Annual Report
2021
Smurfit Kappa Group plc Annual Report 2021
Dynamically
& Sustainably
Delivering
Smurfit Kappa ('SKG'), a
FTSE 100 company, is one
of the leading providers of
paper-based packaging
solutions in the world.
We operate across 36 countries with approximately
48,000 employees in over 350 production sites
with revenue of €10.1 billion in 2021.
Chair’s Statement People
Our Innovative Solutions
Sustainability
p8 p18 p48 p64
Overview 1-15
Financial Highlights of 2021 1
What We Do 2
Where We Operate 4
Our Purpose and Strategy 6
Our Innovative Solutions 8
Sustainability Commitments 12
Embedding our Purpose 14
Strategic Report 16-75
Chair’s Statement 18
Group Chief Executive Officer’s
Statement 22
Our Business Model 26
Our Strategy 28
Key Performance Indicators 30
Risk Report 34
Finance Review 39
Stakeholder Engagement 44
Sustainability 48
People 64
Governance 76-117
Board of Directors 78
Corporate Governance Statement 82
Audit Committee Report 88
Remuneration Report 92
Nomination Committee Report 110
Sustainability Committee Report 113
Directors’ Report 115
Statement of Directors’
Responsibilities 117
Financial Statements 118-189
Independent Auditor’s Report 120
Consolidated Income Statement 126
Consolidated Statement of
Comprehensive Income 127
Consolidated Balance Sheet 128
Company Balance Sheet 129
Consolidated Statement
of Changes in Equity 130
Company Statement
of Changes in Equity 131
Consolidated Statement
of Cash Flows 132
Company Statement of
Cash Flows 133
Notes to the Consolidated
Financial Statements 134
Supplementary
Information 190-198
Alternative Performance
Measures 192
Shareholder Information 198
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Smurfit Kappa Annual Report 2021
Over view Strategic Report Governance Financial Statements Supplementary Information
2021 2020
€8,530
€10,107
2021 2020
€748
€913
2021 2020
1.6
1.7
2021 2020
17.7
16.8
2021 2020
227.9
263.9
2021 2020
14.6
16.0
2021 2020
€1,510
€1,702
€1,702
2021 2020
€922
€1,073
2021 2020
236.9
274.5
2021 2020
€675
€455
2021 2020
€2,375
€2,885
Revenue
(million)
€10,107
+18%
Profit Before Income Tax
(million)
€913
+22%
Basic Earnings per Share
(cent)
263.9
+16%
EBITDA Margin*
(%)
16.8
EBITDA*
(million)
€1,702
+13%
Operating Profit before
Exceptional Items* (million)
€1,073
+16%
Net Debt*
(million)
€2,885
+22%
Free Cash Flow*
(million)
€455
-33%
Net Debt to EBITDA*
(times)
1.7x
Return on Capital
Employed* (%)
16.0
Pre-exceptional Basic
Earnings per Share* (cent)
274.5
+16%
* These financial Key
Performance Indicators are
not defined under International
Financial Reporting Standards.
Further information in
relation to these Alternative
Performance Measures is
included in the Supplementary
Information section on
pages 191 to 197.
FINANCIAL HIGHLIGHTS OF 2021
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Smurfit Kappa Annual Report 2021
WHAT WE DO
We create innovative and sustainable paper-based packaging
solutions for our customers, we protect products in transit and
precious resources for future generations while caring for
each other, the environment and the planet.
Integrated Model
Our vertical integration drives efficiency
across the entire value chain, including
the sourcing and collecting of our natural
primary raw materials, production of paper,
conversion of paper into corrugated boxes
and their delivery to customers which means
we can offer optimal paper design, quality
and logistics management. We have lower
exposure to volatility in containerboard prices
and our integrated structure ensures that we
provide a stable outlet for material through
the uncertainty of market falls and rises.
Data
Innovation and impact at SKG is data driven,
with a proven scientific approach informing good
business decisions. Data collected from our
operations is combined with market and sectoral
research and a deep knowledge of over 80,000
supply chains, providing a unique insight and
fit-for-purpose solutions for our customers.
Global
As one of the world’s largest integrated
manufacturers of paper-based packaging
solutions, our global reach enables us to
synergise global competencies with local
processes. Our scale and unique global
footprint makes us well placed to reliably
deliver on customer requirements.
What Differentiates Us
Paper
We manufacture a wide range
of papers mainly used for
packaging purposes. Our
total global paper and board
capacity is approximately
8.3 million tonnes per annum.
Packaging
We design, manufacture
and supply paper-based
packaging to package,
promote and protect our
customers’ products. We
manufacture corrugated
packaging and also produce
solidboard, folding carton
and certified, bag-in-box
and tubes.
Recycling
We provide recycling
solutions to ensure our
customers' corrugated
packaging and paper is
recycled responsibly,
efficiently and reliably.
We handle 7.4 million tonnes
of primarily post consumer
recovered paper each year
across the globe.
Forestry
We own approximately 68k
hectares of forest globally,
which are FSC or PEFC
certified, promoting
economic growth, protection
of biodiversity and
ecosystems and fostering
social equity.
We are a packaging leader
in a growth industry
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Sustainability
Sustainability is integrated into everything we
do and forms a significant part of how we engage
with stakeholders. We focus on long-term
ambition with action today. Our reporting on
sustainability has been independently assured
by a third party since 2009. Sustainability is
embedded across our business and included in
our senior management incentives and our cost
of funding. As a key contributor to the circular
economy, we handle 7.4 million tonnes of primarily
post-consumer recovered paper each year across
the globe. SKG is well positioned to continue to
lead as the world moves to a low-carbon, circular
approach to business. We reuse or recycle side
streams, power our business with renewable
energy where possible and are finding smarter
ways of saving energy.
Innovation
Creativity and innovation is part of our every-day.
We innovate across all aspects of our business
to increase the value and benefits of what we do
for our customers. We offer an unrivalled portfolio
of sustainable paper-based packaging solutions
which is constantly updated with our market
leading innovations. Our range of unique tools
feed information to our value-added services,
SupplySmart, ShelfSmart and eSmart work to
improve all aspects of our customers packaging,
from packing line to supply chain to customer
experience. With over 1,000 packaging designers
across our business network and a supporting
network of laboratories, facilities and applications,
we create sustainable fit-for-purpose packaging
for our customers.
People
We aim to ensure a working culture in which
every member of our 48,000-strong team
feels engaged, appreciated as they are and
has a sense of belonging. We are committed
to being a great place to work and an
employer of choice for top talent. We are
also committed to driving Inclusion, Diversity
and Equality and strive to create a diverse
workforce. By delivering top-level training and
development, and rewards and recognition
programmes, we empower our people to
reach their full potential, for the benefit of our
customers and stakeholders.
Our Innovative Solutions
We have an unrivalled portfolio of sustainable paper-based packaging
solutions which are constantly updated with our market leading innovations.
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Smurfit Kappa Annual Report 2021
WHERE WE OPERATE
We are a world leader with
operations in 36 countries
We are one of the largest integrated manufacturers of paper-based packaging solutions
in the world. We are located in 23 countries in Europe and 13 in the Americas. In Europe,
we are the leader by production volume in corrugated packaging and containerboard
and in Latin America, we are the only large-scale pan-regional player.
Europe
Revenue
€7.8 billion
We are the European leader in the production of corrugated
packaging, containerboard and bag-in-box. The Europe segment
includes mills and plants that primarily produce containerboard
that is converted into corrugated containers. In addition, we
produce other types of paper, such as solidboard, sack kraft
paper and graphic paper; and other paper-based packaging,
such as hexacomb and solidboard packaging, folding cartons;
and bag-in-box packaging.
Read more on page 23
2021 Gross Sales Volume (million tonnes)
Kraftliner – 1.7
Recycled containerboard – 3.7
Other paper and board – 0.9
Corrugated – 5.1
Solidboard packaging – 0.1
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Forestry Plantations
(hectares)
68k
Mills
35
Fibre Sourcing
47
Converting Plants
241
Other Production
Facilities
32
What Sets Us Apart
Our Scale and Geographic Diversity
Our large manufacturing footprint provides us with a clear point of differentiation because the
corrugated packaging market is a localised market and therefore converting plants need to be close
to customers (within 300kms). Our unique global footprint makes us well placed to reliably deliver
on customer requirements.
The Americas
Revenue
€2.3
billion
The Group’s operations in
the Americas comprise a
system of mills and plants
that primarily produce
containerboard that is
converted into corrugated
containers. Our operations
in the Americas also include
forestry; other types of
paper, such as boxboard,
sack paper and graphic
paper; and paper-based
packaging, such as folding
cartons, hexacomb and
paper sacks.
Read more on page 23
2021 Gross Sales Volume
(million tonnes)
Containerboard – 1.4
Other paper and board – 0.2
Corrugated – 1.6
Other paper-based
packaging – 0.1
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Smurfit Kappa Annual Report 2021
OUR PURPOSE AND STRATEGY
Our Purpose
At Smurfit Kappa we
are proud to create,
protect and care.
Our Vision
To be a globally admired business,
dynamically and sustainably delivering
secure and superior returns for
all stakeholders.
We have a strong and positive culture
that is aligned with our strategy and
based on our values of:
• Safety
• Loyalty
• Integrity
• Respect
These values foster the guiding
principles by which we operate:
• Teamwork
• Entrepreneurship
• Inclusion, Diversity
andEquality
• Rewards and Recognition
• Performance Driven
• Accountability
Our Values
Our Strategic Objective
Our objective is to develop long-term
customer relationships by providing
customers with differentiated
sustainable packaging solutions that
enhance the customers' prospects
of success in their end markets.
Read more about this on page 28
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Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
Strategic
Priorities
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Smurfit Kappa Annual Report 2021
Jardim Botânico
Premium e-commerce packaging
As a 100% handcrafted premium product, Jardim Botânico gin
provides its customers with a differentiated tasting experience.
Previously, the product was delivered to the consumer in a
package that did not provide safety or value to the primary product.
The packaging developed by us is compact, easy to assemble,
and has an internal accessory that, while protecting the product,
also leaves the bottle visible as if it were a jewel, leading to a special
unboxing experience.
OUR INNOVATIVE SOLUTIONS
We create innovative
and sustainable solutions
for our customers
The demand for sustainable packaging continues to grow, with consumers
now a driving force. Packaging provides a clear opportunity for brands and
retailers to demonstrate their commitment to sustainability, and as a result,
build trust and strengthen the brand – consumer relationship.
Consumer awareness of the
environmental impact of their
choices is growing and consumers
increasingly want to be more
sustainable. This has now translated
into their purchasing decisions, and
packaging plays a significant role in
this decision to buy. A recent study
conducted by Drapers states that
64% of consumers are more likely to
buy from retailers with sustainable
packaging, while 73% stated that
the use of paper or cardboard
packaging is important to them
when considering a brand’s level
of sustainability.
With our innovative, sustainable
packaging solutions designed for
our customers, led by our Better
Planet Packaging initiative, we
provide sustainable, fit-for-purpose
73%
say paper or cardboard
packaging is important
when considering a
brand’s sustainability
64%
more likely to buy from
a brand or retailer with
sustainable packaging
packaging that meets the
expectations of consumers.
Our culture of innovation is based
on our experience, science, creativity
and data, with state-of-the-art
facilities that ensure we are ready
for the challenges of tomorrow.
We can help our entire value chain,
our customers and their customers,
to reduce their carbon footprint
and avoid packaging waste.
We have outlined in this section a
number of examples of our recent
innovations from across the world.
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Smurfit Kappa Annual Report 2021
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Waitrose
Waitrose flowers
Waitrose was looking for a long-term
packaging partner for their online
specialist shops that deliver flowers,
wine and pet products. The key
priorities for the tender were to
improve print colour consistency
across all lines, to promote
sustainability and to meet deadlines.
The main challenge was the tight
time frame required to set up and
on-board 23 new packing lines in
just two months during our busiest
time of year when e-commerce
demand rocketed due to the
pandemic. Remote working also
meant Smurfit Kappa had to quickly
adapt to a new way of working
in order to supply all four
of Waitrose's third party co-packers.
As a premium brand, Waitrose
customers have high expectations
and the quality of their packaging
needs to reflect their brand values.
We delivered on this and were
delighted to receive excellent
feedback on our responsive service
and our solution based attitude
to solving problems. We met the
tight deadlines to supply the busy
seasons Valentine's Day and
Mothers' Day.
mymuesli
When packaging
design helps to keep
up with demand
Three ambitious German
entrepreneurs had an idea for
a startup: mymuesli, an online
shop for organic, individual
muesli mixes. The demand
rocketed and the company
needed help with a packaging
solution – as everything was
packed by hand. Smurfit
Kappa's expertise in
packaging using a packaging
machine that scans each
parcel individually and creates
packaging without void fillers,
helps mymuesli to save up to
50% in packaging materials
and 30% in transport. The
beautifully designed and
branded e-commerce solution
is fully recyclable, and
demonstrates mymuesli's
commitment to sustainability.
OUR INNOVATIVE SOLUTIONS CONTINUED
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Smurfit Kappa Annual Report 2021
Flattler
A Bag-in-Box® solution that protects
UK cider maker Healeys Cyder wanted their new flat cider to be as
accessible as possible, which included catering for a variety of pack
formats and usage scenarios. In addition, the packaging would
need to complement their unique branding with full colour print, no
requirement for glue or tape to erect, could withstand vigorous supply
chain conditions and would provide protection to the cider. The end
solution was an ‘envelope’ style Bag-in-Box® made from double
wall corrugated board, printed full colour litho and quick to erect
saving time on the production line. By introducing Bag-in-Box®
to their packaging options, Healeys Cyder can now offer Rattler
Cyder in more settings and in a still format, complimenting their
existing carbonated range. The solution is fully recyclable, and the
unique vacuum functionality of the Bag-in-Box® means that there
is a long shelf life even after opening, so there is no product waste.
Harry's
E-commerce box
Harry’s is a rapidly growing shaving brand in the EU. They were looking
for consumer-oriented packaging with minimal void fill and optimised
sizes. The design had to be stand-out to maximise visibility as Harry’s
launched their brand into multi-national companies. They turned
to Smurfit Kappa to supply the perfect solution. Using our unique
eSmart process we worked closely with Harry’s to develop a simple
yet effective packaging solution with clean and clear print to maximise
it's brand equity. The consumer-friendly design with clear branding
stands out at the point of sale and delivers a memorable unboxing
experience for the consumer.
100%
of expanded
polystyrene replaced
with recyclable
packaging
Villeroy & Boch
Recyclable packaging
solution for toilet seats
Villeroy & Boch approached Smurfit
Kappa Mexico with a challenge to
update their packaging solution
to reflect their premium product
vision and concept. We designed
a single-universal packaging for all
four types of toilets, that reflected
the brand’s premium feel and made
distribution logistics more efficient
through smart space use and quick
and easy assembly. This packaging
was new to their market and a
breakthrough in terms of how this
was managed before: replacing
expanded polystyrene ('EPS') for
corrugated to create a new integral
design, resulting in a 100% recyclable
and functional solution.
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Hoogstraten
Innovates with paper-
based punnets
Coöperatie Hoogstraten
set the goal to find a more
sustainable packaging
solution. Smurfit Kappa
developed a complete
packaging solution consisting
of solidboard punnets, trays
and customised punnet and
tray erector lines. The new
packaging solution increases
brand awareness of
Hoogstraten and reduces
logistic and labour costs.
The new punnet is also fully
recyclable and has very high
recycling rates compared to
the previous plastic solution.
Furthermore, the sustainable
solution reduces the carbon
footprint of Hoogstraten, and
has eliminated 500,000kg of
plastic packaging per year.
500,000
kilograms of plastic
packaging eliminated
per year
adidas
adidas want to lead from
the front in the race for
sustainability
With their ‘Own the Game’ strategy,
adidas have increased their focus
on sustainability throughout their
business. They have made huge
strides in recent years, from new
initiatives to using ocean plastics
in their shoes. A key part of this
strategy is their packaging. To
improve the sustainability of their
packaging, adidas needed a supplier
who could address the lack of
transparency and traceability for
recycling, provide assurance that
waste fibres were being fully recycled
and help them deal with a huge
increase in handling e-commerce
returns. In order to address these
challenges, adidas partnered with
Smurfit Kappa. At Smurfit Kappa
we have full chain of custody and
the ability to provide end-to-end
recycling. There’s no wastage of
materials or time and we have the
capability to deliver boxes within
48 hours of an order being placed.
Plus, Smurfit Kappa provide full
transparency by using unique tools
and delivering information on
tonnage delivered and collected.
Now, adidas don’t just provide their
customers with a cutting edge
product, they also give them the
ability to return packaging easily.
Packaging is returned to Smurfit
Kappa, recycled and reborn
as new. All of which allows adidas
to close the loop when it comes
to their packaging. The race for
sustainability is a marathon, not a
sprint. But together, we can win.
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Smurfit Kappa Annual Report 2021
SUSTAINABILITY COMMITMENTS
Long-term ambition,
delivering today
Globally, citizens are asking tougher questions and becoming a strong force
in the drive for climate and societal change in recent years. The focus on how we
treat our planet, how we create a more inclusive world for everyone and support
equality across all communities has never been so high on people’s agendas.
Climate
Change
Net zero
Our ambition is to have at least net zero emissions by 2050 with a 55% reduction in fossil fuel
emissions intensity by 2030
Forest
>95%
packaging solutions sold as Chain of Custody certified to customers by 2025
Water
60%
reduction in Chemical Oxygen Demand intensity by 2025
Water
1%
reduction of our water usage intensity annually
Waste
30%
reduction in waste to landfill intensity by 2025
Health
and Safety
at least 5%
reduction in Total Recordable Injury Rate annually
People
25%
of management positions held by women by 2024
Communities
€24 million
will be donated between 2020-2025 to support social, environmental and community initiatives
Category Targets
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Better Planet 2050 quantifies our
commitment to protect what we care
about – our planet, our people, our
business – through a set of ambitious
goals and sustainability targets that
will deliver for a greener bluer planet,
empower our people and communities
and support an impactful business.
Through handling 7.4 million tonnes of
recovered fibre each year SKG is firmly
positioned in the move towards a more
circular economy.
In reducing our own emissions and
providing optimised paper-based
packaging solutions, we can help our
entire value chain and beyond to cut
their carbon emissions and avoid
waste. We will continue to innovate
across all aspects of our business:
reducing waste and CO
2
emissions,
increasing the value and benefits of
what we do, and further securing
precious natural resources sustainably
for future generations. By being
renewable and recyclable, using less
resources, less energy and creating
less waste, we can make a positive
contribution to the world.
In having a workplace culture that
embeds the core values of Safety,
Loyalty, Integrity, and Respect, and
strives for a diverse and inclusive
workforce, we are empowering our
people to reach their full potential.
We strive to enable people in the
communities in which we operate to
improve their lives. Where the cycle
of poverty, hardship and dependence
is an issue we aim to help end this to
support a fairer and more equal world.
We will be publishing our 15
th
Sustainable Development Report in
April 2022 with detailed information on
our targets and performance for 2021.
In addition, please see pages 48 to 63
and page 58 of this Report.
Link to Sustainability Strategy Link to Sustainable Development Goals ('SDGs')
Key for Sustainability Strategic Priorities
Planet People Impactful Business
Read more on our sustainability strategy and SDGs on pages 48 to 63
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Smurfit Kappa Annual Report 2021
We are proud to create,
protect and care
Smurfit Kappa is a business with an essential and enduring purpose –
to create solutions that protect what we all care about. This is a role
that is lived in the culture and behaviours at all levels and across
all areas of our business. It is a purpose that informs our strategic
business decisions and actions, now and into the future.
EMBEDDING OUR PURPOSE
Discovering Our Purpose
Our Purpose statement was articulated following an inclusive
discovery process that involved participants across the breadth of
Smurfit Kappa. Led by our Group CEO and involving diverse groups
of people, the process uncovered stories of purpose in action across
different areas of the business. By discovering, sharing and discussing
what was essential to different people, we identified the collective
motivation that gives all of our work meaning and drives us to sustain
and enhance our essential role in the world.
Engaging with Our Purpose
We commenced a communications campaign in June 2021 that used
video in multiple language formats across our internal communications
platform to engage the entire business with our Purpose. In this initial
phase of the campaign, our Group CEO and other members of the
senior management team shared what purpose means to them and
identified how our experience of purpose contributes to our unique
culture and the positive motivations experienced by employees,
partners and customers alike.
The campaign encourages employees across the business to reflect
on the essential role they play in delivering our shared Purpose.
Employees were asked to share the stories of creating, protecting and
caring that they experience within our teams and through interactions
with our customers, communities and other stakeholders.
The campaign has prompted many employees to share the stories
that make them feel proud to be part of Smurfit Kappa. These diverse
stories all illustrate how Smurfit Kappa’s purpose is grounded in what
we do day-to-day and highlights the importance of sustaining an
authentic sense of purpose in our working lives.
Nurturing and Supporting
Our Purpose
We recognise that nurturing our essential Purpose is an ongoing
process. For our Purpose to endure we must ensure that the new
generation of talent within Smurfit Kappa connect with and
understand our essential and enduring role. We have engaged a
selection of our workforce to build on our Purpose and explore what
it means for them. We have asked them to consider what our Purpose
will require from each of us in the future as we continue to provide
innovative, sustainable products for our customers, support the
communities in which we work, and protect the planet that we and
future generations depend on.
We are all on a journey together opening opportunities
and creating a better future for all our stakeholders.
Being true to our Purpose as a Group that creates,
protects and cares will both challenge and reward us.
It is a journey that we are taking side by side with our
customers and stakeholders, and of which we can
be very proud.
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“
Employees were asked to share the
stories of creating, protecting and
caring that they experience within
our teams and through interactions
with our clients, communities and
other stakeholders.
”
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Smurfit Kappa Annual Report 2021
DYNAMICALLY & SUSTAINABLY DELIVERING
CO
2
emissions reduction
15%
Investment
€40
million
Transformational Investment Plans
We are investing €40 million in our Mold plant in North Wales, which will
further expand its capacity to make it the largest corrugated facility in the
UK and allow us to meet the growing demand for sustainable packaging.
The investment in state-of-the-art equipment
will reduce CO
2
per tonne emissions by 15% at
the plant.
“This investment in North Wales will increase
our capability, flexibility and speed of response to
deliver unrivalled, innovative packaging solutions
to customers across the UK and Ireland. We are
determined to meet the future needs of our
customers in a sustainable way. It is vital that our
investment has benefits for the local community
and the environment,” said Smurfit Kappa UK
and Ireland CEO, Eddie Fellows.
The design of the factory extension fits seamlessly
into the local landscape. A three-acre nature trail
has been constructed. It incorporates a local
stream and a new footpath which can be used
by both site staff and the local community.
Working in partnership with Park in the Past,
a local heritage and conservation project, an extra
10,000 trees, shrubs and bushes will be planted.
Excess soil which has been removed as part of
the factory extension will be used by the nearby
heritage project.
The on-site Experience Centre offers customers the
chance to come into the facility to see the science,
creativity and data used to innovate, customise
and implement sustainable packaging solutions.
The plant, which employs 194 staff and has been in
operation since 1994 is a major regional employer.
Investing in North Wales
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Strategic Report 16-75
Chair’s Statement 18
Group Chief Executive Officer’s Statement 22
Our Business Model 26
Our Strategy 28
Key Performance Indicators 30
Risk Report 34
Finance Review 39
Stakeholder Engagement 44
Sustainability 48
People 64
Strategic
Report
18
Smurfit Kappa Annual Report 2021
CHAIR’S STATEMENT
Delivering an excellent
performance for 2021
2021 Performance
Smurfit Kappa has delivered
an excellent performance for
2021 which was particularly
pleasing in a year characterised
by unprecedented cost inflation.
The EBITDA outcome of
€1,702million was ahead of the
Group’s guidance for the year. In
delivering this performance, it was
our people that again proved to be
our most valuable asset through
their agility, adaptability and
resilience. On behalf of the Board
and management team, I would like
to record our sincere appreciation
to each and every one of our
48,000 employees.
Capital Strength
Sustainability has always been at
the core of the Group’s operations
and is now embedded within the
capital structure. Building on our
objective to dynamically and
sustainably deliver in 2021, we
launched our Green Finance
Framework with an ISS ESG Second
Party Opinion. Under this, we issued
our dual tranche inaugural green
bonds, comprising €500 million
8year bonds with a coupon of 0.5%
and €500 million 12 year bonds with
a coupon of 1%. Setting up this
framework and issuing green
finance instruments was a further
step in embedding sustainability
into our capital structure alongside
our sustainability linked revolving
credit facility and our sustainability
linked securitisation facilities.
This further enhances the Group’s
financial flexibility to capitalise on
the significant opportunities that
we continue to see across our
geographic footprint.
Sustainability
We continued to make strong
progress across our sustainability
agenda in 2021. The progress
made during the year built upon
the achievements of earlier
years and highlights the Group’s
long-standing objective to drive
change and nurture a greener
and bluer planet through the three
key pillars of Planet, People and
Impactful Business.
The Group’s performance demonstrates the strength of the integrated model, the
quality of our business, our operational efficiency, and increasing geographic and
product diversity. In delivering this performance, it was our people that again proved
to be our most valuable asset through their agility, adaptability and resilience.
Irial Finan
Chair
19
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Final Dividend
(recommended) 2021
96.1
cent per share
10%
increase in final
dividend for 2021
In early 2021, we announced
ambitious new sustainability
targets as part of ‘Better Planet
2050’, focusing on a further
reduction of our environmental
footprint, increasing support
for the communities in which
we operate, further enhancing
the lives of our employees and
those communities.
We were the first in our industry
to announce targeting at least net
zero emissions by 2050 and we
are well on our way to reaching our
intermediate 2030 target of a 55%
reduction, in line with the EU Green
Deal objectives. The Group has also
received approval from Science
Based Target initiative ('SBTi') for its
emissions targets. These targets
are not only in line with the Paris
Agreement but are also industry
leading and a further sign of Smurfit
Kappa’s leadership in sustainability.
There was continued action on
CO
2
reduction during the year with
many significant investments which
reduce the Group’s CO
2
emissions.
The Group's 2020 Annual Report
was the first to report in line with
recommendations of the Taskforce
for Climate-related Financial
Disclosures (‘TCFD’) and this
year’s report continues to build on
that standard with a detailed and
comprehensive disclosure outlined
on page 54 to 61. In addition, we
are also reporting for the first time
on the EU taxonomy on page 50,
a disclosure which is expected to
evolve in future years as the EU
taxonomy develops. For a number
of years Smurfit Kappa has
continued to include climate change
as an emerging risk for the Group
and during 2021 we elevated this
to a long-term principal risk of the
Group. Details are included within
the risk report on page 38.
In addition to the progress in relation
to CO
2
emissions, over the course
of 2021, the Group also continued
progress on all of our other key
sustainability targets; water
discharge, waste to landfill, chain
of custody certification, safety
performance and social projects.
Details of this progress is outlined
on pages 56 to 57.
Smurfit Kappa has also been
contributing towards making the
UN 2030 Sustainable Development
Goals (‘SDGs’) a reality since 2015.
This contribution was recognised
by the Support the Goals movement
in March 2021 when the Group
became the first FTSE 100 company
to receive a five-star rating. The
Group was also recently recognised
as a top ESG performer by
Sustainalytics which builds on our
well established sustainability
credentials and is another positive
development for the Group and all
our stakeholders.
It is our ambition to continue
to deliver sustainable growth for
the benefit of all our stakeholders,
customers, investors, employees,
suppliers and the communities in
which we operate while being, and
being recognised as, a global leader
in sustainability.
We continue to provide innovative,
circular and fit-for-purpose packaging
solutions for our customers and led
by our Better Planet Packaging
initiative. Our culture of innovation is
based on our experience, science,
creativity and data, with state-of-
the-art facilities that allows us to
help our entire value chain, our
customers and their consumers,
to reduce their carbon footprint
and avoid packaging waste. Some
examples of our recent innovative
solutions are outlined on pages 8
to 11.
Building on our objective to dynamically and sustainably
deliver in 2021 we launched our Green Finance
Framework with an ISS ESG Second Party Opinion.
”
“
Purpose
At Smurfit Kappa we are proud to
create, protect and care.
Smurfit Kappa is a business with an
enduring and essential purpose –
to create solutions that protect
what we all care about – our planet,
our people and our business. In the
2020 Annual Report, our Purpose
was introduced following a
comprehensive project to develop
it which involved a diverse group of
employees across the organisation.
It is a purpose that informs our
strategic business decisions and
actions, now and into the future.
During 2021, the process to
embed the Purpose throughout
the Group commenced. An internal
communications campaign took
place using video in multiple
language formats to engage the
entire business with our Purpose.
Further details on this campaign
and our Purpose are included on
pages 6 to 7.
Board Structure
We recognise the importance
of continued Board refreshment
and renewal and the benefit of
bringing fresh perspectives to
complement our longer-tenured
Directors. We also recognise the
importance of inclusion, diversity
and equality throughout the
organisation and up to Board level
– diversity which includes varying
perspectives and experience as
well as diversity of age, gender,
ethnicity and education.
There have been a number of
appointments to the Board in recent
years including those of Lourdes
Melgar and Kaisa Hietala in 2020.
In 2021, there were no further
appointments or retirements from
the Board, which remains comprised
of 12 Directors.
This includes four female Directors
which is in line with our commitment
to ensure greater Board diversity.
We are also pleased to have a Board
which includes Directors from eight
different countries including Directors
from Europe, North America and
Latin America – a diversity of
geographic backgrounds which
matches our diverse business.
As part of the ongoing development of
the Board, and the integration of recent
appointees, a comprehensive training
programme was delivered during 2021
which covered topics including
business operations, industry,
sustainability and governance.
Governance and Oversight
The 2018 UK Corporate
Governance Code ('the Code')
places an emphasis on a company’s
relationship with its shareholders
and other stakeholders and
highlights the importance of
establishing a corporate culture
aligned with business strategy;
and one which promotes integrity
anddiversity.
As we reflect on 2021, through our
engagement with our people and
our continued commitment to the
environment and the communities
we serve, we truly believe that
Smurfit Kappa has a culture and an
approach to business which aligns
with the spirit of the Code and
promotes an inclusive and positive
working environment which
recognises the perspectives of all
20
Smurfit Kappa Annual Report 2021
CHAIR’S STATEMENT CONTINUED
our stakeholders. Details of this are
included throughout this Annual
Report, including the stakeholder
and employee engagement
overviews below, and in the
Corporate Governance Statement.
Employee Engagement
and Development
Employee engagement is a key
consideration of the executives
and Board, and one which has
continuously developed over time.
The Sustainability Committee
continues to hold responsibility
for workforce engagement on
behalf of the Board. The Committee
assists the Board in understanding
the views of the wider workforce,
to ensure that the voice of the
workforce is heard in the boardroom
and the views and interests of
employees are taken into account
when making decisions. A detailed
update on our employee
engagement during the year
including commentary from
the Chair of the Sustainability
Committee, Jørgen Buhl
Rasmussen, is included on
pages 113 to 114.
The restrictions on travel as a result
of the pandemic limited the number
of visits that myself and the Board
could make to our operations across
Europe and the Americas during the
year. I did have the opportunity to
visit our newly acquired recycled mill
in Verzuolo, Italy, in October 2021.
I also visited our Forney mill and
Forth Worth operations in Texas,
the United States during the year.
In addition, a number of our Board
members were delighted to have
the opportunity to meet with the
workforce in Europe and the
Americas through virtual plant tours.
I do hope that during this year my
fellow Board members and I will be
able to return to visiting more
operations again.
In addition to plant visits, the Board
and I engaged virtually with the
workforce through various events.
In early 2021, I had the opportunity
as part of a virtual global event to
hold a Q&A session with the
management team across the
Group which was very positive and
open. In addition, members of the
Sustainability Committee were
involved in many engagement
sessions, examples of which are –
attendance at an International
Women’s Day celebration in
Mexico, attendance at a module
of our Advanced Management
Development programme including
collaboration with the cohort, and
a meeting and discussion with a
selection of the Group’s high
potential female employees across
a wide range of levels and countries
in which weoperate.
Since 2014, the Group has
conducted frequent MyVoice
employee engagement surveys
which give all of our 48,000
employees the opportunity to
give their views on the Company,
leadership, business, inclusion,
employee development, vision and
values. As a Board, we are looking
for continuous improvement in our
employee engagement scores, to
ensure we understand employees
perspectives and sentiment and
take them into account when
making decisions. During 2021,
another global engagement survey
of all employees was conducted.
The survey attracted the highest
participation rate of any of our
surveys to date. The Board received
a detailed report and presentation
on the survey and are pleased to
report that there was a global
engagement rate increase of
13 percentage points which is
a positive endorsement of the
values and people centric culture
in Smurfit Kappa.
In 2021, we have continued to focus
on the development of our people
as we recognise that supporting and
developing the culture and practice
of talent management in the
organisation is core to our success.
Our approach to talent has delivered
many leaders for the organisation,
who have built successful careers
over many years, with an average
tenure of 18 years among this
cohort. Additionally, by focusing on
talent through comprehensive and
considered succession plans we can
ensure that we continue to fill key
operational and strategic positions
across the Group.
The Smurfit Kappa Academy
supports the development and
succession planning for the Group
and is important for our people.
It was crucial that the programmes
continue during the pandemic and
we therefore pivoted these to online
offerings. This ensured that we
could continue to upskill and invest
in our people across the Group. For
further details on our development
programmes see page 70.
The Board is very supportive of
the EveryOne inclusion, diversity
and equality initiative which was
further evolved in 2021 with the
introduction of the five EveryOne
Communities to drive the Group’s
ambition in this area. The diverse
communities focus on: Disability,
Family & Age, Gender, LGBTQ+ &
Allies, and Origin, Race & Ethnicity,
details of which are included within
the People section on page 68.
Stakeholder Engagement
The Group and the Board have a
continued focus on stakeholder
engagement which is an area
where we continue to have strong
foundations on which to build. In
addition to the further enhanced
engagement with the workforce as
set out above, we continue to work
collaboratively with our customers,
suppliers, shareholders and the
communities in which we operate.
Our engagement with those
communities continues to be a core
management priority during 2021,
despite facing into a second year of
the pandemic, our workforce across
the world continued to donate their
time, effort, and expertise to making
a positive and lasting impact on their
communities with almost 5,000 of
our colleagues involved in 150
initiatives across 23 countries. In
addition, the Group has committed
through its Better Planet 2050
targets to donate €24 million
between 2020 and 2025.
Our leadership team and investor
relations team maintain active
engagement and dialogue with the
investment community and our
shareholders, to discuss key issues
including strategy, sustainability,
capital allocation, remuneration
and governance. During 2021, I was
delighted to have the opportunity
to meet virtually and engage with
many of our shareholders and also
with proxy body representatives, to
understand their views and insights
on the Company.
Further details on stakeholder
engagement in 2021 is outlined on
pages 44 to 47. In the period ahead, my
continued focus as Chair will be on the
further development of engagement
with our key stakeholders.
Dividends
Dividends remain a central
component of the Group’s
commitment to deliver value for
our shareholders. Our progressive
dividend policy recognises the
importance of dividends to our
shareholders. The Board is
recommending a 10% increase in
the final dividend to 96.1 cent per
share, subject to the approval of
shareholders at the Annual General
Meeting ('AGM') in April 2022. This
in combination with the interim
dividend of 29.3 cent per share paid
in October 2021 will deliver a total
dividend of 125.4 cent per share.
This further increase in the dividend
reflects the confidence and the
ever increasing strength of and
prospects for the business.
Outlook
Notwithstanding the current global
geopolitical uncertainties and
disruption to supply chains, current
trading for the Group is strong, and
our integrated paper and packaging
system remains effectively sold out.
We continue to see significant
opportunities across our geographic
footprint and are investing to build a
platform for durable growth to meet
customer demand.
Irial Finan
Chair
21
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Reduction in CO
2
emissions
5,500
tonnes
per annum
Investment
€35
million
CASE STUDY
Investing a Further €35
Million in Germany
We are making a significant investment in our Hoya
paper mill and board manufacturing plant in north-
west Germany. It is the latest phase of an investment
programme, which commenced in 2011, and this last
phase will see production output increase by 70kt to
450kt per annum.
The investment will replace the complete press section of the PM2
paper machine with new state-of-the-art technology, increasing the
overall efficiency of the manufacturing process. The PM2 is a 7.5
meters wide paper machine, producing both testliner and fluting
packaging paper. Production speed will increase to 1,250 metres per
minute and upon completion, this world class machine will further
strengthen the industrial efficiency of our containerboard system. It is
expected to be operational from the first quarter of 2023.
Saverio Mayer, CEO, Smurfit Kappa Europe said: “This investment will
be the final and significant phase of a programme of sustained
investment at our Hoya mill which commenced over a decade ago.
This investment underlines Smurfit Kappa’s continued commitment to
developments in leading edge technology and our operations in
Germany.”
The investment means that CO
2
emissions will be reduced by 5,500
tonnes per annum.
The Hoya site in Germany has been in operation for over 50 years and
is a major regional employer, with over 300 people working at the
facility.
This investment underlines Smurfit Kappa’s continued
commitment to developments in leading edge
technology and our operations in Germany.
”
“
22
Smurfit Kappa Annual Report 2021
GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT
A key differentiating factor for
SKG has always been our people
2021 Overview
I am happy to report that Smurfit
Kappa has delivered another
excellent performance in 2021
with an EBITDA of €1,702 million,
representing an increase of 13%
on 2020 (2020: €1,510 million) and
an EBITDA margin of 16.8%, down
from 17.7% in 2020.
This performance demonstrates
the strength of our integrated
model, the quality of our business,
our operational efficiency and our
increasing geographic and product
diversity. The result also reflects the
Group's ability to recover significant
input cost pressure by way of
progressive box price increases,
strong box volumes, the resilience
and security of supply we deliver
for our customers alongside the
benefits of our customer-focused
innovation and capital spend
programme and the dedication
of our 48,000 employees.
Over the last number of years,
the Group has made significant
investments enabling us to meet
our customers’ need for resilience,
ensuring they have security of supply
and access to the most innovative,
sustainable packaging solutions.
With corrugated demand growth
of 8% during the year, this is a
clear indication that paper-based
packaging, which is renewable,
recyclable and biodegradable, is the
choice of our customers and the end
consumer versus the less sustainable
alternatives. Governments are also
following suit by legislating against
non-recyclable, non-renewable
and less sustainable packaging.
E-commerce is now a way of life
and the protection that corrugated
packaging provides as a transport
medium is the preferred choice for
a mobile and sustainable world.
2021 was characterised by
significant and unprecedented cost
inflation. These costs, particularly
in energy, recovered fibre and other
categories of raw materials, remain
at elevated levels at the beginning
of 2022; however, we expect to
continue to recover these costs,
with margin improvement, as we
progress through the year.
Both our European and Americas
businesses delivered excellent
performances in the year. Our
European business recorded an
EBITDA of €1,302 million with an
EBITDA margin of 16.6% while our
Americas business recorded an
EBITDA of €441 million with an
EBITDA margin of 19.5%.
A key to the performance of Smurfit
Kappa over recent years has been to
invest both organically and through
In a world of significant supply constraints, I am incredibly proud of how
our 48,000 employees have responded to ensure our customers’ needs
were met and indeed, continue to be met as we begin 2022.
Tony Smurfit
Group Chief Executive Officer
Further information in relation to Alternative Performance Measures referenced in this Statement is included in the Supplementary Information section on pages 191 to 197.
23
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
acquisitions to meet growing
customer demand for innovative
and environmentally sustainable
packaging solutions. During 2021, 82
new converting machines and seven
new corrugators were approved
across our operations in Europe and
the Americas. Material investments in
our paper system were also approved
in order to increase efficiency and
capacity and to meet our ambitious
sustainability objectives.
During 2021, we completed
the acquisition of a state-of-the-art
recycled containerboard mill in
Italy with a capacity of 600,000
tonnes. This acquisition provides
additional security of supply to our
customers. In the Americas region,
we continued our geographic
expansion through acquisitions in
Mexico and Peru. Our continuing,
customer-led investment in
converting assets, the most
significant within the industry,
together with our Verzuolo mill in
Italy, will sustain a clear competitive
advantage for Smurfit Kappa.
2021 saw the launch of our Green
Finance Framework, under which
we issued our dual tranche
inaugural green bonds, comprising
€500million 8 year bonds with a
coupon of 0.5% and €500 million
12 year bonds with a coupon
of 1%. Sustainability has always
been at the core of our operations
and is now embedded within our
capital structure.
Europe
The Europe segment is the larger
of the Group’s two segments,
accounting for 78% of its revenue
and 76% of its EBITDA in 2021.
Our Europe segment is highly
integrated. It includes a system
of mills and plants that primarily
produce a full line of containerboard
that is converted into corrugated
containers. In addition, the Europe
segment also produces other types
of paper, such as solidboard, sack
kraft paper and graphic paper; and
other paper-based packaging,
such as hexacomb and solidboard
packaging, folding cartons; and
bag-in-box packaging.
The Group currently has facilities
in 23 countries in Europe. These
comprise 23 mills (of which 18
produce containerboard), 186
converting plants (the majority
of which produce corrugated
packaging products) and 27 other
production facilities carrying out
related activities. The mills are
supported by 20 recovered fibre
collection facilities and two wood
procurement operations.
The Group’s European
containerboard mill system
consists of three kraftliner mills;
in Sweden, France and Austria,
which between them produced
approximately 1.7million tonnes of
brown and white kraftliner in 2021
and 15 recycled containerboard
mills including the newly acquired
mill in Verzuolo, Italy. In 2021, our
15 recycled containerboard mills
produced over 3.7 million tonnes
ofpaper.
We also have two virgin fibre-
based mills in Spain, which in
2021 produced approximately
164,000tonnes of sack kraft paper
and approximately 89,000 tonnes
of machine glazed (‘MG’) paper.
In 2021, our three recycled mills
in Germany together produced
approximately 346,000 tonnes
of solidboard and boxboard and
approximately 81,000 tonnes
of graphicboard. In addition, the
Parenco containerboard mill in the
Netherlands produced 182,000
tonnes of graphic paper in the year.
On the conversion side, the
operations comprise 43 sheet
plants and 109 corrugated plants
which produced approximately
Investing to increase efficiency and capacity
and to meet our ambitious sustainability targets.
”
“
5.1 million tonnes in 2021. In addition,
we have 34 plants which produce
high-end differentiated packaging
products such as litho-laminated
corrugated products, display units
and solidboard-based packaging,
all of which extend the range of
packaging solutions in our portfolio.
Our converting operations are
supported by a number of other
small plants producing pre-print
packaging, fulfilment activities and
other packaging related products.
Our European-managed bag-in-box
operations comprise eight plants
located in Europe, Argentina, Canada,
Mexico and the United States.
Our European business delivered
a strong performance with a 10%
increase in EBITDA to €1,302 million
for the year. The EBITDA margin
was 16.6%, down from 17.8% in 2020.
Box demand was up approximately
8% for the year with strong
performances in all countries,
illustrating the robust demand
backdrop for our innovative and
sustainable product offering.
Corrugated pricing has continued to
improve in line with our expectations.
Our European business continued to
build on its strong operating platform
through 2021 with significant
corrugated and containerboard
projects announced for France,
Germany, the Czech Republic, Slovakia,
Poland and the UK, as well as in our
bag-in-box operation in Spain.
These investments in the latest
high-tech and energy efficient
machinery, including new
corrugators and converting
machines alongside facility
expansion projects, will allow us
to increase production output
and expand the range of high
value products that we offer to
our growing customer base, while
also contributing towards the
sustainability goals of the Group
and our customers.
The Americas
Our Americas segment is also
highly integrated. Like our Europe
segment, it includes a system of
mills and plants that primarily
produce a full line of containerboard
that is converted into corrugated
containers. The Americas segment,
which includes a number of Latin
American countries and the
United States, also comprises
forestry; other types of paper
such as boxboard, sack paper, and
graphic paper; and paper-based
packaging, such as folding cartons,
hexacomb, paper sacks and
bag-in-box packaging.
The Group’s operations in the
Americas consist of 12 paper mills
in five countries (Argentina, Brazil,
Colombia, Mexico and the United
States) producing containerboard,
boxboard, sack paper and printing
and writing paper with a combined
production of 1.6 million tonnes in
2021. The mills are supported by
25 recovered fibre facilities in seven
countries and forestry operations in
Colombia. We have 41 corrugated
plants in ten countries, including the
Cartones del Pacifico plant acquired
in Peru during the year, with a 2021
production of approximately
1.6million tonnes.
We also have 14 other converting
plants in six countries, including the
Cartonbox folding carton plant in
Mexico acquired during the year,
producing mainly paper sacks, folding
cartons or hexacomb packaging.
EBITDA Margin Europe
(%)
16.6
2020: 17.8
EBITDA Europe
(million)
€1,302
2020: €1,180
24
Smurfit Kappa Annual Report 2021
GROUP CHIEF EXECUTIVE’S STATEMENT CONTINUED
Other production facilities include
a preprint facility, three foam
packaging plants in Mexico and
a packaging solutions facility in the
United States. The Group’s Americas
business continues to be a region
of geographic diversification, high
growth, and significant opportunity.
EBITDA increased by 19% on 2020
to €441 million in the Americas. The
EBITDA margin was slightly lower at
19.5% in 2021, compared to 19.7%
in 2020. Colombia, Mexico and the
United States accounted for over
77% of the region’s earnings with
strong performances in all three
countries. Volumes for the full
year in the Americas were up 9%
year-on-year and as in Europe, the
Group continued to build on its
operating platform with significant
capacity and sustainability related
investment in the corrugated,
containerboard and speciality
businesses across the region.
During the year, we announced the
expansion of our Latin America
business with acquisitions in Peru
and Mexico respectively, adding
to our geographic diversity and
enhancing our customer offering
in these high growth regions.
Pricing for containerboard in both
Europe and the Americas continued
the upward trend through 2021.
Initially this was driven by strong
demand and rising recovered fibre
prices and subsequently, in the latter
part of the year in Europe, by rising
energy prices. Increasing recovered
fibre prices have cost the Group
an additional €440 million in 2021
versus the prior year while rising
energy prices have cost the Group
approximately €235 million versus
the prior year.
Capital Structure
Net debt was €2,885 million at the
end of December, resulting in a
net debt to EBITDA ratio of 1.7 times
compared to 1.6 times at the end
of December 2020. With net debt
to EBITDA at 1.7 times the strength
of the Group’s balance sheet
continues to secure long-term
strategic flexibility. Given the strong
business profile and ability to
consistently deliver substantial free
cash flow, the Group is comfortably
operating within its target leverage
range of 1.5 times to 2.0 times.
During the year, Smurfit Kappa
announced the launch of its Green
Finance Framework with an ISS
ESG Second Party Opinion. The
Group subsequently announced
the launch and successful pricing
of its inaugural green bond offering,
comprising €500 million of senior
notes due 2029 and €500 million
of senior notes due 2033 with coupons
of 0.5% and 1.0% respectively. The
coupons achieved for these tenors
were not only the lowest in the Group’s
history but also the lowest for a
corporate issuer in our rating category.
At 31 December 2021, the Group’s
average interest rate was 2.63%
compared to 3.13% at 31 December
2020. The reduction in our average
interest rate was primarily due to
the refinancing activity undertaken
during the year which comprised
the repayment of our €500 million
2.375% senior notes maturing in
2024 and the issuance of our
€1billion dual tranche inaugural
green bonds mentioned above.
The Group’s diversified funding
base and long-dated maturity profile
of 5.8 years (31 December 2020:
4.9 years) provide a stable funding
outlook. At 31 December 2021,
we had a strong liquidity position
of approximately €2.52 billion
comprising cash balances of
€869million, undrawn available
committed facilities of €1,343million
on our sustainability linked Revolving
Credit Facility (‘RCF’) and
€312million on our sustainability
linked securitisation facilities.
Sustainability
The Group’s end-to-end approach
to sustainability is evident in its
innovative products and processes
that support customers and
positively impact the entire value
chain. The progress we have made
during 2021 was built upon the
achievements outlined in our 14
th
annual Sustainable Development
Report (‘SDR’) published in April
2021 which highlighted the Group’s
long-standing objective to drive
change and nurture a greener and
bluer planet through the three
key pillars of Planet, People and
Impactful Business.
In early 2021 we set new targets and
revised existing targets through our
Better Planet 2050 initiative, the aim
of which is to combine long-term
ambition with action today, details
of which are outlined on page 58.
2021 also saw the world increase its
focus on climate with the publication
of the Inter-governmental Panel on
Climate Change ('IPCC') report in
August and the 26th Conference of
the Parties, or COP26, in Glasgow.
SKG, as a leader in sustainability,
is playing its part in making the
necessary changes to ensure we
stay aligned with the goals of the
Paris Agreement. In late 2021,
we were delighted to have our
2030 emissions reductions targets
approved by the SBTi as being in line
with the Paris Agreement.
Recent years have seen an
acceleration in changing consumer
patterns, particularly around
increased e-commerce penetration
and heightened awareness of
unsustainable packaging solutions.
By producing a product that is
renewable, recyclable and
biodegradable, and, made in an
increasingly sustainable manner,
our innovative solutions have
continued to deliver for our
customers and their sustainability
goals. Solutions such as TopClip and
Click-to-Lock have demonstrable
CO
2
reduction delivery for our
customers. We deliver for our
customers not just in terms of the
sustainable nature of our packaging
products, but also in our approach,
and how by harnessing applications
such as SupplySmart we can design
further CO
2
reductions through
optimising design by analysing the
end-to-end use of the product.
Since we started reporting on our
corporate sustainability journey
almost fifteen years ago, we have
been focusing our efforts on
delivering a positive impact for our
customers, our other stakeholders
and playing our part in having
a positive impact on the planet.
Our stated ambitions and specific
and measurable goals continue
to underpin our leadership
in sustainability.
During 2021 the Group appointed
a new Chief Sustainability Officer,
reporting into the Group CFO, who
forms an important link between
the executive, the Board and our
broader stakeholder base.
Further details on the progress,
developments and investments
in sustainability in 2021 are outlined
throughout this Annual Report
and in particular in the Group
Chief Financial Officer’s review
on page 42 and the Sustainability
section on pages 48 to 63.
Commercial Offering
and Innovation
The Group continued to deliver
innovation for our customers in
2021. This was illustrated by our
first virtual Better Planet Packaging
event held in March which hosted
over 2,700 attendees.
The Group launched the world’s
first pre-certified Frustration Free
Packaging (‘FFP’) compliant solution
for Amazon supply-chains during
the year. This means customers can
access one of the world’s leading
trading platforms quicker and
confident of meeting Amazon’s
strict packaging requirements,
a significant advantage as global
e-commerce sales continue to grow.
Also during the year, the Group’s
Brazilian business won a prestigious
Red Dot Award in the area of product
design. The packaging challenge
came from Wine & Bite Box to secure
and protect bottles of wine and food
for a growing trend of tasting boxes
being delivered to customers for an
at home gourmet experience. The
award recognises this packaging as
one of the most innovative design
projects in the world.
EBITDA Margin the
Americas
(%)
19.5
2020: 19.7
EBITDA the Americas
(million)
€441
2020: €372
25
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
The Group also announced the
development of its first paper-based
child lock box for laundry pods.
The Click-to-Lock Box is a 100%
paper-based solution which
provides a sustainable and safe
alternative to the traditional plastic
box for laundry pods. The new
packaging solution reduces
CO
2
emissions by 32% during
production and is 100% recyclable
and biodegradable.
Additionally, the Group launched a
unique range of circular packaging
solutions for the rapidly growing
online health and beauty market.
The customisable eHealth & Beauty
portfolio includes sustainable,
paper-based packaging solutions
ideal for shipping vulnerable
products, such as fragrances,
cosmetics, and skin and hair care
products, as well as tamper proof
packaging designed for vitamins,
supplements and sports nutrition.
The Group received 13 awards for
its creative and innovative packaging
solutions at this year’s Flexographic
Industry Association (‘FIA’) UK
awards. Since 2013, Smurfit Kappa
has received 113 FIA awards,
illustrating its leadership in the
packaging industry.
The Group was recognised for
its work on inclusion and diversity
and as well as for its packaging
innovation, sustainability, design
and print with 69 awards in 2021.
The Group continues to experience
intense levels of pipeline
development across our business
as customers strive for more
sustainable packaging solutions.
Our People
A key competitive advantage and
point of differentiation for Smurfit
Kappa Group has always been our
people. They have proved again and
again to be our most valuable asset
in our response to COVID-19, and as
a critical partner in supporting and
delivering for all our stakeholders.
I could not be prouder of their
continued efforts, contribution
and commitment.
During the year, we have welcomed
just over 1,000 new colleagues to
the Smurfit Kappa family through
our acquisitions. We continued our
support of all our employees during
2021 and into 2022 with a strong
focus on health and wellbeing,
employee engagement and
communications, reward and
recognition, and learning and
development initiatives.
I would like to acknowledge the
tremendous effort and commitment
of all our approximately 48,000
employees in the 36 countries in
which we operate for their significant
contribution to the results achieved
in 2021. We look forward to the
challenges and opportunities of
2022 and to continuing our efforts
to make the Group the safest and
most customer-focused company
in which to work in our industry.
I would like to take this opportunity
to acknowledge the tremendous
support of the Board for the
continuing development of the
Company. Equally, I would also like to
recognise our shareholders support
over the last number of years.
Tony Smurfit
Group Chief Executive Officer
CASE STUDY
Multi-million Mexican
Investment
We are investing US$22 million to expand our
corrugated plant in Culiacan, north-west Mexico.
This demonstrates our continued commitment
to the Mexican market with expanded capacity,
capabilities and product offerings for local
customers in the fresh produce segment.
The investment will modernise and expand the plant, with the
installation of high-tech state-of-the-art machinery and the
construction of a new 10,900m
2
building that will include a new
corrugator and an automatic rotary die cutter.
The facility will produce corrugated boxes made with a moisture
barrier that helps resist condensation. These new offerings
will also result in more sustainable operations at the facility with
reduced use of paper that is 100% recyclable and can be reused
at Smurfit Kappa mills.
This investment will enable the Culiacan plant to match the
fast-growing demand for sustainable packaging solutions from
agriculture and fresh produce customers. The region is home to
40% of the total agricultural production for Mexico and has some of
the largest producers of packaged food and beverage companies.
26
Smurfit Kappa Annual Report 2021
Read more about our
innovations on page 8
Read more in our Sustainability
Section on page 48
Innovation
We are a highly innovative, design-led
company. Our approach to innovation is
data-driven and focused on solving our
customers’ challenges, whether through
product promotion, process improvement, carbon
reduction or optimising supply chain efficiency.
We employ a range of ‘Innotools’, unique
to Smurfit Kappa, enabling us to create
the optimal fit-for-purpose packaging
solutions for our customers.
Our unique approach to innovation for
business success is based on combining
science, experience, geographic diversity,
big data and creativity on a scale and with
a depth not seen elsewhere in the industry.
Fibres sustainably sourced
from old corrugated
containers and forests
Our Integrated Process:
End-to-end
Sustainability
From procurement and working with our
suppliers, to production and product delivery
to our customers, our economic goals are
aligned with our social, community and
environmental responsibilities.
Working within a circular economy, our embedded
Chain of Custody ensures that close to 100% of our raw
material comes from sustainable and/or certified sources
regardless of whether it is virgin or recycled.
As a leader in sustainable packaging,
we have a responsibility to respond to
the challenge the world faces with litter
and inefficient use of materials. We are
addressing this with our Better Planet
Packaging initiative.
Customers
Production of
containerboard
Conversion
into packaging
solutions
Recovered
paper facilities
Distribution and
consumption
Recovered
paper/virgin
paper fibres
Conversion
into corrugated
board sheets
OUR BUSINESS MODEL
We are a packaging leader
in a growth industry
Underpinned by Our Values:
Our
Integrated
Model
We have an integrated
system of containerboard
mills and corrugated box
plants. Our recycling,
wood procurement and
forestry operations
provide raw material to
our containerboard mills,
who produce a full line
of containerboard
which is converted into
corrugated containers.
Our vertical integration is
key to guaranteeing security
of supply for our customers
and enabling us to drive
efficiencies across the
whole supply chain with
technological advances,
paper machine optimisation
and logistics management,
which in turn means we can
offer optimal paper design,
quality and logistics. We
have lower exposure to
volatility in containerboard
prices and our integrated
structure ensures that we
provide a stable outlet for
our product through the
uncertainty of market falls
and rises.
27
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Read more about our
innovations on page 8
Read more in our Sustainability
Section on page 48
Innovation
We are a highly innovative, design-led
company. Our approach to innovation is
data-driven and focused on solving our
customers’ challenges, whether through
product promotion, process improvement, carbon
reduction or optimising supply chain efficiency.
We employ a range of ‘Innotools’, unique
to Smurfit Kappa, enabling us to create
the optimal fit-for-purpose packaging
solutions for our customers.
Our unique approach to innovation for
business success is based on combining
science, experience, geographic diversity,
big data and creativity on a scale and with
a depth not seen elsewhere in the industry.
Fibres sustainably sourced
from old corrugated
containers and forests
Our Integrated Process:
End-to-end
Sustainability
From procurement and working with our
suppliers, to production and product delivery
to our customers, our economic goals are
aligned with our social, community and
environmental responsibilities.
Working within a circular economy, our embedded
Chain of Custody ensures that close to 100% of our raw
material comes from sustainable and/or certified sources
regardless of whether it is virgin or recycled.
As a leader in sustainable packaging,
we have a responsibility to respond to
the challenge the world faces with litter
and inefficient use of materials. We are
addressing this with our Better Planet
Packaging initiative.
Customers
Production of
containerboard
Conversion
into packaging
solutions
Recovered
paper facilities
Distribution and
consumption
Recovered
paper/virgin
paper fibres
Conversion
into corrugated
board sheets
IntegrityLoyaltySafety Respect
We design, manufacture and supply sustainable
and innovative packaging solutions to promote
and protect our customers' products.
28
Smurfit Kappa Annual Report 2021
OUR STRATEGY
We deliver a strong
return on capital
Our vision is to be a globally admired business, dynamically and sustainably
delivering secure and superior returns for all stakeholders.
Strategic Priorities Description Objectives and Progress in the Year
Market
position
Expand our market
positions in Europe and
the Americas through
selective focused growth.
• Organic growth from increased market share through developing
innovative solutions in areas such as Better Planet Packaging and
e-commerce; and
• Pursuit of accretive acquisitions in higher growth markets such
as Eastern Europe and Latin America.
Read more in the Group Chief Executive Officer’s Statement on
pages 22 to 25
Partner
of choice
Become the supplier/
partner of choice.
• Deepening our understanding of our customers’ world and developing
proactive initiatives to improve their offering;
• Constantly innovating our products, service, quality and delivery in
order to develop and/or maintain preferred supplier status; and
• Pursuing superior performance measured against clearly defined
metrics in all aspects of our business and at all levels in our organisation.
Read more in Our Innovative Solutions on pages 8 to 11
Operational
excellence
Enhance our operational
excellence through the
continuous upgrade of
our customer offering.
• Improving the output from our high quality asset base through judicious
capital investment, continuous improvement programmes, transfer of
best practice, industrial engineering and other progressive initiatives;
• Increasing the proportion of differentiated ideas, sustainability
initiatives, products and services on offer to our customers through
the use of the Group’s development and technology centres,
our sustainability credentials and our innovation tools; and
• Ensuring that the driving force behind all our operations is one
of customer satisfaction and excellence in the marketplace.
Read more in the Group Chief Executive Officer’s Statement on
pages 22 to 25
Investment
in people
Recruit, retain, develop
and motivate the
best people.
• High quality graduate and other recruitment initiatives, progressive
goal setting, and performance appraisal programmes;
• Focused job training and coaching;
• Cross-divisional in-house development programmes; and
• Selective executive development programmes.
Read more in the People section on pages 64 to 75
Capital
allocation
Maintain a disciplined
approach to capital
allocation and maintain
the focus on cash
generation.
• Maintaining investment grade credit ratings following the recent upgrades;
• Capital spending to facilitate organic growth, optimise our asset base
and enhance operating efficiency;
• Acquiring strategically attractive and accretive assets; and
• Progressive dividend supported by strong free cash flow.
Read more in the Finance Review on pages 39 to 43
The Group's objective
is to develop long-term
customer relationships
by providing customers
with differentiated
sustainable packaging
solutions that enhance
the customers'
prospects of success
in their end markets.
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Strategic Priorities Description Objectives and Progress in the Year
Market
position
Expand our market
positions in Europe and
the Americas through
selective focused growth.
• Organic growth from increased market share through developing
innovative solutions in areas such as Better Planet Packaging and
e-commerce; and
• Pursuit of accretive acquisitions in higher growth markets such
as Eastern Europe and Latin America.
Read more in the Group Chief Executive Officer’s Statement on
pages 22 to 25
Partner
of choice
Become the supplier/
partner of choice.
• Deepening our understanding of our customers’ world and developing
proactive initiatives to improve their offering;
• Constantly innovating our products, service, quality and delivery in
order to develop and/or maintain preferred supplier status; and
• Pursuing superior performance measured against clearly defined
metrics in all aspects of our business and at all levels in our organisation.
Read more in Our Innovative Solutions on pages 8 to 11
Operational
excellence
Enhance our operational
excellence through the
continuous upgrade of
our customer offering.
• Improving the output from our high quality asset base through judicious
capital investment, continuous improvement programmes, transfer of
best practice, industrial engineering and other progressive initiatives;
• Increasing the proportion of differentiated ideas, sustainability
initiatives, products and services on offer to our customers through
the use of the Group’s development and technology centres,
our sustainability credentials and our innovation tools; and
• Ensuring that the driving force behind all our operations is one
of customer satisfaction and excellence in the marketplace.
Read more in the Group Chief Executive Officer’s Statement on
pages 22 to 25
Investment
in people
Recruit, retain, develop
and motivate the
best people.
• High quality graduate and other recruitment initiatives, progressive
goal setting, and performance appraisal programmes;
• Focused job training and coaching;
• Cross-divisional in-house development programmes; and
• Selective executive development programmes.
Read more in the People section on pages 64 to 75
Capital
allocation
Maintain a disciplined
approach to capital
allocation and maintain
the focus on cash
generation.
• Maintaining investment grade credit ratings following the recent upgrades;
• Capital spending to facilitate organic growth, optimise our asset base
and enhance operating efficiency;
• Acquiring strategically attractive and accretive assets; and
• Progressive dividend supported by strong free cash flow.
Read more in the Finance Review on pages 39 to 43
Outlook
Driven by strong secular trends such as e-commerce
and sustainability, the outlook for our industry is
increasingly positive. SKG has positioned itself as
the leading company within the industry, with great
people, providing our customers with unique
packaging solutions centred around innovation,
efficiency and sustainability. The inherent strength
of our business provides us with an unrivalled
platform to accelerate our vision and the Group’s
next phase of growth and development. Going
forward, we will continue to implement our strategy,
creating a sustainable business that builds on our
strengths and will generate value for all stakeholders
over the long-term.
We will continue to lead in innovative, sustainable
packaging solutions for our customers, led by our
‘Better Planet Packaging’ initiative which provides
our customers with sustainable solutions today,
ready for the challenges of tomorrow. We are
investing to build a platform for durable growth
to meet customer demand. The recent launch of
our Green Finance Framework and the successful
issuance of our inaugural Green Bond in September
2021 will finance or refinance a portfolio of
eligible green projects and further integrates the
sustainability ambitions at the core of our business
model into our funding strategy.
We remain relentlessly focused on attracting,
training and developing employees to ensure
delivery of all our strategic ambitions and to help
our people reach their full potential within the
organisation. Our capital allocation strategy remains
flexible and agile and we maintain a disciplined,
returns focused approach to capital allocation.
30
Smurfit Kappa Annual Report 2021
KEY PERFORMANCE INDICATORS
Measuring
our progress
The Group has a range of Key Performance Indicators (‘KPIs’) which
we use to monitor our performance and measure progress.
Financial KPIs
EBITDA
*
(million)
€1,702
2020: €1,510
Description
EBITDA is the key performance measure of the
Group’s operating segments. It is an appropriate and
useful measure used to compare recurring financial
performance between periods.
Performance
EBITDA for 2021 was €1,702 million,
€192 million up on 2020. The
result reflects the strength of the
integrated model, the quality of our
business, our operational efficiency
and increasing geographic and
product diversity.
202
0
202
1
€1,510
€1,702
Strategic Priorities
EBITDA Margin
*
(%)
16.8
2020: 17.7
Description
EBITDA margin is a measure of profitability by taking
our EBITDA divided by revenue.
Performance
EBITDA margin was 16.8% in 2021
compared to 17.7% in 2020. In Europe,
our overall margin decreased from
17.8% in 2020 to 16.6% in 2021. In the
Americas, our margin decreased from
19.7% in 2020 to 19.5% in 2021.
202
0
202
1
17.7
16.8
Strategic Priorities
Net Debt
*
(million)
€2,885
2020: €2,375
Description
Net debt comprises borrowings net of cash and cash
equivalents and restricted cash. We believe that this
measure highlights the overall movement resulting
from our operating and financial performance.
Performance
Net debt amounted to €2,885 million
at December 2021 compared to
€2,375 million at December 2020.
The year-on-year increase of
€510 million reflected free cash flow
of €455 million for the year, more
than offset by outflows in respect
of dividend payments, the purchase
of businesses and non-controlling
interests, the payment of the Italian
Competition Authority fine and
negative currency translation
adjustments.
202
0
202
1
€2,375
€2,885
Strategic Priorities
* Information in relation to the definition and calculation of these Alternative Performance Measures is included in the Supplementary Information section on pages 191 to 197.
31
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Key to Strategic Priorities
Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
Net Debt
to EBITDA
*
(times)
1.7x
2020: 1.6x
Description
Leverage (ratio of net debt to EBITDA) is an important
measure of our overall financial position.
Performance
With net debt of €2,885 million
and EBITDA of €1,702 million,
our leverage ratio was 1.7 times
at December 2021 compared to
1.6 times at December 2020. The
Group is operating within its target
leverage range of 1.5x to 2.0x.
202
0
202
1
1.6x
1.7x
Strategic Priorities
Free Cash Flow
*
(‘FCF’)
(million)
€455
2020: €675
Description
FCF is the result of the cash inflows and outflows from
our operating activities, and is before those arising from
acquisition and disposal activities. We use FCF to assess
and understand the total operating performance of the
business and to identify underlying trends.
Performance
FCF of €455 million in 2021 was
€220million lower than the
€675million reported in 2020.
An EBITDA growth of €192 million,
combined with lower outflows for
cash interest and the absence of an
exceptional outflow in 2021 were
more than offset by higher outflows
for capital expenditure, higher tax
payments, a higher outflow for the
change in employee benefits and
other provisions and a negative swing
in working capital from an inflow in
2020 to an outflow in 2021.
Link to Remuneration
See Remuneration Report
for Annual Bonus metrics,
pages 92 to 109.
202
0
202
1
€675
€455
Strategic Priorities
Return on Capital
Employed
*
(‘ROCE’) (%)
16.0
2020: 14.6
Description
ROCE is an effective measure of ensuring that we are
generating profit from the capital employed.
Performance
ROCE at December 2021 was
16.0%. With a higher level of
operating profit partially offset
by a higher level of average capital
employed, our ROCE increased
from 14.6% at December 2020.
Link to Remuneration
See Remuneration Report for
PSP metrics, pages 92 to 109.
202
0
202
1
14.6
16.0
Strategic Priorities
32
Smurfit Kappa Annual Report 2021
KEY PERFORMANCE INDICATORS CONTINUED
Financial KPIs continued
Earnings per Share
(‘EPS’) (cent)
Pre-exceptional Basic EPS*
274.5
2020: 236.9
202
0
202
1
236.9
274.5
Basic EPS
263.9
2020: 227.9
202
0
202
1
227.9
263.9
Description
EPS serves as an effective indicator of a company’s
profitability and, in conjunction with other metrics
such as ROCE, is a measure of a company’s financial
strength. The calculation of EPS is shown in Note 9
to the Consolidated Financial Statements.
Performance
Our pre-exceptional basic EPS
in 2021 increased by 16% from
236.9 cent in 2020 to 274.5 cent,
reflecting a higher pre-exceptional
profit attributable to owners of
the parent of €706 million in 2021
compared to €567 million in 2020.
Basic EPS increased to 263.9 cent
in 2021 compared to 227.9 cent in
2020. This was mainly due to a higher
operating profit for 2021 resulting
in a profit for the financial year
attributable to owners of the
parent of €679 million, compared
to €545million in 2020.
Link to Remuneration
See Remuneration Report for
PSP metrics, pages 92 to 109.
Strategic Priorities
Non-Financial KPIs
Health and Safety
(TRIR)
0.59
2020: 0.60
Description
A safe and healthy workplace is a fundamental right
for every person at Smurfit Kappa, and is a business
imperative for the Group. We are committed to
maintaining a productive and safe workplace in every
part of our Company by minimising the risk of accidents,
injury and exposure to health hazards for every employee
and all sub-contractors.
Performance
We have committed to a 5%
reduction in our Total Recordable
Injury Rate (‘TRIR’). Our result for
the year 2021 was 0.59, a reduction
of 1.7% on 2020 (0.60). Whilst our
year-on-year improvement did not
meet our 5% target, we were pleased
that we were able to improve on
what was a significant step change
in performance in 2020.
Link to Remuneration
See Remuneration Report for
Annual Bonus metrics, pages 92
to 109.
202
0
202
1
0.60
0.59
Strategic Priorities
* Information in relation to the definition and calculation of these Alternative Performance Measures is included in the Supplementary Information section on pages 191 to 197.
Key to Strategic Priorities
Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
33
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
CO
2
Emissions
Reduction (%)
41.3
2020: 37.3
Description
Although our industry is energy intensive, it is also one
of the most energy efficient and is among the most
significant users of renewable energy. Climate change
impacts everyone, and in our case it stimulates
product design improvements to lower customer
carbon footprints, encourages production efficiency
and informs how we invest for the long-term.
We are reducing the carbon intensity of our energy
mix by reducing the use of fossil fuels and promoting
renewable sources where economically viable. We are
also saving energy by closing loops in our production
process. We make a significant impact in the value chain
through smart packaging solutions that can significantly
lower customer emissions. We help them optimise
their packaging to avoid product waste, minimise
over-specified packaging and increase recycling.
Performance
We have committed to a 55%
reduction in scope 1 and 2 fossil fuel
based CO
2
emissions in our mill
system compared to 2005 levels by
2030 (goal updated in 2020) and we
are targeting to reach at least net
zero CO
2
emissions by 2050. In 2021,
we reached a reduction of 41.3%
compared to 37.3% in 2020.
202
0
202
1
37.3
41.3
Strategic Priorities
Chain of Custody (%)
93.45
2020: 93.8
Description
Although recovered fibres are our primary raw material,
we are also a significant user of wood fibre and we take
responsibility to ensure its origin is sustainable. The
recyclability of paper fibres is another important factor
in the sustainability of our products, and we apply
a balanced approach to the use of both virgin and
recycled fibres.
We manage our forest holdings based on three
sustainable development principles: to promote
economic growth, responsibly use natural resources and
foster social equity wherever our plantations and forests
are located. We have certified all our plantations and
forest holdings to FSC and/or PEFC where practical.
Independent third-party certification is the most reliable
means to promote sustainable forest management and
combat deforestation.
To extend our approach to our customers, we have
committed to selling our packaging solutions as Chain
of Custody certified. This transparent approach makes
SKG's and our customers’ commitment visible to the
endconsumer.
Performance
We have committed to selling over
95% of our products as Chain of
Custody certified to our customers
(goal updated in 2020). We reached
an initial target level of 90% in 2016
and increased our ambition to 95%
in 2020. Our result for the full year
2021 was 93.45%. This was down
slightly on 2020 and was driven
predominantly by low paper
availability in what were extremely
tight global markets.
202
0
202
1
93.80
93.45
Strategic Priorities
34
Smurfit Kappa Annual Report 2021
RISK REPORT
Risk identification,
assessment and management
The Board determines the nature and extent of the principal risks it is willing
to accept to achieve its strategic objectives. Risks are identified and evaluated
and appropriate risk management strategies are implemented at each level
in the organisation.
Risk Management
and Internal Control
The Board has overall responsibility
for the Group’s system of risk
management and internal control
and for monitoring and reviewing its
effectiveness, in order to safeguard
shareholders’ investments and the
Group’s assets. Such a system is
designed to manage rather than
eliminate the risk of failure to achieve
business objectives and can
therefore only provide reasonable
and not absolute assurance against
material misstatement or loss. The
Board carries out a review of the
effectiveness of the Group’s risk
management and internal control
systems at least annually.
Group executive management is
responsible for implementing
strategy and for the continued
development of the Group’s
operations within parameters set
down by the Board. Day-to-day
management of the Group’s
operations is devolved to operational
management within clearly defined
authority limits and subject to timely
reporting of financial performance.
Management at all levels is
responsible for internal control over
the respective operations that have
been delegated to them. As such, the
system of internal control throughout
the Group’s operations ensures
that the organisation is capable
of responding quickly to evolving
operational and business risks and
that significant internal control
issues, should they arise, are
reported promptly to appropriate
levels of management.
The Board is responsible for
determining the nature and extent of
the principal risks it is willing to accept
to achieve its strategic objectives.
Risk assessment and evaluation is an
integral part of the management
process throughout the Group.
Risks are identified and evaluated,
and appropriate risk management
strategies are implemented at
each level. The key business risks
are identified by the Executive
Risk Committee.
The Audit Committee and the
Board in conjunction with senior
management review the key
business risks faced by the Group and
determine the appropriate course
of action to manage these risks. The
Audit Committee is responsible for
reviewing the effectiveness of the
Group’s system of internal control
including risk management on behalf
of the Board and reports to the Board
on all significant matters.
