysis of the Net movement in working capital is provided in Note 12.

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 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. The balance sheet as at 30 June 2018 has been included in this report; this information is supplementary and not required by IAS 34. This report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2018 included in the Group’s 2018 Annual Report 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 2018 with the exception of IFRS 16, Leases. The impact of the adoption of IFRS 16 and the new accounting policies are disclosed in Note 3 Changes in Significant Accounting Policies. A number of other changes to IFRS became effective in 2019, however they did not have a material effect on the condensed consolidated interim financial statements included in this report.

Going concern
The Group is a highly integrated manufacturer of paper-based packaging products 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. Having assessed the principal risks facing the Group, 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.

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 2018 will be filed with the Irish Registrar of Companies in due course. The audit report on those statutory financial statements was unqualified.

3. Changes in Significant Accounting Policies

IFRS 16, Leases, issued in January 2016 by the IASB replaces IAS 17, Leases, and related interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. For lessees, IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model with some exemptions for short-term and low-value leases. The lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.

The Group has adopted IFRS 16 using the modified retrospective approach, with the date of initial application of 1 January 2019. Under this method, the impact of the standard is calculated retrospectively, however, the cumulative effect arising from the new leasing rules is recognised in the opening balance sheet at the date of initial application. Accordingly, the comparative information presented for 2018 has not been restated.

3. Changes in Significant Accounting Policies (continued)

The Group’s leasing activities and how these are accounted for
The Group leases a range of assets including property, plant and equipment and vehicles.

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. Under IFRS 16, the Group applies a single recognition and measurement approach for all leases, except for short-term and low-value assets and recognises right-of-use assets and lease liabilities.

The Group presents right-of-use assets in ‘property, plant and equipment’, in the same line item as it presents underlying assets of the same nature that it owns. The carrying amounts of right-of-use assets are as below.

 

Land and
buildings

Plant and
equipment

Total

 

€m

€m

€m

 

 

 

 

At 1 January 2019

255

95

350

At 30 June 2019

240

91

331

The Group presents lease liabilities in ‘borrowings’ in the balance sheet. The carrying amounts of lease liabilities are as below.

 

Current lease
liabilities

Non-current
lease
liabilities

Total

 

€m

€m

€m

 

 

 

 

At 1 January 2019

73

307

380

At 30 June 2019

74

288

362

Significant accounting policies
Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, restoration costs and lease payments made at or before the commencement date less any lease incentives received. The right-of-use asset is depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Where the lease contains a purchase option the asset is written off over the useful life of the asset when it is reasonably certain that the purchase option will be exercised. Right-of-use assets are subject to impairment testing.

3. Changes in Significant Accounting Policies (continued)

The lease liability is initially measured at the present value of certain lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs. The Group has elected to avail of the practical expedient not to separate lease components from any associated non-lease components.

The lease payments are discounted using the lessee’s incremental borrowing rate as the interest rate implicit in the lease is generally not readily determinable.

After the commencement date, the lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group has elected to apply the recognition exemptions for short-term and low-value leases and recognises the lease payments associated with these leases as an expense in profit or loss on a straight-line basis over the lease term. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise certain items of IT equipment and small items of office furniture.

Significant accounting judgements
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.

Transition
On transition to IFRS 16, the Group has elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the lessee’s incremental borrowing rate as at 1 January 2019. Right-of-use assets were measured at either:

  • their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application – the Group applied this approach for certain property leases; or
  • an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments – the Group applied this approach to all other leases.

3. Changes in Significant Accounting Policies (continued)

The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.

  • Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.
  • Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
  • Relied on its assessment of whether leases are onerous under IAS 37 immediately before the date of initial application to meet the impairment requirement.

For leases previously classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at 1 January 2019 were determined as the carrying amount of lease asset and lease liability under IAS 17 immediately before that date.

Impacts on financial statements

Impacts on transition
On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The right-of use asset was adjusted by the onerous lease contract which was previously reported in ‘Provisions for liabilities’. The impact on transition is summarised below.

 

1 January 2019

 

€m

 

 

Right-of-use assets presented in property, plant and equipment

331

Deferred tax asset

4

Provisions for liabilities

(5)

Lease liabilities

361

Retained earnings

(21)

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using the lessee’s incremental borrowing rate at 1 January 2019. The weighted average rate applied was 3%.

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as at 31 December 2018 as follows:

 

€m

 

 

Operating lease commitments at 31 December 2018

332

Add:

 

Extension options reasonably certain to be exercised

71

Non-lease components

23

Less:

 

Commitments relating to short-term and low-value leases

(1)

Total future lease payments

425

Effect of discounting

(64)

Finance lease liabilities recognised at 31 December 2018

19

Lease liabilities at 1 January 2019

380

3. Changes in Significant Accounting Policies (continued)

Impacts for the period
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised €307 million of right-of-use assets and €338 million of lease liabilities at 30 June 2019.

Also in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs instead of an operating lease expense. During the six months ended 30 June 2019, the Group recognised €40 million of depreciation charges and €5 million of interest costs from these leases.

4. Segment and Revenue 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 EBITDA.

 

6 months to 30-Jun-19

6 months to 30-Jun-18

 

Europe

The
Americas

Total

Europe

The
Americas

Total

 

€m

€m

€m

€m

€m

€m

Revenue and results

 

 

 

 

 

 

Revenue

3,574

1,048

4,622

3,397

1,031

4,428

 

 

 

 

 

 

 

EBITDA before exceptional items

688

179

867

587

157

744

Segment exceptional items

(14)

(14)

EBITDA after exceptional items

688

179

867

573

157

730

 

 

 

 

 

 

 

Unallocated centre costs

 

 

(20)

 

 

(20)

Share-based payment expense

 

 

(25)

 

 

(10)

Depreciation and depletion (net)

 

 

(243)

 

 

(167)

Amortisation

 

 

(21)

 

 

(18)

Exceptional items

 

 

 

 

(17)

Finance costs

 

 

(110)

 

 

(121)

Finance income

 

 

7

 

 

38

Share of associates’ profit (after tax)

 

 

1

 

 

1

Profit before income tax

 

 

456

 

 

416

Income tax expense

 

 

(118)

 

 

(121)

Profit for the financial period

 

 

338

 

 

295

 

 

 

 

 

 

 

4. Segment and Revenue Analyses (continued)

Assets

 

6 months to 30-Jun-19

6 months to 30-Jun-18

 

Europe

The
Americas

Total

Europe

The
Americas

Total

 

€m

€m

€m

€m

€m

€m

Segment assets

7,622

2,180

9,802

6,502

2,025

8,527

Investment in associates

1

14

15

1

13

14

Group centre assets

 

 

208

 

 

1,021

Total assets

 

 

10,025

 

 

9,562

Liabilities

 

6 months to 30-Jun-19

6 months to 30-Jun-18

 

Europe

The
Americas

Total

Europe

The
Americas

Total

 

€m

€m

€m

€m

€m

€m

Segment liabilities

2,820

579

3,399

2,503

388

2,891

Group centre liabilities

 

 

3,724

 

 

4,043

Total liabilities

 

 

7,123

 

 

6,934

Revenue information about geographical areas

The following is a geographical analysis presented in accordance with IFRS 8, Operating Segments, which requires disclosure of information about country of domicile (Ireland) and countries with material revenue.

 

6 months to
30-Jun-19

6 months to
30-Jun-18

 

€m

€m

 

 

 

Ireland

55

54

Germany

658

677

France

571

528

Mexico

451

390

Spain

393

376

United Kingdom

388

385

Rest of the world

2,106

2,018

Total revenue by geographical area

4,622

4,428

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-19

6 months to 30-Jun-18

 

Paper

Packaging

Total

Paper

Packaging

Total

 

€m

€m

€m

€m

€m

€m

Europe

600

2,974

3,574

540

2,857

3,397

The Americas

146

902

1,048

149

882

1,031

Total revenue by product

746

3,876

4,622

689

3,739

4,428

5. Exceptional Items

 

6 months to

6 months to

The following items are regarded as exceptional in nature:

30-Jun-19

30-Jun-18

 

€m

€m

 

 

 

International Paper defence costs

17

Loss on the disposal of Baden operations

14

Exceptional items included in operating profit

31

 

 

 

Exceptional finance costs

3

6

Exceptional items included in net finance costs

3

6

 

 

 

Total exceptional items

3

37

The exceptional finance cost of €3 million, which arose in the first half of 2019, represented the accelerated amortisation of the debt issue costs relating to the refinancing of the senior credit facility.

Exceptional items charged within operating profit in 2018 amounted to €31 million. This comprised the cost of countering the unsolicited approach from International Paper and the loss on the disposal of the Baden operations in Germany.

Exceptional finance costs charged in 2018 amounted to €6 million, including €4 million in respect of the fee payable to the bondholders to secure their consent to the Group’s move from quarterly to semi-annual reporting and €2 million representing interest cost on the early termination of certain US dollar/euro swaps. The swaps were terminated following the paydown of the US dollar element of the 2018 bonds.

6. Finance Costs and Income

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

Finance costs:

 

 

Interest payable on bank loans and overdrafts

23

25

Interest payable on leases

6

Interest payable on other borrowings

59

57

Exceptional finance costs associated with debt restructuring

3

Exceptional consent fee – reporting waiver

4

Exceptional interest on early termination of cross currency swaps

2

Unwinding of discount element of provisions

1

Foreign currency translation loss on debt

6

11

Fair value loss on derivatives not designated as hedges

3

Net interest cost on net pension liability

9

11

Net monetary loss – hyperinflation

11

Total finance costs

110

121

 

 

 

Finance income:

 

 

Other interest receivable

(2)

(2)

Foreign currency translation gain on debt

(3)

(33)

Fair value gain on derivatives not designated as hedges

(3)

Fair value gain on financial assets

(1)

Net monetary gain – hyperinflation

(1)

Total finance income

(7)

(38)

Net finance costs

103

83

7. Income Tax Expense

Income tax expense recognised in the Condensed Consolidated Income Statement

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

Current tax:

 

 

Europe

81

62

The Americas

30

35

 

111

97

Deferred tax

7

24

Income tax expense

118

121

 

 

 

Current tax is analysed as follows:

 

 

Ireland

4

9

Foreign

107

88

 

111

97

Income tax recognised in the Condensed Consolidated Statement of Comprehensive Income

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

Arising on defined benefit pension plans

(9)

(6)

The income tax expense in 2019 is €3 million lower than in the comparable period in 2018. However, in 2018 the expense includes a €13 million charge for Venezuela which does not occur in 2019. The resulting €10 million net increase on a like-for-like basis is mainly attributable to higher profitability in 2019 but it also includes the benefit of an investment tax credit.

