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1、ANNUAL REPORT 2011CONTENTS2 2011 Financial performance overview3 Group profile7 Chairmans Statement11 Chief executives Review13 Strategy15 operations Review23 Finance Review33 Sustainability36 Board of Directors38 Corporate Governance Statement49 Directors Report52 Remuneration Report61 Statement of
2、 Directors Responsibilities62 Independent Auditors Report64 Group Income Statement65 Group Statement of Comprehensive Income66 Group Balance Sheet68 Company Balance Sheet69 Group Statement of Changes in equity71 Company Statement of Changes in equity72 Group Cash Flow Statement74 Company Cash Flow S
3、tatement75 notes to the Consolidated Financial Statements160 Shareholder InformationwE CrEaTEiNNOvaTivEpaCkagiNgSOluTiONSSmurfit Kappa prides itself on its ability to work closely with its customers,both large and small,to develop innovative packaging solutions that enable our customers to be succes
4、sful in their respective markets by ensuring that our products are cost competitive,fit for purpose,sustainable and offer effective presentation of our customers goods.the Groups Research and Development Centre in Hoogeveen,the netherlands,deploys state of the art design and testing facilities to en
5、able our significant expertise to be used in developing the most suitable solution for any packaging challenge.As a result,our extensive product portfolio ranges from basic corrugated containers through to high-end packaging using high quality printing techniques.As part of the drive towards a more
6、sustainable world,we continually promote the use of paper-based alternatives to plastics and other non-recyclable materials.one of our key product offerings is striking point-of-sale and shelf-ready displays which offer key advantages in terms of minimal use of resources combined with efficient tran
7、sportation and excellent promotional opportunities for our customers products.In this Annual Report,we show just a small sample of the types of packaging solutions that we have successfully developed in close cooperation with our extensive customer base,both local and multinational.2011 FiNaNCial pE
8、rFOrmaNCE OvErviEw2011m2010mRevenue7,3576,677eBItDA before exceptional items andshare-based payment expense(eBItDA)1,015904eBItDA margin 13.8%13.5%operating profit590409profit before income tax299103Free cash flow 39482net debt 2,7523,110net debt to eBItDA 2.7x3.4xBasic earnings per share(cent)93.02
9、2.9pre-exceptional earnings per share(cent)100.159.4Debt paydown and net debt to eBItDA ratio evolution DEC 103,110mar 113,061juN 113,003SEp 112,921DEC 112,7523.43.23.02.82.7Net debt/EBITDANet debt(m)SMURFIT KAPPA GROUP AnnuAl RepoRt 20112SKG at a GlanceSmurfit Kappa Group plc(SKG or the Group)is on
10、e of the worlds largest integrated manufacturers of paper-based packaging products,with operations in europe and latin America.It manufactures,distributes and sells containerboard,corrugated containers and other paper-based packaging products such as solidboard,graphicboard and bag-in-box.During 201
11、1,the Group reorganised the management of its european businesses by operationally merging those of the former Specialties europe segment into its existing packaging europe segment.As a result,the Group now has two segments,europe and latin America.the europe segment,which is highly integrated,inclu
12、des a system of mills and plants that primarily produces a full line of containerboard that is converted into corrugated containers.the latin America segment comprises the Groups forestry,paper,corrugated,paper sack and folding carton activities in the region.the Group operates in 21 countries in eu
13、rope and is the european leader in corrugated packaging,containerboard,solidboard,and solidboard packaging with key positions in several other packaging and paper market segments.the Group also has a growing base in eastern europe,a bag-in-box plant in Canada and operates in nine countries in latin
14、America where it is the only pan-regional operator.In terms of world market positions,the Group is the second largest producer of corrugated packaging.Given the high degree of integration between the mills and its conversion plants,particularly in terms of containerboard,the Groups end customers are
15、 primarily in the corrugated packaging market,which uses the packaging for product protection and product merchandising purposes.the corrugated market is a localised market and corrugated box plants need to be close to customers(generally no more than 250 to 300 kilometres),due to the relatively hig
16、h cost of transporting the product.Approximately 60%of the Groups corrugated customers are in the fast moving consumer goods(FMCG)sector(comprising food,beverage,and household consumables),the remainder being split across a wide range of different industries.In 2011,the Groups europe and latin Ameri
17、ca segments accounted for approximately 82%and 18%of revenue respectively.At the date of this report,the Group owns 37 mills(26 of which produce containerboard),226 converting plants(most of which convert containerboard into corrugated boxes),40 recovered fibre facilities(which provide raw material
18、for the Groups mills)and 28 other production facilities carrying on other related activities.In addition,the Group owns approximately 104,000 hectares of forest plantations in latin America.grOup prOFilESMURFIT KAPPA GROUP AnnuAl RepoRt 20113SMURFIT KAPPA GROUP AnnuAl RepoRt 20114Latin american Oper
19、atiOnsVirgin Mills(2)Recycled paper and Board Mills(9)Corrugated(27)Cartons(3)paper Sacks(5)Recovered Fibre(24)other(1)Virgin Mills Recycled Mills Corrugated Cartons Paper Sacks Bag-in-box Recovered Fibre Forestrypackaging eurOpeSales Volumes(million tonnes)Kraftliner 1.4Recycled Containerboard 2.9o
20、ther paper&Board 1.1Corrugated 4.2Solidboard packaging 0.3Latin americaSales Volumes(million tonnes)Containerboard 0.7other paper&Board 0.4 Corrugated 0.7SMURFIT KAPPA GROUP AnnuAl RepoRt 20115Latin american OperatiOnsVirgin Mills(2)Recycled paper and Board Mills(9)Corrugated(27)Cartons(3)paper Sack
21、s(5)Recovered Fibre(24)other(1)Virgin Mills Recycled Mills Corrugated Cartons Paper Sacks Bag-in-box Recovered Fibre ForestrymissiOnthe Smurfit Kappa Group strives to be a customer-oriented,market-led company where the satisfaction of customers,the personal development of employees and respect for l
22、ocal communities and the environment are seen as being inseparable from the aim of creating value for the shareholders.eurOpean OperatiOnsVirgin Mills(5)Recycled Containerboard Mills(13)other Recycled paper and Board Mills(8)Corrugated(162)Cartons and Solidboard packaging(9)Recovered Fibre(16)other(
23、47)Virgin Mills Recycled Mills Corrugated Cartons and Solidboard Packaging Bag-in-box Recovered FibreCuSTOmEr FOCuSED iNNOvaTiONSmurfit Kappa Swisswell came up with a highly sustainable end-to-end packaging concept for the launch of a tea capsule system called SpeCIAl t by nestl.the tea capsules are
24、 filled at nestls production plant in orbe,Switzerland.the boxes containing capsules are automatically packed into a corrugated wrap which is sent to the distribution centre.At the distribution centre,the corrugated wrap containing one blend is unpacked and the boxes placed into a pick&pack system.W
25、hen a customer places an order for a selection of tea blends,the original corrugated wrap is re-packed with the customers order and used for the onward journey to the customer.Based on the principle that the main corrugated item is used twice-for two different journeys Smurfit Kappa and nestl have r
26、educed the packaging used by 40%thus delivering significant environmental and cost benefits.Year in Reviewthe Group is pleased to deliver eBItDA growth of 12%to 1,015 million,pre-exceptional epS growth of 69%to 1.00,free cash flow generation of 394 million and a decrease in our net debt to 2.75 bill
27、ion resulting in a reduction in our net debt to eBItDA ratio to 2.7x.Compared to 2010,europe eBItDA grew by 11%and latin America eBItDA by 19%.these results were achieved against the backdrop of significantly higher input costs in 2011 and the progressive weakening of economic fundamentals in europe
28、 in the second half which led to a decline in packaging demand.the results reflect the strength and efficiency of the Groups integrated model in all market conditions.on behalf of the Board,I would like to acknowledge the on-going commitment of all of our employees in contributing to the significant
29、 progress made during the year against every key financial measure.Governance and Boardthe Board and Management of SKG support the highest standards of Corporate Governance and ethical business conduct.It is our view that Corporate Governance is not just a matter for the Board but that a culture of
30、high standards of governance must be promoted from the top and must be fostered throughout the whole organisation.We believe governance is about ensuring 1)we have the right strategy to deliver for our shareholders and stakeholders,2)the executive team is leading and managing effectively to reach ou
31、r strategic goals and in doing so they are held accountable and at the same time are fairly remunerated and 3)that the risks to the Group are managed and mitigated and that appropriate controls are in place at all levels of the organisation.the key principles and practices designed to achieve these
32、standards are set out in the Corporate Governance statement.the Code recommends that,apart from the Chairman,at least half of the Board of Directors of a listed company should comprise non-executive directors determined by the Board to be independent.Since our listing in 2007 we have appointed six i
33、ndependent Directors and with the retirement of two shareholder nominees at the forthcoming Annual General Meeting(AGM),the Company will comply with the Code recommendation on Board independence.I would like to thank all of the Directors for their on-going support and their contributions to the deve
34、lopment and effectiveness of the workings of the Board and its various Committees during the year.SMURFIT KAPPA GROUP AnnuAl RepoRt 20117ChairmaNS STaTEmENT“Significant progress against every key financial measure.”Liam OMahony CHAIRMAnDirectorsIn February 2012 we were delighted to announce that Mr
35、Irial Finan,an Irish citizen based in the uSA,was co-opted to the Board as an independent,non-executive Director.He is currently executive Vice president of the Coca-Cola Company and president of the Bottling Investments Group.His extensive experience across international markets with one of the wor
36、lds leading companies will meaningfully contribute to the Board and the continued development of SKG.Mr Gordon Moore will retire from the Board at the forthcoming AGM following six years on the SKG Board.Mr Rolly van Rappard will also retire from the Board at the AGM following seven years on the Boa
37、rd prior to which he had spent seven years on the Kappa Group Board.the Board would like to sincerely thank them for their support and contribution during their directorships and to offer our best wishes for the future.operational VisitsIn August the Board travelled to France and visited the Facture
38、 kraftliner mill and the Saint Seurin corrugated facility both in the region close to Bordeaux.At the Facture facility,as well as viewing the impressive paper mill facilities,we inspected the biomass boiler commissioned in late 2010 which reduces the Co2 emissions as a result of a significant increa
39、se in non-fossil fuel usage at the facility.We also visited a specially commissioned wood storage facility close to Facture which was created to preserve the trees which fell as a result of the severe storms in the south west region in previous years.these visits are extremely valuable in giving a d
40、eeper first-hand understanding of the strength and extent of our local businesses,their strategic positioning,and the dedication and enterprise of our teams at all levels throughout the organisation.During 2011,I personally made additional visits with the senior european management team to facilitie
41、s in Austria,the Czech Republic,Germany,the uK,Italy,the netherlands,Belgium and Ireland covering mills,corrugated plants and other operations.AcquisitionsConsistent with our strategy of expanding our packaging business in higher growth markets,in the fourth quarter of 2011 and in January 2012 the G
