SIG Combibloc Group AG

Consolidated financial statements for the year ended December 31, 2018

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Consolidated statement of profit or loss and other comprehensive income

(in € million)

 

Note

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Revenue

 

6, 7

 

1,676.1

 

1,664.1

Cost of sales

 

 

 

(1,300.3)

 

(1,275.7)

Gross profit

 

 

 

375.8

 

388.4

Other income

 

8

 

8.5

 

11.7

Selling, marketing and distribution expenses

 

 

 

(64.1)

 

(68.7)

General and administrative expenses

 

 

 

(155.8)

 

(176.6)

Other expenses

 

8

 

(49.9)

 

(5.6)

Share of profit of joint ventures

 

26

 

8.9

 

18.8

Profit from operating activities

 

 

 

123.4

 

168.0

Finance income

 

 

 

67.3

 

10.2

Finance expenses

 

 

 

(273.7)

 

(248.9)

Net finance expense

 

22

 

(206.4)

 

(238.7)

Loss before income tax

 

 

 

(83.0)

 

(70.7)

Income tax expense

 

29

 

(0.9)

 

(26.2)

Loss for the period

 

9

 

(83.9)

 

(96.9)

Other comprehensive income

 

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

 

Currency translations of foreign operations:

 

 

 

 

 

 

– recognised in translation reserve

 

 

 

(60.7)

 

7.3

– transfer from translation reserve

 

 

 

0.1

 

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

Remeasurement of defined benefit plans

 

 

 

(2.1)

 

25.4

Total other comprehensive income, net of income tax

 

29

 

(62.7)

 

32.7

Total comprehensive income

 

 

 

(146.6)

 

(64.2)

Basic and diluted loss per share (in €)

 

10

 

(0.35)

 

(0.45)

Consolidated statement of financial position

(in € million)

 

Note

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Cash and cash equivalents

 

16

 

157.1

 

103.9

Trade and other receivables

 

15

 

242.7

 

287.3

Inventories

 

14

 

144.4

 

122.4

Current tax assets

 

29

 

1.0

 

2.5

Other current assets

 

19

 

19.2

 

28.2

Total current assets

 

 

 

564.4

 

544.3

Non-current receivables

 

15

 

4.4

 

7.9

Investments in joint ventures

 

26

 

198.7

 

206.9

Deferred tax assets

 

29

 

12.1

 

2.9

Property, plant and equipment

 

12

 

1,068.8

 

1,015.4

Intangible assets

 

13

 

2,486.6

 

2,561.0

Employee benefits

 

28

 

129.3

 

131.3

Other non-current assets

 

19

 

18.3

 

102.0

Total non-current assets

 

 

 

3,918.2

 

4,027.4

Total assets

 

 

 

4,482.6

 

4,571.7

Trade and other payables

 

17

 

440.6

 

410.1

Loans and other borrowings

 

21

 

34.9

 

22.4

Current tax liabilities

 

29

 

25.6

 

35.8

Employee benefits

 

28

 

34.6

 

26.5

Provisions

 

18

 

20.1

 

24.3

Other current liabilities

 

19

 

53.4

 

34.2

Total current liabilities

 

 

 

609.2

 

553.3

Non-current payables

 

17

 

7.6

 

4.7

Loans and other borrowings

 

21

 

1,556.5

 

2,534.2

Deferred tax liabilities

 

29

 

187.8

 

227.5

Employee benefits

 

28

 

108.7

 

107.1

Provisions

 

18

 

16.1

 

18.5

Other non-current liabilities

 

19

 

101.2

 

89.6

Total non-current liabilities

 

 

 

1,977.9

 

2,981.6

Total liabilities

 

 

 

2,587.1

 

3,534.9

Share capital

 

23

 

2.8

 

2.2

Additional paid-in capital

 

23

 

2,158.8

 

1,154.1

Reserves

 

 

 

(142.1)

 

(81.5)

Retained earnings

 