There is a €14 million increase in the current tax expense. In Europe, the expense is €19 million higher due to changes in profitability, timing differences and an investment tax credit. In the Americas, the current tax expense is €5 million lower. However, after adjusting for the deconsolidation of Venezuela in 2018, there is a €7 million net increase on a like-for-like basis. This is primarily due to changes in profitability.

The deferred tax charge is €17 million lower than in the comparable period in 2018. The decrease is largely due to the reversal of timing differences on which deferred tax liabilities were previously recognised.

There is no income tax expense or credit from exceptional items in 2019 compared to a €1 million expense in 2018.

8. Employee Benefits – Defined Benefit Plans

The table below sets out the components of the defined benefit cost for the period:

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

 

 

 

Current service cost

14

15

Gain on settlement

(1)

Past service cost

(2)

Net interest cost on net pension liability

9

8

Defined benefit cost

22

21

Included in cost of sales, distribution costs and administrative expenses is a defined benefit cost of €13 million (2018: €13 million). Net interest cost on net pension liability of €9 million (2018: €8 million) is included in finance costs in the Condensed Consolidated Income Statement.

The amounts recognised in the Condensed Consolidated Balance Sheet were as follows:

 

30-Jun-19

31-Dec-18

 

€m

€m

Present value of funded or partially funded obligations

(2,349)

(2,145)

Fair value of plan assets

2,002

1,831

Deficit in funded or partially funded plans

(347)

(314)

Present value of wholly unfunded obligations

(516)

(489)

Amounts not recognised as assets due to asset ceiling

(2)

(1)

Net pension liability

(865)

(804)

The employee benefit provision has increased from €804 million at 31 December 2018 to €865 million at 30 June 2019 due to lower discount rates as a result of lower euro and Sterling AA corporate bond yields.

9. 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.

 

 

 

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

Profit attributable to owners of the parent (€ million)

332

294

 

 

 

Weighted average number of ordinary shares in issue (million)

236

236

 

 

 

Basic earnings per share (cent)

140.6

124.5

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. These comprise convertible shares issued under the Share Incentive Plan, which were based on performance and the passage of time, and deferred shares held in trust issued under the Deferred Annual Bonus Plan, which are based on the passage of time.

 

 

 

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

Profit attributable to owners of the parent (€ million)

332

294

 

 

 

Weighted average number of ordinary shares in issue (million)

236

236

Potential dilutive ordinary shares assumed (million)

1

1

Diluted weighted average ordinary shares (million)

237

237

 

 

 

Diluted earnings per share (cent)

139.8

123.8

Pre-exceptional

6 months to

6 months to

 

30-Jun-19

30-Jun-18

Profit attributable to owners of the parent (€ million)

332

294

Exceptional items included in profit before income tax (Note 5) (€ million)

3

37

Income tax on exceptional items (€ million)

1

Pre-exceptional profit attributable to owners of the parent (€ million)

335

332

 

 

 

Weighted average number of ordinary shares in issue (million)

236

236

 

 

 

Pre-exceptional basic earnings per share (cent)

141.6

140.7

 

 

 

Diluted weighted average ordinary shares (million)

237

237

 

 

 

Pre-exceptional diluted earnings per share (cent)

140.8

140.0

 

 

 

10. Dividends

During the period, the final dividend for 2018 of 72.2 cent per share was paid to the holders of ordinary shares. The Board has decided to pay an interim dividend of 27.9 cent per share for 2019 and it is proposed to pay this dividend on 25 October 2019 to all ordinary shareholders on the share register at the close of business on 27 September 2019.

11. Property, Plant and Equipment

 

Land and
buildings

Plant and
equipment

Total

 

€m

€m

€m

Six months ended 30 June 2019

 

 

 

Opening net book amount

1,059

2,554

3,613

Adjustment on initial application of IFRS 16 (Note 3)

246

85

331

Restated balance at 1 January 2019

1,305

2,639

3,944

Reclassifications

15

(17)

(2)

Additions

5

254

259

Acquisitions

40

40

80

Depreciation charge

(47)

(191)

(238)

Retirements and disposals

(1)

(1)

(2)

Hyperinflation adjustment

2

4

6

Foreign currency translation adjustment

5

3

8

At 30 June 2019

1,324

2,731

4,055

 

Year ended 31 December 2018

   

Opening net book amount

1,023

2,219

3,242

Reclassifications

60

(65)

(5)

Additions

2

537

539

Acquisitions

88

237

325

Depreciation charge

(51)

(328)

(379)

Retirements and disposals

(14)

(7)

(21)

Deconsolidation of Venezuela

(11)

(8)

(19)

Hyperinflation adjustment

17

24

41

Foreign currency translation adjustment

(55)

(55)

(110)

At 31 December 2018

1,059

2,554

3,613

12. Net Movement in Working Capital

 

6 months to

6 months to

 

30-Jun-19

30-Jun-18

 

€m

€m

 

 

 

Change in inventories

2

(39)

Change in trade and other receivables

(132)

(264)

Change in trade and other payables

(39)

151

Net movement in working capital

(169)

(152)

13. Analysis of Net Debt

 

30-Jun-19

31-Dec-18

 

€m

€m

Revolving credit facility – interest at relevant interbank rate (interest rate floor of 0%) + 0.9%(1)

205

Senior credit facility(2):

 

 

Revolving credit facility – interest at relevant interbank rate + 1.10%

4

Facility A term loan – interest at relevant interbank rate + 1.35%

407

US$292.3 million 7.50% senior debentures due 2025 (including accrued interest)

258

257

Bank loans and overdrafts

142

119

€200 million receivables securitisation variable funding notes due 2022 (including accrued interest)

4

49

€230 million receivables securitisation variable funding notes due 2023

119

179

€400 million 4.125% senior notes due 2020 (including accrued interest)

406

406

€250 million senior floating rate notes due 2020 (including accrued interest)(3)

251

251

€500 million 3.25% senior notes due 2021 (including accrued interest)

499

498

€500 million 2.375% senior notes due 2024 (including accrued interest)

499

499

€250 million 2.75% senior notes due 2025 (including accrued interest)

250

250

€1,000 million 2.875% senior notes due 2026 (including accrued interest)(4)

1,003

601

Gross debt before leases

3,636

3,520

Lease liabilities(5)

362

19

Gross debt including leases

3,998

3,539

Cash and cash equivalents

(247)

(417)

Net debt including leases

3,751

3,122

(1)

Revolving credit facility (“RCF”) of €1,350 million maturing in 2024.

 

(a) Revolver loans – €212 million

 

(b) Drawn under ancillary facilities and facilities supported by letters of credit – nil 

 

(c) Other operational facilities including letters of credit – €6 million

 

 

(2)

In January 2019, the senior credit facility which was due to mature in March 2020 was refinanced with a new 5-year RCF.

 

 

(3)

Interest at EURIBOR + 3.5%.

 

 

(4)

In February 2019, the Group issued €400 million senior notes which form a single series with the existing €600 million senior notes.

 

 

(5)

The adoption of IFRS 16 effective 1 January 2019 increases reported leases by €338 million at 30 June 2019.

14. 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
currency
translation
reserve

Share-
based
payment
reserve

Own
shares

Available-
for-sale
reserve

FVOCI
reserve

 

 

Total

 

€m

€m

€m

€m

€m

€m

€m

€m

€m

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

575

(14)

3

(367)

185

(28)

1

355

Other comprehensive income

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

3

3

Effective portion of changes in fair value of cash flow hedges

3

3

Changes in fair value of cost of hedging

(1)

(1)

Total other comprehensive income/(expense)

3

(1)

3

5

 

 

 

 

 

 

 

 

 

 

Purchase of non-controlling interest

(29)

(29)

Share-based payment

25

25

Net shares acquired by SKG Employee Trust

(25)

(25)

Shares distributed by SKG Employee Trust

(9)

9

At 30 June 2019

575

(11)

2

(393)

201

(44)

1

331

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

575

(17)

(1,382)

176

(31)

1

(678)

Adjustment on initial application of IFRS 9 (net of tax)

(2)

2

(1)

1

At 1 January 2018

575

(19)

2

(1,382)

176

(31)

1

(678)

Other comprehensive income

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

(169)

(169)

Effective portion of changes in fair value of cash flow hedges

(9)

(9)

Changes in fair value of cost of hedging

1

1

Total other comprehensive (expense)/income

(9)

1

(169)

(177)

 

 

 

 

 

 

 

 

 

 

Share-based payment

10

10

Net shares acquired by SKG Employee Trust

(10)

(10)

Shares distributed by SKG Employee Trust

(12)

12

At 30 June 2018

575

(28)

3

(1,551)

174

(29)

1

(855)

15. Fair Value Hierarchy

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 30 June 2019:

 

Level 1

Level 2

Level 3

Total

 

€m

€m

€m

€m

Other investments:

 

 

 

 

Listed

1

1

Unlisted

8

12

20

Derivative financial instruments:

 

 

 

 

Assets at fair value through Condensed Consolidated Income Statement

8

8

Derivatives used for hedging

7

7

Derivative financial instruments:

 

 

 

 

Liabilities at fair value through Condensed Consolidated Income Statement

(3)

(3)

Derivatives used for hedging

(22)

(22)

Deferred contingent consideration

(53)

(53)

 

1

(2)

(41)

(42)

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2018:

Level 1

Level 2

Level 3

Total

 

€m

€m

€m

€m

Other investments:

 

 

 

 

Listed

1

1

Unlisted

7

12

19

Derivative financial instruments:

 

 

 

 

Assets at fair value through Condensed Consolidated Income Statement

12

12

Derivatives used for hedging

9

9

Derivative financial instruments:

 

 

 

 

Liabilities at fair value through Condensed Consolidated Income Statement

(3)

(3)

Derivatives used for hedging

(24)

(24)

 

1

1

12

14

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 valuation model for the unlisted investment measured in accordance with level 3 of the fair value hierarchy is based on market multiples derived from quoted prices of companies comparable to the investee, adjusted for the effect of the non-marketability of the equity securities and the revenue and EBITDA of the investee. The estimate is adjusted for the net debt of the investee. A 5% movement in the adjusted market multiple would increase/decrease the fair value of the unlisted investment by approximately €3 million.