The review of the Group risk process
completed by PwC in 2020 noted the
comprehensive process in place and
the strong awareness of risk across
the Group. They noted some
recommendations which were
considered as part of the overall
further evolution of the risk
framework which continued during
2021. The work completed during the
year included the updating of formal
risk policy and strategy documents
in line with best practice with the
assistance of PwC. In addition,
formalised risk appetite statements
for each of the principal risks of the
Group were developed and
subsequently approved by the Board.
These will be further embedded
into the overall risk management
framework during 2022.
Risk Register Process
The Group’s risk register process is
based upon a Group standardised
approach to risk identification,
assessment and review with a clear
focus on mitigating factors and
assignment of responsibility to
risk owners.
The risk registers incorporate risk
profiling against Group defined risk
categories which include; strategic,
operational, environmental, legal,
economic/political/market,
technological and financial risks.
Each individual risk identified is
assessed based upon potential
impact and likelihood of occurrence
criteria. New or emerging risks are
added to the risk registers as they
are identified and assessed accordingly.
Divisional management is responsible
for reviewing the Country/Cluster
risk registers and updating the
Divisional risk registers accordingly,
which are reviewed and approved by
the Divisional risk committees.
The Group Risk Register is updated
to reflect any significant changes
in the Divisional registers or Group
level risks following consultation with
the Group’s subject matter experts.
The Executive Risk Committee
reviews and assesses the Group
Risk Register and identifies the
principal risks. The Group Risk
Register is then reviewed by the
Audit Committee and the Board.
Formal risk reporting timetables
and structures are in place across
the Group and are adhered to by
Country/Cluster, Divisional and
Group senior management.
COVID-19
As part of the Group’s risk
assessment processes throughout
2021, the Board considered the
continuing impact of the COVID-19
pandemic on each of the principal
risks and uncertainties of the Group.
There was no significant disruption
to the Group’s business during 2021
as a result of the pandemic.
Viability Statement
The Directors have assessed the
prospects of the Group over a
three-year period. The Directors
consider this period to be
appropriate as the Group’s strategic
business plan is devised and
assessed over a three-year period
in line with the cyclical nature of
the business in which the Group
operates. A three-year consolidated
financial model was built using a
bottom-up approach reflecting
the Group’s current position
and including annual budgeting,
medium-term planning, and
management’s estimates of future
profitability, taking into account
a number of factors including the
budget, external economic factors
and assumptions as appropriate
(including the OECD expectations
on GDP growth and the Fastmarkets
RISI paper packaging forecast,
in addition to consideration of any
impact arising from the COVID-19
pandemic). The model incorporates
and considers the important
indicators of performance of the
operations of the Group; EBITDA,
EBITDA margin, free cash flow, net
debt, net debt to EBITDA, return
on capital employed and earnings
per share.
The Directors have undertaken a
robust assessment of the principal
risks facing the Group, as detailed in
this section, which would threaten
the Group’s business model, future
performance, solvency or liquidity
and which included consideration of
any potential deterioration of the
current economic climate due to the
ongoing COVID-19 pandemic. Using
the principal risks identified, stress
test scenario analysis has been
applied to the Group’s consolidated
financial model to assess the
effect on the Group’s key indicators
of underlying performance.
35
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
External
Advisors
GroupSenior
Management
Subject Matter
Experts
Operational
and Divisional
Management
Executive Risk
Committee
Group
Internal Audit
Group Internal
Audit Report
Group EXCOMM
Group Risk
Register
Audit Committee
SKG plc Board of Directors
In the scenarios reviewed including
reverse stress testing, the Group
continues to have significant
headroom in relation to its
financial covenants.
Based on the results of this analysis,
the Directors confirm they have a
reasonable expectation that the
Group will be able to continue in
operation and meet its liabilities as
they fall due over the three-year
period of their assessment.
Going Concern
After making enquiries the Directors
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
Consolidated Financial Statements.
See Note 2 Summary of Significant
Accounting Policies on page 134 for
further detail on Going Concern.
Emerging Risks
Emerging risks are considered as part
of the Group risk process. Over the
last number of years climate change
has been disclosed as an emerging
risk for the Group. It was considered
an emerging risk due to changes in
weather patterns resulting in more
regular flooding, water shortages,
or catastrophic events such as
earthquakes which could have the
potential to give rise to business
interruption in our operations and
our supply chains. In addition, climate
change could also impact on the
cost of raw materials where access
to forests is hampered or forests
are made more vulnerable to pests
and disease due to unseasonable
weather. In considering this risk
during 2021, the Audit Committee
and the Board in conjunction with
senior management concluded
that climate change should be
elevated to a principal risk for the
Group. Details of the risk and the
associated mitigations are included
on pages 36 to 38. In addition,
more detailed disclosure in relation
to specific physical and transition
climate risks for the Group are
outlined within the TCFD disclosure
on pages 54 to 61.
Following consideration of emerging
risks as part of the risk process for
2021, there were no other significant
emerging risks identified that
require disclosure.
Risk Management Framework
The Group’s risk management
framework is embedded within
our organisational structure.
Risk management is owned by
management at each reporting
level and is evaluated and reviewed
on a continuous basis.
Our risk management framework
comprises: operational management,
who have responsibility for identifying,
managing and mitigating risk within
their local operations on a day-to-day
basis; Country/Cluster and Divisional
management who are responsible
for oversight and monitoring; and
the Executive Risk Committee who
are responsible for oversight
together with the identification,
management and mitigation of
Group level risks. Group Internal
Audit acts as an independent
assurance provider over certain
principal risks.
36
Smurfit Kappa Annual Report 2021
RISK REPORT CONTINUED
Increased No Change
Reduced
Risk Description Mitigation Trend
Economic
Strategic Priorities
If the current economic
climate were to deteriorate,
for example as a result of
geopolitical events or
uncertainty, trade tensions
and/or the current COVID-19
pandemic, it could result in
an economic slowdown
which, if sustained over any
significant length of time,
could adversely affect the
Group’s financial position
and results of operations.
• As a highly integrated player, we are better able to cope with the effects of an economic downturn than
a pure paper or corrugated producer.
• The Group supplies approximately 70% of its packaging to FMCG customers whose consumption
volumes remain relatively stable through market downturns.
• The Group’s customer base is spread across Europe and the Americas spanning 36 countries across
multiple industries.
• The Group could significantly curtail capital expenditure and take additional cost cutting measures within
a relatively short period as we have done in the past.
• Stress testing for the viability statement indicates we will continue to have significant headroom on our
covenants even in a sustained downturn.
• The Group has been deemed an essential business during the COVID-19 pandemic as our packaging serves
many vital supply chains including medical equipment, pharmaceutical, food and sanitation products.
Pricing
Strategic Priorities
The cyclical nature of the
packaging industry could
result in overcapacity and
consequently threaten the
Group’s pricing structure.
• As a highly integrated player, we are better able to cope with the effects of cyclicality and capacity
additions than a pure paper or corrugated producer.
• Our differentiation programmes ensure we are at the forefront of the industry in developing cost-
efficient solutions for our customers through performance packaging, quality management, supply chain
optimisation and strong sustainability credentials. This service offering distinguishes the Group from
pure commodity suppliers, providing a support for more stable pricing.
• Our continuous investment programmes in our operations ensure we remain competitive and have low
cost mill systems. In an environment of overcapacity, our well invested, low cost mill system will enable the
Group to continue economic production through a period of lower prices while higher cost mills will be
forced to shut.
Business Interruption
Strategic Priorities
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.
• The Group ensures that all facilities have adequate insurance to mitigate the impact of significant interruption.
• Operational contingency plans are in place for all mills and plants in the event of a shutdown, including
damages caused by climate change related to extreme weather patterns, which have been
demonstrated to work during shorter interruptions in the past.
• In Europe, the Group has a network of operations which can facilitate the transfer of significant volume
to other mills in the event of a shutdown. Furthermore, our European Paper Sourcing operation centrally
coordinates all external paper purchases for the European operations. This was strengthened by the
recent acquisition of the Verzuolo mill in Italy.
• There is continuous investment in a rigorous programme of preventative maintenance for all key mills and
other plants.
• The Group has introduced several measures during the COVID-19 pandemic to protect our employees
and supported them with frequent communications to help them respond safely to the challenges posed
by the pandemic.
Key to Risk TrendKey to Strategic Priorities
Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
37
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Risk Description Mitigation Trend
Raw Materials and Other Input Costs
Strategic Priorities
Price fluctuations in energy
and raw materials costs
could adversely affect the
Group’s manufacturing
costs.
• The Group maintains a dedicated purchasing function which has responsibility for all input costs and
ongoing cost reduction programmes.
• The Group maintains a strong supply arrangement for approximately 75% of its recovered fibre
requirements which provides it with security of supply for its primary raw material while maintaining
an optimum level of flexibility with respect to pricing.
• In line with the usual time lag, the Group would expect implemented containerboard price increases
to support corrugated price recovery of increased input cost.
• A proactive policy of forward pricing is in place which is designed to minimise, where possible, material
short-term volatility in energy price risk within approved parameters.
• The Group continually invests in a range of cost reduction projects, primarily in the areas of energy
and raw material efficiency that can deliver demonstrable economic returns.
Currency
Strategic Priorities
The Group is exposed to
currency exchange rate
fluctuations.
• The Group ensures that short-term trading exposures are hedged and, where practical, local operations
are financed as much as possible in local currency.
• The Group continually monitors and manages its foreign currency exposures for all countries and
constantly seeks opportunities to reduce these exposures. The Group Treasury Policy sets out rules
and guidance for managing this area.
Talent Management and the Workplace
Strategic Priorities
The Group may not be able
to attract, develop and
retain suitably qualified
employees as required for
its business.
• Continuous development by our HR department of a People Strategy to attract, engage, train, motivate
and retain our people, including the transition to an agile hybrid workplace where possible, to meet
emerging talent expectations and to ensure talent competitiveness.
• Periodic MyVoice surveys are undertaken to measure employee engagement and set future priorities as
well as programmes to increase engagement and recognition.
• Processes are in place to identify and develop our high potential people, together with a continuous focus
on leadership training and succession planning.
• Development of our existing competitive remuneration and recognition packages and review processes.
• Reinforcement of our talent recruitment strategy (universities, graduate programmes, etc.), to attract
highly talented people with the potential to become the future leaders of the Group.
• The Group has implemented a number of measures during the COVID-19 pandemic including; a robust
and supportive communications strategy; and use of online tools for development.
Health and Safety
Strategic Priorities
Failure to maintain good
health and safety and
employee wellbeing
practices may have an
adverse effect on the
Group's business.
• Health and safety is a core consideration in all management reviews. The protection of the health and
safety of the workforce is a continual focus in an industry with a broad profile of hazards.
• Increased focus is given to the strict adoption of good management, employee practices and a mind-set
that complements existing risk mitigation measures. Divisional Health and Safety managers are in place
with responsibility for enforcing good health and safety standards across their respective regions.
• The Group has an established formal practice of investigating accidents and preparing safety bulletins
which are shared across divisions.
• Group-wide auditing process based on current high risk activities.
• Annual safety improvement planning.
• The Group has introduced several measures during the COVID-19 pandemic to protect our employees
and supported these with frequent communications to help them respond safely to the challenges
posed by the pandemic.
38
Smurfit Kappa Annual Report 2021
RISK REPORT CONTINUED
Risk Description Mitigation Trend
Legislation and Regulation – Environmental
Strategic Priorities
The Group is subject to
a growing number of
environmental and climate
change 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’s environmental and climate change policies ensure each site has a manager who is responsible
for environmental issues including monitoring air, noise and water emissions and ensuring that the site is
running within its permits.
• The Group’s environmental management is in contact with appropriate local authorities and environmental
upgrades are made in consultation with them.
• All our paper and board mills are operated under an EMS (Environmental Management System) (ISO 14001).
• We continuously invest in our operations, to ensure compliance with environmental legislation.
• The Group has an IT reporting system in over 300 sites ensuring environmental data is reported on a
regular basis.
• The Group has a centralised co-ordination of all environmental activity providing a key interface to the EU,
supported by a committee of senior executives who meet regularly to review such issues, and report directly
to the Group CEO.
• For newly acquired entities robust environmental due diligence is performed.
Legislation and Regulation – Anti-trust
Strategic Priorities
The Group is subject to
anti-trust and similar
legislation in the
jurisdictions in which
it operates.
• Comprehensive Group Competition Law Compliance Policy is in place and communicated to all
employees. All managers and market-facing employees are required to formally confirm adherence
to the policy for the preceding calendar year by signing a Competition Law Compliance Certificate on
an annual basis.
• Group General Counsel advises and supports employees and management in this area.
• 21 competition law ambassadors appointed at cluster level to assist with competition law compliance
initiatives including regular communication and promotion to staff and local management.
• Continuous process to ensure understanding of issues and implications of regulatory practice and
legislative amendments.
• Contracts with competitors are recorded in an online register.
• Reduced trade association participation.
Cyber and Information Security
Strategic Priorities
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.
• Formally documented policies in relation to information security including cyber security are in place.
• The Group maintains a framework to ensure awareness at each level of the organisation with regard
to the implementation of cyber security. This framework is regularly audited.
• Specific controls are in place to prevent and detect security issues relating to business critical systems.
• External Penetration testing is completed on an annual basis by specialist third parties with any issues
remediated in accordance with formal procedures.
• Defined business continuity and IT disaster recovery plans are in place and are frequently tested.
• The Group is committed to ongoing capital expenditure as appropriate to continually enhance the
IT infrastructure.
• The Group increased employee communications relating to cyber security since the start of the
COVID-19 pandemic to ensure vigilance is maintained.
• Mandatory cyber security training for all employees.
Climate Change
Strategic Priorities
The global impact of climate
change in the long-term
could adversely affect the
Group’s business and results
of operations.
• Continuous reduction of scope 1 and 2 emissions through specific investments in energy generation,
energy reduction and non-fossil fuel based energy sources (including renewables).
• Climate scenario analysis conducted currently indicates that the proportion of asset value at risk is low.
• Continuous development of innovative packaging solutions for the Group’s customers that can
demonstrably reduce their carbon footprint.
• Validation of the Group’s emission reduction targets as being science-based and in line with the
Paris Agreement.
Increased No Change
Reduced
Key to Risk TrendKey to Strategic Priorities
Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
39
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
FINANCE REVIEW
Investing for durable growth
to meet customer demand
Results
Revenue for 2021 was €10,107 million,
18% up on 2020 on both a reported
and an underlying basis. Revenue
in Europe was up 18%, driven by
volume growth and input cost
recovery through progressive box
price increases. On an underlying
basis, revenue in Europe was up
17%. In the Americas, revenue
was up 20% on the full year 2020,
or 21% on an underlying basis.
European revenue rose by
€1,202million to €7,847million in
2021, with an underlying increase of
€1,140million and positive currency
movements and hyperinflationary
adjustments of €30million, along
with a net contribution of €32million
from acquisitions and disposals.
The increase in underlying revenue
of 17% reflected corrugated volume
growth of approximately 8% and
continued input cost recovery in
corrugated pricing.
Revenue in the Americas
increased by €375million in 2021
to €2,260million, with underlying
growth of €394million, equating to
21%, and a net impact of €26million
from acquisitions and disposals,
partly offset by net negative
currency and hyperinflationary
movements of €45million.
The underlying increase was driven
by a 9% increase in corrugated
demand year-on-year along with
higher box prices.
Gross revenue, comprising both
intra-group and third party
revenue, for the Group in 2021
was €18,721 million compared
to €13,994 million in 2020,
representing a 34% increase.
EBITDA for 2021 was €1,702million,
an increase of 13% on 2020. The
result reflects the Group’s ability
to recover significant input cost
pressure by way of progressive box
price increases, strong box volumes,
the resilience and security of supply
delivered by the Group’s integrated
model, alongside the benefits of our
customer-focused innovation and
capital spend programme and the
dedication of our 48,000 employees.
On an underlying basis, Group
EBITDA was up 13% on 2020, with
Europe up 10% and the Americas
up 20%.
At €1,302million, EBITDA in Europe
was €122million higher than in
2020 on both a reported and an
underlying basis. The increase was
driven by higher paper prices and the
subsequent effect on average box
prices along with higher volumes
Delivering sustainable packaging solutions, made in an increasingly sustainable way,
means we play an integral role in the delivery of both our customers’ sustainability
goals and those of the end consumer.
Ken Bowles
Group Chief Financial Officer
Further information in relation to Alternative Performance Measures referenced in this Statement is included in the Supplementary Information section on pages 191 to 197.
40
Smurfit Kappa Annual Report 2021
partly offset by higher recovered
fibre and energy costs. There were
strong performances in all countries,
illustrating the robust demand
backdrop for our innovative and
sustainable product offering.
Our European business continued
to build on its strong operating
platform through 2021 with
significant corrugated and
containerboard projects announced
for France, Germany, the Czech
Republic, Slovakia, Poland and the
UK, as well as in our bag-in-box
operation in Spain. These
investments in the latest high-tech
and energy efficient machinery,
including new corrugators and
converting machines alongside
facility expansion projects, will allow
us to increase production output
and expand the range of high
value products that we offer to
our growing customer base, while
also contributing towards the
sustainability goals of the Group
and our customers.
The acquisition in October 2021
of a recycled containerboard mill
in Italy brings 600,000 tonnes of
containerboard into our integrated
system ensuring we continue to
meet our customers’ needs and
capture future growth.
At €441million, reported EBITDA
in the Americas was €69million
higher than in 2020. With net
negative currency and
hyperinflationary movements
of €9million partly offset by a net
contribution of €2million from
acquisitions and disposals, the
underlying year-on-year move
in earnings was an increase of
€76million. The underlying increase
was driven by an increase in
corrugated demand and higher
box prices along with cost
containment in the region.
As in Europe, the Group continued
to build on its operating platform
with significant capacity and
sustainability related investment
in the corrugated, containerboard
and speciality businesses across
the region. In June and July, the
Group announced the expansion
of our Latin America business
with acquisitions in Peru and
Mexico respectively, adding to our
geographic diversity and enhancing
our customer offering in these high
growth regions.
Allowing for a negative impact
from disposals of €6million and a
negative hyperinflation adjustment
of €1million, the underlying
year-on-year increase in EBITDA
for the Group was €199million,
equating to 13%. Pricing for
containerboard in both Europe
and the Americas continued
the upward trend through 2021,
driven initially by strong demand
and rising recovered fibre prices
and subsequently, in the latter
part of the year in Europe, by rising
energy costs. Increasing recovered
fibre prices have cost the Group
an additional €440million in 2021
versus the prior year while rising
energy prices have cost the Group
approximately €235million versus
the prior year.
The Group’s operating profit before
exceptional items increased by
€151million from €922million in
2020 to €1,073million in 2021 mainly
due to corrugated growth of 8%
and the progress on box price
increases, partly offset by significant
raw material headwinds, primarily
recovered fibre and energy costs.
Pre-exceptional net finance costs
at €131million were €13million
lower in 2021 primarily as a result
of a decrease in cash interest of
€9million predominantly due to
a lower average level of borrowing,
a reduction in bond interest payable
following the issuance of our dual
tranche inaugural green bond and
the repayment of our higher coupon
2024 bond in September 2021.
Non-cash costs were €4million
lower, which was mainly due to
a €5million decrease in interest
cost on net pension liabilities and
a €4million decrease in the foreign
currency translation net loss on
debt, partly offset by a negative
swing of €4million from a
hyperinflation related net monetary
gain in 2020 to a loss in 2021.
With the €151million increase in
operating profit before exceptional
items, combined with the €13million
decrease in net finance costs,
the pre-exceptional profit before
income tax was €944million,
€165million higher than in 2020.
After exceptional items of €31million,
the profit before tax for the full year of
2021 was €913million compared to
€748million in 2020. The income tax
expense was €234million compared
to €201million in 2020, resulting in
a profit of €679million for 2021
compared to €547million in 2020.
Exceptional Items
There were no exceptional items
within operating profit in 2021.
Net exceptional items charged
within operating profit in 2020
amounted to €31million. €35million
related to reorganisation and
restructuring costs in Europe and
the Americas and €11million related
to the unique COVID-19 recognition
reward given to all permanent
employees. These were partly
offset by a €15million exceptional
gain on the UK pension scheme.
Exceptional finance costs charged
in 2021 amounted to €31million
represented a redemption premium
of €28million together with the
related accelerated write-off of
unamortised debt issue costs
of €3million due to the early
redemption of bonds.
There were no exceptional finance
items in 2020.
Profit Before Income Tax
After exceptional items, the
Group’s profit before income tax
amounted to €913million in 2021,
comprising the pre-exceptional
profit of €944million and an
exceptional charge of €31million.
In 2020, the profit before income
tax was €748million, comprising
the pre-exceptional profit of
€779million and a net exceptional
charge of €31million.
Income Tax Expense
The income tax expense in 2021 was
€234million (comprising a current
tax charge of €265million and a
deferred tax credit of €31million)
compared to €201million
(comprising a current tax charge
of €176million and a deferred tax
charge of €25million) in 2020.
There was a net €89million
increase in current tax. The net
increase is mainly due to higher
profitability and its geographical mix,
increasing tax rates and the impact
of non-recurring items.
The movement in deferred tax from
an expense of €25million in 2020
to a credit of €31million in 2021
includes the effects of the reversal
of timing differences on which
deferred tax was previously
recorded, the recognition of tax
benefits on losses and other
investment tax credits partly offset
by the negative impact of increases
in tax rates in a number of countries.
There was a lower tax credit of
€4million on exceptional items in
2021 compared to a €9million tax
credit in2020.
Earnings per Share
Basic EPS amounted to 263.9 cent
in 2021 compared to 227.9 cent in
2020. On a diluted basis, our EPS
in 2021 amounted to 261.1 cent
compared to 225.7 cent in 2020.
The year-on-year increase in the
Group’s basic EPS reflected the
higher pre-exceptional operating
profit, lower net finance costs partly
offset by the impact of the higher
weighted average number of
ordinary shares and a higher income
tax expense net of exceptional
items. On a pre-exceptional basis,
our EPS in 2021 increased by
16% from 236.9 cent in 2020
to 274.5cent.
The EPS figures are calculated on
the basis of the weighted average
number of shares in issue during the
year, which was 257,086,000 in 2021
compared to 238,758,000 in 2020.
The increase is primarily due to the
issue of shares as part of the equity
capital raise in November 2020.
Cash Flow
Free cash flow in 2021 was
€455million compared to
€675million in 2020, a decrease of
€220million. EBITDA growth of
€192million, combined with lower
outflows for cash interest and the
absence of an exceptional outflow
of €18million in 2021 were more
than offset by higher outflows for
capital expenditure, higher tax
payments, a higher outflow for the
change in employee benefits and
other provisions and a negative
swing from a working capital inflow
in 2020 to an outflow in 2021.
Cash interest was €109million in
2021 compared to €118million in
2020. The year-on-year decrease
mainly reflects the lower average
level of borrowing and the reduction
in bond interest payable following
the issuance of our dual tranche
inaugural green bond and the
repayment of our higher coupon
2024 bond in September 2021.
The working capital outflow was
€114million compared to an inflow
of €94million in 2020. The outflow
FINANCE REVIEW CONTINUED
41
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Inaugural Green Bonds
(million)
€500
12 year bonds
Inaugural Green Bonds
(million)
€500
8 year bonds
The Group’s enhanced financial flexibility has facilitated
the completion of over €400 million in acquisitions during
2021 without any material impact on the Group’s overall
leverage position year-on-year.
”
“
in 2021 was primarily driven by an
increase in debtors and stock, partly
offset by an increase in creditors.
These increases reflect the
combination of volume growth,
higher box prices, higher paper
prices and considerably higher
recovered fibre and energy costs.
Working capital amounted to
€646million at December 2021,
representing 5.7% of annualised
quarterly revenue compared to
5.6% at December 2020.
Capital expenditure in 2021
amounted to €693million (equating
to 124% of depreciation) compared
to €575million (equating to 104%)
in2020.
Tax payments in 2021 of €239million
were €45million higher than in 2020
with higher payments in both Europe
and the Americas.
The change in employee benefits
and other provisions was an outflow
of €81million in 2021 compared to
€20million in 2020. The increase is
primarily due to a negative swing
in current provisions from an inflow
in 2020 to an outflow in 2021 and a
higher outflow for retirement benefits.
The ‘other’ net inflow of €3million
in 2021 compared to €14million in
2020. The inflow in 2021 primarily
represented a hyperinflationary
adjustment inflow and the sale of
property, plant and equipment partly
offset by lease modifications. The
inflow in 2020 mainly represented a
hyperinflationary adjustment inflow
and capital grants received.
Driven mainly by the purchase
of businesses, investments and
non-controlling interests ('NCI') of
€449million, dividend payments
of €302million and the payment of
the Italian Competition Authority
fine of €124million, investment
and financing cash flows for the
year amounted to an outflow of
€879million compared to an inflow of
€356million in 2020. Other outflows
comprised €22million for the
purchase of shares under the
Deferred Bonus Plan ('DBP') and
€28million of a redemption premium
for the early repayment of bonds.
Investment and financing inflows of
€46million related to the sale of
businesses and investments of
€37million along with net derivative
termination receipts of €9million.
The outflow of €449 million in 2021
for the purchase of businesses,
investments and NCI related mainly
to the acquisitions in Italy, Mexico
and Peru along with the payment of
the deferred consideration on the
exercise of the call option in relation
to the Serbian acquisition.
The investment and financing
cash inflows of €356million
in 2020 mainly comprised the net
contribution of the equity capital
raise of €648million partly offset by
€260million for dividend payments,
€25million for the purchase of
NCI and an associate in Colombia,
along with shares purchased under
the DBP.
With our free cash flow of
€455million in 2021 more than
offset by the net investment and
financing outflows of €879million,
the result was a net cash outflow of
€424million compared to an inflow
of €1,031million in 2020. After the
amortisation of deferred debt issue
costs of €10million, net negative
currency translation adjustments
of €50million, net debt acquired of
€25million and net cash disposed
of €1million, net debt increased by
€510million to €2,885million at
December 2021 from €2,375million
at December 2020.
The net negative currency
translation adjustment of €50million
in 2021 mainly related to the US
dollar and Sterling. The US dollar
strengthened from US$1.23/euro
at December 2020 to US$1.13
at December 2021, resulting in
a negative currency translation
adjustment of €42million. Sterling
strengthened from £0.90/euro
at December 2020 to £0.84 at
December 2021, resulting in a
negative currency translation
adjustment of €9million.
The net positive currency translation
adjustments of €85million in 2020
mainly related to the US dollar,
Sterling and the Swedish Krona.
The US dollar weakened from
US$1.12/euro at December 2019
to US$1.23 at December 2020,
resulting in a positive currency
translation adjustment of €51million.
Sterling weakened from £0.85/euro
at December 2019 to £0.90 at
December 2020, resulting in a
positive currency translation
adjustment of €11million. The
Swedish Krona strengthened from
SEK10.45/euro at December 2019
to SEK10.03 at December 2020,
resulting in a positive currency
translation adjustment of €12million.
With net debt of €2,885million
and EBITDA of €1,702million,
our leverage ratio was 1.7 times
at December 2021 compared
to 1.6 times at December 2020.
The increase in our leverage was
driven primarily by the increase
in net debt partly offset by the
increase inEBITDA.
Capital Resources and Liquidity
Committed facilities (excluding
short-term sundry bank loans
and overdrafts) amounted to
€5,006million (2020: €4,584million)
of which €3,351million (2020:
€2,922million) was utilised at
31 December 2021. The weighted
average period until maturity
of undrawn committed facilities
is 4.2 years (2020: 4.3 years).
In February 2021, Moody’s and
Standard & Poor’s upgraded the
Group’s long-term issuer rating
to Baa3 and BBB- respectively with
stable outlook. As a result of these
upgrades, along with the Fitch
Ratings upgrade in 2020 to BBB-, the
Group now has an investment-grade
status with all three rating agencies,
with stable outlook.
In line with the Group’s ongoing
credit strategy of further extending
maturity profiles, diversifying
funding sources and increasing
liquidity, the Group undertook
a number of actions in 2021.
In April 2021, the Group amended
and extended its €200million 2022
trade receivables securitisation
programme, which utilises the
Group’s receivables in Austria,
Belgium, Italy and the Netherlands.
The programme was extended to
January 2026 at a reduced facility
size of €100million and with a margin
reduction from 1.375% to 1.1%.
In November 2021, the Group
amended and extended its
€230million 2023 trade receivables
securitisation programme, which
utilises the Group’s receivables
in France, Germany and the UK.
The programme was extended to
November 2026, with the facility size
remaining at €230million and with a
margin reduction from 1.2% to 1.1%.
As part of the amendment process
for each of these programmes,
the Group further aligned its
sustainability ambitions and targets
into its financing by embedding its
42
Smurfit Kappa Annual Report 2021
sustainability targets via KPIs into
the amended and extended trade
receivables programme. These
programmes now incorporate
five KPIs spanning the Group’s
sustainability objectives regarding
climate change, forests, water,
waste and people, with the level of
KPI achievement linked to the pricing
on the programme.
In September 2021, the Group
announced the launch of its Green
Finance Framework with an ISS ESG
Second Party Opinion. The Group
subsequently announced the launch
and successful pricing of its inaugural
green bond offering, comprising
€500million of senior notes due 2029
and €500million of senior notes due
2033 with coupons of 0.5% and 1%
respectively. The coupons achieved
for these tenors were not only the
lowest in the Group’s history but also
the lowest for a corporate issuer in
our ratingcategory.
Additionally, in September 2021,
the Group redeemed €500million
2.375% senior notes due 2024.
The Group has a €1,350million
RCF with a maturity date of January
2026, which incorporates five KPIs
spanning the Group’s sustainability
objectives regarding climate
change, forests, water, waste
and people, with the level of KPI
achievement linked to the pricing
on the facility. Borrowings under
the RCF are available to fund
the Group’s working capital
requirements, capital expenditure
and other general corporate
purposes. As a result of the rating
upgrades in February 2021, the
margin on the RCF reduced from
0.817% to 0.65%. At 31 December
2021, the Group’s drawings on this
facility were US$8million, at an
interest rate of 0.754%.
At 31 December 2021, the Group
had outstanding €13million variable
funding notes (‘VFN’s) issued under
the €230million trade receivables
securitisation programme maturing
in November 2026 and €5million
VFN’s issued under the €100million
trade receivables securitisation
programme maturing in
January2026.
Net debt was €2,885million at the
end of December 2021, resulting in a
net debt to EBITDA ratio of 1.7 times
compared to 1.6 times at the end
of December 2020. With net debt to
EBITDA at 1.7 times, the strength of
the Group’s balance sheet continues
to secure long-term financial and
strategic flexibility. Given the strong
business profile and ability to
consistently deliver substantial free
cash flow, the Group is comfortably
operating within its target leverage
range of 1.5x to 2.0x.
At 31 December 2021, the Group’s
average interest rate was 2.63%
compared to 3.13% at 31 December
2020. The reduction in our average
interest rate was primarily due to
the refinancing activity undertaken
during the year. At 31 December
2021, the Group’s diversified funding
base and long dated maturity profile
of 5.8 years (2020: 4.9 years) provide
a stable funding outlook. At
31 December 2021, the Group
had a strong liquidity position of
approximately €2.52 billion
comprising cash balances of
€869million, undrawn available
committed facilities of €1,343million
on our sustainability linked RCF and
€312million on our sustainability
linked securitisation facilities.
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.
Market Risk and Risk
Management Policies
The Board of Directors sets the
Group’s treasury policies and
objectives, which include controls
over the procedures used to
manage financial market risks.
These are set out in detail in
Note 29 to the Consolidated
Financial Statements.
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
31 December 2021, the Group
had fixed an average of 97% of its
interest cost on borrowings over
the following 12 months.
The Group’s fixed rate debt
comprised €250million 2.75% senior
notes due 2025, US$292.3million
7.50% senior debentures due 2025,
€1,000million 2.875% senior notes
due 2026, €750million 1.5% senior
notes due 2027, €500million 0.5%
senior green notes due 2029 and
€500million 1.0% senior green
notes due 2033. €100million in
interest rate swaps converting
variable rate borrowings to fixed
rate matured in January 2021.
The Group’s earnings are affected
by changes in short-term interest
rates on its floating rate borrowings
and cash balances. If interest rates
for these borrowings increased by
one percent, the Group’s interest
expense would increase, and income
before taxes would decrease,
by approximately €2million over
the following 12 months. Interest
income on the Group’s cash
balances would increase by
approximately €9million assuming
a one percent increase in interest
rates earned on such balances over
the following 12 months.
The Group uses foreign currency
borrowings, currency swaps and
forward contracts in the management
of its foreign currency exposures.
Sustainability
The Group has continued to
make significant progress across
its sustainability targets in 2021.
Focusing on delivering sustainable
packaging solutions made in an
increasingly sustainable way means
that we also play an integral role
in the delivery of not only our
customer’s sustainability goals but
also those of the end consumer.
The progress made during 2021
was built upon the achievements
outlined in our 14
th
annual
Sustainable Development Report
(‘SDR’). It highlights the Group’s
long-standing objective to drive
change and nurture a greener
and bluer planet through the three
key pillars of Planet, People and
Impactful Business. Furthermore,
the Groups end-to-end approach
to sustainability is evident in its
innovative products and processes
that support customers and
positively impact the entire
valuechain.
In our 2020 SDR, Smurfit Kappa
reported significant progress in
reducing our fossil CO
2
emission
intensity. The Group is the first
in its industry to have announced
targeting at least net zero emissions
by 2050 and compared to its
baseline year 2005, it reduced its
emissions intensity by 37.3% by the
end of 2020. The Group is well on its
way to reach our intermediate 2030
target of a 55% reduction, in line with
the EU Green Deal objectives.
An illustration of our continued
action on CO
2
reduction was the
announcement during the year
of significant investments in the
Group’s Zulpich mill in Germany
saving 55,000 tonnes of CO
2
annually and the Hoya paper mill
and board manufacturing plant in
Germany which will reduce CO
2
emissions by 5,500 tonnes
perannum.
The Group also made continued
progress on a number of its other
key sustainability targets; water
discharge, waste to landfill, chain
of custody certification, safety
performance and social projects.
While our entire SDR has been
independently third-party assured
in accordance with Global Reporting
Initiative (‘GRI’) Standards since
2009, in 2020 the Group started
to report consistent with
recommendations of the TCFD
and the Sustainable Accounting
Standards Board (‘SASB’) criteria.
The Group has also been contributing
towards making the UN 2030
Sustainable Development Goals
(‘SDGs’) a reality since 2015. This
contribution was recognised by the
Support the Goals movement in
March 2021 when the Group became
the first FTSE 100 company to receive
a five-star rating. By committing
to these sustainability targets, the
Group’s Better Planet Packaging
portfolio of sustainable products
will continue to help our customers
to deliver on their own short and
long-term sustainabilitygoals.
Our circular business model which
drives positive change from the
responsible sourcing of renewable
raw materials to the sustainable
production of recyclable,
biodegradable and fit-for-purpose
packaging solutions was the basis
of our Green Finance Framework
published during the year and
supported by a positive ISS ESG
Second Party Opinion.
Smurfit Kappa handles 7.4 million
tonnes of predominantly post-
consumer materials each year
making it an essential component
of the circular economy where
legislation is continuing to be
FINANCE REVIEW CONTINUED
43
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
introduced to transition businesses
to lower carbon and more circular
business practices. The Group’s
sustainable land use has been
validated by non-governmental
organisations and third party
assessments which, along with our
industry leading chain of custody
certification, is a key differentiator
for our customers.
During the year, Smurfit Kappa
announced a new project at
its Nettingsdorf Paper Mill in
Austria that will utilise waste heat
generated at the mill to help power
a sustainable district heating
solution for the local community
of Ansfelden. Up to 25 megawatts
of heat generated in the production
process will now be captured and
converted through the new heat
extraction plant. This heat will be
supplied to the district heating
network that connects to
10,000 households, providing
a sustainable and secure energy
source and demonstrates the
positive environmental impact
of the collaboration with the
local community.
Also during the year, the Group’s
emissions reduction targets were
approved by Science Based Target
initiative ('SBTi') as consistent with
levels required to meet the goals
of the Paris Agreement and well
below 2°C. This third party validation
adds to our existing endorsements
from rating providers such as
MSCI, Sustainalytics and ISS ESG.
The Group has been recognised
as a top sustainability performer
by Sustainalytics, and is included in
the Sustainalytics' Top Rated ESG
Companies for 2022. The Group
was named a Regional Top Rated
company and is ranked in the top 5
of the Paper Packaging category
globally. The ESG Regional Top
Rated badge received by the Group
covers the EMEA region and
categorises the Group's ESG risk
rating as 'low-risk'.
Smurfit Kappa continues to be listed
on various environmental, social and
governance indices and disclosure
programmes, such as FTSE4Good,
the Green Economy Mark from the
London Stock Exchange, Euronext
Vigeo Europe 120, STOXX Global
ESG Leaders, ISS Solactive and
Ethibel’s sustainable investment
register. The Group also performs
strongly across a number of third
party certification bodies, including
MSCI, ISS ESG and Sustainalytics.
Summary Cash Flow
2021
€m
2020
€m
EBITDA 1,702 1,510
Exceptional items – (18)
Cash interest expense (109) (118)
Working capital change (114) 94
Capital expenditure (693) (575)
Change in capital creditors (14) (18)
Tax paid (239) (194)
Change in employee benefits and other provisions (81) (20)
Other 3 14
Free cash flow 455 675
Italian Competition Authority fine (124) –
Share issues (net) – 648
Purchase of own shares (net) (22) (16)
Sale of businesses and investments 37 –
Purchase of businesses, investments and NCI (449) (25)
Dividends (302) (260)
Derivative termination receipts 9 9
Premium on early repayment of bonds (28) –
Net cash (outflow)/inflow (424) 1,031
Acquired net debt (25) (1)
Disposed net cash (1) –
Deferred debt issue costs amortised (10) (7)
Currency translation adjustments (50) 85
(Increase)/decrease in net debt (510) 1,108
A reconciliation of the Summary Cash Flow to the Consolidated Statement of Cash Flows, a reconciliation of Other Non-cash Movements
to Note 21 to the Consolidated Financial Statements and a reconciliation of Free Cash Flow to Cash Generated from Operations are included
in sections K and L in Alternative Performance Measures in the Supplementary Information section on pages 195 to 197.
Conclusion
The strong results delivered in
2021 illustrate the benefits of
everything we do from both an
investment and cultural perspective
– a performance-led culture working
on the foundations of a quality asset
base and a focus on innovation
and sustainability. It is important to
note that these results have been
delivered against a backdrop of
a continued global pandemic,
a significant operational challenge
that the Group worked hard to
overcome. The lessons learned and
the practices implemented have
been a demonstration of the best
in our people, who adapted and
delivered for one another and most
importantly our customers.
We are very proud that the Group
remained fully operational, albeit
under difficult circumstances at
times, to ensure our products got
to where they were needed for our
over 65,000 customers. 2021 was
characterised by significant and
unprecedented cost inflation,
primarily in recovered fibre and
energy. The growth in the demand
for our sustainable products
resulted in unprecedented tightness
in the containerboard market.
Our unique integrated model, with
the strength that brings in terms of
security of supply has proven to be
a distinct competitive advantage.
Capital allocation supports the
Groups ambition around growth,
returns and value creation. Our
balance sheet remains strong
and with a net debt to EBITDA at
1.7times gives the Group a lot
of financial flexibility. The Group
accelerated its investment plans
to meet customer’s needs for
innovative and sustainable
packaging and our acquisitions
in 2021 strengthen our geographic
network and enhance our
product portfolio.
Finally, the dividend is a key pillar of
our capital allocation, it is an input
rather than an output. The increase
in the final dividend in 2021 is an
illustration of our continued belief
in the future prospects and cash
generation ability of SKG.
Ken Bowles
Group Chief Financial Officer
44
Smurfit Kappa Annual Report 2021
STAKEHOLDER ENGAGEMENT
Understanding
our stakeholders
Customers Investors
How we Engaged
Ongoing Customer
Engagement
Our sales teams maintain active
engagement with our customers
across Europe and the Americas,
to understand their challenges and
meet their business needs. In 2021,
global supply chain shortages
caused a slowdown in the operations
of many businesses. Over that
period, Smurfit Kappa’s vertical
integration was key to guaranteeing
security of supply for our customers
and enabling business continuity.
Returning businesses to operational
strength continues to be the main
priority in the near-term, balancing
that, and their longer-term focus on
sustainability. We actively engage
with customers on using our
integrated circular model and data
to improve processes, products,
supply chains and logistics.
Virtual Events
During 2021, when remote working
was the primary operating mode,
virtual platforms enabled us to
open up new conversations and
engage with a much wider audience.
An example of that was the ‘Better
Planet Packaging Event 2021’
a virtual event which took place
on 25 May 2021. Over 2,700
people attended the event to
discover our latest innovations
and share knowledge.
Customer Surveys
In 2021, SKG conducted a
comprehensive digital survey with
our top 30 strategic customers. This
survey forms part of our ongoing
effort to better understand and
meet customer needs in key areas
such as supply chains, innovation
and sustainability. We were pleased
to have maintained a positive net
promoter score, despite disruption
as a result of the pandemic, and the
results will feed into our 2022 plans.
E-commerce
With more people shopping online
in greater numbers, many of our
customers were forced to move
part or all of their business online.
Through the course of 2021, we
supported hundreds of customers
to integrate their packaging into the
omni-channel supply chain. We also
extended our ‘off-the shelf’ online
packaging portfolios into new
sectors to include eFashion, eBottle
and eFlowers to meet growing
sectoral online needs.
How we Engaged
Ongoing Investor Engagement
Our executive Directors together
with the investor relations team
maintain active engagement/
dialogue with the investment
community. During 2021, the team
met with over 400 analysts and
portfolio managers from over
200 different investment funds.
Conversations took place at various
virtual investor conferences and
roadshows as well as multiple
ad hoc video and telephone calls.
The Chair met with investors as part
of a virtual roadshow in April 2021
and also engaged with proxy advisory
representatives during the year.
Early in 2021 both Moody's and
Standard & Poor's upgraded the
Group's long-term issuer rating
to Baa3 and BBB- respectively,
joining Fitch's BBB- rating at
investment grade.
2021 saw a notable increase in
engagement with ESG focused
investors from both the equity
and debt capital markets, given
the strength of the Group’s ESG
credentials and the issuance of
our inaugural green bonds in
September 2021.
Annual General Meeting
(’AGM’)
The Company held its AGM on
30 April 2021. In line with COVID-19
restrictions, the AGM was a closed
meeting with the minimum quorum
in accordance with the Articles of
Association of the Company.
Number of customer
webinars in 2021
150+
on new products
and effective
implementation
Shareholders were encouraged
to join the AGM via an online
broadcast and to submit a Form
of Proxy to ensure they could vote
and be represented at the AGM.
Shareholders could also email any
questions relating to the items
on the agenda in advance of the
meeting. Alternatively shareholders
who chose to attend via the online
broadcast could submit questions
during the meeting.
Annual Report
The Investors section on the Group’s
website, smurfitkappa.com, provides
the full text of the Annual Report and
copies of presentations to analysts
and investors. Press releases are also
made available in this section of the
website immediately after release to
the stock exchanges.
ESG Ratings by Rating Agencies
The Group continues to be listed on
various sustainability indices, such
as FTSE4Good, the Green Economy
Mark from the London Stock
Exchange, Euronext Vigeo Europe
120, STOXX Global ESG Leaders,
ISS Solactive and Ethibel’s
sustainable investment register.
SKG also performs strongly across
a variety of third party certification
bodies, including MSCI, Sustainalytics
and ISS ESG. During 2021, the
Group's emission reduction targets
were approved by the Science Based
Targets initiative ('SBTi') as being in
line with the Paris Agreement.
45
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
69 Projects
38 Projects
31 Projects
12 Projects
Empowering
communities
46%
25%
21%
8%
Encouraging
wellbeing
Protecting
our planet
Inspiring
our future
We want to build a culture that fosters
engagement and enables us to build and maintain
successful relationships with our stakeholders.
Suppliers Communities
How we Engaged
Compliance with Policies
and Audits
We are committed to working with
our suppliers in accordance with
our sustainability principles and
objectives, which highlight our
requirements in the areas of
compliance, performance risk
management, social responsibility
and governance. Maintaining
transparent and long-term
relationships with suppliers is
essential for our business. This
partnership approach ensures
we can audit suppliers on their
compliance with our sustainable
supply chain standards, and where
they fall short, work with them
to improve sustainability in
their business.
Training
We offer our suppliers a range
of training, covering many topics
including print technology and
process improvement.
Standardisation
We continue to standardise our
capital equipment purchases for
our corrugated plants. This allows
our suppliers the potential to
achieve process and manufacturing
economies of scale and to reduce
their energy consumption and
carbon footprint.
Supplier Collaboration
We work with our suppliers to
promote better health and safety
and continuous improvement
in the work environment.
By agreeing with suppliers that
shipments can be bundled, they can
optimise volume to choose more
sustainable transport options with
lower emissions, better service levels
and lower costs.
How we Engaged
Smurfit Kappa Foundation
The Smurfit Kappa Foundation
supports projects in countries
where we operate, focusing on
disadvantaged children’s health
and nutrition, basic care, and early
education. The Foundation approved
such projects in 2021 in Argentina,
Brazil, Colombia, the Czech Republic,
El Salvador, France, Ireland, Italy,
Poland, Spain, Slovakia, the
Netherlands, the United Kingdom
and the United States.
In 2021, recipients of donations
from the Smurfit Kappa Foundation
included, the provision of shelter for
homeless children and their families,
children’s health and education, as
well as projects to ensure inclusion
of as many children as possible.
Our Open Community
As part of our mission to be a globally
admired business, we believe it is
important that we give back when
and where we can. Despite facing
into a second year of the COVID-19
pandemic, our teams across the
world continued to donate their time,
effort, and expertise to making a
positive and lasting impact on their
communities during the year.
All of these activities are gathered
together under our ongoing Open
Community initiative, which is a
key demonstration of not only our
organisational culture, but also
our essential and enduring purpose:
We create, protect and care.
Our Open Community initiatives
cover all aspects of our involvement
with our communities around the
world, which are captured under
four categories which are outlined
in the chart below.
In 2021, almost 5,000 of our
colleagues got involved in 150
initiatives across 23 countries, and
we have committed to continuing
this work with €24 million to be
donated between 2020 and 2025.
46
Smurfit Kappa Annual Report 2021
STAKEHOLDER ENGAGEMENT CONTINUED
In line with the requirements of the
UK Corporate Governance Code,
the Sustainability Committee
(‘the Committee’) is responsible for
engagement with the workforce on
behalf of the Board. The Committee
also has responsibility for the overall
strategic guidance of the Group’s
Sustainability strategy which is
based on the three key strategic
sustainability and corporate
responsibility pillars: Planet,
People and Impactful Business.
The role of the Committee is to
report to the Board on matters such
as employee sentiment, views and
Update from the Chair of the Sustainability Committee,
Jørgen Buhl Rasmussen, on the second year of activities and
insights on the Committee’s role in Workforce Engagement.
‘’As a Board, we have always understood the importance of
maintaining a strong people centric culture, and recognise the value
of engaging and listening to the diverse views of colleagues across
the global organisation. This is my third year in the role as Chair
of the Committee, and I am very pleased to report a high level of
employee interaction across the year, with opportunities to meet
with colleagues virtually in a meaningful and open way.
My role as Chair is essentially to ensure the Committee acts as a
communications champion for all colleagues across the business,
to understand the employee voice and to ensure that voice is heard
in the boardroom, and represented in a manner that is inclusive and
fair. With the support and partnership of the Group Vice President
of Human Resources, I have been able to keep the Board informed
and take into consideration the interests of the workforce on a very
broad range of topics that matter to our people.
In 2021, we regularly reviewed employee sentiment indirectly via
people data on employee engagement surveys such as MyVoice,
ethics, health and safety, employee turnover and diversity progress.
In terms of direct engagement, as a Committee, we also met with
employees (virtually in light of the ongoing pandemic restrictions
and safety protocols) on many occasions during the year. I have
included some examples of our positive direct engagement during
the year with the workforce. In February, our Board Chair held an
open questions and answers session with 500 managers at a global
virtual management conference. In March, one of the Committee
members attended an International Women’s Day celebration in
Mexico and had the opportunity to discuss gender representation
and diversity. In June, the Committee members attended a module
and collaborated with our 2021 AMD (Advanced Management
Development programme in our Smurfit Kappa Academy) cohort.
In July, we joined our colleagues on virtual plant tours in Colombia
and the Netherlands which provided us with the opportunity to
reach deep into our organisation to discuss employee matters.
Most recently in November, the Committee met with a selection
of the Group’s high potential females across all levels and countries,
in a workshop to discuss culture at Smurfit Kappa, Diversity &
Inclusion, Female Careers and Development, and employee
engagement of females via a MyVoice focus group.
The Group Vice President of Human Resources presented on four
occasions to the Committee during the year, reviewing trends and
evolving our workforce engagement methods between colleagues
and the Committee. Overall it’s been a year of strong workforce
engagement, and I am looking forward to a calendar of activities
in the year ahead with further opportunities to meet our colleagues
and ensure the employee voice is heard and valued.’’
A year of great
employee engagement
During 2021, we continued to create opportunities to engage directly with our workforce
despite the virtual nature of working in many cases due to the ongoing pandemic. It is
important to our Board of Directors that they are actively engaged with our diverse workforce
right across the Group. We all value a two-way dialogue, which is open, honest and covers
a breadth of topics that matter to our employees. Open channels of communication and
a good pulse on employee sentiment allows us to understand the engagement levels,
motivation, trust, and values that our employees feel in Smurfit Kappa.
overall areas of interest for
employees across the year.
The Committee operates under
formalised terms of reference
which are reviewed each year.
In 2021 the Committee further
evolved its engagement to include
direct engagement with employees.
This focused on ensuring positive
support and engagement with
the workforce on a number of
topics which included health &
wellbeing, safety, MyVoice, female
engagement, management of
COVID-19, workplace satisfaction
and career development.
In May 2021, our entire workforce
of approximately 48,000 colleagues
were invited to participate in a Global
online confidential employee
engagement survey. Our ‘MyVoice’
initiative, which was deployed in
21 languages across 35 countries
provided us with real time feedback
from employees across a number
of core dimensions of; safety,
leadership, business strategy,
inclusion & diversity, learning &
development, innovation,
workplace, rewards, and employee
engagement. In addition, employees
had the opportunity to openly share
feedback on strengths and focus
areas for the years ahead. The Board
appreciated the very high levels
of participation with this 100%
digital survey, which attracted the
highest participation rate of any of
our surveys to date. A report and
presentation of the feedback
received was reviewed by the Board,
the Group CEO and the Group Vice
President of HR during the year,
and we are pleased to report a
global engagement rate increase
of 13 percentage points which
demonstrates a positive
endorsement of the people centric
culture in Smurfit Kappa, our lived
values, and our overall people focus.
47
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Master logos on white Logos reversed out of SK or mid blue Logos reversed out of dark blue
2021
2021 2021
2021 Key Themes:
The key themes emerging
from the workforce
engagement initiatives during
2021 were:
• The positive role of
management in ensuring
employees safety/support
during the COVID-19
pandemic;
• The importance of
Inclusion, Diversity &
Equality in our organisation;
• The positive consequence
of investment in our people
– employee assistance
programmes, mental
health, wellbeing and
learning and development;
• The significance of talent
development and career
planning for succession
management;
• The value of rewards and
recognition programmes;
• The appreciation of
employee vaccination
programmes and support;
• The standing of our Code
of Conduct’s compliance
with the law and ethical
behaviour ensuring an open
and safe place to work;
• The employee alignment
with our Purpose – to create,
protect and care;
• The enhanced focus on our
communities during these
unprecedented times;
• The enhanced focus on
employee communications,
and overall engagement; and
• Recognition of the unique
culture at Smurfit Kappa,
and our lived values of
Safety, Loyalty, Integrity
and Respect.
48
Smurfit Kappa Annual Report 2021
SUSTAINABILITY
Sustainability is a key part of SKG’s strategy. As a customer-oriented,
market-led company, the satisfaction of customers, personal development
of employees and respect for local communities and the environment
are all inseparable from our goal of creating value for all our stakeholders,
guaranteeing them end-to-end sustainability.
Delivering a
better tomorrow
In their daily lives, people need food,
clothing and household goods.
Robust, paper-based packaging
will protect these from damage
and waste, while delivering them
in an efficient and sustainable way.
In response to longer term rising
global economic and social
development, e-commerce will
change and worldwide demand for
packaging goods and services will
continue to grow. Sustainability is
important to all our stakeholders
as well as their stakeholders.
Climate change, limited natural
resources, littering, deforestation,
a growing population and increased
social inequality, are pressing global
challenges that require forward
thinking and a constructive response
from the business community. At SKG,
we respond to these challenges
through our end-to-end approach
to sustainability: from sustainable
sourcing of our renewable and
recyclable raw materials, to responsible
production of sustainable and
circular packaging products that
help our customers and eventually
consumers to lower their
environmental footprint. At every
important step in our value chain
– including our governance, our
people, our communities and
the environment – we are always
considering where we have a
positive impact and we are
constantly aligning our economic
goals with our social, community
and environmental responsibilities.
This dedication to sustainability
in every fibre positions SKG to play
its part in making the UN Sustainable
Development Goals (‘SDGs’) a
reality. In our materiality assessment
we compared the SDGs against
our business strategy and policies,
as well as against stakeholder
expectations. This allows us to
strategically build on opportunities
and minimise risks within the
sustainability context and
transparently report our progress
towards these goals. SKG's
approach to positively impacting
the SDGs is covered both in
this Annual Report and in our
Sustainable Development
Report ('SDR').
Our Code of Conduct is the
fundamental guideline for
everybody at Smurfit Kappa from
the Board of Directors, officers and
employees, as well as all individuals,
entities, agents or anyone acting
on the Group's behalf - and we also
require the same from our suppliers.
In environmental matters our
starting point is that all our sites
operate at least within their permits.
We guarantee compliance by
employing modern, low environmental
impact equipment and smart use
of environmental data, including
information on permits, incidents
and fines. We continuously invest
in our sites to keep them state-
of-the-art, and proactively
follow environmental legislative
developments to ensure
compliance. For details on the
Non-Financial Key Performance
Indicators reporting statement,
SKG publishes its sustainability
progress in the annual SDR, available
at our website: smurfitkappa.com.
All previous SDR's are also available,
and our 2021 Report will be published
in April2022.
SKG is committed to the principles
of the UN Global Compact and
reports in line with the Global
Reporting Initiative (‘GRI’) Standards
Comprehensive criteria, and our
sustainability data and reporting have
Planet
A Greener, Bluer Planet
We are committed to sustainability
throughout our value chain. Our
strategic environmental priorities
are climate change, forest, water
and waste. The circular economy is
at the core of our business. We use
renewable, recyclable, recycled and
biodegradable materials to create
sustainable packaging solutions and
play a part in ensuring that at their
end of life, our products are recycled.
Forests where our virgin fibres come
from are a closed loop, from which
we can positively benefit when they
are managed and used sustainably.
Within our industry, SKG has
pioneered full Chain of Custody,
enabling us to sell over 93% of
our packaging products as FSC,
PEFC or SFI certified, driving
a sustainable loop for our raw
been independently assured since
2009. This third-party assurance
guarantees our transparency and
credibility to stakeholders, especially
customers, investors, and the
communities in which we operate.
We are proud of the transparency
we offer our stakeholders, and the
credibility that third-party assured
data delivers. This approach is
integral to our Group’s strategy and
during 2021 the Group appointed
a new Group Chief Sustainability
Officer ('Group CSO'), a role which will
focus on delivering the sustainability
strategy for the Group, maintaining
our strong governance framework,
but also to embrace new strategic
opportunities from a capital markets
perspective, and, across all
stakeholders.
Strategic Sustainability
Priorities
As a responsible company, operating
globally, Smurfit Kappa has a product
that is naturally sustainable and
a process that is increasingly
sustainable, driven by a culture
with strong values of safety, loyalty,
integrity and respect. SKG understands
the challenges facing both our
business and the planet and is
committed to doing its part in
resolving these critical issues.
Therefore our ambition is to deliver
sustainable growth to the benefit of
all our stakeholders based on three
pillars: Planet, People and Impactful
Business. Within these pillars our
People and our Communities,
Climate Change, Forest, Water
and Waste are the main strategic
environmental and corporate social
responsibility priorities.
Our approach to the three pillars are
explained in the following sections
and the diagram on the next page.
Full Chain of Custody
93%
of our packaging
sold as CoC certified
CO
2
emission reductions
41.3%
since 2005
49
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
As a leading company in sustainability, we base our ambition of sustainable
growth on three pillars: Planet, People and Impactful Business.
Planet
A greener, bluer planet
Climate Change/Forest/Water/Waste
The circular economy is at the core of our business.
We use renewable, recyclable, recycled and
biodegradable materials to create new products.
Impactful
Business
Delivering to all stakeholders
Innovation/Governance and
Human Rights/Sustainable Sourcing
As a global group, our activities create
sustainable value for our shareholders,
customers, employees, suppliers and the
communities where we operate.
People
Empowering people
and communities
People Values/People Strategy/
Communities/Health and Wellbeing
Having engaged employees is critical
for our business. We work safely with
talented people in a global, culturally
diverse organisation.
50
Smurfit Kappa Annual Report 2021
SUSTAINABILITY CONTINUED
materials. In 2020, we increased our
target to sell 95% of our packaging
solutions as Chain of Custody
certified by 2025.
Having integrated paper recycling
operations into our business we can
efficiently manage the sustainable
sourcing of our raw materials,
ensuring good quality in each region.
We take our producer responsibility
seriously, having 100% renewable
and recyclable fibre, and of our final
packaging products, over 90% are
recovered and brought back into the
recycling loop. Sustainably sourcing
our fibres benefits us and our
stakeholders: with Chain of Custody
certified raw material sourcing and
production, we have traceability
systems that comply with
regulations, and with customer
and investor requirements.
Sustainable forests and fibrous raw
material are primary considerations
of our stakeholders. We enhance
our customers’ brand value by
guaranteeing risk management
through Forest Certification, and
related Chain of Custody Certification.
This leads to operational continuity
and business growth for SKG.
We seek circular synergies where
we can both utilise our side streams
and seek collaboration with partners.
As part of our commitment, we have
rigorously collected sustainability
data on our operations for almost
15years. We use this information to
continually improve the efficiency
of our processes and use of
resources, which helps us meet
our sustainability targets, such as
reducing CO
2
emissions.
In early 2021 we set new targets
and revised existing targets through
our Better Planet 2050 initiative,
the aim of which is to combine
long-term ambition with action
today, evidence of which you will
see in this report and throughout
our 2021 SDR which will be published
in April 2022.
2021 also saw the world increase its
focus on climate with the publication
of the Intergovernmental Panel
on Climate Change ('IPCC') report
in August 2021 and the 26
th
Conference of the Parties, or
COP26, in Glasgow in November
2021. We saw deforestation and the
need to create a circular economy
also becoming key issues as part
of COP26 and the EU’s work on
defining a path forward to deliver
the Green Deal. SKG, as a leader in
sustainability, is playing its part in
making the necessary changes to
ensure we stay aligned with the goals
of the Paris Agreement. In late 2021
our 2030 emission reduction targets
were approved by the Science Based
Target initiative ('SBTi') as being in
line with the ParisAgreement.
We are pleased to be the first FTSE
100 company to receive a five star
rating from Support the Goals, the
global initiative that was established
to rate and recognise those
businesses that support the UN
2030 SDGs to work towards a more
sustainable future. The SDGs are
a universal call for action to end
poverty, protect the planet and
ensure that all people enjoy peace
and prosperity by 2030. These goals,
agreed in 2015 by world leaders, can
only be achieved with the support of
businesses. A five star rating is only
awarded to companies who are
actively involving their suppliers
in their efforts towards reaching
these goals. For most businesses,
a significant amount of their
environmental and social impact
comes from the supply chain,
therefore it is vitally important to
help suppliers understand and
support the SDGs.
We have set targets that focus on
our strategic areas and that are
designed to align the Group with
the UN 2030 SDGs. More on our
commitments can be read on
pages 12 to 13 of this report.
Our products are also designed
to prevent wastage of our customers’
product in their supply chains, we are
committed to continually reducing
waste and finding circular uses for
our side-streams.
Handling
7.4
million
tonnes of recovered
fibre per annum
Our emissions targets have
been approved by
SBTi
In our paper mills we are resource
efficient, using raw materials and
their by-products to their fullest.
For example, our Nettingsdorf mill in
Austria, our Piteå mill in Sweden, our
Parenco mill in the Netherlands and
our three Brazilian paper mills Bento,
Pirapetinga and Uberaba run almost
entirely on biofuels derived from
the wood-pulping process. In many
mills, biogases from waste water
treatment are fuel for heat and power
production, and our Roermond mill
in the Netherlands has been
internationally recognised for finding
circular economy synergies by
collaborating with local partners.
Product development and innovation
at SKG is data driven, with a proven
scientific approach informing good
business decisions. Data collected
from our operations is combined
with ongoing research and analysis
of customer challenges and specific
markets. We employ a range of tools,
‘InnoTools’, uniquely exclusive to SKG,
enabling us to create the optimal
fit-for-purpose paper-based packaging
solutions for our customers, thereby
adding value to their businesses.
Furthermore, 'InnoTools' feeds
information to our customer
value-added services: SupplySmart;
ShelfSmart; and eSmart in the areas
of supply chain optimisation, brand
growth and e-commerce.
EU Taxonomy
The European Commission
presented a growth strategy based
on environmental and sustainable
development, the Green Deal, in
2019. To direct investments towards
sustainable projects and activities,
the EU introduced the Taxonomy
Regulation ((EU) 2020/852) in 2020.
The first set of sustainable activity
classification criteria, The Delegated
Act on Sustainable Activities for
Climate Change Adaptation and
Mitigation, was published and
adopted in 2021, with an ambition
to achieve carbon neutrality
by 2050. The European Commission
presented the Complementary
Delegated Act on Climate in February
2022 and is currently working on the
Second Delegated Act.
At present the EU Taxonomy does
not cover all sustainable activities
and as a result, sustainable
classification criteria are not yet
available for the majority of our
business activities. Consequently,
a low proportion of our activities are
considered taxonomy eligible under
the current taxonomy classification
criteria for climate change mitigation
and adaptation. As the legislation
develops further into areas relevant
and applicable to SKG we will evolve
our taxonomy reporting accordingly.
In producing paper-based packaging
solutions and having 75% of its raw
material from recycled sources,
SKG has a strong position in the
circular economy. We expect to
be well positioned as the scope of
the taxonomy is widened and the
technical screening criteria for
activities contributing to the
transition to a circular economy are
finalised. Under existing publications
by the commission such as the
‘EC categorisation system for the
circular economy’ SKG contributes
across the models described by the
European Commission.
51
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Taxonomy Eligible Activities
The regulation states that
non-financial undertakings shall
report on their EU Taxonomy eligible
and non-eligible activities for their
reporting period 2021. SKG has
assessed its Taxonomy eligible
activities to the first Delegated Act
on Climate Change Adaptation and
Mitigation. The eligible activities are:
1.3 Forest Management.
4.2 Electricity generation using
concentrated solar power
(CSP) technology.
4.13 Manufacture of biogas and
biofuels for use in transport
and of bioliquids.
4.15 District heating/cooling
distribution.
4.20 Cogeneration of heat/cool
and power from bioenergy.
5.3 Construction extension and
operation of wastewater
collection and treatment.
5.5 Collection and transport
of non-hazardous waste in
source segregated fractions.
7.3 Installation, maintenance and
repair of energy efficiency
equipment.
7.4 Installation, maintenance and
repair of charging stations for
electric vehicles.
Taxonomy Eligible Turnover,
Capital Expenditure and
Operating Expenditure
Based on an analysis of economic
activities, the Group has to report
the proportion of Taxonomy-eligible
economic activities across turnover,
capital expenditure (Capex) and
operating expenditure (Opex) key
performance indicators ('KPIs').
As a paper-based packaging
company, only a small amount of
our current activity is covered by
the current EU Taxonomy.
As mentioned above, the Group
expects to be well positioned in the
transition to a circular economy.
The information disclosed is based
on the information available in
relation to the Taxonomy to date.
The information is subject to
refinement as the Taxonomy
develops further, as practice
emerges, as it is embedded within
the Group and as we work through
the other environmental objectives
and the alignment process
throughout 2022.
Turnover
Turnover includes the external
sales of Taxonomy eligible activities.
The denominator is SKG revenue.
Taxonomy eligible turnover (the
numerator) includes the sale of
roundwood from forests owned
by Smurfit Kappa Colombia to
third-parties and the sale of
recovered fibre to third parties.
Capital Expenditure
Capital expenditure includes the
capital expenditure of Taxonomy
eligible activities having assessed all
the additions to fixed assets in 2021.
The denominator is SKG's total
additions to fixed assets in 2021
including, additions to tangible
and intangible assets before
depreciation, amortisation and any
re-measurements, including those
resulting from revaluations and
impairments and excluding fair
value changes. The denominator
also covers additions to tangible
and intangible assets resulting from
business combinations. Taxonomy
eligible capital expenditure
(numerator) includes investments
in solar panels and the upgrade
of waste water treatment plants,
forestry equipment and bio-mass
boilers. For the allocation of capital
expenditure, we have identified the
relevant purchases and identified
the primary related economic
activity in the Climate Delegated Act.
In this way, we ensure no capital
expenditure is considered more
than once.
Operating Expenditure
Eligible operating expenditure
includes the operating expenditure
of Taxonomy eligible activities.
Taxonomy eligible operating
expenditure consists of direct
non-capitalised costs that relate to
the repair, maintenance and upkeep
relating to the day-to-day servicing
of assets, property, plant and
equipment. This does not include
the expenditure relating to the
day-to-day operation of property,
plant and equipment such as:
raw materials, cost of employees
operating the machine and the
cost of energy.
Proportion of Taxonomy Eligible Activities
Proportion of taxonomy
eligible activities
(%)
Proportion of taxonomy
non-eligible activities
(%)
Turnover 2.0% 98.0%
CAPEX 3.0% 97.0%
OPEX 2.0% 98.0%
52
Smurfit Kappa Annual Report 2021
SUSTAINABILITY CONTINUED
People
Empowering People
and Communities
SKG aims to keep attracting and
retaining the best employees.
We have found that within our global
organisation, people of different
backgrounds and experiences will
have different skills, perspectives
and solutions, which in turn increases
our sustainability and efficiency
options. SKG is committed to
managing its business in accordance
with its declared values which
recognise that good social
citizenship, reflected in the manner
in which it interacts with its
employees, business partners
and local communities, is an
essential ingredient in creating
and maintaining a sustainable
future. SKG invests in employee
empowerment ensuring human
rights and dignity at work, through
freedom of association, fair
compensation and promotion of
diversity in age, gender, sexual
orientation, ethnic origin, disability
or nationality. We take care that
capable people from all these groups
are attracted and retained, and
we recruit and promote on merit.
SKG values open, constructive,
regular and timely dialogue with
its employees and their
representatives, particularly in all
matters affecting the business
including safety, working conditions,
profitability, business outlook,
investment decisions or the terms
and conditions of employment. The
European Works Council (‘EWC’),
which was created to assist in the
development of an open two way
communication process for all
employees and unions on all such
matters, had one meeting during
the year, with additional meetings
with the Select Committee of the
EWC. Matters typically discussed
at the EWC include employment
opportunities, financial status,
projected developments, business
conditions, relocation, curtailment
or business closures and health
and safety.
Implementing SKG’s Social Citizenship
Policy is the responsibility of line
management who are supported
by the Human Resource Managers
at country, segment and Group level.
In 2021 we introduced targets in
the areas of Gender Balance,
Inclusion, Diversity and Equality,
People Engagement and People
Development next to existing
targets in Health and Safety and
Communities. More on our People
can be read on pages 64 to 75.
Health and Safety
SKG has made the health and safety
of its workforce an overriding
value. We adopt a structured and
systematic approach to the
management of health and safety
considerations in the workplace.
We promote a health and safety
culture founded on understanding,
responsibility and accountability.
We operate with health and safety
as a core value, not just a priority.
We aim to continually improve
our performance by adopting
a structured systematic approach
to the management of health
and safety aspects supported by
continual improvement of our
systems. The commitments within
the Group's health and safety
policies are consistent with those
of the internationally recognised
OHSAS 18001 occupational health
and safety system specification.
Every facility in SKG adopts a suite of
good health and safety management
systems designed to protect
employees, visitors to its sites,
contractors and the public at large
from injury and ill-health.
All performance reviews at plant,
country, division and regional level
include a review of recent health and
53
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
14
years of SDR
publications
independently assured
for over 10 years
1st
FTSE 100 company
to be awarded a five star
rating from Support
TheGoals
safety performance. On a quarterly
basis, the Board receives a progress
report outlining key health and safety
developments. The progress in
health and safety performance has
been positive and the trend remained
so in 2021 with a further reduction
in TRIR compared to previous years
due to a number of health and
safety measures and initiatives
implemented across the Group.
For details of this KPI, see page 32.
SKG is committed to making
continual advances in our health and
safety management processes. We
regularly perform comprehensive
health and safety verification and
audit processes tailored specifically
to our global operations. Based
on our internal health and safety
standards, this audit process
verifies the presence of the
appropriate protective measures.
Communities
Beyond our employees, our
responsibilities extend to helping
the local communities where we
are located by behaving as a good
corporate citizen. Alongside
operating in accordance with the
UN Declaration of Human Rights
and the Fundamental Principles and
Rights at Work, by supporting local
education, income generation,
collaboration and participation,
we can strengthen communities.
This is especially true in remote
areas with limited opportunities
for work.
SKG is focused on breaking the cycle
of poverty in the communities in
which we are located, beginning with
the younger generations. Aligned
to our Smurfit Kappa Foundation,
we want to break down the barriers,
which lead to young people and
children in these areas being
disadvantaged and remaining in
poverty. We work to improve their
situation through the lens of health and
nutrition, basic care and education.
We believe, by working with key
organisations in these areas, we
can break the cycle of disadvantage,
because what happens to us in
childhood shapes our future
success and the adults we become.
Our goal is to help end the poverty
and dependence where it exists
in these communities, by supporting
projects that provide a better start
for their young people.
Impactful Business
Delivering to all Stakeholders
SKG has specific policies on key
areas of sustainability which
are integral in improving future
performance. These cover
Environment, Sustainable Forestry,
Sustainable and Responsible
Sourcing, Social Citizenship, and
Health and Safety. These policies
complement other policies in
place, covering: Code of Conduct
incorporating the Speak Up Policy,
Code of Ethics for Senior Financial
Officers, Group Financial Reporting
Guide, Group Treasury Policy, Financial
Monitoring Policy, Treasury
Compliance Programme, and
Competition Compliance Programme.
A report on Corporate Governance
is detailed on pages 82 to 87 of this
Annual Report.
Anti-Bribery and
Anti-Corruption
SKG maintains a zero-tolerance
policy regarding acts of bribery
and corruption. We comply with
all anti-bribery and anti-corruption
laws in the countries where we
conduct business, not only because
it is our legal duty to do so, but also
because it supports the commitment
we make to conducting business
ethically and honestly.
Human Rights
SKG is subject to the provisions
of the UK Modern Slavery Act.
In keeping with the United Nations
Guiding Principles on Business and
Human Rights and the Fundamental
Principles and Rights at Work
developed by the International
Labour Organisation, we are
committed to the principles of
respect, diversity, working fairly,
fair pay, compensation and benefits
which are also applied to our
acquisition practices. They are
maintained in every country in
which we have a presence and are
set out in our Code of Conduct,
our Social Citizenship Policy
Statement and our SDR.
SKG has thousands of suppliers
globally and we consider that our
suppliers are an integral part of
the value chain of our business.
We are committed to working with
our suppliers in accordance with
our sustainability principles and
objectives whereby we distinguish
the areas of compliance,
performance risk, management,
social responsibility and governance.
Maintaining transparent and
long-term relationships with
suppliers is essential for our
business. This partnership approach
ensures we can audit suppliers on
their compliance and our
sustainable supply chain standards
and, where they fall short, work
with them to improve sustainability
in their business.
In recognition of the nature and
concern about modern slavery
we expect our suppliers to ensure
compliance with the Modern
Slavery regulations.
54
Smurfit Kappa Annual Report 2021
SUSTAINABILITY CONTINUED
SKG announced its support of the
recommendations of the Task Force
for Climate-related Financial
Disclosures (‘TCFD’) in May 2020
and we included our first disclosure
in the 2020 Annual Report. In 2021
we have significantly developed
our disclosure as outlined below
which is consistent with the TCFD
recommendations. In completing
this disclosure we have provided
the recommended disclosures
in termsof:
• Governance
• Strategy
• Risk Management
• Metrics and Targets
Our disclosures below should be
read in conjunction with the SDR
2020 and our Carbon Disclosure
Project (‘CDP’) Climate Change
Response made by the Group in
2021. Further information can be
found on our website at
smurfitkappa.com/sustainability/.
In addition, the SDR for 2021 will be
published in April 2022.
Our progress and evolution of
reporting in line with the TCFD
recommendations included but was
not limited to: a comprehensive
top-down identification and process
review of climate related risks and
opportunities; scenario analysis
in conjunction with an expert third
party; and an evaluation of the
potential impact on assets from
physical and transition risks under
different climate scenarios. We
expect that certain aspects of our
disclosure will further develop and
evolve over time.