 

 

(124.0)

 

(38.0)

Total equity

 

 

 

1,895.5

 

1,036.8

Total liabilities and equity

 

 

 

4,482.6

 

4,571.7

Consolidated statement of changes in equity

(in € million)

 

Note

 

Share capital

 

Additional paid-in capital

 

Translation
reserve

 

Retained earnings

 

Total equity

Equity as of 1 January 2018

 

 

 

2.2

 

1,154.1

 

(81.5)

 

(38.0)

 

1,036.8

Loss for the period

 

 

 

 

 

 

 

 

 

(83.9)

 

(83.9)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Currency translations of foreign operations:
– recognised in translation reserve

 

 

 

 

 

 

 

(60.7)

 

 

 

(60.7)

– transfer from translation reserve

 

 

 

 

 

 

 

0.1

 

 

 

0.1

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit plans

 

 

 

 

 

 

 

 

 

(2.1)

 

(2.1)

Total other comprehensive income, net of
income tax

 

 

 

 

 

(60.6)

 

(2.1)

 

(62.7)

Total comprehensive income for the period

 

 

 

 

 

(60.6)

 

(86.0)

 

(146.6)

Conversion of share categories

 

23

 

(0.3)

 

0.3

 

 

 

 

 

Issue of shares in the IPO

 

23

 

0.9

 

1,043.0

 

 

 

 

 

1,043.9

Costs for issue of shares in the IPO

 

23

 

 

 

(38.6)

 

 

 

 

 

(38.6)

Total transactions with owners

 

 

 

0.6

 

1,004.7

 

 

 

1,005.3

Equity as of 31 December 2018

 

 

 

2.8

 

2,158.8

 

(142.1)

 

(124.0)

 

1,895.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity as of 1 January 2017

 

 

 

2.1

 

1,153.5

 

(88.8)

 

33.5

 

1,100.3

Loss for the period

 

 

 

 

 

 

 

 

 

(96.9)

 

(96.9)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Currency translations of foreign operations:
– recognised in translation reserve

 

 

 

 

 

 

 

7.3

 

 

 

7.3

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit plans

 

 

 

 

 

 

 

 

 

25.4

 

25.4

Total other comprehensive income, net of
income tax

 

 

 

 

 

7.3

 

25.4

 

32.7

Total comprehensive income for the period

 

 

 

 

 

7.3

 

(71.5)

 

(64.2)

Issue of shares

 

23

 

0.1

 

0.6

 

 

 

 

 

0.7

Total transactions with owners

 

 

 

0.1

 

0.6

 

 

 

0.7

Equity as of 31 December 2017

 

 

 

2.2

 

1,154.1

 

(81.5)

 

(38.0)

 

1,036.8

Consolidated statement of cash flows

(in € million)

 

Note

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Cash flows from operating activities

 

 

 

 

 

 

Loss for the period

 

 

 

(83.9)

 

(96.9)

Adjustments for:

 

 

 

 

 

 

Depreciation and amortisation

 

12, 13

 

271.7

 

265.9

Impairment losses

 

12

 

0.6

 

1.9

Change in fair value of derivatives

 

 

 

23.1

 

(5.2)

Gain on sale of property, plant and equipment and non-current assets

 

9

 

(0.9)

 

(0.3)

Share of profit of joint ventures

 

26

 

(8.9)

 

(18.8)

IPO-related costs

 

9

 

7.4

 

Net finance expense

 

22

 

206.4

 

238.7

Interest paid

 

 

 

(133.0)

 

(143.6)

Payment of transaction and other costs relating to financing

 

21

 

(29.7)

 

(1.5)

Payment of fee for early redemption of notes

 

21, 22

 

(26.2)

 

Income tax expense

 

29

 

0.9

 

26.2

Income taxes paid, net of refunds received

 

 

 

(59.0)

 

(72.9)

 

 

 

 

168.5

 

193.5

Change in trade and other receivables

 