42、roup concluded two bolt-on acquisitions,in Russia and Argentina respectively.In Russia,the Group acquired a box plant in St.petersburg for 8 million thereby increasing its presence in the region.the Argentinean acquisition represents a further expansion and internationalisation of the Groups growing
43、 bag-in-box business.the consideration for the deal was uS$15 million.this transaction was facilitated by SKGs presence and experience in Argentina and represents an exciting opportunity to expand our business in this relatively high margin product and geographic area.these acquisitions will help SK
44、G to deepen its relationship with its customers on a wider geographic basis,while also accessing attractive local business.SustainabilitySKG is fundamentally committed to sustainability and social responsibility in its interaction with its customers,suppliers,employees,the communities in which it is
45、 privileged to do business and in relation to its impact on the broader environment.I am delighted to note the third party recognition for our work in this area and especially the awards which we have received from key customers,details of which are set out in our fourth Sustainable Development Repo
46、rt which was produced in July 2011.A summary of this report is contained on pages 33 to 35 of this Annual Report.SMURFIT KAPPA GROUP AnnuAl RepoRt 20118Dividends and Dividend policyentering 2012,as a consequence of our increased financial flexibility and sustained confidence in the long-term outlook
47、 for our business,the Board is satisfied that it is appropriate and timely for SKG to reinstate a sustainable dividend stream.In that context,the Board is recommending a final dividend of 15 cent per share for 2011 payable on 11 May 2012.the Directors intention is that interim and final dividends wi
48、ll be paid in october and May in each year in the approximate proportions of one third and two thirds.outlookthe sustained strength of our operating performance together with our market-facing integrated model and our enhanced capital structure provide us with an expanded range of strategic and fina
49、ncial options and give us confidence in the long-term future of the Group.our options for the use of cash include continued debt paydown,increased presence in higher growth markets through value enhancing acquisitions and a progressive dividend stream.opportunities will be prioritised to maximise sh
50、areholder returns,with a clear objective of maintaining a net debt to eBItDA ratio of below 3.0 x through the cycle.While macro-economic risks remain in 2012 and beyond,we expect to continue delivering strong free cash flow through the cycle.Liam OMahony CHAIRMAnSMURFIT KAPPA GROUP AnnuAl RepoRt 201
51、19DElivEriNg a SupEriOr SErviCE2011 overviewthe Group generated eBItDA of 1,015 million in 2011 compared to 904 million in 2010.this strong financial performance demonstrates the benefits of our continued cost take-out programme,our efficiency improvements and our market-leading integrated business
52、model,which delivered material growth in our pan-european business.A number of significant development investments were carried out in 2011,reinforcing our position as the leading integrated business in our industry,in both europe and latin America.We are continuing our unrelenting focus on customer
53、 service,product innovation and operating efficiency.Despite significantly higher input costs in 2011,the Group delivered a relatively strong and improved eBItDA margin of 13.8%for the full year,leading to an enhanced return on capital employed of 12.5%.this outcome primarily highlights the benefits
54、 of SKGs efficient integrated model,together with a continuing focus on cost efficiency and fair pricing of our total offering.At the end of 2011,the Groups stated target of a 24%box price recovery from the 2009 low point was successfully achieved.the progressively weakening economic fundamentals th
55、at prevailed in europe in the second half of 2011 clearly impacted consumption and output in the region,which led to a decline in packaging demand.Following a 2%underlying demand growth in the first half,SKGs box volumes grew by 1%in quarter three,and declined by 2%in quarter four.the somewhat softe
56、r demand environment that prevailed since the third quarter led to a rise in european recycled containerboard inventories,which combined with reducing raw material costs,generated a significant decline in paper prices.From the peak in quarter two to the year end,recycled containerboard prices reduce
57、d by 115 per tonne,while oCC costs only reduced by approximately 50 per tonne,thereby creating significant margin compression for non-integrated containerboard producers.lower margins led to significant market-related downtime being taken at the year end.early in 2012,a generally stable demand envir
58、onment combined with renewed upward pressure on oCC costs led to widespread recycled containerboard price increase announcements for implementation in the first quarter,combined with additional downtime plans.the Group announced price increases of 100 per tonne for recycled containerboard from 1 Feb
59、ruary,and 60 per tonne for kraftliner with effect from 1 March.Senior Credit Facility Amendment RequestWithin the past 18 months,we have materially improved the financial profile and flexibility of SKG,by reducing net debt by approximately 540 million,while maintaining a strong liquidity position an
60、d diverse funding sources.SMURFIT KAPPA GROUP AnnuAl RepoRt 201111ChiEF ExECuTivES rEviEw“Substantial improvement in the Groups financial profile and flexibility.”Gary McGann GRoup CHIeF exeCutIVe oFFICeRSmurfit Kappa Argentina has developed a generic self-assembly box in their Mendoza plant for hol
61、ding bottles of wine.the design can accommodate 80%of the different 750ml bottle shapes in use by wine producers.As the design is generic,it offers the ability to serve two different markets.on the one hand,this box can be used by those customers who wish to use it as is,while on the other hand,it c
62、an also be used by the customers who wish to make use of the plants design and printing facilities to have the box modified to their specific needs.notwithstanding the absence of material debt maturities until December 2013,the Group announced on 8 February 2012 that it was seeking the consent of it
63、s lenders to amend its Senior Credit Facility Agreement,in order to further extend its debt maturity profile and enhance its overall financial flexibility.the key amendment requests were to 1)extend the maturity of the Groups term loans B and C to 2016 and 2017 respectively,2)extend the maturity of
64、the Revolving Credit Facility(RCF)to 2016,and 3)seek flexibility to raise longer dated secured bonds,as and when market conditions are considered optimal,in order to refinance its existing facilities.the Group received a very positive response to its consent request with lenders comprising 98%of the
65、 Facility consenting to the proposed amendments the minimum required level of consents was 662/3%.lenders holding 90%of term loans B and C and 77%of the Revolving Credit Facilities elected to extend their commitments.the amendments became effective on 1 March 2012.CustomersWith our unique market pre
66、sence in both europe and latin America,we seek to provide customers with innovative,sustainable and cost efficient paper-based packaging solutions.the Group seeks to differentiate itself in the market through superior service,quality,innovation and customer relationships.While we continue to build l
67、ong-term sustainable partnerships with our pan-european customers,we also consider it a high priority to extend the skills and experience acquired in serving these companies to our local customers in the many markets in which we operate.I would like to sincerely thank our customers on both continent
68、s for their continued confidence and trust.We will continue to invest to meet and exceed their requirements and we look forward to working with them to enhance the security and marketability of their products,thereby helping them to face the challenges of an increasingly competitive retail market.ou
69、r peopleour key competitive advantage and point of differentiation is our people,both individually but in particular working in cohesive teams.our continued focus is on recruiting,developing,motivating and retaining skilled employees dedicated to working as a team in the service of our diverse custo
70、mer base.I would therefore like to acknowledge the effort and commitment of our over 38,000 employees in the 31 countries in which we operate for their significant contribution to the results achieved in 2011.We look forward to facing the challenges of 2012 together and to continuing our efforts to
71、make SKG the safest company to work for in our industry.Corporate Social ResponsibilityIn its fourth annual Sustainable Development Report,released in July 2011,SKG highlighted its continued progress and commitment to social and environmental best practices and cited tangible evidence of this.this c
72、ontinues to be a high priority for the Group in fulfilling its obligation to its customers,its employees,the communities in which we are privileged to operate and the environment from which we draw our natural resources.Gary McGann GRoup CHIeF exeCutIVe oFFICeRSMURFIT KAPPA GROUP AnnuAl RepoRt 20111
73、2Having made significant strides towards achieving our de-leveraging objectives with the repayment of approximately 540 million in the past 18 months we can refocus on the long-term strategy for the Group which was outlined on the Initial public offering(Ipo)in 2007.the Groups objective is to delive
74、r superior performance in terms of profitability and returns on capital through the cycle,thereby enhancing shareholder value,and to be the market leader in paper-based packaging in its chosen markets.this objective is underpinned by a focus on delivering superior customer satisfaction,a relentless
75、pursuit of cost and operating efficiency,proactive environmental awareness,and a commitment to continuous improvement in the areas of health and safety and corporate social responsibility.the Groups objectives and strategies are:n to profitably build on its market positions in Western and eastern eu
76、rope and in latin America through selective focused growth,including:n organic growth from increased market share through consolidating,and where possible,extending its leadership position in Western europe.this will be achieved by leveraging the Groups relationships with its customers across its br
77、oad product range and enhancing its profitability by maximising synergies and optimising the cost base;and n acquisition and merger based growth in areas where market share and/or coverage facilitates it,particularly in the higher growth markets.this dual approach of organic growth and acquisition w
78、ill be pursued in each of Western europe,eastern europe and latin America with acquisitions mostly focused on the higher growth markets of eastern europe and latin America.n to focus on enhancing its operational excellence,thereby continuing to improve its customer offering,by continuously upgrading
79、 its products,processes,services,quality and delivery in all markets by:n leveraging the Groups increasingly high quality asset base through continuous improvement programmes,transfer of best practice,industrial engineering,innovation and targeted capital investment;n increasing the proportion of ad
80、ded-value converting products in the overall portfolio through the use of the Groups development and technology centres,its pan-european network in high-value areas such as high quality printing,display and litho lamination;and n ensuring that its operations,whether in the converting or mill divisio
81、ns,continue to be close to the customers and have a clear market focus rather than being production-driven.n to focus on cash flow and appropriate returns on investment in order to maximise shareholder value.n to secure and retain the optimal balance between debt and equity capital to facilitate the
82、 Groups growth strategy in a cyclical industry while striking the appropriate balance between risk and return.STraTEgYSMURFIT KAPPA GROUP AnnuAl RepoRt 201113iDEaS ThaT ENgagESMURFIT KAPPA GROUP AnnuAl RepoRt 201115OpEraTiONS rEviEwSKGs objective remains one of generating consistently strong margins