Task Force on Climate Related
Financial Disclosures ('TCFD')
Climate change is one of the greatest
challenges facing society. We
understand the challenges and the
changes that need to be made and we
are strongly committed to making a
positive contribution, building on our
well-established climate related actions
and disclosures.
Audit Committee
The Audit Committee and the Board in conjunction with senior management review the key business risks faced by
the Group. In reviewing and considering the principal risks of the Group, emerging risk is also considered. For a number
of years climate change has been considered an emerging risk of the Group as a result of changes in weather patterns
which could result in catastrophic events which could give rise to business interruption and increases in the cost of raw
materials. As outlined in the Risk Report on pages 34 to 38, climate change in the long-term has now been elevated
to a principal risk for the Group. In addition, the growing number of environmental and climate change laws and
regulations is an existing principal risk of the Group which is also disclosed in the Risk Report. These risks are subject
to the Group’s formal risk management process.
Remuneration Committee
The Remuneration Committee has responsibility for continually reviewing the ongoing appropriateness and relevance
of the Remuneration Policy. A remuneration policy review was conducted by the Committee in 2020. As part of this
review, sustainability was considered for inclusion in the short-term and long-term incentives. The long-term incentive
plan, the Performance Share Plan, now has a number of climate related performance measures with ESG metrics now
cumulatively constituting 15% of the targets for this award. As outlined in the Remuneration Report on page 94 these
measures include CO
2
reduction, water reduction and waste reduction targets.
Nomination Committee
The Nomination Committee is responsible for the succession planning of the Board, experience and knowledge
of sustainability is a consideration in new appointments. This has been clearly evident in the recent appointments
of Kaisa Hietala and Lourdes Melgar to the Board.
Sustainability Committee
Established in 2019 following a Board review of the Group’s sustainability and corporate social responsibility objectives,
the Committee has responsibility for the direction and oversight of the sustainability strategy for the Group which is
based on three key strategic sustainability and corporate responsibility pillars; Planet; People and Impactful Business.
The Board Sustainability Committee is responsible for climate change at the Board level and updates the Board at each
meeting on the matters considered on their agenda, including climate change. In 2021, the Committee met six times
and covered a broad range of ESG topics at those meetings. The key topics included: a comprehensive review of climate
change risk and opportunities; the ambitious sustainability targets communicated in February 2021; further reduction
of our environmental footprint; increased support for the communities in which we operate and further enhancement
to the lives of our employees. The Sustainability Committee receives regular updates from management on various
matters relating to sustainability and climate change. The recently appointed Group CSO is also tasked with ensuring
relevant sustainability related matters are communicated and discussed at the Board committee level as appropriate.
Board Level
The Board is primarily
responsible for the long-term
success of the Group, for
setting the Group’s strategic
aims, for the leadership and
control of the Group and for
reviewing the Group’s system
of internal control and risk
management. The
consideration of sustainability,
including climate change, is
continuously developing as the
focus on climate change
increases. Given the nature of
our business and our strong
sustainability credentials,
this has been a consideration
of the Board for many years.
More recently this has evolved
further with specific
consideration given to climate
change. In recognition of the
importance of sustainability
in general and climate change
in particular, the Board formed
a dedicated Sustainability
Committee, the
responsibilities of which are
outlined in the adjacent table.
Governance
Board Oversight on Climate Change
55
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Area Recommended Disclosures Source Page (s)
Governance
Disclose the organisation’s
governance around
climate-related risks
and opportunities.
a) Describe the board’s oversight of climate-related
risks and opportunities.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 34-35, 54, 56
SDR 2020: 68-69
CDP: Section C.1 Governance
b) Describe management’s role in assessing and
managing climate-related risks and opportunities.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 34-35, 56-57
SDR 2020: 68-69
CDP: Section C.1 Governance
Strategy
Disclose the actual and
potential impacts of
climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
a) Describe the climate-related risks and opportunities
the organisation has identified over the short,
medium, and long-term.
AR 2021
CDP Climate Change
response 2021
AR: 57-58, 60-61
CDP: Section C.2 Risk and
Opportunities
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 57-58, 60-61
SDR 2020: 28-33
CDP: Section C.2 Risk and
Opportunities and C.3 Business
Strategy
c) Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2°C or lower scenario.
AR 2021
CDP Climate Change
response 2021
AR: 58-59
CDP: Section C.3 Business
Strategy
Risk Management
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
a) Describe the organisation’s processes for identifying
and assessing climate-related risks
AR 2021
CDP Climate Change
response 2021
AR: 34-35, 59
CDP: Section C.2 Risk and
Opportunities
b) Describe the organisation’s processes for managing
climate-related risks.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 34-35, 59
SDR 2020: 28-33
CDP: Section C.2 Risk and
Opportunities
c) Describe how processes for identifying, assessing,
and managing climate-related risks are integrated
into the organisation’s overall risk management.
AR 2021 AR: 59
Metrics and Targets
Disclose the metrics and
targets used to assess and
manage relevant climate-
related risks and
opportunities where such
information is material.
a) Disclose the metrics used by the organisation to
assess climate-related risks and opportunities in line
with its strategy and risk management process.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 33, 58-59, 62-63
SDR 2020: 25-27, 30-33, 74-82
CDP: Section C.4 Targets and
Performance and
Sections C.6 Emissions Data
b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas ('GHG') emissions, and
the related risks.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 33, 58-59, 62-63
SDR 2020: 30-33, 74-82
CDP: Section C.4 Targets and
Performance and
Sections C.6 Emissions Data
c) Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
AR 2021
SDR 2020
CDP Climate Change
response 2021
AR: 33, 58-59, 62-63
SDR 2020: 26-27, 30-33
CDP: Section C.4 Targets and
Performance
AR – Annual Report SDR – Sustainable Development Report CDP – Carbon Disclosure Project
TCFD Index
56
Smurfit Kappa Annual Report 2021
SUSTAINABILITY CONTINUED
TCFD CONTINUED
Board Level Knowledge
and Training
During 2021, the Sustainability
Committee conducted a detailed
review of the World Economic
Forum’s “How to Set Up Effective
Climate Governance on Corporate
Boards” which resulted in the
identification of key focus areas
and an accompanying action plan.
It is the intention to continue to
update the skills of the Board in
the area of climate change on a
continuous basis. The Sustainability
Committee also has regular
updates and presentations from
the Group CSO on various matters
including climate change and
associated regulation.
As noted above, in 2020 the
Group welcomed two new
Non-executive Directors to the
Board with strong sustainability
and climate-related expertise.
Lourdes Melgar, is recognised
for her expertise in the areas of
energy, sustainability and public
policy. In her career she has held a
number of roles in government,
in academia and in the private
sector. Kaisa Hietala, brings a
wealth of strategic and operational
experience to the Board. In particular,
Kaisa has a strong commitment to,
and experience in, sustainability,
helping companies to transform the
challenges of environmental
megatrends into business
opportunities and growth. Lourdes's
and Kaisa's specific expertise in the
area of sustainability bring additional
strength to and compliments the
knowledge and international
experience of Jørgen Buhl
Rasmussen and Anne Anderson.
Management Oversight
on Climate Change
Executive Level
The Executive Sustainability
Committee consists of relevant
members of the Executive
Committee who have
responsibilities directly connected
to sustainability matters. This
Committee ensures the delivery
of the sustainability strategy
of the Group throughout the
business. The Executive
Sustainability Committee is
led by the Group CSO. Certain
climate change related issues
are governed by some of
the members of this Committee
as part of their direct operational
responsibilities. Commencing
in 2022, the Committee will also
report on a regular basis to the
Group Executive Committee.
The Executive Risk Committee
reviews and assesses the Group Risk
Register and identifies the principal
risks and emerging risks. The Group
Risk Register is then reviewed by the
Audit Committee and the Board.
As mentioned climate change has
been elevated to a principal risk of
the Group from an emerging risk.
In addition, the growing number of
environmental and climate change
laws and regulations continues to
be a principal risk of the Group.
Details of these risks are included
in the Risk Report on pages 34 to 38.
and are subject to the Group’s
formal risk management process.
The Group CSO is a member of
the Group Executive Committee
and is focused on delivering the
sustainability strategy for the Group,
maintaining our strong governance
framework, and embracing new
strategic opportunities from both
a capital markets perspective and
across all stakeholders. Climate
change is a key element of all
aspects of his role. The Group CSO
is a member of the 'Corporate
Responsibility & Sustainability
Council' which is part of the
non-profit 'Conference Board' and
includes heads of sustainability from
across industries and regions and
where best practice is shared
in the broader sustainability area.
The Executive Directors also
engage with the Sustainability
Committee. Since the formation
of the Committee, the Chair of
the Board, the Group CEO and
the Group CFO have been regular
attendees at meetings of the
Committee. In addition, the Group
VP of Human Resources has also
been a regular attendee at meetings
of the Committee. The Group CEO
through his overall responsibility
for the day-to-day oversight of
the Group’s business and the
implementation of the Group
strategy and policies is directly
responsible for actions governing
climate change. The Group CFO
is a member of Accounting for
Sustainability (‘A4S’), whose ‘aim
is to transform finance to make
sustainable business, business
asusual’.
Management Level
The Sustainability Working Group
consists of relevant representatives
from operations and the Group's
head office, with different areas
of expertise and stakeholder
interaction relating to sustainability
and climate change. This group
monitors the progress and
2005
Baseline of our CO
2
emissions target.
2007
First sustainability report.
New biomass boiler in Sweden.
2008
Investments in CHP facilities and
bio-fuel investments.
New Black liquor recovery boiler
installed in Cali Colombia.
2009
External assurance of our annual
SDR commenced.
2010
Set 2020 target of 20% reduction
in relative CO
2
emissions target
(2005 baseline).
Commissioned biomass boiler
in France.
Globally our mill system cut
relative CO
2
emissions by 5.4%
year-on-year.
2011
Globally our mill system cut relative
CO
2
emissions by more than 12%
since 2005. This delivered against
a backdrop of the EU publishing its
roadmap towards a low-carbon
economy by 2050.
2012
Globally our mill system cut relative
CO
2
emissions by 3.1% year-on-year.
Supported by investments such
as a new shoe press in Cerro Gordo
(Mexico) and a rebuild of the biomass
boiler in Sangüesa (Spain).
2013
2020 target of 20% reduction
achieved with a 21% reduction
by the end of 2013.
2014
New relative emissions reduction
target of 25% reduction set for 2020.
28% reduction of COD discharge
(water) compared to 2005.
Key Milestones
57
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
achievements of targets across
all key areas, supports the Group
operations in assessing and
managing sustainability/climate
change strategies and collects
and analyses data. This working
group which is led by the Group
CSO promotes our sustainability
targets among our customers and
suppliers. In addition, this working
group coordinate the sustainability
roles with responsibility for
local implementation of the
sustainability strategy within
our business operations.
Our stakeholders expect us
to approach climate change
responsibly and provide detailed
progress reports. Our management
and workforce are aware of the
areas that are important through
our continual multi-level
engagement with our customers,
investors, employees, communities
and other relevant stakeholders.
This engagement includes:
• Organising meetings and
round-table discussions on
sustainability with our stakeholders;
• Participating in discussions
within and outside our industry
through our membership of
Cepi, FEFCO, 4evergreen
initiative and World Business
Council for Sustainable
Development (WBCSD);
• Participating across external
benchmarking bodies, such
as CDP, EcoVadis, FTSE4Good
and SEDEX surveys, and
benchmarking against UN 2030
Sustainable Development
Goals; and
• Participating in the development
of Forest Certification as a
member of FSC and PEFC.
Our Investor Relations team are
in continuous dialogue with our
investors in relation to climate
change and we are aware of
investors' priorities in this area.
In late 2020 investor relations
contacted top shareholders to
understand how they view SKG’s
ESG disclosure including climate
change and whether there were
any areas of focus or improvement
required, the outcome of which
was that there were no significant
recommendations. On an ongoing
basis discussions with investors
provides guidance on areas
requiring focus across the broader
sustainability agenda. This has
increasingly highlighted the need
for emissions targets to be approved
as science-based and has also
highlighted the need for enhanced
disclosure of our climate risks and
opportunities. In addition, we also
perform regular desktop research
to evaluate investors' climate
agenda (e.g. letters from investors
and investment managers about
their expectations from companies
on climate-related issues).
Our customer facing teams regularly
engage with our customers in relation
to climate change. For many of our
customers their carbon footprint
is primarily scope 3 emissions.
As a result, our customers are
increasingly looking for supply-chain
partners to engage with them on
delivering sustainable products with
lower carbon footprints.
Strategy – Climate Change
Overview and Background
SKG is committed to sustainability
throughout our value chain. Our
circular business model drives
positive change from the responsible
sourcing of renewable raw materials
to the sustainable production of
recyclable, biodegradable and
fit-for-purpose packaging solutions.
The strategic environmental
priorities under our Planet pillar are
climate change, forest, water and
waste. Our strategy is focused on
minimising energy use and moving
from fossil fuels to renewable
sources, including biomass. These
core elements are aimed at reducing
our fossil emissions in line with the
Paris Agreement, reaching at least
net zero by 2050.
Smurfit Kappa continues to build
on its many years of achievements.
Set out below are examples, dating
back to the first SDR in 2007,
of key milestones of the Group’s
long-standing objective to drive
change and nurture a greener and
bluer planet.
2017
2020 target of 25% reduction
achieved with a 26.1% reduction
by the end of 2017.
2018
More ambitious relative emissions
reduction target of 40% by 2030 set,
reflecting the need for industry to
act on the Paris Agreement.
2019
Approval of €134 million new recovery
boiler in Nettingsdorf (Austria).
Globally our mill system cut relative
CO
2
emissions by 32.9% against a
2005 baseline.
2020
Long-term target of at least
net-zero emissions by 2050 and
increased the 2030 emissions
reduction target to 55%.
On deforestation and biodiversity,
we announced a new alliance with
the World Wildlife Fund Colombia
to work together to promote
sustainable practices within the
forestry industry.
We started reporting on the
recommendations of the TCFD
and the relevant SASB criteria.
2015
New CHP plant in Hoya (Germany)
running for its first full year.
Finalised certification of our
production sites according to
FSC/ PEFC or SFI chain of custody
standards.
2016
New CHP investments in Ania (Italy)
and Barbosa (Colombia).
Globally our mill system cut relative
CO
2
emissions by 22.9% against
a 2005 baseline.
2021
Globally our mill system cut relative
CO
2
emissions by 41.3% against
a 2005 baseline.
SBTi approval received for our
emissions targets as being in line
with the Paris Agreement and a well
below 2°C trajectory.
Launched Better Planet 2050
programme which enhanced
existing targets or introduced new
ones across water use, diversity
and inclusion and communities.
Successful launch of our Green
Finance Framework and subsequent
€1 billion of Green Bonds issuance.
58
Smurfit Kappa Annual Report 2021
SUSTAINABILITY CONTINUED
TCFD CONTINUED
Climate Risks and
Opportunities
We have developed an enhanced
risk identification methodology
to assess climate risk and
opportunities, the output of which
is the Group’s first Climate Risk and
Opportunity register.
The tables on pages 58 to 61 outline
some of the key transition and
physical risks as well as opportunities
which have been identified and
assessed and which enable SKG to
prioritise appropriately. A high level
impact assessment has been used
to measure inherent and residual
risks based on identified mitigation,
their timeframes, and their potential
financial impact on our business.
These timeframes used in the
categorisation of risks are
definedas:
• Short-term (0-3 years): Typical
capital expenditure pay-back
time and short-term time
frame for climate change
risks and opportunities.
• Medium-term (3-10 years):
Pay-back time for a strategic
capital expenditure investment
in Smurfit Kappa, and medium-
term for climate change risks
and opportunities.
• Long-term (10-30 years): This is
linked to long-term time horizon,
for example investment in paper
manufacturing machinery is
expected to be valid for some
30 years; it is the long-term time
frame for climate change risks
and opportunities.
The risk identification process is
designed to consider the risks and
opportunities through the specific
lens of climate change. This means
that the climate risk register is
considering risks across a longer
time frame than the traditional risk
assessment of principal risks.
Understanding Climate
Risks and Opportunities
for Smurfit Kappa
Climate change risk is expected to
present itself either through physical
risks or transition risks. Physical risks
are those arising from the increasing
severity and frequency of climate
and weather-related events such as
flooding. Transition risks are those
which could result from the process
of adjustment towards a lower carbon
economy such as the development
of policy and regulation and shifting
societal preferences. Transition and
physical risks along with opportunities
have been identified and assessed
by the Group in conjunction with
external advisors and climate
scenario modelling partners.
SKG has identified many opportunities
arising out of climate change to
leverage its full cycle value chain
and global operating model. In line
with the identified key risks, the
opportunities represent areas of
strategic, operational and financial
focus for SKG in the medium to
long-term. In several areas, the
identification of the opportunity
is linked to capital investment
programmes and medium to
long-term strategic planning.
Some of the key climate risks and
opportunities for Smurfit Kappa are
outlined on pages 60 to 61, these are
expected to evolve over time with
the benefit of deeper insights and
the ongoing changes and
developments in this area.
Disclosure of Impacts
on and by the Business
There are certain climate related
risks that could have an impact
on our business including:
• Extreme weather patterns may
affect our operations and supply
chain, potentially impacting
forests, water, carbon regulation
and taxation, and energy
availability and affordability.
• Drought, flooding and local
restrictions on water usage
may limit our access to water
and therefore water risk
assessments are conducted on
a periodic basis at our paper mills.
Forests play an important role
in environmental resilience. We
therefore need to promote healthy
forests and manage these
resources sustainably. We source
virgin fibres from certifiably
well- managed forests, or at least of
non-controversial origin, or certified
recycled fibres. All materials must
be delivered through a third-party
verified Chain of Custody certified
supply chain.
Smurfit Kappa defines substantive
impact as significant financial,
strategic or reputational damage
that forces us to change our
business strategy significantly either
locally or as a Group. This definition
applies to both our direct operations
and our supply chain. The Group’s
risk process is based upon a
standardised approach to risk
identification, assessment and
review with a clear focus on
mitigating factors and assignment
of responsibility to risk owners. Each
individual risk identified is assessed
based upon potential impact and
likelihood of occurrence criteria.
The likelihood of occurrence is
based upon the probability of the
risk occurring using percentage
thresholds from remote up to
probable. The impact of risk on cost
is measured based upon applicable
percentage thresholds of the
Group’s pre-exceptional EBITDA
which for 2021 was €1,702 million.
Reputational impact is also considered.
Business Resilience to
Climate-related Risks
and Opportunities
As a leading paper-based packaging
business, the Group understands
the need to lead in the area of
climate. Smurfit Kappa was the first
in the broader paper and packaging
sector to announce a target of at
least net zero emissions by 2050
and was pleased to see its emissions
reduction target approved as
Science-based by SBTi in 2021.
In addition to assessing our own
emission reduction targets and
having them independently
approved we have also carried
out an extensive climate risk and
opportunity assessment as outlined
above. The project was supported
by an expert third party, reviewing
climate risk and opportunity for
Smurfit Kappa and utilising a climate
scenario modelling tool.
The analysis was conducted on a
data set of key assets identified for
consideration by the Group. The
scenario analysis and modelling was
Smurfit Kappa’s Better Planet 2050 Targets
Achievement in
Key Area Commitment 2021 2020 2019
Climate Change A 55% relative reduction in Scope 1 and 2 fossil fuel
based CO
2
emissions in our mill system compared with
2005 levels by 2030. Reach at least net zero by 2050
41.3% reduction in fossil fuel emissions
intensity since 2005
37.30% 32.90%
Forest At least 95% of our packaging is certified as Chain of
Custody certified under FSC, PEFC or SFI
93.45% packaging solutions sold as
Chain of Custody certified in 2021
93.80% 92.10%
Health and Safety Reduce Total Recordable Injury Rate by at least
5% annually
1.7% reduction in Total Recordable
Injury Rate in 2021
29% 17%
59
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
completed under different
Representative Concentration
Pathways (‘RCP’) scenarios 2.6
(0.9-2.3°C), 4.5 (1.7-3.2°C), 6.2
(2.0-3.7°C) and 8.5 (3.2-5.4°C).
These model the potential impact
on assets from physical and
transitional risks in 10-year
increments through to 2100. The
analysis focused on the critical
assets impacted across the RCP
scenarios within the period
2030-2040 and 2040-2050, this
period is most critical for decision
making in the near to medium-term.
The output of this assessment was
positive, with the results indicating
that the proportion of asset value at
risk was low. The main physical risks
highlighted within the portfolio are
temperature extremes and wildfires.
This is consistent with the location
and type of assets analysed.
Risk Management
The output of the risk management
carried out in 2021 as outlined
previously was a comprehensive
climate risk and opportunity register
which reflected a combination of
existing risk controls and
approaches and resulted in a register
including the physical and
transitional climate risks in addition
to the opportunities. The process to
develop the register involved input
from Smurfit Kappa participants
from across the business, with
geographic and professional
diversity. Interactive risk workshops
and interviews were used to
facilitate the identification of climate
risks and opportunities, producing a
climate risk register for the Group. In
addition, sophisticated scenario
analysis, modelling the Group’s
global assets across a variety of RCP
scenarios and identifying key assets
or impacts and high-level
mitigations when appropriate was
also completed. The physical and
transition risk modelling considered;
extreme temperature, drought,
wildfire, flooding, tropical cyclone,
water stress, reputational damage,
new technology, markets and
carbon pricing.
A summary of some of the key
outputs from this process is
included in the climate risk and
opportunities table in the section
on the next page.
The Group has a formal and well
established framework to determine
the nature and extent of the
principal risks it is willing to accept to
achieve its strategic objectives. The
Board carries out a review of the
effectiveness of the Group’s risk
management and internal control
systems at least annually. The
process involves the consideration
of the existing risks to the Group and
also emerging risks. In recent years
climate change has been considered
an emerging risk of the Group as
a result of changes in weather
patterns which could result in
catastrophic events which could
give risk to business interruption
and increases in the cost of raw
materials. As outlined in the Risk
Report on pages 34 to 38, climate
change has now been elevated
to a principal risk for the Group. In
addition, the growing environmental
climate change laws and regulations
has been a principal risk of the Group
for some time.
As part of a review process
undertaken in 2019, climate change
was identified as a material priority and
it was disclosed within the SDR2020.
Metrics and Targets
Smurfit Kappa has ambitious
sustainability targets which focus
on a further reduction of our
environmental footprint, increased
support for the communities
in which we operate and further
enhancement to the lives of its
employees. These targets, which
were announced in February 2021,
build upon the company’s well-
established sustainability record,
on which it has been reporting
since 2007, and are contained
in the Better Planet 2050 targets.
The Group also had its emissions
reduction targets approved by the
SBTi as consistent with levels
required to meet the goals of the
Paris Agreement in December 2021.
The targets covering greenhouse
gas emissions from Smurfit Kappa’s
operations (scopes 1 and 2) are
consistent with reductions required
to keep global warming to well below
2°C. The aim of SBTi is to mobilise
companies to set science-based
targets in the transition to a
low-carbon economy.
The Group’s Better Planet 2050
targets quantify our commitment
to protect what we care about –
our planet, our people, our business
– through a set of ambitious goals,
new sustainability targets that will
sustain thriving communities,
support good business, and create
a better planet. The Group’s
long-term commitment and action
across climate and sustainability
in general is evidenced on the table
on page 58, and further details will
be presented in the next SDR for
2021 to be published in April 2022.
The progress against our publicly
stated targets and other key
non-financial targets and metrics
of the Group are disclosed in the
SDR, including the standards
reference, scope, boundary, and
measurement methods applied.
Certain key non-financial metrics
are disclosed on pages 32 to 33
and page 58 of this AnnualReport.
All our metrics and data are
disclosed in our SDR including,
scope 1 and 2 emissions, electricity
usage, grid supply and cogeneration,
fossil fuel and biofuels consumption,
water, waste, raw material, and social
data. For scope 3 emissions, we
currently cover transport in Europe
and Colombia only. We have started
work to address all our scope 3
emissions in our SBTi validation
project. Part of this work was an
extensive assessment of all of our
CO
2
emission sources. This work has
given us more insights to our scope
3 emissions. We currently collect
data and report on our emissions
from transport where the complete
European operations have been
covered and we will gradually cover
all countries in the Americas
operations. Other scope 3
emissions will be included in the
calculations in the near future and
we will also set targets forthem.
Further information can be found
in the SDR 2020 on pages 24 to 85,
as well as the SDR 2021 which will
be published in April 2022.
Our entire SDR has been
independently third-party assured in
accordance with the GRI Standards.
This covers all material metrics, data
and other reporting. For more
information see our Assurance
Report of the Independent Auditor
on page 104 in the SDR 2020.
As noted within the governance
section, the Remuneration
Committee reviewed the
Remuneration Policy for the Group
in 2020. As a result the long-term
incentive plan for the Group, the
Performance Share Plan now has
a number of climate related
performance measures with
ESG metrics now cumulatively
constituting 15% of the targets
for this award. As outlined in the
Remuneration Report on page 94
these measures include CO
2
reduction, water reduction and
waste reduction targets.
We have included disclosures in the
financial statements prepared under
IFRS to indicate where we have
considered the financial impacts
of climate change.
60
Smurfit Kappa Annual Report 2021
Risk/ Opportunity Type and Description Our Response
Physical Risks
Chronic
Climate related chronic shortages in
availability or supply of key materials
for its production process
Link to Strategic Priority:
Horizon: Long-term
SKG business operations rely on raw materials that are key for the production of corrugated paper
packaging, such as wood and starch. Climate change and abnormal weather patterns may create
chronic shortages in availability or supply of such materials that could cause loss of yield, interruptions
to business and constraints on the supply of these critical materials.
Mitigation:
• A multi-source strategy is in place that balances the local and global provision of materials to ensure
constant availability of raw materials and increases supply resilience.
• SKG’s integrated model insulates the Company from certain key raw material supply constraints
as the raw material supply is under direct control of the Company.
• Continuous process optimisation which in turn results in a lower material need.
• Continuous research into alternative and/or new materials to use as substitutes for its key materials
to ensure resilience of supply chain and business operations.
• Investment in research and development to increase drought resistance of the Group’s forestry assets.
Chronic
Changes in climate reduce the product
lifecycle and durability of key products
Link to Strategic Priority:
Horizon: Long-term
Changing climate patterns such as changes in mean temperature, precipitation, humidity or increased
incidence of drought may affect product lifecycle and durability of the Company’s key products. This
could ultimately lead to loss of customer revenue, require changes to production, lead to increased
transportation or storage costs, further product development and research and development costs.
Mitigation:
• SKG has an active research and development strategy that reviews the performance requirements
of its packaging to meet the demands of its customers’ supply-chains and how different
environmental conditions could impact this performance.
• Proprietary tools such as SupplySmart are used to ensure SKG’s products meet or exceed the supply
chain requirements of its customers.
• Product characteristics are considered in SKG’s design process, matching this to customer
requirements and their respective supply chain challenges.
• SKG employs a customer-led approach to understand the needs and requirements necessary
to provide a sustainable, fit-for-purpose packaging solution.
• Through continuous research and development in its products, the Group aims to continuously
improve the durability and lifecycle of its products with innovation and research programmes.
Transition Risks
Market
Reduced energy grid stability/power
outages creating outages impacting
product delivery
Link to Strategic Priority:
Horizon: Medium to Long-term
Governmental regulatory decisions on alternative energy sources, prioritisation of energy security
and/or lack of government investment in critical infrastructure could impact SKG operations. As a result,
power-outages could cause issues with the effective running of its operations. These events could
create business interruption or losses, supply continuity issues, risk of contract breaches, impact on
plant maintenance costs and increased manufacturing costs.
Mitigation:
• SKG is focused on investing in new energy sources, energy reduction, and on the efficient generation
of energy on site to avoid the potential impact of future interruption of the energy grid and resulting
power outages.
• SKG has increased its energy independence through on site generation and a broadening of its green
energy sourcing.
• Continuous investment in lower emissions technologies.
• Review and trial of alternative low carbon energy sources.
• Processes in place to evaluate individual plants' grid risks and identify back up options for locations at
higher risks of energy interruptions.
Policy and Legal
External infrastructure and energy
transition planning resulting in increased
costs and requiring strategic capital
investment
Link to Strategic Priority:
Horizon: Long-term
The availability of low carbon and reliable energy sources for energy intensive assets such as paper mills,
along with National Governments’ policies and investment in clean energy, or lack thereof, could impact
the continuity of production, increase costs of energy sources and require extensive investment to
ensure key assets have reliable, clean energy sources.
Mitigation:
• SKG has strategic planning in place to assist the Group in ensuring that its energy needs are met
without interruption to its services and at optimal cost.
• The SKG operational excellence team focuses on innovations that reduce energy consumption and
materials while also seeking solutions such as 'in plant' energy generation.
• SKG regularly monitors the regulatory and policy trends in the countries where it operates to identify
changes in the regulatory environment that could adversely affect SKG’s energy requirements.
• The Group applies hedging of energy as appropriate to avoid energy price fluctuations.
• SKG continually reviews, investigates and trials alternative, lower carbon energy sources.
SUSTAINABILITY CONTINUED
TCFD CONTINUED
61
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Risk/ Opportunity Type and Description Our Response
Opportunities
Resilience/ Resource Efficiency
Using the Group’s strong sustainability
credentials to promote SKG as an
innovative, sustainable, future focused
organisation to attract new talent and
retain existing talent
Link to Strategic Priority:
The role of SKG as a sector leader in the packaging industry and in sustainability practices could be
further promoted to attract new and retain existing talent.
Action to Maximise:
• Further promotion of SKG’s positive action in moving towards a low carbon, circular economy.
• Further development of the communication strategy of the Group’s sustainability credentials
and story.
• Increased collaboration with research institutions such as universities and think tanks can
further increase the visibility of SKG as a leader in innovation and high-tech practices and in turn,
an attractive place to work to attract the best talent.
Markets
Identify and target new global markets
based on sustainability focus and scale
Link to Strategic Priority:
SKG has the potential to use its position as a global leader in sustainable packaging solutions to identify
new markets that are transitioning to more demanding sustainable packaging requirements driven by
the consumer and/or regulation. This is grounded in SKG’s strategic objective of expanding its market
presence in Europe and the Americas through selective and focused growth and could provide both
revenue and margin opportunities.
Action to Maximise:
• Continue disciplined approach to consideration of possible acquisitions, investments and other
opportunities.
• SKG has the potential to use its global scale and ability to leverage best practice across its value chain.
• Through its selective and focused growth the Group has the opportunity to develop and enhance
its profile in new markets which can further attract new talent to SKG.
Resource Efficiency
Use SKG's integrated model to generate
further control and efficiencies in the
sourcing and consumption of energy,
raw materials, operating costs
Link to Strategic Priority:
SKG’s integrated model could be used to further increase efficiencies in energy consumption, use of raw
materials, logistics and overall operating costs.
Action to Maximise:
• Through further integration of existing technologies and SKG intellectual property, the Group could
develop new techniques and practices that would further enhance its operational performance.
• SKG could further reduce its costs while increasing its position as an industry leader and innovator
by increasing resource efficiency throughout its operations.
• Maintain investment in research and development, process optimisation and product innovation.
Energy Source
Making decisions on future acquisitions
or capital investments dependent upon
reliable sustainable energy supply
Link to Strategic Priority:
Climate change transition towards cleaner and renewable energy presents SKG with the opportunity
to focus the development and acquisition of Paper Mills and other energy intensive assets on the
availability of reliable, sustainable energy. By accessing alternative low-cost sources of sustainable
energy, SKG could increase its energy and asset resilience while ensuring continuity and reducing costs
for its main assets. This would de-risk climate transition risks linked to energy but would also contribute
to the Group’s sustainability goals.
Action to Maximise:
• Continue to consider local government policy on renewable energy and low carbon technology
when considering acquisitions and internal investment.
• Explore retro-fitting opportunities on existing assets.
• Continued focus on clean and reliable energy supply to support the wider sustainability strategy
ofSKG.
Key to Strategic Priorities
Market
Position
Partner
of Choice
Operational
Excellence
Investment
in People
Capital
Allocation
62
Smurfit Kappa Annual Report 2021
Our Sustainability
Priorities
Forest Climate Change Water Waste People
Employee Strategy Health and Safety Communities
PRIORITIES
Promoting sustainable forest
management involves managing
supplies of sustainable, renewable
fibre, while protecting ecosystems
and creating employment in rural
areas. Virgin wood fibres will always
be needed for paper production
to maintain quality. Fibre can be
recycled around eight times when
producing our paper-based
packaging products. It is why using
renewable wood fibre, paper
recovery and fibre recycling is
at the core of our circular economy
approach. Furthermore, as our
stakeholders, customers and
investors expect, we communicate
our impact in a transparent way.
Climate change is the most pressing
issue of our time. To counter rising
global temperatures, carbon
neutrality by mid-century is vital.
Paper making with current available
technology is still energy intensive.
We are achieving CO
2
emission
reductions by improving our energy
efficiency, as well as by changing
from fossil fuels to bio-based energy
wherever economically viable.
Clean fresh water is an increasingly
scarce commodity, and often cited
by our stakeholders as an important
sustainability issue.
We need large volumes of fresh
water to produce our products,
and even though we are not a large
consumer of water – we release
over 90% of the water we take
in back to the environment –
availability of fresh water is still
essential to us.
Increasing scarcity of resources
demands responsible production
and consumption. Avoidance
of waste is a key issue for our
stakeholders and customers.
Our products are specifically
designed to prevent loss and
damage to the goods they protect.
Our process itself is circular by
nature. The fibres our products
are made from are renewable,
recyclable, recycled and
biodegradable. 75% of our raw
material is derived from recycled
fibre and the remainder is from
sustainable sources. Our production
process itself generates almost
no waste.
Smurfit Kappa unites some 48,000
people around the globe, our
people are at the heart of all our
operations. This includes those for
whom we directly and indirectly
create jobs, as well as those whose
lives we impact. We can only achieve
sustainable long-term success
by relying on our people’s talent,
expertise and innovation.
Our stakeholders expect us to
provide a safe and healthy working
environment and promote a
healthy and safe lifestyle. We are
committed to maintaining a safe
and productive workplace in every
part of our Company by minimising
the risk of accidents, injury and
exposure to health hazards for
everyone on our sites.
Our impact is not only on the people
we work with. Our responsibilities
extend beyond, to supporting
local economies and livelihoods,
especially in areas with limited
opportunities for work and where
we are significant employers.
RISKS AND
OPPORTUNITIES
As growing consumption increases
pressure on resources, society
places increased value on
sustainable consumption and
production, integrity of origin,
recycling and avoiding litter and
packaging waste. Fit-for-purpose
packaging has never been more
important. We are implementing
forest certification and Chain of
Custody certification to guarantee
origin traceability. Using both
recycled and virgin fibres in
production, we intend to use
this opportunity to deliver
fit-for-purpose packaging with
the best overall environmental
footprint for each product.
Climate change poses different
risks and opportunities within
the value chain. Risks vary from
extreme weather affecting our
sites, to increasing costs for the
emission of CO
2
and pressure
on availability of raw materials.
The circular economy is also an
opportunity for our business as we
seek to use resources efficiently.
We are also investing in technology
to reduce our energy demands.
Finally, we are improving resource
and energy efficiency when
producing paper products and
optimising the use of raw material
residual streams, such as black
liquor, in bioenergy production.
Our global assessment shows that
only 12% of our paper production
takes place in areas of fresh water
scarcity, representing 3% of our
water intake.
The discharge of our water
before or after treatment can
be a valuable input for some
of our neighbours’ processes.
To help ensure that our water use
is correctly understood, we became
a signatory to the CEO Water
Mandate, and strive to understand
local water related risks and needs
so we can address them as and if
they arise.
Avoiding packaging waste by simply
focusing on packaging weight might
be seen as a quick way to decrease
landfill. This, however, can lead to
more waste resulting from greater
damage to goods or poor material
choices. We see an opportunity to
create fit-for-purpose, sustainable
packaging with mono-material
solutions designed for optimal
performance and recyclability. We
are also working with the recycling
and paper producing industries
to keep our raw materials in the
recycling loop.
A key challenge is attracting the
right talent to ensure succession
planning and leadership continuity,
particularly for sites in rural
locations, where the education
needed may not be provided.
Obstacles include low awareness of
our business-to-business brand.
This makes it even more important
to gain recognition for our efforts in
all aspects of sustainability:
environmental responsibility,
human rights, equal opportunities
and fair pay – all important elements
in the opportunity of being seen as a
responsible, attractive employer
for the best talent.
As an industrial business operating
in 36 countries, we are responsible
for the health and safety of a large
number of people. Our size creates
a challenge to maintain the same
standards for all. At Smurfit Kappa
we believe that health and safety
extends from work to home,
creating an opportunity to be
acknowledged as a responsible
employer. We engage our
employees with policies and
procedures to deliver, innovate and
produce in a safe environment.
We see ourselves as a ‘corporate
citizen’ in the communities in
which we’re privileged to operate.
All around the world we actively
support positive and lasting
changes. If we were not concerned
about our locations, we would risk
damaging our license to operate.
By supporting local education,
income generation, collaboration
and participation, we can strengthen
communities and keep them
attractive to our future workforce.
The opportunity is to participate in
communities, making it attractive
for the best talent to join us.
OUR COMMITMENT
At Smurfit Kappa we have
committed to promoting
sustainable forest management
at our sites and throughout our
value chain. This means producing
and sourcing our fibres, virgin or
recycled, as Chain of Custody
Certified. We have committed
to delivering over 95% of our
packaging solutions sold as Chain
of Custody certified to customers
by 2025. In 2021, we reached a level
of 93.45%.
Our approach to the challenges
of climate change and energy
efficiency sets out to achieve
more energy efficient production
at our sites, lower energy use in
manufacturing and a switch from
fossil fuels to biofuels wherever
feasible. Our success is measured
by our reduction in CO
2
emissions
– we have targeted to reach net zero
carbon emissions by 2050 and we
have committed to a 55% reduction
in scope 1 and 2 fossil fuels based
on CO
2
emissions in our mill system
compared to 2005 levels by 2030.
In 2021, we reached a 41.3%
reduction in the specific CO
2
emissions per tonne of paper
produced compared to 2005.
Our focus is on the long-term
improvement of the quality of water
we discharge, and understanding
the risks associated with water
availability and its use in the areas
where we operate. To increase
our global and local impact, we
will continue to invest in water
treatment facilities and require the
same standards from all our paper
mills, regardless of their location.
In 2020, next to our existing target
to reduce our COD discharge
intensity by 60% by 2025 compared
to 2005, we also introduced an
annual water intake reduction
target of 1% annually.
We have a strong focus on
innovation. Our Better Planet
Packaging initiative drives new
efficiency solutions for our raw
materials while keeping them in
the recycling loop.
We also work towards the increased
recovery of any waste delivered to
us when recycling recycled fibre,
ultimately to avoid landfill with a
target to have 30% less waste to
landfill by 2025, compared to the
reference year 2013.
We want to empower all employees
to reach our business objectives.
We therefore:
• Offer employees at all levels the
chance to broaden their skillsets
and knowledge, fulfil their
potential and improve their
career prospects;
• Stimulate and encourage
employee engagement through
regular, company-wide surveys
and follow-up;
• Compensate fairly, review
performance regularly and
offer gender neutral career
opportunities and pay; and
• Maintain a good faith
‘Whistleblower Code’ for
reporting any unethical or
illegal conduct.
We are committed to maintaining
a productive and safe workplace
by minimising the risk of accidents,
injury and exposure to health
hazards for every employee and
all sub-contractors. To measure
our success, we committed to
reducing our TRIR by 5% annually.
In 2021 we reached a level of 0.59,
a 1.7% improvement compared
to 2020. Whilst our year-on-year
improvement did not meet our
5% target, we were pleased that
we were able to improve on what
was a significant step change
in performance in 2020.
Across Smurfit Kappa we are
committed to the communities
in which we operate, and our
Foundation empowers people to
improve their lives. Where the cycle
of poverty and dependence is
an issue, we aim to help end this,
strengthening communities around
the world. Between 2020 and 2025
we will donate over €24 million to
support social environmental and
community initiatives.
As a responsible business, we
support global human rights and
labour standards, and check that
our suppliers do too. We are
committed to ethical business
standards; we work against
corruption in all its forms, including
extortion and bribery (see Code of
Conduct on the Group’s website,
smurfitkappa.com).
SUSTAINABILITY CONTINUED
63
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Our Sustainability
Priorities
Forest Climate Change Water Waste People
Employee Strategy Health and Safety Communities
PRIORITIES
Promoting sustainable forest
management involves managing
supplies of sustainable, renewable
fibre, while protecting ecosystems
and creating employment in rural
areas. Virgin wood fibres will always
be needed for paper production
to maintain quality. Fibre can be
recycled around eight times when
producing our paper-based
packaging products. It is why using
renewable wood fibre, paper
recovery and fibre recycling is
at the core of our circular economy
approach. Furthermore, as our
stakeholders, customers and
investors expect, we communicate
our impact in a transparent way.
Climate change is the most pressing
issue of our time. To counter rising
global temperatures, carbon
neutrality by mid-century is vital.
Paper making with current available
technology is still energy intensive.
We are achieving CO
2
emission
reductions by improving our energy
efficiency, as well as by changing
from fossil fuels to bio-based energy
wherever economically viable.
Clean fresh water is an increasingly
scarce commodity, and often cited
by our stakeholders as an important
sustainability issue.
We need large volumes of fresh
water to produce our products,
and even though we are not a large
consumer of water – we release
over 90% of the water we take
in back to the environment –
availability of fresh water is still
essential to us.
Increasing scarcity of resources
demands responsible production
and consumption. Avoidance
of waste is a key issue for our
stakeholders and customers.
Our products are specifically
designed to prevent loss and
damage to the goods they protect.
Our process itself is circular by
nature. The fibres our products
are made from are renewable,
recyclable, recycled and
biodegradable. 75% of our raw
material is derived from recycled
fibre and the remainder is from
sustainable sources. Our production
process itself generates almost
no waste.
Smurfit Kappa unites some 48,000
people around the globe, our
people are at the heart of all our
operations. This includes those for
whom we directly and indirectly
create jobs, as well as those whose
lives we impact. We can only achieve
sustainable long-term success
by relying on our people’s talent,
expertise and innovation.
Our stakeholders expect us to
provide a safe and healthy working
environment and promote a
healthy and safe lifestyle. We are
committed to maintaining a safe
and productive workplace in every
part of our Company by minimising
the risk of accidents, injury and
exposure to health hazards for
everyone on our sites.
Our impact is not only on the people
we work with. Our responsibilities
extend beyond, to supporting
local economies and livelihoods,
especially in areas with limited
opportunities for work and where
we are significant employers.
RISKS AND
OPPORTUNITIES
As growing consumption increases
pressure on resources, society
places increased value on
sustainable consumption and
production, integrity of origin,
recycling and avoiding litter and
packaging waste. Fit-for-purpose
packaging has never been more
important. We are implementing
forest certification and Chain of
Custody certification to guarantee
origin traceability. Using both
recycled and virgin fibres in
production, we intend to use
this opportunity to deliver
fit-for-purpose packaging with
the best overall environmental
footprint for each product.
Climate change poses different
risks and opportunities within
the value chain. Risks vary from
extreme weather affecting our
sites, to increasing costs for the
emission of CO
2
and pressure
on availability of raw materials.
The circular economy is also an
opportunity for our business as we
seek to use resources efficiently.
We are also investing in technology
to reduce our energy demands.
Finally, we are improving resource
and energy efficiency when
producing paper products and
optimising the use of raw material
residual streams, such as black
liquor, in bioenergy production.
Our global assessment shows that
only 12% of our paper production
takes place in areas of fresh water
scarcity, representing 3% of our
water intake.
The discharge of our water
before or after treatment can
be a valuable input for some
of our neighbours’ processes.
To help ensure that our water use
is correctly understood, we became
a signatory to the CEO Water
Mandate, and strive to understand
local water related risks and needs
so we can address them as and if
they arise.
Avoiding packaging waste by simply
focusing on packaging weight might
be seen as a quick way to decrease
landfill. This, however, can lead to
more waste resulting from greater
damage to goods or poor material
choices. We see an opportunity to
create fit-for-purpose, sustainable
packaging with mono-material
solutions designed for optimal
performance and recyclability. We
are also working with the recycling
and paper producing industries
to keep our raw materials in the
recycling loop.
A key challenge is attracting the
right talent to ensure succession
planning and leadership continuity,
particularly for sites in rural
locations, where the education
needed may not be provided.
Obstacles include low awareness of
our business-to-business brand.
This makes it even more important
to gain recognition for our efforts in
all aspects of sustainability:
environmental responsibility,
human rights, equal opportunities
and fair pay – all important elements
in the opportunity of being seen as a
responsible, attractive employer
for the best talent.
As an industrial business operating
in 36 countries, we are responsible
for the health and safety of a large
number of people. Our size creates
a challenge to maintain the same
standards for all. At Smurfit Kappa
we believe that health and safety
extends from work to home,
creating an opportunity to be
acknowledged as a responsible
employer. We engage our
employees with policies and
procedures to deliver, innovate and
produce in a safe environment.
We see ourselves as a ‘corporate
citizen’ in the communities in
which we’re privileged to operate.
All around the world we actively
support positive and lasting
changes. If we were not concerned
about our locations, we would risk
damaging our license to operate.
By supporting local education,
income generation, collaboration
and participation, we can strengthen
communities and keep them
attractive to our future workforce.
The opportunity is to participate in
communities, making it attractive
for the best talent to join us.
OUR COMMITMENT
At Smurfit Kappa we have
committed to promoting
sustainable forest management
at our sites and throughout our
value chain. This means producing
and sourcing our fibres, virgin or
recycled, as Chain of Custody
Certified. We have committed
to delivering over 95% of our
packaging solutions sold as Chain
of Custody certified to customers
by 2025. In 2021, we reached a level
of 93.45%.
Our approach to the challenges
of climate change and energy
efficiency sets out to achieve
more energy efficient production
at our sites, lower energy use in
manufacturing and a switch from
fossil fuels to biofuels wherever
feasible. Our success is measured
by our reduction in CO
2
emissions
– we have targeted to reach net zero
carbon emissions by 2050 and we
have committed to a 55% reduction
in scope 1 and 2 fossil fuels based
on CO
2
emissions in our mill system
compared to 2005 levels by 2030.
In 2021, we reached a 41.3%
reduction in the specific CO
2
emissions per tonne of paper
produced compared to 2005.
Our focus is on the long-term
improvement of the quality of water
we discharge, and understanding
the risks associated with water
availability and its use in the areas
where we operate. To increase
our global and local impact, we
will continue to invest in water
treatment facilities and require the
same standards from all our paper
mills, regardless of their location.
In 2020, next to our existing target
to reduce our COD discharge
intensity by 60% by 2025 compared
to 2005, we also introduced an
annual water intake reduction
target of 1% annually.
We have a strong focus on
innovation. Our Better Planet
Packaging initiative drives new
efficiency solutions for our raw
materials while keeping them in
the recycling loop.
We also work towards the increased
recovery of any waste delivered to
us when recycling recycled fibre,
ultimately to avoid landfill with a
target to have 30% less waste to
landfill by 2025, compared to the
reference year 2013.
We want to empower all employees
to reach our business objectives.
We therefore:
• Offer employees at all levels the
chance to broaden their skillsets
and knowledge, fulfil their
potential and improve their
career prospects;
• Stimulate and encourage
employee engagement through
regular, company-wide surveys
and follow-up;
• Compensate fairly, review
performance regularly and
offer gender neutral career
opportunities and pay; and
• Maintain a good faith
‘Whistleblower Code’ for
reporting any unethical or
illegal conduct.
We are committed to maintaining
a productive and safe workplace
by minimising the risk of accidents,
injury and exposure to health
hazards for every employee and
all sub-contractors. To measure
our success, we committed to
reducing our TRIR by 5% annually.
In 2021 we reached a level of 0.59,
a 1.7% improvement compared
to 2020. Whilst our year-on-year
improvement did not meet our
5% target, we were pleased that
we were able to improve on what
was a significant step change
in performance in 2020.
Across Smurfit Kappa we are
committed to the communities
in which we operate, and our
Foundation empowers people to
improve their lives. Where the cycle
of poverty and dependence is
an issue, we aim to help end this,
strengthening communities around
the world. Between 2020 and 2025
we will donate over €24 million to
support social environmental and
community initiatives.
As a responsible business, we
support global human rights and
labour standards, and check that
our suppliers do too. We are
committed to ethical business
standards; we work against
corruption in all its forms, including
extortion and bribery (see Code of
Conduct on the Group’s website,
smurfitkappa.com).
64
Smurfit Kappa Annual Report 2021
PEOPLE
A year of growth,
and incredible stories
If 2020 was about adapting to the extraordinary, 2021 was about managing, mitigating and
normalising the disruption that COVID-19 has caused our people and our business.
As we continued to navigate
a second year of this pandemic
together, it was the agility,
adaptability and resilience of our
people that stood out. They have
proved again and again to be our
most valuable asset in our response
to COVID-19, and as a critical
partner in supporting and delivering
for all our stakeholders. Our leaders
across the business could not be
prouder of their continued efforts,
contribution and commitment.
Across the year, through our
acquisitions we have on-boarded
just over 1,000 new colleagues, that
we welcome to the Smurfit Kappa
family. We continued our support
of all our employees during 2021
and into 2022 with a strong focus
on health and wellbeing, employee
engagement and communications,
reward and recognition, and learning
and development initiatives.
Our Employee Assistance
Programme was rolled-out globally,
supported by mental health and
wellness programmes, and we also
focused on engaging and motivating
our people, by actively listening and
seeking out their opinions. We know
that by taking care of our people, our
people will take care of our business.
In May, we conducted our MyVoice
group-wide employee engagement
survey. It was 100% digital for the
first time, and attracted the highest
participation rate of any of our
surveys to date. I am also very
pleased to report a global
engagement rate increase of
13 percentage points, providing a
positive endorsement of the people
centric culture in Smurfit Kappa and
our overall people focus.
Going above and beyond – our
communities and our customers
relied on us as a critical partner to
ensure food, beverages, medical
devices and key raw material supply
chains were maintained, making it
essential for us to keep all of our
factories and centres operating.
We are grateful to the 48,000 people
within the company who made
this happen, and who did so with
purpose, resilience and a safety-
always mindset.
To help support our business growth
during 2021, we continued to focus
our HR strategy and initiatives
under our four key pillars: Employee
Experience for Performance;
Inclusion, Diversity and Equality;
People Development and Talent
Management; and Rewards and
Recognition. These pillars are
underpinned by our HR Foundations,
all coming together to ensure our
people feel safe, fully supported
and connected to each other and
to the business. This allowed us to
protect and embed our unique
Smurfit Kappa culture and our
values of Safety, Loyalty, Integrity
and Respect.
During 2021, we also set a number of
new sustainability targets under our
Better Planet 2050 commitments.
As part of our commitment to
driving Inclusion, Diversity and
Equality within Smurfit Kappa we
are striving to create a diverse
workplace and ensure that female
gender representation across the
Group is above 30%. We are also
committed to 25% of our female
workforce holding management
positions by 2024.
Across the world many
organisations are beginning to
imagine the future of work through
a different lens. Being more agile
in our approach is just one example
of how we are working in new and
better ways to become more flexible
and relevant for the future.
Our Smurfit Kappa Academy has
embraced this approach and is now
providing global online learning
programmes, not only to enable
our people to upskill for the future,
but also helping them prepare for
the changing landscape of work.
The COVID-19 pandemic has
changed the world and its effects
will last. The most painful aspect to
reflect on, is that the pandemic has
resulted in the loss of a number of
Smurfit Kappa colleagues across the
world. Our thoughts go out to their
families, colleagues and friends, and
indeed to all those whose lives have
been impacted so tragically by this
terrible disease.
Throughout the sadness and the
many challenges, our teams have
achieved so much this year, and
the stories and case studies in the
people section of this 2021 Annual
Report will demonstrate the growth
and achievement of all.
Sharon Whitehead
Group Vice President
Human Resources
Smurfit Kappa Group
”
“
It was the agility, adaptability
and resilience of our people that
stood out. They have proved
again and again to be our most
valuable asset.
65
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Employee Experience
for Performance
See page 66 for more details
See page 70 for more details
People Development and
Talent Management
Our Ambition: To help our people
grow their careers and deliver on their
potential, so we can realise our
ambition for them and the
organisation, as we move forward.
Our Ambition: To create a continuous
two-way dialogue, to ensure our people
understand our strategy and the role
they play in its delivery and to inspire
them to perform at their best every day.
Our Ambition: To create an inclusive
workplace where each one of us feels
included, supported and respected
in our daily work.
Our Ambition: We aim to attract, retain
and recognise our employees, through
competitive work practices. Making sure
that people are not just appropriately
rewarded from a monetary perspective,
but also see their achievements
recognised and valued in the workplace.
Rewards and Recognition
See page 72 for more details
Inclusion, Diversity
and Equality
See page 68 for more details
Five Foundations
of our HR Strategy
See pages 74 to 75 for more details
Safety and
Wellbeing
Legal
Framework
Employee
Relations
HR Information
Systems
Internal
Communications
Our People Strategy 2020-2023
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Smurfit Kappa Annual Report 2021
PEOPLE CONTINUED
As the pandemic entered its second
year, we continued our work around
employee engagement and
communications. Our emphasis was
on ensuring our people continued
to feel supported, recognised and
valued for the role they played during
2021 in our organisation’s overall
performance and success.
Our COVID-19 communications
continued, led from the top by
our Group and Regional Executive
Committees. Colleagues were
encouraged to use the available
tools and safety protocols to
re-double their efforts to suppress
and stop the spread of COVID-19,
while being encouraged and
supported to be vaccinated as
soon as the opportunity arose.
We also instilled a sense of pride,
and helped employees to get great
satisfaction from the crucial role
they were playing in keeping the
world’s supply chains moving. The
work they were doing every day was
ensuring that vital food, sanitation
and medical supplies, so important
in the fight against COVID-19,
arrived safely and on time in
the many communities where
we operate.
To continue to measure employee
sentiment and engage with our
teams, we also hosted our third
global engagement survey. MyVoice
2021 took place from the 6th-25th
May and was our first 100% digital
survey, attracting our biggest
number of participants ever.
It provided a direct feedback
opportunity for all employees, with
almost 42,000 comments captured
and reviewed. (See case study on
page 67 for further details).
February 2021 also saw us host
our first global virtual leadership
conference. It brought together
over 500 of our leadership team
members from across the
organisation, providing us with
the opportunity to build deep
connections and issue a compelling
call around our key theme of
Creating Our Future, Together.
Our hybrid and agile ways of working
also continued to evolve, with our
SKG MyWork initiative. This has
allowed us to take forward the
efficient ways of working we
discovered during COVID-19, while
we continued throughout the year
to invest in collaboration tools and
technology to help our people be
successful, connected and deliver.
Across the year we have also
evolved our EveryOne, Inclusion,
Diversity and Equality programme,
and through the communications
channels available to us, we have
now launched it across the
organisation. Further details on
this evolution can be seen on the
following pages.
During 2021, we worked hard to
build on the engagement levels
we reported during 2020. We have
interacted with our people on an
ongoing basis to gain insight into
what is important to them and
to ensure we are continuing on our
journey together to be a globally
admired employer of choice.
Employee Experience
for Performance
Our focus: Staying connected with
our people to ensure they felt safe,
supported and part of the strong
global SKG community. We also
ensured all our communications
were delivered with a clear voice,
while providing the opportunity
for open two-way dialogue and
employee feedback.
Employee Experience
for Performance
See page 66 for more details
See page 70 for more details
People Development and
Talent Management
Our Ambition: To help our people
grow their careers and deliver on their
potential, so we can realise our
ambition for them and the
organisation, as we move forward.
Our Ambition: To create a continuous
two-way dialogue, to ensure our people
understand our strategy and the role
they play in its delivery and to inspire
them to perform at their best every day.
Our Ambition: To create an inclusive
workplace where each one of us feels
included, supported and respected
in our daily work.
Our Ambition: We aim to attract, retain
and recognise our employees, through
competitive work practices. Making sure
that people are not just appropriately
rewarded from a monetary perspective,
but also see their achievements
recognised and valued in the workplace.
Rewards and Recognition
See page 72 for more details
Inclusion, Diversity
and Equality
See page 68 for more details
Five Foundations
of our HR Strategy
See pages 74 to 75 for more details
Safety and
Wellbeing
Legal
Framework
Employee
Relations
HR Information
Systems
Internal
Communications
Tony Smurfit, Group Chief Executive Officer addresses his team at the
Smurfit Kappa global virtual leadership conference in February 2021.
67
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Master logos on white Logos reversed out of SK or mid blue Logos reversed out of dark blue
2021
2021 2021
83%
MyVoice employee
participation in 2021
13
percentage point
increase in our overall
engagement score
CASE STUDY
MyVoice Global Engagement Survey 2021
At Smurfit Kappa, we know it is our people who drive us forward and
are the beating heart of our business. Their feedback and engagement
is important to us, we value the voices of our employees.
In May 2021, over a three-week period, we hosted our third global
employee engagement survey, which took a 100% digital approach.
It was our most successful and engaging survey to date, with all key
indicators showing upward momentum.
For example, we had our highest number of participants ever at 83%,
and they provided us with over 42,000 pieces of direct feedback,
demonstrating just how much our people want to contribute and
to be heard.
However, the most welcome advance since our last full global
survey in 2017, was the 13 percentage point growth in our overall
engagement score, which is ahead of the external industrial sector
average. This was further supported by very strong engagement
levels among our top-level executives, leaders and managers, while
there also was no substantial differences in engagement between
gender and age groups. This supports our approach of focusing on
all our diverse talent across the business.
68
Smurfit Kappa Annual Report 2021
Employee Experience
for Performance
See page 66 for more details
See page 70 for more details
People Development and
Talent Management
Our Ambition: To help our people
grow their careers and deliver on their
potential, so we can realise our
ambition for them and the
organisation, as we move forward.
Our Ambition: To create a continuous
two-way dialogue, to ensure our people
understand our strategy and the role
they play in its delivery and to inspire
them to perform at their best every day.
Our Ambition: To create an inclusive
workplace where each one of us feels
included, supported and respected
in our daily work.
Our Ambition: We aim to attract, retain
and recognise our employees, through
competitive work practices. Making sure
that people are not just appropriately
rewarded from a monetary perspective,
but also see their achievements
recognised and valued in the workplace.
Rewards and Recognition
See page 72 for more details
Inclusion, Diversity
and Equality
See page 68 for more details
Five Foundations
of our HR Strategy
See pages 74 to 75 for more details
Safety and
Wellbeing
Legal
Framework
Employee
Relations
HR Information
Systems
Internal
Communications
PEOPLE CONTINUED
Smurfit Kappa is a truly diverse
organisation. Our SKG family includes
48,000 colleagues, across more than
350 sites in 36 countries, speaking
over 21 different languages and
within a range of six generations.
It is our intention to focus on these
differences through our Inclusion,
Diversity and Equality programme
and bring our activities together
under our newly evolved EveryOne
programme. This will ensure we
not only celebrate but elevate
the differences we all bring to
Smurfit Kappa.
With our lived values of Safety,
Loyalty, Integrity and Respect –
we are striving to create an inclusive
work environment where all
individuals can simply be themselves
and contribute, free from
discrimination or harassment, and
where all decisions are based on
merit. It is our commitment not
to discriminate against colleagues
or candidates on the basis of age,
disability, faith, gender, sexual
orientation or gender identity,
marital or civil partnership, parental
responsibilities or race (colour,
ethnic or national origin, nationality).
Embracing and celebrating these
differences is a core component of
our EveryOne Inclusion, Diversity &
Equality programme. EveryOne asks
that we offer equal respect, support
and opportunities to each other,
in a safe environment, where we
can challenge our assumptions,
celebrate our differences and keep
our minds open every day.
Over the past year we have evolved
our Group EveryOne programme.
We have created five diverse
communities to drive our ambitions:
Disability, Family & Age, Gender,
LGBTQ+ & Allies and Origin,
Race & Ethnicity.
Our six inclusive behaviours
(Be Open, Ask, Respect, Appreciate,
Learn and Listen) to promote
inclusion in our daily interactions
with colleagues have remained the
same, as they are as relevant today
as when they were first developed
back in 2018.
Inclusion, Diversity
and Equality
Our focus: To further evolve our
Inclusion, Diversity and Equality
programme ‘EveryOne’ across
Smurfit Kappa and to also deliver the
gender commitments we pledged
as part of our Better Planet 2050
sustainability targets.
CASE STUDY
International Men’s Day
In a first for Smurfit Kappa, during November 2021 we celebrated
International Men’s Day, as part of our EveryOne programme of events
led by our ‘Gender’ community. We encouraged our sites across the
world to mark the contribution made by our male colleagues to the
organisation, their families, communities and friends. In addition to
recognising the positive male role models in our lives.
We also asked them to highlight the key issues affecting men such as
higher rates of suicide, lower life expectancy, higher work accident rates
and higher rates of cancer and heart disease.
Activities included many events around the world. Centrally we issued
a message from our CEO and Group VP of HR, while we also hosted
a global event involving men from across the company. The virtual event
was a conversation where our panel spoke about times and experiences
which had left them feeling vulnerable or uncomfortable. Each participant
outlined and discussed how he had dealt with his situation, in the hope
that it would help someone else.
To support the delivery of this
evolved programme, earlier this
year, we created an EveryOne
Council, which is led by Tony Smurfit,
our Group CEO, who is our Group
Executive Sponsor. The Council
comprises a number of executive
sponsors, at Group Executive
Committee level and regional
community champions, at senior
management level. The Council will
be further supported by the Group
VP of HR as the Chair, and the Group
EveryOne Lead.
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Overview Strategic Report Governance Financial Statements Supplementary Information
Together, we are determined to
deliver on our EveryOne Inclusion,
Diversity and Equality ambitions for
each of our five communities, while
continuing to create an inclusive,
supportive and respectful work
environment at Smurfit Kappa.
During the year, across Smurfit
Kappa, we worked together to
celebrate a series of Inclusion,
Diversity and Equality events
including International Women’s
Day (March), Pride (June), World
Mental Health Day (October),
International Men's Day (November)
and International Day of Disabled
Persons (December). Celebrating
these events internally helps us
raise awareness of our equality
programmes, while educating and
inspiring everyone to focus and
participate in our wider Inclusion,
Diversity and Equality agenda.
As part of our Pride activity and
to leave a lasting legacy of our
commitment to our LGBTQ+ &
Allies community, we signed the
‘Declaration of Amsterdam’. The
declaration states; 'All human beings
are born free and equal in dignity
and rights’. And these values
should apply equally to LGBTQ+
people in their private lives and
in working environments.
We also continued to make progress
in the area of gender diversity within
our organisation. Earlier this year,
as part of our ‘Better Planet 2050’
commitments, we stated our
ambitions to ensure female gender
representation is above 30% across
the organisation over time, with
female colleagues holding 25% of
management positions across the
Group by 2024.
Currently female employees
represent 20% of our total
workforce, while our manager
population and Executive
Committee female representation
is increasing. At Board level, female
representation is now at 33%, with
our Group Executive Committee at
31%, demonstrating progress on
our journey to a better gender
balance and delivering on our
commitments as part of the
‘30%Club’.
During the year, we continued our
work with our strategic Inclusion,
Diversity and Equality partners, such
as The Valuable 500, a global CEO
community revolutionising disability
inclusion, through business
leadership and opportunity; the
Trinity Centre for People with
Intellectual Disability: the Employers
Network for Equality and Inclusion,
which is a leading global employer
network promoting equality and
inclusion in the workplace; and the
30% Club, a global campaign led
by company Chairs and CEOs who
are committed to taking action to
increase gender diversity at board
and senior management levels.
CASE STUDY
International Women’s Day
On International Women’s Day ('IWD') and as part of our EveryOne
programme of events, we asked our sites and colleagues to celebrate
the contribution that our female colleagues made to our organisation,
to our families, have made and continue to make, to the world as a whole.
IWD as it is defined above is a global day celebrating the social, economic,
cultural and political achievements of women. This year’s IWD official
campaign theme was ‘Choose To Challenge’, highlighting that from
challenge comes change. We can all choose to challenge and call out
gender bias and inequality, and we can also choose to seek out and
celebrate women’s achievements to help create a more inclusive world.
Activities included many events around the world. Centrally we issued
a message from our CEO and Group VP of HR, we developed a full
suite of collateral for use at our events across the organisation and
we undertook a social media campaign supporting IWD.
We also hosted a Zoom event for our 2,000 leaders across Smurfit Kappa,
which included internationally renowned speaker Caroline Casey. The
event highlighted our Better Planet 2050 gender balance ambitions and
discussed how as an organisation we can ‘Choose to Challenge’ gender
bias to ensure we can all look forward to more balance in the world.
CASE STUDY
Free to be Me – Pride Celebrations
During the month of June we hosted a number of activities for
Pride month, under our LGBTQ+ theme of ‘Free to be Me’. Activities
included the development of a complete suite of collateral at local
and global level to educate, support and encourage participation
of all employees in our various Pride activities.
At global level we hosted a Virtual Coffee Talk, with LGBTQ+ employees
from the Americas and Europe sharing their story to inspire others,
while we also partnered with Accenture to host a global call to raise
awareness about LGBTQ+ communities and the role we could all play
as Allies.
In addition to these activities and in order to provide a lasting commitment
to our LGBTQ+ community, we also signed the ‘Declaration of
Amsterdam’. The declaration states; ‘All human beings are born free
and equal in dignity and rights’. And these values should apply equally
to LGBTQ+ people in their private lives and in working environments’.
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Smurfit Kappa Annual Report 2021
PEOPLE CONTINUED
Over the past year, we have
continued to focus on our talent
agenda, to ensure we have the right
people, in the right places and at
the right stages of development
to fill key positions as they arise.
During the year, we progressed
our strategic talent management
initiatives to focus on open career
conversations, ensuring that we
help employees to plan for and
understand their career ambitions.
This approach to talent
management has delivered many
leaders for the organisation, who
have built and grown successful
careers over many years, with an
average tenure of 18 years among
this cohort. They added to their
experience through a mix of internal
and external learning and
development programmes, as well
as real-life and on-the-job training.
The Smurfit Kappa Academy is an
important source of development
for our people and therefore, it was
crucially important for us to pivot our
people development programmes
in 2021 to an online offering. This
ensured that we could continue
to upskill and invest in our people.
Our suite of Global Academy
programmes including our Senior
Leadership Development offering,
our flagship Open Leadership
Development programme in
partnership with INSEAD,
our Global Manager Programme
for new plant, mill and functional
managers, our Advanced
Management Development
programme, which develops our
leaders of the future and our
Graduate Workshop, which brings
together graduates from across
the Group, all pivoted to an online
experience in 2021. In Europe, we
also launched a newly designed
Graduate Development programme
to build the capability of these
high potential talents in the region,
mirroring a similar programme
in the Americas region.
In total 324 employees participated
in one of six group programmes
run in 2021, including 10% of our
senior global management
community. This added up to the
delivery of 5,623 training hours or an
average of 17.35 hours per person.
The work done at a Group level is
just a snapshot of the activity that
has been done to support the
development of all of our people
over the past year, as many other
training and development
programmes take place at regional,
country and site level. These
programmes delivered an average
of 18.6 hours of career development
for each of our permanent members
of our workforce.
People Development
and Talent Management
Our focus: Invest in all our people
across Smurfit Kappa, and embed
our talent planning to help create
our next generation of talent for the
Group. Pivot our people development
programmes to an online approach
to continue to offer virtual and
hybrid learning opportunities across
the organisation.
324
Participants in our 2021
training programmes
Development and Training
18.6hrs
average per permanent
employee in 2021
Employee Experience
for Performance
See page 66 for more details
See page 70 for more details
People Development and
Talent Management
Our Ambition: To help our people
grow their careers and deliver on their
potential, so we can realise our
ambition for them and the
organisation, as we move forward.
Our Ambition: To create a continuous
two-way dialogue, to ensure our people
understand our strategy and the role
they play in its delivery and to inspire
them to perform at their best every day.
Our Ambition: To create an inclusive
workplace where each one of us feels
included, supported and respected
in our daily work.
Our Ambition: We aim to attract, retain
and recognise our employees, through
competitive work practices. Making sure
that people are not just appropriately
rewarded from a monetary perspective,
but also see their achievements
recognised and valued in the workplace.
Rewards and Recognition
See page 72 for more details
Inclusion, Diversity
and Equality
See page 68 for more details
Five Foundations
of our HR Strategy
See pages 74 to 75 for more details
Safety and
Wellbeing
Legal
Framework
Employee
Relations
HR Information
Systems
Internal
Communications
71
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Master logos on white Logos reversed out of SK or mid blue Logos reversed out of dark blue
2021
2021 2021
I would recommend this programme
to anyone who is trying to grow both
professionally and personally. You really
find value in seeing live the core values
of the company, the management styles
and how everything is linked together
(strategy, execution and result).
”
“
CASE STUDY
General Managers Programme ('GMP') –
An innovative Approach to Learning
GMP 2021 was our first SKG Academy programme to run 100%
virtually, and created the template for all other programmes in 2021.
Our innovative approach to designing this programme unlocked the
opportunity to make it an unforgettable experience. We designed and
rolled out a ground-breaking social learning journey around scheduled
live events featuring MS Teams content releases and contributions
from participants. Our social media-style interaction gave learners
ways to participate every day and connected with the live sessions
to form a single narrative thread.
While nothing can replace the connections built during in-person
experiences, we learnt that with a little effort and ingenuity we could
create an impactful learning experience online.
CASE STUDY
MyVoice Female Focus Group
Listening to the voice of our employees is crucial to ensure we
continue to evolve our employee experience. In particular it’s
important to hear perspectives from different groups about their
experience as an SK employee. In November 2021, we hosted a focus
group with 25 women from across the group to hear about what it’s
like to work in Smurfit Kappa. They were joined by Non-executive
Directors from our Board’s Sustainability Committee, Group CEO,
and Group Vice President of HR.
In an open and honest discussion we were pleased to hear that the
participants have seen significant improvement in their employee
experience over the years. They shared the difference that supportive
and progressive managers have had on their ability to do their work,
while fulfilling their life commitments and on how they impacted
their personal belief in their ability to take on more senior roles. They
also shared with us some recommendations to further improve the
female experience in Smurfit Kappa, including a female mentoring
programme and leveraging the learning from the pandemic to fully
embrace hybrid working with choice and trust. A full report from the
session, including the full list of recommendations, has been shared
with the Group Executive Committee, the Gender Community
Leadership Team and the Smurfit Kappa Board and will be used to
influence further action to support our gender balance goals and the
improvement of our employee experience for our entire workforce.
We will also continue to create forums for all levels of female
employees to give us feedback on their SKG experience.
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Smurfit Kappa Annual Report 2021
PEOPLE CONTINUED
In 2021 we continued to review
our approach to Rewards and
Recognition, with this work
continuing into 2022. Our aim
is to ensure we have a fair and
competitive package of compensation
benefits in place, which compares
favourably with the market, and a
rewards philosophy that attracts
and retains key talent.
We recognise how critical it is for
employees to be appreciated at
work, because it confirms that both
they and their work are valued. It is
also critical that our Reward and
Recognition programmes are clearly
aligned with pay for performance,
so our people can see a clear link to
their compensation package when
they perform above and beyond
what is expected.
In setting our reward packages,
Smurfit Kappa takes into
consideration the employee’s
performance, external benchmark
data for their role in companies
of similar size and scope, while
also ensuring internal equity
within theGroup.
As an organisation, we are
committed to gender pay equality
and we continue to proactively
monitor the pay of male and female
colleagues, in similar roles to ensure
it is comparable. For example, under
UK legislation employers with more
than 250 employees are required
to publish key metrics on their
gender pay gap. Our UK business
has published their figures which
shows an improvement over the
last fewyears.
In addition, the Gender Pay Gap
Information Act was signed into
law in Ireland in July 2021 and in
advance of mandatory gender pay
gap reporting in Ireland which is
expected to be introduced in 2022
for companies with more than
250 employees. We are working
with advisors to calculate and
understand our Irish Pay Gap.
The Group is also very focused
on ensuring that positive employee
and trade/labour union relations
are maintained to the highest
of standards, so we can ensure
fair and sustainable Collective
Labour Agreements.
Rewards and Recognition
Our focus: Further develop our
Rewards and Recognition approach
to ensure fair and competitive benefits
for all, and to position SKG as an
employer of choice that can attract
and retain top talent.
Our key objectives
for our Rewards Policy
are to:
1. Create a framework to
enable the Group to attract
and retain talented
employees;
2. Motivate employees
at every level of the
organisation to achieve
the Group’s strategic
objectives; and
3. Provide competitive
rewards and benefits
that are clearly linked
to performance.
Employee Experience
for Performance
See page 66 for more details
See page 70 for more details
People Development and
Talent Management
Our Ambition: To help our people
grow their careers and deliver on their
potential, so we can realise our
ambition for them and the
organisation, as we move forward.
Our Ambition: To create a continuous
two-way dialogue, to ensure our people
understand our strategy and the role
they play in its delivery and to inspire
them to perform at their best every day.
Our Ambition: To create an inclusive
workplace where each one of us feels
included, supported and respected
in our daily work.
Our Ambition: We aim to attract, retain
and recognise our employees, through
competitive work practices. Making sure
that people are not just appropriately
rewarded from a monetary perspective,
but also see their achievements
recognised and valued in the workplace.
Rewards and Recognition
See page 72 for more details
Inclusion, Diversity
and Equality
See page 68 for more details
Five Foundations
of our HR Strategy
See pages 74 to 75 for more details
Safety and
Wellbeing
Legal
Framework
Employee
Relations
HR Information
Systems
Internal
Communications
73
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Overview Strategic Report Governance Financial Statements Supplementary Information
Diversity of the Executive Team
We take part in the FTSE Women
Leaders Review (formerly the
Hampton-Alexander Review) which
sets out recommendations for
FTSE 350 companies to improve
the representation of women both
on their executive committee and
the direct reports to this committee.