 

 

37.8

 

(21.0)

Change in inventories

 

 

 

(22.9)

 

(5.0)

Change in trade and other payables

 

 

 

34.6

 

42.2

Change in provisions and employee benefits

 

 

 

1.1

 

4.7

Change in other assets and liabilities

 

 

 

41.1

 

30.8

Net cash from operating activities

 

5.3, 11

 

260.2

 

245.2

Cash flows from investing activities

 

 

 

 

 

 

Acquisition of business, payment of contingent consideration

 

9

 

 

(10.0)

Acquisition of property, plant and equipment and intangible assets

 

12, 13

 

(213.9)

 

(212.3)

Proceeds from sale of property, plant and equipment and other assets

 

9

 

15.9

 

0.9

Dividends received from joint ventures

 

26

 

23.7

 

25.0

Investment in joint venture

 

26

 

(0.6)

 

Interest received

 

 

 

1.2

 

1.0

Net cash used in investing activities

 

 

 

(173.7)

 

(195.4)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from loans and borrowings

 

21

 

1,600.0

 

Proceeds from issue of shares in the IPO

 

23

 

1,043.9

 

0.7

Payments relating to the IPO

 

9, 23

 

(42.6)

 

Repayment of loans and borrowings

 

21

 

(2,637.0)

 

(67.9)

Proceeds from sale and leaseback transactions

 

21

 

1.4

 

13.1

Payment of finance lease liabilities

 

21

 

(1.8)

 

(1.3)

Other

 

 

 

1.5

 

(4.9)

Net cash used in financing activities

 

5.3

 

(34.6)

 

(60.3)

Net increase/(decrease) in cash and cash equivalents

 

 

 

51.9

 

(10.5)

Cash and cash equivalents at the beginning of the period

 

 

 

103.9

 

123.7

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

 

1.3

 

(9.3)

Cash and cash equivalents at the end of the period

 

16

 

157.1

 

103.9

Notes

Basis of preparation

This section includes information about the parent company and the Group and how the consolidated financial statements have been prepared. It also explains the structure of the consolidated financial statements.

1. Reporting entity and overview of the Group

SIG Combibloc Group AG (“SIG” or the “Company”) is domiciled in Switzerland. The Company made an initial public offering (“IPO”) on 28 September 2018 and was listed on SIX Swiss Exchange.

Prior to the IPO, the Company was named SIG Combibloc Group Holdings S.à r.l. (also the “Company”, as explained below) with its domicile in Luxembourg. In September 2018, it migrated into Switzerland and changed its name to SIG Combibloc Group AG as further explained in note 25.

“Company” refers to SIG Combibloc Group AG in relation to the period from and after the IPO and to SIG Combibloc Group Holdings S.à r.l. in relation to the period before the IPO.

The Company, via its subsidiaries, obtained control of SIG Combibloc Group AG (a subsidiary renamed to SIG Combibloc Services AG in connection with the IPO – see also note 25) and SIG Holding USA, LLC and their respective subsidiaries (together the “SIG Group”) at the close of business on 13 March 2015.

The consolidated financial statements for the year ended 31 December 2018 comprise the Company and its subsidiaries, including the SIG Group (together referred to as the “Group”). The subsidiaries and joint ventures reflected in the consolidated financial statements of the Company are listed in note 25.

The Group is a global system supplier of aseptic carton packaging solutions for both beverage and liquid food products, ranging from juices and milk to soups and sauces. Its solutions offering consists of aseptic carton packaging filling machines, aseptic carton packaging sleeves and closures as well as after-market services.

2. Preparation of the consolidated financial statements

The consolidated financial statements for the year ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). They were approved by the Board of Directors of the Company on 22 February 2019. They also comply with the Listing Rules of SIX Swiss Exchange and with Swiss company law.