83、 and returns through the cycle,underpinned by a superior commercial offering,and disciplined capital allocation decisions.In 2011 we significantly enhanced the efficiency of our integrated system,through judicious investments in our european market-facing packaging operations,a major boiler re-build
84、 in our pite kraftliner mill in Sweden,significant rebuilds in our Hoya and Wrexen recycled mills in Germany,the closure of our high cost recycled mill in nanterre,France and the start-up of a greenfield box plant in Mexico.Furthermore,consistent with its stated objective of expanding its packaging
85、business in higher growth markets,the Group recently concluded two bolt-on acquisitions,in Russia and Argentina respectively.In the fourth quarter of 2011,we acquired a box plant in St petersburg for 8 million,thereby further increasing our presence in this region.the acquisition in Argentina,comple
86、ted in early 2012,represents a further expansion and internationalisation of the Groups growing bag-in-box business.the consideration for the deal was uS$15 million.europethe europe segment is the larger of the Groups two segments,accounting for 82%of its revenue in 2011.It comprises primarily our i
87、ntegrated containerboard mills and corrugated operations.With effect from 1 September 2011,the Group operationally merged its specialties businesses into its existing packaging europe segment (now referred to as“europe”).this reorganisation increases the focus of the Groups commercial offering,and c
88、reates a platform for SKG to become a“one-stop-shop”for paper-based packaging solutions.this initiative will also enhance the Groups overall cost efficiency,and is expected to contribute to improving the margins of its solid,graphic and carton board businesses.the Group has facilities in 21 countrie
89、s,in both Western and eastern europe.the operations consist of 26 mills,17 of which produce containerboard,and 216 plants,the majority of which produce corrugated packaging products.the mills are supported by a number of recovered fibre collection facilities and some wood procurement operations.Smur
90、fit Kappa onwell in Sweden was commissioned by the biscuit manufacturers Gteborgs Kex to make a specially-designed package for a large 2.3 kilo pack of Ballerina biscuits,one of Swedens favourite biscuit brands.Another Swedish company,Smurfit Kappa lithopac provided the offset lamination.this giant
91、pack is a prize in a promotion at the liseberg Amusement park in Gothenburg.the final package is a 22-sided corrugated tube,80 cm long and 20 cm in diameter,complete with carrying handle,which is easy to open and reseal.Tony Smurfit GRoup CHIeF opeRAtIonS oFFICeRour european containerboard mill syst
92、em consists of three kraftliner mills,in Sweden,France and Austria,which between them produced over 1.4 million tonnes of brown and white kraftliner in 2011,13 recycled containerboard mills which produced over 2.9 million tonnes of paper and a relatively small mill in Spain which produces both virgi
93、n-based machine-glazed paper and recycled containerboard.In addition,we have eight other recycled mills,which together produced approximately 700,000 tonnes of solidboard and boxboard and 200,000 tonnes of graphicboard in 2011.We also have a sack kraft mill in Spain,which produced over 100,000 tonne
94、s of sack kraft paper.on the conversion side,the operations comprise 109 corrugated plants,which produced approximately 4.2 million tonnes(7.8 billion square metres)in 2011 and 53 sheet plants.In addition,we have 35 plants which produce high end packaging differentiation products such as litho lamin
95、ated corrugated products,preprint or display units,solidboard-based packaging and bag-in-box demonstrating the range of potential packaging solutions within our portfolio.We also have a number of other small plants producing paper tubes,pallets,fulfilment activities and other packaging support produ
96、cts.Revenue for the europe segment in 2011 was 6.1 billion compared to 5.6 billion(as restated to include the former specialties businesses)in 2010.Segmental eBItDA was 812 million,an increase of 11%on 2010s 731 million.When including the volumes from acquired operations,the Groups total corrugated
97、volumes in the full year 2011 were 2%higher than in 2010.on a like-for-like basis however,following the 2%demand growth in the first half,demand for SKGs corrugated packaging solutions grew by 1%in quarter three,and declined by 2%in quarter four.As is usual within the Groups business,it takes three
98、to six months to fully recover higher paper prices in the box prices.As a result,SKGs box prices were on average 2%higher in the third quarter compared with the second quarter,and remained generally stable through the fourth quarter.For the full year 2011,SKGs european box prices were on average 11%
99、higher than in 2010.the recovery of box prices,together with the Groups strong focus on cost efficiency contributed to deliver a european eBItDA margin of 13.4%in the full year 2011,slightly higher than 2010 levels despite a much tougher operating environment.In 2011 SKGs european raw material and e
100、nergy costs were approximately 350 million(or 16%)higher than in 2010.At industry level,recycled containerboard inventories rose in the third quarter,as most paper producers continued to run at full capacity despite softening demand,in both domestic and export markets.Higher inventory levels led to
101、a 115 per tonne reduction in european recycled containerboard prices during the second half of the year,reaching an absolute level of approximately 380 per tonne in January 2012.on the raw materials side,downward pressure from european buyers combined with lower Chinese demand,led to a 50 per tonne
102、reduction in oCC prices during the second half of 2011.Although somewhat mitigating the impact of lower paper prices,the reduction in oCC costs was not sufficient to avoid significant margin reduction for non-integrated recycled containerboard producers.In the case of SKG,following the permanent clo
103、sure of 10 less efficient containerboard mills since 2005,including the closure of its nanterre mill in France,together with significant investments in its“champion”mills,the Group is equipped with SMURFIT KAPPA GROUP AnnuAl RepoRt 201116OpEraTiONS rEviEwcontinueda highly efficient and fully integra
104、ted recycled containerboard system.As indicated by its strong eBItDA margins,SKGs integrated system is supporting its relative outperformance of its peers irrespective of the particular operating environment.the Group estimates that over 200,000 tonnes of market-related downtime was taken by the ind
105、ustry over the year end,which allowed for inventories to remain broadly stable in the seasonally weaker holiday period.Furthermore,renewed upward pressure on oCC costs and generally stable demand early in 2012 created a platform for the Group to announce a 100 per tonne recycled containerboard price
106、 increase from 1 February.on the kraftliner side,uS imports into europe were 12%higher in 2011 than in 2010,although this was somewhat offset by an 11%reduction in imports from other regions.overall,net kraftliner imports into europe increased by 80,000 tonnes year-on-year.lower priced uS tonnage cr
107、eated downward pressure on domestic kraftliner prices,which have declined by approximately 100 per tonne since the beginning of 2011,to a level of approximately 540 per tonne in January 2012.Reduced european kraftliner prices combined with the strengthening of the uS dollar against the euro has made
108、 europe a less attractive market for overseas exporters,which resulted in lower uS imports into europe in the fourth quarter.In that context,at the end of January 2012 the Group announced a kraftliner price increase of 60 per tonne with effect from 1 March.our bag-in-box business continued to delive
109、r strong growth in 2011.In January 2012,the Group acquired a bag-in-box operation in Argentina which together with our european,Russian and Canadian operations further enhances our increasingly international footprint.this business has significant growth opportunities and SKG is very well positioned
110、 to be a world leader in the years ahead.latin Americathe Groups latin American operations consist of 11 paper mills in 4 countries(Colombia,Mexico,Venezuela and Argentina)producing containerboard,boxboard,sack paper and printing and writing paper,with a combined production of 1.1 million tonnes in
111、2011.We also have 27 corrugated plants in 6 countries with a 2011 production of over 0.7 million tonnes(1.2 billion square metres);1 preprint facility;5 paper sack converting plants in 4 countries;3 folding carton plants in Mexico and Venezuela;24 recovered fibre plants in 5 countries and forestry o
112、perations in Colombia and Venezuela.In 2011,latin American eBItDA of 237 million represented 23%of the Groups total with a margin of 18.4%on revenue(compared to 17.8%in 2010).the 19%growth in eBItDA delivered in 2011 primarily reflects an improved performance(in local currency terms)in Colombia and
113、Venezuela,somewhat offset by a lower result in Mexico and Argentina than in 2010.SKGs corrugated volumes in Colombia experienced relatively strong year-on-year growth of 5%in 2011,although the pace of demand growth was somewhat softer in the fourth quarter.Corrugated pricing in the fourth quarter in
114、creased by 1%compared to the third quarter,which together with continuing cost efficiency initiatives supported the delivery of an enhanced eBItDA margin in the period.SMURFIT KAPPA GROUP AnnuAl RepoRt 201117FrESh ThiNkiNgSKGs corrugated volumes in Venezuela were flat year-on-year in 2011.Continuing
115、 high inflation was more than offset by the Groups operating efficiency actions,as well as necessary price recovery.In July,the Venezuelan authorities issued precautionary measures over a further 7,253 hectares of the Groups forestry land,with a view to acquiring it and converting its use to food pr
116、oduction and related activities.Since the announcement the Venezuelan management team is working hard to find an accommodation that will ensure an optimal outcome for SKG,its customers,its employees and the communities.Despite a 5%increase in box prices and a continuing focus on operating efficiency
117、,in 2011 SKGs Mexican eBItDA in local currency terms was lower than in 2010.this primarily reflected significant inflationary pressure and a 1%box volume decline year-on-year.to further improve the efficiency of its Mexican integrated system,SKG is planning a re-build of its main Mexican containerbo
118、ard machine in Mexico City in the first quarter of 2012.High inflation continues to prevail in Argentina.As a result,and despite a material increase in SKGs corrugated prices in 2011,eBItDA margins in the country contracted compared to 2010 levels.Consumer spending power was also affected by rising
119、inflation,as outlined through the 2%reduction in the Groups corrugated volumes in 2011,a trend that was sustained in the fourth quarter.Despite some country-specific challenges from time to time,the Group believes that the geographic diversity of its business in the latin American region,together wi
120、th the proven ability of its local management to drive the business,will continue to deliver a strong performance through the cycle.latin America remains a target region for SKGs future growth.Commercial offering and InnovationIn 2011,SKG secured significant incremental business from key pan-europea
121、n customers.overall,from 2006 to 2011,the Groups pan-european business grew by approximately 20%in a broadly stable market,thereby clearly demonstrating the differentiated nature and compatibility of its offering with the needs of globally expanding customers.With approximately 80%of its pan-europea
122、n business contracted from one to six years,SKG is clearly building long-term sustainable partnerships with its customers.using the skills and experience acquired in servicing the most demanding of international customers,we have continued to pay special attention to the recruitment and retention of
123、 local customers who benefit from best international standards from our businesses.the Groups strong commercial success is underpinned by its unique“one-stop-shop”offering,characterised by a broad and expanding geographic footprint,a diversified product range,and unrivalled design and innovation cap