The Hampton-Alexander Review
set a target of 33 percent female
representation on FTSE 350 boards
by 2020.
The 2021 report was published
in February 2022 and represents
women on Boards as of 10 January
2022, and senior management as
at 31 October 2021. Our position at
that date is outlined on the diagram
to the right:
Gender Diversity
Our gender split is also outlined on
the charts to the right:
33.3%
Women on
SKG plc Board
31.6%
Female Executive
Committee and
direct reports
Board of Directors
(Gender split out of 12)
Executive Committee
(Gender split out of 13)
Senior Management
(Gender split)
Total Permanent Employees
(Gender split)
Male 8
Female 4
Male 9
Female 4
Male 68%
Female 32%
Male 80%
Female 20%
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Smurfit Kappa Annual Report 2021
PEOPLE CONTINUED
Our Safety and Wellbeing Focus
Our vision: To operate with Health,
Safety and Wellbeing as core values,
while creating a secure and
open work environment for our
employees, so that everyone feels
supported and goes home safe
every day.
The Health, Safety and Wellbeing
of our teams across the world is and
will always be at the core of how
Smurfit Kappa operates. It is part
of our culture and cemented into
our organisational values of; Safety,
Loyalty, Integrity and Respect. We
strive to ensure that every day, each
of our Smurfit Kappa employees
return home safely to their family.
Our health and safety culture
is founded on authenticity,
empowerment and accountability,
with our attention focused around
our six high-risk areas, as depicted
in the above graphic.
At the heart of our health and safety
approach is our ‘Safety for Life’
programme. This was extended in
2021 to include ‘Wellbeing for Life’,
which aimed to bring a more holistic
approach to our H&S focus and
methods, which was and still is
crucial in order to support our
Overall feedback from our
employees to our H&S questions,
ranked between 70-90%, while we
also received over 10,000 ideas
and suggestions from across
the organisation with further
opportunities to focus on.
One of the most important
achievements of our Health &
Safety programme this year is the
continued positive performance
of our TRIR trends. At the end of
2021 we have improved by over
50% versus our base line in 2017.
However, sadly we had one
subcontractor fatality in 2021, but
we will not rest until we deliver zero
incidents on an ongoing basis.
Equally, we recognise that it is not
just about counting incidents,
and increasingly our focus is on
the actions we know will reduce the
numbers of injuries; for example,
having safety conversations,
recognising strong safety
performance and further controlling
potential risks within our operations.
We continued with our strong audit
programme in 2021, and also
continued to build on our good
governance model.
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The Foundations of our
HR Strategy
Underpinning our four HR
strategic pillars are the five
fundamentals of our HR
strategy:
people through these difficult times.
This programme is all about helping
our colleagues to build resilience and
ensure they look after their mental
health, as well as their physical, social
and financial wellbeing. Please see
our case study to the right.
In addition to our ‘Wellbeing for Life’
programme, across all our sites and
plants we continued to reinforce our
robust COVID-19 control measures,
ensuring all colleagues remained
as safe as possible and that our
operations were able to deliver
essential supplies to our customers.
We continually strive to improve
our approach to Health and Safety,
and are firmly of the belief that
‘what gets measured gets done’.
Therefore, for the first time in
May 2021, we took the opportunity
to have our annual H&S survey
included and integrated into
MyVoice, our global employee
engagement survey.
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
CASE STUDY
Safety for Life Extends to ‘Wellbeing for Life’
The Health, Safety and Wellbeing of our people is of the utmost
importance to us and is one of our core values; Safety, Loyalty,
Integrity and Respect. Over the past year with COVID-19 still
constantly on our minds, our commitment to Health, Safety and
Wellbeing has never been more in focus.
As part of World Day for Safety and Health at Work on 28 April, we
launched Wellbeing for Life, a new initiative that sits within our Safety
for Life programme. Wellbeing for Life specifically focuses on the
mental, physical, social, and financial wellbeing of our people. It
focuses on understanding, supporting and improving wellbeing while
calling on employees to: be active; be connected; be supported; be
fulfilled; and be together. Thereby touching all four of our pillars of
wellbeing; social, mental, physical and financial wellbeing.
It was supported by a booklet, which was sent to all employees,
to explain more about ‘Wellbeing for Life’, while offering some simple
steps that could help improve physical, social, financial and mental
wellbeing. It also served as a reminder to employees about our
Employee Assistance Programme, which offers free and confidential
support to help them and their families cope with any concerns
or challenges they might have.
CASE STUDY
MyHub – Embracing a Digital HR Future
As part of our global HR strategy and priorities, during 2021 we have
been preparing to design and launch a new Group wide HR information
system for Smurfit Kappa.
We are designing a process to enhance our overall employee
experience that will empower our managers to manage and plan
for performance, talent, compensation, engagement and learning.
It will also give our employees autonomy over their working
experience, enabling them to shape their employment experience
no matter where they are in their career journey.
Superior data reporting will now be available, while standardised
dashboards and KPIs will enable us to make data driven decisions
for the benefit of all our stakeholders.
Our ultimate goal is to deliver excellent HR services that drive the
right behaviours in our business and deliver an excellent employee
experience. This new platform will continue to allow the HR team
to pursue its enablement of the business.
In the two years since its inception,
we are pleased to see increasing
awareness of our Speak Up system
in the countries where we operate.
Our people understand that it is
‘ok’ to speak up and that is what
we encourage.
Our objective for the system is to
ensure that in every site, each of our
employees is aware of our Code of
Conduct and Speak Up services in
order to promote a transparent and
trustworthy workplace.
Every case reported to Speak Up
services is carefully processed and
analysed, against a set of basic
criteria that help us decide if
corrective action is required to
mitigate further risks.
In addition to our focus on Health
and Safety, as part of our global HR
strategy and priorities, we have
been preparing to launch a new
Group wide HR information system,
which will bring many benefits to the
organisation, as you can see in our
case study below.
We have also continued to challenge
and improve the effectiveness
of our internal communications,
ensuring we communicate directly
with our colleagues at site level,
particularly with business critical,
H&S and COVID-19 initiatives.
Finally, we have also been continuing
to educate colleagues about our
Speak Up service. It was launched
in December 2019 in order to
guarantee a confidential employee
process for issues or matters that
align with the three underlying
principles of Smurfit Kappa’s Code
of Conduct; Compliance with
the law, ethical behaviour and a
commitment to quality and service.
It allows all stakeholders to easily
and confidentially report any issue
or instance of wrongdoing, with
the service available 24/7/365,
guaranteeing user confidentiality
and/or anonymity, as well as
assurance of non-retaliation.
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for life
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Smurfit Kappa Annual Report 2021
DYNAMICALLY & SUSTAINABLY DELIVERING
Acquisition of Cartonbox, Monterrey
We have completed the acquisition of Cartonbox, a folding carton
company located in Monterrey, in the north-east of Mexico.
The acquisition represents an important
milestone for the us as it strengthens our
participation in the paper packaging solutions
business in Mexico, expands our footprint to
four folding carton locations in the country,
and reaffirms our commitment to paper-based
packaging as the core strategic business for
Smurfit Kappa.
“As a global company, our objective has always
been to strengthen our leadership across the
globe. Our top priority is to generate value for
our stakeholders, and Mexico has shown to be
a key country for us to invest in. I am very proud
to announce that we successfully acquired
Cartonbox. Not only does this increase our
footprint in the country, but it also allows us to
answer our customers’ needs and expectations.
I am certain this will help us move a step forward
in becoming the leading paper-based packaging
company in Mexico,” said Juan G. Castaneda.
Jorge Alberto Angel, Smurfit Kappa Mexico
CEO, said: “Smurfit Kappa Mexico welcomes 240
employees from Cartonbox to our family, and I
could not be more pleased. Prior to the acquisition,
we had three folding carton operations in Mexico,
located in the Metropolitan Area of Mexico City
and in Tijuana. This acquisition gives us the
opportunity to directly supply our customers in
the northern region of the country. I am certain
that using our best-in-class operating systems,
procurement arrangements, global mindset,
and our design and innovation focus, we are
well positioned to partner with new and current
customers in the FMCG, food and beverage,
bakery and office supplies sectors.”
Strengthening our Folding Carton
Operations in Mexico
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Governance 76-117
Board of Directors 78
Corporate Governance Statement 82
Audit Committee Report 88
Remuneration Report 92
Nomination Committee Report 110
Sustainability Committee Report 113
Directors’ Report 115
Statement of Directors’
Responsibilities 117
Governance
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Smurfit Kappa Annual Report 2021
BOARD OF DIRECTORS
Irial Finan
Non-executive Chair
Anthony Smurfit
Group Chief Executive Officer
Ken Bowles
Group Chief Financial Officer
Nationality: Irish Nationality: Irish Nationality: Irish
Term of office
Irial Finan joined the Board in February 2012.
He was appointed Chair in May 2019.
Anthony Smurfit has served as a Director of the
Group since 1989* and was appointed Group
Chief Executive Officer in September 2015.
Ken Bowles was appointed Group Chief
Financial Officer in April 2016 and was
appointed a Director in December 2016.
Independent
Yes** No No
Committee membership
Biography
Irial Finan joined the Board in February 2012.
He was appointed Chair in May 2019. He was
Executive Vice President of The Coca-Cola
Company and President of the Bottling
Investments Group from 2004 until he stepped
down from the role in December 2017 and
retired in March 2018. Prior to this Irial served as
Chief Executive Officer of Coca-Cola Hellenic
Bottling Company SA. He joined the Coca-Cola
System in 1981. He also serves on the Boards
of Coca-Cola Bottlers Japan Holdings Inc. and
Fortune Brands Home & Security, Inc.
Anthony Smurfit has worked in various parts
of the Smurfit Kappa Group both in Europe and
the United States since he joined the Group.
He was appointed Group Chief Executive
Officer in September 2015, prior to which he
was the Group Chief Operations Officer from
November 2002. He was also Chief Executive
of Smurfit Europe from October 1999 to 2002
prior to which he was Deputy Chief Executive of
Smurfit Europe and previously Chief Executive
Officer of Smurfit France. He is a board member
of CEPI (Confederation of European Paper
Industries), and is also a member of the
European Round Table of Industrialists.
Ken Bowles joined the Group in 1994 and has
occupied a number of finance roles in various
parts of the Group. He was appointed Group
Chief Financial Officer in April 2016, prior to
which he was the Group Financial Controller
from 2010. He was the Group’s Head of
Tax from 2007 to 2010 prior to which he
was appointed as the Group’s first Head
of Compliance in 2004. He is an associate
member of the Institute of Chartered
Management Accountants and holds a first
class MBA from the UCD Graduate School
of Business.
* For Smurfit Kappa Group plc or its predecessor companies, SKG returned to Euronext Dublin and LSE on its IPO in March 2007.
** On his appointment as Chair in May 2019 Irian Finan was independent.
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Board Committees
Audit Remuneration Nomination Sustainability
Chair
Chair
Anne Anderson
Non-executive Director
Frits Beurskens
Non-executive Director
Carol Fairweather
Non-executive Director
Nationality: Irish Nationality: Dutch Nationality: British
Term of office
Anne Anderson joined the Board in January
2019.
Frits Beurskens has served as a Director of the
Group since December 2005.
*
Carol Fairweather joined the Board in January
2018.
Independent
Yes No Yes
Committee membership
Chair
Biography
Anne Anderson is an experienced international
diplomat who most recently served as the
Ambassador of Ireland to the United States
from 2013 to 2017. She joined the Department
of Foreign Affairs in 1972 and was appointed
Assistant Secretary General in 1991 serving in
this post until 1995. She was then appointed
Ireland’s Permanent Representative to the
United Nations in Geneva after which she
became Permanent Representative of Ireland
to the European Union in 2001. Following this
she was appointed Ambassador of Ireland to
France in 2005, where she served until 2009. In
2009 she became Permanent Representative
of Ireland to the United Nations in New York.
Anne chairs the Advisory Group for the
Peacebuilding Fund at the United Nations.
She is also a Board member of the Druid
Theatre Galway.
Frits Beurskens joined the Kappa Group in 1990
and held various Managing Director positions
until his appointment as its President and
CEO in 1996 which he held until the merger
with Smurfit. He is a former Chair of both the
Confederation of European Paper Industries
and the International Corrugated Cases
Association and a former member of the Board
of Sappi Limited. In December 2007 he was
knighted and appointed by the Dutch Queen
as Officer in the Order of Oranje Nassau.
Carol Fairweather was Chief Financial Officer
and an executive Director of Burberry Group plc
from July 2013 to January 2017. She joined
Burberry in June 2006 and prior to her
appointment as CFO, she held the position
of Senior Vice President, Group Finance.
Prior to joining Burberry, she was Director of
Finance at News International Limited from
1997 to 2005 and UK Regional Controller
at Shandwick plc from 1991 to 1997. She
currently serves as a Non-executive Director
of Segro plc. Carol is a Fellow of the Institute
of Chartered Accountants.
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Smurfit Kappa Annual Report 2021
BOARD OF DIRECTORS CONTINUED
Kaisa Hietala
Non-executive Director
James Lawrence
Non-executive Director
Lourdes Melgar
Non-executive Director
Nationality: Finnish Nationality: American Nationality: Mexican
Term of office
Kaisa Hietala joined the Board in October 2020. James Lawrence joined the Board in
October 2015.
Lourdes Melgar joined the Board in
January 2020.
Independent
Yes Yes Yes
Committee membership
Biography
Kaisa Hietala spent over 20 years at Neste
Corporation, where she was a key architect in
the strategic transformation of the company
to become the world’s largest producer of
renewable diesel and renewable jet fuel. She
served as Executive Vice President, Renewable
Products at Neste Corporation and as a
member of the Neste Executive Board from
2014 to 2019. Prior to this she held a number
of senior positions including VP, Renewable
Fuels and Neste Oil Corporation. Kaisa was
previously a Non-executive Director of Kemira
Oyj and is currently a non-employee Director
at Exxon Mobil Corporation.
James Lawrence is currently Chair of Lake
Harriet Capital, LLC, an investment and advisory
firm. He served as Chair of Rothschild North
America from 2012 to 2015 and previously
served as Chief Executive Officer of Rothschild
North America from 2010 to 2012. Prior to this,
he served as Chief Financial Officer and an
executive Director of Unilever plc. He joined
Unilever from General Mills where he was
Vice-Chair and Chief Financial Officer. He
previously also held senior positions with
Northwest Airlines and Pepsico Inc. He is a
Non-executive Director of Avnet, Inc. and
Aercap Holdings N.V.
Lourdes Melgar is a consultant and scholar
recognised for her expertise in the areas of
energy, sustainability and public policy. During
her career, she held various positions in
Mexico’s foreign service and in the Ministry of
Energy. During the design and implementation
of Mexico’s energy reform, she served as
Vice-Minister for Electricity from 2012 to
2014 and was appointed Vice-Minister for
Hydrocarbons, a position she held until 2016.
She is currently a Research Affiliate at the
Center for Collective Intelligence at MIT and a
non-resident Fellow at the Center for Energy
Studies at the Baker Institute. She currently
serves on the Board of Grupo Financiero
Santander Mexico.
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Overview Strategic Report Governance Financial Statements Supplementary Information
Board Committees
Audit Remuneration Nomination Sustainability
Chair
Chair
John Moloney
Non-executive Director
Jørgen Buhl Rasmussen
Non-executive Director
Gonzalo Restrepo
Senior Independent Non-executive Director
Nationality: Irish Nationality: Danish Nationality: Colombian
Term of office
John Moloney joined the Board in
December 2013.
Jørgen Buhl Rasmussen joined the Board in
March 2017.
Gonzalo Restrepo joined the Board in
June 2015.
Independent
Yes Yes Yes
Committee membership
Chair
Chair
Chair
Biography
John Moloney is the former Group Managing
Director of Glanbia plc, a global performance
nutrition and ingredients company. He served
as Group Managing Director of Glanbia plc
from 2001 until he retired from this position in
November 2013. He joined Glanbia plc in 1987
and held a number of senior management
positions before he was appointed Deputy
Group Managing Director in 2000. He currently
serves on the board of Shorla Pharma.
Jørgen Buhl Rasmussen is the former Chief
Executive Officer of Carlsberg A/S. He served
as the Chief Executive Officer of Carlsberg A/S
from 2007 until he retired from this position in
2015 having joined the company in 2006. He
previously held senior positions in several global
FMCG companies, including Gillette Group,
Duracell, Mars and Unilever over the previous
28 years. He is Chair of Novozymes A/S, Chair
of Uhrenholt A/S and Chair of the Executive
Advisory Board in Blazar Capital.
Gonzalo Restrepo is the former Chief Executive
Officer of Almacenes Exito SA, a leading retail
company in Latin America and a subsidiary of
the French company, Casino Group. He served
as the Chief Executive Officer of Almacenes
Exito from 1990 until he retired from this
position in 2013. He is a Non-executive Director
of Cardif Colombia Seguros Generales SA.
He is a member of the Entrepreneurs Council
of Proantioquia in Colombia.
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Smurfit Kappa Annual Report 2021
Audit
Committee
The Committee is responsible for:
Providing oversight and
assurance to the Board regarding;
The integrity of the published
financial statements and the
significant financial reporting
judgements;
Internal financial controls and
risk management and internal
control systems;
The Internal Audit function;
The External Audit arrangements;
and
Whether the Annual Report
taken as a whole, is fair, balanced
and understandable and provides
the information necessary for
shareholders to assess the
Group’s position and performance,
business model and strategy.
Remuneration
Committee
The Committee is responsible for:
Determining the remuneration
framework or broad policy for the
Company’s Chair, Chief Executive
Officer, Executive Directors
and Group Secretary and other
senior executives;
Continually reviewing the ongoing
appropriateness, competitiveness
and relevance of the Remuneration
Policy;
Approving the design and
determine targets for any
performance related pay schemes;
Determining the policy for and
scope of pension arrangements
for Executive Directors and other
senior executives;
Reviewing the workforce
remuneration trends and related
policies across the Group and the
alignment of incentives and reward
with the Company’s culture;
Overseeing any major changes in
employee benefits throughout
the Group; and
Ensuring effective engagement
with relevant stakeholders in
relation to remuneration and
related policies and practices.
Nomination
Committee
The Committee is responsible for:
Leading the process for
appointments to the Board
and making recommendations
to the Board;
Evaluating the balance of skills,
knowledge, experience and
diversity, including geographical,
gender, age and ethnic diversity,
on the Board and its Committees
to ensure they operate
effectively;
Preparing descriptions of the
role and requirements for new
appointees; and
Giving full consideration to
succession planning for Directors
and senior management.
Sustainability
Committee
The Committee is responsible for:
Overall strategic guidance of the
Smurfit Kappa Sustainability
strategy;
Reviewing and approving the
annual Sustainable Development
Report and the Sustainability
section of the Annual Report;
Reviewing of the TCFD (Task
Force for Climate-related
Financial Disclosures)
compliance, reporting of climate
related financial information
and the climate risks and
opportunities of the Group; and
Engagement with the workforce
on behalf of the Board as required
by the Code.
CORPORATE GOVERNANCE STATEMENT
The Directors continue to be committed to maintaining the highest standards of
corporate governance. This Corporate Governance Statement describes how
throughout the financial year ended 31 December 2021 Smurfit Kappa Group plc
applied the principles of the 2018 UK Corporate Governance Code (‘the Code’)
published by the Financial Reporting Council (‘FRC’).
The Directors believe that the Group has complied with the provisions of the
Code throughout the year under review apart from provision 19 for which
an explanation has been provided in line with the Code. The Directors have
continued to evolve the Group’s governance framework. The value in
developing corporate and Board culture is fully recognised in the knowledge
that culture plays a fundamental role in the delivery of our strategy,
stakeholder engagement and sustainability, which as this report highlights
are critical for SKG if we are to continue to build a sustainable business,
ensure compliance with the Code and meet best practice requirements.
A copy of the Code can be obtained from the FRC’s website: www.frc.org.uk.
Further details of the
activities of the Audit
Committee are set out in its
report on pages 88 to 91
Further details of
the activities of the
Remuneration Committee
are set out in its report on
pages 92 to 109
Further details of the
activities of the Nomination
Committee are set out in its
report on pages 110 to 112
Further details of
the activities of the
Sustainability Committee
are set out in its report on
pages 113 to 114
Board of Directors
The Board is primarily responsible for the long-term success of the Group, for setting the Group’s strategic aims, for the
leadership and control of the Group and for reviewing the Group’s system of internal control and risk management.
There is a clear division of responsibilities within the Group between the Board and executive management.
Group Chief Executive Officer
The responsibilities of the Group Chief Executive Officer are set out on page 85
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Ensuring Long-Term Success
The Board is primarily responsible for the long-term success of the Group,
for setting the Group’s strategic aims, for the leadership and control of the
Group and for reviewing the Group’s system of internal control and risk
management. There is a clear division of responsibilities within the Group
between the Board and executive management. The Board retains control
of strategic and other major decisions under a formal schedule of matters
reserved to it which includes:
• Approval of the Group’s strategy which is set out on pages 28 to 29;
• Board appointments including those of the Chair, Group Chief Executive
Officer and other Executive Directors;
• Appointment and removal of the Group Secretary;
• Agreement of terms of appointment of the Chair, Group Chief Executive
Officer and other Executive Directors;
• Agreement of any fundamental changes to the Group's management
and control structure;
• Approval of the annual financial budgets;
• Approval of capital expenditure above fixed limits;
• Approval of material acquisitions and disposals of businesses;
• Approval of the Trading Statements, the Interim Report, the Preliminary
Results Release and the Annual Report;
• Establishment and review of corporate governance policy and practices;
• Monitoring of the Group’s risk management and internal control systems; and
• Confirming that the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the position and performance of the Group,
its business model and strategy.
As recommended by the Code, the roles of Chair and Group Chief Executive
Officer are held by separate individuals and the division of responsibilities
between them is clearly established and has been set out in writing and
approved by the Board. The Board has delegated responsibility for the
day-to-day management of the Group through the Group Chief Executive
Officer to executive management. The Board has also delegated some of its
responsibilities to Committees of the Board. The powers of Directors are
determined by Irish legislation and the Articles of Association of the
Company. The Directors have access to independent professional advice
at the Group’s expense, if and when required. No such advice was sought
by any Director during the year. The Board Committees are provided with
sufficient resources to undertake their duties.
The Board with the support of the Group Secretary is satisfied that it has
the policies, processes, time and information to function effectively.
Membership, Board Size and Independence
There are 12 Directors on the Board, comprising: a Non-executive Chair,
twoExecutive Directors and nine Non-executive Directors. The Board
recognises the value of gender diversity to the Group and has 33% female
representation and is therefore in line with the target of the FTSE Women
Leaders Review. The Board is mindful of the recommendation of the
Parker Review to have at least one Board member from an ethnic minority
background by 2021 and the Board currently meets this recommendation.
The Board of Directors and their biographical details are set out on pages
78 to 81. The Board considers that a Board comprising 12Directors is not
so large as to be unwieldy and that the Directors, having a broad spread
of nationalities, backgrounds and expertise, bring the breadth and depth
of skills, knowledge and experience that are required to effectively lead
the Group.
The Group has in place an effective Board which provides the highest
standards of governance to an internationally diverse business with interests
spanning three continents and 36 individual countries and whose role is to
promote the long-term sustainable success of the Company, generating
value for shareholders and contributing to wider society. Each of the Group’s
Non-executive Directors has broad-based international business expertise
and many have gained significant and relevant industry specific expertise
over a number of years. The composition of the Board reflects the need,
as outlined by the Code, for an effective Board to maintain a balance of ‘skills,
knowledge and experience’. The experience of each Director is also set
out in their biographies which are detailed on pages 78 to 81. The Board
continues to include an appropriate balance of longer serving and more
recently appointed Directors.
In particular, a central aspect of maintaining Board effectiveness is an
ongoing programme of Board refreshment to ensure robust debate, where
challenge, support and teamwork are essential features and where the
sharing of diverse perspectives in the boardroom and the generation of
new strategies and business ideas is fostered.
The Board, through the Nomination Committee, reviews the composition
of the Board on an annual basis. This includes a review and refreshment
of Board policies, Board diversity, including gender diversity and the skills,
knowledge and experience of the Directors. There were no new
appointments to the Board in 2021.
There was a comprehensive internal evaluation completed in 2021. This
process concluded that overall the Board and its Committees continue to
operate effectively. The Board implemented a number of the actions arising
from the 2020 internal evaluation during 2021 and will implement the actions
arising from the 2021 review in the coming year. Following this review, the
Board is satisfied that the Board and its Committees have the appropriate
balance of skill, experience, diversity, independence and knowledge of the
Group to enable the Directors to discharge their respective duties and
responsibilities effectively and believe the Board has a sufficient balance of
diversity. The culture of the Board is open, transparent and collegiate and the
Chair demonstrates leadership and encourages an open and transparent
style around the Board table. An independent external evaluation of the
Board and its Committees will be conducted during 2022 in line with the
Code’s recommendation.
The Code recommends that, apart from the Chair, at least half of the Board
of Directors of a listed company should comprise Non-executive Directors
determined by the Board to be independent. During the year under review,
the Company complied with the Code recommendation on composition
and independence.
The Board reviewed the composition of the Board and determined that
Anne Anderson, Carol Fairweather, Kaisa Hietala, James Lawrence,
LourdesMelgar, John Moloney, Jørgen Buhl Rasmussen and Gonzalo
Restrepo are independent. In reaching that conclusion, the Board took
into account the principles relating to independence contained in the
Code and specifically whether any Non-executive Director:
• Is or has been an employee of the Group within the last five years;
• Has or has had within the last three years, a material business relationship
with the Group;
• Has received or receives remuneration from the Group apart from
a Director’s fee, participates in the Group’s share plans, or is a member
of the Group’s pension scheme;
• Has close family ties with any of the Group’s advisers, Directors or senior
employees;
• Holds cross-directorships or has significant links with other Directors
through involvement in other companies or bodies;
• Represents a significant shareholder; or
• Has served on the Board for more than nine years from the date of their
first appointment.
The Board is satisfied that the independence of the relevant Directors is not
compromised by these or any other factors.
While Frits Beurskens was previously an employee of the Group and receives
fees from a Group subsidiary, the Board does not believe these facts
compromise his independence of judgement, his contribution to the Board
or the quality of his oversight.
The Chair was independent on appointment.
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Smurfit Kappa Annual Report 2021
Executive and Non-executive Directors – Experience and Skills
Each of the Executive Directors has extensive experience of the paper-based
packaging industry. Their knowledge is supported by the general business skills
of the individuals involved and previous relevant experience. The Non-executive
Directors use their broad based skills, their diverse range of business and
financial experiences and their international backgrounds in reviewing and
assessing any opportunities or challenges facing the Group. These
characteristics play an important role, enabling the Executive Directors to
develop the Group’s strategy and scrutinise the performance of management
in meeting the Group’s goals and objectives. Frits Beurskens has the additional
benefit of many years exposure to paper-based packaging companies either as
employee, director or stakeholder which complements the experiences of the
Executive Directors. The diversity of skills and experiences are set out in the
biographies of the Directors on pages 78 to 81.
Appointments, Retirement and Re-election to the Board
Any Director co-opted to the Board by the Directors is subject to election
by the shareholders at the first Annual General Meeting ('AGM') after their
appointment and, pursuant to the Articles of Association of the Company,
all Directors are subject to re-election at intervals of no more than three years.
However, in accordance with the Code, the Directors individually retire at each
AGM and submit themselves for re-election if appropriate.
The procedures governing the appointment and replacement of Directors
are contained in the Company’s Articles of Association. Changes to the
Articles of Association must be approved by the shareholders in accordance
with Irish company law.
The standard letter of appointment of Non-executive Directors will be available
for inspection at the AGM and is available on request from the Group Secretary.
Each of the Directors are offering themselves for re-election at the 2022 AGM.
External Directorships and Time Commitments
For executive directors, the Board believe that there is benefit to the Group if
they hold non-executive directorships with other companies as it enhances
their overall business experiences. Consequently, the Executive Directors
are encouraged to accept a small number of external appointments as
non-executive directors on industry associations. Directors are permitted
to retain payments received in respect of such appointments.
In relation to Non-executive Directors, the Chair is satisfied that
each has demonstrated that they have sufficient time to meet their
Board responsibilities.
Remuneration
Details of remuneration paid to Directors, (Executive and Non-executive)
are set out in the Remuneration Report on pages 92 to 109. Non-executive
Directors are paid fees for their services and none of their remuneration
is performance related. They are not eligible to participate in the Group’s
annual bonus scheme or long-term incentive plan (‘LTIP’). Non-executive
Directors’ fees are not pensionable. The Remuneration Report will be
presented to shareholders for the purposes of a non-binding advisory
vote at the AGM on 29 April 2022.
Roles and Responsibilities
Chair
Overview
Irial Finan joined the Board in February 2012 and was appointed Chair in May
2019. He was independent at the time of appointment, as recommended
by the Code. Irial’s appointment as Chair followed a comprehensive chair
succession process completed by the Board in 2018. He was appointed as
Chair designate in October 2018 and became Chair at the conclusion of the
AGM in May 2019. Including his time as a Non-executive Director, he had
completed nine years on the Board in 2021.
The Chair is responsible for the leadership of the Board and the efficient and
effective working of the Board. He sets and manages the Board agenda so
CORPORATE GOVERNANCE STATEMENT CONTINUED
that the agenda (at appropriate times) addresses all matters reserved to the
Board and ensures that adequate time is available for discussion on strategy
and the strategic issues facing the Group. He ensures that the Directors
receive accurate, timely and clear information, and that the Directors are
updated periodically on the views or concerns of the major investors. He also
ensures that a culture of openness and debate is fostered to facilitate
constructive Board relations and the effective contribution of the Non-
executive Directors to the Board.
Succession Review
During 2021, the Board completed a detailed review to consider the tenure
of the Chair and Chair succession, which was led by Gonzalo Restrepo, the
Senior Independent Director and Chair of the Nomination Committee.
The Company engaged with shareholders to seek their views and support
as part of the process in which approximately 50% of the shareholder base
were consulted in addition to institutional proxy advisers.
In the detail below, the Board has provided a transparent disclosure of
their considerations and recommendations in relation to the tenure of the
Chair (including the recommendation to shareholders that the re-election
of Irial at the AGM in April 2022 is in the best interests of the Company and
of shareholders).
Considerations
The Board in completing their Chair succession review, was cognisant of
Provision 19 of the Code which states that 'the Chair should not remain
in post beyond nine years from the date of their first appointment to the
Board'. However, the Board also notes the flexibility within the Code to
extend the Chair tenure for a limited time to facilitate effective succession
planning and the development of a diverse board, particularly in those cases
where the Chair was an existing Non-executive Director on appointment.
The Code states that a 'clear explanation should be provided' where this
is the case. As noted while Irial's tenure on the Board exceeded nine years
in 2021, he has only been in the critical position of Chair since May 2019.
A clear explanation has been provided below outlining the rationale for
extending the tenure of the Chair and this has also been detailed in the
Nomination Committee Report on page 111.
In the year of his appointment, an external evaluation of the Board was
conducted. Over the last two years there have been internal evaluations
conducted by the Senior Independent Director including an evaluation
of the Chair. The performance of Irial has been exceptional and the Board
are very satisfied with his support, leadership and independence as Chair.
The executive Directors of the Group, the Group CEO and the Group CFO,
were appointed to their positions in 2015 and 2016 respectively. As a result,
the Board believe that there is no governance concern arising in relation to
concurrency of the roles.
The Board noted in their consideration the exceptional performance of
the Group in recent years which has seen a significant increase in market
capitalisation. Throughout his tenure to date, the Chair has supported the
Executive management team in their delivery of many key achievements
and milestones for the Group, which have included the completion of
a successful share placing in November 2020 raising gross proceeds of
€660 million to allow for accelerated capital investment; the issuance of
€1 billion of Green Bonds at record low coupons for the Group in September
2021; and a number of successful acquisitions in Europe and the Americas.
As a result, the Board believe that in this time of growth and transformation
for the Group that continuity in the position of Chair is important not only for
the Group but also for shareholders and other stakeholders.
The Board has had significant refreshment in recent years with over 50% of
Non-executive Directors on the Board in their position for less than five years.
The Board believes that the leadership, governance and direction from the
Chair is essential to the effective integration of new members and are very
satisfied that Irial is providing the necessary support to the Directors.
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Overview Strategic Report Governance Financial Statements Supplementary Information
Since his appointment, the Chair has been pro-active in his engagement
with stakeholders including shareholders, proxy bodies and the Group’s
workforce. Most recently, during 2021 Irial met virtually and engaged
with many shareholders and proxy body representatives. Shareholder
support for his reappointment has been very strong at every AGM since
appointment, including the 2021 AGM.
The Board want to ensure an orderly succession and transition of the Chair.
The Board will ensure that a process to identify a suitable candidate will be
completed so that the successor is in place in sufficient time for the end of
the proposed extension as outlined in the conclusion.
Conclusion
Following consideration of the Code, the rationale identified and the views
of shareholders, the Board concluded that it was in the best interests of
the Group and of all stakeholders that the tenure of Irial be extended by a
period of up to three years. In their decision to define a time period for the
extension, the Board believe that this provides clarity and certainty for all
stakeholders of the Group.
The Board concluded that given the importance of the role, it would not be
in the interests of the Company or stakeholders to have a change in Chair
so soon after appointment, particularly given the exceptional leadership,
governance and direction from the Chair and the level of Board refreshment
in recent years. The Board believe that as the Group continues in this time
of growth and transformation that continuity in the position of Chair is
important to the effective operation of the Board and continued success
of the Group.
The Board also note that Irial's re-appointment will be subject to shareholder
approval at the 2022 AGM and subsequent future AGMs as applicable.
In advance of subsequent AGMs, the Board is committed to providing
transparent disclosure on the status of the Chair succession process in the
Annual Report.
Recommendation for 2022 AGM
As noted, the Board has carefully considered the tenure of the Chair and
is recommending to shareholders that the re-election of Irial at the
forthcoming AGM in in April 2022 is in the best interests of the Company
and its shareholders.
Group Chief Executive Officer
Tony Smurfit as the Group Chief Executive Officer has overall responsibility
for the day-to-day oversight of the Group’s business and the implementation
of the Group strategy and policies as approved by the Board. He is also
responsible for ensuring that the Group’s purpose, values and culture are
instilled throughout the Group.
Senior Independent Director
Gonzalo Restrepo's duties as the Group’s Senior Independent Director
include being available to shareholders if they have concerns which cannot
be resolved through the Chair or Group Chief Executive Officer or where
contact with either of them is inappropriate. He is available to serve as an
intermediary for other Directors where necessary. The Senior Independent
Director also conducts an evaluation of corporate governance compliance,
the operation and performance of the Board, the Directors, its Committees
and the Chair’s performance in conjunction with the other Non-executive
Directors on an annual basis except in the year when an external evaluation
takes place. During the year as described above, Gonzalo led the shareholder
consultation process in relation to the tenure of the Chair.
Group Secretary
The Directors have access to the advice and services of the Group Secretary
who is responsible to the Board for ensuring that Board procedures are
followed, applicable rules and regulations are complied with and that the
Board is advised on its corporate governance obligations and developments
in best practice. The Group Secretary is responsible for formal minuting of
any unresolved concerns that any Director may have with the operation of
the Company. During the year, there were no such unresolved issues. The
Group Secretary also acts as secretary to all of the Board Committees.
Attendance at Board Meetings during the
Year to 31 December 2021
Number of meetings held during the
period the Director was a member of the
Board and was eligible to attend*
I. Finan
A. Smurfit
K. Bowles
A. Anderson
F. Beurskens
C. Fairweather
K. Hietala
J. Lawrence
L. Melgar
J. Moloney
J. Buhl Rasmussen
G. Restrepo
* The total people icons represent the number of meetings held during the period
the Director was a member of the Board and was eligible to attend. The lighter blue
people icons indicate the number of meetings attended.
Board Meetings
The Board meets at least five times each year with additional
meetings as required. The Board met seven times in 2021, in person
twice and held five meetings by way of video conference calls due to
the restrictions imposed by COVID-19. Details of the meetings held
during the period are contained in the adjacent table, which also
includes information on individual attendance. The Board usually
holds at least one of its meetings each year at a Group operation
site to give the Directors an opportunity to meet with a wider range
of management and to see and remain familiar with the Group’s
operating activities. This was not possible during 2021 due to the
restrictions imposed by COVID-19. The Board is supplied on a timely
basis in advance of Board meetings with a Board Report comprising
strategic updates, operational, financial, health and safety, and
investor relations information together with Board papers on key
issues in a form and of a quality to enable it to discharge its duties
effectively. In addition, during 2021 the Board received regular
updates from management in relation to COVID-19. At each Board
meeting the Chair of each Committee gives a report on major
agenda items discussed at Committee meetings held since the last
Board meeting. In addition, all Board members have access to all
Board Committee papers and minutes.
When Directors are unable to attend a meeting, having been advised
in the Board papers circulated prior to the meeting of the matters
to be discussed, they are given an opportunity to make their views
known to the Chair or the Group Chief Executive Officer prior to
the meeting.
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Induction and Development
On appointment, all Non-executive Directors receive comprehensive
briefing documents on the Group, its operations and their duties as
a Director. They are also given presentations by the senior management
team and are given the opportunity to visit sites and meet with the local
management. In addition, the training and development programme which
was introduced during 2020 for Non-executive Directors continued in 2021
with sessions covering a range of business, industry, legal and regulatory
updates. Due to the restrictions imposed by COVID-19, visits to Group
operations by the Board were not possible during 2021, The Chair did get the
opportunity to visit operations in Italy and the United States during 2021.
Directors also receive regular briefings and presentations on a wide range of
the Group’s activities together with all significant analyst and rating reports.
All Directors are encouraged to undergo training to ensure they are kept up
to date on relevant legal developments or changes in best practice.
Succession Planning and Diversity
The Board believes that appointing the best people to the Group’s Board
is critical to the success of the Group and as a result all appointments are
made purely on merit regardless of ethnicity, gender, religion, age or
disability. The Board recognises that diversity is an essential cornerstone for
building long-term business success and ensures different perspectives are
introduced into Board discussion. The Board’s policy on diversity considers
gender, ethnicity, tenure and a wide geographical experience base to be
essential aspects of diversity for a company with businesses in 36 countries
worldwide, with eight nationalities represented on the Board. This policy
plays a key role in the Group’s succession planning when considering new
appointments to the Board. Suitable candidates are selected on the basis of
their relevant experience, employment background, skills, knowledge and
insight, having due regard to the benefits of diversity to the Board. The Board
recognises the need for orderly succession and has a comprehensive
succession plan in place.
During the year, the Nomination Committee evaluated the composition of
the Board with respect to the balance of skills, knowledge, experience and
diversity, including geographical, gender and ethnic diversity on the Board
as part of the annual evaluation process.
Internal Board Evaluation
The Senior Independent Director co-ordinated a rigorous annual internal
evaluation of the operation and performance of the Board, the Directors,
its Committees and the performance of the Chair in 2021. The evaluation
process involved the completion of a detailed questionnaire by each
Director and separate discussions with each Director. In addition, the Chair
conducted an annual evaluation of the performance of the Directors. The
Committees also undertook an annual evaluation of their performance
which was reported back to the Board. At least once a year, the Chair meets
with the Non-executive Directors without the Executive Directors to review
the Board’s performance. The Board discussed the results of its evaluations
in order to identify and address areas in which the effectiveness of the Board
might be improved and the resulting recommendations will be put in place
during 2022. An independent external evaluation of the Board and
Committees will be conducted during 2022.
Share Ownership and Dealing
Details of Directors’ shareholdings are set out on pages 106 to 109. The
Group has a policy on dealing in shares that applies to restricted persons
comprising all Directors, senior management and certain other employees.
Under the policy, restricted persons are required to obtain clearance from
prescribed persons before dealing. Restricted persons are prohibited from
dealing in SKG securities during designated closed periods and at any other
time when the individual is in possession of Inside Information (as defined by
the Market Abuse Regulation (EU 596/2014).
Board Committees
As recommended by the Code, the Board has established three Committees
to assist in the execution of specific matters within its responsibility. These are
the Audit Committee, the Remuneration Committee and the Nomination
Committee. In addition, since 2019, there is a Sustainability Committee
with responsibility to provide direction and oversight of the sustainability
strategy of the Group. The Sustainability Committee is also responsible for
engagement with the workforce on behalf of the Board as required by the
Code. The responsibilities of each of these Committees are set out clearly
in written terms of reference, which are reviewed annually and are available
on the Group’s website. The Chair of each Committee reports to the Board
on the major agenda items discussed since the last Board meeting and the
minutes of all Committee meetings are available to all of the Directors.
The current membership of each Committee, details of attendance and
each member’s tenure are set out in the individual Committee reports on
pages 88 to 113.
Stock Exchange Listings
Smurfit Kappa Group plc, which is incorporated in Ireland and subject to
Irish company law, has a premium listing on the London Stock Exchange
and a secondary listing on Euronext Dublin.
For this reason, Smurfit Kappa Group plc is not subject to the same ongoing
listing requirements as those which would apply to an Irish company with
a primary listing on Euronext Dublin.
Communication with Shareholders
The Board gives a high priority to effective communications with
shareholders and recognises the benefits of shareholder engagement in
order to foster mutual understanding of the Company’s strategy and the
views of major investors. On a day-to-day basis, contact with institutional
shareholders is the responsibility of the Group Chief Executive Officer,
the Group Chief Financial Officer and the Head of Investor Relations.
There is regular dialogue with individual shareholders and the investment
community. During the year, despite the restrictions imposed by COVID-19,
there continued to be ongoing engagement with shareholders, various
virtual investor conferences and roadshows, and numerous conference calls
and presentations. This engagement takes place as applicable, and at the
time of the release of the Annual Report, preliminary and interim reports and
trading statements. During the year the Chair met virtually and engaged with
many shareholders and proxy body representatives. The Chair, the Senior
Independent Director and any other member of the Board are available to
meet or virtually engage with investors if required.
The papers for each Board meeting include a comprehensive report
summarising investor relations activity during the preceding period including
contacts between executive management and current and prospective
institutional shareholders.
The Group issues its Annual Report, preliminary and interim reports and
trading statements promptly to shareholders and also publishes them on
the Group’s website: smurfitkappa.com. The Group operates an investor
relations section on the website, which in addition to the above reports and
statements, contains investor presentations and all press releases
immediately after their release to the relevant Stock Exchanges.
The Group’s AGM affords each shareholder the opportunity to engage with
and question the Chair of the Board, the Chairs of all Committees and all other
Board members. The 2021 AGM was a closed meeting in line with the
restrictions imposed by COVID-19, however, shareholders were encouraged
to join the AGM via online broadcast and to submit a Form of Proxy to ensure
their votes could be represented at the AGM. In addition, shareholders
attending the AGM electronically could ask questions during the meeting by
submitting their questions in writing online. Shareholders were also invited to
email any questions relating to the items on the agenda in advance of the
meeting. The Notice of the AGM and related papers together with the Annual
Report are sent to shareholders at least 20 working days before the meeting.
In addition, the Group responds throughout the year to numerous queries
from shareholders on a broad range of issues.
CORPORATE GOVERNANCE STATEMENT CONTINUED
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Overview Strategic Report Governance Financial Statements Supplementary Information
Shareholder Meetings and Shareholder Rights
Shareholders’ meetings are governed by the Articles of Association of the
Company and the Companies Act 2014 (as amended) (the ‘Companies Act’).
The Company must hold an AGM each year in addition to any other
shareholder meeting in that year and must specify whether the meeting
is an AGM or an Extraordinary General Meeting in the notice calling it. The
Directors may convene general meetings. Extraordinary General Meetings
may also be convened as provided by the Companies Act. Notice of a general
meeting must be provided as required by the Companies Act.
At its general meetings, the Company proposes a separate resolution on
each substantially separate issue and does not bundle resolutions together
inappropriately. Resolutions on consideration of the Annual Report, the
Directors’ Remuneration Report and the Remuneration Policy (on adoption
or renewal) are put to shareholders at the AGM.
The Chair of the Board of Directors or, in his absence, another Director
nominated by the Directors will preside as Chair of a general meeting.
Ordinary Shares carry voting rights. Two members entitled to vote at the
meeting present either in person or by proxy constitute a quorum. Votes
may be cast either personally or by proxy. Under the Articles of Association,
voting can take place either by a show of hands, where each shareholder
has one vote, or by way of a poll, where each shareholder has one vote for
each Ordinary Share held.
The Companies Act provides for a number of key powers of general
meetings, including the right to elect or re-elect a Director, the right to give
authority to the Company to disapply pre-emption rights, the right to give
authority to the Company to buy back shares and the right to amend the
Memorandum and Articles of Association of the Company.
The Companies Act also provides for a number of shareholder rights in
respect of the general meeting and the methods of exercising those rights,
which are set out in the notes to the Notice of the AGM, including the right
a) to table agenda items and resolutions for inclusion on the agenda of an
AGM, b) to table a draft resolution in respect of an item already on the
agenda of the general meeting, c) to ask questions in relation to an item on
the agenda of a general meeting and d) to appoint a proxy electronically.
New arrangements regarding the exercise of shareholder rights and voting
rights apply to all dematerialised shares as a result of the migration to the
Euroclear Bank central securities depository which took place in March 2021.
To the extent that such shareholder rights are not facilitated under the
Company's Articles of Association, the rules of the Euroclear Bank system
dictate how these shareholder rights can be exercised. Details of how
shareholders holding dematerialised shares can exercise their voting rights
will be contained in the notes to the Notice for the Annual General Meeting.
Code of Conduct
The Smurfit Kappa Code of Conduct includes principles of best practice
in this area which apply to the Group’s Board of Directors, officers and
employees worldwide. We also require individuals, entities, agents or anyone
acting on the Group’s behalf to comply with its Code of Conduct. The Code
of Conduct also incorporates the Speak Up Policy and is available on the
Group’s website: smurfitkappa.com and is translated into 21 languages.
Sustainability
In order to create long-term value, our Company has built its business on
three pillars of sustainability – Planet, People and Impactful Business. This
means respecting the social environment we are in, and ensuring that the
impacts on nature and natural resources do not exceed the needs of future
generations. SKG manages its business in a way which recognises its key
responsibilities in all material aspects of sustainability especially in the areas
of Environment, Sustainable Forestry, Social Citizenship and Health and
Safety. The Group’s principles are summarised on pages 62 to 63 and are
described in detail in the Sustainable Development Report for 2020 which is
available on the Group’s website. The Sustainable Development Report for
2021 will be published in April 2022. The Board Sustainability Committee
is responsible for providing direction and overall strategic guidance of the
Group‘s sustainability strategy.
Risk Management and Internal Control
The Board has overall responsibility for the Group’s system of risk
management and internal control and for monitoring and reviewing its
effectiveness, in order to safeguard shareholders’ investments and the
Group’s assets. Details in relation to Risk Management and Internal Control
are included in the Risk Report on pages 34 to 38.
The Directors confirm there is an ongoing process for identifying, evaluating
and managing the emerging and principal risks faced by the Group which is in
accordance with the FRC’s Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting. This process has been in place
throughout the accounting period and up to the date of approval of the
Annual Report and Consolidated Financial Statements and is subject to
regular review by the Board.
The Directors confirm that they have carried out a robust assessment of
the emerging and principal risks facing the Group’s business model, future
performance, solvency and liquidity. The Directors also confirm they have
conducted an annual review of the effectiveness of the Group’s risk
management and system of internal control up to and including the date of
approval of the Annual Report and Consolidated Financial Statements. This
had regard to the emerging and principal risks that could affect the Group’s
business (as outlined on pages 34 to 38), the methods of managing those
risks, the controls that are in place to contain them and the procedures to
monitor them. In addition, the potential impact of COVID-19 on the principal
risks of the Group was reviewed for each emerging and principal risk.
Financial Reporting
As part of its overall system of internal control, the Group has in place control
and risk management systems to govern the Group’s financial reporting
process and the process for the preparation of the Group’s Consolidated
Financial Statements. The requirements for producing financial information
are governed by the Group’s Financial Reporting Guide and Financial
Monitoring Policy which gives guidance on the maintenance of records
that accurately and fairly reflect transactions, provide reasonable assurance
that transactions are recorded correctly to permit the preparation of
Consolidated Financial Statements in accordance with International
Financial Reporting Standards and that require reported data to be reviewed
and reconciled. These systems include the following financial reporting
controls: access controls, reconciliations, verification controls, asset security
controls and segregation of duties. Segment management and the Group’s
executive management team review the results of the operations on a
monthly basis. The Group’s executive management team receive detailed
monthly reports from all operations and meet with segment management
at least on a quarterly basis to review the year-to-date results against budget
and rolling forecasts enabling them to monitor and challenge any variance
against the expected financial outcome for the period. Internal Audit review
financial controls in different locations on a test basis each year and report
quarterly to the Audit Committee. Each operation through to segment
level is required to self-assess on the effectiveness of its financial control
environment. This includes the completion of an Internal Control
Questionnaire which is reviewed by the Group Financial Controller
and audited on a test basis by Internal Audit. Senior management
representations with respect to the Group Consolidated Financial
Statements showing a true and fair view are also required and supplied
at year-end.
Directors’ Report
The Change of Control, Capital Structure and Purchase of Own Shares
information are set out on page 116 of the Directors’ Report and form part
of this Corporate Governance Statement.
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AUDIT COMMITTEE REPORT
“Dear Shareholders, I am pleased to present the Audit Committee report
for the 2021 financial year. ”
Carol Fairweather
Chair of Audit Committee, 16 March 2022
Committee Members
C. Fairweather (Chair)
K. Hietala
J. Lawrence
L. Melgar
J. Moloney
The Role of the Audit Committee
The Committee is responsible for providing oversight and assurance to the
Board regarding:
• The integrity of the published financial statements and the significant
financial reporting judgements;
• Internal financial controls and risk management and internal control
systems;
• The Internal Audit function;
• The External Audit arrangements; and
• Whether the Annual Report taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy.
The Terms of Reference of the Committee were reviewed and updated
in December 2021 and are available on smurfitkappa.com.
Length of Tenure Appointment Date
C. Fairweather (Chair) 2018
K. Hietala 2021
J. Lawrence 2015
L. Melgar 2020
J. Moloney 2014
Attendance Record
The number of meetings held during the
period the Director was a member of the
Committee and was eligible to attend*
C. Fairweather (Chair)
K. Hietala
J. Lawrence
L. Melgar
J. Moloney
* The total people icons represent the number of meetings held during the period the
Director was a member of the Committee and was eligible to attend. The lighter blue
people icons indicate the number of meetings attended.
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Committee Evaluation
An internal evaluation of the Committee was undertaken in 2021.
The conclusion from that process was that the performance of the
Committee and of the Chair of the Committee were satisfactory.
Priorities for the Year Ahead
This year, we will continue to focus on the development of the Internal
Audit function mandate. We will also continue to follow developments
on audit reform and evolving best practice, including climate change
reporting and spend time as required reviewing any new regulations,
guidance or recommendations.
The evolution of the Group Risk Framework will continue as the work
undertaken in 2021 is further embedded into the processes during 2022.
The Committee will also engage with KPMG during the year in selecting
and planning for the transition of the lead audit partner, a change which
will be required for the audit in respect of the financial year ending
31 December 2023.
Carol Fairweather
Chair of Audit Committee
This report provides an overview and detail on how the Committee has
discharged its responsibilities together with the other areas we have focused
on during the year, as well as the Committee’s priorities for the year ahead.
Membership of the Committee
The Committee is currently comprised of five independent Non-executive
Directors with Kaisa Hietala joining the Committee in January 2021.
Each Committee member has considerable commercial experience
and Jim Lawrence and I bring recent and relevant financial experience.
The biographical details of each member are set out on pages 78 to 81.
Meetings
The Committee met five times during the year under review. Details of the
Committee members and meetings attended are provided in the table on
the previous page.
The Group Chief Financial Officer, the Group Internal Auditor, the Group VP
Human Resources and senior members of the Group finance team normally
attend meetings of the Committee. The Group Chief Executive Officer
periodically attends meetings of the Committee. The External Auditor also
attends all meetings and together with the Group Internal Auditor have direct
access to the Committee Chair at all times. In advance of every meeting, the
Committee Chair meets individually with the Group Chief Financial Officer,
the Group Company Secretary, the Group finance team, the Group Internal
Auditor, the External Auditor and the VP Human Resources.
Committee papers and minutes are available to all members of the Board.
Areas of Focus in 2021
The key focus of the Committee during the year continued to be the review
and monitoring of the integrity of the financial statements and the significant
reporting judgements; reviewing internal controls and risk management
systems; the lnternal and External Audit arrangements; and advising the
Board on whether the Annual Report taken as a whole is fair, balanced and
understandable. More details on the work carried out in these areas are set
out on the following pages.
In addition, we spent time on the following:
• Reviewing the ongoing evolution of the Group Risk Framework including
the risk strategy, risk policy, risk KPI’s, risk appetite and the decision
to include long-term climate related risk as a principal risk, see pages 34
to 38;
• Reviewing the proposed disclosures in the Annual Report against the
recommendation of the Task Force on Climate Related Financial
Disclosures ('TCFD') and EU Taxonomy see pages 54 to 61 and pages 50
to 51;
• Considering the quarterly reports on Cyber Security and the continued
investments in this area to respond to current trends and increasing cyber
security threats;
• Considering the preparation for and compliance with the requirements
of the European Single Format and Regulatory Standard ('ESEF');
• Receiving a briefing from the Auditor on the recommendations of the
BEIS Consultation ‘Restoring Trust in Audit and Corporate Governance’;
• The annual tax update covering tax strategy, developments in the internal
and external tax landscape and compliance;
• An update on the Group’s insurance cover in relation to property, business
interruption and cyber and the continued capital investment in risk
protection; and
• An update from the Group’s Legal Counsel on Competition Law
Compliance, Sanctions, Screening and Data Protection compliance.
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AUDIT COMMITTEE REPORT CONTINUED
The Committee, on behalf of the Board, considered and discussed with
management the key processes that they have in place for the preparation
of the Annual Report including their comprehensive review procedures.
This allowed the Committee to confirm to the Board that the Annual
Report, taken as a whole, is fair, balanced and understandable and that it
provides the necessary information for shareholders to assess the Group’s
position and performance, business model and strategy. In addition, the
Committee noted the formal processes performed by KPMG in relation to
the Annual Report.
Viability Statement and Going Concern
The Committee is responsible for ensuring that the process in place to
allow the Board to make the viability statement is robust. The Committee
reviewed the process that had been followed, the stress testing scenarios
that had been applied based on the Group’s principal risks and the additional
scenarios and reverse stress testing presented to take account of the
pandemic. The Committee confirmed to the Board that it was comfortable
with the process that had been followed to make the Viability Statement
on page 34.
The Committee reviewed and was comfortable with the recommendation
setting out the support for adopting the going concern basis in preparing
the financial statements, including extended scenarios in relation to the
pandemic. The Board’s statement on going concern is set out on page 35.
The last independent review of Group Internal Audit took place in 2020 and
was performed by EY. The assessment concluded that the Internal Audit
function was performing well in accordance with its current mandate but that
there were opportunities to develop the mandate of Internal Audit. During
2021 the Internal Audit mandate was evolved to consider the principal risks
in the scope of the annual internal audit plan.
The Committee reviewed the effectiveness of the Group's Internal Audit
function and was satisfied it was operating effectively within the current
remit. The Committee met privately with the Internal Auditor during the year.
The current Internal Auditor is retiring in 2022, and to ensure effective
planning and a coordinated handover, a comprehensive process was
undertaken during 2021 to identify and recruit a successor. The new
Internal Auditor joined the Group in early 2022.
Financial Reporting and Significant Matters Related
to the Consolidated Financial Statements
The Group’s Consolidated Financial Statements are prepared by finance
personnel with the appropriate level of qualifications and expertise. The
Committee reviewed all published financial and narrative statements of
the Company, including the annual and interim reports, preliminary results’
announcement and trading statements released during the year and
reported its views to the Board to assist in the Board’s approval of the
results announcements.
The Committee assessed whether suitable accounting policies had been
adopted and whether management has made appropriate estimates
and judgements. The Committee considered management’s position in
relation to the main significant matters and financial reporting judgements,
as detailed below.
The Committee also reviewed reports by the External Auditor on the
hard-close and year-end audit procedures which highlighted any matters
identified from the work undertaken on the external audit.
Fair, Balanced and Understandable
The Code requires that a fair, balanced and understandable assessment of
the Company’s position and prospects be presented by the Board and that
they consider that the Annual Report and Financial Statements, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance,
business model and strategy.
Internal Audit
The Group operates an internally resourced Internal Audit function which
reports directly to the Committee. The Committee reviewed and approved
the annual Internal Audit plan having considered the impact of remote
working, the evolution of data analytics and related resourcing requirements
to deliver the plan.
The Committee received and reviewed the quarterly reports from
the Internal Auditor summarising audit findings, agreed actions and
recommendations and reviewed progress on addressing the actions and
recommendations. The Committee noted that the remote auditing which
had commenced in 2020 as a result of the pandemic continued throughout
2021 and did not impact significantly on the delivery of the plan.
In compliance with the Chartered Institute of Internal Auditors (‘CIIA’)
requirements, an independent review of the Internal Audit function must
be conducted at least once every five years by a qualified assessor.
Significant Matters Related to the Consolidated Financial Statements
Significant Matter Action Taken/Conclusions
Assessment of the
Carrying Value of Goodwill
The Group has goodwill of
€2,511 million at 31 December
2021. The Group performs
an impairment review at least
annually and at any time an
impairment is considered
to exist.
Through discussions with management and KPMG:
• The Committee considered management’s assessment of the carrying value of goodwill relating to groups
of cash-generating units (‘CGUs’). The Committee considered the methodology applied and the key assumptions
(including future profitability and terminal growth and discount rates) used in the assessment; and
• The Committee considered a number of different scenarios to test the sensitivity of the model to changes in
its key drivers and to understand the level of headroom available at a CGU level.
The Committee was satisfied that the judgements made by management are reasonable and that goodwill is
not impaired, and the disclosures in Note 13 to the Consolidated Financial Statements are appropriate.
Valuation of Defined
Benefit Obligations
The Group has defined benefit
obligations totalling €630 million
at 31 December 2021.
The Committee considered the key assumptions management used in determining the defined benefit liabilities
(which included a full actuarial valuation of the unfunded liabilities undertaken by independent experts) and was
satisfied that they were reasonable, appropriate and consistent with market practice.
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Whistleblowing
The Committee is responsible for ensuring that the Group maintains suitable
whistleblowing arrangements.
The Group has a Code of Conduct in place which incorporates the Speak
Up Policy (Whistleblower Code). There is a Speak Up service which allows
employees to raise concerns across all key communication channels which
is available in 21different languages and provides confidentiality and/or
anonymity and assurance of non-retaliation (see page 75 for further details).
The Committee received regular updates on cases raised via the Speak Up
process from the Group VP of Human Resources. No material cases were
reported to the Committee during 2021.
Risk Management and Internal Control
The Group’s internal control and risk management systems are embedded
within the organisation structure.
The Committee is responsible for reviewing the adequacy and effectiveness
of the internal control system and risk management on behalf of the Board.
The Committee has reviewed the adequacy and effectiveness of the Group’s
internal control systems regularly through various activities including reviewing:
• The effectiveness of its risk management processes;
• Challenging management’s self-assessment of the internal control
framework;
• The work undertaken by internal and external auditors in relation to
internal controls; and
• The regular reporting on any control, fraud related or whistleblowing issues.
As a result of the pandemic remote and hybrid working continued throughout
2021. The Committee received regular updates from management that the
internal control environment continued to operate effectively.
The review of the Group risk process completed by PwC in 2020 noted the
comprehensive process in place and the strong awareness of risk across the
Group. They noted some recommendations which were considered as part
of the further evolution of the risk framework which continued during 2021.
The work completed during the year included the updating of formal risk
policy and strategy documents in line with best practice with the assistance
of PwC. In addition formalised risk appetite statements were approved by the
Board. These will be further embedded into the overall risk management
framework during 2022.
Emerging risk is considered as part of the risk process and over the last
number of years climate risk has been included as an emerging risk for the
Group. Following due consideration during 2021, climate change was elevated
to a principal risk of the Group in the long-term.
For further details on the Group’s Risk Management and Internal Control,
please see the Risk Report on pages 34 to 38.
External Auditor
The Committee is responsible for overseeing the relationship with,
and the performance of, the External Auditor. This includes making a
recommendation on the appointment, reappointment and removal
of the External Auditor, assessing their independence, involvement
in fee negotiations and assessing their performance. KPMG has been
the Group’s auditor since 2018, following a formal tender process.
The External Auditor is required to rotate the audit partner responsible for
the Group audit every five years. Roger Gillespie acted as lead audit partner
for the year ended 31 December 2021, his fourth year as lead audit partner.
Therefore, the audit for the financial year ending 31 December 2022 will
be the final audit with Roger Gillespie as lead audit partner. As noted in
the Committee’s areas of focus for 2022, the Committee will engage with
KPMG during the year in selecting and planning for the transition of the
lead audit partner.
Prior to the commencement of the 2021 year-end audit and taking into
consideration continued remote and hybrid working, the Committee
reviewed, challenged and approved the External Auditor’s strategy and plan
and agreed the scope of the audit, the key risks, the proposed audit fee and
the terms of engagement. While remote working was required for much of
the audit, there were no issues reported by KPMG in being able to complete
their procedures effectively.
During the year, the Committee considered the effectiveness and
independence of the External Auditor and confirmed its satisfaction on both.
This review involved discussions with both Group management and Internal
Audit; feedback provided by divisional management; consideration of the
robustness of the audit process and the level of scepticism and challenge by
the External Auditor particularly in relation to key judgments; review of the
ratio of audit to non-audit fees; and the most recent publicly available results
of IAASA’s quality assurance review of KPMG. Following these considerations,
the Committee has recommended to the Board that KPMG be proposed for
reappointment at the forthcoming AGM.
KPMG attended all the Audit Committee meetings during the year and had
a number of private meetings with the Committee during the year where
no significant matters of concern were raised.
External Auditor Non-audit Services
The Committee recognises that the independence of the External Auditor
is an essential part of the audit framework and the assurance that it provides.
The Committee has adopted a policy which sets out the types of permitted
and non-permitted non-audit services and those which require explicit
prior approval.
Non-audit services provided by the External Auditor must be considered by
the Committee to be necessary in the interests of the business and by their
nature, these services could not easily be provided by another professional
auditing firm.
The provision of tax advisory services and due diligence/transaction services
may be permitted with the Committee’s prior approval. The provision of
internal audit services, valuation work and any other activity that may give rise
to any possibility of self-review are not permitted under any circumstance.
All contracts for non-audit services in excess of €50,000 must be notified
to and pre-approved by the Chair of the Committee. Details of the amounts
paid to the External Auditor during the year for audit and other services are
set out in Note 5 on page 146. Fees paid to KPMG for non-audit work in 2021
amounted to €0.4 million and total 4% of the fees paid for the statutory audit
(2020: 4.8%).
During the year, there were no circumstances where KPMG was engaged
to provide services which might have led to a conflict of interests or
compromised their independence.
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Attendance Record
The number of meetings held during the
period the Director was a member of the
Committee and was eligible to attend*
J. Moloney (Chair)
J. Buhl Rasmussen
C. Fairweather
I. Finan
**
G. Restrepo
* The total people icons represent the number of meetings held during the period the
Director was a member of the Committee and was eligible to attend. All Committee
members attended all meetings during the year.
** Irial Finan retired from the Committee in October 2021.
REMUNERATION REPORT
“Dear Shareholders, I present the Remuneration Report
for the financial year ended 31 December 2021.”
John Moloney
Chair of Remuneration Committee, 16 March 2022
Committee Members
J. Moloney (Chair)
J. Buhl Rasmussen
C. Fairweather
G. Restrepo
The Role of the Remuneration Committee
• Determine the remuneration framework or broad policy for the
Company’s Chair, Chief Executive Officer, Executive Directors,
Company Secretary and other senior executives;
• Continually review the ongoing appropriateness, competitiveness
and relevance of the Remuneration Policy;
• Approve the design and determine targets for any performance
related pay schemes;
• Determine the policy for and scope of pension arrangements
for Executive Directors and other senior executives;
• Review the workforce remuneration trends and related policies
across the Group and the alignment of incentives and reward
with the Company’s culture;
• Oversee any major changes in employee benefits throughout
the Group; and
• Ensure effective engagement with relevant stakeholders in relation
to remuneration and related policies and practices.
The Terms of Reference of the Committee were reviewed and updated
in December 2021 and are available on smurfitkappa.com.
Length of Tenure Appointment Date
J. Moloney (Chair) 2015
J. Buhl Rasmussen 2017
C. Fairweather 2018
G. Restrepo 2015
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I am pleased to report that the Group has delivered an excellent
performance over the past year and continues to deliver across all
performance measures. In particular, our talented people have responded
to ensure our customers’ needs were met in a world of significant supply
constraints and increasing demand.
Remuneration Policy Implementation
The Remuneration Policy ('the Policy') was reviewed in 2020 and the revised
policy was put to shareholders at the AGM in 2021. I am pleased to report
that the updated Policy was supported by 94% of shareholders at the AGM.
For the current year, no changes are proposed to the implementation
of the Policy.
2021 Performance and Incentive Out-turns
Smurfit Kappa reported excellent results for 2021, with EBITDA of
€1,702million, ahead of our stated guidance, EBITDA margin of 16.8%,
free cash flow of €455 million and ROCE of 16.0%. In this context, the
Committee reviewed performance against the metrics under the annual
bonus plan for 2021 and approved a bonus of 99.8% for the Group CEO
and Group CFO, with 50% of the annual bonus being deferred into shares
for three years, in line with the Policy.
The Committee reviewed the outcome of the Performance Share Plan
('PSP') for the performance period 2019–2021 which resulted in a cumulative
three-year EPS of 818 cent; three-year average ROCE of 16%; and
out-performing the TSR of all the global paper and packaging peers in the
TSR benchmark which resulted in a 100% outcome for that measure.
Overall the 2019 PSP award vested at 62.02% of maximum demonstrating
the consistency of performance over the last three years.
In determining the outcomes of the 2021 annual bonus and 2019 PSP cycle,
the Committee was satisfied that the outcomes reflected the underlying
performance of the Company and the experience of stakeholders, and
therefore deemed it unnecessary to apply any discretionary overrides.
Further details on performance against the targets are set out on pages 101
to 103.
Executive Director Salaries
During the year, the Committee reviewed the salary of the Group CFO as
a result of new, additional responsibilities coming under the remit of his role.
The Group, a leader in sustainability, appointed a dedicated Group Chief
Sustainability Officer for the Group in mid-2021, with this role and the
Group’s sustainability function now reporting into the Group CFO. The
Committee, having completed a thorough review of the expanded role and
following careful consideration, approved an increase to the Group CFO’s
salary from €655,638 to €700,000, a 7% increase. The increase took effect
from 1 July 2021 and brings the Group CFO’s salary to a level that the
Committee believes is fair and equitable based on the scope of the role.
The Group CEO’s salary was not increased in 2021.
Following a review of the salary for both executive Directors at the year-end,
the Committee did not recommend any further increase to the salary of the
Group CFO for 2022. The Group CEO’s salary for 2022 has been increased
by 2.5% which is in line with the approach taken for the wider workforce.
Executive Director Pensions
In line with the requirements of the UK Corporate Governance Code, and
reflecting on the external sentiment on executive Director pensions, the
Committee agreed with the executive Directors in 2020 that their pension
contributions would be reduced on a phased basis to be in line with the wider
workforce by the end of 2022 (i.e. effective 1 January 2023). Effective as of
1 January 2022 (and announced in 2021), the Group CEO and Group CFO’s
pension rates reduced to 15.5% and 13.5% of salary, respectively. The final
reduction in their pension rates to 10% will be effective from 1 January 2023
and will bring them in line with the workforce.
Performance Share Plan Targets 2022–2024
Each year, the Committee reviews targets for long-term performance share
awards to ensure that they continue to incentivise executives to achieve
clearly defined stretching long-term targets. Performance targets for the
2022 award have taken into account the Group’s annual budgeting,
medium-term planning and viability statement processes, which consider
a number of factors including external economic factors such as the OECD
expectations on GDP growth.
The Committee believe the proposed targets, which are a significant
increase on the prior year targets and which are detailed on page 94, are
suitably stretching to reward out-performance whilst also being incentivising
for the management team. The EPS targets are set on a cumulative basis
and ROCE targets are set on a three-year average basis. In addition, the
ESG metrics (CO
2
emission reduction, waste reduction and water reduction),
cumulatively constitute 15% of the targets for this award.
There are over 350 managers within the Group participating in the PSP plan
with the same targets as the executive Directors. As noted below, an increase
in the participation in the PSP was approved by the Committee in 2021.
As ever, the Committee will use its judgement to review the formulaic
outcomes across all the metrics, to ensure that vesting levels accurately
reflect the underlying performance of the business and the experience
of wider stakeholders. Any adjustment to the formulaic outcome will be
communicated to investors at the end of the relevant performance period.
Employee Engagement
The Remuneration Committee continues to support the Group’s goal of
creating greater social, economic and environmental value, and in 2021
we introduced new metrics linked to these aims into our incentive plans.
The past year also saw the establishment of the Group’s Green Finance
Framework and ‘Better Planet 2050’ sustainability agenda, which introduced
ambitious new targets focused on further reducing our environmental
footprint, increasing support for the communities in which we operate and
enhancing the lives of our employees.
As the Remuneration Committee is responsible for overseeing pay
arrangements for all employees, the Committee recognise the need to
engage with the wider workforce as part of our efforts to align with the
Group’s sustainability strategy and make the right decisions on pay. We have
already made good progress in this area, voluntarily adopting a number of
the requirements of UK remuneration reporting regulations, in recognition
of the importance of transparency around matters of pay.
In 2021, the Committee received wider workforce feedback on remuneration
via the Sustainability Committee. As market practice evolves, the Committee
will continue to explore new ways of bringing the voice of the workforce into
the boardroom, affirming our mission of being a sustainable company that
builds excellent relationships with employees and other stakeholders.
Remuneration Policy Review
Smurfit Kappa’s significant and successful growth over recent years
means that our senior managers and executives are highly desirable from
a recruitment perspective, in what has become an extremely competitive
market for talented executives in the paper and packaging sector. As noted
above, the Committee has recently approved an increase in the participation
of the Company’s PSP to a broader selection of our management population
to help reinforce their alignment to our longer-term goals, and their
retention. During 2022, the Committee also intends to look in detail at the
competitiveness of our pay arrangements, particularly the incentives, for
our most senior executives. We will be reaching out to our shareholders
over the coming year with regard to this and welcome your views.
Conclusion
On behalf of the Committee, I thank you for your continued support and
hope that you will feel able to support the remuneration related resolution
at the upcoming AGM. As ever, I welcome any comments you have.
John Moloney
Chair of Remuneration Committee
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Smurfit Kappa Annual Report 2021
Remuneration Policy (abridged) including 2022 Implementation
Executive Directors
Component of pay
Implementation in 2022
Group Chief Executive Officer Group Chief Financial Officer
Basic Salary
The Group CEO’s salary is being increased by 2.5% for 2022 which is in line with the approach taken for the wider
workforce. Having received a salary increase effective from 1 July 2021, there is no further increase to the salary
of the Group CFO for 2022.
A. Smurfit = €1,139,936 p.a. K. Bowles = €700,000 p.a.
Benefits
Market competitive benefits provided in line with Remuneration Policy.
Pension
A. Smurfit = 15.5% of salary (cash allowance)
Reduced from 2021 rate of 20.5%. Will reduce further to
align with workforce rate by 1 January 2023.
K. Bowles = 13.5% of salary (cash allowance)
Reduced from 2021 rate of 17%. Will reduce further to align
with workforce rate by 1 January 2023.
Annual Bonus
Performance will be measured over one year against the following key financial, operational/strategic and individual
performance metrics:
Measure Weighting
EBIT 35%
Free Cash Flow 35%
Health and Safety 10%
People & ESG 10%
Personal/Strategic Goals 10%
In line with previous years, the actual targets have not been disclosed prospectively. The target setting process
will be in line with the prior year and the targets will be published retrospectively in the Annual Report.
50% will be delivered in cash and 50% will be deferred into Company shares for three years.
A. Smurfit (maximum) = 150% of salary K. Bowles (maximum) = 150% of salary
Performance Share Plan
Performance measured over three years against four quadrants. Awards are subject to a post-vesting holding
period such that they are released following the fifth anniversary of the grant date.
Measure Weighting
Threshold Vesting
(25% of maximum)
Maximum Vesting
(100% of maximum)
EPS (pre-exceptional items – cumulative over
three years) 28% 935c 1,140c
ROCE (three-year average) 28% 15.0% 18.5%
Relative TSR* 29% Median Performance Upper Quartile
ESG – Planet
CO
2
Emissions Reduction
1
5% 43.5% 48.0%
Water Discharge Reduction
2
5% 49.5% 58.0%
Waste to Landfill Reduction
3
5% 30.0% 33.0%
Straight line vesting between points
* Measured against the following peers: Billerud Korsnas, Cascades, DS Smith, Empresas CMPC, Graphic Packaging, International
Paper, Klabin, Mayr-Melnhof, Metsa Board, Mondi, Packaging Corporation of America, Stora Enso, UPM Kymmene and WestRock.
1 Intensity reduction in fossil CO
2
emissions in our global paper and board mill system compared with our baseline year 2005.
2 Intensity reduction of COD content of water returned to the environment from our global paper and board mill system compared
with our baseline year 2005.