The consolidated financial statements are presented in Euros (“€”). The functional currency of the Company is Swiss Franc. Prior to the IPO, the functional currency of the Company was Euro. The migration of the Company into Switzerland, the IPO and the changed Group financing structure triggered the change in functional currency. The change in functional currency has been accounted for prospectively from the date of change. The Group’s presentation currency has not changed as Euro is still deemed to be the currency most representative of the Group’s activities.

The consolidated financial statements are prepared on a historical cost basis except for certain financial instruments such as derivatives that are measured at fair value, certain components of inventory that are measured at net realisable value and defined benefit obligations that are measured under the projected unit credit method.

3. Structure of the consolidated financial statements

The consolidated financial statements are structured into different sections that should facilitate an overview and understanding of the Group’s operations, financial position and performance. The notes are included in these sections based on their relevance and include information that is material and relevant to the consolidated financial statements.

Basis of preparation

1 Reporting entity and overview of the Group

2 Preparation of the consolidated financial statements

3 Structure of the consolidated financial statements

4 Key events and transactions

5 General accounting policies and topics

Our operating performance

6 Revenue

7 Segment information

8 Other income and expenses

9 Non-IFRS performance measures

10 Earnings per share

11 Cash flow information

Our operating assets and liabilities

12 Property, plant and equipment

13 Intangible assets

14 Inventories

15 Trade and other receivables

16 Cash and cash equivalents

17 Trade and other payables

18 Provisions

19 Other assets and liabilities

Our financing and financial risk management

20 Capital management

21 Loans and borrowings

22 Finance income and expenses

23 Equity

24 Financial risk management

Our group structure and related parties

25 Group entities

26 Joint ventures

27 Related parties

Our people

28 Employee benefits

Other

29 Income tax

30 Financial instruments and fair value information

31 Operating leases

32 Contingent liabilities

33 Subsequent events

Significant accounting policies and information about management judgements, estimates and assumptions are provided in the respective notes throughout the consolidated financial statements. Accounting policies that relate to the financial statements as a whole or are relevant for several notes are included in this “Basis of preparation” section.

4. Key events and transactions

The financial position and performance of the Group were particularly affected by the following events and transactions during the year ended 31 December 2018.

  • The IPO and listing of the Company on SIX Swiss Exchange.
  • The entering into of new term loans.
  • The repayment and derecognition of existing term loans and the early redemption and derecognition of the notes through use of proceeds from the new term loans and the IPO.

The impact of these events and transactions is described in more detail in note 9 in the section “Our operating performance” and in notes 21, 22, 23 and 24 in the section “Our financing and financial risk management”.

As a consequence of the IPO, the Group changed its segment reporting (see note 7 in the section “Our operating performance”).

5. General accounting policies and topics

5.1 Application of accounting policies

The accounting policies applied by the Group in the consolidated financial statements for the year ended 31 December 2018 are, except as noted below and in section 5.2, consistent with those applied in the consolidated financial statements for the year ended 31 December 2017.

As a consequence of the IPO, the Group is required under IAS 33 Earnings per Share to present basic and diluted earnings per share. Note 10 contains further information about the calculation and presentation of earnings per share for the current as well as the comparative period.

5.2 Impact of new or amended standards and interpretations

A number of new or amended standards were effective for annual periods beginning on 1 January 2018. Neither of the standards that are applicable to the Group had a material impact on the consolidated financial statements. However, the standards with the most impact on the Group’s consolidated financial statements from a presentation and disclosure perspective are included below.

Adoption of IFRS 15 Revenue from Contracts with Customers

The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 January 2018, using the standard’s full retrospective approach. IFRS 15 supersedes all existing revenue recognition requirements under IFRS. It applies to all transactions to provide goods and services except those in the scope of other standards.

Revenue under IFRS 15 is recognised when the Group transfers control over a product or service to a customer. The accounting for the Group’s contracts with its customer remains the same under IFRS 15. There is no change in the timing of revenue recognition. The Group recognises revenue at a point in time with an exception for revenue from service contracts which is recognised over time. There is no impact on how the transaction price is assessed or the amounts of revenue recognised. The accounting for the Group’s customer incentive programmes remains unchanged. As a consequence, the only impact on the Group will be additional disclosure (see note 6).