The fair value of the derivative financial instruments 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 (Note 18) in the period. The valuation model for the deferred contingent consideration measured in accordance with level 3 of the fair value hierarchy is based on the present value of the expected payment discounted using a risk-adjusted discount rate. The unobservable input in determining the fair value is the underlying profitability of the business unit to which the consideration relates. A 5% movement in the unobservable input would increase/decrease the fair value of the deferred contingent consideration by approximately €3 million.

There were no other material changes to the fair values of the level 3 instruments during the period.

There were no reclassifications or transfers between the levels of the fair value hierarchy during the period.

16. 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 2018 Annual Report.

 

30-Jun-19

31-Dec-18

 

Carrying value

Fair value

Carrying value

Fair value

 

€m

€m

€m

€m

 

 

 

 

 

Trade and other receivables (1)

1,757

1,757

1,612

1,612

Equity instruments(2)

10

10

10

10

Listed and unlisted debt instruments(2)

11

11

10

10

Cash and cash equivalents (3)

234

234

407

407

Derivative assets (4)

15

15

21

21

Restricted cash(3)

13

13

10

10

 

2,040

2,040

2,070

2,070

 

 

 

 

 

Trade and other payables(1)

1,455

1,455

1,483

1,483

Senior credit facility(5)

205

205

411

411

2022 receivables securitisation(3)

4

4

49

49

2023 receivables securitisation(3)

119

119

179

179

Bank overdrafts(3)

142

142

119

119

2025 debentures(6)

258

305

257

296

2020 fixed rate notes(6)

406

416

406

421

2020 floating rate notes(6)

251

261

251

260

2021 notes(6)

499

529

498

521

2024 notes(6)

499

537

499

505

2025 notes(6)

250

273

250

254

2026 notes(6)

1,003

1,097

601

600

 

5,091

5,343

5,003

5,098

Lease liabilities

362

362

19

19

 

5,453

5,705

5,022

5,117

Derivative liabilities(4)

25

25

27

27

Deferred contingent consideration(7)

53

53

 

5,531

5,783

5,049

5,144

 

 

 

 

 

Total net position

(3,491)

(3,743)

(2,979)

(3,074)

(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 and energy 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 senior credit facility 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 contingent consideration is based on the present value of the expected payment, discounted using a risk-adjusted discount rate.

17. Related Party Transactions

Details of related party transactions in respect of the year ended 31 December 2018 are contained in Note 30 to the consolidated financial statements of the Group’s 2018 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 2019 or changes to transactions with related parties disclosed in the 2018 consolidated financial statements that had a material effect on the financial position or the performance of the Group.

18. Business Combinations

The acquisitions completed by the Group in the first half of 2019, together with percentages acquired and completion dates were as follows:

  • Fabrika Hartije d.o.o. Beograd (‘FHB’) and Avala Ada d.o.o. Beograd (‘Avala Ada’), (75%, 1 January 2019 with put and call options in place over the remaining 25%), respectively a paper mill and a corrugated plant in Serbia;
  • Balkanpack EOOD (‘Balkanpack’), (100%, 28 February 2019), an integrated corrugated plant in Bulgaria; and
  • Vitavel AD (‘Vitavel’), (100%, 30 April 2019), an integrated corrugated plant in Bulgaria.

The table below reflects the fair value of the identifiable net assets acquired in respect of the acquisitions completed during the period. Any amendments to fair values will be made within the twelve month period from the date of acquisition, as permitted by IFRS 3, Business Combinations. None of the business combinations completed during the period were considered sufficiently material to warrant separate disclosure of the fair values attributable to those combinations.

 

 

Total1

 

 

€m

Non-current assets

 

 

 

Property, plant and equipment

80

Current assets

 

 

 

Inventories

 

 

6

Trade and other receivables

 

 

23

Cash and cash equivalents

 

 

10

Non-current liabilities

 

 

 

Deferred income tax liabilities

 

 

(3)

Provisions for liabilities

 

 

(1)

Borrowings

 

 

(11)

Current liabilities

 

 

 

Borrowings

 

 

(3)

Trade and other payables

 

 

(16)

Current income tax liabilities

 

 

(1)

Net assets acquired

 

 

84

Goodwill

 

 

88

Consideration

 

 

172

 

 

Settled by:

 

 

Cash

 

 

109

Deferred consideration

 

 

10

Deferred contingent consideration

 

 

53

 

 

 

172

1 In addition to the 2019 acquisitions, the amounts also include fair value adjustments in relation to 2018 acquisitions. The Group has considered the size of these adjustments and does not deem them to be sufficiently material to warrant a restatement of the 2018 consolidated financial statements.

The principal factors contributing to the recognition of goodwill are the realisation of cost savings and other synergies with existing entities in the Group which do not qualify for separate recognition as intangible assets.

 

Net cash outflow arising on acquisition

 

€m

Cash consideration

109

Less cash & cash equivalents acquired

(10)

Total

99

The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to €24 million. The fair value of these receivables is estimated at €23 million (all of which is expected to be recoverable).

The Group’s acquisitions in 2019 have contributed €35 million to revenue and €4 million to profit for the first half of 2019.

The deferred contingent consideration is for the remaining 25% of our Serbian acquisition. Put and call options are in place over this non-controlling interest and the Group has applied the anticipated acquisition method of accounting for this arrangement. The present value is based on a multiple of underlying profitability.

There have been no acquisitions completed subsequent to the balance sheet date which would be individually material to the Group, thereby requiring disclosure under either IFRS 3 or IAS 10, Events after the Balance Sheet Date.

19. Other Information

The Group understands that the Italian Competition Authority will shortly release the outcome of its work in relation to approximately 50 market participants in Italy, including one of the Group’s Italian subsidiaries. We await the outcome of its work.

20. Board Approval

This interim report was approved by the Board of Directors on 30 July 2019.

21. Distribution of the Interim Report

This 2019 interim report is available on the Group’s website smurfitkappa.com.

Responsibility Statement in Respect of the Six Months Ended 30 June 2019

The Directors, whose names and functions are listed on pages 60 to 62 in the Group’s 2018 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 2019 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 2019, 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

30 July 2019.

Supplementary Financial Information

Alternative Performance Measures

Certain financial measures set out in this 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 Key Performance Indicators on pages 28-31 of the Group’s 2018 Annual Report. The key APMs of the Group are set out below.

APM

 

Description

 

EBITDA

 

 

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.

 

 

EBITDA Margin %

 

EBITDA

x 100

 

Revenue

 

 

 

Pre-exceptional Basic EPS (cent)

 

Profit attributable to owners of the parent, adjusted for exceptional items included in profit before income tax and income tax on exceptional items

x 100

 

Weighted average number of ordinary shares in issue

 

 

Return on Capital Employed %

 

Last twelve months (‘LTM’) pre-exceptional operating profit plus share of associates’ profit (after tax)

x 100

 

Average capital employed (where capital employed is the average of total equity and net debt at the beginning and end of the LTM)

 

 

Free Cash Flow

 

 

Free cash flow is the result of the cash inflows and outflows from our operating activities, and is before those arising from acquisition and disposal activities. 

 

Free cash flow (APM) is included in the interim management report. The IFRS cash flow is included in the condensed consolidated interim financial statements. A reconciliation of free cash flow to cash generated from operations (IFRS measure) is included below.

 

 

Net Debt

 

 

Net debt is comprised of borrowings net of cash and cash equivalents and restricted cash.

 

 

Net Debt to EBITDA (LTM) times

 

Net debt

 

 

EBITDA (LTM)

 

 

 
Reconciliation of Profit to EBITDA

 

 

 

 

 

 

 

 

6 months to

6 months to

 

 

 

30-Jun-19

30-Jun-18

 

 

 

€m

€m

 

 

 

 

 

Profit for the financial period

 

 

338

295

Income tax expense

 

 

118

121

Exceptional items charged in operating profit

 

 

31

Share of associates’ profit (after tax)

 

 

(1)

(1)

Net finance costs (after exceptional items)

 

 

103

83

Share-based payment expense

 

 

25

10

Depreciation, depletion (net) and amortisation

 

 

264

185

EBITDA

 

 

847

724

 

Return on Capital Employed

 

 

30-Jun-19

30-Jun-18

 

 

€m

€m

Pre-exceptional operating profit plus share of associates’ profit (after tax) (LTM)

 

1,134

991

 

 

 

 

Total equity – current period end

 

2,902

2,628

Net debt – current period end

 

3,751

2,871

Capital employed – current period end

 

6,653

5,499

 

 

 

 

Total equity – prior period end

 

2,628

2,488

Net debt – prior period end

 

2,871

2,985

Capital employed – prior period end

 

5,499

5,473

 

 

 

 

Average capital employed

 

6,076

5,486

 

 

 

 

Return on capital employed

 

18.7%

18.1%

Reconciliation of Free Cash Flow to Cash Generated from Operations

 

 

6 months to

6 months to

 

 

30-Jun-19

30-Jun-18

 

 

€m

€m

Free cash flow

159

148

 

 

 

 

Add back:

Cash interest

82

81

 

Capital expenditure (net of change in capital creditors)

306

231

 

Tax payments

92

89

 

 

 

 

Less:

Sale of property, plant and equipment

(2)

 

Profit on sale of assets and businesses – non-exceptional

(2)

(1)

 

Receipt of capital grants (in ‘Other’ in summary cash flow)

(1)

(1)

 

Non-cash financing activities

(3)

Cash generated from operations

634

544

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:

  1. The summary cash flow details movements in net debt. The IFRS cash flow details movements in cash and cash equivalents.
  2. Free cash flow reconciles to cash generated from operations in the IFRS cash flow as shown in the table above. The main adjustments are in respect of cash interest, capital expenditure and tax payments.
  3. 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. It also includes capitalised leased assets which are excluded from additions to property, plant and equipment and biological assets 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.