3 Intensity reduction in waste sent to landfill by our global paper and board mill system compared with our baseline year 2013.
A. Smurfit (maximum) = 250% of salary K. Bowles (maximum) = 205% of salary
Share Ownership Requirements
A. Smurfit is required to build a shareholding equivalent
to 300% of basic salary.
K. Bowles is required to build a shareholding equivalent
to 200% of basic salary.
Post-employment Share
Ownership Requirements
The share ownership requirement will apply for the first year post-departure and 50% of the requirement will apply
for the second year post departure.
REMUNERATION REPORT CONTINUED
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Remuneration Policy (abridged) including 2022 Implementation continued
Non-executive Directors
The table below sets out a summary of Non-executive Director fees. A review of Non-executive Director fees will be completed in 2022.
Annual Fee
Chair €350,000
Non-executive Director base fee €70,000
Additional Fees:
Senior Independent Director fee €60,000
Committee Chair fee €60,000
Committee membership fee €20,000
Alignment with the Workforce
Smurfit Kappa unites some 48,000 people around the globe. The Group’s reward policies are designed to attract and retain the best employees, providing
fair and competitive reward packages and motivating employees at every level of the organisation to achieve the Group’s strategic objectives. Whilst exact
structures differ by level and geography, our reward programmes are strongly aligned with the Group’s pay for performance culture, enabling people to see
a clear link to their remuneration packages when they perform above and beyond what is expected.
Remuneration Policy (abridged)
Introduction
The current Remuneration Policy is designed to attract, retain and motivate Directors and senior management of the highest calibre who are expected to
deliver superior performance and to provide strong leadership to the Group. The Policy has been effective from 30 April 2021 following the strong approval
of 94% of shareholders at the 2021 AGM. No changes have been made to the Policy since this time. Full details of the Remuneration Policy can be found on
pages 76 to 97 of the 2020 Annual Report.
The following table summarises how the Remuneration Policy fulfils the factors set out in Provision 40 of the 2018 UK Corporate Governance Code:
Code SKG Remuneration
Clarity
Remuneration arrangements should be transparent and
promote effective engagement with shareholders and
the workforce.
The annual bonus and PSP have been designed to incentivise executives to achieve clearly
defined stretching targets. Performance measures and targets are reviewed each year by the
Committee to ensure that they continue to be clear and appropriate.
Simplicity
Remuneration structures should avoid complexity and
their rationale and operation should be easy to understand.
In 2018, the Committee replaced the deferred bonus matching plan with a new performance
share plan aligned with market practice. This move supported our aim of operating a simple
remuneration structure with a single long-term incentive plan operating separately from the
annual bonus.
Risk
Remuneration arrangements should ensure reputational
and other risks from excessive rewards, and behavioural
risks that can arise from target-based incentive plans, are
identified and mitigated.
The policy has been designed to support the Group’s business strategy and the objective
of developing superior, sustainable returns and value at acceptable levels of risk but with
a clear and intelligible link to performance and the financial prosperity of the Group.
Predictability
The range of possible values of rewards to individual
Directors and any other limits or discretions should be
identified and explained at the time of approving the policy.
The Committee believes it is important for executive Directors and senior management
that a significant portion of the package is performance related. The potential value and
composition of the executive Directors’ remuneration packages at below threshold, target
and maximum (including share price performance) scenarios under our Remuneration Policy
are set out on pages 98 to 99.
Proportionality
The link between individual awards, the delivery of strategy
and the long-term performance of the Company should
be clear. Outcomes should not reward poor performance.
Payments from the annual bonus and PSP require delivery against stretching performance
conditions. The performance conditions are directly linked to the Group’s strategy and KPIs.
The Committee has discretion to override formulaic out-turns to ensure that they are
appropriate and reflective of overall performance.
Alignment to Culture
Incentive schemes should drive behaviours consistent
with company purpose, values and strategy.
Smurfit Kappa is a multinational Group and it is important that remuneration packages in each
geographical location are fair and competitive for that location and at a most senior level, on an
international basis.
Details of how our remuneration arrangements support delivery of the Group’s strategy (including
changes to increase the emphasis on sustainability metrics) are set out on pages 94 to 98.
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Smurfit Kappa Annual Report 2021
Executive Director Policy Table
Component
Purpose and Link to
Strategy, Long-term
Interests and
Sustainability Operation Opportunity Performance Metrics
(i) Basic
Salary
Competitive salaries
are set to attract,
retain and motivate
executives to deliver
superior performance
in line with the Group’s
business strategy.
Reviewed annually; changes are generally
effective on 1 January.
Set by taking into consideration the individual’s
skills, experience, performance and position
against peers.
When determining increases, consideration is
given to: (i) scope of role and responsibility; (ii)
personal performance; (iii) Group performance;
(iv) step changes in responsibility; (v) remuneration
trends across the Group; and (vi) competitive
market practice.
Whilst there is no maximum
salary level, basic salary
increases will normally be in line
with the range of increases for
the wider workforce.
The Committee may at its
discretion award larger increases
in certain circumstances, such
as a change in responsibilities
or development in the role.
Not applicable.
(ii) Benefits
Competitive benefits
taking into account
market value of role.
Benefits relate principally to the use of
company cars.
Other benefits may be provided, including but
not limited to club subscriptions.
In the event of recruitment or relocation,
additional benefits may be provided as considered
appropriate by the Committee.
The level of benefit provision is
determined based on the cost
to the Company and as such no
maximum level is set.
Not applicable.
(iii) Pension
To provide a market
competitive package
to attract and retain
executives.
Contributions are made to the Group’s defined
contribution pension arrangement, or equivalent
cash allowances are paid.
The defined benefit plan was closed to future
accrual with effect from 30 June 2016. The Group
continues to honour legacy arrangements.
Current executive Directors
– maximum Company
contribution, or cash equivalent,
of 21% of salary; but with 2022
rates set at 15.5% and 13.5%
of salary for the CEO and CFO
respectively; the contribution
rates for executive Directors
will reduce to align with the
workforce rate (10% of salary)
on 1 January 2023.
The rate for new hires will be
aligned with the rate available
to the majority of employees
in the relevant jurisdiction.
Not applicable.
REMUNERATION REPORT CONTINUED
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Overview Strategic Report Governance Financial Statements Supplementary Information
Component
Purpose and Link to
Strategy, Long-term
Interests and
Sustainability Operation Opportunity Performance Metrics
(iv) Annual
Bonus Plan
To incentivise the
executives to achieve
clearly defined
stretching annual
targets (financial and
non-financial) which
are aligned with the
Group’s strategy.
A deferral element
in shares provides a
retention element and
aligns executives with
shareholder interests.
Performance measures, their respective
weightings and targets are normally set each year
by the Committee to ensure continued alignment
with the Group strategy.
Payouts are determined by the Committee after
the year-end taking into account performance
against targets. The Committee retains the
discretion to review out-turns to ensure they are
appropriate in the context of overall performance
and how it was delivered.
50% of any bonus award is normally deferred into
shares for a period of, normally, three years.
Deferred awards may include the right to receive
(in cash or shares) the value of the dividends that
would have accrued during the vesting period.
Malus and clawback provisions are in place.
The Committee may adjust and amend awards
in accordance with the rules.
The maximum bonus
opportunity in respect
of a financial year is 150%
of basic salary.
25% of the bonus pays out
for threshold performance.
Performance is
measured against a
range of key financial,
operational/strategic,
sustainability and
individual performance
metrics.
No less than 60% of the
bonus will be based on
financial measures.
(v)
Performance
Share Plan
To incentivise the
executives to achieve
clearly defined
stretching long-term
targets which are
aligned with the Group’s
long-term strategic and
sustainability ambition.
Annual awards are normally subject to a
performance period of no less than three years.
Subject to performance, awards will then normally
be subject to a holding period of two years.
Performance measures, their weightings and
targets are normally reviewed each year by the
Committee to ensure continued alignment with
the Group’s long-term strategy.
Vesting levels are determined by the Committee
after the end of the performance period taking
into account performance against targets.
The Committee retains the discretion to review
formulaic outcomes to ensure they are
appropriate in the context of overall performance
and how it was delivered. Any adjustment to the
formulaic outcome will be communicated to
investors at the end of the performance period.
Awards may include the right to receive (in cash
or shares) the value of the dividends that would
have accrued during the performance period
and any holding period.
Malus and clawback provisions are in place.
The Committee may adjust and amend awards
in accordance with the rules.
The maximum PSP award
opportunity in respect
of a financial year is 250%
of basic salary.
Up to 25% of the award pays out
for threshold performance.
Performance measures
for the PSP are selected
by the Committee to be
aligned with the Group’s
long-term strategic
priority of delivering
sustainable returns to
shareholders.
Prior to each grant, the
Committee will select
performance measures
and targets. Measures
may be financial,
non-financial,
share-price based,
strategic, and
sustainability-focused
or on any other basis
that the Committee
considers appropriate.
PSP awards for 2022
will be subject to the
following performance
measures including
their percentage
weighting:
• Earnings per share
(28%);
• Return on capital
employed (28%);
• Relative TSR (29%);
and
• Sustainability (15%).
Executive Director Policy Table continued
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Smurfit Kappa Annual Report 2021
Component
Purpose and Link to
Strategy, Long-term
Interests and
Sustainability Operation Opportunity Performance Metrics
Share
ownership
requirements
To align the interests of
executive Directors
with those of
shareholders and
incentivise long-term
performance.
The Group Chief Executive Officer is required
to build a shareholding equivalent to 300% of
basic salary, and other executive Directors a
shareholding equivalent to 200% of basic salary.
Executives will normally also be subject to
a post-cessation shareholding requirement.
The share ownership requirement will apply
for the first year post-departure and 50% of
the requirement will apply for the second year
post departure.
Not applicable Not applicable
Recovery
provisions
Recovery provisions (clawback and malus) may apply where stated in the table above. The provisions may be enforced in the event of:
• A material misstatement of the Group’s consolidated audited financial statements;
• Where an award was determined by reference to an assessment of a performance condition which was based on an error, or
inaccurate or misleading information;
• Fraud or other material financial irregularity affecting the Group;
• The occurrence of an event that causes or is likely to cause reputational damage to the Group;
• Serious misconduct by a participant;
• Corporate failure; or
• Other circumstances which the Committee in its discretion considers to be similar in their nature or effect as the above.
Recovery provisions may be enforced in respect of the cash bonus for three years following payment, in respect of deferred shares
for three years from grant and in respect of PSP awards for five years from grant.
The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with
the Policy set out above, where the terms of the payment were agreed: (i) before the Policy set out above, or (ii) at a time when a previous Policy, approved
by shareholders, was in place provided the payment is in line with the terms of that policy, or (iii) at a time when the relevant individual was not a Director
of the Company and the payment was not in consideration for the individual becoming a Director of the Company. For these purposes, payments include
the Committee satisfying awards of variable remuneration. This means making payment in line with the terms that were agreed at the time the award
was granted.
The Committee will also retain flexibility in a number of areas regarding the operation and administration of variable pay plans, including (but not limited to):
change of control, variation of share capital, demerger, special dividend, winding up or similar events. The Committee retains the discretion within the Policy
to amend targets and/or set different measures and weightings if events happen that cause it to determine that the original targets or conditions are no
longer appropriate and the amendment is required so that the targets or conditions achieve their original purpose. Revised targets/measures will be, in the
opinion of the Committee, no less difficult to satisfy than the original conditions.
The Committee may make minor amendments to the Remuneration Policy without obtaining shareholder approval for regulatory, exchange control, tax or
administrative purposes or to take account of a change in legislation. The Committee may accelerate the vesting and/or the release of awards if an executive
Director moves jurisdictions following grant and there would be greater tax or regulatory burdens on the award in the new jurisdiction.
Value and Composition of Remuneration Packages
The Committee believes it is important for executive Directors and the senior management that a significant portion of the package is performance related
and a significant portion is delivered in shares to align their interests with shareholders. The potential value and composition of the executive Directors’
remuneration packages at below threshold, target and maximum scenarios under the proposed Policy are set out in the charts below.
Value and Composition of Package
CEO
€m €1m €2m €3m €4m €5m €6m €7m €8m 0% 20% 40% 60% 80% 100%
€7.330m
€5.905m
€2.913m
€1.346m
Fixed
Short-term Incentive Long-term Incentive
Fixed
Target
Maximum
Max + growth
Fixed
Short-term Incentive Long-term Incentive
100%
46%
23%
18%
29%
29%
23%
24%
48%
58%
Fixed
Target
Maximum
Max + growth
REMUNERATION REPORT CONTINUED
Executive Director Policy Table continued
99
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Value and Composition of Package continued
CFO
€m €1m €2m €3m €4m 0% 20% 40% 60% 80% 100%
Fixed
Target
Maximum
Max + growth
€4.035m
€3.318m
€1.716m
€0.833m
Fixed
Short-term Incentive Long-term Incentive
Fixed
Target
Maximum
Max + growth
Fixed
Short-term Incentive Long-term Incentive
100%
49%
25%
21%
31%
32%
26%
21%
43%
53%
In developing the scenarios the following assumptions have been made:
• Salary: Salary at 1 January 2022.
• Benefits: Estimate based on benefits received in 2021.
• Pension: Cash in lieu rate or contribution rate applied to salary.
• Below Threshold: No pay-outs under any incentive plan.
• Target: Up to 50% of the maximum potential under the annual bonus plan and 25% of the maximum PSP awards to be made in 2022 are earned.
• Maximum: The maximum potential under the incentive plans for 2022 is earned.
• Maximum plus share price growth of 50%: The maximum potential under the incentive plans for 2022 is earned, plus share price growth of 50%.
• Other: No share price (unless otherwise stated), dividends or discount rate assumptions have been included.
Executive Directors’ Service Contracts and Loss of Office Payment Policy
Details of the service contracts of the executive Directors are as follows. Contracts are available for inspection at the Company’s office:
Effective Date of Contract Notice Period Termination Payments
A. Smurfit 9 March 2007
(amended 1 September 2015)
12 months notice Annual salary, the highest annual bonus for the
most recent three years, the regular pension
contribution in respect of the annual salary and the
cash value of any benefits.
K. Bowles 1 April 2016 12 months notice Annual salary, the regular pension contribution in
respect of the annual salary and the cash value of
any benefits.
Policy going forward n/a 12 months notice For any new executive Director, any payment in lieu
of notice would solely include salary, pension and
other benefits.
The Committee reserves the right to make any other payments (including appropriate legal fees) in connection with an executive Director’s cessation of
office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an
obligation) or by way of settlement of any claim arising in connection with the cessation of that executive Director’s office or employment.
Non-executive Directors and the Chair
Terms and Conditions for Non-executive Directors
All Non-executive Directors have letters of appointment for a period of three years which are renewable but generally for no more than three terms in
aggregate. In compliance with the UK Corporate Governance Code, all Directors will retire at each AGM and offer themselves for re-election. A copy of the
letter of appointment is available for inspection at the Company’s registered office during normal business hours and at the AGM. Non-executive Directors
are not eligible to participate in the annual bonus plan or the long-term incentive plans and their service as a Non-executive Director is not pensionable.
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Smurfit Kappa Annual Report 2021
Non-executive Director Policy Table
Approach to Fees Operation Other Items
Fees for the Chair and Non-executive Directors
are set at an appropriate level to reflect the time
commitment, responsibility and duties of the
position and the contribution that is expected
from Non-executive Directors.
The remuneration of the Non-executive Directors
is determined by the Board within the limits set
out in the Articles of Association.
The Chair receives an aggregate fee.
The Remuneration Policy for Non-executive Directors is
to pay: (i) a basic annual fee; and (ii) fees for additional board
responsibilities (including the Senior Independent Director
and the Chair and membership of a committee).
Additional fees may also be paid where the time
commitment in a particular year was significantly
more than anticipated.
The Board retains discretion to remunerate the
Non-executive Directors in shares rather than cash
where appropriate.
Non-executive Directors are reimbursed
for travel and reasonable personal
expenses (including any related tax
liability on such expenses).
Additional fees or benefits may be
provided at the discretion of the Board.
If a new Chair or Non-executive Director is appointed, the remuneration arrangements will normally be in line with those detailed in the table above.
Consideration of Remuneration Arrangements Throughout the Group
As the Group is multinational, remuneration packages in each geographical location must be fair and competitive for that location and at a most senior
level, on an international basis. Our objectives are to a) ensure that SKG can attract and retain talented employees of the calibre necessary for it to compete
in all its markets, b) motivate employees at every level of the organisation to achieve the Group’s objectives, both short and long-term, in order to create
sustainable value and c) align remuneration packages with the Group’s values of supporting a performance culture.
The employees are rewarded in line with their individual and business performance. In setting remuneration levels, SKG takes into consideration the
employees’ performance appraisal, external benchmark data for their role in companies of similar size and scope in their geographical area while also
ensuring reasonable internal equity within the Group.
Consideration of Shareholder Views
The Company is committed to ongoing shareholder dialogue when considering changes to the Remuneration Policy. As set out in the letter from the
Committee Chair, the Committee intends to consult with the Group’s largest shareholders on certain aspects of the Remuneration Policy, namely the
competitiveness of our pay arrangements particularly the incentives for our most senior executives.
REMUNERATION REPORT CONTINUED
101
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Annual Report on Remuneration
Total Executive Directors’ Remuneration in 2021
The following table shows a single figure of total remuneration for each executive Director for the years 2021 and 2020.
Total Annual Bonus LTIP
3
2021
Basic
Salary
€’000
Pension
€’000
Benefits
2
€’000
Cash
€’000
Deferred
Shares
€’000
PSP
Shares
€’000
Share
Appreciation
4
€’000
Total
LTIP
€’000
Total
Fixed
€’000
Total
Variable
€’000
Total
€’000
A. Smurfit 1,112 228 29 832 832 1,708 1,496 3,204 1,369 4,868 6,237
K. Bowles 678
1
115 38 507 507 767 671 1,438 831 2,452 3,283
2020
A. Smurfit 1,112 228 29 689 689 2,108 408 2,516 1,369 3,894 5,263
K. Bowles 646 110 41 400 400 920 178 1,098 797 1,898 2,695
1 During the year, Ken Bowles received a salary increase to €700,000 per annum, effective as of 1 July 2021. This figure has therefore been calculated on a pro-rata basis.
2 Benefits include the use of a company car, club subscriptions or cash equivalent.
3 For 2021, this represents conditional share awards granted under the Group’s 2018 Performance Share Plan in 2019 that vested in February 2022 at the grant price in 2019. The awards
vested at 62.02% of the maximum as a result of the achievement of the relevant performance targets in the three-year period ended 31 December 2021. The vested shares (post-tax)
are subject to a two-year post holding period and will be released in 2024.
4 Share price appreciation element – the additional value generated through share price growth over the grant price in 2019 and 2018. For 2019 grants, the share price used is € 46.26
compared to the grant price of €24.66. For the 2018 grants, the share price used was €39.77 compared to the grant price of €33.32 per share.
Pensions
Tony Smurfit and Ken Bowles previously participated in a Group contributory defined benefit pension plan based on an accrual rate of 1/60th of pensionable
salary for each year of pensionable service, designed to provide two thirds of salary at retirement for full service. The defined benefit plan which Tony Smurfit
and Ken Bowles are members of closed to future accrual with effect from 30 June 2016 and was replaced by a defined contribution plan. All pension benefits
are determined solely in relation to basic salary.
For 2021, the non-pensionable cash allowance for Tony Smurfit represented 20.5% of salary and for Ken Bowles represented 17% of salary. As set out in the
2020 Remuneration Committee Report, the Committee committed to aligning the pension contribution rate to the wider workforce rate by means of a
phased reduction. These phased reductions were announced in 2021 and effective 1 January 2022, the CEO and CFO’s non-pensionable cash allowance
reduced to 15.5% and 13.5% of salary, respectively. From January 2023, the non-pensionable cash allowance for Tony Smurfit and Ken Bowles will be aligned
to the workforce rate (which is currently 10% of salary).
Annual Bonus
Executive Directors participate in an annual bonus scheme based on the achievement of clearly defined stretching annual financial targets, together with
targets for Health and Safety and personal/strategic goals for each of the executive Directors. In 2021, a new set of targets was added relating to the Group’s
‘People’ strategy.
2021 Annual Bonus
The key target areas as well as their weightings and the specific targets for the 2021 annual bonus plan are set out in the table below:
Performance Metrics (weighting) Threshold Target Maximum
Resultant Payout
(% of max.)
EBIT (35%)
€1,080m
34.8% (99%)
€647m €865m €1,082m
FCF (35%)
€455m
35% (100%)
€41m €201m €360m
Health & Safety (10%) The Group TRIR was 0.59, 100% payout for less than 0.60. 10% (100%)
People & ESG (10%) Strong progress against People & ESG goals. Further details set out overleaf for
the Executive Directors.
10% (100%)
Personal/Strategic Goals (10%) Strong progress against personal/strategic goals. Further details set out overleaf,
individually for the CEO and CFO.
10% (100%)
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Smurfit Kappa Annual Report 2021
People and ESG Outcome for Executive Directors (10% weighting)
Focus area Objectives Assessment Resultant Payout
People
Develop next generation of leaders,
increase employee engagement,
promote and champion Inclusion,
Diversity and Equality programmes.
• Carried out successful strategic talent review for top talent.
• 13 percentage point increase in global employee
engagement rate, positioning SKG ahead of industry peers.
• Detailed workforce engagement schedule developed
and completed with frequent direct and indirect
engagement opportunities.
• Creation of Inclusion, Diversity and Equality Council
and evolved the EveryOne programme in 2021.
100%
Sustainability
Drive Group to be a fully sustainable
circular business, target recognition
for ESG activities.
• Strong progress against Sustainability objectives including
approval of sustainability related capital expenditure,
publication of Green Finance Framework and improvement
across key medium-term KPIs.
• Achieved strong scores with key ratings agencies such
as MSCI and second party opinion on SKG Green Finance
framework by ISS ESG leading to successful €1 billion
green bond issuance in September 2021.
• Delivery of Better Planet Packaging event which hosted
2,700 attendees in March 2021.
• Developed and evolved Better Plant 2050 Strategy with
enhanced targets across all key sustainability metrics
including emissions, waste, water intake and quality, chain
of custody, inclusion, diversity and equality, community &
social responsibility and health & safety.
100%
Ethics & Community
Ensure a safe and trusting
environment that encourages any
reporting of wrong-doing; create
a Community Investment Plan
for support.
• Presented quarterly reporting of key data and
whistleblowing activity.
• Launched Open Community Brochure for 2021.
• Commitment to donate €24 million over a five-year period
to 2025 to support social, environmental and community
initiatives.
100%
Total: 10% (100%)
Personal/Strategic Goals (10% weighing)
The following table sets out the executive Directors’ achievements against their personal/strategic objectives for 2021:
Executive Objectives Assessment
Resultant Payout
(%)
A. Smurfit
Strategy for Growth
Development of strategic plans
for the Group.
• New ambitious investment and strategic plans developed,
presented and approved by the Board .
• Successful €1 billion green bond issuance at a record
coupon for the Group.
100%
Digital enablement
Oversee completion of Digital Strategy
for the Group.
• Multi-functional Digital Strategy for the Group developed,
approved and commenced.
• Implementation on course to deliver significant efficiencies.
100%
Total: 10% (100%)
K. Bowles
Capital structure & stakeholder
engagement
• Lead the Group’s journey towards
investment grade credit rating.
• Effective management of
relationships with key stakeholders.
• Achieved investment grade rating from Moody’s,
Fitch and Standard & Poor’s in 2021.
• Successful €1 billion green bond issuance at a record
coupon for the Group.
• SKG TSR significantly ahead of peer group.
100%
Digital enablement
Oversee completion of Digital Strategy
for the Group.
• Multi-functional Digital Strategy for the Group developed,
approved and commenced.
• Implementation on course to deliver significant efficiencies.
100%
Total: 10% (100%)
REMUNERATION REPORT CONTINUED
103
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Following the consideration of performance against the targets, and in the context of the wider performance of the Group, the Committee did not consider
it necessary to apply discretion to the outturns and approved the following annual bonuses for 2021:
2021
(%
Maximum)
Bonus
Payable
(% Salary)
Annual Cash
Bonus
€’000
Deferred
Shares
€’000
Total
Bonus
€’000Executive Directors
A. Smurfit 99.8% 149.7% 832 832 1,664
K. Bowles 99.8% 149.7% 507 507 1,014
In line with the Remuneration Policy, half of the bonuses shown above were paid in cash and half are deferred into Company shares which vest after three
years subject to the continuity of employment of the executive or in certain circumstances based on normal good leaver provisions.
Performance Share Plan
Awards Vesting in Respect of Performance to 31 December 2021
In 2019, Tony Smurfit and Ken Bowles were granted awards under the 2018 PSP. These awards were based on the following performance criteria: EPS
(pre-exceptional); Return on Capital employed; and Total Shareholder Return against a bespoke peer group. Performance was measured on a straight-line
basis between threshold and maximum.
Performance Metrics (weightings)
Threshold
(25% Vesting)
Maximum
(100% Vesting) Achievement Level of Vesting
EPS (pre-exceptional items – cumulative over three years) (33%) 770c 940c 818c 15.41%
ROCE (three-year average) (33%) 15.3% 18.7% 16% 13.28%
Relative TSR vs. a select peer group (33%) Median Upper quartile 100
th
percentile 33.33%
Overall vesting 62.02%
The peer group used for the TSR measure comprised the following companies: Billerud Korsnas, Cascades, DS Smith, Empresas CMPC, Graphic Packaging,
International Paper, Klabin, Mayr-Melnhof, Metsa Board, Mondi, Packaging Corporation of America, Stora Enso, UPM-Kymmene and WestRock. SKG finished
in first place in terms of TSR outcome against the peer group for the performance period and was therefore in the upper quartile in terms of the achievement
for the 2019 award.
In line with our normal approach for EPS and ROCE, we adjust for items which would affect comparability such as acquisitions and disposals, the impact of
IFRS 16, Leases and the equity raise.
Following consideration of performance against the targets, and in the context of the wider performance of the Group, the Committee did not consider
it necessary to apply discretion to the out-turns and approved the level of vesting of the 2019 PSP awards. PSP Awards although vested, are subject to an
additional holding period such that they are released following the fifth anniversary of the grant date.
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Smurfit Kappa Annual Report 2021
Share Awards Granted During the Year
During the year, executive Directors were granted Deferred Share Awards in respect of the 2020 annual bonus. They were also granted PSP Awards that may
vest based on the achievement of performance targets for the three-year period ending on 31 December 2023. PSP Awards are subject to an additional
holding period such that they are released following the fifth anniversary of the grant date. Details of the performance conditions attached to these awards
are set out on page 85 of the 2020 Annual Report.
Details of the executive Directors’ awards are set out below. Further detail on the executive Directors’ outstanding shares are set out on page 107.
Type of Interest
Face Value
€’000 Basis on Which Award Made
% Vesting at
Threshold Performance Period
Deferred Bonus
1
A. Smurfit Deferred shares 689 Deferred bonus n/a n/a
K. Bowles Deferred shares 400 Deferred bonus n/a n/a
Performance Shares
2
A. Smurfit Performance shares 2,780 250% of salary 25% 01/01/2021–31/12/2023
K. Bowles Performance shares 1,344 205% of salary 25% 01/01/2021–31/12/2023
1 Share price of deferred shares granted in March 2021 was €40.24. Awards will vest based on continued employment to February 2024 (subject to leaver provisions within the plan rules).
2 Two grants of performance shares were made in 2021; the first in March, with a second tranche granted in May to reflect the increased PSP opportunity approved at the AGM as part of
the 2021 Remuneration Policy. The share price of performance shares granted in March 2021 was €40.76; the share price of performance shares granted in May 2021 was €43.93. These
awards are subject to the following performance conditions and weightings: EPS (pre-exceptional, 28%); ROCE (28%); relative TSR (29%) against a bespoke peer group; CO
2
emissions
reduction (5%); water discharge reduction (5%); and waste to landfill reduction (5%). Details of the underlying targets are set out in the Annual Report 2020.
Annual Percentage Change in Remuneration of Directors and Employees
Details of the percentage change in the salary, annual bonus and benefits from 2020 to 2021 for the Directors of the Company, along with that applicable
to an average FTE employee of Smurfit Kappa, is set out below:
Change 2020–2021 Change 2019–2020
Basic Salary Total Bonus Benefits Basic Salary Total Bonus Benefits
Executive Directors
Group Chief Executive Officer – A. Smurfit 0% 21% 0% 0% 16% (6%)
Group Financial Officer – K. Bowles
1
5% 27% (7%) 3.50% 20% 14%
Non-executive Directors
2
I. Finan 0% n/a n/a 26% n/a n/a
A. Anderson 0% n/a n/a 2% n/a n/a
F. Beurskens 0% n/a n/a 0% n/a n/a
C. Fairweather 0% n/a n/a 0% n/a n/a
K. Hietala
3
671% n/a n/a n/a n/a n/a
J. Lawrence 0% n/a n/a 0% n/a n/a
L. Melgar 0% n/a n/a n/a n/a n/a
J. Moloney 0% n/a n/a 11% n/a n/a
J. Buhl Rasmussen 0% n/a n/a 40% n/a n/a
G. Restrepo 0% n/a n/a 40% n/a n/a
Average employee of Smurfit Kappa Group (FTE) 2% 4% n/a* 2% 16% n/a*
1 During the year, Ken Bowles received a salary increase to €700,000 per annum, effective as of 1 July 2021. This figure has therefore been calculated on a pro-rata basis.
2 Page 108 provides the underlying single figure of remuneration for Non-executive Directors used to calculate the figures above.
3 Kaisa Hietala joined the Board in October 2020.
* Due to data availability, it is not possible to calculate the percentage change in benefits for all employees for the purpose of this table.
Chief Executive Officer Pay Ratio
Although this legislation does not apply to SKG, the Committee has voluntarily published the ratio. The following table sets out the Group CEO pay ratio
against Irish employees within the Group, which is considered the most relevant reference point as the Group’s headquarters are in Ireland.
Year Population 25
th
percentile 50
th
percentile 75
th
percentile
2021 Irish employees 152 116 83
2020 Irish employees 132 97 72
2019 Irish employees 92 68 50
Total remuneration for each individual in the above data has been calculated on the same basis as the Group CEO’s annual total remuneration for the same
period in the single figure table. For part-time employees, their relevant pay and benefit components have been adjusted to the equivalent full-time figure
for the relevant business.
The pay ratio reflects how remuneration arrangements differ as responsibility increases for more senior roles within the organisation; with a significant
proportion of the CEO’s remuneration derived from at-risk, performance based pay linked to the Group’s overall performance and also to Smurfit Kappa’s
share price performance through the equity based incentives. The Committee is comfortable that the pay ratio reflects the pay progression policies at
Smurfit Kappa and acknowledges that there will be volatility in the reported pay ratio year-on-year, driven by the performance-based pay outcomes.
REMUNERATION REPORT CONTINUED
105
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Relative Importance of Spend on Pay
The following tables set out the change in profit, dividends and total employee costs for the financial year ended 31 December 2021 against a five-year comparative.
2021
€m
2020
€m
2019
€m
2018
€m
2017
€m
2016
€m
Profit before income tax and exceptional items 944 779 872 938 601 657
Dividends paid to shareholders 302 260 238 213 191 166
Total employee costs
1
2,292 2,218 2,195 2,139 2,070 1,968
Directors Remuneration 11 9 7 6 5 4
2
1 Total employee costs for continuing operations, includes wages and salaries, social insurance costs, share-based payment expense, pension costs and redundancy costs for all
employees. The average full time equivalent number of employees and part-time employees in continuing operations was 47,753 (2020: 46,375).
2 Ken Bowles, who was appointed Group Chief Financial Officer on 1 April 2016, was appointed a Director on 8 December 2016.
Percentage Change of Spend on Pay 2021 vs 2020
0
5
10
15
20
25
3.4%
16.5%
21.2%
PBT and exceptionals
*
Dividends paid Total employee costs
Percentage
%
* Profit before income tax and exceptional items.
Total Shareholder Return Performance
The performance graph below shows the Group TSR performance from 31 December 2011 to 31 December 2021 against the performance of the FTSE 100
and FTSE 250 over the same period. Both the FTSE 100 and FTSE 250 have been chosen, as during the relevant period these are the two broad equity
market indices of which the Group has been a member.
Total Return Indices – Smurfit Kappa vs FTSE 100 and FTSE 250
Smurfit Kappa Group FTSE 100 Index (euro) FTSE 250 Index (euro)
0
200
400
600
800
1,600
1,400
1,000
1,200
Total Shareholder Return (rebased to 100)
2011 2012 2013 2014 2015 2016 2017 2018 2019 20212020
106
Smurfit Kappa Annual Report 2021
Group Chief Executive Officer Remuneration
The table below summarises the single figure of total remuneration for the Group Chief Executive Officer for the past ten years as well as how the actual
awards under the annual bonus and LTIP compare to the maximum opportunity.
Single Figure of
Total
Remuneration
€’000
Annual Bonus
Award Against
Maximum
Opportunity*
LTI P Award
Against Maximum
Opportunity
Group Chief Executive Officer
2021 A. Smurfit 6,237 99.8% 62.02%
1
2020 A. Smurfit 5,263 82.6% 78.35%
2
2019 A. Smurfit 3,670 71% 100%
3
2018 A. Smurfit 3,372 97.3% 51.6%
3
2017 A. Smurfit 2,477 41% 45%
3
2016 A. Smurfit 2,407 35% 45%
3
2015 A. Smurfit (appointed 1 September) 1,180 42% 67%
3
2015 G. McGann (retired 31 August) 3,837 42% 67%
3
2014 G. McGann 7,203 55% 75%
3
2013 G. McGann 5,278 54% 93%
3
2012 G. McGann 3,169 60% 30%
4
1 The Performance Share award granted in 2019 vested in February 2022 based on the achievement of the relevant performance targets for the three-year period ending on 31 December
2021. Awards will be released after a two year holding period.
2 The Performance Share award granted in 2018 vested in February 2021 based on the achievement of the relevant performance targets for the three-year period ending on 31 December
2020. Awards are being released in three equal tranches.
3 The Matching and Conditional Matching Awards granted in 2017, 2016, 2015, 2014, 2013, 2012 and 2011 vested in February 2020, 2019, 2018, 2017, 2016, 2015 and 2014 respectively
based on the achievement of the relevant performance targets for the three-year periods ending on 31 December 2019, 2018, 2017, 2016, 2015, 2014 and 2013.
4. The awards under the 2007 Share Incentive Plan (‘SIP’) vested 30% in February 2013 with the TSR condition being at the median.
* The annual bonus award was paid 50% in cash and 50% in Deferred Share Awards.
The information below forms an integral part of the audited Consolidated Financial Statements as described in the Basis of
Preparation on page 134.
Pension Entitlements – Defined Benefit
Increase/
(Decrease) in
Accrued Pension
During Year
€’000
Transfer Value of
Increase/
(Decrease) in
Accrued Pension
€’000
2021
Total Accrued
Pension
1
€’000
Executive Directors
A. Smurfit – – 282
K. Bowles – – 80
1 Accrued pension benefit is that which would be paid annually on normal retirement date. The defined benefit plan was closed to future accrual with effect from 30 June 2016.
Additional Information
Payments to Former Directors
There were no payments made to former Directors in the year.
Payments for Loss of Office
There were no payments for loss of office made in the year.
Executive Directors’ Interests in Share Capital at 31 December 2021
The table below summarises the personal shareholdings of each executive Director. The figures include beneficially owned shares and unvested share
awards which are not subject to further performance criteria (other than continued employment) on a net of tax basis.
Name
Beneficially
Owned at
31 December
2020
Beneficially
Owned at
31 December
2021
Unvested Awards
Not Subject to
Performance
Criteria
(Net of Tax)
Total
Shareholding as
at 31 December
2021
Shareholding
(% of Salary)
Shareholding
Guideline
(% of Salary)
Shareholding
Guideline Met?
A. Smurfit 1,258,490 1,333,120 32,718 1,365,838 5,433% 300% Yes
K. Bowles 47,374 63,546 18,286 81,832 534% 200% Yes
The changes in the executive Directors’ interests (beneficially owned shares) between 31 December 2021 and 16 March 2022 were as follows: Tony Smurfit
and Ken Bowles increased their holdings by 50,133 and 14,877 shares respectively in February 2022, following the vesting of the Deferred share awards and
the vesting of the Performance Share Plan.
External Appointments
The Company recognises that, during their employment with the Company, Executive Directors may be invited to become Non-executive Directors of other
companies and that such duties can broaden their experience and knowledge. Executive Directors may, with the written consent of the Company, accept
such appointments outside the Company, and the policy is that any fees may be retained by the Director. The Executive Directors do not hold any paid
appointments at present.
REMUNERATION REPORT CONTINUED
107
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Deferred Annual Bonus Plan and Deferred Bonus Plan Awards
Deferred Share Awards
Deferred Share Awards were granted to eligible employees in 2021 in respect of the financial year ended 31 December 2020. These awards are not subject
to performance conditions.
31 December
2020
Granted (Lapsed)
in Year 2021 Shares vested
31 December
2021
Market Price on
Award Date Deferral Period
Directors
A. Smurfit
11,362 (11,362)
1
– 30.09 01/01/2018 – 31/12/2020
30,861 30,861
2
26.13 01/01/2019 – 31/12/2021
17,460 17,460 33.91 01/01/2020 – 31/12/2022
17,114 17,114 40.24 01/01/2021 – 31/12/2023
K. Bowles
6,198 (6,198)
1
– 30.09 01/01/2018 – 31/12/2020
16,833 16,833
2
26.13 01/01/2019 – 31/12/2021
9,798 9,798 33.91 01/01/2020 – 31/12/2022
9,940 9,940 40.24 01/01/2021 – 31/12/2023
Secretary
G. Carson-Callan
1,033 (1,033)
1
– 30.09 01/01/2018 – 31/12/2020
3,347 3,347
2
26.13 01/01/2019 – 31/12/2021
1,969 1,969 33.91 01/01/2020 – 31/12/2022
2,746 2,746 40.24 01/01/2021 – 31/12/2023
1 The deferred shares vested and were distributed in February 2021. The market price at date of distribution was €39.77.
2 The deferred shares vested in February 2022 and were distributed. The market price at the date of distribution was €46.26.
The market price of the Company’s shares at 31 December 2021 was €48.44 and the range during 2021 was €38.34 to €50.14.
Performance Share Plan Awards
PSP Awards were granted to eligible employees in 2021. Awards may vest based on the achievement of the relevant performance targets for the three-year
period ending on 31 December 2023. Details of the status of the original awards is included below.
31 December
2020
Granted (Lapsed)
in Year 2021* Shares Vested
31 December
2021
Market Price on
Award Date Performance Period**
Directors
A. Smurfit 74,651 (16,162) (58,489)
1
– 33.32 01/01/2018 – 31/12/2020
101, 472 – – 101,472
2
24.66 01/01/2019 – 31/12/2021
93,719 – – 93,719 26.70 01/01/2020 – 31/12/2022
– 61,391 – 61,391 40.76 01/01/2021 – 31/12/2023
– 6,329
3
– 6,329 43.93 01/01/2021 – 31/12/2023
K. Bowles 32,575 (7,053) (25,522)
1
– 33.32 01/01/2018 – 31/12/2020
45,555 – – 45,555
2
24.66 01/01/2019 – 31/12/2021
43,547 – – 43,547 26.70 01/01/2020 – 31/12/2022
– 28,954 – 28,954 40.76 01/01/2021 – 31/12/2023
– 3,731
3
– 3,731 43.93 01/01/2021 – 31/12/2023
Secretary
G. Carson-Callan 2,161 (468) (1,693)
1
– 33.32 01/01/2018 – 31/12/2020
6,813 – – 6,813
2
24.66 01/01/2019 – 31/12/2021
7,865 – – 7,865 26.70 01/01/2020 – 31/12/2022
– 9,495 – 9,495 40.76 01/01/2021 – 31/12/2023
1 Based on the achievement of relevant performance targets for the three-year period ending on 31 December 2020, the conditional share awards including dividend equivalents vested at
78.35% in February 2021. The market price at the time of vesting was €39.77. The vested shares (post-tax) from the 2018 award for the executive Directors are subject to holding periods
and are to be released in three equal tranches: one was released in 2021; and the subsequent shares will be released in 2022 and 2023. The dividend equivalents that vested amounted to
4,779, 2,084 and 136 shares for A. Smurfit, K. Bowles and G. Carson-Callan respectively.
2 Based on the achievement of relevant performance targets for the three-year period ending on 31 December 2021, the conditional share awards including dividend equivalents vested
at 62.02% in February 2022. The market price at the time of distribution was €46.26. The Directors vested shares (post-tax) from the 2019 award for the executive Directors are subject
to a two year holding period and are to be released March 2024.
3 Two grants of performance shares were made in 2021; the first in March 2021, with a second tranche granted in May 2021 to reflect the increased PSP opportunity approved at the AGM
as part of the 2021 Remuneration Policy.
* Awards are eligible to accrue dividend equivalents during the performance period.
** Awards are subject to a holding period. Awards granted in 2019, 2020 and 2021 are released to executive Directors on the fifth anniversary of the date of grant.
108
Smurfit Kappa Annual Report 2021
Directors’ Remuneration
2021
€’000
2020
€’000
Executive Directors
Basic salary 1,790 1,758
Annual cash bonus 1,339 1,089
Annual bonus deferred shares 1,339 1,089
Pension 343 338
Benefits 67 70
Tot al LTIP 4,642 3,614
Executive Directors’ remuneration 9,520 7,958
Average number of executive Directors 2 2
Non-executive Directors
Fees 1,380 1,302
Non-executive Directors’ remuneration 1,380 1,302
Average number of Non-executive Directors 10 10
Directors’ Remuneration 10,900 9,260
Individual Remuneration for the Financial Year Ended 31 December 2021
Total
2021
€’000
Total
2020
€’000
Non-executive Directors*
I. Finan 350 350
A. Anderson 90 90
F. Beurskens
1
150 150
C. Fairweather 130 130
K. Hietala
2
90 12
J. Lawrence 90 90
L. Melgar 90 90
J. Moloney 130 130
J. Buhl Rasmussen 130 130
G. Restrepo 130 130
1,380 1,302
* Non-executive Director remuneration is entirely fixed.
1 Frits Beurskens’ fees include additional fees of €60,000 (2020: €60,000) for services as a Director of a Group subsidiary and advisory services.
2 Kaisa Hietala joined the Board in October 2020.
Share-based Payment
The executive Directors receive Deferred Share Awards and Performance Share Awards, details of which are outlined on page 107 of this report. The share-based
payment expense recognised in the Consolidated Income Statement for the executive Directors in the year totalled €5 million (2020: €3 million).
REMUNERATION REPORT CONTINUED
109
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Non-executive Directors’ Interests in Share Capital at 31 December 2021
The interests of the Non-executive Directors and Secretary in the shares of the Company as at 31 December 2021 which are beneficial unless otherwise
indicated are shown below. The Directors and Secretary have no beneficial interests in any of the Group’s subsidiary or associated undertakings.
Ordinary Shares
31 December
2021
31 December
2020
Directors
I. Finan 19,709 19,709
A. Anderson* 6,911 5,874
F. Beurskens 5,300 5,300
C. Fairweather 3,000 3,000
K. Hietala 1,471 1,471
J. Lawrence 170,000 335,000
L. Melgar – –
J. Moloney 10,206 10,206
J. Buhl Rasmussen 6,146 6,146
G. Restrepo – –
Secretary
G. Carson-Callan 1,016 441
* From October 2021, Anne Anderson has an indirect interest in 1,000 SKG shares, held by a connected person. These shares were acquired historically in 2019 and 2020.
The changes in the Secretary’s interest between 31 December 2021 and 10 March 2022 was as follows:
• Gillian Carson-Callan increased her holding by 1,601 shares in February 2022 following the vesting of the share plans.
There were no changes to the Non-executive Director interests during this time.
End of information in the Remuneration Report that forms an integral part of the audited Consolidated Financial Statements.
The Remuneration Committee
The Remuneration Committee is chaired by John Moloney and currently comprises four Non-executive Directors. Irial Finan retired from the Committee in
October 2021. The Directors’ biographical details on pages 78 to 81 demonstrate that the members of the Committee bring to it a wide range of experience
in the area of senior executive remuneration in comparable companies.
The Committee receives advice from independent remuneration consultants, as appropriate, to supplement their own knowledge and to keep the
Committee updated on current trends and practices. During the year, Ellason LLP replaced Deloitte LLP as advisers to the Committee. Ellason were
appointed by the Committee following a competitive tender process. In 2021, the Committee received independent advice in relation to the external
governance landscape and on the approach to executive remuneration in the Group going forward. The Committee considers that the advice provided by
both Deloitte and Ellason, neither of whom have any other affiliation with the Group, was objective and independent. The total fees paid to Deloitte LLP
in relation to Remuneration Committee work during 2021 were £37,600 (excluding VAT). The total fees paid to Ellason LLP in relation to Remuneration
Committee work during 2021 were £59,740 (excluding VAT). Deloitte and Ellason are signatories to the Remuneration Consultants’ Group code of conduct
in relation to executive remuneration consulting in the UK.
The role and responsibilities of the Committee are set out in its Terms of Reference which were updated and approved in December 2021 and are available
on the Group’s website: smurfitkappa.com. As detailed on page 86, the Board conducts an annual evaluation of its own performance and that of its
Committees, Committee Chairs and individual Directors except in years when an external evaluation is carried out. In accordance with the UK Corporate
Governance Code, an internal evaluation was conducted in 2021. The conclusion from the 2021 process was that the performances of the Remuneration
Committee and of the Chair of the Committee were satisfactory.
The Committee met six times during the year. Details of Committee members and meetings attended are provided in the table on page 92. The Group
Chief Executive Officer normally attend the meetings and the Group VP Human Resources attends when appropriate (neither are involved in discussions
concerning their own remuneration).
Statement on Shareholder Voting
The Company is committed to ongoing dialogue with our shareholders regarding executive remuneration. We engaged extensively with our stakeholders
during the Policy review in 2020.
The following table shows the voting outcomes at the 30 April 2021 AGM for the 2020 Directors’ Remuneration Report, the Directors’ Remuneration Policy
and the increase in the maximum award opportunity in the rules of the 2018 Performance Share Plan.
Item
Votes For and
Discretionary % Votes Cast Votes Against % Votes Cast Total Votes Cast Vote Withheld
Directors’ Remuneration Report 150,927,438 96.2% 6,020,064 3.8% 156,947,502 315,598
Directors’ Remuneration Policy 146,576,022 94.0% 9,420,688 6.0% 155,996,710 1,266,390
Increase the maximum award opportunity in the
rules of the 2018 Performance Share Plan 153,662,853 97.7% 3,597,815 2.3% 157,260,668 2,432
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Smurfit Kappa Annual Report 2021
NOMINATION COMMITTEE REPORT
“Dear Shareholders, I am pleased to present the Nomination Committee
report covering the work the Committee performed during
the 2021 financial year.”
Gonzalo Restrepo
Chair of Nomination Committee, 16 March 2022
Committee Members
G. Restrepo (Chair)
A. Anderson
F. Beurskens
I. Finan
J. Lawrence
The Role of the Nomination Committee
• Lead the process for appointments to the Board and make
recommendations to the Board;
• Evaluate the balance of skills, knowledge, experience and diversity,
including geographical, gender, age and ethnic diversity, on the
Board and its Committees to ensure they operate effectively;
• Prepare descriptions of the role and requirements for new
appointees; and
• Give full consideration to succession planning for the Board and
senior management.
The roles and responsibilities of the Committee are set out in its Terms of
Reference which are available on the Group’s website: smurfitkappa.com.
The Terms of Reference were reviewed and updated in December 2021.
Attendance Record
The number of meetings held during the
period the Director was a member of the
Committee and was eligible to attend*
G. Restrepo (Chair)
A. Anderson
F. Beurskens
I. Finan
J. Lawrence
* The total people icons represent the number of meetings held during the period the
Director was a member of the Committee and was eligible to attend. All Committee
member's attended all meetings during the year.
Length of Tenure Appointment Date
G. Restrepo (Chair) 2019
A. Anderson 2019
F. Beurskens 2013
I. Finan 2019
J. Lawrence 2015
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Membership of the Committee
The Committee is currently comprised of five Non-executive Directors.
The Committee met three times during the year under review. Details of
Committee members and meetings attended are provided in the table
above. The Group Chief Executive Officer normally attends meetings of the
Committee and the Group VP of Human Resources attends as appropriate.
Main Activities During the Year
The Committee has fully complied with the principles of the Code, which
includes up to date guidance for Nomination Committees of companies
listed on Euronext Dublin and the LSE throughout the accounting period.
The primary role of the Committee is to monitor and maintain an appropriate
balance of skills, experience, independence and diversity on the Board while
regularly reviewing its structure, size and composition. It is also responsible
for ensuring there is a formal, rigorous and transparent process for the
appointment of new Directors to the Board.
Where necessary, the Committee uses the services of external advisors in
order to assist in the search for new appointments to the Board. Advisors are
provided with a brief which takes into consideration the skills, experience and
diversity required at the time to give balance to the Board. When suitable
candidates have been identified, some Committee members will meet with
them and if a candidate is agreed upon, the Committee will then recommend
the candidate to the Board. All appointments to the Board are approved by
the Board as a whole. All newly appointed Directors are subject to election
by shareholders at the AGM following their appointment and in compliance
with the Code, all Directors are required to retire at each AGM and offer
themselves for re-election. There were no new appointments to the Board
during 2021.
Succession planning is a fundamental aspect of the Committee’s work
both for Directors and senior management. A detailed succession planning
process is in place which has been developed and has evolved in recent
years. The Committee and the Board regularly review succession plans
for Directors and senior management of the Group and are assisted by
comprehensive updates from the Group VP of Human Resources.
Refreshing the Board and its Committees
During the year, the Committee evaluated the composition of the Board
with respect to the balance of skills, knowledge, experience and diversity,
including geographical, gender, age and ethnic diversity.
Board and Committee Evaluation
The Committee also lead oversight of the Internal Board evaluation process
to assess the performance of individual Directors and the effectiveness of
the Board and its Committees. In line with the Code, an external evaluation
of the Board and its Committees is conducted every three years, the next
of which will take place during 2022. Details of the outcome of the Internal
Board evaluation completed in 2021 are included in the Corporate
Governance Statement on page 86.
In addition to the oversight of the Internal Board Evaluation, the Committee
conducted an evaluation of its performance in 2021, the outcome of
which was that the Committee was considered to be operating effectively
and efficiently.
Chair Succession Planning
During the year, the Board (led by the Senior Independent Director and this
Committee) carried out an extensive process relating to the succession of
the Group Chair. Full details of this process and outcome are also outlined
in the Corporate Governance Statement on pages 84 to 85.
Irial Finan joined the Board in February 2012 and was appointed Chair in May
2019. He was independent at the time of appointment, as recommended
by the Code. Irial’s appointment as Chair followed a comprehensive chair
succession process completed by the Board in 2018. He was appointed as
Chair designate in October 2018 and became Chair at the conclusion of the
AGM in May 2019. Including his time as a Non-executive Director, he had
completed nine years on the Board in 2021.
The Chair is responsible for the leadership of the Board and the efficient and
effective working of the Board. He sets and manages the Board agenda so
that the agenda (at appropriate times) addresses all matters reserved to
the Board and ensures that adequate time is available for discussion on
strategy and the strategic issues facing the Group. He ensures that the
Directors receive accurate, timely and clear information, and that the
Directors are updated periodically on the views or concerns of the major
investors. He also ensures that a culture of openness and debate is fostered
to facilitate constructive Board relations and the effective contribution
of the Non-executive Directors to the Board.
Succession Review
During 2021, the Board completed a detailed review to consider the tenure
of the Chair and Chair succession, which was led by Gonzalo Restrepo, the
Senior Independent Director and Chair of the Nomination Committee. The
Company engaged with shareholders to seek their views and support as part
of the process in which approximately 50% of the shareholder base were
consulted in addition to institutional proxy advisers.
In the detail below, the Board has provided a transparent disclosure of their
considerations and their recommendations in relation to the tenure of the
Chair (including the recommendation to shareholders that the re-election
of Irial at the AGM in April 2022 is in the best interests of the Company and
of shareholders).
Considerations
The Board in completing their Chair succession review, was cognisant of
Provision 19 of the Code which states that 'the Chair should not remain
in post beyond nine years from the date of their first appointment to the
Board'. However, the Board also notes the flexibility within the Code to
extend the Chair tenure for a limited time to facilitate effective succession
planning and the development of a diverse board, particularly in those cases
where the Chair was an existing non-executive Director on appointment.
The Code states that a 'clear explanation should be provided' where this is
the case. As noted while Irial's tenure on the Board exceeded nine years in
2021, he has only been in the critical position of Chair since May 2019.
A clear explanation has been provided below outlining the rationale for
extending the tenure of the Chair and this has also been detailed in the
Corporate Governance Statement on pages 84 to 85.
In the year of his appointment, an external evaluation of the Board was
conducted. Over the last two years there have been internal evaluations
conducted by the Senior Independent Director including an evaluation of
the Chair. The performance of Irial has been exceptional and the Board are
very satisfied with his support, leadership and independence as Chair.
The executive Directors of the Group, the Group CEO and the Group CFO,
were appointed to their positions in 2015 and 2016 respectively. As a result,
the Board believe that there is no governance concern arising in relation to
concurrency of the roles.
The Board noted in their consideration the exceptional performance of
the Group in recent years which has seen a significant increase in market
capitalisation. Throughout his tenure to date, the Chair has supported the
Executive management team in their delivery of many key achievements
and milestones for the Group, which have included the completion
of a successful share placing in November 2020 raising gross proceeds
of €660 million to allow for accelerated capital investment; the issuance
of €1 billion of Green Bonds at record low coupons for the Group in
September 2021; and a number of successful acquisitions in Europe and
the Americas. As a result, the Board believe that in this time of growth
and transformation for the Group that continuity in the position of
Chair is important not only for the Group but also for shareholders and
other stakeholders.
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Smurfit Kappa Annual Report 2021
The Board has had significant refreshment in recent years with over 50%
of Non-executive Directors on the Board in their position for less than
five years. The Board believes that the leadership, governance and direction
from the Chair is essential to the effective integration of new members
and are very satisfied that Irial is providing the necessary support to
the Directors.
Since his appointment, the Chair has been pro-active in his engagement
with stakeholders including shareholders, proxy bodies and the Group’s
workforce. Most recently, during 2021 Irial met virtually and engaged with
many shareholders and proxy body representatives. Shareholder support for
his reappointment has been very strong at every AGM since appointment,
including the 2021 AGM.
The Board want to ensure an orderly succession and transition of the Chair.
The Board will ensure that a process to identify a suitable candidate will be
completed so that the successor is in place in sufficient time for the end of
the proposed extension as outlined in the conclusion.
Conclusion
Following consideration of the Code, the rationale identified and the views
of shareholders, the Board concluded that it was in the best interests of
the Group and of all stakeholders that the tenure of Irial be extended by
a period of up to three years. In their decision to define a time period for the
extension, the Board believe that this provides clarity and certainty for all
stakeholders of the Group.
The Board concluded that given the importance of the role, it would not be
in the interests of the Company or stakeholders to have a change in Chair
so soon after appointment, particularly given the exceptional leadership,
governance and direction from the Chair and the level of Board refreshment
in recent years. The Board believe that as the Group continues in this time
of growth and transformation that continuity in the position of Chair is
important to the effective operation of the Board and continued success
of the Group. The Board also note that Irial's re-appointment will be subject
to shareholder approval at the 2022 AGM and subsequent future AGMs
as applicable. In advance of subsequent AGMs, the Board is committed to
providing transparent disclosure on the status of the Chair succession
process in the Annual Report.
Recommendation for 2022 AGM
As noted, the Board has carefully considered the tenure of the Chair
and is recommending to shareholders that the re-election of Irial at the
forthcoming AGM in in April 2022 is in the best interests of the Company
and its shareholders.
Board Balance and Effectiveness
As is the case each year, the Committee reviewed the size and performance
of the Board during 2021. Key elements of ensuring the Board continues
to operate at a high standard is independent oversight and a diverse
background of skills, which allows Non-executive Directors to scrutinise
and, when necessary, challenge management proposals and strategy. The
Committee continues to review that each of the Non-executive Directors,
excluding the Chair, remain impartial and independent in order to meet the
challenges of their roles.
Throughout the year, over half of the Board comprised independent
Non-executive Directors. Gonzalo is the Senior Independent Director of
the Company. The Senior Independent Director provides a sounding board
for the Chair and serves as an intermediary for the other Directors and
shareholders when necessary.
The Board has had due regard to various matters which might affect,
or appear to affect, the independence of certain of the Directors.
The Board considers that other than Frits Beurskens, each of the
Non-executive Directors is independent. In determining the
independence of the Non-executives, the Committee scrutinised
any issues relating to actual or perceived conflicts of interest.
Boardroom and Senior Management Diversity
As a global business, inclusion, diversity and equality are integral to how
we do business. The Board and Committee recognise the importance
of these values at Board level, senior management level and throughout
the organisation.
In terms of gender diversity the Group is committed to increasing the
representation of females within senior management roles. As part of our
Better Planet 2050 Targets, the Group announced a target of 25% of
management positions to be held by women by 2024. At Board level, female
representation is currently at 33% in line with the target of the FTSE Women
Leaders Review, with our Group Executive Committee at 31%. You can
read more about diversity at Smurfit Kappa in our People section on pages
68 to 69.
The Committee notes the new FTSE Women Leaders targets published
in February 2022 and remains committed to ensuring that gender diversity
is a focus on its Board and senior management agendas.
The Board and Committee gives due regard to all aspects of diversity
including ethnic and social diversity. The Board includes Directors from eight
different nationalities. The Board and the Committee are mindful of the
recommendation of the Parker Review to have at least one Board member
from an ethnic minority background by 2021 and the Board currently meets
this recommendation.
Notwithstanding our policies, any search for Board candidates and any
subsequent appointments are made purely on merit regardless of
gender, ethnicity, religion, age or disability. We look to ensure we have
the appropriate balance of skills, diversity of knowledge and thinking,
professional and geographic backgrounds and experience on our Board
and recruit accordingly.
We are committed to appointing the best people and ensuring that all
employees have an equal chance of developing their careers within the
Group. The Group has made further progress in addressing diversity in the
Group’s workforce through its Global Inclusion, Diversity & Equality
Programme, EveryOne which was launched in 2018. During 2021 the Group
has been working on enhancing and evolving the EveryOne programme, with
the creation of five new diverse communities to drive ambition in this area.
The communities are: Disability; Family & Age, Gender; LGBTQ+ & Allies
and Origin; and Race & Ethnicity. This evolution is moving from awareness
to action as we continue to create a globally admired company with diverse
talent who feel respected and a sense of belonging. Further information on
EveryOne is on pages 68 to 69.
Gonzalo Restrepo
Chair of Nomination Committee
NOMINATION COMMITTEE REPORT CONTINUED
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Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
SUSTAINABILITY COMMITTEE REPORT
“As Chair, I am pleased to present the 2021 report of the
Sustainability Committee and outline the Committee’s continued
development, their objectives and their activities.”
Jørgen Buhl Rasmussen
Chair of Sustainability Committee, 16 March 2022
Committee Members
J. Buhl Rasmussen (Chair)
A. Anderson
K. Hietala
L. Melgar
The Role of the Sustainability Committee
The Committee has responsibility for the:
• Overall strategic guidance of the Smurfit Kappa sustainability strategy
which is based on three key strategic sustainability and corporate
responsibility pillars, Planet; People and Impactful Business;
• Reviewing and approving the annual Sustainable Development Report
and the Sustainability section of the Annual Report;
• Reviewing the TCFD (Task Force for Climate-related Financial
Disclosures) compliance reporting of climate-related financial
information and the climate risks and opportunities of the Group; and
• Engagement with the workforce on behalf of the Board as required
by the Code.
The role and responsibilities of the Committee are set out in its Terms of
Reference which are available on the Group’s website: smurfitkappa.com.
The Terms of Reference were reviewed and updated in December 2021.
Attendance Record
The number of meetings held during the
period the Director was a member of the
Committee and was eligible to attend*
J. Buhl Rasmussen (Chair)
A. Anderson
K. Hietala
L. Melgar
* The total people icons represent the number of meetings held during the period the
Director was a member of the Committee and was eligible to attend. All Committee
member's attended all meetings during the year.
The Group Chair, Group Chief Executive Officer, Group Chief Financial Officer, Group VP
Human Resources and the newly appointed Group Chief Sustainability Officer attend
when appropriate.
Length of Tenure Appointment Date
*
J. Buhl Rasmussen (Chair) 2019
A. Anderson 2019
K. Hietala 2021
L. Melgar 2020
* Tenure is from the establishment of the Committee in December 2019.
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Smurfit Kappa Annual Report 2021
Strategic Sustainability Priorities
As a responsible company, operating globally, Smurfit Kappa has a product
that is naturally sustainable and a process that is increasingly sustainable,
driven by a culture with strong values of loyalty, integrity and respect.
Smurfit Kappa understands the challenges facing both our business and the
planet and is committed to doing its part in resolving these critical issues.
Therefore, our ambition is to deliver sustainable growth to the benefit of all
our stakeholders based on our three pillars: Planet, People and Impactful
Business. Within these pillars our People, our Communities and Climate
Change, Forest, Water and Waste are the main strategic environmental
and corporate social responsibility priorities.
2021 in Review
The Committee in its second full year had a very active and productive year
with the Group completing many projects across its sustainability agenda,
which have been outlined below and throughout this Annual Report.
During 2021, the Group appointed a new Group Chief Sustainability Officer,
a role which will focus on delivering the sustainability strategy for the Group,
maintaining our strong governance framework, but also to embrace new
strategic opportunities from a capital markets perspective, and, across
all stakeholders.
In January 2021, the Group announced ambitious new sustainability targets
as part of Better Planet 2050 which focus on further reductions in our
environmental footprint, increased support for the communities in which
we operate and further enhancement to the lives of our employees. These
targets build upon the Group’s well established sustainability record, on
which we have been reporting since 2007. The Group reporting on the
delivery against the Better Planet 2050 targets during 2021 will be included
in the Sustainable Development Report ('SDR') for 2021. Details of the
outcome of CO
2
emissions reductions, chain of custody certification and
Health and Safety are included in the non financial KPIs section in this report
on pages 32 to 33.
In April 2021, the Group released its 14
th
annual Sustainable Development
Report (‘SDR’) and the next report for 2021 will be published in April 2022.
Further validation of the Group’s strong sustainability credentials was
evidenced by the successful green bond transaction completed in
September 2021, supported by a robust Green Finance Framework and
second party opinion. The Group issued €1 billion in green bonds which were
over-subscribed multiple times and secured SKG the lowest ever coupon
for a corporate at SKG’s credit rating with a very strong participation of
'green' investors including 'dark green' investors.
In December 2021, the Group had its emissions targets approved as being
science based and in line with meeting the Paris agreement and well below
2°C. This approval by SBTi was a fitting end to another year of continued
delivery, third party assurance and best in class certification.
As the business evolved during 2021, the Group has delivered new innovative
products to the marketplace that demonstrably lower our customers’
carbon footprint and together with the inherent sustainable nature of our
product, our increasingly sustainable operating footprint, position Smurfit
Kappa as an integral part of delivering on our customers’ sustainability goals.
The Group focuses on providing fit-for-purpose packaging solutions that
are renewable, recyclable and biodegradable. The Better Planet Packaging
initiative also provides a key platform for differentiation in a competitive
market. Details of some of the innovations and solutions provided to
customers are included on pages 8 to 11.
The Committee conducted an evaluation of its performance in 2021, the
outcome of which was that the Committee was considered to be operating
effectively and efficiently.
Strategic Guidance
As the Committee of the Board is responsible for overall strategic guidance
of the Smurfit Kappa sustainability strategy, the Committee has particular
regard to the alignment of the Group’s sustainability strategy with the overall
Group strategy and global best practice.
During 2021, significant work was undertaken in relation to the climate risks
and opportunities of the Group, which included engagement with experts
and completion of an extensive climate scenario analysis project for the
Group. The Committee reviewed and evaluated the outcomes of the work
completed and the proposed disclosures relating to climate change. An
enhanced disclosure consistent with the recommendations of TCFD is
outlined on pages 54 to 61 of this report. In addition, following consideration
by the Board, climate change which had been included as an emerging risk of
the Group for a number of years has been elevated to a long-term principal
risk of the Group as outlined on page 38.
Workforce Engagement
In line with the requirements of the Code, the Committee is also responsible
for engaging with the workforce on behalf of the Board. During 2021, we
further evolved our workforce engagement with the introduction of direct
engagement. These opportunities for us to directly engage during 2021
were possible despite the ongoing COVID-19 pandemic although they
were primarily virtual in nature. Some of the topics considered during the
engagement sessions included Health, Safety & Wellbeing, MyVoice,
Female Engagement, Management of COVID-19, Workplace Satisfaction
and Career Development. In addition to direct engagement, indirect
engagement continued in 2021 including the Speak Up programme,
an Employee Engagement Survey, collated Health and Safety data, and
Training and Development programmes for employees. For further details
on employee engagement, see pages 46 to 47.
Looking Ahead
This Committee will continue to provide direction and overall strategic
guidance as the Group continues its sustainability journey in 2022. There are
many projects in the areas of Planet, People and Impactful Business which
will be delivered in 2022 and beyond.
The Committee is encouraged by the progress the Group has made so far
and we look forward to reporting on our continued progress to all of our
stakeholders in the years ahead.
Jørgen Buhl Rasmussen
Chair of the Sustainability Committee
SUSTAINABILITY COMMITTEE REPORT CONTINUED
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Overview Strategic Report Governance Financial Statements Supplementary Information
Directors
The current members of the Board of Directors are named on pages 78 to 81
together with a short biographical note on each Director.
Any Director co-opted to the Board by the Directors is subject to election
by the shareholders at the first AGM after their appointment. Pursuant to
the Articles of Association of the Company, all Directors are subject to
re-election at intervals of no more than three years. However, in compliance
with the Code, all Directors will retire at the 2022 AGM and put themselves
forward for re-election.
To enable shareholders to make an informed decision on re-election of each
Director, reference should be made to pages 78 to 81 which contains a
biographical note on each Director offering themselves for re-election and
to the Notice of the AGM which explains why the Board believes the relevant
Directors should be re-elected. The Directors intend to confirm at the AGM
that the performance of each individual seeking re-election continues to be
effective and demonstrates commitment to the role.
Shareholders are referred to the information contained in the Corporate
Governance Statement on pages 82 to 87 concerning the operation of the
Board and the composition and functions of the Committees of the Board.
Directors’ and Secretary’s Interests
Details of the Directors’ and Group Secretary’s interests in the share capital
are set out in the Remuneration Report on pages 106, 107 and 109 and are
incorporated into this Directors’ Report.
Principal Risks and Uncertainties
Under Irish company law (Section 327 of the Companies Act), the Directors
are required to give a description of the principal risks and uncertainties
which the Group faces. These principal risks and uncertainties are set out
on pages 36 to 38, and form part of this report as required by Section 327
of the Companies Act.
Corporate Governance
Under Section 1373 of the Companies Act, the Directors’ Report is required
to include a Corporate Governance Statement. The Directors’ Corporate
Governance Statement is set out on pages 82 to 87 and forms part of this
report. The Audit Committee Report, the Remuneration Report and the
Nomination Report are set out on pages 88 to 112.
Subsidiary and Associated Undertakings
A list of the Group’s principal subsidiaries and associates as at
31 December 2021 is set out in Note 33 to the Consolidated
Financial Statements.
Audit Committee
The Group has established an Audit Committee. The responsibilities
of the Audit Committee are outlined on page 88.
Report of the Directors
The Directors submit their Report and Audited Financial Statements for
the financial year ended 31 December 2021.
Principal Activity and Business Review
The Group is an integrated paper and paperboard manufacturer and
converter whose operations are divided into Europe and the Americas.
Geographically, the major economic environments in which the Group
conducts its business are Europe (principally the Eurozone, Sweden and
the United Kingdom) and the Americas (principally Argentina, Brazil,
Colombia, Mexico and the United States).
The Chair’s Statement, Group Chief Executive Officer’s Statement, Strategy
Statement, Finance Review (including financial risk management policies),
Stakeholder Engagement, Sustainability Report and People Report on
pages 18 to 29 and pages 39 to 75. report on the performance of the Group
during the year and on future developments.
Results for the Year
The results for the year are set out in the Consolidated Income Statement
on page 126.
Financial Key Performance Indicators are set out on pages 30 to 32.
The Consolidated Financial Statements for the financial year ended
31 December 2021 are set out in detail on pages 126 to 189.
Dividends
In May 2021, a final dividend of 87.4 cent per share was paid to holders of
ordinary shares, and in October 2021, an interim dividend of 29.3 cent per
share was paid to holders of ordinary shares. The Board is recommending
a final dividend of 96.1 cent per share for 2021. Subject to shareholders’
approval at the AGM on 29 April 2022, it is proposed to pay the final dividend
on 6 May 2022 to all holders of ordinary shares on the share register at the
close of business on 8 April 2022.
Research and Development
The Company’s subsidiaries are engaged in ongoing research and
development aimed at providing innovative paper-based packaging
solutions and improving products, processes and expanding product
ranges. Expenditure on research and development in the year amounted
to €7 million (2020: €8 million).
Accounting Records
The Directors are responsible for ensuring that adequate accounting
records, as outlined in Section 281–286 of the Companies Act, are kept
by the Company. The Directors are also responsible for the preparation of
the Annual Report. The Directors have appointed professionally qualified
accounting personnel with appropriate expertise and have provided
adequate resources to the finance function in order to ensure that those
requirements are met. The accounting records of the Company are
maintained at the Group’s principal executive offices, located at Beech Hill,
Clonskeagh, Dublin 4, D04 N2R2.
DIRECTORS’ REPORT
Substantial Holdings
31 December 2021 10 March 2022
Number of Shares
% of Issued
Ordinary Share
Capital
Number of
Shares
% of Issued
Ordinary Share
Capital
BlackRock, Inc 14,583,732 5.63% 18,235,675 7.01%
Norges Bank 12,141,164 4.69% 12,141,164 4.67%
The table above shows all notified shareholdings of 3% or more of the issued ordinary share capital of the Company as at 31 December 2021 and
10 March 2022.
116
Smurfit Kappa Annual Report 2021
Purchase of Own Shares
Special resolutions will be proposed at the AGM to renew the authority of the
Company, or any of its subsidiaries, to purchase up to 10% of the Company’s
ordinary shares in issue at the date of the AGM and in relation to the
maximum and minimum prices at which treasury shares (effectively shares
purchased by the Company and not cancelled) may be re-issued off-market
by the Company. If granted, the authority will expire on the earlier of the date
of the AGM in 2023 or 28 July 2023.
A similar authority was granted at the AGM in 2021, which is due to expire
on the earlier of the date of the AGM in 2022 or 29 July 2022. Information
on the acquisition and disposal of own shares is set out in Note 23 to the
Consolidated Financial Statements.
Change of Control
On a change of control following a bid, the lenders under the RCF would have
the option to cancel the commitments under the facility and/or to declare all
outstanding amounts immediately due and payable, and under the Senior
Notes Indentures the Group is obliged to offer to repurchase the notes at
101% of the principal amount due.
Capital Structure
Details of the structure of the Company’s capital are set out in Note 23 to
the Consolidated Financial Statements and are deemed to form part of this
Directors’ Report. Details of the Group’s long-term incentive plans are set
out in the Remuneration Report and Note 26 to the Consolidated Financial
Statements and are incorporated into this Directors’ Report.
Directors’ Compliance Statement
The Directors acknowledge that they are responsible for securing
compliance by the Company of its relevant obligations as set out in the
Companies Act (the ‘Relevant Obligations’).
The Directors further confirm that there is a Compliance Policy Statement in
place setting out the Company’s policies which, in the Directors’ opinion, are
appropriate to ensure compliance with the Company’s Relevant Obligations.
Non-financial Information
Pursuant to the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 together
with the Commission Delegated Regulation supplementing Article 8 of the Taxonomy Regulation, (the ‘Non-Financial Regulations’), the Group is required to
report certain non-financial information to provide an understanding of its development, performance, position and the impact of its activities. We have set
out the location below of the information required by the Non-Financial Regulations in this Annual Report. Each referenced section of the Annual Report is
deemed to form part of this Directors’ Report:
Requirement Relevant Policies Section(s) in Annual Report Pages
Environmental Matters Environmental Policy, Sustainable Sourcing Policy, Sustainable
Forestry and Fibre Sourcing Policy
Sustainability 48 to 63
Social Matters Social Citizenship Policy Sustainability, People 48 to 75
Employee Matters Code of Conduct, Health and Safety Policy, Social Citizenship Policy Sustainability, People 48 to 75
Human Rights Code of Conduct, Social Citizenship Policy Sustainability 48 to 63
Anti-corruption and Bribery Code of Conduct Sustainability 48 to 63
Business Model Our Business Model 26 to 27
Principal Risks Risk Report 34 to 38
Non-financial KPIs Key Performance Indicators 32 to 33
EU Taxonomy eligibility Sustainability 48 to 63
In addition to the information required by the Non-Financial Regulations, the Group publishes a comprehensive, assured Sustainable Development Report
which details our sustainability strategy, corporate social responsibilities and commitments to social matters. The 2021 Sustainable Development Report
will be published on our website in April 2022.