124、abilities.on the design side,in 2011 SKG launched an improved version of its“paper-to-box”tool,a major breakthrough in the industry,allowing the definition of fit-for-purpose packaging at an optimised cost for our customers.SMURFIT KAPPA GROUP AnnuAl RepoRt 201119SMURFIT KAPPA GROUP AnnuAl RepoRt 20
125、11OpEraTiONS rEviEwcontinuedSmurfit Kappa turnhout in Belgium developed the innovative Clickbox for SAS Koffie,a Belgian coffee producer who in turn supply many own label coffees for their customers.this solution is an excellent example of shelf-ready packaging with an eye-catching and functional de
126、sign.other advantages include the use of less material in the manufacture of the box and more efficient stacking on pallets,thereby reducing the transport overhead.the tool is based on in-depth studies and is calibrated using a benchmark of over fifteen billion packages across all market segments.on
127、 the innovation side,in 2011 SKG introduced a new range of“hybrid packages”,mixing corrugated and solidboard.these unique SKG packaging solutions offer the superior supply chain performance of corrugated combined with the attractive shelf appearance of solidboard.Various FMCG projects have already s
128、hown the growth potential of this innovation.Furthermore,using our extensive expertise in the retail sector,we have developed a patented box perforation called“Sharkline”,which optimises retail ready packaging solutions.this innovation guarantees optimal protection in the supply chain while signific
129、antly lowering material costs,thereby offering better value to our customers.Another of SKGs unique competitive advantages is its strong drive to support our customers to meet their sustainability agenda,underpinned by an objective to be the first european company able to guarantee that all of its p
130、ackaging solutions are coming from sustainable sources.As of today,approximately 90%of our mills and 50%of our corrugated operations are already“Chain of Custody”certified under the programme for the endorsement of the Forest Certification(peFC)or the Forest Stewardship Council(FSC),with a target to
131、 get to 90%by 2015.the Groups initiatives to enhance its innovation and service offering are being recognised by a number of stakeholders.Amongst the awards received were two from the German print association in September 2011,in a competition that included over 300 packaging designs from 90 differe
132、nt companies.During 2011,SKG also received sustainability-related awards from both Coca-Cola enterprises and unilever.Within our paper operations,we continue to make significant investments in improving our substrates,optimising our raw materials and improving the basic product which assists our pac
133、kaging innovation and sustainability initiatives.Amongst the new outputs this year have been our“Royal 2000”white top kraftliner offering from our French and Swedish mills.In addition,we commenced production of higher margin recycled white top liners in our Wrexen mill(Germany).our objective is to h
134、ave the best integrated paper and board system in europe.Significant investments in 2011 in our pite,Hoya,Wrexen,nervin and other mill systems have further improved the quality of our products and the efficiency of our production.this relentless focus on sustainability will continue to differentiate
135、 our products in the end market.Similar programmes are in progress in our latin American operations with the objective to achieve international best in class standards in our products,service and systems.In that context,as well as continuing to upgrade our latin American packaging plants,we invested
136、 in a greenfield box plant outside Mexico City in response to strong market opportunities.the investment in our Cerro Gordo mill in Mexico City in 2012 will further enhance the quality of our paper in the country.As in europe,we also continued our programme of progressing our sustainability and effi
137、ciency performance with significant investments in our mill systems in Cali,Colombia and in Buenos Aires,Argentina.our initiatives to enhance our mill system in europe and latin America resulted in SKG being one of only two companies to win two awards at the 2011 ppI(“pulp&paper Industry”)Global awa
138、rds.SMURFIT KAPPA GROUP AnnuAl RepoRt 201120OpEraTiONS rEviEwcontinuedSynergy/Cost take-out programmeAs part of its ongoing commitment to cost take-out and efficiency improvements,SKG commenced a new two-year cost take-out initiative in 2011,with a target to generate a further 150 million of savings
139、 by the end of 2012.this programme is based on a detailed bottom-up approach and is subject to a formal reporting system.SKG generated 100 million of cost take-out benefits in 2011(including 25 million in quarter four).this strong outcome partially mitigated the impact of materially higher input cos
140、ts year-on-year,and contributed to the delivery of the Groups relatively strong eBItDA margin of 13.8%in 2011.Having exceeded its first year target,SKG is confident that it can improve on its two-year target of 150 million,and is now engaged in re-assessing its areas of opportunity on a bottom-up ba
141、sis.SMURFIT KAPPA GROUP AnnuAl RepoRt 201121Smurfit Kappas Guadalajara plant in Mexico has developed an entirely new point of sale display box for uvavia,an important customer,to enable them to market their Molino Vanilla product.previously,the customer exported the products in a regular slotted cas
142、e which was then put on display on a corrugated tray.the new design offers the advantage of being clean,neat and attractive and has enabled uvavia to explore new export markets.maDE-TO-mEaSurEResultsWith the benefit of volume growth and higher average selling prices,revenue increased by 10%to 7.4 bi
143、llion in 2011 from 6.7 billion in 2010.the net impact of currency,hyperinflation accounting,acquisitions and disposals was negligible,resulting in a comparable year-on-year increase of over 680 million,the equivalent again of over 10%.Reflecting the growth achieved in our pan-european business and t
144、he increasing contribution from our latin American operations,the Groups eBItDA of 1,015 million for 2011 was 111 million higher than 2010s 904 million,representing a year-on-year increase of 12%.In addition,the Group continued to actively manage its cost base with the on-going benefit of cost savin
145、gs offsetting some of the input cost increases,primarily in respect of raw materials and energy.Currency movements and hyperinflation accounting increased comparable eBItDA by a net 12 million while acquisitions and the absence of certain loss-making operations,which were sold during 2010,added a fu
146、rther 8 million.As a result,comparable eBItDA was 91 million,or 10%,higher year-on-year.Year-on-year growth in revenue and eBItDA was achieved in both our europe and latin America segments.Although the rate of growth was stronger in latin America,the larger absolute increase was achieved in europe,m
147、ainly within the integrated containerboard and corrugated operations.With the negative impact of higher input costs more than offset by the benefit of corrugated volume growth and higher average selling prices,our margin to revenue in europe increased to 13.4%from 13.2%in 2010.In addition,our bag-in
148、-box business continued to deliver strong growth in 2011 in terms of volume,revenue and earnings.our latin America segment continued to perform strongly in 2011,achieving growth in both revenue and eBItDA and a margin to revenue of 18.4%compared to 17.8%in 2010.Allowing for the net positive impact o
149、f currency moves and hyperinflation accounting,the underlying year-on-year increase in eBItDA was almost 16%.While the depreciation charge was broadly unchanged year-on-year,the charges for depletion and amortisation were lower in 2011.Reflecting a strong increase in the fair value of our biological
150、 assets in Venezuela,the depletion charge was 21 million lower year-on-year while the charge for the amortisation of intangible assets was 16 million lower as certain of the assets were fully amortised.With the benefit of these lower charges in 2011 partly offset by an increase in share-based paymen
151、ts,the year-on-year increase of 111 million in eBItDA was increased to 134 million at the level of pre-exceptional operating profit.Consequently,our pre-exceptional operating profit(eBItDA less depreciation,amortisation and share-based payment expense)was 624 million in 2011 compared to 490 million
152、in 2010.SMURFIT KAPPA GROUP AnnuAl RepoRt 201123FiNaNCE rEviEwIan Curley GRoup CHIeF FInAnCIAl oFFICeRSmurfit Kappa lithuania designed and manufactured this special packaging for the biotechnology company Fermentas(part of thermo Fisher Scientific)for use with their molecular biology products.the bo
153、x offers a high level of protection for use in a laboratory environment due its construction and the use of special inserts.these inserts are recyclable in contrast to the foam polyester inserts that were formerly used.the superior white finish offers excellent scope for printing and lamination ther
154、eby increasing the overall attractiveness of the package.our pre-exceptional net finance costs amounted to 301 million(costs of 405 million less income of 104 million)in 2011,compared to 308 million in 2010.the year-on-year decrease of 7 million resulted from the combination of lower cash interest c
155、osts and higher non-cash costs(foreign exchange losses and fair value movements on derivatives).Cash interest amounted to 245 million in 2011 compared to 259 million in 2010.the larger part of the 14 million saving reflected the absence of interest rate swaps,which matured in June 2010 and were no l
156、onger required following the 1 billion bond issue in late 2009.We use swaps to reduce the volatility of our cash interest expense by fixing the rates on portions of our floating rate debt.In 2011,we benefited from lower margins on the Senior Credit Facility as a result of our improving leverage as w
157、ell as from a lower average level of net debt.At 56 million,non-cash interest costs were 7 million higher in 2011 as a result of a negative move in the fair value of derivatives (from a gain in 2010 to a loss in 2011)and a higher hyperinflationary net monetary loss.Including a profit of 2 million on
158、 the disposal of an investment in an associate and the net profit of 2 million from our share of associates earnings,the Groups pre-exceptional profit before income tax was 327 million in 2011 compared to 184 million in 2010.exceptional Itemsexceptional items charged within operating profit in 2011
159、amounted to 34 million and primarily related to the closure of the nanterre containerboard mill in France.the charge comprised restructuring costs of 19 million and an impairment loss of 15 million in relation to property,plant and equipment.the exceptional finance income of 6 million related to the
160、 receipt of monies from the liquidator of a former associate company in Spain.exceptional items,which in total resulted in an operating loss of 81 million in 2010,comprised losses of 17 million on the devaluation of the Venezuelan Bolivar and 64 million relating primarily to the disposal of loss-mak
161、ing businesses.these losses related to the Mondi asset swap and to the subsequent disposal of our polish paper sack plant and Rol pin,a wood products operation in France.As a result of the asset swap we acquired Mondis uK corrugated operations and disposed of our Western european paper sack plants.p
162、rofit before Income taxAfter exceptional items,our total profit before income tax amounted to 299 million in 2011,comprising the pre-exceptional profit of 327 million and net exceptional costs of 28 million.the year-on-year increase of 196 million reflected the benefit of both a higher pre-exception
163、al profit and lower exceptional costs.In 2010,the total profit was 103 million comprising the pre-exceptional profit of 184 million and net exceptional costs of 81 million.Income tax expensethe accounting tax expense for 2011 was 81 million(comprising a current tax charge of 109 million net of a def
164、erred tax credit of 28 million)compared to 45 million(comprising a current tax charge of 64 million net of a deferred tax credit of 19 million)in 2010.the year-on-year increase reflects a number of factors including an improved earnings performance,the geographical mix of earnings and the impact of