Short Name: Smurfit Kappa GrpPLC
Category Code: IR
Sequence Number: 673051
Time of Receipt (offset from UTC): 20190730T201231+0100

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Crestwood Announces Second Quarter 2019 Financial and Operating Results – businesswire.com

HOUSTON–(BUSINESS WIRE)–Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) reported today its financial and operating results for the three months ended June 30, 2019.

Second Quarter 2019 Highlights(1)

  • Second quarter 2019 net income of $225.0 million, compared to a net loss of $21.5 million in second quarter 2018; Second quarter 2019 net income includes a $209.4 million gain related to the Jackalope acquisition
  • Second quarter 2019 Adjusted EBITDA of $121.3 million, an increase of 18% compared to $102.9 million in the second quarter 2018
  • Second quarter 2019 distributable cash flow to common unitholders of $64.5 million, an increase of 19% compared to $54.2 million in the second quarter 2018; Second quarter 2019 coverage ratio was 1.5x
  • Ended June 30, 2019, with approximately $2.2 billion in total debt and a 4.2x leverage ratio; Crestwood has substantial liquidity available under its $1.25 billion revolver with $363 million drawn as of June 30, 2019
  • Declared second quarter 2019 cash distribution of $0.60 per common unit, or $2.40 per common unit on an annualized basis, payable on August 14, 2019, to unitholders of record as of August 7, 2019

Second Quarter 2019 Events

  • On April 9, 2019, Crestwood Niobrara LLC (“Crestwood Niobrara”) acquired the remaining 50% interest in Jackalope Gas Gathering Services L.L.C. (“Jackalope”) from The Williams Companies, Inc. (“Williams”) (NYSE: WMB) for approximately $485 million; Jackalope assets are expected to generate cash flow of $100 million in 2019 growing to approximately $150 million in 2021
  • On April 11, 2019, Crestwood issued $600 million of senior notes at 5.625% due 2027; Proceeds were used to repay borrowings under revolving credit facility related to the Jackalope acquisition
  • On June 17, 2019, Crestwood issued its inaugural sustainability report, available at https://esg.crestwoodlp.com, which enhances transparency on Crestwood’s environmental, social, and governance (ESG) performance and highlights the company’s three-year sustainability strategy

Management Commentary

“The second quarter was another strong chapter in Crestwood’s consistent execution story as the impact of completed expansion projects, higher G&P volumes in the Bakken and Powder River Basin and solid contributions from our S&T and MS&L segments drove an 18% increase in Adjusted EBITDA and a 19% increase in Distributable Cash Flow over the second quarter of 2018,” said Robert G. Phillips, Chairman, President, and Chief Executive Officer of Crestwood’s general partner. “With a coverage ratio of 1.5x and a leverage ratio of 4.2x for the quarter, Crestwood continues to demonstrate the ability to make disciplined capital investments while maintaining balance sheet strength and delivering solid quarterly results. Further, with the good progress made in the first half of 2019 on Crestwood’s 3-year capital expansion program, we are rapidly closing in our long-term balance sheet target of sub-4x leverage in the first half of 2020.”

Mr. Phillips continued, “We are entering an exciting time at Crestwood as we begin to capture the robust returns from the Bakken and Powder River Basin expansion projects. The Bear Den II plant is on-track to be completed in early September, which will sequence nicely with current record oil, gas and water volumes on the Arrow system plus over 60 well connects planned for the second half of 2019. In the Powder River Basin, we have fully integrated operations from Williams and continue to expand the Jackalope gathering system to support Chesapeake’s development plans. The Bucking Horse II processing plant is on-budget and on-schedule for an early first quarter 2020 completion date. In both basins, we have clear visibility to the processing plant expansions delivering immediate returns as the initial plants are running full, we are currently offloading to third parties and our producers continue to actively drill. The expected high utilization rates for Bear Den II and Bucking Horse II, after their in-service dates, should result in a meaningful step-change in cash flow in the second half of 2019 and heading into 2020.”

Mr. Phillips concluded, “Crestwood’s multi-year capital program in the Bakken and Powder River Basin is expected to drive approximately 20% DCF per unit growth through 2020 while delivering strong financial metrics to investors. Looking into 2020, we forecast a meaningful reduction in capital spending as system capacities will generally be aligned with our current customers’ development programs. As a result, Crestwood expects to generate substantial free cash flow in 2020, further differentiating the company as a best-in-class midstream operator and positioning us to deliver exceptional returns to our unit holders.”

Second Quarter 2019 Segment Results and Outlook

Gathering and Processing segment EBITDA totaled $88.6 million in the second quarter 2019 compared to $78.8 million in the second quarter 2018. Segment EBITDA in second quarter 2019 excludes a $209.4 million non-cash gain related to the Jackalope acquisition. During the second quarter 2019, segment EBITDA growth was driven by a 65% increase in Bakken processing volumes, a 47% increase in Bakken produced water volumes, and a 56% increase in Powder River Basin gas gathering and processing volumes, offset by natural field declines in Crestwood’s legacy gas basins and temporary production shut-ins in the Delaware Basin related to record low natural gas and NGL pricing in the basin. Segment EBITDA for the second half of 2019 is expected to benefit from a step-change in cash flow once the Bear Den II processing plant is placed into service, increased producer well connections, and on-going Bakken and Powder River Basin gathering system expansions.

Storage and Transportation segment EBITDA totaled $13.7 million in the second quarter 2019 compared to $14.2 million in the second quarter 2018. Second quarter 2019 natural gas storage and transportation volumes averaged 2.0 Bcf/d, compared to 2.1 Bcf/d in the second quarter 2018. Effective July 1, 2019, Crestwood began receiving a 50% cash distribution from Stagecoach Gas Services, its 50/50 joint venture with Consolidated Edison, which represents the final step-up in the contract. The Stagecoach assets are well-positioned over the long-term to benefit from strong resource productivity and access to prime East Coast markets, despite current natural gas pricing fundamentals being impacted by excess supply dynamics and new infrastructure project uncertainty. At the COLT Hub, crude by rail loading volumes increased 38% from the second quarter 2018 driven by continued favorable WTI to Brent spreads, increased Bakken crude production and capacity constrained crude oil pipelines in the basin.

Marketing, Supply and Logistics (MS&L) segment EBITDA totaled $16.4 million in the second quarter 2019, compared to $12.3 million in the second quarter 2018. Both periods exclude the non-cash change in fair value of commodity inventory-related derivative contracts and the second quarter of 2018 excludes a $24 million non-cash loss on the sale of our West Coast assets. During the second quarter 2019, Crestwood’s NGL marketing business benefitted from favorable pricing for NGL storage and sales volumes due to a combination of record NGL production and constrained NGL infrastructure. As a result, the MS&L segment utilized its extensive network of trucking, rail and storage assets to economically source seasonal inventory and created strong margins for delivery into forward markets.

Combined O&M and G&A expenses, net of non-cash unit-based compensation, in the second quarter 2019 were $45.7 million compared to $45.0 million in the second quarter 2018. During the second quarter 2019, Crestwood’s O&M expenses increased by 9% as a result of transition-related costs associated with the Jackalope acquisition and increased development activity in its gathering and processing segment, offset by a 16% reduction in G&A expenses driven by lower personnel expenses and insurance costs.

Second Quarter 2019 Business Update

Bakken Update

During the second quarter 2019, the Arrow system averaged crude oil volumes of 89 MBbls/d, 17% above second quarter 2018, natural gas volumes of 79 MMcf/d, 17% above second quarter 2018, and water volumes of 64 MBbls/d, or 47% above second quarter 2018. Processing volumes averaged approximately 35 MMcf/d in the second quarter 2019, an increase of 65% compared to 21 MMcf/d in the second quarter 2018. During the second quarter 2019, 17 new wells were connected on the Arrow system (12 of which were connected in June) resulting in 36 new well connections year-to-date. Crestwood expects approximately 35 new well connections during the third quarter 2019 based on current producer estimates and remains on-track to connect a total of approximately 100 new wells for full year 2019. With the debottlenecking projects largely completed, Arrow customers have picked up development activity driving the Arrow system to achieve record daily gathering milestones of 124 MBbls/d of crude oil, 92 MMcf/d of natural gas and 82 MBbls/d of produced water in July 2019.

In the second quarter 2019, Crestwood invested approximately $49.5 million of growth capital on the Bear Den II processing plant expansion, gathering system debottlenecking and the expansion of the Arrow produced water system for the previously announced Enerplus water gathering agreement. The Bear Den II plant will increase Crestwood’s Bakken processing capacity to 150 MMcf/d and allow the company to process 100% of the gas volumes on the Arrow system. Crestwood has commenced commissioning of Bear Den II systems and expects the plant to be fully placed in-service by early September 2019 with processing volumes increasing from approximately 35 MMcf/d to approximately 100 MMcf/d in the fourth quarter, resulting in an immediate step-up in cash flow on the Arrow system.