The Directors also confirm that appropriate arrangements and structures
are in place which, in the Directors’ opinion, are designed to secure material
compliance with the Company’s Relevant Obligations. For the financial year
ended 31 December 2021, the Directors, with the assistance of the Audit
Committee, have conducted a review of the arrangements and structures
in place. In discharging their responsibilities under Section 225 of the
Companies Act, the Directors relied on the advice of persons who the
Directors believe have the requisite knowledge and experience to advise
the Company on compliance with its Relevant Obligations.
Financial Instruments
In the normal course of business, the Group has exposure to a variety
of financial risks, including foreign currency risk, interest rate risk, liquidity
risk, refinancing risk and credit risk. The Group and Company financial
risk objectives and policies are set out in Note 29 to the Consolidated
Financial Statements.
Disclosure of Information to the External Auditor
Each of the Directors individually confirm that:
• In so far as they are aware, there is no relevant audit information of which
the Company’s External Auditor is unaware; and
• They have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information
and to establish that the Company’s External Auditor is aware of
such information.
External Auditor
KPMG, Chartered Accountants, were first appointed statutory auditors on
4 May 2018 and have been reappointed annually since that date and pursuant
to section 383(2) will continue in office.
A. Smurfit K. Bowles
Director Director
16 March 2022
DIRECTORS’ REPORT CONTINUED
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Overview Strategic Report Governance Financial Statements Supplementary Information
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Responsibility Statement as Required by the Transparency
Directive and UK Corporate Governance Code
Each of the Directors, whose names and functions are listed on pages 78
to 81 of this Annual Report, confirm that, to the best of each person’s
knowledge and belief:
• The Group Financial Statements, prepared in accordance with IFRS (as
adopted by the European Union) and the Company Financial Statements
prepared in accordance with IFRS (as adopted by the European Union)
as applied in accordance with the provisions of Companies Act 2014,
give a true and fair view of the assets, liabilities, and financial position of
the Group and Company at 31 December 2021 and of the profit or loss
of the Group for the year then ended;
• The Directors’ Report contained in the Annual Report includes a fair
review of the development and performance of the business and the
position of the Group and Company, together with a description of the
principal risk and uncertainties that they face; and
• The Annual Report and Financial Statements, taken as a whole, provides
the information necessary to assess the Group’s performance, business
model and strategy and is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
On behalf of the Board
A. Smurfit K. Bowles
Director Director
16 March 2022
The Directors are responsible for preparing the Annual Report and the
Group and Company Financial Statements, in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group and Company
Financial Statements for each financial year. The Directors are required to
prepare the Group Financial Statements in accordance with International
Financial Reporting Standards (‘IFRS’) as adopted by the European Union and
applicable law including Article 4 of the IAS Regulation. The Directors have
elected to prepare the Company Financial Statements in accordance with
IFRS as adopted by the European Union as applied in accordance with the
provisions of Companies Act 2014.
Under company law, the Directors must not approve the Group and
Company Financial Statements unless they are satisfied that they give a true
and fair view of the assets, liabilities and financial position of the Group and
Company and of the Group’s profit or loss for that year. In preparing each of
the Group and Company Financial Statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether applicable IFRS (as adopted by the European Union) have
been followed, subject to any material departures disclosed and
explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and its Parent Company will
continue in business.
The Directors are also required by the Transparency (Directive 2004/109/
EC) Regulations 2007 and the Central Bank (Investment Market Conduct)
Rules 2019 to include a management report containing a fair review of the
business and a description of the principal risks and uncertainties facing
theGroup.
The Directors are responsible for keeping adequate accounting records
which disclose with reasonable accuracy at any time the assets, liabilities,
financial position and profit or loss of the Company and which enable them
to ensure that the Financial Statements of the Company comply with the
provisions of the Companies Act 2014. The Directors are also responsible for
taking all reasonable steps to ensure such records are kept by its subsidiaries
which enable them to ensure that the Financial Statements of the Group
comply with the provisions of the Companies Act 2014 including Article 4 of
the IAS Regulation. They are responsible for such internal controls as they
determine necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibilities for safeguarding the assets of the Company and the
Group, and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are also responsible for preparing a Directors’ Report that
complies with the requirements of the Companies Act 2014.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Group’s and Company’s
website. Legislation in the Republic of Ireland concerning the preparation
and dissemination of financial statements may differ from legislation in
otherjurisdictions.
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Smurfit Kappa Annual Report 2021
DYNAMICALLY & SUSTAINABLY DELIVERING
Capacity
600kt
per annum
Investment
€360
million
Acquisition of a State-of-the-art
Containerboard Mill in Northern Italy
We completed the acquisition of Verzuolo for a purchase
price of €360 million in October 2021.
The PM9 machine in Verzuolo was converted
into a state-of-the-art 600,000 tonne recycled
containerboard machine in 2019. It is highly
complementary with our existing operations, is
strategically located close to the port of Savona
and is expected to deliver significant benefits for
both the Group and our customer base.
Smurfit Kappa Group CEO, Tony Smurfit, said:
"We are pleased to complete this acquisition
ahead of schedule. Verzuolo brings a highly
experienced and skilled team providing additional
security of supply for SKG’s customers. As we
continue to invest in our corrugated facilities,
Verzuolo strengthens the Group’s integrated
model and supports our sustainability ambitions."
Strengthening Our Integrated Model
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Overview Strategic Report Governance Financial Statements Supplementary Information
Financial Statements 118-189
Independent Auditor’s Report 120
Consolidated Income Statement 126
Consolidated Statement of
Comprehensive Income 127
Consolidated Balance Sheet 128
Company Balance Sheet 129
Consolidated Statement of
Changes in Equity 130
Company Statement of Changes
in Equity 131
Consolidated Statement of Cash Flows 132
Company Statement of Cash Flows 133
Notes to the Consolidated
Financial Statements 134
Financial
Statements
120
Smurfit Kappa Annual Report 2021
Report on the Audit of the Financial Statements
Opinion
We have audited the Financial Statements of Smurfit Kappa Group plc (‘the Company’) and its consolidated undertakings (together ‘the Group’) for the year
ended 31 December 2021 contained within the reporting package 635400CPLP8H5ITDVT56-2021-12-31-en.zip which comprise the Consolidated Income
Statement, Consolidated Statement of Comprehensive Income, Consolidated and Company Balance Sheets, Consolidated and Company Statements of
Changes in Equity, Consolidated and Company Statements of Cash Flows, and the related notes, including the Summary of Significant Accounting Policies
set out in Note 2. The financial reporting framework that has been applied in their preparation is Irish Law, including the Commission Delegated Regulation
2018/815 regarding the single electronic reporting format (‘ESEF’) and International Financial Reporting Standards (‘IFRS’) as adopted by the European Union
and, as regards the Company Financial Statements, as applied in accordance with the provisions of the Companies Act 2014.
In our opinion:
• The Financial Statements give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2021 and
of the Group’s profit for the year then ended;
• The Group Financial Statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• The Company Financial Statements have been properly prepared in accordance with IFRS as adopted by the European Union, as applied in accordance
with the provisions of the Companies Act 2014; and
• The Group and Company Financial Statements have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as
regards the Group Financial Statements, Article 4 of the IAS Regulation.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (‘ISAs (Ireland)’) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities section of our report. We believe that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.
We were appointed as auditor by the shareholders on 4 May 2018. The period of total uninterrupted engagement is the four years ended 31 December 2021.
We have fulfilled our ethical responsibilities under, and we remained independent of the Group in accordance with, ethical requirements applicable in Ireland,
including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (‘IAASA’) as applied to public interest entities. No non-audit
services prohibited by that standard were provided.
Conclusions Relating to Going Concern
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the Financial
Statements is appropriate.
We evaluated the Directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of accounting. In our evaluation
of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model and analysed how those risks might affect
the Group’s and Company’s financial resources or ability to continue operations over the going concern period. We incorporated additional downside
sensitivities to management’s underlying cash flow models. There were no risks identified that we considered were likely to have a material adverse effect
on the Group’s and Company’s available financial resources over this period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or the Company’s ability to continue as a going concern for a period of at least twelve months from the date when the
Financial Statements are authorised for issue.
In relation to the Group’s and the Company’s reporting on how they have applied the UK Corporate Governance Code and the Irish Corporate Governance
Annex, we have nothing material to add or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMURFIT KAPPA GROUP PLC
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Overview Strategic Report Governance Financial Statements Supplementary Information
Key Audit Matters: Our Assessment of Risks of Material Misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the Financial Statements and include the
most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, and which were unchanged from 2020, were as follows:
Goodwill Impairment Assessment €2,511 million (2020 – €2,344 million)
Refer to Note 2 (accounting policy) and Note 13 (financial disclosures)
The Key Audit Matter How the Matter Was Addressed in our Audit
The Group has significant goodwill arising from acquisitions amounting
to €2,511 million at 31 December 2021.
Goodwill is required to be tested at least annually for impairment irrespective
of whether there are indicators of impairment. The Group has performed an
impairment assessment as of 31 December 2021. The goodwill is allocated
to 16 groups of cash-generating units (‘CGUs’) – three of which individually
account for between 10% and 20% of the total carrying amount.
The recoverable amount of goodwill is arrived at by forecasting and
discounting future cash flows to determine value-in-use for each CGU.
We focus on this area due to the significance of the balance compared to
total assets of the Group and the inherent judgement and assumptions
involved in forecasting future cash flows, including revenue growth, cost
synergies, paper pricing, discount rates and terminal values.
We obtained and documented our understanding of the process followed
by management in calculating the recoverable amount of each CGU.
We assessed the Group’s valuation models and calculations by:
• Checking the mathematical accuracy of the model;
• Assessing the methodology applied within the model in the context
of the requirements of the relevant accounting standard;
• Assessing and challenging the appropriateness of the discount rates
applied and the future operating cash flow assumptions in determining
the value-in-use of each CGU using our valuation specialist and by
comparing the assumptions, where possible, to externally derived data
as well as our own assumptions;
• Assessing and challenging the reasonableness of the long-term
economic growth rate applied for each CGU by comparing the Group’s
assumptions, where possible, to externally derived data as well as our
own assumptions; and
• Comparing the Group’s market capitalisation to the carrying value of the
Group’s net assets.
We assessed the disclosures in the Financial Statements relating to the
impairment testing methodology, sensitivity analysis and other matters.
We found that management’s judgements were appropriate and supported
by reasonable assumptions. We found the disclosures to beadequate.
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Smurfit Kappa Annual Report 2021
Key Audit Matters: Our Assessment of Risks of Material Misstatement continued
Defined Benefit Pension Liability – Valuation of €630 million (2020 – €853 million)
Refer to Note 2 (accounting policy) and Note 25 (financial disclosures)
The Key Audit Matter How the Matter Was Addressed in our Audit
The Group operates a number of defined benefit pension schemes.
Accounting for such schemes gives rise to an element of judgement and
volatility arising from movements in actuarial assumptions and the selection
of same across the Group.
We focus on this area due to the level of estimation uncertainty involved and
the sensitivity of the pension liabilities to changes in assumptions applied,
in particular the discount rate.
We obtained and documented our understanding of the process for the
accounting for defined benefit pension schemes and tested the design
and implementation of the relevant controls.
We inquired as to any changes or proposed changes to pension
arrangements to assess any impact on the accounting treatment applied.
We inspected Board minutes to identify any items arising that may impact
on the pension arrangements in place.
We performed substantive testing on the key data underlying the actuarial
assessment and the maintenance of each scheme’s membership data.
We challenged, with the support of our actuarial specialist, the assumptions
applied to this data to determine the Group’s gross obligation, being the
discount rates, inflation rate and mortality/life expectancies. This included
a comparison of these assumptions against externally derived data. We also
considered the adequacy of the Group’s disclosures in respect of the
sensitivity of the net deficit to these assumptions.
We found the assumptions used in, and the resulting estimate of, the
valuation of the defined benefit pension liability within the Group to be
reasonable and the related disclosures to be adequate.
Company Key Audit Matter
Investment in Subsidiaries – Carrying Value €2,915 million (2020 – €2,872 million)
Refer to Note 2 (accounting policy) and Note 14 (financial disclosures)
The Key Audit Matter How the Matter Was Addressed in our Audit
The investment in subsidiary undertakings is carried in the Balance Sheet
of the Company at cost less impairment. There is a risk in respect of the
carrying value of these investments if future cash flows and performance of
these subsidiaries is not sufficient to support the Company’s investments.
We focus on this area due to the significance of the balance to the Company
Balance Sheet and the inherent uncertainty involved in forecasting and
discounting future cash flows.
We obtained and documented our understanding of the process
surrounding impairment considerations and tested the design and
implementation of the relevant controls therein.
We considered management’s assessment of impairment indicators.
We compared the carrying value of investments in the Company’s Balance
Sheet to the net assets of the subsidiary Financial Statements and to the
market capitalisation of the Company.
We considered the audit work performed over the impairment testing
of goodwill as outlined in the Group Key Audit Matter above.
We found management’s assessment of the carrying value of the
investment in subsidiary undertakings to be appropriate.
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF SMURFIT KAPPA GROUP PLC
123
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Our Application of Materiality and an Overview of the Scope of our Audit
Materiality
The materiality for the Group Financial Statements as a whole was set at €36 million (2020: €31 million). This has been calculated based on the Group EBITDA
of €1,702 million (2020: €1,510 million) of which it represents approximately 2.1% (2020: 2.1%). In determining that EBITDA was the most appropriate
benchmark, we considered the prevalence of EBITDA as a measure of performance for the Group and the wider industry within analyst reports, industry
commentaries and investor communications. We considered the determined materiality in the context of other commonly used benchmarks including
pre-exceptional profit before tax, revenue and net assets and determined materiality of €36 million to be reasonable.
We report to the Audit Committee all corrected and uncorrected misstatements we identified through our audit in excess of €1 million (2020: €1 million),
in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.
Materiality for the Company Financial Statements as a whole was set at €29 million (2020: €21 million) determined with reference to a benchmark of the
Company’s total assets of which it represents 0.9% (2020: 1%).
Scoping
The scope of our audit was influenced by materiality, tailored to reflect the Group’s structure, activities and financially significant operations. The Group
is structured across two operating segments, Europe and the Americas. The operations of the Group are significantly disaggregated, split across a large
number of operating plants in 36 countries. Reporting components are considered by individual operating plants, a combination of plants or on a
geographical basis.
We used materiality in our scoping procedures to identify those reporting units for which we deemed that a complete financial audit was required, due to size,
potential risks identified and to ensure appropriate coverage. We also subjected certain reporting units to specified risk-focused audit procedures. Such
reporting units were not individually financially significant enough to require a full scope audit for Group purposes but did present specific individual risks to be
addressed. The reporting units identified amounted to 91% (2020: 88%) of the Group’s EBITDA, 77% (2020: 78%) of the Group’s revenue, and 77% (2020:
83%) of the Group’s total assets.
The approach to the audit scoping is consistent with that applied in previous years with some components subject to rotational scoping to introduce a level
of unpredictability.
Involvement with Component Teams
In establishing our overall audit approach to the Group audit, we determined the type of work to be undertaken across the Group’s components. The Group
audit team interacted regularly with the local KPMG component audit teams during each stage of the audit, as set out below. The Group audit team instructed
component auditors as to the significant areas to be addressed, including the relevant risks detailed above, and the information to be reported to the Group
audit team and was responsible for the overall scope and direction of the audit process.
The Group audit team approved the materiality for components, which ranged from €1.7 million to €7.8 million (2020: €1.6 million to €7.6 million), having
regard to the mix of size and risk profile of the components across the Group. The work on all components was performed by component auditors and the
audit of the Company was performed by the Group team. For the residual components, we performed analysis at an aggregated Group level to re-examine
our assessment that there were no significant risks of material misstatement within these components.
We maintained continuous and open dialogue with the component audit teams in addition to holding formal meetings to ensure that we were fully aware
of their progress and results of their procedures. Due to the restrictions on travel across many jurisdictions, enacted as a response to the continuing
global pandemic, these communications and meetings were held virtually using video and telephone conference meetings. At these meetings, a review of
workpapers was undertaken by the Group audit team using technology and share-screen functionality, we used materiality to assist us in determining the
scope of these reviews, and the findings reported to the Group audit team by the component auditor were discussed in detail. Audit closing meetings with
Group and local management were primarily carried out virtually with some meetings taking place in person where restrictions allowed.
Other Information
The Directors are responsible for the preparation of the other information presented in the Annual Report together with the Financial Statements. The other
information comprises the information included in the Directors’ report and the Overview, Strategic Report and Governance sections of the Annual Report.
The Financial Statements and our auditor’s report thereon do not comprise part of the other information. Our opinion on the Financial Statements does
notcover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance
conclusionthereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our Financial Statements audit work, the information therein
ismaterially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Based solely on our work on the other information undertaken during the course of the audit, we report that, in those parts of the Directors’ report specified
for our consideration:
• We have not identified material misstatements in the Directors’ report;
• In our opinion, the information given in the Directors’ report is consistent with the Financial Statements; and
• In our opinion, the Directors’ report has been prepared in accordance with the Companies Act 2014.
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Smurfit Kappa Annual Report 2021
Disclosures of Principal Risks and Longer-term Viability
Based on the knowledge we acquired during our Financial Statements audit, we have nothing material to add or draw attention to in relation to:
• The Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated;
• The Directors’ confirmation within the Risk Report on page 34 that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency and liquidity; and
• The Directors’ explanation in the Risk Report of how they have assessed the prospects of the Group, over what period they have done so and why they
considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Other Corporate Governance Disclosures
We are required to address the following items and report to you in the following circumstances:
• Fair, balanced and understandable: if we have identified material inconsistencies between the knowledge we acquired during our Financial Statements
audit and the Directors’ statement that they consider that the Annual Report and Financial Statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
• Report of the Audit Committee: if the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• Statement of compliance with UK Corporate Governance Code: if the Directors’ statement does not properly disclose a departure from provisions of the
UK Corporate Governance Code specified by the Listing Rules of Euronext Dublin and the UK Listing Authority for our review.
• If the Directors’ statement relating to Going Concern required under the Listing Rules of Euronext Dublin and the UK Listing Authority set out on page 35
is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
In addition as required by the Companies Act 2014, we report, in relation to information given in the Corporate Governance Statement on pages 82 to 87 that:
• Based on the work undertaken for our audit, in our opinion, the description of the main features of internal control and risk management systems in
relation to the financial reporting process, and information relating to voting rights and other matters required by the European Communities (Takeover
Bids (Directive 2004/EC) Regulations 2006) and specified for our consideration, is consistent with the Financial Statements and has been prepared in
accordance with the Act;
• Based on our knowledge and understanding of the Group and its environment obtained in the course of our audit, we have not identified any material
misstatements in that information; and
• The Corporate Governance Statement contains the information required by the European Union (Disclosure of Non-Financial and Diversity Information
by certain large undertakings and groups) Regulations 2017.
We also report that, based on work undertaken for our audit, the information required by the Act is contained in the Corporate Governance Statement.
Our Opinions on Other Matters Prescribed by the Companies Act 2014 are Unmodified
We have obtained all the information and explanations which we consider necessary for the purpose of our audit.
In our opinion, the accounting records of the Company were sufficient to permit the Financial Statements to be readily and properly audited and the
Financial Statements are in agreement with the accounting records.
We Have Nothing to Report on Other Matters on Which we are Required to Report by Exception
The Companies Act 2014 requires us to report to you if, in our opinion:
• The disclosures of Directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made;
• The Company has not provided the information required by Section 1110N in relation to its Remuneration Report for the financial year
31 December2020;
• The Company has not provided the information required by section 5(2) to (7) of the European Union (Disclosure of Non-Financial and Diversity
Information by certain large undertakings and groups) Regulations 2017 for the year ended 31 December 2020 as required by the European Union
(Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) (amendment) Regulations 2018.
We have nothing to report in this regard.
The Listing Rules of Euronext Dublin and the UK Listing Authority require us to review:
• The Directors’ Statement, set out on pages 34 to 35, in relation to going concern and longer-term viability;
• The part of the Corporate Governance Statement on pages 82 to 87 relating to the Company’s compliance with the provisions of the UK Corporate
Governance Code and the Irish Corporate Governance Annex specified for our review; and
• Certain elements of disclosures in the report to shareholders by the Remuneration Committee.
We have nothing to report in this regard.
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF SMURFIT KAPPA GROUP PLC
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Overview Strategic Report Governance Financial Statements Supplementary Information
Respective Responsibilities and Restrictions on Use
Directors’ Responsibilities
As explained more fully in their statement set out on page 117, the Directors are responsible for: the preparation of the Financial Statements including being
satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements that are
free from material misstatement, whether due to fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other
irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the Financial Statements. The risk of not detecting a material misstatement resulting from fraud or other irregularities is higher
than for one resulting from error, as they may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control and may
involve any area of law and regulation and not just those directly affecting the Financial Statements.
A fuller description of our responsibilities is provided on IAASA’s website at http://www.iaasa.ie/Publications/Auditing-standards/International-Standards-
on-Auditing-for-use-in-Ire/Description-of-the-auditor-s-responsibilities-for.
The Purpose of Our Audit Work and to whom we Owe Our Responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been
undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members,
as a body, for our audit work, for our report, or for the opinions we have formed.
Roger Gillespie
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place
St. Stephen’s Green
Dublin 2
Ireland
16 March 2022
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Smurfit Kappa Annual Report 2021
2021 2020
Note
Pre-
exceptional
€m
Exceptional
€m
Total
€m
Pre-
exceptional
€m
Exceptional
€m
Total
€m
Revenue 4 10, 107 – 10 ,107 8 , 530 – 8 , 530
Cost of sales 5 (7, 0 1 5 ) – (7, 0 1 5 ) (5 ,65 6 ) – (5 ,65 6 )
Gross profit 3,0 92 – 3,0 92 2 , 8 74 – 2 , 8 74
Distribution costs 5 (82 3 ) – (8 23 ) (72 5 ) – (72 5 )
Administrative expenses 5 (1 ,19 6 ) – (1 , 19 6 ) (1,227 ) – (1, 227 )
Other operating expenses 5 – – – – (31 ) (31 )
Operating profit 1, 073 – 1, 073 92 2 (31 ) 891
Finance costs 7 (14 8 ) (31 ) (179 ) (179 ) – (17 9 )
Finance income 7 17 – 17 35 – 35
Share of associates’ profit (after tax) 2 – 2 1 – 1
Profit before income tax 944 (31 ) 913 779 (31 ) 74 8
Income tax expense 8 (234 ) (2 01 )
Profit for the financial year 679 547
Attributable to:
Owners of the parent 679 545
Non-controlling interests – 2
Profit for the financial year 679 5 47
Earnings per share
Basic earnings per share – cent 9 263. 9 227 .9
Diluted earnings per share – cent 9 2 61. 1 225 .7
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
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Overview Strategic Report Governance Financial Statements Supplementary Information
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
Note
2021
€m
2020
€m
Profit for the financial year 679 547
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Foreign currency translation adjustments:
Arising in the financial year 14 (16 5 )
Recycled to Consolidated Income Statement 1 1
Effective portion of changes in fair value of cash flow hedges:
Movement out of reserve (3 ) 1
Fair value gain on cash flow hedges – 6
Related tax 8 – (1 )
Changes in fair value of cost of hedging:
Movement out of reserve (1 ) (1 )
New fair value adjustments into reserve – 1
Items which will not be subsequently reclassified to profit or loss
Defined benefit pension plans:
Actuarial gain/(loss) 25 17 7 (9 )
Related tax 8 (32 ) 7
Total other comprehensive income/(expense) 156 (16 0 )
Total comprehensive income for the financial year 835 387
Attributable to:
Owners of the parent 835 38 8
Non-controlling interests – (1 )
Total comprehensive income for the financial year 835 387
128
Smurfit Kappa Annual Report 2021
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2021
Note
2021
€m
2020
€m
ASSETS
Non-current assets
Property, plant and equipment 11 4 ,265 3 , 839
Right-of-use assets 12 34 6 311
Goodwill and intangible assets 13 2 ,722 2 ,552
Other investments 14 11 11
Investment in associates 15 13 12
Biological assets 16 103 107
Other receivables 19 26 28
Derivative financial instruments 29 2 –
Deferred income tax assets 17 149 17 2
Current assets
Inventories 18 1,046 773
Biological assets 16 10 11
Trade and other receivables 19 2 , 137 1, 535
Derivative financial instruments 29 8 38
Restricted cash 22 14 10
Cash and cash equivalents 22 855 8 91
Total assets 11 , 7 0 7 10, 2 9 0
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital 23 – –
Share premium 23 2 ,646 2,6 46
Other reserves 23 26 0 207
Retained earnings 1, 473 917
Total equity attributable to owners of the parent 4 , 379 3 ,770
Non-controlling interests 33 13 13
Total equity 4, 392 3 ,78 3
LIABILITIES
Non-current liabilities
Borrowings 24 3, 589 3 ,1 22
Employee benefits 25 630 853
Derivative financial instruments 29 7 17
Deferred income tax liabilities 17 175 191
Non-current income tax liabilities 17 14
Provisions for liabilities 27 35 50
Capital grants 24 21
Other payables 28 11 9
Current liabilities
Borrowings 24 16 5 154
Trade and other payables 28 2, 563 1, 835
Current income tax liabilities 27 7
Derivative financial instruments 29 14 13
Provisions for liabilities 27 58 221
Total liabilities 7, 3 1 5 6 , 5 07
Total equity and liabilities 11 , 7 0 7 10, 2 9 0
A. Smurfit K. Bowles
Director Director
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Overview Strategic Report Governance Financial Statements Supplementary Information
COMPANY BALANCE SHEET
AT 31 DECEMBER 2021
Note
2021
€m
2020
€m
ASSETS
Non-current assets
Financial assets 14 2,915 2,872
2,915 2,872
Current assets
Amounts receivable from Group companies 19 233 256
Cash and cash equivalents – 1
233 257
Total assets 3,148 3,129
EQUITY
Capital and reserves attributable to owners of the parent
Equity share capital 23 – –
Share premium 23 2,646 2,646
Share-based payment reserve 216 173
Retained earnings 283 300
Total equity 3,145 3,119
LIABILITIES
Current liabilities
Trade and other payables 28 – 5
Amounts payable to Group companies 28 3 5
Total liabilities 3 10
Total equity and liabilities 3,148 3,129
A. Smurfit K. Bowles
Director Director
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Smurfit Kappa Annual Report 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
Attributable to Owners of the Parent
Non-
controlling
Interests
€m
Total
Equity
€m
Equity
Share
Capital
€m
Share
Premium
€m
Other
Reserves
*
€m
Retained
Earnings
€m
Total
€m
At 1 January 2021 – 2 ,646 2 07 9 17 3 ,770 13 3,78 3
Profit for the financial year – – – 6 79 679 – 679
Other comprehensive income
Foreign currency translation adjustments – – 15 – 15 – 15
Defined benefit pension plans – – – 145 145 – 14 5
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 year – – 11 824 8 35 – 8 35
Hyperinflation adjustment – – – 34 34 – 34
Dividends paid – – – (30 2 ) (3 02 ) – (302 )
Share-based payment – – 64 – 64 – 64
Net shares acquired by SKG Employee Trust – – (22 ) – (22 ) – (22 )
At 31 December 2021 – 2,646 26 0 1 , 473 4 , 37 9 13 4, 392
At 1 January 2020 – 1,98 6 3 51 61 5 2 ,952 41 2 ,9 93
Profit for the financial year – – – 545 545 2 5 47
Other comprehensive income
Foreign currency translation adjustments – – (161 ) – (161 ) (3 ) (16 4 )
Defined benefit pension plans – – – (2 ) (2 ) – (2 )
Effective portion of changes in fair value of cash flow hedges – – 6 – 6 – 6
Total comprehensive (expense)/income for the financial year – – (15 5 ) 543 388 (1 ) 387
Shares issued – 660 – (1 2 ) 648 – 648
Purchase of non-controlling interests – – (8 ) 12 4 (27 ) (2 3 )
Hyperinflation adjustment – – – 19 19 – 19
Dividends paid – – – (260 ) (26 0 ) – (26 0 )
Share-based payment – – 35 – 35 – 35
Net shares acquired by SKG Employee Trust – – (16 ) – (16 ) – (16 )
At 31 December 2020 – 2, 646 207 917 3 ,770 13 3 ,78 3
*
An analysis of Other Reserves is provided in Note 23.
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Overview Strategic Report Governance Financial Statements Supplementary Information
Equity
Share
Capital
€m
Share
Premium
€m
Share-
based
Payment
Reserve
€m
Retained
Earnings
€m
Total
Equity
€m
At 1 January 2021 – 2,646 173 300 3,119
Profit for the financial year – – – 285 285
Dividends paid – – – (302) (302)
Share-based payment – – 43 – 43
At 31 December 2021 – 2,646 216 283 3,145
At 1 January 2020 – 1,986 154 202 2,342
Profit for the financial year – – – 370 370
Dividends paid – – – (260) (260)
Shares issued – 660 – (12) 648
Share-based payment – – 19 – 19
At 31 December 2020 – 2,646 173 300 3,119
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
132
Smurfit Kappa Annual Report 2021
Note
2021
€m
2020
€m
Cash flows from operating activities
Profit before income tax 91 3 74 8
Adjustment for:
Net finance costs 7 16 2 14 4
Depreciation charge 11, 12 51 3 514
Amortisation of intangible assets 13 40 43
Amortisation of capital grants (3 ) (2 )
Share-based payment expense 26 69 35
Profit on sale of property, plant and equipment (8 ) (2 )
Profit on purchase/disposal of businesses – (4 )
Share of associates’ profit (after tax) (2 ) (1 )
Net movement in working capital 20 (11 4 ) 95
Change in biological assets 16 7 (6 )
Italian Competition Authority fine (124 ) –
Change in employee benefits and other provisions (8 1 ) (7 )
Other (primarily hyperinflation adjustments) 5 6
Cash generated from operations 1 , 377 1, 563
Interest paid (15 2 ) (1 2 2 )
Income taxes paid:
Irish corporation tax (net of tax refunds) paid (21 ) (14 )
Overseas corporation tax (net of tax refunds) paid (218 ) (18 0 )
Net cash inflow from operating activities 986 1, 247
Cash flows from investing activities
Interest received 3 3
Business disposals 33 –
Additions to property, plant and equipment and biological assets (594 ) (4 93 )
Additions to intangible assets 13 (21 ) (21 )
Receipt of capital grants 5 5
(Increase)/decrease in restricted cash (4 ) 4
Disposal of property, plant and equipment 16 5
Dividends received from associates 1 1
Purchase of subsidiaries (net of acquired cash) (413 ) (2 )
Deferred consideration paid (35 ) –
Net cash outflow from investing activities (1,0 09 ) (4 98 )
Cash flows from financing activities
Proceeds from issue of new ordinary shares (net) – 648
Proceeds from bond issuance 999 –
Purchase of own shares (net) (22 ) (16 )
Purchase of non-controlling interests – (2 3 )
Decrease in other interest-bearing borrowings (107 ) (329 )
Repayment of lease liabilities (88 ) (91 )
Repayment of borrowings (4 91 ) –
Derivative termination receipts 9 9
Deferred debt issue costs paid (12 ) (2 )
Dividends paid to shareholders (30 2 ) (26 0 )
Net cash outflow from financing activities (14 ) (6 4 )
(Decrease)/increase in cash and cash equivalents (37 ) 685
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 21 8 76 17 2
Currency translation adjustment 21 (12 ) 19
(Decrease)/increase in cash and cash equivalents 21 (37 ) 685
Cash and cash equivalents at 31 December 21, 22 8 27 8 76
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
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Overview Strategic Report Governance Financial Statements Supplementary Information
Note
2021
€m
2020
€m
Cash flows from operating activities
Profit before income tax 32 285 370
Adjustment for:
(Decrease)/increase in trade and other payables 28 (5) 5
Decrease in amounts payable to Group Companies 28 (2) (5)
Net cash inflow from operating activities 278 370
Cash flows from investing activities
Investment in subsidiaries – (753)
Net cash outflow from investing activities – (753)
Cash flows from financing activities
Decrease/(increase) in amounts receivable from Group Companies 19 23 (4)
Proceeds from issue of new ordinary shares (net) – 648
Dividends paid to shareholders (302) (260)
Net cash (outflow)/inflow from financing activities (279) 384
Movement in cash and cash equivalents (1) 1
Reconciliation of opening to closing cash and cash equivalents
Cash and cash equivalents at 1 January 1 –
Movement in cash and cash equivalents (1) 1
Cash and cash equivalents at 31 December – 1
COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
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Smurfit Kappa Annual Report 2021
1. General Information
the London Stock Exchange and a secondary listing on Euronext Dublin. It is incorporated and domiciled in Ireland
The Consolidated Financial Statements of the Group for the financial year ended 31 December 2021 were authorised for issue in accordance with
a resolution of the Directors on 16 March 2022.
2. Summary of Significant Accounting Policies
The Group has consistently applied the following significant accounting policies to all periods presented, unless otherwise stated.
Statement of Compliance
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) issued by the
International Accounting Standards Board (‘IASB’) as adopted by the European Union (‘EU’), those parts of the Companies Act 2014 applicable to companies
reporting under IFRS and Article 4 of the IAS Regulation. The Company Financial Statements have been prepared in accordance with IFRS adopted by the EU
as applied in accordance with the provisions of the Companies Act 2014. IFRS adopted by the EU differ in certain respects from IFRS issued by the IASB.
References to IFRS hereafter refer to IFRS adopted by the EU.
Basis of Preparation
The Consolidated Financial Statements are presented in euro rounded to the nearest million. They have been prepared under the historical cost convention
except for the following which are recognised at fair value: certain financial assets and liabilities including derivative financial instruments; biological assets;
share-based payments at grant date; pension plan assets; and contingent consideration. The financial statements of subsidiaries whose functional currency
is the currency of a hyperinflationary economy are stated in terms of the measuring unit currency at the end of the reporting period. This is the case for the
Group’s subsidiaries in Argentina.
The preparation of financial statements in accordance with IFRS requires the use of accounting judgements, estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses. The areas involving a higher degree of judgement and areas where assumptions and estimates
are significant are discussed in the Significant Accounting Judgements, Estimates and Assumptions note.
The Consolidated Financial Statements include the information in the Remuneration Report that is described as being an integral part of the Consolidated
Financial Statements.
Impact of COVID-19
The Group has again considered the impact of the COVID-19 pandemic with respect to all judgements and estimates it makes in the application of its
accounting policies. This included assessing the recoverability of trade receivables and inventory. The Group’s customers primarily operate in the FMCG
sector, which has proved resilient during the COVID-19 pandemic to date. There has been no significant deterioration in the aging of trade receivables
or extension of debtor days in the period. As a result of these reviews, there was no material change in the trade receivables or inventory provisions. The
Group also assessed non-financial assets for indicators of impairment. No impairments were identified. The Group tested goodwill for impairment at
31December2021. The impact of COVID-19 was considered when preparing cash flow forecasts for each cash generating unit (‘CGU’). The testing did not
result in an impairment.
Going Concern
The Group is a highly integrated manufacturer of paper-based packaging solutions 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.
The Directors have assessed the principal risks and uncertainties outlined in the Risk Report, which include the deterioration of the current economic
climate due to the COVID-19 pandemic. There has been no significant disruption to our business to date as a result of the pandemic. The Group took into
consideration the potential impact of the pandemic and the effect that it could have on the Group’s financial position and results of operations. The Group
continues to have significant headroom in relation to its financial covenants.
The Group’s diversified funding base and long-dated maturity profile of 5.8 years at 31December2021 provide a stable funding outlook. At 31 December
2021, the Group had a strong liquidity position of approximately €2.52 billion comprising cash balances of €869 million (including €14 million of restricted
cash), undrawn available committed facilities of €1,343 million under its sustainability linked Revolving Credit Facility (‘RCF’) and €312 million under its
sustainability linked securitisation facilities. At 31December 2021, the strength of the Group’s balance sheet, a net debt to EBITDA ratio of 1.7x
(31 December 2020: 1.6x) and its BBB-/BBB-/Baa3 credit rating, continues to secure long-term strategic flexibility.
Having assessed the principal risks facing the Group, together with the Group’s forecasts and significant financial headroom, 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
Consolidated Financial Statements.
New and Amended Standards and Interpretations Effective During 2021
The Group has applied the following standards, interpretations and amendments with effect from 1 January 2021:
• Covid-19-Related Rent Concessions – amendments to IFRS 16; and
• Interest Rate Benchmark Reform – Phase 2 – amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.
The amendments listed above did not result in material changes to the Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
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Overview Strategic Report Governance Financial Statements Supplementary Information
2. Summary of Significant Accounting Policies continued
New and Amended Standards and Interpretations Issued but not yet Effective or Early Adopted
A number of new standards and interpretations have been issued but are not yet effective for the Group. These standards are either not expected to have
a material effect on the Consolidated Financial Statements or they are not currently relevant for the Group.
Basis of Consolidation
The Consolidated Financial Statements include the annual Financial Statements of the Company and all of its subsidiaries and associates, drawn up to
31 December.
Subsidiaries
Subsidiaries are entities controlled by the Group. They are consolidated from the date on which control is obtained by the Group. They are deconsolidated
from the date on which control is lost by the Group. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. Where necessary, the accounting policies of subsidiaries have been
modified to ensure consistency with the policies adopted by the Group. Intragroup transactions, intragroup balances and any unrealised gains and losses
arising from intragroup transactions are eliminated in preparing the Consolidated Financial Statements, except to the extent that such a loss provides
evidence of impairment. The Company’s investments in subsidiaries are carried at cost less impairment.
Non-controlling interests represent the portion of a subsidiary’s equity which is not attributable to the Group. They are presented separately in the
Consolidated Financial Statements. Changes in ownership of a subsidiary which do not result in a change of control are treated as equity transactions.
Associates
Associates are entities in which the Group has significant influence arising from its power to participate in the financial and operating policy decisions of the
investee. Associates are recognised using the equity method from the date on which significant influence is obtained until the date on which such influence
is lost. Under the equity method investments in associates are recognised at cost and subsequently adjusted to reflect the post-acquisition movements in
the Group’s share of the associates’ net assets. The Group profit or loss includes its share of the associates’ profit or loss after tax and the Group’s other
comprehensive income includes its share of the associates’ other comprehensive income. The Group’s investment in associates includes goodwill identified
on acquisition, net of any accumulated impairment losses. Losses in associates are not recognised once the Group’s carrying value reaches zero, except
to the extent that the Group has incurred further obligations in respect of the associate. Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group’s interest in the entity. Unrealised losses are similarly eliminated to the extent that they do not provide evidence of
impairment. Where necessary, the accounting policies of associates are modified to ensure consistency with Group accounting policies.
Revenue
The Group’s revenue is primarily derived from the sale of containerboard, corrugated containers and other paper-based packaging products. All revenue
relates to revenue from contracts with customers. Contracts with customers include a single performance obligation to sell these products and do not
generally contain multiple performance obligations. Revenue comprises the fair value of the consideration receivable for goods sold to third party customers
in the ordinary course of business. It excludes sales based taxes and is net of allowances for volume based rebates and early settlement discounts.
The transaction price is the contracted price with the customer adjusted for volume based rebates and early settlement discounts. Goods are often sold
with retrospective volume rebates based on aggregate sales over a certain period of time and early settlement discounts. Revenue from these sales is
recognised based on the price specified in the contract, net of the estimated rebates and discounts. Accumulated experience is used to estimate and
provide for the rebates and discounts, using the most likely amount method, and revenue is only recognised to the extent that it is highly probable that
a significant reversal will not occur. No element of financing is deemed present as the sales are made with credit terms consistent with market practice and
are in line with normal credit terms in the entities’ country of operation.
Revenue is recognised when control of the goods has transferred to the customer, being when the goods are delivered to the customer and there is no
unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the goods have been shipped to the specific
location, the risks of obsolescence and loss have been transferred to the customer and the customer has accepted the goods in accordance with the sales
contract. For the Group, revenue is recognised at the point in time when delivery to the customer has taken place.
A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time
is required before the payment is due.
Foreign Currency
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which
the entity operates (‘the functional currency’). The Consolidated Financial Statements of the Group are presented in euro which is the presentation currency
of the Group and the functional currency of the Company.
Transactions and Balances
Transactions in foreign currencies are translated into the functional currency of the entity at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into functional currencies at the foreign exchange rate ruling at the reporting
date. Non-monetary assets and liabilities carried at cost are not subsequently retranslated. Non-monetary assets carried at fair value are subsequently
remeasured at the exchange rate at the date of valuation. Foreign exchange differences arising on translation are recognised in profit or loss with the
exception of differences on foreign currency borrowings that qualify as a hedge of the Group’s net investment in foreign operations. The portion of exchange
gains or losses on foreign currency borrowings used to provide a hedge against a net investment in a foreign operation and that is determined to be an
effective hedge is recognised in other comprehensive income. The ineffective portion is recognised immediately in the Consolidated Income Statement.
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FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
2. Summary of Significant Accounting Policies continued
Foreign Currency continued
Group Companies
The assets and liabilities of entities that do not have the euro as their functional currency, including goodwill and fair value adjustments arising on acquisition,
are translated to euro at the foreign exchange rates ruling at the reporting date. Their income, expenses and cash flows are translated to euro at average
exchange rates during the year. However, if a Group entity’s functional currency is the currency of a hyperinflationary economy, that entity’s financial
statements are first restated in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies (see Reporting in Hyperinflationary Economies).
Under IAS 29, income, costs and balance sheet amounts are translated at the exchange rates ruling at the reporting date. All resulting exchange differences
are recognised in other comprehensive income.
On consolidation, foreign exchange differences arising on translation of net investments including those arising on long-term intragroup loans deemed
to be quasi-equity in nature are recognised in other comprehensive income. When a quasi-equity loan ceases to be designated as part of the Group’s net
investment, accumulated currency differences are reclassified to profit or loss only when there is a change in the Group’s proportional interest. On disposal
of a foreign operation, accumulated currency translation differences are reclassified to profit or loss as part of the overall gain or loss on disposal.
Reporting in Hyperinflationary Economies
When the economy of a country in which we operate is deemed hyperinflationary and the functional currency of a Group entity is the currency of that
hyperinflationary economy, the financial statements of such Group entities are adjusted so that they are stated in terms of the measuring unit current at the
end of the reporting period. This involves restatement of income and expenses to reflect changes in the general price index from the start of the reporting
period and restatement of non-monetary items in the balance sheet, such as property, plant and equipment and inventories, to reflect current purchasing
power as at the period end using a general price index from the date when they were first recognised. The gain or loss on the net monetary position for the
year is included in finance costs or income. Comparative amounts are not restated. The restated income, expenses and balance sheets are translated to
euro at the closing rate at the end of the reporting period. Differences arising on translation to euro are recognised in other comprehensive income.
Business Combinations
The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a
business and control is transferred to the Group. Under the acquisition method, the assets, liabilities and contingent liabilities of an acquired business are
initially recognised at their fair value at the date of acquisition; which is the date on which control is transferred to the Group. The cost of a business
combination is measured as the aggregate of the fair values at the date of exchange of any assets transferred, liabilities assumed and equity instruments
issued in exchange for control. In a business combination achieved in stages, the cost includes the acquisition date fair value of any pre-existing equity
interest in the subsidiary. When settlement of all or part of a business combination is deferred, the fair value of the deferred component is determined by
discounting the amounts payable to their present value at the date of exchange. The discount component is unwound as an interest expense in the
Consolidated Income Statement over the life of the obligation. Where a business combination agreement provides for an adjustment to the cost of the
combination which is contingent on future events, the contingent consideration is measured at fair value. Any subsequent remeasurement of the contingent
amount is recognised in the Consolidated Income Statement if it is identified as a financial liability.
When the initial accounting for a business combination is determined provisionally, any adjustments to the provisional values allocated to the identifiable
assets and liabilities are made within twelve months of the acquisition date. Non-controlling interests are measured either, at their proportionate share of
the acquiree’s identifiable net assets or, at fair value as at the acquisition date, on a case by case basis. Acquisition related costs are expensed as incurred.
Where a put option is held by a non-controlling interest in a subsidiary whereby that party can require the Group to acquire the non-controlling interest’s
shareholding in the subsidiary at a future date and the non-controlling interest does not retain present access to the results of the subsidiary, the Group
applies the anticipated acquisition method of accounting to the arrangement. The Group recognises a contingent consideration liability at fair value, being
the Group’s estimate of the amount required to settle that liability, which is included in the consideration transferred. Any subsequent remeasurements
required due to changes in the fair value of the put liability are recognised in the Consolidated Income Statement. Where the Group has a call option over the
shares held by a non-controlling interest in a subsidiary, whereby the Group can require the non-controlling interest to sell its shareholding in the subsidiary
at a future date, the option is classified as a derivative and is recognised as a financial instrument on inception, with fair value movements recognised in the
Consolidated Income Statement.
Goodwill
Goodwill is the excess of the cost of an acquisition over the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities
acquired. When the fair value of the identifiable assets and liabilities acquired exceeds the cost of the acquisition, the values are reassessed and any
remaining gain is recognised immediately in the Consolidated Income Statement. Goodwill is allocated to the groups of CGUs that are expected to benefit
from the synergies of the combination. This is the lowest level at which goodwill is monitored for internal management purposes. After initial recognition,
goodwill is measured at cost less any accumulated impairment losses.
Intangible Assets
These include software development costs as well as marketing and customer related intangible assets generally arising from business combinations.
They are initially recognised at cost which, for those arising in a business combination, is their fair value at the date of acquisition. Subsequently, intangible
assets are carried at cost less any accumulated amortisation and impairment. Cost is amortised on a straight-line basis over their estimated useful lives
which vary from two to twenty years. Carrying values are reviewed for indicators of impairment at each reporting date and are subject to impairment testing
when events or changes in circumstances indicate that the carrying values may not be recoverable. Further information is provided in the Goodwill and
Intangible Assets note.
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Property, Plant and Equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment charges. Cost includes expenditure that is directly
attributable to the acquisition of the assets. Software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any retired
component is derecognised. Other repair and maintenance expenditure that does not meet the asset recognition criteria is expensed in the Consolidated
Income Statement as incurred. Assets are depreciated from the time they are available for use, however land is not depreciated. Depreciation on other
assets is calculated to write off the carrying amount of property, plant and equipment, on a straight-line basis at the following annual rates:
• Buildings: 2 – 5%
• Plant and equipment: 3 – 33%
The estimated residual value and the useful lives of assets are reviewed at each reporting date. Climate change does not have a significant impact on the
assessment of useful lives across the Group, however it is considered on an asset-by-asset basis. Gains and losses on disposals are determined by comparing
the proceeds with the carrying amount. These are included in the Consolidated Income Statement.
Capitalisation of costs in respect of constructing an asset commences when it is probable that future economic benefits associated with the asset will
flow to the Group and the cost of the asset can be measured reliably. Cost includes expenditure that is directly attributable to the construction of the asset.
Construction in progress is not depreciated and is assessed for impairment when there is an indicator of impairment. When these assets are available
for use, they are transferred out of construction in progress to the applicable heading under property, plant and equipment.
Impairment
Goodwill
Goodwill is subject to impairment testing on an annual basis at a consistent time each year and at any time an impairment indicator is considered to exist.
Impairment is determined by comparing the carrying amount to the recoverable amount of the groups of CGUs to which the goodwill relates. The recoverable
amount is the greater of; fair value less costs to sell, and value-in-use. When the recoverable amount of the groups of CGUs is less than the carrying amount,
an impairment loss is recognised.
Where goodwill forms part of a group of CGUs and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of
is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance
is measured on the basis of the relative values of the operation disposed of and the portion of the group of CGUs retained.
In the year in which a business combination occurs, and the goodwill arising affects the goodwill allocation to CGUs, the groups of CGUs are tested for
impairment prior to the end of that year. Impairment losses on goodwill are recognised in the Consolidated Income Statement and are not reversed
followingrecognition.
Impairment of Non-financial Assets
Long-term tangible and intangible assets that are subject to depreciation or amortisation are tested for impairment whenever events or changes in circumstances,
including those relating to climate change, indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the Consolidated
Income Statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value-in-use. When assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows. Non-financial assets that have suffered impairment losses are reviewed for possible reversal of the impairment at each reporting date. The
impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed that which would have been determined had no impairment
been recognised.
Impairment of Financial Assets
For trade receivables, the Group applies the simplified approach permitted by IFRS 9. The Group’s impairment policy is explained in the Trade and Other
Receivables note.
Biological Assets
The Group holds standing timber which is classified as a biological asset and is stated at fair value less estimated costs to sell. Changes in value are
recognised in the Consolidated Income Statement. The fair value of standing timber is calculated using weighted average prices for similar transactions
with third parties. At the time of harvest, wood is recognised at fair value less estimated costs to sell and transferred to inventory. Further information is
provided in the Biological Assets note.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is determined on a first-in, first-out basis and includes
expenditure incurred in acquiring the inventories and bringing them to their present location and condition. Raw materials are valued on the basis of
purchase cost on a first-in, first-out basis. For finished goods and work-in-progress, cost includes direct materials, direct labour and attributable overheads
based on normal operating capacity and excludes borrowing costs. The cost of wood is its fair value less estimated costs to sell at the date of harvest,
determined in accordance with the policy for biological assets. Any change in value at the date of harvest is recognised in the Consolidated Income
Statement. Net realisable value is the estimated proceeds of sale less costs to completion and any costs to be incurred in selling and distribution.
Full provision is made for all damaged, deteriorated, obsolete and unusable materials.
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FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
2. Summary of Significant Accounting Policies continued
Financial Instruments
Trade receivables and debt instruments issued are initially recognised when they are originated. All other financial instruments are recognised when the
Group becomes a party to its contractual provisions. A financial asset (unless it is a trade receivable without a significant financing component) or financial
liability is initially recognised at fair value plus, for an item not at fair value through profit or loss (‘FVPL’), transaction costs that are directly attributable to its
acquisition or issue.
On initial recognition, a financial asset is classified as measured at amortised cost, or fair value through other comprehensive income (‘FVOCI’), or FVPL.
The classification is based on the business model for managing the financial assets and the contractual terms of the cash flows. Reclassification of financial
assets is required only when the business model for managing those assets changes. Financial assets are derecognised when the Group’s contractual rights
to the cash flows from the financial assets expire, are extinguished or transferred to a third party.
Financial liabilities are classified as measured at amortised cost or FVPL. Financial liabilities are derecognised when the Group’s obligations specified in the
contracts expire, are discharged or cancelled. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified
liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial
liability, the difference between the carrying amount extinguished and the consideration paid, (including any non-cash assets transferred or liabilities
assumed) is recognised in profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents comprise; cash balances held to meet short-term cash commitments, and; investments which are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value. Where investments are categorised as cash equivalents, the related balances
have a maturity of three months or less from the date of acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash Flows. Cash and cash
equivalents are stated at amortised cost.
Restricted Cash
Restricted cash comprises cash held by the Group but which is ring-fenced or used as security for specific financing arrangements, and to which the Group
does not have unfettered access. Restricted cash is stated at amortised cost.
Equity Instruments
Equity instruments are measured at fair value with fair value gains and losses recognised in other comprehensive income. Dividend income is recognised
in profit or loss. There is no reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Any gains and losses
will be reclassified within equity from the FVOCI reserve to retained earnings.
Debt Instruments
Listed and unlisted debt instruments are measured at fair value with fair value gains and losses recognised in profit or loss. Interest and dividend income
is recognised in profit or loss.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference
between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the
effective interest method. Fixed rate borrowings, which have been hedged to floating rates are measured at amortised cost adjusted for changes in value
attributable to the hedged risk arising from changes in underlying market interest rates. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least one year after the reporting date.
Securitised Assets
The Group has entered into a series of securitisation transactions involving certain of its trade receivables and the establishment of certain special purpose
entities to effect these transactions. These special purpose entities are consolidated as they are considered to be controlled by the Group. The related
securitised assets continue to be recognised in the Consolidated Balance Sheet.
Trade and Other Receivables
Trade and other receivables (unless it is a trade receivable without a significant financing component) are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less loss allowance. Trade receivables without a significant financing component are initially
measured at the transaction price.
Trade and Other Payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Derivative Financial Instruments and Hedging Activities
The Group uses derivative financial instruments to manage certain foreign currency, interest rate and commodity price exposures. All derivatives are
recognised at fair value. The treatment of changes in fair value depends on whether the derivative is designated as a hedging instrument, the nature of
the item being hedged and the effectiveness of the hedge. The Group designates certain derivatives as follows:
• Hedges of a particular risk associated with a recognised floating rate asset or liability or a highly probable forecast transaction (cash flow hedges);
• Hedges of changes in the fair value of a recognised asset or liability (fair value hedges); and
• Hedges of net investments in foreign operations (net investment hedges).
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Derivative Financial Instruments and Hedging Activities continued
At inception the Group documents the relationship between the hedging instrument and hedged items, its risk management objectives and the strategy
for undertaking the transaction. The Group also documents its assessment of whether the derivative is highly effective in offsetting changes in fair value
or cash flows of hedged items, both at inception and in future periods.
The fair values of various derivative instruments used for hedging purposes are disclosed in the Financial Instruments note. Movements on the cash flow
hedging reserve and cost of hedging reserve in shareholders’ equity are shown in the Capital and Reserves note. The full fair value of a hedging derivative is
classified as a non-current asset or liability when its remaining maturity is more than one year; it is classified as a current asset or liability when its remaining
maturity is less than one year. Non-hedging derivative assets and liabilities are classified as current or non-current based on expected realisation or
settlement dates.
Cash Flow Hedges
Changes in the fair value of derivative hedging instruments designated as cash flow hedges are recognised in other comprehensive income to the extent
that the hedge is effective. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
When designating a foreign exchange derivative contract as a cash flow hedge, the currency basis spread is excluded and accounted for separately as a cost
of hedging, being recognised in a cost of hedging reserve within equity.
Amounts accumulated in other comprehensive income are reclassified to the Consolidated Income Statement in the same periods that the hedged items
affect profit or loss as follows:
• The reclassified gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the Consolidated
Income Statement within finance income or costs respectively.
• When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the
asset when it is recognised. The deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is
discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains there until the forecast transaction
occurs, unless the hedged transaction is no longer expected to occur, in which case the cumulative gain or loss that was previously recognised in other
comprehensive income is transferred to the Consolidated Income Statement.
Fair Value Hedges
Where derivative hedging instruments are designated as fair value hedges, any gain or loss arising from the remeasurement of the hedging instrument to fair
value is reported in the Consolidated Income Statement together with any changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk. When the hedging instrument no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the hedged item is
amortised to the Consolidated Income Statement over the period to maturity.
Net Investment Hedges
Hedges of net investments in foreign operations are accounted for in a similar manner to cash flow hedges. Any gain or loss on the hedging instrument
relating to the effective portion of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised
immediately in the Consolidated Income Statement within finance income or costs respectively. Gains and losses accumulated in other comprehensive
income are reclassified to profit or loss when the foreign operation is sold.
Derivatives not Designated as Hedges
Changes in the fair value of derivatives which are not designated for hedge accounting are recognised in the Consolidated Income Statement.
Fair Value Hierarchy
The Group reports using the fair value hierarchy in relation to its assets and liabilities which are measured at fair value except for those which are exempt
as defined under IFRS 13, Fair Value Measurement. The fair value hierarchy categorises into three levels the inputs to valuation techniques used to measure
fair value, which are described as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly (as prices) or indirectly
(derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of
resources will be required to settle the obligation and the amount can be reliably estimated. If the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks
specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance expense.
A contingent liability is not recognised but is disclosed where the existence of an obligation will only be confirmed by future events or where it is not probable
that an outflow of resources will be required to settle the obligation or where the amount of the obligation cannot be measured with sufficient reliability.
Contingent assets are not recognised but are disclosed where an inflow of economic benefits is probable.
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FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
2. Summary of Significant Accounting Policies continued
Finance Costs and Income
Finance costs comprise interest expense on borrowings (including amortisation of deferred debt issue costs), certain foreign currency translation losses
related to financing, unwinding of the discount on provisions, borrowing extinguishment costs, fair value loss on financial assets, fair value loss on put options
arising in business combinations, net interest cost on net pension liability, net monetary loss arising in hyperinflationary economies, the interest element of
lease payments and losses on derivative instruments that are not designated as hedging instruments and are recognised in profit or loss. Borrowing costs are
recognised in profit or loss using the effective interest method. Borrowing costs that are directly attributable to the acquisition or construction of a qualifying
asset are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an expense in the Consolidated Income Statement.
Finance income comprises interest income on funds invested, certain foreign currency translation gains related to financing, fair value gain on financial
assets, fair value gain on put options arising in business combinations, net monetary gain arising in hyperinflationary economies, gains on derivative
instruments that are not designated as hedging instruments and are recognised in profit or loss and dividend income. Interest income is recognised as
it accrues using the effective interest method. Dividend income is recognised on the date that the Group’s right to receive payment is established.
Income Taxes
The income tax expense recognised in each financial year comprises current and deferred tax and is recognised in the Consolidated Income Statement,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the related tax is similarly
recognised in other comprehensive income or in equity.
Current Income Tax
Current tax consists mainly of the expected tax payable or recoverable on the taxable income for the year using the applicable tax rates during the year
and any adjustment to tax payable in respect of previous years.
Deferred Income Tax
Deferred income tax is provided using the liability method, on temporary differences between the carrying amounts of assets and liabilities in the Consolidated
Financial Statements and their tax bases. If the temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction does not affect accounting nor taxable profit or loss, it is not recognised. Deferred tax is provided on temporary
differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised if they arise from the initial
recognition of goodwill.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are not subject to discounting.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. 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 which is the date at which the asset is made available for use by the Group.
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.
The lease liability is initially measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments
less any lease incentives receivable, variable lease payments that depend on an index or a rate known at the commencement date, payments for a purchase
option, payments for an optional renewal period and termination option payments if the Group is reasonably certain to exercise those options. The lease
term is the non-cancellable period of the lease adjusted for any renewal options which are reasonably certain to be exercised or termination options which
are reasonably certain not to be exercised. Management applies judgement in determining whether it is reasonably certain that a renewal or termination
option will be exercised. 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. Lease liabilities are included in borrowings.
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.
Incremental borrowing rates are determined using a build-up approach that uses externally benchmarked information adjusted to take consideration of
the lessee’s risk profile and the specific lease characteristics. These characteristics include the type of leased asset, the term of the lease and the currency
of the lease.
After the commencement date, the lease liability is measured at amortised cost using the effective interest method. It is remeasured if there is a modification,
a change in future lease payments arising from a change in an index or rate, or if the Group changes its assessment of whether it is reasonably certain to
exercise an option within the contract.
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.
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Retirement Benefit Obligations
The Group operates both defined benefit and defined contribution pension plans throughout its operations in accordance with local conditions and practice.
For defined contribution pension plans, once contributions have been paid, the Group has no further payment obligations. Contributions are recognised
as an employee benefit expense as service is received from employees in the Consolidated Income Statement. Prepaid contributions are recognised as an
asset only to the extent that a cash refund or a reduction in future payments is available.
The defined benefit pension plans are funded by payments to separately administered funds or in certain countries, in accordance with local practices,
scheme liabilities are unfunded and recognised as liabilities in the Consolidated Balance Sheet.
The costs and liabilities of defined benefit pension plans are calculated using the projected unit credit method. Actuarial calculations are prepared by
independent, professionally qualified actuaries at each reporting date. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid,
and that have terms approximating to the terms of the related obligation.
Defined benefit costs are categorised as: (1) service cost; (2) net interest expense or income; and (3) remeasurement. Service cost includes current and past
service cost (which can be negative or positive) as well as gains and losses on settlements; it is included in operating profit. Past service cost is recognised
at the earlier of the date when the plan amendment or curtailment occurs and the date that the Group recognises related restructuring costs. A gain or loss
on settlement is recognised when the settlement occurs. Net interest, included within finance costs, is calculated by applying the discount rate to the net
defined benefit asset or liability at the beginning of the year. Remeasurement is comprised of the return on plan assets (excluding net interest) and actuarial
gains and losses; it is recognised in other comprehensive income in the period in which it arises and is not subsequently reclassified to the Consolidated
Income Statement.
The net surplus or deficit arising on the Group’s defined benefit pension plans, together with the liabilities associated with the unfunded plans, are shown
either within non-current assets or liabilities in the Consolidated Balance Sheet. The defined benefit pension asset or liability comprises the total for each
plan of the present value of the defined benefit obligation less the fair value of plan assets. Fair value of plan assets is based on market price information and
in the case of published securities, it is the published bid price. Any pension asset is limited to the present value of economic benefits available in the form of
refunds from the plans or reductions in future contributions. The deferred tax impact of pension plan surpluses and deficits is disclosed separately within
deferred income tax assets or liabilities, as appropriate.
Share-based Payments
The Group grants equity settled share-based payments to certain employees as part of their remuneration. The fair value of grants is determined at the
date of grant and is expensed in the Consolidated Income Statement over the vesting period with a corresponding increase in equity. Fair value incorporates
the effect of market-based conditions. Non-market-based vesting conditions are only taken into account when assessing the number of awards expected
to vest such that the cumulative expense recognised equates to the number of grants that actually vest. The periodic expense/credit recognised in the
Consolidated Income Statement is calculated as the difference between the cumulative expense as estimated at the start and end of the period.
The cumulative expense is reversed when an employee in receipt of share awards terminates service prior to completion of the vesting period or when
a non-market-based performance condition is not expected to be met. No reversal of the cumulative charge is made where awards do not vest due to
a market-based vesting condition.
Where the Group receives a tax deduction for share-based payments, deferred tax is provided on the basis of the difference between the market price of
the underlying equity at the date of the financial statements and the exercise price of the share award. As a result, the deferred tax impact will not directly
correlate with the expense reported.
Proceeds received from the exercise of awards, net of any directly attributable transaction costs, are credited to the share capital and share
premiumaccounts.
Exceptional Items
The Group has adopted an income statement format which seeks to highlight significant items within the Group results for the year. The Group believes
this format is useful as it highlights one-off items, where significant, such as reorganisation and restructuring costs, profit or loss on disposal of operations,
profit or loss on disposal of assets, impairment of assets, legislative and regulatory fines, defined benefit costs, foreign exchange gains or losses on currency
devaluations, profit or loss on early extinguishment of debt and fair value gains or losses on put options arising in business combinations. Judgement is used
by the Group in assessing the particular items, which by virtue of their nature and size, are disclosed as exceptional items.
Emissions Rights and Obligations
As a result of the European Union Emission Trading Scheme the Group receives free emission rights in certain countries. Rights are received annually and the
Group is required to surrender rights equal to its actual emissions. A provision is only recognised when actual emissions exceed the emission rights granted.
Any additional rights purchased are recognised at cost and they are not subsequently remeasured. Where excess certificates are sold to third parties, the
Group recognises the consideration receivable within cost of sales in the Consolidated Income Statement.
142
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
2. Summary of Significant Accounting Policies continued
Government Grants
Government grants are recognised at their fair value when there is reasonable assurance that the grant will be received and the Group will comply with any
related conditions. Grants that compensate the Group for expenses are offset against the related expense in the Consolidated Income Statement in the
same accounting periods. Grants related to the cost of an asset are recognised in the Consolidated Income Statement over the useful life of the asset within
administrative expenses.
Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax.
Own Shares
Ordinary shares acquired by the Company or purchased on behalf of the Company are deducted from equity. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Company’s ordinary shares.
Dividends
Dividends on ordinary shares are recognised as a liability in the period in which they are declared by the Company. In the case of interim dividends, these
areconsidered to be declared when they are paid. In the case of final dividends, these are declared when approved by the shareholders at the Annual
GeneralMeeting.
3. Significant Accounting Judgements, Estimates and Assumptions
Preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues,
expenses, assets and liabilities. These judgements, estimates and assumptions are subject to continuing re-evaluation and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable. Actual outcomes may differ significantly from
those estimates. No additional significant accounting judgements, estimates and assumptions were identified for the Group as a result of the elevation by
the Board of the potential impact of climate change in the long-term to a principal risk for the Group. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant are set out below.
Significant Accounting Judgements
Consolidation of Structured Entities
The Group is a party to an arrangement involving securitisation of certain of its trade receivables. The arrangement required the establishment of certain
special purpose entities (‘SPEs’) which are not owned by the Group. However, the SPEs are consolidated as management considers them to be controlled
by the Group. The securitised receivables and the borrowings of the SPEs are recognised in the Consolidated Balance Sheet.
The Group has established a trust which facilitates the operation of the Group’s long-term incentive plans. While the Group does not hold any of the equity
of the trust, the Directors believe that the Group controls its activities and therefore the financial statements of the trust are included in the Consolidated
Financial Statements.
Impairment of Goodwill
Judgement is required in determining whether goodwill is impaired or not. The Group tests annually whether goodwill has suffered any impairment.
The recoverable amounts of groups of CGUs have been determined based on value-in-use calculations. The principal assumptions used to determine
value-in-use relate to future cash flows and the time value of money. Further information is provided in the Goodwill and Intangible Assets note.
Income Taxes
Provisions for taxes require judgement in interpreting tax legislation, current case law or practice. It may be unclear how tax law or practice applies to a
particular transaction or set of circumstances. In some instances this may not be known until a tax authority or a court makes a decision in an examination,
audit or appeal. The Group considers such uncertain tax positions together or separately depending on which approach better predicts how the
uncertainties can be resolved. Where the Group concludes it is not probable that a tax authority will fully accept its assessment of an uncertain tax position,
itreflects the effect of the uncertainty as the most likely amount or the expected value. In addition, the Group recognises deferred tax assets, mainly
relatingto unused tax losses, when it is probable that the assets will be recovered through future profitability and planning. The assessment of recoverability
involves judgement.
Exceptional Items
Judgement is required in determining which items by virtue of their nature and size are considered exceptional and separately disclosed in the Consolidated
Income Statement. The Group has outlined significant items which it believes are exceptional, due to both their nature and size, within the accounting policy
for exceptional items in the Summary of Significant Accounting Policies note.
Significant Accounting Estimates and Assumptions
Measurement of Defined Benefit Obligations
The cost of defined benefit pension plans and the present value of pension obligations are determined using actuarial valuations. These valuations involve
making various assumptions that may differ significantly from actual developments in the future. The assumptions include determination of appropriate
discount rates, future salary increases, inflation, mortality rates and future pension increases. Due to the complex nature of the valuations the Group
employs an international network of professional actuaries to perform these valuations. The critical assumptions and estimates applied along with a
sensitivity analysis are provided in the Employee Benefits note.
143
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Overview Strategic Report Governance Financial Statements Supplementary Information
4. Segment and Revenue Information
The Group has identified 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 and the Americas segments are each highly integrated. They include a system of mills and plants that primarily produce a full line of
containerboard that is converted into corrugated containers within each segment. In addition, the Europe segment also produces other types of paper,
such as solidboard, sack kraft paper and graphic paper; and other paper-based packaging, such as solidboard packaging and folding cartons; and bag-in-box
packaging. The Americas segment, which includes a number of Latin American countries and the United States, also comprises forestry; other types of
paper, such as boxboard, sack paper and graphic paper; and paper-based packaging, such as folding cartons and paper sacks. Inter-segment revenue is not
material. No operating segments have been aggregated for disclosure purposes.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment
capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Additionally,
there are central costs which represent corporate governance costs, including executive costs, and costs of the Group’s legal, company secretarial, pension
administration, tax, treasury and controlling functions and other administrative costs.
Segment profit is measured based on EBITDA
*
. Segment assets consist primarily of property, plant and equipment, right-of-use assets, biological assets,
goodwill and intangible assets, inventories, trade and other receivables, deferred income tax assets and cash and cash equivalents. Group centre assets are
comprised primarily of property, plant and equipment, other investments, derivative financial assets, deferred income tax assets, cash and cash equivalents
and restricted cash. Segment liabilities are principally comprised of borrowings, operating liabilities, deferred income tax liabilities and employee benefits.
Group centre liabilities are comprised of items such as borrowings, employee benefits, derivative financial instruments, deferred income tax liabilities and
certain provisions.
Segment capital expenditure comprises additions to property, plant and equipment (Note 11), right-of-use assets (Note 12) goodwill and intangible assets
(Note 13) and biological assets (Note 16) and including additions resulting from acquisitions through business combinations (Note 31).
Inter-segment transfers or transactions are entered into under normal commercial terms and conditions that would also be available to unrelated third
parties. Inter-segment transactions are not material.
* EBITDA as defined in the Supplementary Information section on page 192.
144
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
4. Segment and Revenue Information continued
Revenue and results
Europe
2021
€m
The
Americas
2021
€m
Total
2021
€m
Europe
2020
€m
The
Americas
2020
€m
Total
2020
€m
Revenue 7,847 2,260 10,107 6,645 1,885 8,530
EBITDA 1,302 441 1,743 1,180 372 1,552
Segment exceptional items – – – (19) (12) (31)
EBITDA after exceptional items 1,302 441 1,743 1,161 360 1,521
Unallocated centre costs (41) (42)
Share-based payment expense (69) (37)
Depreciation and depletion (net)
*
(520) (508)
Amortisation (40) (43)
Finance costs (179) (179)
Finance income 17 35
Share of associates’ profit (after tax) 2 1
Profit before income tax 913 748
Income tax expense (234) (201)
Profit for the financial year 679 547
Assets
Segment assets 8,521 2,349 10,870 7,470 1,913 9,383
Investment in associates 1 12 13 1 11 12
Group centre assets 824 895
Total assets 11,707 10,290
Liabilities
Segment liabilities 3,186 714 3,900 2,928 568 3,496
Group centre liabilities 3,415 3,011
Total liabilities 7,315 6,507
Other segmental disclosures
Segment capital expenditure:
Segment expenditure 864 265 1,129 438 146 584
Group centre expenditure – 1
Total expenditure 1,129 585
Depreciation and depletion (net):
Segment depreciation and depletion (net) 406 113 519 401 106 507
Group centre depreciation and depletion (net) 1 1
Total depreciation and depletion (net) 520 508
Amortisation:
Segment amortisation 24 16 40 24 19 43
Group centre amortisation – –
Total amortisation 40 43
*
Depreciation and depletion is net of fair value adjustments arising on biological assets.
145
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Overview Strategic Report Governance Financial Statements Supplementary Information
4. Segment and Revenue Information continued
Information about Geographical Areas
The Group has a presence in 36 countries worldwide. The following is a geographical analysis presented in accordance with IFRS 8, which requires disclosure
of information about country of domicile (Ireland) and countries with material revenue and non-current assets.
Revenue
2021
€m
Revenue
2020
€m
Non-current
Assets
2021
€m
Non-current
Assets
2020
€m
Ireland 109 111 40 51
Germany 1,403 1,207 489 533
France 1,094 969 538 513
Mexico 992 850 369 263
The Netherlands 924 760 617 549
United Kingdom 901 743 427 384
Other Europe
*
– eurozone 2,147 1,796 1,100 859
Other Europe
*
– non-eurozone 1,233 1,029 646 629
Other Americas
*
1,304 1,065 712 696
10,107 8,530 4,938 4,477
*
No individual country represents greater than 8% of revenue.
Revenue is derived almost entirely from the sale of goods and is disclosed based on the location of production. No one customer represents greater than
10% of Group revenues. Non-current assets include marketing and customer related intangible assets, software, investment in associates, biological assets,
right-of-use assets and property, plant and equipment and are disclosed based on their location.
While the Group does not allocate goodwill by geographic area, if it were to ascribe goodwill to Ireland we estimate the amount would be less than 3%
(2020:less than 3%) of the total goodwill of the Group of €2,511 million (2020: €2,344 million).
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.
2021 2020
Paper
€m
Packaging
€m
Total
€m
Paper
€m
Packaging
€m
Total
€m
Revenue by product:
Europe 1,328 6,519 7,847 1,005 5,640 6,645
The Americas 213 2,047 2,260 207 1,678 1,885
1,541 8,566 10,107 1,212 7,318 8,530
Packaging revenue is derived mainly from the sale of corrugated products. The remainder of packaging revenue is comprised of bag-in-box and other
paper-based packaging products.
5. Cost and Income Analysis
2021
€m
2020
€m
Expenses by function:
Cost of sales 7,015 5,656
Distribution costs 823 725
Administrative expenses 1,196 1,227
Other operating expenses
–
31
9,034
7,639
Exceptional items included in operating profit:
Reorganisation and restructuring costs – 35
Recognition reward – 11
Past service cost – UK – (15)
–
31
There were no exceptional items within operating profit in 2021.
146
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
5. Cost and Income Analysis continued
Exceptional items charged within operating profit in 2020 amounted to €31 million of which €35 million related to reorganisation and restructuring costs
in both Europe and the Americas and €11 million related to a Group-wide COVID-19 employee recognition reward, partly offset by a €15 million gain on the
UKpension scheme as a result of future pension increases being linked to CPIH instead of RPI.
2021
€m
2020
€m
Expenses by nature:
Raw materials and consumables 3,653 2,697
Employee benefit expense excluding redundancy 2,294 2,177
Energy 657 420
Maintenance and repairs 452 419
Transportation and storage costs 829 726
Depreciation, amortisation and depletion 560 551
Reorganisation and restructuring costs 2 38
Net remeasurement of loss allowance on trade receivables (4) 25
Other expenses 591 586
Total 9,034 7,639
Included within the expenses by nature above are research and development expenses of €7 million (2020: €8 million). Research and development expenses
are included within administrative expenses in the Consolidated Income Statement.
Directors’ remuneration is shown in the Remuneration Report and in Note 30.
Auditors’ Remuneration
KPMG
Ireland
2021
€m
Other KPMG
Network
Firms
2021
€m
Total
2021
€m
KPMG
Ireland
2020
€m
Other KPMG
Network
Firms
2020
€m
Total
2020
€m
Audit of entity financial statements 2.8 6.5 9.3 2.5 5.8 8.3
Other assurance services – 0.1 0.1 – 0.3 0.3
Other non-audit services 0.1 0.2 0.3 – 0.1 0.1
2.9 6.8 9.7 2.5 6.2 8.7
The audit fee for the Parent Company was €50,000 which is payable to KPMG, the Statutory Auditor (2020: €50,000).