165、additional minimum taxes.In addition,the current tax expense includes 23 million in respect of an equity tax introduced in Colombia.Although this tax is payable over four years,under IFRS it is required to be fully expensed in 2011.earnings per Sharethe basic earnings per share amounted to 93.0 cent
166、 in 2011 compared to 22.9 cent in 2010.on a diluted basis,our earnings per share in 2011 amounted to 91.1 cent compared to 22.5 cent in 2010.on a pre-exceptional basis,our earnings per share in 2011 amounted to 100.1 cent compared to 59.4 cent in 2010.SMURFIT KAPPA GROUP AnnuAl RepoRt 201124FiNaNCE
167、rEviEwcontinuedthe earnings per share figures are calculated on the basis of the weighted average number of ordinary shares in issue during the year,which was 221,543,000 in 2011 compared to 218,655,000 in 2010.ordinary shares in issue at 31 December 2011 amounted to 221,863,000(2010:220,064,000).SM
168、URFIT KAPPA GROUP AnnuAl RepoRt 201125Financial performance Indicatorsthe Group considers the following measures to be important indicators of the underlying performance of its operations:20112010eBItDA*(million)1,015904eBItDA margin to revenue(%)13.813.5net debt(million)2,7523,110net debt to eBItDA
169、(times)2.73.4Free cash flow(million)39482Return on average capital employed*(%)12.59.9Basic earnings per share(cent)93.022.9pre-exceptional earnings per share(cent)100.159.4*Earnings before exceptional items,share-based payment expense,net finance costs,income tax expense,depreciation and intangible
170、 assets amortisation.*Pre-exceptional operating profit plus share of associates profit/average capital employed(where capital employed is the sum of total equity and net debt at year end).Reconciliation of profit to eBItDA 2011m2010mprofit for the year21858Income tax expense8145exceptional items cha
171、rged in operating profit3481profit on disposal of associate(2)-Share of associates profit(2)(2)net finance costs(after exceptional items)295308Depreciation,depletion(net)and amortisation376410Share-based payment expense154EBITDA1,015904n EBITDA and EBITDA Margin the Group uses eBItDA as a measure of
172、 the relative performance of its operations both over time and in comparison to its peer group.In addition,we believe that eBItDA provides useful information to investors because it is frequently used by securities analysts,lenders and others in their evaluation of companies.In addition,management b
173、elieves that eBItDA provides a transparent measure of our recurring performance and allows management to readily view operating trends,perform analytical comparisons and identify strategies to improve operating performance.eBItDA increased by 12%to 1,015 million in 2011 from 904 million in 2010.Allo
174、wing for the impact of currency,hyperinflation accounting,acquisitions and disposals,the underlying year-on-year increase in eBItDA was 10%.eBItDA represented a margin of 13.8%of revenue in 2011 compared to 13.5%in 2010.n Net Debt to EBITDA leverage is an important measure of our overall financial d
175、ebt amounted to 2,752 million at December 2011 compared to 3,110 million at December 2010.With the combination of lower debt and eBItDA growth,our leverage decreased from 3.4x at December 2010 to 2.7x at December 2011.n Free Cash Flow Free cash flow(FCF)is shown in our summary cash flow,the format o
176、f which was developed in order to show the cash generated by our operations and the overall change in our net borrowings.Free cash flow is the result of the cash inflows and outflows from our operating activities,and is before those arising from acquisition and disposal activities.We use free cash f
177、low to assess and understand the total operating performance of the business and to identify underlying trends.the Groups free cash flow performance of 394 million in 2011 clearly demonstrates its cash flow generation capability through the cycle.Compared to 82 million in 2010,our improved cash flow
178、 performance in 2011 reflects eBItDA growth of 111 million combined with a significant reduction in working capital and a lower cash interest expense.n Return on Capital Employed With the benefit of an increase of 27%in our pre-exceptional operating earnings,the Groups return on capital employed(RoC
179、e)rose to 12.5%in 2011 from 9.9%in 2010.our average net debt was lower in 2011 than in 2010,while total equity was higher as a result of the strong earnings growth in the two years.As a result,our average level of capital employed was slightly higher in 2011 than in 2010.n Basic Earnings per Share e
180、arnings per share(epS)serves as an indicator of a companys profitability and,in conjunction with other metrics such as return on capital employed,of a companys financial strength.Given the reduction in the Groups net debt level and,consequently,its leverage,epS becomes an increasingly important meas
181、ure for the Group.the Groups basic epS increased to 93.0 cent in 2011 from 22.9 cent in 2010.In 2009,we reported a loss per share of 55.8 cent.Cash Generationthe Group generated free cash flow of 394 million in 2011 compared to 82 million in 2010.the year-on-year increase of 312 million reflected pr
182、imarily a combination of strong eBItDA growth,a working capital inflow rather than an outflow,lower cash interest and a lower outflow for capital expenditure(including the move in capital creditors).SMURFIT KAPPA GROUP AnnuAl RepoRt 201126FiNaNCE rEviEwcontinuedSummary Cash Flow12011m2010mEBITDA1,01
183、5904exceptional items(6)(17)Cash interest expense(245)(259)Working capital change43(92)Current provisions(11)(24)Capital expenditure(309)(274)Change in capital creditors26(28)tax paid(72)(82)Sale of fixed assets36other(50)(52)Free cash flow39482Share issues89Sale of businesses and investments(4)(13)
184、purchase of investments(10)(47)Dividends(5)(5)Derivative termination payments-(3)Net cash inflow38323net cash acquired/disposed1(3)Deferred debt issue costs amortised(16)(20)Currency translation adjustments(10)(58)Decrease/(increase)in net debt358(58)1 The summary cash flow is prepared on a differen
185、t basis to the cash flow statement under International Financial Reporting Standards(IFRS)and is produced to further assist readers of the accounts.The principal differences are as follows:a)The summary cash flow details movements in net debt.The IFRS cash flow details movements in cash and cash equ
186、ivalents.b)Free cash flow reconciles to cash generated from operations in the IFRS cash flow as shown in the table below.The main adjustments are in respect of cash interest,capital expenditure,tax payments and the sale of fixed assets and businesses.c)The IFRS cash flow has different sub-headings t
187、o those used in the summary cash flow.SMURFIT KAPPA GROUP AnnuAl RepoRt 201127the working capital move in 2011 was an inflow of 43 million,compared to an outflow of 92 million in 2010.the positive swing of 135 million largely reflected the different market conditions pertaining in the two years and
188、the benefit of improved creditor terms.While market conditions weakened over the course of 2011 resulting in downward pressure on paper prices,2010 was characterised by a combination of strengthening demand,higher prices and raw material costs.Working capital amounted to 517 million at December 2011
189、,representing 7.1%of annualised revenue.Working capital of 584 million at December 2010 represented 8.4%of annualised revenue.At 309 million in 2011,capital expenditure was 35 million higher than 2010s 274 million and equated to 89%of depreciation compared to 75%in 2010.Although expenditure in terms
190、 of fixed asset additions was higher in 2011 than in 2010,this was more than offset by a positive swing of 54 million in the move in capital creditors from an outflow in 2010 to an inflow in 2011.As a result,capital outflows in total were 19 million lower year-on-year.Cash interest amounted to 245 m
191、illion in 2011 compared to 259 million in 2010,with the saving reflecting a significant reduction in the level of interest rate swaps,lower margins on the Senior Credit Facility as a result of our improving leverage and the benefit of a lower average level of net debt.the outflow of 11 million in re
192、spect of current provisions relates to amounts charged in prior years and includes the payment of reorganisation and restructuring costs.Reconciliation of free cash flow to cash generated from operations2011m2010mFree cash flow39482Add back:Cash interest245259Capital expenditure(net of change in cap
193、ital creditors)283302tax payments7282less:Sale of fixed assets(3)(6)profit on sale of assets and businesses-non-exceptional(15)(12)Receipt of capital grants(in other per summary cash flow)(2)(3)Dividends from associates(in other per summary cash flow)(1)(1)non-cash financing activities(8)-exceptiona
194、l finance income received(6)-Cash generated from operations959703SMURFIT KAPPA GROUP AnnuAl RepoRt 201128FiNaNCE rEviEwcontinuedAt 72 million in 2011,our tax payments were 10 million lower year-on-year,partly reflecting the absence of approximately 5 million of non-recurring items which arose in 201
195、0,somewhat offset by the impact of higher underlying payments in 2011 as a result of improved earnings.other net outflows at 50 million,which related mainly to employee benefits,were 2 million lower than in 2010.At 11 million in 2011,the net investment and financing outflow was modest compared to 20
196、10s 59 million,which related primarily to the asset swap.the cash outflows in 2011 included 10 million in respect of the purchase of investments,primarily the St.petersburg box plant acquired in the fourth quarter,and 4 million in respect of the sale of businesses and investments.this net outflow in
197、cluded a deferred payment in respect of Rol pin,our French wood products business sold in late 2010,and the proceeds from the sale of our shareholding in a Dutch recycling business.this sale generated a profit of 2 million,which is shown on the Group Income Statement as“profit on disposal of associa
198、te”.the outflows in 2010 related primarily to the Mondi asset swap and to the disposal of our polish paper sack and Rol pin businesses.the outflow of 13 million in respect of disposals comprised the payment to Mondi to take on the loss-making paper sack plants and the initial amount paid under the a
199、greement with the buyers of Rol pin,the remainder being deferred to 2011.the outflow of 47 million in respect of purchases represented(together with transaction costs)primarily the amount paid to Mondi for the corrugated plants acquired under the asset swap agreement.After investment and financing c
200、ash movements,the net cash inflow for 2011 was 383 million compared to 23 million in 2010.the strong year-on-year increase reflects the combination of a significantly higher free cash flow and a lower net outflow for investment and financing activities.the reconciliation of the net cash inflow to th
201、e decrease in net debt includes certain non-cash items.For 2011,these comprise 16 million in respect of the amortisation of debt issue costs and negative currency translation adjustments on net debt of 10 million.In addition,we took on cash of 1 million as part of the acquisition of the St.petersbur
202、g plant.the negative currency translation adjustments of 10 million related mainly to our uS dollar denominated debt.In 2010,in addition to reflecting the impact of the relative weakness of the euro,the negative translation adjustments of 58 million included a loss of approximately 26 million on our
203、 Bolivar denominated net cash balances as a result of Januarys devaluation.In total,the Groups net debt decreased by 358 million in 2011 to 2,752 million compared to 3,110 million at the start of the year.In 2010,with a lower free cash flow,a higher net outflow from investment and financing activiti
204、es and a larger negative currency move,net debt increased by 58 million.Capital Resources and liquidityAt December 2011,committed facilities(excluding short-term sundry bank loans and overdrafts)amounted to 4,148 million,of which 3,579 million was utilised at December 2011.the weighted average perio
205、d until maturity of the undrawn element of these facilities was 1.8 years.our debt portfolio is well structured and has a relatively long-term maturity profile.As at December 2011,our nearest significant debt maturity was towards the end of 2013,when tranche B of the Senior Credit Facility matures.S