Powder River Basin Update

As previously announced, on April 9, 2019, Crestwood Niobrara acquired Williams’ 50% interest in the Jackalope joint venture in the Powder River Basin for approximately $485 million. Crestwood Niobrara now owns and operates 100% of the Jackalope gathering and processing system that supports 358,000 dedicated acres in the core of the Powder River Basin. Crestwood forecasts the Jackalope assets to generate cash flow of $100 million in 2019 growing to approximately $150 million in 2021. The acquisition was funded through the issuance of an additional $235 million of preferred equity to Crestwood Niobrara’s existing preferred equity investors and borrowings under the company’s revolving credit facility. Crestwood has completed transitioning the operations from Williams and has successfully integrated the project management and operations of all existing assets into its portfolio. As part of the transaction, Crestwood recognized a non-cash gain on acquisition of $209.4 million.

During the second quarter 2019, the Jackalope system averaged gathering volumes of approximately 146 MMcf/d, an increase of 56%, compared to 94 MMcf/d in the second quarter 2018. Processing volumes averaged approximately 128 MMcf/d in the second quarter 2019, an increase of 56% compared to 82 MMcf/d in the second quarter 2018. Crestwood expects Chesapeake Energy Corporation (“Chesapeake”) (NYSE: CHK) to maintain a five to six rig development program for the remainder of 2019 focusing on development of the highly prolific Turner formation and the delineation of other formations in the basin. As a result, Crestwood expects 40 to 45 new well connects in the second half of 2019.

In the second quarter 2019, Crestwood invested approximately $64.3 million on the Bucking Horse II plant expansion project, Jackalope system expansions and well connects. Current projects will increase the system’s processing capacity to 345 MMcf/d and will provide Crestwood the ability to process 100% of the gas gathered on the Jackalope system. Crestwood expects to place the Bucking Horse II processing plant into service in early first quarter 2020. During the second quarter 2019, Crestwood expanded the Jackalope system to connect a new well pad on Chesapeake’s eastern acreage position. Preliminary well results are very encouraging, and Crestwood anticipates completing additional laterals to the eastern acreage to support additional Chesapeake development and position Crestwood to attract undedicated third-party acreage in the Powder River Basin.

Powder River Basin Minimum Revenue Guarantee and Revenue Recognition

The Jackalope assets are supported by a 20-year fixed fee gathering and processing agreement with Chesapeake that includes a minimum revenue guarantee provision that allows for a higher fixed fee until a certain cash flow threshold is obtained. Once the minimum revenue guarantee threshold is achieved, the fixed rate will adjust to a lower fee. Based on Chesapeake’s current development activity and long-term outlook, Crestwood forecasts this to occur in the second half of 2021.

Under FASB’s ASC 606 revenue recognition guidance, Crestwood utilizes an average blended flat rate over the life of the contract to recognize revenue in its GAAP financial statements. As a result, in 2019, the actual cash Crestwood receives from Jackalope will be substantially higher than what it will recognize in consolidated revenues and Adjusted EBITDA. For 2019, that variance between actual cash flows and recognized revenues is expected to be approximately $20 million. While Crestwood does not adjust for this difference in its reported Adjusted EBITDA, Crestwood does adjust its calculation of distributable cash flow available to common unitholders for this difference as it provides a more accurate depiction of the company’s available cash. In addition, following the successful integration of the Jackalope acquisition, when reporting its financial leverage ratio, Crestwood makes the same adjustment for actual cash flow from Jackalope, instead of reported Adjusted EBITDA, in accordance with the covenants under its credit agreement.

Capitalization and Liquidity Update

Crestwood invested approximately $115.0 million in consolidated growth capital projects and joint venture contributions during the second quarter 2019. As of June 30, 2019, Crestwood had approximately $2.2 billion of debt outstanding, comprised of $1.8 billion of fixed-rate senior notes and $363 million outstanding under its $1.25 billion revolving credit facility. As previously announced, Crestwood issued $600 million of fixed-rate senior notes at 5.625% due 2027 in April 2019. Proceeds from the offering were used to repay outstanding borrowings under the revolving credit facility, including $250 million utilized to fund the Jackalope acquisition.

As of June 30, 2019, Crestwood’s leverage ratio was 4.2x. For the remainder of 2019, Crestwood expects to continue to utilize excess retained DCF and its revolving credit facility to fund the remaining 2019 capital program. Additionally, Crestwood will opportunistically evaluate and consider non-core asset divestitures as potential additional funding for its capital program. Crestwood remains committed to maintaining a leverage ratio between 4.0x to 4.5x in 2019 and expects to achieve a leverage ratio between 3.5x and 4.0x by the first half of 2020.

Crestwood currently has 71.3 million preferred units outstanding (par value of $9.13 per unit) which pay a fixed-rate annual cash distribution of 9.25%, payable quarterly. On July 9, 2019, the preferred units were listed on the New York Stock Exchange and began trading under the ticker symbol CEQP-P.

Sustainability Program Update

On June 17, 2019 Crestwood published its first sustainability report titled Growing Through Connections. The report embodies the company’s vision to enhance transparency on ESG topics and performance, as well as identify risks and opportunities that are material to the business. In preparation for the report, Crestwood conducted its first materiality assessment to evaluate and prioritize the ESG topics most significant to the business and its stakeholders. The material topics identified from this process were used to shape the sustainability strategy and reporting. Crestwood also identified five key sustainability focus areas that drive the three-year sustainability strategy: supply chain management, ESG investor strategy & disclosure, environmental stewardship, diversity & inclusion and social investment.

Robert T. Halpin, Executive Vice President and Chief Financial Officer, commented, “During the second quarter 2019, Crestwood took an important step in our ESG journey by issuing our inaugural sustainability report and implementing a three-year comprehensive strategy to integrate sustainability practices throughout the entire business. Our 2018 report and materiality assessment will provide the baseline for Crestwood’s ESG reporting and strategy going forward, and I am proud of the steps our company has taken to lead the midstream MLP industry on this important movement to enhance transparency for our investors, customers, regulators and communities in which we operate.”

The 2018 report highlights Crestwood’s safety performance, environmental impact of operations, and community investment. For the full 2018 report and additional information, please visit https://esg.crestwoodlp.com.

Upcoming Conference Participation

Crestwood’s management will participate in the Citi 1×1 Midstream/Energy Infrastructure Conference on August 14 – 15, 2019 in Las Vegas, NV. Prior to the start of the conference, new presentation materials will be posted to the Investors section of Crestwood’s website at www.crestwoodlp.com.

Earnings Conference Call Schedule

Management will host a conference call for investors and analysts of Crestwood today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) which will be broadcast live over the internet. Investors will be able to connect to the webcast via the Investors page of Crestwood’s website at www.crestwoodlp.com. Please log in at least 10 minutes in advance to register and download any necessary software. A replay will be available shortly after the call for 90 days.

Non-GAAP Financial Measures

Adjusted EBITDA and distributable cash flow are non-GAAP financial measures. The accompanying schedules of this news release provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or operating income, or any other GAAP measure of liquidity or financial performance.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities and Exchange Act of 1934. The words “expects,” “believes,” “anticipates,” “plans,” “will,” “shall,” “estimates,” and similar expressions identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although Crestwood believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance that any such forward-looking statements will materialize. Important factors that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements include the risks and uncertainties described in Crestwood’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K and its subsequent reports, which are available through the SEC’s EDGAR system at www.sec.gov and on our website. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made, and Crestwood assumes no obligation to update these forward-looking statements.

About Crestwood Equity Partners LP

Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a master limited partnership that owns and operates midstream businesses in multiple shale resource plays across the United States. Crestwood Equity is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation, terminalling, and marketing of NGLs; gathering, storage, terminalling and marketing of crude oil; and gathering and disposal of produced water. Visit Crestwood Equity Partners LP at http://www.crestwoodlp.com; and to learn more about Crestwood’s sustainability efforts, please visit https://esg.crestwoodlp.com.

(1) Please see non-GAAP reconciliation table included at the end of the press release.

CRESTWOOD EQUITY PARTNERS LP

Consolidated Statements of Operations
(in millions, except per unit data)
(unaudited)

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

Gathering and processing

$

199.7

 

 

$

255.4

 

 

$

382.0

 

 

$

595.7

 

Storage and transportation

4.9

 

 

5.1

 

 

12.7

 

 

9.3

 

Marketing, supply and logistics

477.5

 

 

579.7

 

 

1,121.4

 

 

1,349.9

 

Related party

1.3

 

 

0.3

 

 

2.5

 

 

0.6

 

Total revenues

683.4

 

 

840.5

 

 

1,518.6

 

 

1,955.5

 

Cost of products/services sold

537.2

 

 

725.4

 

 

1,232.8

 

 

1,691.2

 

 

 

 

 

 

 

 

 

Operating expenses and other:

 

 

 

 

 

 

 

Operations and maintenance

34.7

 

 

31.9

 

 

63.3

 

 

66.4

 

General and administrative

22.3

 

 

23.4

 

 

59.5

 

 

47.3

 

Depreciation, amortization and accretion

49.3

 

 

44.5

 

 

89.1

 

 

89.6

 

Loss on long-lived assets, net

 

 

24.4

 

 

2.0

 

 

24.1

 

Gain on acquisition

(209.4

)

 

 

 

(209.4

)

 

 

 

(103.1

)

 

124.2

 

 

4.5

 

 

227.4

 

Operating income (loss)

249.3

 

 

(9.1

)

 

281.3

 

 

36.9

 

Earnings from unconsolidated affiliates, net

3.7

 

 

12.0

 

 

10.6

 

 

24.4

 

Interest and debt expense, net

(27.8

)

 

(24.3

)

 

(52.7

)

 

(48.7

)

Other income, net

0.1

 

 

0.1

 

 

0.2

 

 

0.2

 

Income (loss) before income taxes

225.3

 

 

(21.3

)

 

239.4

 

 

12.8

 

Provision for income taxes

(0.3

)

 

(0.2

)

 

(0.3

)

 

(0.2

)

Net income (loss)

225.0

 

 

(21.5

)

 

239.1

 

 

12.6

 