Adoption of IFRS 9 Financial Instruments

The Group adopted IFRS 9 Financial Instruments on 1 January 2018. IFRS 9 contains certain exemptions from full retrospective application for the revised classification and measurement requirements, including impairment. In line with these, the Group has not restated comparative information.

IFRS 9 changes the categorisation and presentation of trade receivables. Under IFRS 9, trade receivables that will be sold under the Group’s securitisation and factoring programmes are classified and presented in the notes as financial assets measured at fair value through profit or loss rather than as loans and receivables as they were under IAS 39. As these trade receivables are sold and derecognised shortly after their initial recognition in the statement of financial position, there is no material difference in how these trade receivables are measured under the previous and current guidance. The trade and other receivables that will not be sold under the Group’s securitisation and factoring programmes are, also under IFRS 9, initially recognised at fair value and subsequently carried at amortised cost less a loss allowance. However, they are categorised and presented in the notes as financial assets at amortised cost under IFRS 9 rather than as loans and receivables as they were under IAS 39. These receivables are held to collect their contractual cash flows. See note 15 for further information about the impact on the Group’s presentation of its trade receivables.

Upon the adoption of IFRS 9 as of 1 January 2018, the Group reclassified an amount of €57.1 million relating to trade receivables to be sold under the securitisation and factoring programmes to the financial asset category “At fair value through profit or loss”. The categorisation of the Group’s financial liabilities remains unchanged. The table below shows the categories and the carrying amounts of the Group’s financial assets as of 31 December 2017 and on transition to IFRS 9 on 1 January 2018.

 

 

Carrying amount as of
31 December 2017

 

Carrying amount as of
1 January 2018 (reclassified)

(in € million)

 

Loans and receivables

 

At fair value through profit or loss

 

Total

 

At amortised cost

 

At fair value through profit or loss

 

Total

Cash and cash equivalents

 

103.9

 

 

 

103.9

 

103.9

 

 

 

103.9

Trade and other receivables

 

276.8

 

 

 

276.8

 

219.7

 

57.1

 

276.8

Other financial assets

 

0.1

 

 

 

0.1

 

0.1

 

 

 

0.1

Derivatives

 

 

 

82.3

 

82.3

 

 

 

82.3

 

82.3

Total financial assets

 

380.8

 

82.3

 

463.1

 

323.7

 

139.4

 

463.1

Under IFRS 9, the loss allowance for trade and other receivables carried at amortised cost is assessed using an expected credit loss model rather than the previous incurred loss model. The expected credit losses are calculated using a provision matrix based on historical credit loss experience and assessments of current and future conditions. The change from the incurred loss model to an expected credit loss model had an inconsequential impact on the Group’s loss allowance.

The accounting guidance for modifications of liabilities that do not result in derecognition has been revised. Under the previous guidance, the Group amortised any modification gain or loss over the remaining term of the liability by recalculating the effective interest rate. The Group analysed the specific facts and circumstances of its prior debt modifications (in the form of repricings of the term loans) and concluded that the previous accounting treatment is consistent with the accounting guidance under IFRS 9. As the change in the cash flows from the Group’s repricings of its term loans arose under the original contract terms and reflected movements in market interest rates, the guidance in IFRS 9 on floating rate instruments is applicable. When a floating rate debt instrument is modified to change its interest rate, the modification under IFRS 9 is regarded as a repricing to the new market interest rate, which is accounted for prospectively by adjusting the effective interest over the remaining life of the debt instrument.

As the Group currently does not apply hedge accounting, it is not affected by the revised guidance in IFRS 9 on hedge accounting.

5.3 Changed presentation

The Group has made changes to the presentation of certain items in the statement of financial position and in the statement of cash flows. When deemed material and relevant to the users, comparative information has also been changed. The most significant changes are described below.