206、MURFIT KAPPA GROUP AnnuAl RepoRt 201129notwithstanding the absence of any material short-term debt maturities,the Group announced on 8 February 2012 that it was seeking the consent of its lenders to amend its Senior Credit Facility Agreement,in order to further extend its debt maturity profile and e
207、nhance its overall financial flexibility.the key amendment requests were to 1)extend the maturity of the Groups term loans B and C to 2016 and 2017 respectively,2)extend the maturity of the Revolving Credit Facility(RCF)to 2016,and 3)seek flexibility to raise longer dated secured bonds,as and when m
208、arket conditions are considered optimal,in order to refinance its existing facilities.the Group offered to pay each consenting and extending term loan B and C lender an upfront fee of 50 basis points(bps),and a margin increase of 50bps at current leverage levels.extending lenders were also offered a
209、 20%cash prepayment to be funded from existing cash balances.Consenting and extending RCF lenders were offered an upfront fee of 65bps,an increased commitment fee and a margin increase on drawn amounts.the Group received a very positive response to its consent request with lenders comprising 98%of t
210、he Facility consenting to the proposed amendments the minimum required level of consents was 662/3%.lenders holding 90%of term loans B and C and 77%of the Revolving Credit Facilities elected to extend their commitments.the amendments became effective on 1 March 2012.In november 2010,the Group succes
211、sfully completed a 250 million five year trade receivables securitisation programme,further extending the Groups maturity profile and contributing to its diversity of funding sources.proceeds were primarily used to refinance the Groups existing 210 million securitisation programme which had a Septem
212、ber 2011 maturity.the weighted average interest rate on our gross debt was 6.56%at December 2011,compared to 6.54%at December 2010.the marginal year-on-year increase reflects the impact of higher interest rates on our floating rate debt offset by the effect of a reduction in margin on tranche A of t
213、he Senior Credit Facility in early 2011 arising from improved leverage.the Groups primary sources of liquidity are cash flow from operations and borrowings under the RCF.the Groups primary uses of cash are for debt service and capital expenditure.Market Risk and Risk Management policiesthe Board of
214、Directors sets the Groups treasury policies and objectives,which include controls over the procedures used to manage financial market risks.these are set out in detail in note 26 to the Consolidated Financial Statements.the Group is exposed to the impact of interest rate changes and foreign currency
215、 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.At 31 December 2011,the Group had fixed an average of 75%of the interest cost on
216、its borrowings over the following twelve months.our fixed rate debt comprised mainly 500 million 7.25%senior secured notes due 2017,500 million 7.75%senior secured notes due 2019,217.5 million 7.75%senior subordinated notes due 2015,uS$200 million 7.75%senior subordinated notes due 2015 and uS$292.3
217、 million 7.50%senior debentures due 2025.In addition,the Group also has 1,110 million in interest rate swaps with maturity dates ranging from April 2012 to July 2014.SMURFIT KAPPA GROUP AnnuAl RepoRt 201130FiNaNCE rEviEwcontinuedour earnings are affected by changes in short-term interest rates as a
218、result of our floating rate borrowings.If lIBoR interest rates for these borrowings increase by one percent,our interest expense would increase,and profit before income tax would decrease,by approximately 10 million over the following twelve months.Interest income on our cash balances would increase
219、 by approximately 9 million assuming a one percent increase in interest rates earned on such balances over the following twelve months.the Group uses foreign currency borrowings,currency swaps,options and forward contracts in the management of its foreign currency exposures.SMURFIT KAPPA GROUP AnnuA
220、l RepoRt 201131the Smurfit Kappa plants in Gdansk and Warsaw(poland)and Zebrak(Czech Republic)have developed special corrugated corner buffers which protect television sets manufactured by philips during transport and handling.the buffers provide excellent protection for these delicate items and rep
221、lace the expanded polystyrene corner protectors that were formerly used.this is an excellent example of a sustainable,recyclable solution as an alternative to the use of plastics.Moreover,there is the added advantage of cost efficiency in both transport and storage.EYE-CaTChiNg SOluTiONSSMURFIT KAPP
222、A GROUP ANNUAL REPORT 201133Sustainable Development ReportSKG regards sustainability as a central part of its business strategy.SKGs mission is to be a customer oriented,market-led company where the satisfaction of customers,the personal development of employees and respect for local communities and
223、 the environment are seen as being inseparable from the aim of optimising value for the shareholders.Sustainability is concerned with ensuring that the human and natural environment with which SKG interacts are protected both today and into the future as it continues to use a wide range of such reso
224、urces in meeting its business objectives.SKG is determined to manage its business in a way which recognises its responsibilities in all aspects of corporate social responsibility and the wider environment.SKG published its fourth annual Sustainable Development Report in June 2011 and it is available
225、 on the Groups website at .It includes details of the principles by which the Group abides in its interaction with key areas of the environment,social development(including health and safety)and business development.An overview of our performance in 2010 was included in the report.Also an overview o
226、f SKGs long-term sustainability commitments was included outlining our commitment to continued progress and performance improvement in the areas which we have identified as specifically underpinning the concept of sustainability.Using the guidelines issued by the Global Reporting Initiative(GRI)we i
227、mproved transparency of our reporting by increasing the application level of our reporting to GRI A+.We also engaged KPMG for the second consecutive year to undertake external assurance on a number of key environmental indicators.SKG will continue to drive the sustainability agenda and its objective
228、 is to improve its performance every year.A further Sustainable Development Report will be issued later this year,which will advance SKGs commitments in this area.We have created specific policy statements on key areas of sustainability and they are integral in the drive to improve SKGs performance
229、going forward.These policy statements cover the Environment,Sustainable Forestry,Social Citizenship and Health and Safety.These policies have been added to those already in place covering Good Faith Reporting,a Code of Business Conduct,a Code of Ethics for Senior Financial Officers,a Group Financial
230、 Reporting Guide,a Group Treasury Policy,a Financial Monitoring Policy,a Treasury Compliance Programme,and a Competition Compliance Programme.A report on Corporate Governance is detailed on pages 38 to 48 of this Annual Report and a short overview on SKGs performance in the other key areas now follo
231、ws.SUSTAINABILITYThe Smurfit Kappa plant in Anzio,Italy designed an innovative new presentation solution for Unilever to show different varieties of ice cream for sale in a display cabinet.This striking new product results in the cabinet having a much cleaner and neater appearance in contrast to the
232、 old system,where the ice cream products were segregated in wire baskets.The success of this design can be illustrated by the significant increase in sales where it is used.Social CitizenshipSKG conducts a large part of its commitment to corporate social responsibility under the heading of Social Ci
233、tizenship.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 su
234、stainable future.SKG applies the principles of respect for human rights,freedom of association,fair compensation,and diversity regardless of age,gender,sexual orientation,ethnic origin,disability or nationality.Merit is the key determinant in recruitment and promotion.SKG values open,constructive,re
235、gular 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.Implementing SKGs Social Citizenship policy is t
236、he responsibility of line management who are supported by the Human Resource Managers at country,segment and Group level.SKG trains and develops its employees through various programmes that vary from language skills training to horizontal knowledge sharing and from sales training to advanced manage
237、ment development programmes.the european Works Council(eWC),which was created to assist in the development of an open two way communication process for all employees on all such matters,had one meeting during the year,with the Select Committee of the eWC meeting on four occasions.Matters typically d
238、iscussed at the eWC include employment opportunities,financial status,projected developments,business conditions,relocation,curtailment or business closures and health and safety.Community participation is encouraged by SKG and this very important element of social citizenship is practiced at local
239、plant level where managers are best positioned to positively contribute and support worthy local causes.In Ireland the Group supports the Ceo in his role as Chairman of the Barnardos“leaving poverty through learning”Campaign for seriously disadvantaged children.Health and Safetythe SKG policy states
240、 that:“Smurfit Kappa Group will conduct its activities in a responsible manner,taking care of the health,safety and welfare of everyone affected by its activities and minimising the impact of the business on the environment.It will be an integral part of the business activities and will promote adhe
241、rence to the highest standards of safety in the operation of our facilities.”SKG maintains management systems that help to protect employees,visitors to its sites,contractors and the public at large from injury.All performance reviews at plant,country,division and regional level include safety perfo
242、rmance as a key part of the reviews.A report and update on health and safety is given to the Board each quarter.the Group has drawn up a written document covering an extensive list of Health and Safety Standards which together with the policy document has been issued to every SKG site and made avail
243、able to every employee via notice boards,intranet and other appropriate media.SMURFIT KAPPA GROUP AnnuAl RepoRt 201134SuSTaiNaBiliTYcontinuedthe implementation of these standards is audited on a continuous basis and health and safety committees exist at all operating sites with broad-based represent
244、ation of individuals and employees.environmentthe principles SKG applies in terms of the environment include:n Complying with national and international environmental legislation and seeking to achieve best practice through benchmarking and the promotion of continuous improvement programmes.n Develo
245、ping appropriate environmental management systems that continue to question the status quo thereby helping to reduce any negative impacts on the environment.n Continuing focus on the efficient use of natural resources.n Meeting reasonable stakeholder expectations on environmental performance in fore
246、stry,product manufacture,distribution and end use.noteworthy highlights were:n In europe,100%of our mill system is now Chain of Custody certified under the Forestry Stewardship Council or the programme for the endorsement of Forest Certification.n Significant progress was made in the Chain of Custod
247、y certification process of our converting operations in europe and is now at 46%.n In latin America,our three paper mills in Mexico were certified under the ISo 14001(environmental Management Systems)and as a consequence 55%of our mill system is now certified under ISo 14001.n In 2011 SKGs work,supp
248、ort and partnership with customers in the area of sustainability was recognised by some of our largest brand name customers notably Coca-Cola enterprises and unilever.the Sustainable Development Report also discusses what we consider to be the key environmental challenges and risks for our Group and