6. Employee Benefit Expense
2021
Number
2020
Number
Average number of persons employed by the Group by geographical area (full time equivalents):
Europe 30,405 29,969
The Americas 17,348 16,406
47,753 46,375
Note
2021
€m
2020
€m
The employee benefit expense comprises:
Wages and salaries 1,784 1,707
Social insurance costs 346 335
Share-based payment expense 69 37
Defined benefit pension expense 25 29 36
Defined contribution pension plan expense 25 66 66
Reorganisation and restructuring costs
*
2 3
Charged to operating profit – pre-exceptional 2,296 2,184
Exceptional – reorganisation and restructuring – 35
Exceptional – past service cost UK 25 – (15)
Exceptional – recognition reward – 11
Finance costs 25 7 12
Actuarial (gain)/loss on pension schemes recognised in other comprehensive income 25 (177) 9
Total employee benefit expense 2,126 2,236
*
These non-exceptional expenses arise in respect of individually immaterial restructurings across the Group.
147
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Overview Strategic Report Governance Financial Statements Supplementary Information
7. Finance Costs and Income
Note
2021
€m
2020
€m
Finance costs:
Interest payable on bank loans and overdrafts 25 29
Interest payable on leases 10 10
Interest payable on other borrowings 86 89
Exceptional finance costs associated with debt restructuring 31 –
Foreign currency translation loss on debt 15 36
Fair value loss on derivatives not designated as hedges 2 1
Fair value loss on financial assets/liabilities – 2
Net interest cost on net pension liability 25 7 12
Non monetary loss – hyperinflation 3 –
Total finance costs 179 179
Finance income:
Other interest receivable (3) (3)
Foreign currency translation gain on debt (12) (29)
Fair value gain on derivatives not designated as hedges – (1)
Fair value gain on financial assets/liabilities (2) (1)
Net monetary gain – hyperinflation – (1)
Total finance income (17) (35)
Net finance costs 162 144
Exceptional finance costs of €31 million in 2021 represented a redemption premium of €28 million together with the related accelerated write-off of
unamortised debt issue costs of €3 million due to the early redemption of bonds.
There were no exceptional finance items in 2020.
8. Income Tax Expense
Income tax expense recognised in the Consolidated Income Statement
2021
€m
2020
€m
Current tax:
Europe 189 127
The Americas 76 49
265 176
Deferred tax (31) 25
Income tax expense 234 201
Current tax is analysed as follows:
Ireland 28 21
Foreign 237 155
265 176
The income tax expense for the financial year 2021 is €33 million higher than in the comparable period in 2020. This mainly arises from higher profitability and
other timing items in Europe and the Americas.
The movement in deferred tax from an expense of €25 million in 2020 to a credit of €31 million in 2021 includes the effects of the reversal of timing
differences on which deferred tax has been previously recorded, the recognition of tax benefits on losses and other investment tax credits partly offset
by the negative impact of increases in tax rates in a number of countries.
In 2021, there is a lower tax credit of €4 million on exceptional items compared to a €9 million tax credit in the prior year.
148
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
8. Income Tax Expense continued
Reconciliation of the Effective Tax Rate
The following table reconciles the applicable Republic of Ireland statutory tax rate to the effective tax rate (current and deferred) of the Group:
2021
€m
2020
€m
Profit before income tax 913 748
Profit before income tax multiplied by the standard rate of tax of 12.5% (2020: 12.5%) 114 93
Effects of:
Income subject to different rates of tax 130 87
Other items (4) 22
Adjustment to prior period tax (1) (1)
Effect of previously unrecognised losses (5) –
234 201
Income Tax Recognised Within Equity
2021
€m
2020
€m
Recognised in the Consolidated Statement of Comprehensive Income:
Arising on defined benefit pension plans 32 (7)
Arising on derivative cash flow hedges – 1
Total recognised in the Consolidated Statement of Comprehensive Income 32 (6)
Arising on hyperinflation 2 3
Total recognised within equity 34 (3)
Factors That May Affect the Future Tax Expense and Other Disclosure Requirements
Unremitted Earnings in Subsidiaries and Associates
The Group has not made provision for deferred tax in relation to temporary differences applicable to investments in subsidiaries on the basis that the Group
can control both the timing of and which temporary timing differences will reverse. The Group is not obliged to remit earnings from subsidiaries. It is probable
that the Group would only remit earnings which can benefit from the availability of a participation tax exemption or sufficient tax credits (actual or deemed)
to ensure there is no additional tax due. The aggregate amount of this temporary difference is approximately €2,179 million (2020: €1,553 million). Due to the
absence of control in the context of associates (significant influence by definition) deferred tax liabilities are recognised where necessary in respect of the
Group’s investment in these entities.
The total tax expense in future periods will be affected by changes to the corporation tax rates in force and legislative changes that may broaden the tax base
or introduce other minimum taxes in the countries in which the Group operates. The tax expense may also be impacted by changes in the geographical mix
of earnings.
The current tax expense may also be impacted, inter alia, by changes in the excess of tax depreciation (capital allowances) over accounting depreciation,
the use of taxcredits and the crystallisation of unrecognised deferred tax assets.
There are no income tax consequences for the Company in respect of dividends which were proposed prior to the issuance of the Consolidated Financial
Statements for which a liability has not been recognised.
149
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Overview Strategic Report Governance Financial Statements Supplementary Information
9. Earnings per Share (‘EPS’)
Basic
Basic EPS is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year
less own shares.
2021 2020
Profit attributable to owners of the parent (€ million) 679 545
Weighted average number of ordinary shares in issue (million) 257 239
Basic EPS (cent) 263.9 227.9
Diluted
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary
shares. These comprise deferred and performance shares issued under the Group’s long-term incentive plans. Details of these plans are set out in Note 26.
Where the conditions governing exercisability and vesting of these shares have been satisfied as at the end of the reporting period, they are included in the
computation of diluted earnings per ordinary share.
2021 2020
Profit attributable to owners of the parent (€ million) 679 545
Weighted average number of ordinary shares in issue (million) 257 239
Potential dilutive ordinary shares assumed (million) 3 2
Diluted weighted average ordinary shares (million) 260 241
Diluted EPS (cent) 261.1 225.7
Pre-exceptional
2021 2020
Profit attributable to owners of the parent (€ million) 679 545
Exceptional items included in profit before income tax (€ million) 31 31
Income tax on exceptional items (€ million) (4) (9)
Pre-exceptional profit attributable to owners of the parent (€ million) 706 567
Weighted average number of ordinary shares in issue (million) 257 239
Pre-exceptional basic EPS (cent) 274.5 236.9
Diluted weighted average ordinary shares (million) 260 241
Pre-exceptional diluted EPS (cent) 271.6 234.6
10. Dividends
The following dividends were declared and paid by the Group:
2021
€m
2020
€m
Final: paid 87.4 cent per ordinary share on 7 May 2021 (2020: no final dividend was paid in 2020) 226 –
Interim: paid 29.3 cent per ordinary share on 22 October 2021 (2020: paid 80.9cent per ordinary share on 11 September 2020
and a further 27.9 cent on 11December 2020) 76 260
302 260
The Board is recommending a final dividend of 96.1 cent per share (approximately €250 million). It is proposed to pay this dividend on 6 May 2022 to all ordinary
shareholders on the share register at the close of business on 8 April 2022, subject to the approval of the shareholders at the Annual GeneralMeeting.
150
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
11. Property, Plant and Equipment
Land and
Buildings
€m
Plant and
Equipment
€m
Total
€m
Financial year ended 31 December 2020
Opening net book amount 1,106 2,814 3,920
Reclassifications 73 (68) 5
Additions 1 465 466
Acquisitions 2 1 3
Depreciation charge (56) (373) (429)
Retirements and disposals (1) (2) (3)
Hyperinflation adjustment 2 6 8
Foreign currency translation adjustment (37) (94) (131)
At 31 December 2020 1,090 2,749 3,839
At 31 December 2020
Cost or deemed cost 1,874 6,942 8,816
Accumulated depreciation and impairment losses (784) (4,193) (4,977)
Net book amount 1,090 2,749 3,839
Financial year ended 31 December 2021
Opening net book amount 1,090 2,749 3,839
Reclassifications 63 (64) (1)
Additions 1 570 571
Acquisitions 73 186 259
Depreciation charge (56) (369) (425)
Retirements and disposals (9) (17) (26)
Hyperinflation adjustment 4 10 14
Foreign currency translation adjustment 9 25 34
At 31 December 2021 1,175 3,090 4,265
At 31 December 2021
Cost or deemed cost 2,089 7,667 9,756
Accumulated depreciation and impairment losses (914) (4,577) (5,491)
Net book amount 1,175 3,090 4,265
Land and Buildings
Included in land and buildings is an amount for land of €387 million (2020: €377 million).
Construction in Progress
Included in land and buildings and plant and equipment are amounts of €72 million (2020: €29 million) and €350 million (2020: €232 million) respectively,
for construction in progress.
Assets Pledged as Security
Assets with a carrying value of €12 million (2020: €9 million) are pledged as security for loans held by the Group.
Capital Commitments
The following capital commitments in relation to property, plant and equipment were authorised by the Directors, but have not been provided for in the
Consolidated Financial Statements:
2021
€m
2020
€m
Contracted for 498 168
Not contracted for 649 235
1,147 403
151
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Overview Strategic Report Governance Financial Statements Supplementary Information
11. Property, Plant and Equipment continued
Impairments
Impairment tests for items of property, plant and equipment are performed on a cash-generating unit basis when impairment triggers arise. The recoverable
amounts of property, plant and equipment are based on the higher of fair value less costs to sell and value-in-use. Value-in-use calculations are based on
cash flow projections and discount rates for items of property, plant and equipment. The Group considered the impact of the COVID-19 pandemic when
assessing property, plant and equipment for indicators of impairment. No impairment triggers were identified. Impairment charges are recognised within
cost of sales in the Consolidated Income Statement. In 2021, the Group’s impairment charge was nil (2020: nil).
Capitalised Borrowing Costs
In 2021, the Group capitalised borrowing costs of €2 million (2020: €1 million) on qualifying assets. Borrowing costs were capitalised at an average rate of
3.0% (2020: 2.9%).
12. Right-of-use Assets/Lease Obligations
Amounts Recognised in the Consolidated Balance Sheet
2021
€m
2020
€m
Right-of-use assets:
Land and buildings 235 218
Vehicles 65 64
Plant and equipment 46 29
346 311
The Group presents lease liabilities in borrowings in the Consolidated Balance Sheet. The amounts included within borrowings are as follows:
2021
€m
2020
€m
Lease liabilities:
Current 91 83
Non-current 289 263
380 346
Additions to right-of-use assets during 2021 were €98 million (2020: €79 million), of which €6 million (2020: nil) related to acquired right-of-use assets.
Amounts Recognised in the Consolidated Income Statement
The Consolidated Income Statement includes the following amounts relating to leases:
2021
€m
2020
€m
Depreciation charge of right-of-use assets:
Land and buildings 46 45
Vehicles 31 31
Plant and equipment 11 9
88 85
2021
€m
2020
€m
Interest expense on lease liabilities 10 10
Expenses relating to short-term leases 14 11
Expenses relating to leases of low-value assets 7 5
Expenses relating to variable lease payments not included in the lease liabilities 7 9
Lease commitments for short-term leases are similar to the portfolio of short-term leases for which the costs were expensed to the Consolidated
IncomeStatement.
Amounts Recognised in the Consolidated Statement of Cash Flows
2021
€m
2020
€m
Total cash outflow for leases 126 126
Leasing Activities
The Group enters into leases for a range of assets, principally relating to property. These property leases, which consist of office buildings, warehouses and
manufacturing facilities, have varying terms, renewal rights, including periodic rent reviews linked with indices. The Group also leases vehicles which include
motor vehicles for management and sales functions and trucks for distribution.
152
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
12. Right-of-use Assets/Lease Obligations continued
Leasing Activities continued
The effect of excluding future cash outflows arising from variable lease payments, termination options, residual value guarantees, and leases not yet
commenced from lease liabilities was not material for the Group. Income from subleasing and gains/losses on sale and leaseback transactions were not
material for the Group. The terms and conditions of these leases do not impose significant financial restrictions on the Group.
Extension and Termination Options
Extension and termination options are included in a number of property, equipment and vehicle leases throughout the Group. They are used to maximise
operational flexibility in terms of managing the assets used in the Group’s operations. In determining the lease term, management considers all facts and
circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
In determining whether or not a renewal or termination option will be taken, the following factors are normally the most relevant:
• If there are significant penalties to terminate (or not to extend), the Group is typically reasonably certain to extend (or not terminate).
• If leasehold improvements are expected to have a significant remaining value, when the option becomes exercisable, the Group is typically
reasonably certain to extend (or not to terminate).
• Strategic importance of the asset to the Group.
• Climate related considerations.
• Past practice.
• Costs and business disruption to replace the asset.
The lease term is reassessed if an option is actually exercised (or not exercised) and this decision has not already been reflected in the lease term as part
of a previous determination. The assessment of reasonable certainty is revised only if a significant change in circumstances occurs, which affects this
assessment, and this is within the control of the lessee.
Impairments
Impairment tests for right-of-use assets are performed on a cash-generating unit basis when impairment triggers arise. The recoverable amounts of
right-of-use assets are based on the higher of fair value less costs to sell and value-in-use. Value-in-use calculations are based on cash flow projections and
discount rates for right-of-use assets. The Group considered the impact of the COVID-19 pandemic and climate related considerations when assessing
right-of-use assets for indicators of impairment. No impairment triggers were identified. In 2021, the Group’s impairment charge was nil (2020: nil).
13. Goodwill and Intangible Assets
Goodwill
€m
Intangible Assets
Total
€m
Marketing
Related
€m
Customer
Related
€m
Software
Assets
€m
Financial year ended 31 December 2020
Opening net book amount 2,383 6 167 60 2,616
Additions – – – 21 21
Acquisitions 7 – – – 7
Amortisation charge – (2) (26) (15) (43)
Reclassifications – – – 6 6
Hyperinflation adjustment 9 – – – 9
Foreign currency translation adjustment (55) – (5) (4) (64)
At 31 December 2020 2,344 4 136 68 2,552
At 31 December 2020
Cost or deemed cost 2,566 16 288 226 3,096
Accumulated amortisation and impairment losses (222) (12) (152) (158) (544)
Net book amount 2,344 4 136 68 2,552
Financial year ended 31 December 2021
Opening net book amount 2,344 4 136 68 2,552
Additions – – – 21 21
Acquisitions 152 8 11 – 171
Amortisation charge – (2) (23) (15) (40)
Disposals (14) – – – (14)
Hyperinflation adjustment 13 – – – 13
Foreign currency translation adjustment 16 – 2 1 19
At 31 December 2021 2,511 10 126 75 2,722
At 31 December 2021
Cost or deemed cost 2,734 26 308 241 3,309
Accumulated amortisation and impairment losses (223) (16) (182) (166) (587)
Net book amount 2,511 10 126 75 2,722
The useful lives of intangible assets other than goodwill are finite and range from two to twenty years. Amortisation is recognised as an expense within cost
of sales and administrative expenses in the Consolidated Income Statement.
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Overview Strategic Report Governance Financial Statements Supplementary Information
13. Goodwill and Intangible Assets continued
Marketing related intangible assets relate mainly to trade names and non-compete agreements which arise from business combinations and are amortised
over their estimated useful lives of two to ten years. Customer related intangible assets relate mainly to acquisitions and to customer relationships which
arise from business combinations. They are amortised over their estimated useful lives of four to twenty years with a weighted average useful life of 12 years.
Software assets relate to computer software, other than software for items of machinery that cannot operate without it; such software is regarded as an
integral part of the related hardware and is classified as property, plant and equipment. Computer software assets have estimated useful lives of three to
eight years for amortisation purposes.
In 2021, goodwill of €119 million arose on the acquisition of Verzuolo, a containerboard mill in Northern Italy. This amount will be revised following the
completion of a fair value exercise on the identifiable net assets in 2022. Goodwill of €24 million and intangible assets of €12 million arose on the acquisition
of Cartonbox, a folding carton company in Mexico. Goodwill of €9million and intangible assets of €7 million arose on the acquisition of Cartones del Pacifico,
a paper-based packaging company in Peru.
In 2020, goodwill of €5 million arose on the acquisition of a former associate in Colombia (Note 15) and €2 million arose on the 2019 acquisition of plants
inBulgaria.
Impairment Testing of Intangible Assets
The Group assesses whether there is an indication that an intangible asset may be impaired. In 2021, such an assessment did not give rise to an impairment
charge (2020: nil).
Impairment Testing of Goodwill
Goodwill arising as part of a business combination is allocated to groups of cash-generating units (‘CGUs’) for the purpose of impairment testing based on
the Group’s existing business segments or, where appropriate, by recognition of a new CGU. The CGU groups represent the lowest level at which goodwill is
monitored for internal management purposes and are not larger than the operating segments determined in accordance with IFRS 8, Operating Segments.
A total of 16 groups (2020: 15) of CGUs have been identified and these are analysed between the two operating segments as follows:
2021
Number
2020
Number
Eurozone 5 5
Eastern Europe 1 1
Scandinavia 1 1
United Kingdom 1 1
Bag-in-box 1 1
Europe 9 9
The Americas 7 6
16 15
A summary of the allocation of the carrying value of goodwill by operating segment is as follows:
2021
€m
2020
€m
Europe 2,170 2,055
The Americas 341 289
2,511 2,344
No impairment arose in 2021 in any CGU as the recoverable amount of the groups of CGUs, based on value-in-use and estimated using the methodology
outlined below, exceeded the carrying amount.
Impairment Testing Methodology and Results
The recoverable amount of each CGU is based on a value-in-use calculation. The cash flow forecasts for the purposes of these calculations are based on a
nine-year plan approved by senior management. The impact of COVID-19 was considered when preparing cash flow forecasts for each CGU. The potential
impact of climate change, which is a principal risk in the long-term for the Group, was also considered when preparing cash flow forecasts for each CGU, with
none of the CGUs determined to be at risk of being significantly impacted in the forecast period. As a result, no adjustments were applied to the assumptions
to specifically incorporate the effect of climate-related risks. Cash flow forecasts use growth factors consistent with historical growth rates as adjusted for
the cyclical nature of the business and are validated by reference to external data where available. The terminal value is estimated by applying an appropriate
earnings multiple to the average cash flows for years one to nine. The Group believes a nine-year forecast is appropriate to use for the impairment test, due
to the cyclical nature of the business in which the Group operates and the long-term lives of its assets.
Forecasts are derived from a combination of internal and external factors based on historical experience and take into account the cyclicality of cash flows
typically associated with these groups of CGUs. The cash flows, including terminal value estimations, are discounted using appropriate pre-tax discountrates.
154
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
13. Goodwill and Intangible Assets continued
Impairment Testing Methodology and Results continued
Key assumptions include management’s estimates of future profitability, replacement capital expenditure requirements, trade working capital investment
needs and discount rates. Key assumptions in determining terminal value include earnings multiples.
Of the goodwill allocated to each of the 16 groups of CGUs, three units individually account for between 10% and 20% of the total carrying amount of
€2,511million and are summarised in the table below. All other units account individually for less than 10% of the total carrying amount and are not regarded
as individually significant. The additional disclosures required under IAS 36, Impairment of Assets in relation to significant goodwill amounts arising in each of
the three groups of CGUs are as follows:
Europe
France
Europe
Benelux
Europe
Germany, Austria and Switzerland
2021 2020 2021 2020 2021 2020
Carrying amount of goodwill (€ million) 307 307 408 408 427 427
Basis of recoverable amount Value-in-use Value-in-use Value-in-use Value-in-use Value-in-use Value-in-use
Discount rate applied (pre-tax) 9.6% 9.2% 9.3% 9.4% 9.9% 9.6%
Earnings multiple used for terminal value 7.1 7.1 7.1 7.1 7.1 7.1
Excess of value-in-use (€ million) 562 368 192 267 736 357
The key assumptions used for these three CGUs are consistent with those addressed above. The values applied to each of the key assumptions are derived
from a combination of internal and external factors based on historical experience and take into account the cyclicality of cash flows typically associated with
these groups of CGUs.
The recoverable amount of the Argentina and Chile CGU is estimated to exceed the carrying value of the CGU by €2 million (2020: €2 million). The goodwill
relating to our operations in Argentina and Chile represents 1% of the Group’s total goodwill. We will continue to monitor the CGU throughout 2022. For the
other CGUs, any reasonably possible movement in the assumptions used in the impairment test would not result in an impairment.
14. Financial Assets
Other Investments – Group
2021
€m
2020
€m
Listed
*
and unlisted debt instruments – FVPL 11 11
At 31 December 11 11
*
Listed on a recognised stock exchange.
Listed and Unlisted Debt Instruments
The Group designates listed and unlisted debt instruments as FVPL as they do not qualify for measurement at either amortised cost or FVOCI based on the
business model.
In 2021, fair value gains of nil (2020: €1 million gain) on debt instruments were recognised in finance income.
Information about the Group’s fair value measurement of its investments is included in Note 29.
Investment in Subsidiaries – Company
2021
€m
2020
€m
At 1 January 2,872 2,100
Investment in the year 43 772
At 31 December 2,915 2,872
In November 2020, the Company raised gross proceeds of €660 million following the pricing of the non-pre-emptive placing of new ordinary shares.
The Company made a capital contribution to subsidiary undertakings of €669 million, primarily financed by the proceeds from the placing. In addition the
Company made a further investment in Smurfit Kappa Investments Limited for new shares of €103 million.
The carrying value of the financial asset held by the Company was considered in the context of the COVID-19 pandemic and no impairment trigger was
identified based on the performance and market capitalisation of the Group.
155
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Overview Strategic Report Governance Financial Statements Supplementary Information
15. Investment in Associates
2021
€m
2020
€m
At 1 January 12 16
Share of profit for the year 2 1
Dividends received from associates (1) (1)
Foreign currency translation adjustment – (2)
Fair value uplift on associate investment – 4
Associate becoming a subsidiary – (6)
At 31 December 13 12
On 1 April 2020, the Group acquired 50.2% of Occidental de Empaques S.A. (‘Odempa’), a paper sack plant in Colombia. This increased the Group’s interest
in Odempa from 49.8% to 100%, and resulted in the previously held associate becoming a subsidiary. In accordance with IFRS, the Group’s previously held
49.8% associate interest was remeasured from its carrying value of €2 million to a fair value of €6 million resulting in a fair value gain of €4 million. This gain,
together with the recycling of €1 million of currency translation losses from the currency translation reserve, resulted in a net gain of €3 million in the
Consolidated Income Statement. The fair value of €6 million formed part of the acquisition accounting for the consolidation of Odempa on 1 April 2020.
16. Biological Assets
2021
€m
2020
€m
At 1 January 118 117
Increases due to new plantations 9 9
Harvested timber transferred to inventories (10) (11)
Change in fair value less estimated costs to sell 3 17
Foreign currency translation adjustment (7) (14)
At 31 December 113 118
Current 10 11
Non-current 103 107
At 31 December 113 118
Approximate harvest by volume (tonnes ‘000) 640 834
At 31 December 2021, the Group’s biological assets consist of 68,000 (2020: 67,000) hectares of forest plantations which are held for the production of
paper and packaging products or sale to third parties. In Colombia, the plantations provide the Group’s mills with a significant proportion of their total wood
fibreneeds.
Measurement of Fair Values
Fair Value Hierarchy
The Group’s biological assets are measured at fair value and have been categorised within level 2 of the fair value hierarchy. There were no transfers between
any levels during the year.
Valuation Techniques
The Group’s biological assets comprise two species of forest plantations, pine and eucalyptus which are categorised as young or adult plantations for the
purpose of determining the measurement of fair value.
The age threshold for young pine plantations is 96 months and for young eucalyptus plantations is 48 months. As young plantations are not available to sell
or harvest, the cost approach is used to measure their fair value. The cost approach is based on the annually published index by the Colombian government
which details the cost of establishing and maintaining a hectare for each species across various age brackets. The number of hectares planted is recorded
in the Group’s Forestry Information System. The value of young plantations at 31 December 2021 was €11 million (2020: €11 million).
The fair value of adult plantations is calculated using third party market prices in active markets adjusted for estimated costs to sell with eucalyptus based
on the 12-month moving average of third party purchases and pine based on third party selling prices. Volumes are determined using an internally
developed statistical model which contains data from the last 25 years. The statistical model applies growing equations using historical yields to provide
an approximation of the yield of a particular plantation area at a point in time, based on a number of factors including the particular species of the tree,
age and location of the plantation. The parameters used in the model are subject to continual refinement based on periodic measurements of a sample
of growing trees and actual yields. Pine trees are further classified by use, as either pulpwood or timber wood based upon historical experience. This
classification determines the market price used in the fair value measurement of the pine plantations. In 2020, the proportion of pine trees classified as
timber wood increased following a reassessment of the volumes used for timber wood purposes based on historical data. This resulted in a fair value gain
of €9 million. There has been no change in the proportion of pine trees classified as timber wood in 2021.
156
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
16. Biological Assets continued
Risk Management Strategy
The Group is exposed to a number of risks related to its plantations:
Regulatory and Environmental Risks
The Group is subject to laws and regulations in various countries in which it operates. The Group has established environmental policies and procedures
aimed at ensuring compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure
that the systems in place are adequate to manage those risks.
Supply and Demand Risk
The Group is exposed to risks arising from market fluctuations in the price and sales volume of similar wood. Where possible the Group manages this risk
by aligning its harvest volume to demand for its manufactured products. Management performs regular industry trend analysis to ensure that the Group’s
pricing structure is in line with the market and to ensure that projected harvest volumes are consistent with the expected demand.
Climate and Other Risks
The Group’s forests are exposed to the risk of damage from climatic changes, diseases, fires and other natural forces. Changes in global climate conditions
could intensify one or more of these events. Periods of drought and associated high temperatures may increase the risk of forest fires and insect outbreaks.
In addition to their effects on forest yields, extreme weather events may also increase the cost of operations. The Group has extensive processes in place
aimed at monitoring and mitigating these risks through proactive management and early detection, including regular forest health inspections and industry
pest and disease surveys.
17. Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where they relate to
income taxes levied by the same tax authority on either a taxable entity or different taxable entities where their intention is to settle the balances on a net
basis. This is set out below:
2021
€m
2020
€m
Deferred tax assets 394 391
Deferred tax assets/liabilities available for offset (245) (219)
149 172
Deferred tax liabilities 420 410
Deferred tax assets/liabilities available for offset (245) (219)
175 191
Deferred tax assets have been recognised in respect of deductible temporary differences to the extent that it is probable that taxable profit will be available
against which the deductible temporary difference can be utilised.
Deferred tax assets have been recognised in respect of tax losses available for carry forward when the Group considers it is probable that future taxable
profit will be available against which the unused tax losses can be utilised. Where the Group considers that the recovery of such losses is not probable
no asset is recognised.
The movement in net deferred tax balances during the year was as follows:
Note
2021
€m
2020
€m
At 1 January (19) 10
Movement recognised in the Consolidated Income Statement 8 31 (25)
Movement recognised in the Consolidated Statement of Comprehensive Income (38) 6
Acquisitions and disposals (5) (2)
Transfer between current and deferred tax 2 –
Hyperinflation adjustment – recognised in equity 8 (2) (3)
Foreign currency translation adjustment 5 (5)
At 31 December (26) (19)
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Overview Strategic Report Governance Financial Statements Supplementary Information
17. Deferred Tax Assets and Liabilities continued
The movements in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same jurisdiction,
were as follows:
Retirement
Benefit
Obligations
€m
Tax Losses
€m
Derivative
Fair Values
€m
Other
€m
Total
€m
Deferred tax assets
At 1 January 2020 111 98 4 167 380
Recognised in the Consolidated Income Statement (10) (11) – 41 20
Recognised in the Consolidated Statement of Comprehensive
Income 7 – (1) – 6
Foreign currency translation adjustment (2) (4) (2) (7) (15)
At 31 December 2020 106 83 1 201 391
Reclassifications – – – 2 2
Recognised in the Consolidated Income Statement (11) (12) – 58 35
Recognised in the Consolidated Statement of Comprehensive
Income (38) – – – (38)
Foreign currency translation adjustment 1 1 – 2 4
At 31 December 2021 58 72 1 263 394
Accelerated Tax
Depreciation
€m
Intangible
Assets
Fair Values
€m
Biological
Assets Fair
Values
€m
Other
€m
Total
€m
Deferred tax liabilities
At 1 January 2020 304 9 3 54 370
Recognised in the Consolidated Income Statement 31 – – 14 45
Acquisitions and disposals – – – 2 2
Hyperinflation 1 – – 2 3
Foreign currency translation adjustment 2 – – (12) (10)
At 31 December 2020 338 9 3 60 410
Reclassifications (18) 18 – – –
Recognised in the Consolidated Income Statement (15) – 1 18 4
Acquisitions and disposals 2 3 – – 5
Hyperinflation 1 – – 1 2
Foreign currency translation adjustment (1) – – – (1)
At 31 December 2021 307 30 4 79 420
Deferred tax assets have not been recognised in respect of the following (tax effects):
2021
€m
2020
€m
Tax l osses 14 19
No deferred tax asset is recognised in respect of the above assets on the grounds that there is insufficient evidence that the assets will be recoverable.
In the event that sufficient profits are generated in the relevant jurisdictions in the future these assets may be recovered.
No deferred tax assets have been recognised in respect of gross tax losses amounting to €57 million (2020: €85 million) that can be carried forward against
future taxable income. The expiry dates in respect of these losses are as follows:
Expiry dates
Tax Losses
2021
€m
1 January 2022 to 31 December 2022 2
1 January 2023 to 31 December 2023 1
Greater than 4 years 2
Indefinite 52
57
158
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
18. Inventories
2021
€m
2020
€m
Raw materials 301 178
Work in progress 47 33
Finished goods 471 347
Consumables and spare parts 227 215
1,046 773
19. Trade and Other Receivables
Group
2021
€m
Group
2020
€m
Company
2021
€m
Company
2020
€m
Amounts falling due within one financial year:
Trade receivables 1,830 1,387 – –
Less: loss allowance (44) (53) – –
Trade receivables – net 1,786 1,334 – –
Amounts receivable from associates 2 3 – –
Other receivables 248 118 – –
Prepayments 101 80 – –
Amounts due from Group companies – – 233 256
2,137 1,535 233 256
Amounts falling due after more than one financial year:
Other receivables 26 28 – –
2,163 1,563 233 256
The carrying amount of trade and other receivables equate to their fair values due to their short-term maturities.
The Group has securitised €765 million (2020: €610 million) of its trade receivables. The securitised receivables have not been derecognised as the
Group remains exposed to certain related credit risk. As a result, both the underlying trade receivables and the associated borrowings are shown in the
Consolidated Balance Sheet.
Amounts due from Group companies are unsecured and repayable on demand. There were no past due or impaired receivables from Group companies
at 31 December 2021 (2020: nil) and any expected credit loss is not material.
Impairment Losses
The movement in the allowance for impairment in respect of trade receivables was as follows;
2021
€m
2020
€m
At 1 January 53 32
Net remeasurement of loss allowance (4) 25
Trade receivables written off as uncollectable (5) (3)
Foreign currency translation adjustment – (1)
At 31 December 44 53
Trade debtors arise from a wide and varied customer base spread throughout the Group’s operations and as such there is no significant concentration of
credit risk. Credit evaluations are performed on all customers over certain thresholds and all customers are subject to continued monitoring at operating
company level. Credit limits are reviewed on a regular basis. Many of the Group’s customers have been transacting with the Group over an extended period
and the incidence of bad debts has been low.
The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss
provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics,
such as, current relationship with the customer, industry in which the customer operates, geographical location of customers, historical information on
payment patterns, terms of payment and the days past due.
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Overview Strategic Report Governance Financial Statements Supplementary Information
19. Trade and Other Receivables continued
Impairment Losses continued
The expected loss rates are based on the historical payment profiles of sales and the corresponding historical credit losses experienced. The historical loss
rates are adjusted to reflect current and forward-looking information on macroeconomic factors if there is evidence to suggest that these factors affect the
ability of the customers to settle the receivables. The global financial uncertainty surrounding the COVID-19 pandemic has now lessened as many countries
begin to emerge from the pandemic and government restrictions are being lifted across the many jurisdictions in which the Group’s customers operate.
The Group’s customers primarily operate in the FMCG sector, which has proved resilient during the pandemic and to date. There has been no significant
deterioration in the aging of trade receivables or extension of debtor days in the year. This has resulted in a decrease in the expected credit loss rate, and
consequently the impairment loss allowance, compared to the prior year. The adjustment to the loss rate was determined having regard to various factors,
including but not limited to, GDP and the Group’s experience of bad debts during previous economic downturns. Reflecting past experience and the
reduced economic risk to the Group relating to the COVID-19 pandemic, the credit loss allowance recognised in the Consolidated Income Statement
as at 31 December 2021 is a credit of €4million (2020: €25 million charge). The total provision for impairment loss at 31 December 2021 represents 2.4%
(2020: 3.8%) of gross tradereceivables.
On that basis, the loss allowance as at 31 December 2021 was determined as follows for trade receivables:
2021 2020
Current
€m
1 to 90 Days
Past Due
€m
More Than
90 Days Past
Due
€m
Total
€m
Current
€m
1 to 90 Days
Past Due
€m
More Than
90 Days Past
Due
€m
Total
€m
Gross carrying amount 1,586 222 22 1,830 1,196 165 26 1,387
Loss allowance 6 16 22 44 8 19 26 53
Impairment losses in respect of trade receivables are included in administrative expenses in the Consolidated Income Statement. Trade receivables written
off as uncollectable are generally eliminated from trade receivables and the loss allowance when there is no expectation of recovering additional cash.
Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group
and a pattern of failure to make contractual payments.
Trade receivables with a contractual amount of €5 million (2020: €3 million) written off during the period are still subject to enforcement activity.
20. Net Movement in Working Capital
2021
€m
2020
€m
Change in inventories (246) 14
Change in trade and other receivables (492) 22
Change in trade and other payables 624 59
Net movement in working capital (114) 95
21. Movements of Liabilities Within Cash Flows Arising from Financing Activities and Net Debt Reconciliation
Liabilities from Financing Activities Adjustments
Short-term
Borrowings
€m
Long &
Medium-
term
Borrowings
€m
Lease
Liabilities
€m
Derivatives
Held to
Hedge
Long-term
Borrowings
€m
Changes in
Liabilities
Arising from
Financing
Activities
€m
Derivatives
Held to
Hedge
Long-term
Borrowings
€m
Cash and
Cash
Equivalents
€m
Restricted
Cash
€m
Net Debt
€m
At 1 January 2020 (90) (3,202) (377) (3) (3,672) 3 172 14 (3,483)
Cash flows 34 298 91 (9) 414 9 685 (4) 1,104
Acquired (1) – – – (1) – – – (1)
Currency translation adjustment 11 41 14 1 67 (1) 19 – 85
Other non-cash movements (10) 4 (74) 6 (74) (6) – – (80)
At 31 December 2020 (56) (2,859) (346) (5) (3,266) 5 876 10 (2,375)
Cash flows
*
25 (405) 88 (9) (301) 9 (37) 4 (325)
Acquired (13) (8) (5) – (26) – – – (26)
Disposed 3 – – – 3 – – – 3
Currency translation adjustment 3 (29) (12) 10 (28) (10) (12) – (50)
Other non-cash movements (7) – (105) (1) (113) 1 – – (112)
At 31 December 2021 (45) (3,301) (380) (5) (3,731) 5 827 14 (2,885)
* In 2021, €9 million of cash flows pertaining to the redemption of debt was classified as an operating cash flow within interest paid.
160
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
22. Cash and Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
2021
€m
2020
€m
Cash and current accounts 100 67
Short-term deposits 755 824
Cash and cash equivalents 855 891
Cash and cash equivalents for the purposes of the Consolidated Statement of Cash Flows
Cash and cash equivalents 855 891
Bank overdrafts and demand loans used for cash management purposes (28) (15)
Cash and cash equivalents in the Consolidated Statement of Cash Flows 827 876
Restricted cash 14 10
At 31December2021, cash of €6 million (2020: €3million) was held in restricted securitisation bank accounts which were not available for transfer to other
Group subsidiaries or for use outside theGroup. A further €8 million (2020: €7 million) of restricted cash was held in other Group subsidiaries and by a trust
which facilitates the operation of the Group’s long-term incentive plans.
23. Capital and Reserves
Share Capital
The authorised share capital of the Company comprises ordinary shares and various classes of convertible shares.
Restriction on Transfer of Shares
The Directors, at their absolute discretion and without assigning any reason therefore, may decline to register any transfer of a share which is not fully paid or
any transfer to or by a minor or person of unsound mind but this shall not apply to a transfer of such a share resulting from a sale of the share through a stock
exchange on which the share is listed.
Subject to certain exceptions, the Directors may also refuse to register any instrument of transfer (whether or not it is in respect of a fully paid share) unless
it is: a) lodged at the Registered Office or at such other place as the Directors may appoint; b) accompanied by the certificate for the shares to which it relates
and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer; c) in respect of only one class of
shares; and d) in favour of not more than four transferees.
All convertible shares (classes B, C, D convertible shares) are subject to restrictions as to their transferability. Generally they are not transferable either
at all or without consent of the Directors, save by transmission on the death of a holder.
Ordinary Shares
Subject to the Articles of Association of SKG plc, the holders of ordinary shares are entitled to share in any dividends in proportion to the number of shares
held by them and are entitled to one vote for every share held by them at a general meeting. On a return of capital (whether on repayment of capital,
liquidation or otherwise) the assets and/or capital legally available to be distributed shall firstly be distributed amongst the holders of ordinary shares,
in proportion to the number of ordinary shares held by them, of the nominal value of their ordinary shares, secondly (to the extent available) distributed
amongst the holders of convertible shares, in proportion to the number of convertible shares held by them, of the nominal value of their convertible
shares and the balance (if any) shall be distributed amongst the holders of ordinary shares in proportion to the number of ordinary shares held by them.
Convertible Shares
The holders of convertible shares have no right to participate in the profits of SKG plc and are not entitled to receive notice of, attend or vote at general
meetings or to vote on any members’ resolution (save for any resolution with regard to the rights of convertible shares). On return of capital (whether on
repayment of capital, liquidation or otherwise) the assets and/or capital legally available to be distributed shall, subject first to the rights of the holders of
ordinary shares be distributed amongst the holders of convertible shares, in proportion to the number of convertible shares held by them, of the nominal
value of their convertible shares. At 31 December 2020, all exercisable convertible shares had lapsed and are no longer convertible into ordinary shares.
Restriction of Rights
If the Directors determine that a Specified Event as defined in the Articles of Association of SKG plc has occurred in relation to any share or shares, the
Directors may serve a notice to such effect on the holder or holders thereof. Upon the expiry of fourteen days from the service of any such notice, for so long
as such notice shall remain in force no holder or holders of the share or shares specified in such notice shall, in relation to such specified shares, be entitled to
attend, speak or vote either personally, by representative or by proxy at any general meeting of the Company or at any separate general meeting of the class
of shares concerned or to exercise any other right conferred by membership in relation to any such meeting.
The Directors shall, where the shares specified in such notice represent not less than 0.25 per cent of the class of shares concerned, be entitled: to withhold
payment of any dividend or other amount payable (including shares issuable in lieu of dividend) in respect of the shares specified in such notice; and/or to
refuse to register any transfer of the shares specified in such notice or any renunciation of any allotment of new shares or debentures made in respect
thereof unless such transfer or renunciation is shown to the satisfaction of the Directors to be a bona fide transfer or renunciation to another beneficial
owner unconnected with the holder or holders or any person appearing to have an interest in respect of which a notice has been served.
161
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
23. Capital and Reserves continued
Restriction of Rights continued
2021
€m
2020
€m
Authorised
Ordinary shares
9,910,931,085 Ordinary shares of €0.001 each 10 10
Convertible shares of €0.001 each
2,356,472 Class A1 – –
2,356,471 Class A2 – –
2,355,972 Class A3 – –
30,000,000 Class B – –
30,000,000 Class C – –
75,000,000 Class D – –
10 10
Called Up, Issued and Fully Paid Share Capital of the Company
Numbers of Shares of €0.001 Each
€m
Convertible Shares
Ordinary Shares
Total
SharesClass B Class C Class D Total
At 1 January 2020 2,089,514 2,089,514 835,500 5,014,528 237,888,327 242,902,855 –
Class D shares converted to ordinary shares – – (49,014) (49,014) 49,014 – –
Issue of Deferred Annual Bonus Plan Matching Shares – – – – 630,591 630,591 –
Issue of new shares – – – – 19,411,765 19,411,765 –
At 31 December 2020 2,089,514 2,089,514 786,486 4,965,514 257,979,697 262,945,211 –
At 1 January 2021 2,089,514 2,089,514 786,486 4,965,514 257,979,697 262,945,211 –
Issue of Performance Share Plan shares – – – – 1,054,062 1,054,062 –
At 31 December 2021 2,089,514 2,089,514 786,486 4,965,514 259,033,759 263,999,273 –
At 31 December 2021, ordinary shares represented 98.1% and convertible shares represented 1.9% of issued share capital (2020:98.1% and 1.9% respectively).
The called up, issued and fully paid share capital of the Company at 31 December 2021 was €263,999 (2020:€262,945).
The exercisable period of Class D convertible shares ended on 31 December 2020, any shares not converted into ordinary shares at that date have lapsed.
The Company completed the placing of 19,411,765 shares in November 2020. The placing shares represented 8.1% of the Company’s issued ordinary share
capital immediately prior to the placing and raised gross proceeds of €660million. Transaction costs of €12 million in relation to the placing were deducted
from retained earnings.
Share Premium
Share premium of €2,646 million (2020: €2,646 million) relates to the share premium arising on share issues.
Other Reserves
Other reserves included in the Consolidated Statement of Changes in Equity are comprised of the following:
Reverse
Acquisition
Reserve
€m
Cash Flow
Hedging
Reserve
€m
Cost of
Hedging
Reserve
€m
Foreign
Currency
Translation
Reserve
€m
Share-
based
Payment
Reserve
€m
Own
Shares
€m
FVOCI
Reserve
€m
Total
€m
At 1 January 2021 575 4 2 (556) 241 (49) (10) 207
Other comprehensive income
Foreign currency translation adjustments – – – 15 – – – 15
Effective portion of changes in fair value of
cashflow hedges – (3) – – – – – (3)
Changes in fair value of cost of hedging – – (1) – – – – (1)
Total other comprehensive (expense)/income – (3) (1) 15 – – – 11
Share-based payment – – – – 64 – – 64
Net shares acquired by SKG Employee Trust – – – – – (22) – (22)
Shares distributed by SKG Employee Trust – – – – (12) 12 – –
At 31 December 2021 575 1 1 (541) 293 (59) (10) 260
162
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
23. Capital and Reserves continued
Other Reserves continued
Reverse
Acquisition
Reserve
€m
Cash Flow
Hedging
Reserve
€m
Cost of
Hedging
Reserve
€m
Foreign
Currency
Translation
Reserve
€m
Share-based
Payment
Reserve
€m
Own
Shares
€m
FVOCI
Reserve
€m
Total
€m
At 1 January 2020 575 (2) 2 (387) 215 (42) (10) 351
Other comprehensive income
Foreign currency translation adjustments – – – (161) – – – (161)
Effective portion of changes in fair value of
cashflow hedges – 6 – – – – – 6
Total other comprehensive income/(expense) – 6 – (161) – – – (155)
Purchase of non-controlling interest – – – (8) – – – (8)
Share-based payment – – – – 35 – – 35
Net shares acquired by SKG Employee Trust – – – – – (16) – (16)
Shares distributed by SKG Employee Trust – – – – (9) 9 – –
At 31 December 2020 575 4 2 (556) 241 (49) (10) 207
Reverse Acquisition Reserve
This reserve arose on the creation of a new parent of the Group prior to listing.
Cash Flow Hedging Reserve
This reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (net of tax) related to hedged
transactions that have not yet occurred.
Cost of Hedging Reserve
The cost of hedging reserve reflects the gain or loss on the portion excluded from the designated hedging instrument that relates to the currency basis
spread on foreign exchange contracts. It is initially recognised in other comprehensive income and accounted for similarly to gains or losses in the cash flow
hedging reserve.
Foreign Currency Translation Reserve
This reserve comprises all foreign currency translation adjustments arising from the translation of the Group’s net investment in foreign operations as well
as from the translation of liabilities that hedge those net assets.
Share-based Payment Reserve
This reserve represents the amounts credited to equity in relation to the share-based payment expense recognised in the Consolidated Income Statement,
net of deferred shares distributed by the SKG Employee Trust to participants of the Deferred Annual Bonus Plan.
Own Shares
This represents ordinary shares acquired by the SKG Employee Trust under the terms of the Deferred Annual Bonus Plan and the Deferred Bonus Plan.
Numbers of Shares
of €0.001 Each
2021 2020
At 1 January 1,734,281 1,592,024
Shares acquired by SKG Employee Trust 534,005 494,288
Shares distributed by SKG Employee Trust (293,810) (352,031)
At 31 December 1,974,476 1,734,281
As at 31 December 2021, the nominal value of own shares held was €1,974 (2020: €1,734). In 2021, own shares were purchased at an average price of
€40.24 (2020: €33.91) per share. The number of own shares held represents 0.7% (2020: 0.7%) of the total called up share capital of the Company.
Each of these have the same nominal value as the ordinary shares.
FVOCI Reserve
Equity instruments are measured at fair value with fair value gains and losses recognised in other comprehensive income. These changes are accumulated
within the FVOCI reserve within equity. The Group transfers amounts from this reserve to retained earnings when the relevant equity securities
arederecognised.
163
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
24. Borrowings
Analysis of Total Borrowings
2021
€m
2020
€m
Revolving credit facility – interest at relevant interbank rate (interest rate floor of 0%) + 0.65%
1,2
2 89
US$292.3 million 7.5% senior debentures due 2025 (including accrued interest) 260 240
Bank loans and overdrafts 101 83
€100 million receivables securitisation variable funding notes due 2026 (including accrued interest)
3,5
4 4
€230 million receivables securitisation variable funding notes due 2026
4,5
11 11
€500 million 2.375% senior notes due 2024 (including accrued interest)
6
– 501
€250 million 2.75% senior notes due 2025 (including accrued interest)
6
251 251
€1,000 million 2.875% senior notes due 2026 (including accrued interest)
6
1,007 1,005
€750 million 1.5% senior notes due 2027 (including accrued interest)
6
747 746
€500 million 0.5% senior green notes due 2029 (including accrued interest)
6
495 –
€500 million 1.0% senior green notes due 2033 (including accrued interest)
6
496 –
Leases 380 346
Total borrowings 3,754 3,276
Analysed as follows:
Current 165 154
Non-current 3,589 3,122
3,754 3,276
1 The sustainability linked Revolving Credit Facility (‘RCF’) has a maturity of January 2026. At 31 December 2021, the following amounts were drawn under this facility:
(a) Revolver loans – €7 million.
(b) Drawn under ancillary facilities and facilities supported by letters of credit – nil.
(c) Other operational facilities including letters of credit – nil.
2 Following the upgrade to Baa3 and BBB- by Moody’s and Standard & Poor’s respectively in February 2021, the margin on the RCF reduced from 0.817% to 0.65%.
3 At 31 December 2021, the amount drawn under this facility was €5 million.
4 At 31 December 2021, the amount drawn under this facility was €13 million.
5 Secured loans and long-term obligations.
6 Unsecured loans and long-term obligations.
Included within the carrying value of borrowings are deferred debt issue costs of €33 million (2020: €32 million), all of which will be recognised in finance costs
in the Consolidated Income Statement using the effective interest rate method over the remaining life of the borrowings.
Committed facilities (excluding short-term sundry bank loans and overdrafts) amounted to €5,006 million (2020: €4,584 million) of which €3,351 million
(2020: €2,922 million) was utilised at 31December2021. The weighted average period until maturity of undrawn committed facilities is 4.2years (2020:4.3years).
Maturity of Undrawn Committed Facilities
2021
€m
2020
€m
Within 1 year – –
Between 1 and 2 years – 195
More than 2 years 1,655 1,467
1,655 1,662
The Group’s primary sources of liquidity are cash flows 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.
The Group’s borrowing agreements contain certain covenants that restrict the Group’s flexibility in certain areas such as incurrence of additional
indebtedness and the incurrence of liens. The Group’s borrowing agreements also contain financial covenants, the primary ones being a maximum net
borrowings to EBITDA of 3.75 times and a minimum EBITDA to net interest of 3.00 times. The Group is in full compliance with the requirements of its
covenant agreements throughout each of the periods presented. At 31 December 2021, as defined in the relevant facility agreement, net borrowings
to EBITDA was 1.7 times (2020: 1.7 times) and EBITDA to net interest was 15.3 times (2020: 12.6 times).
In December 2020, the Group aligned its sustainability ambitions and targets into its financing by embedding its sustainability targets via Key Performance
Indicators ('KPIs') into its RCF. The RCF incorporates five KPIs spanning the Group's sustainability objectives regarding climate change, forests, water, waste
and people, with the level of KPI achievement linked to the pricing on the facility.
In April 2021, the Group amended and extended its €200 million 2022 trade receivables securitisation programme, which utilises the Group’s receivables
in Austria, Belgium, Italy and the Netherlands. The programme was extended to January 2026 at a reduced facility size of €100 million and with a margin
reduction from 1.375% to 1.1%. Receivables generated by certain of the Group's operating companies in Austria, Belgium, Italy and the Netherlands are
sold to a special purpose Group subsidiary to support the funding. A conduit of Coöperatieve Rabobank U.A.(trading as Rabobank) provides €77 million
of the funding and a conduit of Landesbank Hessen-Thüringen Girozentrale (trading as Helaba Bank) provides €23 million of the funding.
164
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
24. Borrowings continued
Maturity of Undrawn Committed Facilities continued
In November 2021, the Group amended and extended its €230 million 2023 trade receivables securitisation programme, which utilises the Group’s
receivables in France, Germany and the UK. The programme was extended to November 2026, with the facility size remaining at €230 million and with
a margin reduction from 1.2% to 1.1%. Receivables generated by certain of the Group's operating companies in the UK, Germany and France are sold
to a special purpose entity to support funding provided by Lloyds Bank plc.
As part of the amendment process for each of these programmes, the Group further aligned its sustainability ambitions and targets into its financing by
embedding its sustainability targets via KPIs into the amended and extended trade receivables programme. These programmes now incorporate five KPIs
spanning the Group’s sustainability objectives regarding climate change, forests, water, waste and people, with the level of KPI achievement linked to the
pricing on the programme. The amendments to these programmes were not considered to be substantial modifications.
The sale of the securitised receivables under the Group’s securitisation programmes is not intended to, and does not, meet the requirements for
derecognition under IFRS 9, with the result that the sold receivables continue to be shown on the face of the Consolidated Balance Sheet and the notes
issued which fund the purchase of these receivables continue to be shown as liabilities.
The gross amount of receivables collateralising the €100 million 2026 trade receivables securitisation programme at 31 December 2021 was €335 million
(2020: €270 million). The gross amount of receivables collateralising the €230 million 2026 trade receivables securitisation programme at 31 December 2021
was €430 million (2020: €340million). As the Group retains a subordinated interest in the securitised receivables, the Group remains exposed to the credit
risk of the underlying securitised receivables. Further details are set out in Note 29. In accordance with the contractual terms, the counterparty has recourse
to the securitised debtors only. Given the short-term nature of the securitised debtors and the variable floating notes, the carrying amount of the securitised
debtors and the associated liabilities reported on the Consolidated Balance Sheet is estimated to approximate to fair value. At 31December2021, cash of
€6million (2020: €3 million) was held in securitisation bank accounts which was not available for transfer to other Group subsidiaries or outside entities.
The following table sets out the average interest rates at 31 December 2021 and 2020 for the Group's drawings under the RCF.
Currency
2021
Interest
Rate
2020
Interest
Rate
RCF EUR n/a 0.82%
RCF US$ 0.75% 1.05%
Borrowings under the RCF are available to fund the Group’s working capital requirements, capital expenditure and other general requirements.
Following the launch of the Group’s Green Finance Framework in September 2021, the Group issued a €1 billion dual tranche inaugural green bond
comprising €500 million 0.5% notes maturing 2029 and €500 million 1.0% notes maturing 2033.
The net proceeds from these bonds will be used to finance and/or refinance a portfolio of eligible assets and expenditures ("Eligible Green Projects") in accordance
with the Group’s Green Finance Framework. This framework, which received an independent second party opinion from ISS ESG, is aligned with the Green
Bond and Green Loan Principles.
Under the Group's Green Finance Framework, Eligible Green Projects include circular economy adapted products, production technologies and processes
and/or certified eco-efficient products, such as: (i) reclamation of used fibres; (ii) recycling of used fibres; (iii) paper milling; and (iv) packaging conversion.
In addition, Eligible Green Projects include the environmentally sustainable management of living natural resources and land use, such as the procurement
of responsibly-sourced raw materials or ingredients (like wood, pulp, paper and recovered paper) and the utilisation of forests and raw materials certified in
accordance with (i) Forest Stewardship Council ('FSC') standards; (ii) Sustainable Forestry Initiative ('SFI'); and (iii) Programme for the Endorsement of Forest
Certification ('PEFC').
Additionally, in September 2021, the Group redeemed €500 million 2.375% senior notes due 2024.
Certain other maturity, interest rate repricing and key terms relating to the Group’s borrowings have been set out in Note29.
25. Employee Benefits
The Group operates both defined benefit and defined contribution pension plans throughout its operations in accordance with local requirements and
practices. These plans have broadly similar regulatory frameworks. The major plans are of the defined benefit type and are funded by payments to separately
administered funds. In these defined benefit plans, the level of benefits available to members depends on length of service and their average salary over their
period of employment or their salary in the final years leading up to retirement or leaving. While the majority of the defined benefit plans are funded, in certain
countries, such as Germany, Austria and France, plan liabilities are for the most part unfunded and recognised as liabilities in the Consolidated Balance Sheet.
In these countries, a full actuarial valuation of the unfunded liabilities is undertaken by independent actuaries on an annual basis. Responsibility for governance
of the plans, including investment decisions and contribution schedules, lies with the company and the boards of trustees.
The most significant defined benefit plans are in the United Kingdom, the Netherlands, Ireland and Germany. They represent respectively 34%, 31%,
12% and 12% of the obligation thereby totalling more than 89% of the obligation.
165
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
25. Employee Benefits continued
The most recent valuation of the significant funded plans are as follows:
Ireland 1 January 2019
Netherlands 31 December 2021
United Kingdom 31 March 2020
In accordance with statutory and minimum funding requirements, additional annual contributions are required to be made to the schemes in place in Ireland, the
United Kingdom and the Netherlands. The funding requirements are agreed between the company, the trustees and the relevant regulator. The contributions
in respect of these schemes are included in the expected contributions for the year ending 31 December 2022 outlined on page 168.
The expense for defined contribution pension plans for the year ended 31 December 2021 was €66 million (2020: €66 million).
The following is a summary of the Group’s employee benefit obligations and their related funding status:
2021
€m
2020
€m
Present value of funded or partially funded obligations (2,384) (2,529)
Fair value of plan assets 2,276 2,224
Deficit in funded or partially funded plans (108) (305)
Present value of wholly unfunded obligations (520) (546)
Amounts not recognised as assets due to asset ceiling (2) (2)
Net pension liability (630) (853)
In determining the defined benefit costs and obligations, all valuations are performed by independent actuaries using the projected unit credit method.
Financial Assumptions
The main actuarial assumptions used to calculate liabilities under IAS 19, Employee Benefits at 31 December 2021 and 31 December 2020 are as follows:
Eurozone Rest of Europe The Americas
2021
%
2020
%
2021
%
2020
%
2021
%
2020
%
Rate of increase in salaries 0.25 – 3.05 0.25 – 2.50 2.50 – 4.50 2.50 – 4.50 0.99 – 5.50 0.69 – 5.50
Rate of increase to pensions in payment Nil – 2.00 Nil – 1.50 Nil – 2.52 Nil – 2.49 Nil – 4.59 Nil – 3.37
Discount rate for plan liabilities 1.15 0.60 1.15 – 4.00 0.60 – 4.20 2.22 – 11.50 1.91 – 9.25
Inflation 2.00 1.35 2.00 – 2.60 1.50 – 2.50 0.49 – 4.59 0.19 – 4.00
Mortality Assumptions
In assessing the Group’s post retirement liabilities, the mortality assumptions chosen for the principal plans above are based on the country’s population
mortality experience, large pension scheme mortality experience and the plan’s own mortality experience. The mortality assumption adopted in the
UnitedKingdom for 2021 allows for the most recent projection model factors. The effect is a minor decrease in life expectancy compared to 2020. In the
Netherlands, the mortality improvement factors were aligned with those set by the pension fund in 2021 following the mortality table update in 2020.
In Ireland, the assumptions used were unchanged from the 2019 actuarial valuation. In Germany, the mortality table, which was updated in 2018, is that
laid down by statutory authorities. Note that in all cases described here, the mortality tables used allow for future improvements in life expectancy.
The current life expectancies underlying the valuation of the plan liabilities for the significant plans are as follows:
Ireland United Kingdom Germany Netherlands
2021 2020 2021 2020 2021 2020 2021 2020
Longevity at age 65 for current pensioners (years)
Male 21.9 21.8 20.3 20.3 20.5 20.4 20.7 20.6
Female 24.3 24.2 22.7 22.7 24.0 23.8 23.4 23.3
Longevity at age 65 for current member aged 45 (years)
Male 24.2 24.1 21.2 21.4 23.3 23.1 22.8 22.7
Female 26.3 26.2 23.9 23.9 26.2 26.1 25.3 25.2
The mortality assumptions for other plans are based on relevant standard mortality tables in each country.
Sensitivity Analysis
The following table illustrates the key sensitivities to the amounts included in the Consolidated Balance Sheet which would arise from adjusting certain key
actuarial assumptions. The sensitivity of the defined benefit obligation to changes in actuarial assumptions has been calculated using the projected unit
credit method, which is the same method used to calculate the pension liability in the Consolidated Balance Sheet. The methods and assumptions used
in preparing the sensitivity analysis have not changed compared to the prior year. In each case all the other assumptions remain unchanged:
166
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
25. Employee Benefits continued
Sensitivity Analysis continued
Change in Assumption
Increase/(Decrease)
in Pension Liabilities
2021
€m
2020
€m
Increase discount rate by 0.25% (117) (128)
Decrease discount rate by 0.25% 124 137
Increase inflation rate by 0.25% 45 47
Decrease inflation rate by 0.25% (44) (45)
Increase in life expectancy by one year 120 136
The sensitivity information shown above has been determined by performing calculations of the liabilities using different assumptions.
Analysis of Plan Assets and Liabilities
Plan assets are comprised as follows:
2021 2020
Quoted
€m
Unquoted
€m
Total
€m
Quoted
€m
Unquoted
€m
Total
€m
Equities 794 – 794 703 – 703
Corporate bonds 423 – 423 457 – 457
Government bonds 488 – 488 514 – 514
Property 105 4 109 57 4 61
Cash 166 – 166 41 – 41
Insurance contracts – 37 37 127 38 165
Liability driven investment 116 – 116 119 – 119
Other 121 22 143 149 15 164
2,213 63 2,276 2,167 57 2,224
Included in plan assets at 31 December 2021 under Property is an amount of €3.7 million (2020: €3.5 million) relating to the Gosport plant in the UnitedKingdom.
This is the only self-investment in the Group by the defined benefit plans.
The remeasurement gain on plan assets for the year ended 31 December 2021 was €110 million (2020: €170 million).
An analysis of the assets held by the plans is as follows:
31 December 2021
Eurozone
€m
Rest of
Europe
€m
The
Americas
€m
Total
€m
Equities 463 318 13 794
Corporate bonds 201 190 32 423
Government bonds 324 159 5 488
Property 65 43 1 109
Cash (9) 169 6 166
Insurance contracts 33 4 – 37
Liability driven investment 79 29 8 116
Other 69 71 3 143
Fair value of plan assets 1,225 983 68 2,276
Present value of plan liabilities (1,757) (1,052) (95) (2,904)
Amounts not recognised as assets due to asset ceiling – (2) – (2)
Net pension liability (532) (71) (27) (630)
31 December 2020
Eurozone
€m
Rest of
Europe
€m
The
Americas
€m
Total
€m
Equities 426 250 27 703
Corporate bonds 203 223 31 457
Government bonds 276 233 5 514
Property 36 24 1 61
Cash 24 16 1 41
Insurance contracts 161 4 – 165
Liability driven investment 59 60 – 119
Other 94 70 – 164
Fair value of plan assets 1,279 880 65 2,224
Present value of plan liabilities (1,906) (1,068) (101) (3,075)
Amounts not recognised as assets due to asset ceiling – (2) – (2)
Net pension liability (627) (190) (36) (853)
167
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
25. Employee Benefits continued
Analysis of the Amount Charged in the Consolidated Income Statement
The following tables set out the components of the defined benefit cost:
2021
€m
2020
€m
Current service cost 33 29
Administrative expenses 4 5
Past service cost – exceptional UK
*
– (15)
Past service cost – other (4) 3
Gain on settlement (3) (2)
Actuarial (gain)/loss arising on other long-term employee benefits (1) 1
Charged to operating profit 29 21
Net interest cost on net pension liability 7 12
36 33
* Future pension increase are now linked to CPIH instead of RPI in the UK which resulted in an exceptional income in past service cost for the Group of €15 million in 2020.
The defined benefit cost for 2021 includes a defined benefit cost of €4 million (2020: €7 million) which relates to other long-term employee benefits.
The expense recognised in the Consolidated Income Statement is charged to the following line items:
2021
€m
2020
€m
Cost of sales 12 20
Distribution costs and administrative expenses 17 16
Other operating expenses – (15)
Finance costs 7 12
36 33
Analysis of Actuarial Gains/(Losses) Recognised in the Consolidated Statement of Comprehensive Income
2021
€m
2020
€m
Return on plan assets (excluding interest income) 110 170
Actuarial gain due to experience adjustments 6 34
Actuarial gain/(loss) due to changes in financial assumptions 54 (224)
Actuarial gain due to changes in demographic assumptions 7 11
177 (9)
Movement in Present Value of Defined Benefit Obligation
2021
€m
2020
€m
At 1 January (3,075) (3,007)
Current service cost (33) (29)
Contributions by plan participants (5) (5)
Interest cost (29) (42)
Actuarial gains and losses 68 (180)
Disposals – 1
Benefits paid by plans 109 104
Past service cost 4 12
Acquisitions (4) –
Decrease arising on settlement 135 8
Foreign currency translation adjustment (74) 63
At 31 December (2,904) (3,075)
Movement in Fair Value of Plan Assets
2021
€m
2020
€m
At 1 January 2,224 2,109
Interest income on plan assets 22 30
Return on plan assets (excluding interest income) 110 170
Administrative expenses (4) (5)
Contributions by employer 93 75
Contributions by plan participants 5 5
Disposals – (1)
Benefits paid by plans (109) (104)
Decrease arising on settlements (132) (6)
Foreign currency translation adjustment 67 (49)
At 31 December 2,276 2,224
168
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
25. Employee Benefits continued
Movement in Asset Ceiling
2021
€m
2020
€m
At 1 January (2) (1)
Variations of the effect of the asset ceiling limit – (1)
At 31 December (2) (2)
Employee Benefit Plan Risks
The employee benefit plans expose the Group to a number of risks, the most significant of which are:
Asset Volatility The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If assets underperform
this yield, this will create a deficit. The plans hold a significant proportion of equities which, though expected to outperform
corporate bonds in the long-term, create volatility and risk in the short-term. The allocation to equities is monitored to ensure
it remains appropriate given the plans’ long-term objectives.
Changes in Bond Yields A decrease in corporate bond yields will increase the value placed on the plans’ liabilities, although this will be partially offset
by an increase in the value of the plans’ bond holdings.
Inflation Risk The plans’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases,
caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are
either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.
Life Expectancy The majority of the plans’ obligations are to provide benefits based on the life of the member, so increases in life expectancy
will result in an increase in the liabilities.
In the case of the funded plans, the Group ensures that the investment positions are managed with an asset-liability matching (‘ALM’) framework that has
been developed to achieve long-term investments that are in line with the obligations under the pension schemes. Within this framework, the Group’s ALM
objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as
they fall due and in the appropriate currency.
Maturity Analysis
The expected maturity analysis is set out in the table below:
Expected benefit payments:
United
Kingdom
Projected
Amounts
€m
Netherlands
Projected
Amounts
€m
Germany
Projected
Amounts
€m
Ireland
Projected
Amounts
€m
Other
Projected
Amounts
€m
Financial year 2022 47 13 18 10 16
Financial year 2023 48 19 18 10 17
Financial years 2024 – 2026 151 61 54 32 61
Financial years 2027 – 2031 272 123 80 62 116
The weighted average duration of the defined benefit obligation at 31 December 2021 is 16.90 years (2020: 17.36 years).
Most of the plans are closed to new entrants and therefore, under the projected unit credit method, the current service cost is expected to increase (all other
elements remaining equal) as the members approach retirement and to decrease as members retire or leave service. With plans in Ireland and the UK being
frozen for future service, this risk no longer applies for these countries.
The expected employee and employer contributions for the year ending 31 December 2022 for the funded schemes are €6 million and €68 million
respectively. The expected employer contributions for unfunded schemes for the year ending 31 December 2022 are €25 million and the expected benefit
payments made directly by the employer in respect of funded plans for the year ending 31 December 2022 are €1 million.
26. Share-based Payment
Share-based Payment Expense Recognised in the Consolidated Income Statement
2021
€m
2020
€m
Charge arising from the Deferred Annual Bonus Plan & Deferred Bonus Plan 21 16
Charge arising from the Performance Share Plan 43 19
64 35
Social charges relating to equity settled share-based payments in 2021 are €5 million (2020: €2 million).
The Group grants equity settled share-based payments to employees as part of their remuneration. The accounting for share-based payment expense falls
under IFRS 2, Share-based Payment. Under IFRS2, when share awards are subject to vesting conditions, the related expense is recognised in profit or loss
over the vesting period.
In 2021, awards were made under the two active plans; the Deferred Bonus Plan (‘DBP’) and the Performance Share Plan (‘PSP’). No awards were granted
under the legacy plans; the Deferred Annual Bonus Plan (‘DABP’) and the 2007 Share Incentive Plan (‘2007 SIP’).
169
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Overview Strategic Report Governance Financial Statements Supplementary Information
26. Share-based Payment continued
Deferred Bonus Plan
In May 2018, the SKG plc Annual General Meeting approved the adoption of the DBP which replaced the deferred element of the existing long-term incentive
plan, the DABP.
Participants may be granted an award up to 150% of salary (other than a recruitment award). The actual bonus earned in any financial year is based on the
achievement of clearly defined stretching annual financial targets for some of the Group’s Key Performance Indicators (‘KPIs’). For 2021, these were Earnings
before Interest and Tax (‘EBIT’), Free Cash Flow (‘FCF’), together with targets for Health and Safety, People and ESG and personal/strategic targets for the
executive Directors.
The structure of the plan is that 50% of any annual bonus earned for a financial year will be deferred into SKG plc shares (‘Deferred Shares’) to be granted in
the form of a Deferred Share Award. The Deferred Shares will vest (i.e. become unconditional) after a three-year holding period based on a service condition
of continuity of employment or in certain circumstances, based on normal good leaver provisions.
Deferred Share Awards were granted in 2021 to eligible employees in respect of the financial year ended 31 December 2020. The fair value of the Deferred
Share Awards granted in 2021 was €40.24 (2020: €33.91) which was the market value of the deferred shares granted. At 31 December 2021, there were
1,940,041 outstanding shares (2020: 1,423,365 shares). During 2021, 528,447 shares were granted under the DBP scheme (2020: 492,464 shares).
The total DBP charge for the year comprises a charge pertaining to the Deferred Share Awards granted in respect of 2018, 2019, 2020 and to be granted
in respect of 2021.
Performance Share Plan
In May 2018, the SKG plc Annual General Meeting approved the adoption of the PSP, which replaced the existing long-term incentive plan, the matching
element of the DABP.
Participants may be granted an award up to 250% of salary (other than a recruitment award). Awards may vest after a three-year performance period to the
extent to which the performance conditions have been met. Awards may also be subject to an additional holding period following vesting (of up to two years).
At the end of the relevant holding period, the PSP awards will be released (i.e.becomeunconditional) to the participant.
The performance targets assigned to the PSP awards are set by the Remuneration Committee on the granting of awards at the start of each three-year
cycle and are set out in the Remuneration Report.
The actual number of shares that will vest under the PSP is dependent on the performance conditions of the Group’s EPS, ROCE, Total Shareholder
Return (‘TSR’) (relative to a peer group) and for the 2021 PSP scheme, Sustainability targets measured over the same three-year performance period.
PSP performance conditions will be reviewed at the end of the three-year performance period and the PSP shares awarded will vest depending upon the
extent to which these performance conditions have been satisfied.
The fair values assigned to the EPS, ROCE and Sustainability components of the PSP are equivalent to the share price on the date of award.
The Monte Carlo simulation approach was used to calculate the fair value of the TSR component of the PSP award at the respective grant dates. The expected
volatility rate applied was based upon both the historical and implied share price volatility levels of the Group. For the 2021 award, a rate of 19.13% was used
(2020 award: 38.6%). The risk free interest rate used for the 2021 award was (0.468%) (2020 award: (0.305%)).
The total PSP charge for the year comprises a charge pertaining to the awards granted in 2019, 2020 and 2021.
A summary of the PSP schemes is presented below:
Number of Shares
Period to Earliest
Release Date
Fair Value of
EPS, ROCE and
Sustainability
Components
Fair Value of TSR
Component Initial Award
1
Net Outstanding At
31 December 2021
2
Granted in 2019 3 years €24.66 €12.78 1,883,477 1,898,623
Granted in 2020 3 years €26.70 €14.85 1,706,648 1,713,110
Granted in 2021 3 years €40.79
3
€16.11 1,113,325 1,125,412
1 Numbers represent the initial awards granted to employees. The Remuneration Committee has determined that dividend equivalents will accrue on awards under the PSP schemes.
Subject to satisfaction of the applicable performance criteria, such dividend equivalents will be released to participants in the form of additional shares on vesting.
2 Numbers include dividend equivalent shares accrued less share forfeitures to date.
3 Two grants of performance shares were made to the executive Directors in 2021; the first in March, with a second tranche granted in May to reflect the increased PSP opportunity
approved at the AGM as part of the 2021 Remuneration Policy. The share price of performance shares granted in March 2021 was €40.76; the share price of performance shares granted
in May 2021 was €43.93.
The PSP awards which were granted in 2019 vested in February 2022 and were distributed to the relevant employees. The market price at the date of vesting
was €46.26. Details of the performance targets and results for the three-year period to 31 December 2021 are set out in the Remuneration Report.
170
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
26. Share-based Payment continued
Deferred Annual Bonus Plan
In May 2011, the SKG plc Annual General Meeting approved the adoption of the 2011 DABP, which replaced the existing long-term incentive plan, the
2007SIP.
In 2018, the Group introduced the PSP which replaced the Matching Share Award and the DBP which replaced the deferred element of the DABP.
The Deferred Share Awards which were granted in 2018 in respect of the financial year ended 31 December 2017, vested in February 2021 and were
distributed to relevant employees. A total of 293,007 shares vested with a market price at the date of vesting of €39.77.
2007 Share Incentive Plan
This scheme has expired. At 31 December 2020, all exercisable convertible shares had lapsed and are no longer convertible into ordinary shares.
A summary of the activity under the 2007 SIP, as amended, for the period from 1 January 2020 to 31 December 2021 is presented below:
2021 2020
Number of
Convertible
Shares
Weighted
Average
Exercise Price
(€ per Share)
Number of
Convertible
Shares
Weighted
Average
Exercise Price
(€ per Share)
Outstanding at the beginning of the year – – 63,698 6.33
Lapsed during the year – – (14,684) 5.93
Exercised in the year – – (49,014) 6.44
Outstanding at the end of the year – – – –
Exercisable at the end of the year – – – –
There were no share conversions in 2021. The weighted average market price on the dates the convertible shares were exercised in the financial year ended
31 December 2020 was €30.42.
27. Provisions for Liabilities
2021
€m
2020
€m
Current 58 221
Non-current 35 50
93 271
Deferred and
Contingent
Consideration
€m
Restructuring
€m
Environmental
€m
Legal
€m
Other
€m
Total
€m
At 1 January 2021 47 27 5 154 38 271
Made – 5 – 1 14 20
Released – (3) (1) (1) (2) (7)
Utilised (35) (19) (1) (128) (7) (190)
Fair value adjustment (2) – – – – (2)
Currency – – – – 1 1
At 31 December 2021 10 10 3 26 44 93
Deferred and Contingent Consideration
Deferred and contingent consideration represents the deferred and contingent element of acquisition consideration payable. The balance at
31 December2021 relates to the acquisition of the following:
• Avala Ada and Fabrika Hartije Beograd, Serbia (2019) – deferred consideration of €10 million payable in 2022.
The amount utilised of €35 million mainly relates to the payment of the deferred contingent consideration for the remaining 25% of the Serbian business
at a cost of €33 million. The fair value adjustment amount of €2 million relates to the fair value gain on the valuation of the Serbian put option during 2021
(Note 29).
Restructuring
These provisions relate to irrevocable commitments in respect of restructuring programmes throughout the Group.