Net income attributable to non-controlling partner

10.6

 

 

4.0

 

 

14.6

 

 

8.0

 

Net income (loss) attributable to Crestwood Equity Partners LP

214.4

 

 

(25.5

)

 

224.5

 

 

4.6

 

Net income attributable to preferred units

15.0

 

 

15.1

 

 

30.0

 

 

30.1

 

Net income (loss) attributable to partners

$

199.4

 

 

$

(40.6

)

 

$

194.5

 

 

$

(25.5

)

 

 

 

 

 

 

 

 

Subordinated unitholders’ interest in net income

$

1.2

 

 

$

 

 

$

1.2

 

 

$

 

Common unitholders’ interest in net income (loss)

$

198.2

 

 

$

(40.6

)

 

$

193.3

 

 

$

(25.5

)

 

 

 

 

 

 

 

 

Net income (loss) per limited partner unit:

 

 

 

 

 

 

 

Basic

$

2.76

 

 

$

(0.57

)

 

$

2.69

 

 

$

(0.36

)

Diluted

$

2.58

 

 

$

(0.57

)

 

$

2.53

 

 

$

(0.36

)

 

 

 

 

 

 

 

 

Weighted-average limited partners’ units outstanding:

 

 

 

 

Basic

71.8

 

 

71.2

 

 

71.8

 

 

71.2

 

Dilutive units

11.2

 

 

 

 

5.2

 

 

 

Diluted

83.0

 

 

71.2

 

 

77.0

 

 

71.2

 

CRESTWOOD EQUITY PARTNERS LP

Selected Balance Sheet Data

(in millions)

 

June 30,
2019

 

December 31,
2018

 

(unaudited)

 

 

 

 

 

 

Cash

$

2.1

 

 

$

0.9

 

 

 

 

 

Outstanding debt:

 

 

 

Revolving Credit Facility

$

363.0

 

 

$

578.2

 

Senior Notes

1,800.0

 

 

1,200.0

 

Other

0.8

 

 

1.5

 

Subtotal

2,163.8

 

 

1,779.7

 

Less: deferred financing costs, net

32.4

 

 

26.4

 

Total debt

$

2,131.4

 

 

$

1,753.3

 

 

 

 

 

Partners’ capital

 

 

 

Total partners’ capital

$

1,978.4

 

 

$

2,033.8

 

Common units outstanding

72.3

 

 

71.7

 

CRESTWOOD EQUITY PARTNERS LP

Reconciliation of Non-GAAP Financial Measures

(in millions)

(unaudited)

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

EBITDA

 

 

 

 

 

 

 

Net income (loss)

$

225.0

 

 

$

(21.5

)

 

$

239.1

 

 

$

12.6

 

Interest and debt expense, net

27.8

 

 

24.3

 

 

52.7

 

 

48.7

 

Provision for income taxes

0.3

 

 

0.2

 

 

0.3

 

 

0.2

 

Depreciation, amortization and accretion

49.3

 

 

44.5

 

 

89.1

 

 

89.6

 

EBITDA (a)

$

302.4

 

 

$

47.5

 

 

$

381.2

 

 

$

151.1

 

Significant items impacting EBITDA:

 

 

 

 

 

 

 

Unit-based compensation charges

11.3

 

 

10.3

 

 

28.6

 

 

17.5

 

Loss on long-lived assets, net

 

 

24.4

 

 

2.0

 

 

24.1

 

Gain on acquisition

(209.4

)

 

 

 

(209.4

)

 

 

Earnings from unconsolidated affiliates, net

(3.7

)

 

(12.0

)

 

(10.6

)

 

(24.4

)

Adjusted EBITDA from unconsolidated affiliates, net

14.0

 

 

21.9

 

 

33.6

 

 

44.0

 

Change in fair value of commodity inventory-related derivative contracts

3.7

 

 

10.1

 

 

4.8

 

 

(10.1

)

Significant transaction and environmental related costs and other items

3.0

 

 

0.7

 

 

6.4

 

 

2.4

 

Adjusted EBITDA (a)

$

121.3

 

 

$

102.9

 

 

$

236.6

 

 

$

204.6

 

 

 

 

 

 

 

 

 

Distributable Cash Flow

 

 

 

 

 

 

 

Adjusted EBITDA (a)

$

121.3

 

 

$

102.9

 

 

$

236.6

 

 

$

204.6

 

Cash interest expense (b)

(31.0

)

 

(23.6

)

 

(57.2

)

 

(46.7

)

Maintenance capital expenditures (c)

(6.0

)

 

(5.3

)

 

(7.4

)

 

(11.3

)

Adjusted EBITDA from unconsolidated affiliates, net

(14.0

)

 

(21.9

)

 

(33.6

)

 

(44.0

)

Distributable cash flow from unconsolidated affiliates

12.7

 

 

20.6

 

 

31.2

 

 

41.8

 

PRB cash received in excess of recognized revenues

6.0

 

 

 

 

6.0

 

 

 

Provision for income taxes

(0.3

)

 

(0.2

)

 

(0.3

)

 

(0.2

)

Distributable cash flow attributable to CEQP

88.7

 

 

72.5

 

 

175.3

 

 

144.2

 

Distributions to preferred

(15.0

)

 

(15.0

)

 

(30.0

)

 

(30.0

)

Distributions to Niobrara preferred

(9.2

)

 

(3.3

)

 

(12.5

)

 

(6.6

)

Distributable cash flow attributable to CEQP common (d)

$

64.5

 

 

$

54.2

 

 

$

132.8

 

 

$

107.6

 

(a)

EBITDA is defined as income before income taxes, plus interest and debt expense, net and depreciation, amortization and accretion expense. Adjusted EBITDA considers the adjusted earnings impact of our unconsolidated affiliates by adjusting our equity earnings or losses from our unconsolidated affiliates to reflect our proportionate share (based on the distribution percentage) of their EBITDA, excluding impairments. Adjusted EBITDA also considers the impact of certain significant items, such as unit-based compensation charges, gains or losses on long-lived assets, gains on acquisitions, third party costs incurred related to potential and completed acquisitions, certain environmental remediation costs, the change in fair value of commodity inventory-related derivative contracts, costs associated with the realignment of our Marketing, Supply and Logistics operations and Corporate operations and other transactions identified in a specific reporting period. The change in fair value of commodity inventory-related derivative contracts is considered in determining Adjusted EBITDA given that the timing of recognizing gains and losses on these derivative contracts differs from the recognition of revenue for the related underlying sale of inventory to which these derivatives relate. Changes in the fair value of other derivative contracts is not considered in determining Adjusted EBITDA given the relatively short-term nature of those derivative contracts. EBITDA and Adjusted EBITDA are not measures calculated in accordance with generally accepted accounting principles (GAAP), as they do not include deductions for items such as depreciation, amortization and accretion, interest and income taxes, which are necessary to maintain our business. EBITDA and Adjusted EBITDA should not be considered alternatives to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA calculations may vary among entities, so our computation may not be comparable to measures used by other companies.

(b)

Cash interest expense less amortization of deferred financing costs.

(c)

Maintenance capital expenditures are defined as those capital expenditures which do not increase operating capacity or revenues from existing levels.

(d)

Distributable cash flow is defined as Adjusted EBITDA, adjusted for cash interest expense, maintenance capital expenditures, income taxes, the cash received from our Powder River Basin operations in excess of revenue recognized, and our proportionate share (based on the distribution percentage) of our unconsolidated affiliates’ distributable cash flow. Distributable cash flow should not be considered an alternative to cash flows from operating activities or any other measure of financial performance calculated in accordance with GAAP as those items are used to measure operating performance, liquidity, or the ability to service debt obligations. We believe that distributable cash flow provides additional information for evaluating our ability to declare and pay distributions to unitholders. Distributable cash flow, as we define it, may not be comparable to distributable cash flow or similarly titled measures used by other companies.

CRESTWOOD EQUITY PARTNERS LP

Reconciliation of Non-GAAP Financial Measures

(in millions)

(unaudited)

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

EBITDA

 

 

 

 

 

 

 

Net cash provided by operating activities

$

63.0

 

 

$

11.3

 

 

$

193.9

 

 

$

160.0

 

Net changes in operating assets and liabilities

17.8

 

 

48.7

 

 

(35.0

)

 

(12.8

)

Amortization of debt-related deferred costs

(1.5

)

 

(1.8

)

 

(2.9

)

 

(3.6

)

Interest and debt expense, net

27.8

 

 

24.3

 

 

52.7

 

 

48.7

 

Unit-based compensation charges

(11.3

)

 

(10.3

)

 

(28.6

)

 

(17.5

)

Loss on long-lived assets, net

 

 

(24.4

)

 

(2.0

)

 

(24.1

)

Gain on acquisition

209.4

 

 

 

 

209.4

 

 

 

Earnings from unconsolidated affiliates, net, adjusted for cash distributions received

(3.0

)

 

(0.4

)

 

(6.3

)

 

0.2

 

Deferred income taxes

(0.1

)

 

 

 

(0.3

)

 

0.2

 

Provision for income taxes

0.3

 

 

0.2

 

 

0.3

 

 

0.2

 

Other non-cash income

 

 

(0.1

)

 

 

 

(0.2

)

EBITDA (a)

$

302.4

 

 

$

47.5

 

 

$

381.2

 

 

$

151.1

 

Unit-based compensation charges

11.3

 

 

10.3

 

 

28.6

 

 

17.5

 

Loss on long-lived assets, net

 

 

24.4

 

 

2.0

 

 

24.1

 

Gain on acquisition

(209.4

)

 

 

 

(209.4

)

 

 

Earnings from unconsolidated affiliates, net

(3.7

)

 

(12.0

)

 

(10.6

)

 

(24.4

)

Adjusted EBITDA from unconsolidated affiliates, net

14.0

 

 

21.9

 

 

33.6

 

 

44.0

 

Change in fair value of commodity inventory-related derivative contracts

3.7

 

 

10.1

 

 

4.8

 

 