249、 our industry.these concerns focus on the subjects of water,fibre availability and energy.All three areas are fundamental to our processes/products and we strongly support the sustainable deployment of these scarce resources provided a resource hierarchy and a global level playing field are guarante
250、ed.SMURFIT KAPPA GROUP AnnuAl RepoRt 201135BOarD OF DirECTOrSSMURFIT KAPPA GROUP AnnuAl RepoRt 2011361 Liam OMahony-Chairman liam oMahony joined the Board upon the Company being admitted to trading on the Irish Stock exchange and the london Stock exchange in March 2007.He was appointed Chairman in D
251、ecember 2008.He is Chairman of IDA Ireland and a Director of project Management limited.He was the Chief executive officer of CRH plc from January 2000 until his retirement in December 2008,prior to which he held a number of senior management positions within the CRH Group including Chief executive
252、of its uS operations and Managing Director,Republic of Ireland and uK companies.He retired from the board of CRH plc in 2011.(Age 65)2 Gary McGann-Group Chief Executive Officer Gary McGann has served as a Director since 2000 and was appointed Group Chief executive officer in november 2002.He was pre
253、viously president and Chief operations officer of the Smurfit Group since January 2000.He joined the Smurfit Group in 1998 as Chief Financial officer.He had held a number of senior positions in both the private and public sectors over the previous 20 years,including Chief executive of Gilbeys of Ire
254、land Group and Aer lingus Group plc.He is Chairman of Aon Ireland,a Director of united Drug plc and the Irish Business employers Confederation(IBeC)and a member of the european Round table of Industrialists(eRt).(Age 61)3 Anthony Smurfit-Group Chief Operations Officer Anthony Smurfit has served as a
255、 Director since 1989 and was appointed Group Chief operations officer in november 2002.He has worked in various parts of the Smurfit Group both in europe and the united States since he joined the Group.He was Chief executive of Smurfit europe from october 1999 to 2002 prior to which he was Deputy Ch
256、ief executive of Smurfit europe and previously Chief executive officer of Smurfit France.(Age 48)4 Ian Curley-Group Chief Financial Officer Ian Curley has served as a Director since 2002.He was appointed Group Chief Financial officer in January 2000.He joined the Group in 1989 having previously work
257、ed for a number of multinationals in Ireland.He was appointed Chief Financial officer of Smurfit europe in 1997,prior to which he served as Financial Controller of Smurfit Continental europe for a number of years based in the uK and France.Mr Curley is a Fellow of the Institute of Chartered Manageme
258、nt Accountants.(Age 49)5 Frits Beurskens Frits Beurskens has served as a Director of the Group since December 2005.He joined the Kappa Group in 1990 and held various Managing Director positions until his appointment as its president in 1996 which he held until the merger with Smurfit.He is a member
259、of the board of Sappi limited.He is a former Chairman of both the Confederation of european paper Industries and the International Corrugated Cases Association.In December 2007 he was appointed by the Dutch Queen as officer in the order of oranje nassau.(Age 64)6 Thomas Brodin thomas Brodin joined t
260、he Board in April 2008.He was Head of equities and Head of equity Research and a member of the executive management team at erik penser Bankaktiebolag,an independent and privately owned Swedish bank from 2007 to 2011.He was previously a european paper&packaging research analyst and Managing Director
261、 at Citigroup between 1995 and 2007.prior to that,he was a paper&packaging research analyst at Credit Suisse First Boston from 1992 to 1995 and at Svenska Handelsbanken from 1990 to 1992.Between 1998 and 2007 Mr Brodin was ranked as the leading european analyst covering the paper and packaging secto
262、r by extel and Institutional Investor Surveys.(Age 48)7 Irial Finan Irial Finan joined the Board in February 2012.He is currently executive Vice president of the Coca-Cola Company and president of the Bottling Investments Group.He joined the Coca-Cola System in 1981.prior to his appointment to his c
263、urrent role in 2004,Mr Finan served as Chief executive officer of Coca-Cola Hellenic Bottling Company SA,a large publicly-quoted company with operations across Western,Central and eastern europe and West Africa.He is currently responsible for leading a multi-million dollar internal bottling business
264、,Bottling Investments Group which has operations across four continents.He is also responsible for the stewardship of the Coca-Cola Companys equity Investments and leads the Commercial product Supply organisation.Mr Finan is a Fellow of the Institute of Chartered Management Accountants.(Age 54)8 Chr
265、istopher McGowan Christopher McGowan has served as a Director of the Group since September 2002.He is currently the General partner of CJM Ventures,llC,a private investment firm.He was employed principally by Madison Dearborn from 1999 to 2011 where he served as a Managing Director.He has significan
266、t experience working with companies in a wide range of industrial sectors.12349101112SMURFIT KAPPA GROUP AnnuAl RepoRt 201137 He is a member of the Board of Directors of opto International,Inc.,Forest products Holdings,llC(d.b.a.Boise Cascade),the university of Chicago laboratories School and serves
267、 as Chairman of the limited partner Advisory Committee for Hyde park Venture partners.(Age 40)9 Samuel Mencoff Samuel Mencoff has served as a Director of the Group since September 2002.He has been employed principally by Madison Dearborn since 1993 and currently serves as a co-Chief executive office
268、r.From 1987 until 1993,he served as Vice president of First Chicago Venture Capital.He has extensive business experience due to his involvement with many investee companies.He is a member of the Board of Directors of Forest products Holdings,llC(d.b.a.Boise Cascade),packaging Corporation of America,
269、the Art Institute of Chicago,northShore university HealthSystem,World Business Chicago,and the Regional transportation Authority,and a member of the Board of Fellows of Brown university.(Age 55)10 Gordon Moore Gordon Moore has served as a Director of the Group since December 2006.He has a consulting
270、 business GM Consulting which provides services to organisations in the private equity industry.He was previously a partner of Cinven having been part of their investment team for over 11 years where he held Directorships with a number of Cinvens investee companies including Fitness First Holdings l
271、imited,odeon Cinemas,nCp and most recently Sweden DIA(Sweden)AB.He has significant experience working with companies in a wide range of industrial sectors.He is a member of the Board of Directors of opto International,Inc.and popcorn outdoor limited.He is a member of the Institute of Chartered Accou
272、ntants of Scotland.He is also a Director of Worth School.(Age 45)11 Roberto Newell Roberto newell joined the Board in June 2010.He is Vice Chairman of the Board of the Instituto Mexicano para la Competitividad,A.C.(IMCo),an independent think-tank in Mexico,established to develop policies to enhance
273、Mexicos competitiveness.prior to joining IMCo,Mr newell served Mexicos Federal Government,most recently as Deputy Secretary for Agriculture.Between 1984 and 2001,Mr newell worked for McKinsey&Co.,where he served clients in north America and latin America.At McKinsey,Mr newell advised large corporati
274、ons and national governments with a focus on the financial and telecommunications sectors.Mr newell serves on the Board of a number of institutions in Mexico.(Age 64)12 Nicanor Restrepo nicanor Restrepo joined the Board upon the Company being admitted to trading on the Irish Stock exchange and the l
275、ondon Stock exchange in March 2007.He was previously the president and Chief executive officer of Suramericana de Inversiones S.A.He is a Director of Sofasa(Renault),exito S.A.(Groupe Casino),Conconcreto S.A.and Carvajal Internacional S.A.He has extensive business experience having occupied several
276、positions in the private sector and has received many awards both in Colombia and internationally.(Age 70)13 Rolly van Rappard Rolly van Rappard has served as a Director of the Group since December 2005.He was a member of the Supervisory Board of Kappa from 1998.He held positions at Citicorp prior t
277、o becoming a Managing partner of CVC Capital partners in 1989.He has extensive business experience due to his involvement with many investee companies.He is also a member of the Board of Formula one limited and Volker Wessels B.V.(Age 51)14 Paul Stecko paul Stecko joined the Board in February 2008.H
278、e is executive Chairman of packaging Corporation of America(pCA)since July 2010,prior to which he had served as Chairman and Chief executive officer of pCA since 1999.prior to 1999 he served as president and Chief operating officer of tenneco Inc.and other senior positions within tenneco including p
279、resident and Chief executive officer of tenneco packaging Inc.which was the business that included pCA which was subsequently sold by tenneco in 1999.Mr Stecko spent 16 years with International paper Company.He is a member of the Board of Directors of tenneco Inc.and State Farm Mutual Insurance Comp
280、any.(Age 67)15 Rosemary Thorne Rosemary thorne joined the Board in March 2008.She was most recently Group Finance Director for ladbrokes plc from 2006 to April 2007.prior to that she was Group Finance Director at Bradford and Bingley plc from 1999 to 2005 and at J Sainsbury plc from 1992 to 1999.Ms
281、thorne has extensive experience as a non-executive Director and currently serves as a non-executive Director with Santander uK plc.(Age 60)Board CommitteesAuDIT COMPENSATION NOMINATIONSR.thorne,Chairman(1)p.Stecko,Chairman(1)n.Restrepo,Chairman(3)t.Brodin(1)I.Finan(1)t.Brodin(1)I.Finan(1)S.Mencoff(1
282、)G.McGann(1)C.McGowan(2)R.newell(1)l.oMahony(1)G.Moore(1)(4)l.oMahony(1)R.thorne(1)R.newell(1)R.van Rappard(1)(4)p.Stecko(1)n.Restrepo(3)SENIOR INDEPENDENT DIRECTOR n.Restrepo (1)Joined the Committee on IPO in 2007 or appointment date if later(See page 39)(2)Joined the Audit Committee in 2008(3)Join
283、ed the Nominations Committee in 2008 and the Compensation Committee in 2010(4)Retiring from Board and Committee at AGM on 4 May 2012 5678131415SMURFIT KAPPA GROUP ANNUAL REPORT 201138The Directors are committed to maintaining the highest standards of corporate governance.This Corporate Governance St
284、atement describes how Smurfit Kappa Group applied the principles of the 2010 UK Corporate Governance Code(the Code)published in June 2010 as adopted by the Irish Stock Exchange(ISE)and London Stock Exchange(LSE)throughout the financial year ended 31 December 2011.The Directors note the ISE introduce
285、d the Irish Corporate Governance Annex(the Annex)to apply to companies listed on the ISE and which supplements the Code with additional corporate governance provisions.Except where otherwise stated,the Directors believe that the Group has complied with the provisions of the Code and the Annex throug
286、hout the year under review.A copy of the Code(June 2010)can be obtained from the Financial Reporting Councils(FRC)website:www.frc.org.uk.A copy of the Annex can be obtained from the ISEs website:www.ise.ie.Board of DirectorsThe Board is primarily responsible for the long-term success of the Company,
287、for setting the Groups strategic aims,for the leadership and control of the Company and for reviewing the Groups system of internal control and risk management.There is a clear division of responsibilities within the Group between the Board and executive management,with the Board retaining control o
288、f strategic and other major decisions under a formal schedule of matters reserved to it which includes:Approval of the Groups strategy which is set out on page 13Board appointments including those of the Chairman and Group Chief ExecutiveAgreement of terms of appointment of the Chairman,Group Chief
289、Executive and other executive DirectorsAgreement of any fundamental changes to the Group management and control structureApproval of the annual financial budgetsApproval of capital expenditure above fixed limitsApproval of material acquisitions and disposals of businessesApproval of the Interim Repo
290、rts,the Annual Report and accounts and all Press ReleasesEstablishment and review of corporate governance policy and practiceMonitoring of the Groups risk management and internal control systems.As recommended by the Code,the roles of Chairman and Group Chief Executive Officer are held by separate i