The Group previously presented its pension asset as part of other non-current assets in the statement of financial position. The pension asset is now presented as a separate line item (as Employee benefits). The same change has been made for the comparative period.

The Group is presenting interest paid on its loans and borrowings as part of cash flows from operating activities. The Group now also presents transaction costs and other costs paid relating to financing as part of cash flows from operating activities as these costs are a form of a finance cost accounted for using the effective interest method and therefore should rather be presented in the same way as interest paid on loans and borrowings. In previous periods, payments of such costs were presented as part of cash flows from financing activities. The comparative numbers have been adjusted (also in relevant notes), with the effect that cash flows from operating activities decreased by €1.5 million while cash flows from financing activities increased by the same amount for the year ended 31 December 2017.

As a consequence of the IPO, the Group also had to change its segment reporting as further described in note 7.

5.4 Adoption of standards and interpretations in 2019 and beyond

A number of new or amended standards and interpretations are effective for annual periods beginning on 1 January 2019 or later and have not been applied in preparing these consolidated financial statements. The Group does not plan to adopt these standards and interpretations before their effective dates. Many of the new or amended standards and interpretations are not applicable to the Group or are expected to have no, or no material, impact on the consolidated financial statements. The following standard is the most relevant to the Group.

IFRS 16 Leases

In January 2016, the IASB issued IFRS 16 Leases. IFRS 16 replaces the current guidance under IFRS on leases and contains new requirements in relation to the accounting for leases by lessees. Most assets under operating lease contracts will have to be accounted for on-balance sheet by lessees, resulting in an increase in reported assets and liabilities. IFRS 16 is effective for periods beginning on or after 1 January 2019.

The Group will adopt IFRS 16 applying the modified retrospective approach under which the cumulative effect of initially applying the new lease standard will be recognised as an adjustment to opening retained earnings as of 1 January 2019. Comparative information will not be restated. Assets leased by the Group will be recognised on the statement of financial position as a right-of-use asset with a corresponding liability, representing the future lease payments. However, leases of low-value assets and short-term leases will continue to be accounted for off-balance sheet as allowed by the standard’s practical expedients. Leases with a remaining contract period of 12 months or less as of 1 January 2019 will also be accounted for off-balance sheet.

The Group has evaluated the impact of this new standard and will not be materially impacted. The Group will recognise a lease liability as of 1 January 2019 of approximately €16 million relating to lease contracts that previously were accounted for as operating leases. The same amount will be recognised as a right-of-use asset. With the exception of certain variable lease payments and lease payments relating to leases of low-value assets and short-term leases, the larger part of the Group’s total lease expense for lease contracts that previously were accounted for as operating leases will be presented as depreciation and interest expense rather than as part of operating expenses (see also note 31).

5.5 Critical accounting judgements, estimates and assumptions

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from estimates and assumptions made. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.

Management believes that the following accounting policies involve the most significant judgements, estimates and assumptions:

  • Accruals for various customer incentive programmes – see notes 6 and 17.
  • Impairment testing and recognition of impairment losses – see notes 12 and 13.
  • Measurement of obligations under defined benefit plans – see note 28.
  • Income taxes – see note 29.
  • Realisation of deferred tax assets – see note 29.

5.6 Accounting policies relating to the consolidated financial statements as a whole

5.6.1 Foreign currency

Items included in the financial statements of individual Group entities are recognised in their respective functional currency, which is the currency of the primary economic environment in which each Group entity operates.

Foreign currency transactions

Foreign currency transactions are translated into the respective functional currency of the Group entity at the exchange rates at the dates of the transactions. Monetary assets and liabilities in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary assets and liabilities in foreign currencies that are measured based on historical cost are translated at the exchange rates at the dates of the transactions. Foreign currency exchange gains or losses are generally recognised in profit or loss.