(10.1

)

Significant transaction and environmental related costs and other items

3.0

 

 

0.7

 

 

6.4

 

 

2.4

 

Adjusted EBITDA (a)

$

121.3

 

 

$

102.9

 

 

$

236.6

 

 

$

204.6

 

(a)

EBITDA is defined as income before income taxes, plus interest and debt expense, net and depreciation, amortization and accretion expense. Adjusted EBITDA considers the adjusted earnings impact of our unconsolidated affiliates by adjusting our equity earnings or losses from our unconsolidated affiliates to reflect our proportionate share (based on the distribution percentage) of their EBITDA, excluding impairments. Adjusted EBITDA also considers the impact of certain significant items, such as unit-based compensation charges, gains or losses on long-lived assets, gains on acquisitions, third party costs incurred related to potential and completed acquisitions, certain environmental remediation costs, the change in fair value of commodity inventory-related derivative contracts, costs associated with the realignment of our Marketing, Supply and Logistics operations and Corporate operations and other transactions identified in a specific reporting period. The change in fair value of commodity inventory-related derivative contracts is considered in determining Adjusted EBITDA given that the timing of recognizing gains and losses on these derivative contracts differs from the recognition of revenue for the related underlying sale of inventory to which these derivatives relate. Changes in the fair value of other derivative contracts is not considered in determining Adjusted EBITDA given the relatively short-term nature of those derivative contracts. EBITDA and Adjusted EBITDA are not measures calculated in accordance with generally accepted accounting principles (GAAP), as they do not include deductions for items such as depreciation, amortization and accretion, interest and income taxes, which are necessary to maintain our business. EBITDA and Adjusted EBITDA should not be considered alternatives to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA calculations may vary among entities, so our computation may not be comparable to measures used by other companies.

CRESTWOOD EQUITY PARTNERS LP
Segment Data

(in millions)

(unaudited)

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Gathering and Processing

 

 

 

 

 

 

 

Revenues

$

225.1

 

 

$

300.9

 

 

$

460.2

 

 

$

682.5

 

Costs of product/services sold

108.9

 

 

208.8

 

 

246.9

 

 

496.5

 

Operations and maintenance expenses

24.6

 

 

17.8

 

 

42.7

 

 

35.5

 

Gain (loss) on long-lived assets

(0.2

)

 

 

 

(2.0

)

 

0.1

 

Gain on acquisition

209.4

 

 

 

 

209.4

 

 

 

Earnings (loss) from unconsolidated affiliates, net

(2.8

)

 

4.5

 

 

(3.0

)

 

10.2

 

EBITDA

$

298.0

 

 

$

78.8

 

 

$

375.0

 

 

$

160.8

 

 

 

 

 

 

 

 

 

Storage and Transportation

 

 

 

 

 

 

 

Revenues

$

8.1

 

 

$

7.6

 

 

$

19.5

 

 

$

13.8

 

Costs of product/services sold

 

 

0.1

 

 

 

 

0.2

 

Operations and maintenance expenses

0.9

 

 

0.8

 

 

1.9

 

 

1.6

 

Earnings from unconsolidated affiliates, net

6.5

 

 

7.5

 

 

13.6

 

 

14.2

 

EBITDA

$

13.7

 

 

$

14.2

 

 

$

31.2

 

 

$

26.2

 

 

 

 

 

 

 

 

 

Marketing, Supply and Logistics

 

 

 

 

 

 

 

Revenues

$

450.2

 

 

$

532.0

 

 

$

1,038.9

 

 

$

1,259.2

 

Costs of product/services sold

428.3

 

 

516.5

 

 

985.9

 

 

1,194.5

 

Operations and maintenance expenses

9.2

 

 

13.3

 

 

18.7

 

 

29.3

 

Loss on long-lived assets, net

 

 

(24.4

)

 

(0.2

)

 

(24.2

)

EBITDA

$

12.7

 

 

$

(22.2

)

 

$

34.1

 

 

$

11.2

 

 

 

 

 

 

 

 

 

Total Segment EBITDA

$

324.4

 

 

$

70.8

 

 

$

440.3

 

 

$

198.2

 

Corporate

(22.0

)

 

(23.3

)

 

(59.1

)

 

(47.1

)

EBITDA

$

302.4

 

 

$

47.5

 

 

$

381.2

 

 

$

151.1

 

CRESTWOOD EQUITY PARTNERS LP
Operating Statistics

(unaudited)

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

2019

 

 

2018

 

 

2019

 

 

2018

Gathering and Processing (MMcf/d)

 

 

 

 

 

 

 

Bakken – Arrow

79.0

 

 

67.8

 

 

77.0

 

 

65.6

 

Marcellus

299.9

 

 

391.2

 

 

308.3

 

 

411.6

 

Barnett

249.5

 

 

279.6

 

 

255.9

 

 

284.0

 

Delaware (a)

166.5

 

 

156.7

 

 

171.4

 

 

143.1

 

Powder River Basin – Jackalope

145.5

 

 

93.5

 

 

138.6

 

 

84.4

 

Other

35.1

 

 

47.3

 

 

37.6

 

 

48.3

 

Total gas gathering volumes

975.5

 

 

1,036.1

 

 

988.8

 

 

1,037.0

 

Processing volumes

303.8

 

 

282.9

 

 

306.8

 

 

278.4

 

Compression volumes

375.7

 

 

482.4

 

 

373.5

 

 

475.8

 

Arrow Midstream

 

 

 

 

 

 

 

Bakken Crude Oil (MBbls/d)

88.9

 

 

76.2

 

 

90.9

 

 

78.2

 

Bakken Water (MBbls/d)

63.9

 

 

43.6

 

 

59.9

 

 

41.2

 

 

 

 

 

 

 

 

 

Storage and Transportation

 

 

 

 

 

 

 

Northeast Storage – firm contracted capacity (Bcf) (a)

32.1

 

 

33.7

 

 

32.9

 

 

32.6

 

% of operational capacity contracted

92

%

 

97

%

 

95

%

 

94

%

Firm storage services (MMcf/d) (a)

235.9

 

 

406.8

 

 

243.3

 

 

381.6

 

Interruptible storage services (MMcf/d) (a)

17.1

 

 

3.9

 

 

12.8

 

 

2.4

 

Northeast Transportation – firm contracted capacity (MMcf/d) (a)

1,479.4

 

 

1,571.0

 

 

1,522.5

 

 

1,531.8

 

% of operational capacity contracted

81

%

 

86

%

 

83

%

 

84

%

Firm services (MMcf/d) (a)

1,364.9

 

 

1,287.1

 

 

1,300.8

 

 

1,327.3

 

Interruptible services (MMcf/d) (a)

19.7

 

 

80.5

 

 

17.6

 

 

61.1

 

Gulf Coast Storage – firm contracted capacity (Bcf) (a)

27.2

 

 

27.0

 

 

28.5

 

 

27.7

 

% of operational capacity contracted

71

%

 

70

%

 

74

%

 

72

%

Firm storage services (MMcf/d) (a)

325.7

 

 

259.5

 

 

330.1

 

 

306.9

 

Interruptible services (MMcf/d) (a)

35.6

 

 

104.9

 

 

50.3

 

 

103.9

 

COLT Hub

 

 

 

 

 

 

 

Rail loading (MBbls/d)

60.4

 

 

43.8

 

 

59.6

 

 

39.9

 

Outbound pipeline (MBbls/d) (b)

11.5

 

 

13.9

 

 

14.3

 

 

13.0

 

 

 

 

 

 

 

 

 

Marketing, Supply and Logistics

 

 

 

 

 

 

 

NGL Operations

 

 

 

 

 

 

 

NGL volumes sold or processed (MBbls/d)

72.3

 

 

96.2

 

 

94.4

 

 

132.4

 

NGL volumes trucked (MBbls/d)

37.8

 

 

50.7

 

 

41.1

 

 

50.4

 

Crude Operations

 

 

 

 

 

 

 

Crude barrels trucked (MBbls/d)

8.0

 

 

8.2

 

 

8.4

 

 

7.9

 

(a)

Represents 50% owned joint venture, operational data reported is at 100%.

(b)

Represents only throughput leaving the terminal.

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Hess Corporation Shows Continued ESG Commitment and Progress in 2018 Sustainability Report – EnerCom Inc.

Hess Corporation Shows Continued ESG Commitment and Progress in 2018 Sustainability Report

  • On track to meet its 2020 targets to decrease flaring and greenhouse gas emission intensities from operated assets by 50% and 25%, respectively, from 2014 levels
  • Has reduced its workforce recordable incident rate by 23% over the past 5 years
  • Carbon asset risk assessment confirmed resilience of Hess portfolio in transition to a lower-carbon economy using the International Energy Agency’s Sustainable Development Scenario
  • Continued to be recognized in 2018 as a top-quartile industry performer for its environmental, social and governance (ESG) performance and disclosure

Hess Corporation (NYSE: HES) published its 2018 Sustainability Report today, providing a comprehensive review of the company’s strategy and performance on environmental, social and governance programs and initiatives. An electronic version is available at http://www.hess.com/sustainability/sustainability-reports.

“We believe sustainability is fundamental to our long-term strategy and performance and supports our purpose to be the world’s most trusted energy partner,” CEO John Hess said. “Our commitment to sustainability starts with our Board of Directors and senior management and is reinforced at every level of our company.”

Hess Corporation’s 22nd annual sustainability report has been prepared in accordance with the Core level for sustainability reporting under the Global Reporting Initiative (GRI) Standards. GRI is an independent organization that provides the world’s most widely recognized sustainability reporting and disclosure standards. Preparation of the report was also informed by recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) and oil and gas industry metrics from the Sustainability Accounting Standards Board (SASB). The report has been third-party assured by ERM Certification and Verification Services.