291、ndividuals 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 Group
292、Chief Executive Officer is responsible for implementing strategy and policy as approved by the Board.As discussed below,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
293、the Company.The Directors have access to independent professional advice at the Groups 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.Membership,Board Size and IndependenceAt
294、 present there are fifteen Directors on the Board,comprising:a non-executive Chairman,three executive Directors and eleven non-executive Directors.A list of Directors is set out below and biographical details are set out on pages 36 and 37.The Board considers that the Board comprising fifteen Direct
295、ors is not so large as to be unwieldy and that the Directors with a broad spread of nationalities bring the breadth and depth of skills,knowledge and experience that are required to lead the Group.Corporate GovernanCe Statement39SMURFIT KAPPA GROUP ANNUAL REPORT 2011The Code recommends that,apart fr
296、om the Chairman,at least half of the Board of Directors of a listed company should comprise non-executive Directors determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect,or could appear to affect,the Directors judgement.The
297、 composition of the SKG Board reflects,in part,the entitlement of two of SKGs shareholders,under the Companys Articles of Association,to appoint up to four Directors to the Board.The Articles of Association allow MDCP III,MDCP IV and MDSE III jointly(together MDP)and Smurfit Kappa Feeder G.P.Limited
298、(SKF)the right to nominate up to two persons each as Directors to the Board.This right is based on them maintaining a shareholding of,or in excess of,15%in the Group.Should MDP or SKFs holding fall below 15%but remain above 10%,they retain the right to appoint one Director to the Board.The right to
299、appoint a Director falls away if a shareholding falls below 10%.The SKF shareholding reduced to 8.2%on 2 March 2012.Mr Gordon Moore and Mr Rolly van Rappard,the SKF shareholder nominees,will retire at the AGM on 4 May 2012.While the two remaining shareholder nominated Directors are deemed“affiliated
300、”Directors(and,therefore,non-independent),SKG does not believe this compromises either their independence of judgement,their contribution to the Board or the quality of their oversight.The Group has an effective Board to provide governance for an internationally diverse business whose interests span
301、 two continents and 31 individual countries.Each of the Groups non-executive Directors has broad-based 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 eff
302、ective Board to maintain a balance of“skills,knowledge and experience”.The experience of each Director is set out in their biographies which are detailed on pages 36 and 37.DirectorRoleIndependentAppointment Date*Liam OMahonyNon-executive Chairman*2007Gary McGannGroup Chief Executive Officer No2000A
303、nthony SmurfitGroup Chief Operating Officer No1989Ian Curley Group Chief Financial Officer No2002Frits BeurskensNon-executive Director former Executive No 2005Thomas BrodinNon-executive Director Yes2008Irial FinanNon-executive Director Yes2012Christopher McGowanNon-executive Director Shareholder nom
304、inee No2002Samuel MencoffNon-executive Director Shareholder nominee No2002Gordon Moore*Non-executive Director Shareholder nominee No2006Roberto NewellNon-executive Director Yes2010Nicanor RestrepoNon-executive Director Yes2007Rolly van Rappard*Non-executive Director Shareholder nominee No2005Paul St
305、eckoNon-executive Director Yes2008Rosemary ThorneNon-executive Director Yes2008*For Smurfit Kappa Group plc and predecessor companies.SKG returned to the ISE and LSE in March 2007.*On his appointment as Chairman in December 2008 Mr OMahony was independent.*Retiring at AGM on 4 May 2012.SMURFIT KAPPA
306、 GROUP ANNUAL REPORT 201140Corporate GovernanCe Statement continuedThe Board through the Nominations Committee reviews the composition of the Board on an annual basis.This review includes a review of refreshment and renewal,Board diversity including gender diversity,and the skills,knowledge and expe
307、rience of the Directors.Since 2007,and recognising the recommendations of the Code,the Group has appointed six independent Directors to its Board:Mr Thomas Brodin,Mr Irial Finan,Mr Roberto Newell,Mr Nicanor Restrepo,Mr Paul Stecko,and Ms Rosemary Thorne.With the retirement of two shareholder nominee
308、s at the forthcoming AGM,the Group will meet the Code recommendations on Board independence.The Board reviewed the composition of the Board and determined that Mr Brodin,Mr Finan,Mr Newell,Mr Restrepo,Mr Stecko and Ms Thorne are independent.In reaching that conclusion the Board took into account the
309、 principles relating to independence contained in the Code and specifically whether any non-executive Director:has been an employee of the Group;has or had within the last three years,a material business relationship with the Group;receives remuneration from the Group other than a Directors fee;has
310、close family ties with any of the Groups 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;orhas served on the Board for more than nine years from the da
311、te of their first election.The Board is satisfied that the independence of the relevant Directors is not compromised by these or any other factors.Experience and SkillsEach of the executive Directors has extensive experience of the paper-based packaging industry.Their knowledge is backed up by the g
312、eneral business skills of the individuals involved and by the broadly based skills and knowledge of the non-executive Directors,seven of whom have the additional benefit of many years exposure to paper-based packaging companies either as employees,directors or investors.The non-executive Directors a
313、re expected to use their skills and their individual business experiences and their international backgrounds in reviewing and assessing any opportunities or challenges facing the Group and to play an important role in helping to develop the Groups strategy and scrutinising the performance of manage
314、ment in meeting the Groups goals and objectives.Appointments,Retirement and Re-election to the BoardAny Director co-opted to the Board by the Directors is subject to election by the shareholders at the first AGM after their appointment and all Directors are subject to re-election at intervals of no
315、more than three years.However,as indicated by the Board last year in compliance with the Code,all Directors are required to retire at each AGM and submit themselves for re-election.The procedures governing the appointment and replacement of Directors are contained in the Companys Articles of Associa
316、tion.Changes to the Articles of Association must be approved by the shareholders in accordance with the legislation in force from time to time.The standard letter of appointment of non-executive Directors will be available for inspection at the AGM and is available on request,from the Company Secret
317、ary.As noted above,pursuant to the Articles of Association of the Company,MDP has the right to nominate up to two persons for appointment as Directors and has nominated Mr Samuel Mencoff and Mr Christopher McGowan.These rights do not comply with the recommendations of the Code that the Nominations C
318、ommittee should lead the process for Board appointments and make recommendations to the Board.Each of the Directors,other than Mr Gordon Moore and Mr Rolly van Rappard,are offering themselves for re-election at the 2012 AGM and their details are set out on page 49.41SMURFIT KAPPA GROUP ANNUAL REPORT
319、 2011External DirectorshipsThe Board believes that there is benefit for the Group if executive Directors hold non-executive directorships with other companies as it enhances their overall business experience.Consequently,the executive Directors are encouraged to accept a small number of external app
320、ointments as non-executive Directors or on industry associations.Directors are permitted to retain any payments received in respect of such appointments.RemunerationDetails of remuneration paid to Directors(executive and non-executive)are set out in the Remuneration Report on pages 52 to 60.Non-exec
321、utive Directors are paid fees for their services.None of their remuneration is performance related and they are not eligible to participate in the Groups annual bonus scheme or long-term incentive plans.Non-executive directors fees are not pensionable.The Remuneration Report will be presented to sha
322、reholders for the purposes of a non-binding advisory vote at the AGM on 4 May 2012.ChairmanMr Liam OMahony who joined the Board upon the Company being admitted to trading on the ISE and the LSE in March 2007 was appointed Chairman in December 2008.As recommended by the Code,the Chairman was independ
323、ent at his time of appointment.The Chairman is responsible for the leadership of the Board and the efficient and effective working of the Board.He sets and manages the Board agenda in order that at appropriate times it addresses all matters reserved to the Board and ensures that adequate time is ava
324、ilable for discussion on strategy and the strategic issues facing the Group.He ensures that the members of the Board receive accurate,timely and clear information,and that the members of the Board are updated periodically on the views or concerns of the major investors.He also ensures that a culture
325、 of openness and debate is fostered to facilitate the effective contribution of the non-executive Directors to the Board.Senior Independent DirectorMr Nicanor Restrepo was appointed the Groups Senior Independent Director in December 2008.His duties include being available to shareholders if they hav
326、e concerns which cannot be resolved through the Chairman or Group Chief Executive Officer.He is available to serve as an intermediary for other Directors where necessary.The Senior Independent Director also conducts an annual evaluation of corporate governance compliance,the operation and performanc
327、e of the Board,the Directors,its Committees and the Chairmans performance in conjunction with the other non-executive Directors on an annual basis.Group SecretaryThe Directors have access to the advice and services of the Group Secretary who is responsible to the Board for ensuring that Board proced
328、ures are followed and applicable rules and regulations are complied with.The Group Secretary also acts as secretary to all of the Board Committees.The Group Secretary is responsible for ensuring Board procedures are followed including formal minuting of any unresolved concerns that any Director may
329、have with the operation of the Company.During the year there were no such unresolved issues.MeetingsThe Board meets at least five times each year with additional meetings as required.The Board met five times in 2011.Details of the meetings held during the period,both of the Board and of the Board Co
330、mmittees,are contained in the schedule on page 48,which also includes information on individual attendance.The Board holds at least one of its meetings each year at a Group operation to give the Directors an opportunity to meet with a wider range of management and to see and remain familiar with the
331、 Groups operating activities.In 2011 the August Board meeting was held at the Facture Mill in France.The Board is supplied on a timely basis in advance of Board meetings with a Board Book comprising strategic updates,operational,financial and investor relations information together with Board papers
332、 on key issues in a form and of a quality to enable it to discharge its duties effectively.The Board papers also include the minutes of all Board Committee meetings and at each Board meeting the Chairman of each Committee gives a report on major agenda items discussed at Committee meetings held sinc
333、e the last Board meeting.SMURFIT KAPPA GROUP ANNUAL REPORT 201142Corporate GovernanCe Statement continuedWhen Directors are unable to attend a meeting having been advised of the matters to be discussed they are given an opportunity to make their views known to the Chairman or the Group Chief Executive Officer prior to the meeting.Induction and DevelopmentOn appointment,all non-executive Directors