Foreign operations

Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions, are translated into Euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Euro at average rates for the reported periods, which approximate the exchange rates at the dates of the transactions. This also applies to the statement of cash flows and all movements in assets and liabilities as well as any items of other comprehensive income. The foreign currency exchange gains and losses arising on the translation of the net assets of foreign operations are recognised in other comprehensive income, in the translation reserve.

When a foreign operation is disposed of or liquidated, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal (or liquidation). The Group does not apply hedge accounting to the foreign currency exchange differences arising between the functional currency of the foreign operation and the Euro.

Significant exchange rates

The following significant exchange rates against the Euro applied during the periods presented:

 

 

Average rate for the year

 

Spot rate as of

 

 

31 Dec. 2018

 

31 Dec. 2017

 

31 Dec. 2018

 

31 Dec. 2017

Brazilian Real (BRL)

 

4.29386

 

3.60020

 

4.44400

 

3.97290

Chinese Renminbi (CNY)

 

7.80368

 

7.62743

 

7.87510

 

7.80440

Swiss Franc (CHF)

 

1.15485

 

1.11149

 

1.12690

 

1.17020

Mexican Peso (MXN)

 

22.70877

 

21.30716

 

22.49212

 

23.66120

New Zealand Dollar (NZD)

 

1.70513

 

1.58864

 

1.70559

 

1.68500

Thai Baht (THB)

 

38.16260

 

38.28790

 

37.05202

 

39.12103

US Dollar ($)

 

1.18082

 

1.12886

 

1.14500

 

1.19929

5.6.2 Business combinations

Business combinations are accounted for using the acquisition method at the acquisition date, which is when control is obtained. The consideration transferred is generally measured at fair value, as are the identifiable net assets acquired.

Goodwill is measured at the acquisition date as the fair value of the consideration transferred (including, if applicable, the fair value of any previously held equity interests and any non-controlling interests) less the net recognised amount (which is generally fair value) of the identifiable assets acquired and liabilities assumed. If the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If such a contingent consideration depends on the achievement of future earnings or other performance targets, any changes in the fair value are recognised in profit or loss as other income or expenses.

Transaction costs, other than those associated with the issue of debt or equity securities incurred in connection with a business combination, are expensed as incurred.

5.6.3 Leases

Leases are classified as finance leases whenever the terms of the lease contract transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

The Group primarily deploys filling lines at customers’ sites under contracts that qualify to be accounted for as operating leases. See further notes 6, 12 and 19.

The Group as lessee

The Group leases a few buildings as well as facility and production equipment under contracts that qualify to be accounted for as finance leases. See further notes 12 and 21.

The Group leases some assets including offices, some production-related buildings and equipment, warehouses and cars under contracts that qualify to be accounted for as operating leases. See further note 31.

5.6.4 Impairment of non-financial assets

The carrying amounts of the Group’s property, plant and equipment, intangible assets with finite useful lives and investments in joint ventures are reviewed regularly and at least annually to identify whether there is an indication of impairment. If an impairment indicator exists, the asset’s recoverable amount is estimated. Goodwill and intangible assets with indefinite useful lives are tested for impairment on an annual basis and whenever there is an indication that they may be impaired.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units.

The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit exceeds its recoverable amount. An impairment loss is allocated to first reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis. Impairment losses are recognised in profit or loss.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Further details on impairment testing are provided in the respective notes on property, plant and equipment and intangible assets (notes 12 and 13).

5.6.5 Contingent assets

Contingent assets are possible assets arising from a past event to be confirmed by future events not wholly within the control of the Group. Contingent assets are not recognised in the statement of financial position but are separately disclosed.

Our operating performance

This section covers our operating performance on a Group as well as a segment level. It includes non-IFRS performance measures that management believes are relevant in evaluating the Group’s performance and liquidity.