Highlights from this year’s report include:

  • Safeguarding people and the environment: By working closely with employees and contractors to continuously improve our safety performance, over the past 5 years Hess has reduced its workforce recordable incident rate by 23% and its workforce lost time incident rate by 33%. In 2018, the company achieved the lowest severe safety incident rate in its history – a 43 percent reduction from 2017 – and reduced the number of process safety events for the fourth consecutive year.
  • Reducing its carbon footprint: Hess has aggressive targets for greenhouse gas (GHG) emission reductions, and over the past 11 years has reduced its Scope 1 and 2 equity GHG emissions by approximately 64%. The company is on track to meet its 2020 targets to decrease flaring and GHG emission intensities from operated assets by 50% and 25%, respectively, from 2014 levels. In 2018, Hess achieved leadership status in the prestigious CDP Global Climate Analysis for the 10th consecutive year.
  • Conducting portfolio-specific carbon asset risk scenario planning: In line with the Task Force on Climate-Related Financial Disclosures framework, in 2018, Hess tested the robustness of its portfolio through 2040 under multiple energy supply and demand scenarios. The company’s asset portfolio remains resilient and its pipeline of forward investments provides strong financial returns even under the ambitious GHG reductions assumed within the International Energy Agency’s Sustainable Development Scenario.
  • Making a difference in local communities: Hess’ community investments support programs in a variety of areas with a particular focus on education, workforce development and environmental stewardship. In 2018, Hess led the development of North Dakota’s Intelligent Pipeline Integrity Project, or iPIPE, to advance new technologies that prevent and detect pipeline leaks. In Guyana, Hess is working with its joint venture partners to build capacity among the local workforce and supplier companies including the Centre for Local Business Development established by the joint venture in 2017.
  • Maintaining top-quartile ESG performance: In 2018, Hess was named to the Dow Jones Sustainability Index North America for the 9th consecutive year and toCorporate Responsibility Magazine’s 100 Best Corporate Citizens list for the 11th consecutive year.

Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. Hess is committed to helping meet the world’s growing energy needs in a safe, environmentally responsible, socially sensitive and profitable way. More information on the company is available at www.hess.com.

Cautionary Statements

This news release contains projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the company’s current views with respect to future events and financial performance. No assurances can be given, however, that these events will occur or that these projections will be achieved, and actual results could differ materially from those projected as a result of certain risk factors. A discussion of these risk factors is included in the company’s periodic reports filed with the Securities and Exchange Commission.

We use certain terms in this release relating to resources other than proved reserves, such as unproved reserves or resources. Investors are urged to consider closely the disclosure relating to proved reserves in Hess’ Form 10-K, File No. 1-1204, available from Hess Corporation, 1185 Avenue of the Americas, New York, New York 10036 c/o Corporate Secretary and on our website at www.hess.com You can also obtain this form from the SEC on the EDGAR system.

Copyright Business Wire 2019

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Kimco Realty Releases 2018 Corporate Responsibility Report – Business Wire

NEW HYDE PARK, N.Y.–(BUSINESS WIRE)–Kimco Realty Corp. (NYSE: KIM) announced today the release of its 2018 Corporate Responsibility Report. This sixth annual report provides a thorough account of Kimco’s performance in the areas of the environment, social impact, and governance (ESG).

“When we launched our formal sustainability program eight years ago, we set an ambitious course, seeking to position Kimco as a leader not only in the environmental space but also in the areas of social impact and governance,” said Conor Flynn, Chief Executive Officer at Kimco Realty. “We are proud to see our ESG vision becoming a reality, with major progress made on all three fronts. Our efforts and accomplishments in these areas have become a true differentiator for our organization and will remain a focus for the company going forward.”

2018 Highlights

Kimco’s achievements for 2018 include:

● Debuted on ISS’s E&S Quality Score with the leading score among retail REITs – 1 in the environmental category and 2 in the social category (on a 1-10 scale where 1 is the highest possible score)

● Named to the Dow Jones Sustainability North America Index for the fourth time, the only retail REIT on the index

● Achieved an “A” disclosure score from the Global Real Estate Sustainability Benchmark

● Achieved Great Place to Work Certification for the first time

● Completed a multi-million-dollar commitment to submeter over 5,000 tenant spaces, a first among open-air retail landlords

● Achieved a cumulative 12.33 percent reduction in same-site greenhouse gas (GHG) emissions within operational control since 2015

● Completed the Lincoln Square Signature SeriesTM mixed-use development in Center City Philadelphia, which included the adaptive reuse of an historic Lincoln-era train station. The project was recognized by the Preservation Alliance for Greater Philadelphia, Philadelphia Business Journal, Curbed Philadelphia, and others

● Contributed 664 hours of employee volunteer service through Kimco’s Community Connection program. Beyond volunteerism, the company donated $284,134 in cash and in-kind gifts towards a variety of charitable causes

● Sponsored over 35,506 hours of training – an average of 67 hours per employee

The 34-page Corporate Responsibility Report follows the Global Reporting Initiative’s (GRI) G4 Sustainability Reporting Standard. The summary report is intended for all audiences and covers the most relevant content for stakeholders. The report appendix is designed as optional supplemental reading for those stakeholders interested in more detailed GRI Disclosure data on Kimco’s performance.

The digital version of the report can be accessed here.

About Kimco

Kimco Realty Corp. (NYSE: KIM) is a real estate investment trust (REIT) headquartered in New Hyde Park, N.Y., that is one of North America’s largest publicly traded owners and operators of open-air shopping centers. As of March 31, 2019, the company owned interests in 430 U.S. shopping centers comprising 75 million square feet of leasable space primarily concentrated in the top major metropolitan markets. Publicly traded on the NYSE since 1991, and included in the S&P 500 Index, the company has specialized in shopping center acquisitions, development and management for more than 60 years. For further information, please visit www.kimcorealty.com, the company’s blog at www.kimcorealty.com/blog, or follow Kimco on Twitter at www.twitter.com/kimcorealty.

The company announces material information to its investors using the company’s investor relations website (investors.kimcorealty.com), SEC filings, press releases, public conference calls, and webcasts. The company also uses social media to communicate with its investors and the public, and the information the company posts on social media may be deemed material information. Therefore, the company encourages investors, the media, and others interested in the company to review the information that it posts on the company’s blog (blog.kimcorealty.com) and social media channels, including Facebook (www.facebook.com/kimcorealty), Twitter (www.twitter.com/kimcorealty), YouTube (www.youtube.com/kimcorealty) and LinkedIn (www.linkedin.com/company/kimco-realty-corporation). The list of social media channels that the company uses may be updated on its investor relations website from time to time.

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Crestwood Publishes Inaugural 2018 Sustainability Report – Business Wire

HOUSTON–(BUSINESS WIRE)–Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood” or “CEQP”) announced today the publication of its inaugural 2018 sustainability report highlighting its MLP industry leading sustainability program. The report, entitled Growing Through Connections, enhances transparency on Crestwood’s environmental, social and governance (ESG) performance and highlights the company’s three-year sustainability strategy as it continues to integrate sustainability into every aspect of the business. The 2018 sustainability report is available at https://esg.crestwoodlp.com.

“Crestwood is proud to be a leading MLP midstream company with the early issuance of a sustainability report, demonstrating our long-term commitment to sustainability and our best-in-class approach to environmental stewardship, safety and community relations,” said Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “Our approach to sustainability takes into consideration the interest of all of our stakeholders – from those who invest in us, work for us and partner with us, to those who live near our projects and operations. Our strategy is to identify ESG risks and opportunities most significant to our business and integrate them into our strategic framework and capital allocation decisions, which will help us deliver solid financial results and position us to grow and prosper in the long-term.”

Highlights in Crestwood’s 2018 sustainability report include:

  • Crestwood’s materiality assessment: Crestwood conducted its first materiality assessment to identify, assess and prioritize the ESG topics that are most significant to the business and its stakeholders. Led by third-party consultants, the assessment process identified 12 material topics that shaped the report content and key performance indicators.
  • Three year sustainability strategy: Crestwood identified five key sustainability focus areas that represent not only risks to be managed, but also significant opportunities. These include: Supply Chain Management, ESG Investor Strategy and Disclosure, Environmental Stewardship, Diversity and Inclusion, and Social Investment. These focus areas are aligned with Crestwood’s business goals, while also being responsive to its stakeholders.
  • Ensuring the safety of employees and contractors: Crestwood’s safety performance was strong in 2018, with improvements in its leading and lagging indicators. Crestwood saw a 9 percent reduction in its Total Recordable Incident Rate and a 59 percent reduction in its Preventable Vehicle Incident Rate for employees and contractors.
  • Reducing operational footprint: Crestwood is focused on minimizing habitat disturbances and is implementing leak detection methods to improve operational efficiencies and reduce emissions.
  • Building resilient relationships with communities: Since 2013, Crestwood has invested over $2 million in long-term economic development projects in North Dakota that enhance local access to healthcare and early childhood education in addition to annual sponsorships of community and tribal events.

Crestwood’s first sustainability report has been prepared in accordance with the Global Reporting Initiative (GRI) Standards: Core option. GRI is an international independent standards organization and is the most widely adopted global standard for sustainability reporting. New investor and ESG presentation materials were also posted to Crestwood’s website at www.crestwoodlp.com.

About Crestwood Equity Partners LP

Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a master limited partnership that owns and operates midstream businesses in multiple shale resource plays across the United States. Crestwood Equity is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation, terminalling, and marketing of NGLs; gathering, storage, terminalling and marketing of crude oil; and gathering and disposal of produced water. Visit Crestwood Equity Partners LP at www.crestwoodlp.com; and to learn more about Crestwood’s sustainability efforts, please visit https://esg.crestwoodlp.com.

Forward Looking Statements

This press release may include certain statements concerning expectations for the future that are forward-looking statements as defined by federal securities law. Such forward-looking statements are subject to a variety of known and unknown risks, uncertainties, and other factors that are difficult to predict and many of which are beyond management’s control. These risks and assumptions are described in Crestwood’s annual reports on Form 10-K and other reports that are available from the United States Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made. We undertake no obligation to update any forward-looking statement, except as otherwise required by law.

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