Environmental
Provisions for environmental costs mainly relate to the reinstatement of landfill sites and other remediation and improvement costs incurred in compliance
with either local or national environmental regulations together with constructive obligations stemming from established practice. The timing of settlement
of these provisions is not certain particularly where provisions are based on past practice and there is no legal obligation.
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Overview Strategic Report Governance Financial Statements Supplementary Information
27. Provisions for Liabilities continued
Legal
Legal represents provisions for certain legal claims brought against the Group by various parties. In August 2019, the Italian Competition Authority (‘ICA’)
notified a number of paper-packaging producers, of which Smurfit Kappa Italia S.p.A. (‘SKI’) was one, that an investigation had found the companies to have
engaged in anti-competitive practices, in relation to which the ICA levied a fine of €124 million on SKI. We were notified in May 2021 that our appeal against
the ICA decision was unsuccessful. The fine was paid in July 2021. We have filed a further appeal to the Council of State in Italy which is still pending. Legal
provisions are uncertain as to timing and amount as they are the subject of ongoing cases.
Other
Other comprises a number of provisions including: liabilities arising from dilapidations amounting to €7 million (2020: €6 million); employee compensation
in certain countries in which we operate amounting to €15 million (2020: €16 million); and numerous other items which are not individually material and are
not readily grouped together.
28. Trade and Other Payables
Group
2021
€m
Group
2020
€m
Company
2021
€m
Company
2020
€m
Amounts falling due within one financial year:
Trade payables 1,419 978 – –
Payroll taxes 43 44 – –
Value added tax 106 74 – –
Social insurance 47 49 – –
Accruals 741 561 – 5
Capital payables 155 93 – –
Other payables 52 36 – –
Amounts payable to Group companies – – 3 5
2,563 1,835 3 10
Amounts falling due after more than one financial year:
Other payables 11 9 – –
2,574 1,844 3 10
The fair values of trade and other payables are not materially different from their carrying amounts.
Amounts owed to Group companies are unsecured, interest free and are repayable on demand.
29. Financial Instruments
Financial Instruments by Category
The accounting policies for financial instruments have been applied to the line items below:
31 December 2021
Assets at
Amortised Cost
€m
Assets at Fair
Value Through
Profit or Loss
€m
Derivatives
Used for Hedging
€m
Total
€m
Assets per Consolidated Balance Sheet:
Listed and unlisted debt instruments – 11 – 11
Derivative financial instruments – 8 2 10
Trade and other receivables
*
2,006 – – 2,006
Cash and cash equivalents 855 – – 855
Restricted cash 14 – – 14
2,875 19 2 2,896
* Excludes statutory taxes and prepayments.
The financial assets of the Company of €233 million consist of assets at amortised cost.
172
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Financial Instruments by Category continued
31 December 2021
Liabilities at Fair
Value Through
Profit or Loss
€m
Derivatives
Used for Hedging
€m
Other Financial
Liabilities
€m
Total
€m
Liabilities per Consolidated Balance Sheet:
Borrowings – – 3,754 3,754
Derivative financial instruments 13 8 – 21
Trade and other payables
*
– – 2,082 2,082
Deferred consideration – – 10 10
13 8 5,846 5,867
* Excludes statutory taxes and employee benefits.
The financial liabilities of the Company of €3 million consist of other financial liabilities.
31 December 2020
Assets at
Amortised Cost
€m
Assets at Fair
Value Through
Profit or Loss
€m
Derivatives
Used for
Hedging
€m
Total
€m
Assets per Consolidated Balance Sheet:
Listed and unlisted debt instruments – 11 – 11
Derivative financial instruments – 19 19 38
Trade and other receivables
*
1,465 – – 1,465
Cash and cash equivalents 891 – – 891
Restricted cash 10 – – 10
2,366 30 19 2,415
* Excludes statutory taxes and prepayments.
The financial assets of the Company of €257 million consist of assets at amortised cost.
31 December 2020
Liabilities at Fair
Value Through
Profit or Loss
€m
Derivatives
Used for Hedging
€m
Other Financial
Liabilities
€m
Total
€m
Liabilities per Consolidated Balance Sheet:
Borrowings – – 3,276 3,276
Derivative financial instruments 9 21 – 30
Trade and other payables
*
– – 1,408 1,408
Deferred contingent consideration 35 – – 35
Deferred consideration – – 12 12
44 21 4,696 4,761
* Excludes statutory taxes and employee benefits.
The financial liabilities of the Company of €10 million consist of other financial liabilities.
Exposure to credit, interest rate, liquidity, energy and currency risks arise in the normal course of the Group’s business. Derivatives are generally used to
economically hedge exposure to fluctuations in these risks.
Key Financial Risks and Financial Risk Management Resulting from the Use of Financial Instruments and Related Sensitivity Analysis
Financial and Credit Risk Management
The operating parameters and policies of the Group’s treasury management function are established under formal Board authority. The Treasury Policy
covers the areas of funding, counterparty risk, foreign exchange, controls and derivatives. Risk arising on counterparty default is controlled within a
framework of dealing with high quality institutions and, by policy, limiting the amount of credit exposure to any one bank or institution. The Group uses
financial instruments, including fixed and variable rate debt to finance operations, for capital spending programs and for general corporate purposes.
Additionally, financial instruments, including derivative instruments are used to hedge exposure to interest rate, commodity and foreign currency risks.
Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item.
The Group does not use financial instruments for trading purposes. The Group mitigates the risk that counterparties to derivatives will fail to perform by
contracting with major financial institutions having high credit ratings and considers the likelihood of counterparty failure to be low. Trade debtors arise
from a wide and varied customer base. There is no significant concentration of credit risk amongst any of the Group’s most significant financial assets.
The Group also holds no collateral in respect of its principal credit exposures.
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Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Key Financial Risks and Financial Risk Management Resulting from the Use of Financial Instruments and Related Sensitivity Analysis
continued
The successful management of the Group’s currency and interest rate exposure depends on a variety of factors, some of which are outside its control.
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 foreign currencies. The Group manages interest rate exposure to achieve what management considers to be an appropriate balance of fixed and variable
rate funding. To achieve this objective the Group enters into interest rate swaps, options and forward rate agreements. Interest rate swap agreements are
primarily used to change the interest payable on its underlying borrowings from variable to fixed rate. Tables detailing the impact of any such swaps on the
Group’s financial instruments have been set out elsewhere in this note.
The Group manages its balance sheet having regard to the currency exposures arising from its assets being denominated in a wide range of currencies.
To this end, where foreign currency assets are funded by local borrowing, such borrowing is generally sourced in the currency of the related assets.
The Group also hedges currency exposure through the use of currency swaps, options and forward contracts. Tables detailing the impact of these
derivatives on the currency profile of the Group’s financial instruments have been set out elsewhere in this note.
Further details on certain specific financial risks encountered have been set out below.
Interest Rate Risk
The Group is exposed to changes in interest rates, primarily changes in Euribor. The revolving credit facility ('RCF') is variable rate debt, as are the Group’s
securitisation facilities. Interest rate changes therefore generally do not affect the market value of such debt but do impact the amount of the Group’s
interest payments and, therefore, its future earnings and cash flows, assuming other factors are held constant. At 31 December 2021, the Group had fixed
an average of 97% (2020: 94%) of its interest cost on borrowings over the following 12 months. Holding all other variables constant, if interest rates for these
borrowings increased by one percent, the Group’s interest expense would increase, and income before taxes would decrease, by approximately €2 million
over the following twelve months. Interest income on the Group’s cash balances would increase by approximately €9 million assuming a one percent increase
in interest rates earned on such balances over the following twelve months.
The Group has entered into one or more interest rate protection agreements (principally interest rate swaps and cross currency interest rate swaps), which
establish a fixed interest rate with respect to certain of its borrowings. Tables detailing the fixed and floating variable rate debt together with the impact of
the related interest rate and cross currency swaps have been set out elsewhere in this note.
Currency Sensitivity
The Group operates in the following principal currency areas (other than euro): Swedish Krona, Sterling, Latin America (comprising mainly Mexican Peso,
Colombian Peso and Brazilian Real), US Dollar and Eastern Europe (comprising mainly the Polish Zloty, the Czech Koruna, the Russian Rouble and the
Serbian Dinar). At the end of 2021, approximately 99% (2020: 99%) of its non-euro denominated net assets consisted of the Swedish Krona 19% (2020: 25%),
Sterling 17% (2020: 12%), Latin American currencies 40% (2020: 39%), US Dollar 7% (2020: 6%) and Eastern European currencies 16% (2020: 17%). The
Group believes that a strengthening of the euro exchange rate by 1% against all other foreign currencies from the 31 December 2021 rate would reduce
shareholders’ equity by approximately €25 million (2020: €22 million).
Commodity Price Risk
Containerboard
The Group is exposed to commodity price risks through its dependence on recovered paper, the principal raw material used in the manufacture of recycled
containerboard. The price of recovered paper is dependent on both demand and supply conditions. Demand conditions include the production of
recycledcontainerboard in Europe and the demand for recovered paper for the production of recycled containerboard outside of Europe, principally in
Asia.Supply conditions include the rate of recovery of recovered paper, itself dependant on historic pricing related to the cost of recovery, and some slight
seasonal variations.
Just over 1.05 metric tonnes of recovered paper are required to manufacture 1.0 metric tonne of recycled containerboard. Consequently, an increase in
theprice of recovered paper of, for example, €20 per tonne would increase the cost of production of recycled containerboard by approximately €21 per tonne.
Historically, increases in the cost of recovered paper, if sustained, have led to a rise in the price of recycled containerboard, with a lag of one to two months.
The price of recovered paper can fluctuate significantly within a given year, affecting the operating results of the Group’s paper processing facilities.
The Group seeks to manage this risk operationally rather than by entering into financial risk management derivatives. Accordingly, at each of
31 December 2021 and 2020, there were no derivatives held to mitigate such risks.
In addition, developing policy changes in the EU with regard to renewable energy sources have created an additional demand for wood, the principal raw
material used in the manufacture of kraftliner. This has the effect of potentially increasing the price of wood and consequently the cost of the Group’s
raw materials. At each of 31 December 2021 and 2020, the Group held no derivatives to mitigate such risks.
Energy
The cost of producing the Group’s products is also sensitive to the price of energy. The Group’s main energy exposure is to the cost of gas and electricity.
These energy costs have experienced unprecedented price volatility in 2021, with a corresponding effect on Group production costs. Natural gas prices,
relevant to the Group, started the year at €20.30 per megawatt-hour, decreased to €17.43 in March 2021 and increased to €110.41 per megawatt-hour in
December 2021, giving an average price of €48.10 for 2021 (2020: average price of €9.33). The Group has entered into a limited level of energy derivative
contracts to economically hedge a portion of its energy costs in Sweden. The Group has also fixed a certain level of its energy costs through contractual
arrangements directly with its energy suppliers.
Carbon prices were also hit by the COVID-19 pandemic but increased significantly at the end of 2020 and this increase continued into 2021, with prices
rising significantly again towards the end of 2021.
174
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Key Financial Risks and Financial Risk Management Resulting from the Use of Financial Instruments and Related Sensitivity Analysis
continued
The Group’s overall energy costs increased by approximately 56% when compared to 2020 mainly due to higher energy market prices and increased usage
due to the acquisition of the Verzuolo mill.
Tables detailing the Group’s energy derivatives have been set out elsewhere in this note.
Liquidity Risk
The Group is exposed to liquidity risk which arises primarily from the maturing of short-term and long-term debt obligations and derivative transactions.
The Group’s policy is to ensure that sufficient resources are available either from cash balances, cash flows or undrawn committed bank facilities, to ensure
all obligations can be met as they fall due. To achieve this objective, the Group:
• Maintains cash balances and liquid investments with highly rated counterparties;
• Limits the maturity of cash balances; and
• Borrows the bulk of its debt needs under committed bank lines or other term financing and by policy maintains a minimum level of undrawn
committedfacilities.
The Group has entered into a series of borrowing arrangements in order to facilitate its liquidity needs in this regard and the key terms of those arrangements
are described within Note 24 and within certain tables set out below. At each year-end, the Group’s rolling liquidity reserve (which comprises cash and undrawn
committed facilities and which represents the amount of available cash headroom in the Group’s funding structure) was as follows:
2021
€m
2020
€m
Cash and cash equivalents 855 891
Committed undrawn facilities 1,655 1,662
Liquidity reserve 2,510 2,553
Borrowings due within one year – contractual undiscounted cash flows (237) (261)
Net position 2,273 2,292
Management monitors rolling cash flow forecasts on an ongoing basis to determine the adequacy of the liquidity position of the Group. This process
also incorporates a longer term liquidity review to ensure refinancing risks are adequately catered for as part of the Group’s strategic planning. The Group
continues to benefit from its existing financing package and debt profile. In addition, the Group’s operating activities are cash generative and expect to
be so over the foreseeable future; the Group has committed undrawn facilities of €1,655 million at 31 December 2021; and the Group has cash and cash
equivalents of €855 million at 31 December 2021.
The maturity dates of the Group’s main borrowing facilities as set out in Note 24, together with the liquidity analysis as set out in this note, more fully
describes the Group’s longer term financing risks.
Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to reduce the overall cost of capital.
In managing its capital structure, the primary focus of the Group is the ratio of net debt as a multiple of 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
asset amortisation). Maximum levels for this ratio are set under Board approved policy. At 31 December 2021, the net debt to EBITDA ratio of the Group was
1.7 times (net debt of €2,885 million) which compares to 1.6 times (net debt of €2,375 million) at the end of 2020. This gives the Group continuing headroom
compared to the actual covenant level at 31 December 2021 of 3.75 times.
On the basis of pre-exceptional operating profit, the Group’s return on capital employed was 16.0% compared to 14.6% in 2020. The return on capital
employed comprises pre-exceptional operating profit plus share of associates’ profit (after tax) as a percentage of average capital employed (where average
capital employed is the average of total equity and net debt at the current and prior year-end). Capital employed at 31 December 2021 was €7,277 million,
(2020: €6,158 million). The post-exceptional return on capital employed was 16.0% in 2021 (2020: 14.1%).
The capital employed of the Company at 31 December 2021 was €2,915 million (2020: €2,872 million).
Credit Risk
Credit risk arises from credit exposure to trade debtors, cash and cash equivalents including deposits with banks and financial institutions, derivative financial
instruments and investments. The Group has no sovereign exposures and no material debtors with Government agencies. The maximum exposure to credit
risk is represented by the carrying amount of each asset.
Trade debtors arise from a wide and varied customer base spread throughout the Group’s operations and as such there is no significant concentration of
credit risk. Credit evaluations are performed on all customers over certain thresholds and all customers are subject to continued monitoring at operating
company level. Further information on the Group approach to providing for expected credit losses is set out in Note 19.
Risk of counterparty default arising on cash and cash equivalents and derivative financial instruments is controlled within a framework of dealing with high
quality institutions and, by policy, limiting the amount of credit exposure to any one bank or institution. Of the Group’s total cash and cash equivalents
(including restricted cash) at 31 December 2021 of €869 million, 43% was with financial institutions in the A rating category of Standard & Poor’s or Moody’s
and 49% was with financial institutions in the AA/Aa or higher rating category.
175
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Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Key Financial Risks and Financial Risk Management Resulting from the Use of Financial Instruments and Related Sensitivity Analysis
continued
The remaining 8% was largely represented by cash held with banks in Latin America which fell outside the A or higher ratings categories. At 31 December
2021, derivative transactions were with counterparties with ratings ranging from BB- to AA- with Standard & Poor’s or Ba1 to Aa2 with Moody’s.
At each reporting date, there were no significant concentrations of credit risk which individually represented more than 10% of the Group’s financial assets.
Ageographical analysis of the Group’s segment assets has been provided in Note 4.
Market Risk – Listed and Unlisted Debt Instruments
The Group’s listed and unlisted debt instruments principally comprise investments held relating to unfunded pension liabilities. These investments are being
carried at their estimated fair value and the Group’s maximum exposure to risks associated with these investments is represented by their carrying amounts.
Further details on listed and unlisted debt instruments are set out in Note 14.
Derivative Positions
Derivative financial instruments recognised as assets and liabilities in the Consolidated Balance Sheet both as part of cash flow hedges and other economic
hedges which do not meet the criteria for hedge accounting under IFRS 9, have been set out below:
2021
€m
2020
€m
Non-current derivative assets
Cash flow hedges:
Cross currency swaps 2 –
Total non-current derivative assets 2 –
Current derivative assets
Cash flow hedges:
Foreign currency forwards – 3
Cross currency swaps – 16
Not designated as hedges:
Foreign currency forwards 1 1
Cross currency swaps 2 15
Energy hedging contracts 5 3
Total current derivative assets 8 38
Total derivative assets 10 38
Non-current derivative liabilities
Cash flow hedges:
Cross currency swaps (7) (17)
Total non-current derivative liabilities (7) (17)
Current derivative liabilities
Cash flow hedges:
Foreign currency forwards (1) –
Cross currency swaps – (4)
Not designated as hedges:
Foreign currency forwards – (1)
Cross currency swaps (6) (4)
Energy hedging contracts (7) (4)
Total current derivative liabilities (14) (13)
Total derivative liabilities (21) (30)
Net (liability)/asset on derivative financial instruments (11) 8
176
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Fair Value Hierarchy
Fair value measurement at 31 December 2021
Level 1
€m
Level 2
€m
Level 3
€m
Total
€m
Other investments:
Listed 2 – – 2
Unlisted – 9 – 9
Derivative financial instruments:
Assets at fair value through profit or loss – 8 – 8
Derivatives used for hedging – 2 – 2
Derivative financial instruments:
Liabilities at fair value through profit or loss – (13) – (13)
Derivatives used for hedging – (8) – (8)
2 (2) – –
Fair value measurement at 31 December 2020
Level 1
€m
Level 2
€m
Level 3
€m
Total
€m
Other investments:
Listed 2 – – 2
Unlisted – 9 – 9
Derivative financial instruments:
Assets at fair value through profit or loss – 19 – 19
Derivatives used for hedging – 19 – 19
Derivative financial instruments:
Liabilities at fair value through profit or loss – (9) – (9)
Derivatives used for hedging – (21) – (21)
Deferred contingent consideration – – (35) (35)
2 17 (35) (16)
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 fair value of the derivative financial instruments set out above 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.
Financial Instruments in Level 3
The following table presents the changes in level 3 instruments for the years ended 31 December 2021 and 31 December 2020:
Deferred
Contingent
Consideration
€m
Balance at 1 January 2020 (33)
Loss included in finance costs – net change in fair value (2)
Balance at 31 December 2020 (35)
Balance at 1 January 2021 (35)
Gain included in finance income – net change in fair value 2
Paid during the year 33
Balance at 31 December 2021 –
In 2019, as part of its acquisition in Serbia, the Group put in place put and call options over the remaining 25% non-controlling interest in the acquired
business. The Group recognised deferred contingent consideration in respect of the put option under the anticipated-acquisition method of accounting;
with the call option being classified as a derivative. The valuation model for the deferred contingent consideration was measured in accordance with level 3
of the fair value hierarchy and was based on the present value of the expected payment discounted using a risk-adjusted discount rate. The unobservable
input in determining the fair value was the underlying profitability of the business unit to which the consideration relates.
During the year, the Group exercised its call option to purchase the remaining 25% of the Serbian business at a cost of €33 million.
There were no reclassifications or transfers between the levels of the fair value hierarchy during the period.
177
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Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Cash Flow Hedging
As more fully set out in this note, the Group principally utilises interest rate swaps to swap its variable rate debt into fixed rates. The Group has also designated
a number of cross currency swaps which swap fixed US dollar debt into fixed euro debt as cash flow hedges where permitted. These swaps are designated
as cash flow hedges and are set so as to closely match the critical terms of the underlying debt being hedged.
Hedge ineffectiveness is determined at the inception of the hedge relationship and through periodic prospective hedge effectiveness assessments to
ensure that an economic relationship exists between the hedged item and the hedging instrument. The Group determines the existence of an economic
relationship between the hedging instrument and hedged item based on the reference interest rates, tenors, repricing dates and maturities and notional
amounts. The Group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional
amount of the swaps. As the Group enters into hedge relationships where the critical terms of the hedging instrument materially match the terms of the
hedged item, a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical
terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness.
Hedge ineffectiveness for interest rate swaps and cross currency swaps may occur due to:
• The effect of the counterparty’s and the Group’s own credit risk on the fair value of the swaps which is not reflected in the change in the fair value of the
hedged cash flows attributable to the change in the hedged risk;
• Changes in the contractual terms or timing of the payments on the hedged item; or
• The fair value of the hedging instrument on the hedge relationship designation date (if not zero).
There was no material ineffectiveness in hedged risk in relation to these hedges in 2021 and 2020. Amounts accounted for in the cash flow hedging reserve
in respect of these swaps during the current and preceding periods have been set out in the Consolidated Statement of Comprehensive Income. These fair
value gains and losses are expected to impact on profit and loss over the period from 2022 to 2023, in line with the underlying debt being hedged.
The Group has also entered into a limited number of bunker fuel swaps to hedge against variability in the cost of bunker fuel included in certain of its shipping
contracts. Hedge effectiveness is assessed using the same principles as those used for designated interest rate and cross currency swaps. In hedges of
bunker fuel costs, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated or if there are changes in the
credit risk of the Group or the counterparty. These hedges have been highly effective in achieving offsetting cash flows with no ineffectiveness recorded.
These fair value gains and losses are expected to impact on profit and loss over the period from 2022 to 2024.
In addition, certain subsidiaries use foreign currency forward contracts to hedge forecast foreign currency sales and purchases. Such forward contracts
are designated as cash flow hedges and are set so as to closely match the critical terms of the underlying cash flows. Hedge effectiveness is assessed using
the same principles as those used for designated interest rate, cross currency and bunker fuel swaps. In hedges of foreign currency sales and purchases,
ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated or if there are changes in the credit risk of the
Group or the counterparty. These hedges have been highly effective in achieving offsetting cash flows with no ineffectiveness recorded. These fair value
gains and losses are expected to impact on profit and loss during 2022.
The Group’s hedging reserves disclosed in Note 23 relate to the following hedging instruments:
Cost of
Hedging
Reserve
€m
Interest
Rate
Swaps
€m
Cross
Currency
Swaps
€m
Foreign
Currency
Forwards
€m
Total
Hedge
Reserves
€m
At 1 January 2021 2 – 1 3 6
Change in fair value of hedging instrument recognised in OCI – – 1 (1) –
Reclassified from OCI to profit or loss – included in finance costs (1) – – – (1)
Reclassified from OCI to profit or loss – included in revenue – – – (3) (3)
At 31 December 2021 1 – 2 (1) 2
Cost of
Hedging
Reserve
€m
Interest
Rate
Swaps
€m
Cross
Currency
Swaps
€m
Foreign
Currency
Forwards
€m
Total
Hedge
Reserves
€m
At 1 January 2020 2 (2) (2) 2 –
Costs of hedging deferred and recognised in OCI 1 – – – 1
Change in fair value of hedging instrument recognised in OCI – – 3 3 6
Reclassified from OCI to profit or loss – included in finance costs (1) 2 1 – 2
Reclassified from OCI to profit or loss – included in revenue – – – (2) (2)
Movement in deferred tax – – (1) – (1)
At 31 December 2020 2 – 1 3 6
178
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Derivatives not Designated as Hedges
The Group utilises a combination of foreign currency forward contracts and cross currency swaps in order to economically hedge on balance sheet debtor,
creditor and borrowing exposures which are denominated in currencies other than the euro. Formal hedge accounting as permitted by IFRS 9 is not applied
to these derivative instruments because a natural offset is effectively already achieved through fair valuing the derivatives through the profit or loss as
required by IFRS 9, while also retranslating the related balance sheet foreign currency denominated monetary assets or liabilities at appropriate closing rates
at each balance sheet date, as required by IAS 21, The Effects of Changes in Foreign Exchange Rates.
The Group has also entered into certain energy hedging contracts to mitigate the associated price risks which occur as a result of the Group’s normal
operations. These have not been designated as hedges in accordance with IFRS 9 and are recognised at fair value through the profit or loss as required
by that standard.
The principal terms of the Group’s material derivative contracts have been set out further below.
Interest Rate Risk Management
The Group adopts a policy of maintaining between 55% and 90% of its interest rate risk exposure at fixed rates over the next twelve months. This is achieved
by entering into fixed rate instruments. In addition, at 31 December 2020, the Group had interest rate swaps as hedges of the variability in cash flows
attributable to movements in interest rates, as outlined below. The Group had no interest rate swap agreements outstanding at 31 December 2021.
The proceeds of the Group’s November 2020 equity issuance were initially allocated to repaying variable rate debt under the RCF and securitisation programmes,
which reduced the level of variable rate debt comprised in the Group’s gross debt balance. These funds will be fully utilised in the coming years (along with
ongoing cash flows) to fund investment. Consequently, the Group is temporarily over its maximum fixed rate levels at 31 December 2021 and 31 December
2020. The Group expects to return to a level of fixed rate debt within policy parameters over the medium-term.
Outstanding interest rate swap agreements at 31 December 2020 are summarised as follows:
Currency
Notional
Principal
(million)
Termination
Dates % Fixed Payable
% Variable
Receivable
EUR 100 2021 1.314-1.508 Euribor
The effects of the designated interest rate swaps on the Group’s financial position and performance are as follows:
2021
€m
2020
€m
Carrying amount – liability n/a –
Notional amount n/a 100
Line item in balance sheet – hedging instrument n/a Derivative financial instruments
Line item in balance sheet – hedged item n/a Borrowings
Maturity dates n/a January 2021
Hedge ratio n/a 1:1
Change in fair value of outstanding hedging instrument recognised in OCI n/a –
Change in fair value of hedged item used to determine hedge effectiveness n/a –
Weighted average hedged rate n/a 1.4%
Global reform, discontinuation and replacement of certain benchmark interest rates such as the London Interbank Offered Rate (‘LIBOR’) is underway.
The publication of GBP, EUR, CHF and JPY LIBOR settings, and the 1-week and 2-month USD LIBOR settings, ceased immediately following publication
on 31 December 2021 and they were replaced with alternative Risk Free Rates (‘RFR’). The remaining USD LIBOR settings will cease immediately following
publication on 30 June 2023.
The Group’s borrowings are substantially fixed rate and the Group has no hedge accounting relationships that reference LIBOR. The Group’s floating rate
RCF references, amongst others, USD LIBOR. Euro denominated borrowings under the RCF are indexed to the Euro Interbank Offered Rate (‘EURIBOR’)
which is expected to continue for now since its reform from the previous quote-based methodology to a new hybrid methodology.
At 31 December 2021, the Group has one loan drawn under the RCF of USD$8 million. The Group’s contracts which reference those benchmark interest
rates subject to reform and replacement adequately provide for an alternative calculation of interest in the event that they are unavailable. It is intended
that the Secured Overnight Financing Rate (‘SOFR’) will be the replacement for USD LIBOR for USD borrowings under the RCF, with SOFR plus a credit
adjustment spread expected to be economically equivalent to the existing USD LIBOR rates. The Group is well placed to manage the discontinuation,
reform or replacement of these important benchmark rates and the impact on the Group and its ability to manage its interest rate risk is immaterial.
179
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Foreign Exchange Risk Management
The Group manages its balance sheet having regard to the currency exposures arising from its assets being denominated in a wide range of currencies.
To this end, where foreign currency assets are funded by local borrowing, such borrowing is generally sourced in the currency of the related assets.
Additionally, the Group has a number of long-term foreign currency intra-group loans for which settlement is neither planned nor likely to happen in the
foreseeable future, and as a consequence of which are deemed quasi-equity in nature and therefore part of the Group’s net investment in its foreign
operations. The Group also hedges a portion of its currency exposure through the use of currency swaps and forward contracts. At 31 December 2021
the Group had entered into €347 million (2020: €208 million) currency equivalent of forward contracts and there were no option contracts outstanding
in respect of its day to day trading. At 31 December 2021 the Group had also entered into further short-term currency swaps of €893 million equivalent
(2020: €916 million) as part of its short-term liquidity management.
The Group is exposed to transactional foreign exchange currency risk to the extent that there is a mismatch between the currencies in which sales,
purchases, receivables and borrowings are denominated and the respective functional currencies of the Group companies. The Group’s risk management
policy allows the hedging of estimated foreign currency exposure in respect of highly probable forecast sales, primarily in Sweden, and purchases. As such,
certain subsidiaries enter into foreign currency forward contracts to hedge highly probable forecast foreign currency sales and purchases for which hedge
accounting under IFRS 9 is applied. As a consequence, therefore, the Group does not have any material transactional exposures.
The effects of these designated foreign currency forwards on the Group’s financial position and performance are as follows:
2021
€m
2020
€m
Foreign currency forwards – sales:
Carrying amount – asset – 3
Carrying amount – liability (1) –
Notional amount 107 95
Line item in balance sheet – hedging instrument Derivative financial instruments Derivative financial instruments
Line item in balance sheet – hedged item Trade and other receivables Trade and other receivables
Maturity dates January 2022 – December 2022 January 2021 – December 2021
Hedge ratio 1:1 1:1
Change in fair value of outstanding hedging instrument recognised in OCI (1) 3
Change in fair value of hedged item used to determine hedge effectiveness 1 (3)
Weighted average EUR:SEK forward contract rate 10.30 10.41
Weighted average GBP:SEK forward contract rate 12.03 11.44
The Group uses a portion of its foreign currency borrowings to hedge the net investment in certain of its foreign entities. The carrying amount of borrowings
which are designated as net investment hedges at the year-end amounted to €43 million (2020: €40 million). The gains or losses on the effective portions
of such borrowings are recognised in other comprehensive income. Ineffective portions of the gains and losses on such borrowings are recognised in the
income statement. There has been no ineffectiveness recognised in relation to these hedges in the current or prior financial year.
The Group also enters into longer term cross currency swap arrangements in respect of its US dollar debt, which are set out in more detail in the tables below.
In addition, the Group entered into a number of cross currency swaps in respect of the funding of its acquisition in Brazil, which are set out in more detail in the
table below.
Outstanding currency swap agreements at 31 December 2021 are summarised as follows:
Currency Swapped (million)
Currency
Received
(million)
Maturity
Date
Interest Rate
Paid
Interest Rate
Received
US$ 154 EUR 144 2023 5.30% 7. 50%
EUR 25 BRL 153 2024 CDI + 2.15% Euribor +2.05%
EUR 13 BRL 76 2024 CDI + 2.17% Euribor +2.05%
EUR 5 BRL 28 2024 CDI + 1.84% Euribor +2.05%
180
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Foreign Exchange Risk Management continued
Outstanding currency swap agreements at 31 December 2020 are summarised as follows:
Currency Swapped (million)
Currency
Received
(million)
Maturity
Date
Interest Rate
Paid
Interest Rate
Received
EUR 38 BRL 150 2021 129.22% CDI Euribor +2.50%
EUR 5 BRL 25 2021 CDI + 1.27% Euribor +1.80%
EUR 5 BRL 27 2021 CDI + 1.65% Euribor +1.80%
EUR 6 BRL 39 2021 CDI + 1.49% Euribor +1.80%
US$ 56 EUR 50 2021 Euribor +0.79% US$ Libor +0.90%
US$ 154 EUR 144 2023 5.30% 7.50 %
The effects of the cross currency swaps designated as cash flow hedges on the Group’s financial position and performance are as follows:
2021
€m
2020
€m
Hedge of US$ debt:
Carrying amount – liability (7) (21)
Notional amount – EUR 144 194
Line item in balance sheet – hedging instrument Derivative financial instruments Derivative financial instruments
Line item in balance sheet – hedged item Borrowings Borrowings
Maturity dates November 2023 January 2021 & November 2023
Hedge ratio 1:1 1:1
Change in fair value of outstanding hedging instrument recognised in OCI – 3
Change in fair value of hedged item used to determine hedge effectiveness – (3)
Weighted average EUR:USD hedged rate 1.07 1.08
Hedge – Brazil acquisition funding:
Carrying amount – asset 2 16
Notional amount – BRL 257 241
Line item in balance sheet – hedging instrument Derivative financial instruments Derivative financial instruments
Line item in balance sheet – hedged item Borrowings Borrowings
Maturity dates June 2024 June, July & September 2021
Hedge ratio 1:1 1:1
Change in fair value of outstanding hedging instrument recognised in OCI 1 –
Change in fair value of hedged item used to determine hedge effectiveness (1) –
Weighted average EUR:BRL hedged rate 5.99 4.50
Energy Risk Management
The Group had the following energy hedging contracts outstanding at the end of 31 December 2021 and 2020. Gains and losses recorded in respect of
these contracts have been set out elsewhere in this note.
2021 2020
Notional Maturity Notional Maturity
Energy contracts €7 million
Q1 2022
– Q4 2024 €6 million
Q1 2021
– Q4 2024
181
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Effective Interest Rates and Repricing Analysis
In respect of income earning financial assets and interest bearing financial liabilities, the following tables indicate their average effective interest rates at the
reporting date and the periods in which they reprice:
31 December 2021
Average
Effective
Interest
Rate
6 Months
or Less
€m
6-12
Months
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Fixed rate instruments
Liabilities:
2025 debentures 7.56% – – – 260 – 260
2025 notes 2.97% – – – 251 – 251
2026 notes 3.05% – – – 1,007 – 1,007
2027 notes 1.66% – – – – 747 747
2029 green notes 0.64% – – – – 495 495
2033 green notes 1.10% – – – – 496 496
Bank loans/overdrafts 3.84% – 1 1 5 – 7
Total – 1 1 1,523 1,738 3,263
Leases 2.84% 11 8 28 122 211 380
Total fixed rate liabilities 11 9 29 1,645 1,949 3,643
Floating rate instruments
Assets:
Cash and cash equivalents (0.36)% 855 – – – – 855
Restricted cash 0.01% 14 – – – – 14
Total floating rate assets 869 – – – – 869
Liabilities:
Revolving credit facility
*
66.05% 2 – – – – 2
2026 €100 million receivables securitisation 6.36% 4 – – – – 4
2026 €230 million receivables securitisation 3.80% 11 – – – – 11
Bank loans/overdrafts 8.10% 94 – – – – 94
Total floating rate liabilities 111 – – – – 111
Total net position 747 (9) (29) (1,645) (1,949) (2,885)
*
At the end of the financial year, the carrying amount of the revolving credit facility was €7 million compared to €95 million at 31 December 2020. If the drawn amount had been unchanged
year-on-year, the average effective interest rate would be 2.21% (2020: 2.43%) due to the relative impact of deferred debt issue costs recognised in finance costs in the Consolidated
Income Statement, using the effective interest method over the remaining life of the programme.
182
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Effective Interest Rates and Repricing Analysis continued
31 December 2020
Average
Effective
Interest
Rate
6 Months
or Less
€m
6-12
Months
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Fixed rate instruments
Liabilities:
2025 debentures 7.56% – – – 240 – 240
2024 notes 2.64% – – – 501 – 501
2025 notes 2.98% – – – 251 – 251
2026 notes 3.05% – – – – 1,005 1,005
2027 notes 1.67% – – – – 746 746
Bank loans/overdrafts 3.75% 2 2 2 6 – 12
Effect of interest rate swaps 100 – – – – 100
Total 102 2 2 998 1,751 2,855
Leases 3.07% 9 7 26 117 187 346
Total fixed rate liabilities 111 9 28 1,115 1,938 3,201
Floating rate instruments
Assets:
Cash and cash equivalents (0.44)% 891 – – – – 891
Restricted cash 0.00% 10 – – – – 10
Total floating rate assets 901 – – – – 901
Liabilities:
Revolving credit facility 2.43% 89 – – – – 89
2022 receivables securitisation 17.60% 4 – – – – 4
2023 receivables securitisation 8.08% 11 – – – – 11
Bank loans/overdrafts 6.96% 71 – – – – 71
Effect of interest rate swaps 1.91% (100) – – – – (100)
Total floating rate liabilities 75 – – – – 75
Total net position 715 (9) (28) (1,115) (1,938) (2,375)
Liquidity Analysis
The following table sets out the maturity or liquidity analysis of the Group’s financial liabilities and net settled derivative financial liabilities into the relevant
maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows:
31 December 2021
Weighted
Average
Period
Until
Maturity
(Years)
No Fixed
Term
€m
Less Than
1 Year
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Liabilities:
Trade and other payables – 2,082 – – – 2,082
Revolving credit facility 4.1 – – – 7 – 7
2026 €100 million receivables securitisation 4.1 – – – 5 – 5
2026 €230 million receivables securitisation 4.9 – – – 13 – 13
Bank loans/overdrafts 1.1 28 29 33 10 1 101
2025 debentures 3.9 – 19 19 297 – 335
2025 notes 3.1 – 7 7 260 – 274
2026 notes 4.0 – 29 29 1,072 – 1,130
2027 notes 5.7 – 11 11 34 761 817
2029 green notes 7.7 – 3 3 7 507 520
2033 green notes 11.7 – 5 5 15 535 560
28 2,185 107 1,720 1,804 5,844
Leases 4.9 – 98 76 135 128 437
28 2,283 183 1,855 1,932 6,281
Derivative liabilities – 6 1 – – 7
Deferred consideration – 10 – – – 10
Total liabilities 28 2,299 184 1,855 1,932 6,298
183
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Liquidity Analysis continued
31 December 2020
Weighted
Average
Period
Until
Maturity
(Years)
No Fixed
Ter m
€m
Less Than
1 Year
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Liabilities:
Trade and other payables – 1,408 – – – 1,408
Revolving credit facility 5.1 – 1 1 3 95 100
2022 receivables securitisation 1.1 – – 5 – – 5
2023 receivables securitisation 2.5 – – – 13 – 13
Bank loans/overdrafts 1.3 15 41 11 19 2 88
2025 debentures 4.9 – 18 18 292 – 328
2024 notes 3.1 – 12 12 518 – 542
2025 notes 4.1 – 7 7 267 – 281
2026 notes 5.0 – 29 29 86 1,014 1,158
2027 notes 6.7 – 11 11 34 773 829
15 1,527 94 1,232 1,884 4,752
Leases 4.6 – 90 66 121 116 393
15 1,617 160 1,353 2,000 5,145
Derivative liabilities – 1 – – – 1
Deferred consideration – 1 11 – – 12
Deferred contingent consideration – 35 – – – 35
Total liabilities 15 1,654 171 1,353 2,000 5,193
The financial liabilities of the Company of €3 million (2020: €10 million) are repayable on demand.
The following table sets out the liquidity analysis with regard to derivatives which do not net settle in the normal course of business (primarily foreign
exchange contracts and currency swaps). The table shows the estimated timing of gross contractual cash flows exchanged on an undiscounted basis:
31 December 2021
Less Than
1 Year
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Liabilities:
Cross currency swaps (911) (156) (33) – (1,100)
Foreign currency forwards (341) (6) – – (347)
Total outflow (1,252) (162) (33) – (1,447)
Assets:
Cross currency swaps 904 144 43 – 1,091
Foreign currency forwards 341 6 – – 347
Total inflow 1,245 150 43 – 1,438
31 December 2020
Less Than
1 Year
€m
1-2
Years
€m
2-5
Years
€m
More Than
5 Years
€m
Total
€m
Liabilities:
Cross currency swaps (1,002) (8) (152) – (1,162)
Foreign currency forwards (204) (1) – – (205)
Total outflow (1,206) (9) (152) – (1,367)
Assets:
Cross currency swaps 1,025 9 132 – 1,166
Foreign currency forwards 207 1 – – 208
Total inflow 1,232 10 132 – 1,374
184
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
29. Financial Instruments continued
Currency Analysis
The table below sets out the Group’s financial assets and liabilities according to their principal currencies. Currency risk related to financial assets
and liabilities denominated in currencies other than the Group’s presentation currency (euro) represents both transactional and translation risk.
As at 31 December 2021 and 2020 the Company had no material financial assets or liabilities denominated in foreign currencies.
31 December 2021
Euro
€m
Sterling
€m
Latin America
*
€m
US Dollar
€m
Other
€m
Total
€m
Trade and other receivables 1,106 171 253 247 229 2,006
Listed and unlisted debt instruments 11 – – – – 11
Cash and cash equivalents 673 51 35 73 23 855
Restricted cash 12 – 1 1 – 14
Total assets 1,802 222 289 321 252 2,886
Trade and other payables 1,360 131 165 234 192 2,082
Revolving credit facility (5) – – 7 – 2
2026 €100 million receivables securitisation 4 – – – – 4
2026 €230 million receivables securitisation 11 – – – – 11
Bank loans/overdrafts 24 – 56 19 2 101
2025 debentures – – – 260 – 260
2025 notes 251 – – – – 251
2026 notes 1,007 – – – – 1,007
2027 notes 747 – – – – 747
2029 green notes 495 – – – – 495
2033 green notes 496 – – – – 496
4,390 131 221 520 194 5,456
Leases 169 52 13 132 14 380
Deferred consideration 10 – – – – 10
Total liabilities 4,569 183 234 652 208 5,846
Impact of foreign exchange contracts (305) 170 79 86 (21) 9
Total (liabilities)/assets (2,462) (131) (24) (417) 65 (2,969)
*
Latin America includes currencies such as the Mexican Peso, Colombian Peso and Brazilian Real. These have been grouped together principally owing to their size and impact on the
currency analysis tables within this note.
31 December 2020
Euro
€m
Sterling
€m
Latin America
*
€m
US Dollar
€m
Other
€m
Total
€m
Trade and other receivables 815 129 208 163 150 1,465
Listed and unlisted debt instruments 11 – – – – 11
Cash and cash equivalents 721 76 15 57 22 891
Restricted cash 8 – 1 – 1 10
Total assets 1,555 205 224 220 173 2,377
Trade and other payables 888 93 145 139 143 1,408
Revolving credit facility 44 – – 45 – 89
2022 receivables securitisation 4 – – – – 4
2023 receivables securitisation 11 – – – – 11
Bank loans/overdrafts 12 – 56 13 2 83
2025 debentures – – – 240 – 240
2024 notes 501 – – – – 501
2025 notes 251 – – – – 251
2026 notes 1,005 – – – – 1,005
2027 notes 746 – – – – 746
3,462 93 201 437 145 4,338
Leases 153 48 10 127 8 346
Deferred consideration 12 – – – – 12
Deferred contingent consideration 35 – – – – 35
Total liabilities 3,662 141 211 564 153 4,731
Impact of foreign exchange contracts (14) 199 32 (6) (218) (7)
Total (liabilities)/assets (2,093) (135) (19) (338) 238 (2,347)
*
Latin America includes currencies such as the Mexican Peso, Colombian Peso and Brazilian Real. These have been grouped together principally owing to their size and impact on the
currency analysis tables within this note.
185
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Overview Strategic Report Governance Financial Statements Supplementary Information
29. Financial Instruments continued
Fair Value
2021 2020
Carrying
Value
€m
Fair
Value
€m
Carrying
Value
€m
Fair
Value
€m
Trade and other receivables
1
2,006 2,006 1,465 1,465
Listed and unlisted debt instruments
2
11 11 11 11
Cash and cash equivalents
3
855 855 891 891
Derivative assets
4
10 10 38 38
Restricted cash
3
14 14 10 10
2,896 2,896 2,415 2,415
Trade and other payables
1
2,082 2,082 1,408 1,408
Revolving credit facility
5
2 2 89 89
2026 €100 million receivables securitisation
3
4 4 4 4
2026 €230 million receivables securitisation
3
11 11 11 11
Bank overdrafts
3
101 101 83 83
2025 debentures
6
260 318 240 298
2024 notes
6
– – 501 535
2025 notes
6
251 270 251 274
2026 notes
6
1,007 1,103 1,005 1,118
2027 notes
6
747 786 746 786
2029 green notes
6
495 489 – –
2033 green notes
6
496 490 – –
5,456 5,656 4,338 4,606
Derivative liabilities
4
21 21 30 30
Deferred consideration
7
10 10 12 12
Deferred contingent consideration
8
– – 35 35
5,487 5,687 4,415 4,683
Total net position (2,591) (2,791) (2,000) (2,268)
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 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, energy and commodity 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 revolving 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 The fair value (level 2) is based on broker prices at the balance sheet date.
7 The fair value of deferred consideration is based on the present value of the expected payment, discounted using an appropriate market discount rate at the balance sheet date.
8 The fair value of deferred contingent consideration was based on the present value of the expected payment, discounted using a risk-adjusted discount rate.
The fair value of the Company’s financial assets and financial liabilities approximates to their carrying values.
30. Related Party Transactions
The principal related party relationships requiring disclosure under IAS 24, Related Party Disclosures pertain to the existence of subsidiaries and associates
and transactions with these entities entered into by the Group and the identification and compensation of key management personnel as addressed in
greater detail below.
Transactions with Subsidiaries
The Consolidated Financial Statements include the Financial Statements of the Company and its subsidiaries and associates as documented in the
accounting policies on page 135. A listing of the principal subsidiaries is provided on page 188.
Sales to and purchases from, together with outstanding payables and receivables to and from, subsidiaries are eliminated in the preparation of the
consolidated financial information in accordance with IFRS 10, Consolidated Financial Statements.
186
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
30. Related Party Transactions continued
Transactions with Associates
The Group conducts certain transactions with associates in the normal course of business which are summarised as follows:
Sales and Purchase of Goods and Services
2021
€m
2020
€m
Sale of goods 3 7
Receiving of services (2) (2)
These transactions are undertaken and settled at normal trading terms. No guarantees are given or received by either party.
The receivables from related parties of €2 million (2020: €3 million) arise mainly from sales transactions and are due two months after the date of sale.
The receivables are unsecured in nature and do not bear interest.
The payables to related parties are nil in the current year (2020: nil).
No provision has been made in 2021 or 2020 relating to balances with related parties.
Transactions with Other Related Parties
There were no transactions with other related parties during 2021 or 2020.
Transactions with Key Management Personnel
For the purposes of the disclosure requirements of IAS 24, the term ‘key management personnel’ (i.e. those persons having authority and responsibility
for planning, directing and controlling the activities of the Company) comprises the Board of Directors and Secretary who manage the business and affairs
of the Company.
2021
€m
2020
€m
Short-term employee benefits 5 5
Share-based payment expense 5 3
10 8
Information on the Parent Company
The parent Company is an investment holding company and as a result, holds investments in the Group subsidiaries as financial assets. The parent Company
also has receivables and payables with its subsidiaries entered into in the normal course of business. These balances are repayable on demand. Details of
related party transactions and balances in the financial year ended 31 December 2021 between the Parent Company and its subsidiaries are provided in
Note14, Note 19 and Note 28 to the Consolidated Financial Statements.
187
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Overview Strategic Report Governance Financial Statements Supplementary Information
31. Business Combinations
The acquisitions completed by the Group during the year, together with percentages acquired and completion dates were as follows:
• Cartones del Pacifico, (100%, 1 June 2021) a paper-based packaging company in Peru;
• Cartonbox, (100%, 5 July 2021), a folding carton company in Mexico; and
• Verzuolo, (100%, 8 October 2021), a containerboard mill in Northern Italy.
The acquisitions in the Americas add to our geographic diversity and enhance our customer offering in these high growth regions. The Verzuolo mill acquisition
in Italy increases the containerboard available in our integrated system ensuring we continue to meet our customers’ needs and capture future growth.
The table below reflects the provisional fair values of the identifiable net assets acquired in respect of the acquisitions completed during the year.The initial
assignment of fair values to identifiable net assets acquired has been performed on a provisional basis in respect of the Verzuolo acquisition given the timing
of closure of the transaction. Any amendments to fair values will be made within the twelve month period from the date of acquisition, as permitted by
IFRS3,Business Combinationsand disclosed in the 2022 Annual Report.
Verzuolo
€m
Other
€m
Total
€m
Non-current assets
Property, plant and equipment 231 28 259
Right-of-use assets 1 5 6
Intangible assets – 19 19
Deferred income tax asset 2 – 2
Current assets
Inventories 14 8 22
Trade and other receivables 3 14 17
Cash and cash equivalents – 1 1
Non-current liabilities
Employee benefits (4) – (4)
Deferred income tax liabilities – (7) (7)
Borrowings – (11) (11)
Current liabilities
Borrowings – (15) (15)
Trade and other payables (9) (18) (27)
Net assets acquired 238 24 262
Goodwill 119 33 152
Consideration 357 57 414
Settled by:
Cash 357 57 414
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.
None of the goodwill recognised is expected to be deductible for tax purposes.
Net cash outflow arising on acquisition €m
Cash consideration 414
Less cash & cash equivalents acquired (1)
Tot a l 413
The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to €17 million. The fair value of these
receivables is estimated at €17 million (all of which is expected to be recoverable).
Acquisition-related costs of €1 million were incurred and are included within administrative expenses in the Consolidated Income Statement.
The Group’s acquisitions in 2021 have contributed €73 million to revenue and a €7 million loss after tax. The proforma revenue and profit after tax of the
Group for the year ended 31 December 2021 would have been €10,358 million and €674 million respectively, had the acquisitions taken place at the start
of the reporting period.
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.
32. Profit Dealt with in the Parent Company
In accordance with Section 304 of the Companies Act 2014, the Company is availing of the exemption from presenting its individual Income Statement to
the Annual General Meeting and from filing it with the Registrar of Companies. A profit after tax of €285 million (2020: a profit after tax of €370 million) has
been dealt with in the Income Statement of the Company.
188
Smurfit Kappa Annual Report 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021
33. Principal Subsidiaries
Each of Smurfit Kappa Group plc, Smurfit Kappa Investments Limited, Smurfit Kappa Holdings Limited and Smurfit Kappa Acquisitions Unlimited Company
with an address at Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, is a holding company with no operations of its own. Smurfit Kappa Acquisitions Unlimited
Company is a Public Unlimited Company. A listing of the principal subsidiaries is set out as follows:
Subsidiaries
1
Principal Activities
Country of
Incorporation
2
Holding
%
Cartón de Colombia, S.A.
Calle 15 No. 18–109 Puerto Isaacs,
Yumbo – Valle del Cauca,
Colombia
Manufacture and sale of paperboard, paper sacks, writing paper
and packaging products
Colombia 99.7
Smurfit Carton y Papel de México S.A. de C.V.
Miguel de Cervantes Saavedra, 301, Torre B Piso 8.
Colonia Ampliación Granada, Alc. Miguel Hidalgo
Ciudad de Mexico, c.p. 11520, Mexico
Manufacture and sale of paperboard and packaging products Mexico 100
Smurfit Kappa Nettingsdorf AG & Co KG
Nettingsdorfer Straße 40,
4053 Haid bei Ansfelden, Austria
Manufacture and sale of containerboard and holding company for
Austrian operations which manufacture corrugated board
Austria 100
Smurfit International B.V.
Warandelaan 2, 4904 PC Oosterhout,
The Netherlands
Principal international holding company Netherlands 100
Smurfit Kappa de Argentina, S.A.
Av. Cordoba 838, 9 Floor, of. 18,
Ciudad de Buenos Aires, Argentina
Manufacture and sale of paperboard and packaging products Argentina 100
Smurfit Kappa Deutschland GmbH
Tilsiter Straße 162,
22047 Hamburg, Germany
Holding company for German operations whose principal
activities are the manufacture and sale of paperboard, solidboard
and packaging products
Germany 100
Smurfit Kappa Europe B.V.
Evert van den Beekstraat 1–106, 1118 CL Schiphol,
The Netherlands
International holding company Netherlands 100
Smurfit Kappa Italia, S.p.A.
Via Vicenzo Monti 12
20123 Milano (MI), Italy
Manufacture and sale of paperboard and packaging products Italy 100
Smurfit Kappa Holdings US Inc.
913 N. Market Street
Suite 200,
Wilmington, DE 19801 USA
Holding company for North America and certain Mexican
operations whose principal activities are the manufacture and
sale of paperboard and packaging products
United States 100
Smurfit Kappa Ireland Limited
Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland
Manufacture and sale of packaging products Ireland 100
Smurfit Kappa Kraftliner Piteå AB
SE – 941 86, Piteå, Sweden
Manufacture and sale of containerboard and holding company for
operations in Sweden and Norway which manufacture and sell
packaging products
Sweden 100
Smurfit Kappa Nederland B.V.
Warandelaan 2, 4904 PC Oosterhout,
The Netherlands
Holding company for Dutch operations which manufacture
paperboard and packaging products
Netherlands 100
Smurfit Kappa Nervión, S.A.
B Arriandi s/n, 48215 lurreta,
Vizcaya, Spain
Manufacture and sale of sack paper and holding company for
Spanish and Portuguese operations whose principal activities are
the manufacture and sale of paperboard and packaging products
Spain 100
Smurfit Kappa Packaging UK Limited
Cunard Building, Pier Head, Liverpool, LS3 1SF,
United Kingdom
Holding company for operations in the United Kingdom whose
principal activities are the manufacture and sale of paperboard
and packaging products
England 100
Smurfit Kappa do Brasil Indústria de Embalagens S.A
Rua Castilho, 392, Cj.162, Brooklin,
CEP 04568–010, São Paulo, Brazil
Holding company for operations in Brazil whose principal activities
are the manufacture and sale of paperboard and packaging
products
Brazil 100
Smurfit Kappa Participations SAS
5 Avenue du Général de Gaulle,
94160 Saint Mandé, France
Holding company for French operations whose activities are the
manufacture and sale of paperboard and packaging products
France 100
Smurfit Kappa Treasury Unlimited Company
Beech Hill, Clonskeagh, Dublin 4, D04 N2R2, Ireland
Finance company Ireland 100
1 A full list of subsidiaries and associates will be annexed to the Annual Return of the Company to be filed with the Irish Registrar of Companies.
2 The companies operate principally in their countries of incorporation.
189
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Overview Strategic Report Governance Financial Statements Supplementary Information
33. Principal Subsidiaries continued
Section 357 Guarantees
Pursuant to the provisions of Section 357, Companies Act 2014, Smurfit Kappa Group plc has irrevocably guaranteed all commitments entered into by
certain of its Irish subsidiaries (including amounts shown as liabilities in the statutory financial statements of such subsidiaries) for the financial year ended
31 December 2021 and as a result such subsidiaries have been exempted from the filing provisions of Section 347, Companies Act 2014. These Irish
subsidiaries are as follows – Belgray Holdings Unlimited Company, Brenchley Limited, Claystoke Designated Activity Company, Damous Limited, DLRS
(Holdings) Limited, Smurfit Kappa Security Concepts Limited, Gorda Limited, Iona Print Limited, iVenus Limited, Jefferson Smurfit & Sons Limited,
Margrave Investments Limited, Smurfit International Designated Activity Company, Smurfit Investments (Ireland) Limited, Smurfit Kappa Holdings Limited,
Smurfit Kappa Investments Limited, Smurfit Kappa Ireland Limited, Smurfit Kappa Irish Paper Sacks Limited, Smurfit Kappa Leasing Unlimited Company,
Smurfit Kappa Packaging Limited, Smurfit Kappa Services Limited, Smurfit Kappa Treasury Funding Designated Activity Company, Smurfit Kappa Treasury
Receivables Designated Activity Company, Smurfit Natural Resources Limited, Smurfit Securities Limited.
Article 403 Guarantees
Smurfit Kappa Group plc has, in accordance with Article 403, Book 2 of the Dutch Civil Code, guaranteed the debts of its following Dutch subsidiaries
– Adavale (Netherlands) B.V., Smurfit International B.V., Smurfit Holdings B.V., Smurfit Investments B.V., Packaging Investments Netherlands (PIN) B.V.,
Packaging Investments Holdings (PIH) B.V., Smurfit Kappa Europe B.V., Smurfit Kappa Nederland B.V., Smurfit Kappa Corrugated Benelux B.V., Smurfit Kappa
TWINCORR B.V., Smurfit Kappa MNL Golfkarton B.V., Smurfit Kappa Van Dam Golfkarton B.V., Smurfit Kappa Vandra B.V., Smurfit Kappa Orko-Pak B.V.,
Smurfit Kappa ELCORR B.V., Smurfit Kappa Trobox Kartonnages B.V., Smurfit Kappa Zedek B.V., Smurfit Kappa North East Europe Head Office B.V., Smurfit
Kappa Recycling B.V., Smurfit Kappa Development Centre B.V., Smurfit Kappa Paper Services B.V., Smurfit Kappa Roermond Papier B.V., Kappa Holding
(Nederland) B.V., Smurfit Kappa RapidCorr Eindhoven B.V., Smurfit Kappa Group IS Nederland B.V., Smurfit Kappa Finance B.V., Smurfit Kappa HexacombB.V.,
Smurfit Kappa Parenco B.V., Parenco Energy B.V., Reparco Nederland B.V.
Non-controlling Interests
2021
€m
2020
€m
At 1 January 13 41
Share of profit for the financial year – 2
Purchase of non-controlling interest – (27)
Foreign currency translation adjustment – (3)
At 31 December 13 13
190
Smurfit Kappa Annual Report 2021
DYNAMICALLY & SUSTAINABLY DELIVERING
Expanding to
13
countries in
the Americas
Acquisition of Cartones del Pacifico
We have completed the acquisition of Cartones del Pacifico,
a leading paper-based packaging company in Peru.
The acquisition represents an important
milestone as it expands our footprint in the
Americas from 12 to 13 countries, and builds on
the Group’s leadership position as the largest pan-
regional supplier in Latin America. As part of the
transaction Emusa Group has acquired Smurfit
Kappa’s flexible packaging business in El Salvador.
Commenting on the acquisition, Smurfit Kappa
Group CEO, Tony Smurfit, said: “The acquisition
of Cartones del Pacifico further expands our
strategic reach and underscores our growing
regional capability in Latin America. With a
population of over 30 million, we are delighted to
expand our footprint into Peru to help drive future
growth. We welcome the Cartones del Pacifico
employees to our team of talented people, and
look forward to their expertise contributing to
the success of Smurfit Kappa Group.”
Juan G. Castaneda said: “We are very pleased
to welcome the 368 employees of Cartones
del Pacifico to the Smurfit Kappa family. There
is a strong cultural fit between our businesses
and we are excited about the potential for
Cartones del Pacifico within the Smurfit Kappa
integrated system.”
The acquisition of Cartones del Pacifico,
a leading corrugated packaging business located
in Paramonga, in the vicinity of Lima, will open
opportunities for us to enhance our business
through the Group’s best-in-class operating
systems, procurement arrangements, and design
and innovation capability to help customers,
mainly in the fast growing agricultural and
industrial sectors. Furthermore, the Group’s
enlarged global footprint will improve its packaging
offering to multinationals operating throughout
the Latin American region.
Expanding our Footprint into Peru
191
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
Supplementary
Information 190-198
Alternative Performance Measures 192
Shareholder Information 198
Supplementary
Information
192
Smurfit Kappa Annual Report 2021
The Group uses certain financial measures as set out below in order to evaluate the Group’s financial performance. These Alternative Performance
Measures (‘APMs’) are not defined under IFRS and are presented because we believe that they, and similar measures, provide both SKG management
and users of the Consolidated Financial Statements with useful additional financial information when evaluating the Group’s operating and financial
performance.
These measures may not be comparable to other similarly titled measures used by other companies, and are not measurements under IFRS or other
generally accepted accounting principles, and they should not be considered in isolation or as substitutes for the information contained in our Consolidated
Financial Statements.
Please note where referenced ‘CIS’ refers to Consolidated Income Statement, ‘CBS’ refers to Consolidated Balance Sheet and ‘CSCF’ refers to Consolidated
Statement of Cash Flows.
The principal APMs used by the Group, together with reconciliations where the non-IFRS measures are not readily identifiable from the Consolidated
Financial Statements, are as follows:
A. EBITDA
Definition
EBITDA is 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. It is an appropriate and useful measure used to compare recurring financial performance
between periods. A reconciliation of profit to EBITDA is included below:
Reconciliation of Profit to EBITDA
Reference
2021
€m
2020
€m
Profit for the financial year CIS 679 547
Income tax expense (after exceptional items) CIS 234 201
Exceptional items charged in operating profit CIS – 31
Net finance costs (after exceptional items) Note 7 162 144
Share of associates’ profit (after tax) CIS (2) (1)
Share-based payment expense Note 4 69 37
Depreciation, depletion (net) and amortisation Note 4 560 551
EBITDA 1,702 1,510
B. EBITDA Margin
Definition
EBITDA margin is a measure of profitability by taking our EBITDA divided by revenue.
Reference
2021
€m
2020
€m
EBITDA A 1,702 1,510
Revenue CIS 10,107 8,530
EBITDA margin 16.8% 17.7%
C. Operating Profit Before Exceptional Items
Definition
Operating profit before exceptional items represents operating profit as reported in the Consolidated Income Statement before exceptional items.
Exceptional items are excluded in order to assess the underlying financial performance of our operations.
Reference
2021
€m
2020
€m
Operating profit CIS 1,073 891
Exceptional items CIS – 31
Operating profit before exceptional items CIS 1,073 922
D. Pre-exceptional Basic Earnings per Share
Definition
Pre-exceptional basic EPS serves as an effective indicator of our profitability as it excludes exceptional one-off items and, in conjunction with other metrics
such as ROCE, is a measure of our financial strength. Pre-exceptional basic EPS is calculated by dividing profit attributable to owners of the parent, adjusted
for exceptional items included in profit before income tax and income tax on exceptional items, by the weighted average number of ordinary shares in issue.
The calculation of pre-exceptional basic EPS is shown in Note 9.
ALTERNATIVE PERFORMANCE MEASURES
193
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Overview Strategic Report Governance Financial Statements Supplementary Information
E. Underlying EBITDA and Revenue
Definition
Underlying EBITDA and revenue are arrived at by excluding the incremental EBITDA and revenue contributions from current and prior year acquisitions
and disposals and the impact of currency translation, hyperinflation and any non-recurring items.
The Group uses underlying EBITDA and underlying revenue as additional performance indicators to assess performance on a like-for-like basis each year.
Europe
2021
The
Americas
2021
Total
2021
Europe
2020
The
Americas
2020
Total
2020
EBITDA
Currency 1% (2%) – – (9%) (2%)
Acquisitions/disposals (1%) 1% – – – –
Underlying EBITDA change 10% 20% 13% (11%) 12% (7%)
Reported EBITDA change 10% 19% 13% (11%) 3% (9%)
Revenue
Currency – (3%) – (1%) (10%) (3%)
Hyperinflation – 1% – – – –
Acquisitions/disposals 1% 1% – – – –
Underlying revenue change 17% 21% 18% (4%) 2% (3%)
Reported revenue change 18% 20% 18% (5%) (8%) (6%)
F. Net Debt
Definition
Net debt comprises borrowings net of cash and cash equivalents and restricted cash. We believe that this measure highlights the overall movement resulting
from our operating and financial performance.
Reference
2021
€m
2020
€m
Borrowings Note 24 3,754 3,276
Less:
Restricted cash CBS (14) (10)
Cash and cash equivalents CBS (855) (891)
Net debt 2,885 2,375
G. Net Debt to EBITDA
Definition
Leverage (ratio of net debt to EBITDA) is an important measure of our overall financial position.
Reference
2021
€m
2020
€m
Net Debt F 2,885 2,375
EBITDA A 1,702 1,510
Net debt to EBITDA (times) 1.7 1.6
194
Smurfit Kappa Annual Report 2021
H. Return on Capital Employed (‘ROCE’)
Definition
ROCE measures profit from capital employed. It is calculated as operating profit before exceptional items plus share of associates’ profit (after tax) divided
by the average capital employed (where average capital employed is the average of total equity and net debt at the current and prior year-end).
Reference
2021
€m
2020
€m
Operating profit before exceptional items C 1,073 922
Share of associates’ profit (after tax) CIS 2 1
Operating profit before exceptional items plus share of associates’ profit (after tax) 1,075 923
Total equity – current year-end CBS 4,392 3,783
Net debt – current year-end F 2,885 2,375
Capital employed – current year-end 7,277 6,158
Total equity – prior year-end CBS 3,783 2,993
Net debt – prior year-end F 2,375 3,483
Capital employed – prior year-end 6,158 6,476
Average capital employed 6,718 6,317
Return on capital employed 16.0% 14.6%
I. Working Capital
Definition
Working capital represents total inventories, trade and other receivables and trade and other payables.
Reference
2021
€m
2020
€m
Inventories CBS 1,046 773
Trade and other receivables (current and non-current) CBS 2,163 1,563
Trade and other payables CBS (2,563) (1,835)
Working capital 646 501
J. Working Capital as a Percentage of Sales
Definition
Working capital as a percentage of sales represents working capital as defined above shown as a percentage of annualised quarterly revenue.
Reference
2021
€m
2020
€m
Working capital I 646 501
Annualised quarterly revenue 11,281 8,875
Working capital as a percentage of sales 5.7% 5.6%
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
195
Smurfit Kappa Annual Report 2021
Overview Strategic Report Governance Financial Statements Supplementary Information
K. Summary Cash Flow
Definition
The summary cash flow is prepared on a different basis to the Consolidated Statement of Cash Flows and as such the reconciling items between EBITDA
and (increase)/decrease in net debt may differ from amounts presented in the Consolidated Statement of Cash Flows. The summary cash flow details
movements in net debt. The Consolidated Statement of Cash Flows details movements in cash and cash equivalents.
Reconciliation of the Summary Cash Flow to the Consolidated Statement of Cash Flows
Reference
2021
€m
2020
€m
EBITDA A 1,702 1,510
Exceptional items K.1 – (18)
Cash interest expense K.2 (109) (118)
Working capital change K.3 (114) 94
Capital expenditure K.4 (693) (575)
Change in capital creditors K.4 (14) (18)
Tax paid CSCF (239) (194)
Change in employee benefits and other provisions K.6 (81) (20)
Other K.7 3 14
Free cash flow L 455 675
Italian Competition Authority fine CSCF (124) –
Share issues (net) CSCF – 648
Purchase of own shares (net) CSCF (22) (16)
Sale of businesses and investments K.8 37 –
Purchase of businesses, investments and NCI K.9 (449) (25)
Dividends CSCF (302) (260)
Derivative termination receipts CSCF 9 9
Premium on early repayment of bonds K.2 (28) –
Net cash (outflow)/inflow (424) 1,031
Acquired net debt K.10 (25) (1)
Disposed net cash K.11 (1) –
Deferred debt issue costs amortised K.12 (10) (7)
Currency translation adjustment Note 21 (50) 85
(Increase)/decrease in net debt (510) 1,108
K.1 Exceptional Items
Reference
2021
€m
2020
€m
Reorganisation and restructuring costs – paid – (7)
Recognition reward – paid Note 5 – (11)
Per summary cash flow – (18)
K.2 Cash Interest Expense
Reference
2021
€m
2020
€m
Interest paid CSCF (152) (122)
Interest received CSCF 3 3
Move in accrued interest K.12 3 1
Initial cost of bonds repaid Note 21 9 –
Premium on early repayment of bonds K 28 –
Per summary cash flow (109) (118)
K.3 Working Capital Change
Reference
2021
€m
2020
€m
Net movement in working capital CSCF (114) 95
Other – (1)
Per summary cash flow (114) 94
196
Smurfit Kappa Annual Report 2021
K. Summary Cash Flow continued
K.4 Capital Expenditure
Reference
2021
€m
2020
€m
Additions to property, plant and equipment and biological assets CSCF (594) (493)
Additions to intangible assets CSCF (21) (21)
Additions to right-of-use assets Note 12 (92) (79)
Change in capital creditors K 14 18
Per summary cash flow (693) (575)
K.5 Capital Expenditure as a Percentage of Depreciation
Reference
2021
€m
2020
€m
Capital expenditure K.4 693 575
Depreciation, depletion (net) and amortisation A 560 551
Capital expenditure as a percentage of depreciation 124% 104%
K.6 Change in Employee Benefits and Other Provisions
Reference
2021
€m
2020
€m
Change in employee benefits and other provisions CSCF (81) (7)
Reorganisation and restructuring costs – unpaid K.6.1 – (28)
Past service cost – UK K.6.2 – 15
Per summary cash flow (81) (20)
K.6.1 Reorganisation and Restructuring Costs
The change in the provision relating to exceptional reorganisation and restructuring costs is not included in the summary cash flow as it is not within
EBITDA.Exceptional reorganisation and restructuring costs which were paid in 2020 are shown as a separate line item within ‘Exceptional items’ in the
summary cash flow.
K.6.2 Past Service Cost – UK
The change in employee benefits relating to the exceptional past service cost on the UK pension scheme is not included in the summary cash flow as it is not
within EBITDA.
K.7 Other
Reference
2021
€m
2020
€m
Other within the summary cash flow comprises the following:
Amortisation of capital grants CSCF (3) (2)
Profit on sale of property, plant and equipment CSCF (8) (2)
Profit on purchase/disposal of businesses CSCF – (4)
Other (primarily hyperinflation adjustments) CSCF 5 6
Receipt of capital grants CSCF 5 5
Disposal of property, plant and equipment CSCF 16 5
Dividends received from associates CSCF 1 1
Lease terminations/modifications L (13) 5
Per summary cash flow 3 14
K.8 Sale of Businesses and Investments
Reference
2021
€m
2020
€m
Disposal of subsidiaries (net of disposed cash) CSCF 33 –
Disposed cash and cash equivalents K.11 4 –
Per summary cash flow 37 –
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
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Overview Strategic Report Governance Financial Statements Supplementary Information
K. Summary Cash Flow continued
K.9 Purchase of Businesses, Investments and NCI
Reference
2021
€m
2020
€m
Purchase of subsidiaries (net of acquired cash) CSCF (413) (2)
Purchase of non-controlling interests CSCF – (23)
Deferred consideration paid CSCF (35) –
Acquired cash and cash equivalents K.10 (1) –
Per summary cash flow (449) (25)
K.10 Acquired Net Debt
Reference
2021
€m
2020
€m
Acquired debt Note 21 (26) (1)
Acquired cash and cash equivalents K.9 1 –
Per summary cash flow (25) (1)
K.11 Disposed Net Cash
Reference
2021
€m
2020
€m
Disposed debt Note 21 3 –
Disposed cash and cash equivalents K.8 (4) –
Per summary cash flow (1) –
K.12 Reconciliation of Other Non-cash Movements to Note 21
Reference
2021
€m
2020
€m
Deferred debt issue costs amortised K (10) (7)
Additions to right-of-use assets K.4 (92) (79)
Lease terminations/modifications L (13) 5
Move in accrued interest K.2 3 1
Other non-cash movements Note 21 (112) (80)
L. Free Cash Flow (‘FCF’)
Definition
FCF is the result of the cash inflows and outflows from our operating activities, and is before those arising from acquisition and disposal of businesses.
We use FCF to assess and understand the total operating performance of the business and to identify underlying trends.
Reconciliation of Free Cash Flow to Cash Generated from Operations
Reference
2021
€m
2020
€m
Free cash flow K 455 675
Reconciling items:
Cash interest expense K.2 109 118
Capital expenditure (net of change in capital creditors) K.4 707 593
Tax payments CSCF 239 194
Disposal of property, plant and equipment CSCF (16) (5)
Lease terminations/modifications K.7 13 (5)
Receipt of capital grants CSCF (5) (5)
Dividends received from associates CSCF (1) (1)
Italian Competition Authority fine CSCF (124) –
Non-cash financing activities – (1)
Cash generated from operations CSCF 1,377 1,563
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Smurfit Kappa Annual Report 2021
SHAREHOLDER INFORMATION
Ordinary Shareholdings
On 31 December 2021, the ordinary shares of the Company in issue were held as follows:
Number of Shares
Number of
Shareholders % of Total
Number of
Shares Held % of Total
1 – 1,000 238 76.53 88,259 0.03
1,001 – 5,000 63 20.26 143,134 0.06
5,001 – 10,000 6 1.93 42,415 0.02
10,001 – 100,000 3 0.96 61,830 0.02
100,001 – 500,000 – – – –
Over 500,000 1 0.32 258,698,121 99.87
Total 311 100 259,033,759 100
Stock Exchange Listings
The Company’s shares are listed on the following exchanges:
Exchange Type City Symbol
LSE Premium London SKG
Euronext Dublin Secondary Dublin SK3
Financial Calendar
AGM 29 April 2022
Interim results announcement 27 July 2022
Website
The Investors section on the Group’s website, smurfitkappa.com, provides the full text of the financial results and copies of presentations to analysts
and investors. Press releases are also made available in this section of the website immediately after release to the stock exchanges.
Registrars
Enquiries concerning shareholdings should be directed to the Company’s Registrars:
Link Registrars Limited,
P.O. Box 1110,
Maynooth,
Co. Kildare
Tel: +353 (0)1 553 0050
Fax: +353 (0)1 224 0700
enquiries@linkgroup.ie
www.signalshares.com
Certificated/Electronic Shareholding
Shares in the Company may be held directly on the register of members of the Company (i.e. in the form of a physical share certificate/certificated form)
or electronically through a nominee of Euroclear Bank. A migration of electronic settlement of the Company’s shares from CREST to the settlement system
operated by Euroclear Bank occurred on 15 March 2021. Those who hold shares electronically hold their interests in the shares as ‘Belgian law rights’ through
the Euroclear Bank system or as CREST depository interests (‘CDIs’) through the CREST System.
Proxy Voting
The process for appointing a proxy will depend on the manner in which you hold your ordinary shares in the Company. Further details will be contained in the
notes to the Notice of Annual General Meeting. Persons who hold their interests in ordinary shares as Belgian law rights through the Euroclear system or as
CDIs should consult with their stockbroker or other intermediary for information on the processes and timelines for submitting proxy votes for the Annual
General Meeting through the respective systems.
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Overview Strategic Report Governance Financial Statements Supplementary Information
NOTES
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Smurfit Kappa Annual Report 2021
NOTES
Smurfit Kappa Group plc Annual Report 2021
Smurfit Kappa Group plc
Beech Hill, Clonskeagh,
Dublin 4, D04 N2R2 Ireland
+353 1 202 7000
smurfitkappa.com