6. Revenue

Revenue derives from the sale of goods (i.e. filling lines, sleeves, closures and board) and the provision of after-market services and is presented net of returns, trade discounts, volume rebates and other customer incentives. The Group also presents lease income from the deployment of filling lines under contracts that qualify to be accounted for as operating leases and revenue under royalty agreements as part of revenue.

Approximately 90% of the Group’s revenue from its offering of aseptic carton packaging solutions relates to the sale of sleeves and closures. The remaining 10% of the revenue from the offering of aseptic carton packaging solutions consists of revenue relating to filling lines and to servicing of the Group’s deployed filling lines.

Impact of new IFRS standards

The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 January 2018 as further described in note 5.2. The Group was not impacted from a revenue accounting and measurement perspective. However, the Group is impacted by the new revenue disclosure requirements. The new disclosures are also provided below for the comparative period.

The Group will adopt IFRS 16 Leases on 1 January 2019. There will be no change in respect of the recognition of lease income.

Composition of revenue

The Group has recognised the following amounts of revenue.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Revenue from sale and service contracts (including royalty agreements)

 

1,597.9

 

1,592.9

Revenue from filling line contracts accounted for as operating leases

 

78.2

 

71.2

Total revenue

 

1,676.1

 

1,664.1

of which

 

 

 

 

Core revenue

 

1,644.3

 

1,590.3

Core revenue represents revenue generated from the Group’s core activities and excludes revenue from sales of laminated board and revenue from sales of folding box board, which amounted to €31.8 million for the year ended 31 December 2018 and €73.8 million for the year ended 31 December 2017. Core revenue is not a defined performance measure in IFRS (see further note 9).

The Group’s total revenue is further disaggregated by major product/service lines in the table below. Filling line revenue is composed of revenue from the deployment of filling lines under contracts that qualify to be accounted for as operating leases and from the sale of filling lines. Service revenue relates to after-market services in relation to the Group’s filling lines. Revenue under royalty agreements and from the sale of folding box board is included in other revenue.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Revenue from sale of sleeves and closures

 

1,378.2

 

1,378.6

Filling line revenue

 

99.2

 

88.4

Service revenue

 

99.3

 

90.6

Other revenue

 

99.4

 

106.5

Total revenue

 

1,676.1

 

1,664.1

The Group’s three segments (EMEA, APAC and Americas) are providing the same aseptic carton packaging solutions, comprising filling machines, sleeves and closures as well as after-market services. The split of revenue between revenue from sale of sleeves and closures, filling line revenue and service revenue is broadly the same at Group level, between the Group’s three segments and over time. Other revenue is mainly divided between EMEA and APAC. See note 7 for further information about the Group’s segments.

Notes 17 and 19 include information about the Group’s liabilities relating to accruals for various incentive programmes, advance payments from customers and deferred revenue, which had or will have an impact on the amount of revenue recognised.

Accounting policy, significant judgements and estimates

Revenue is measured at the fair value of the consideration received or receivable net of returns, trade discounts, volume rebates and other customer sales incentives.

Revenue is recognised when the Group transfers control over a product or service to a customer. Revenue is recognised at a point in time with the exception of revenue from service contracts, which is recognised over time. Transfer of control varies depending on the individual contract terms. Lease income is recognised as revenue on a straight-line basis over the lease term.

When sales incentives are offered to customers, only the amount of revenue that is highly probable of not being reversed is recognised. The amount of sales incentives expected to be earned or taken by customers in conjunction with incentive programmes is therefore estimated and deducted from revenue. Estimates in respect of the incentives are based on historical and current market trends, which are affected by the business seasonality and competitiveness of promotional programmes being offered. Estimates are reviewed quarterly for possible revisions.

7. Segment information

The Group has three operating segments, which are also the reportable segments: Europe, Middle East and Africa (“EMEA”), Asia Pacific (“APAC”) and Americas. All segments provide aseptic carton packaging solutions.

Change of segmentation

In connection with the Group’s IPO, the Group’s Chief Operating Decision Maker (”CODM”) and internal reporting structure changed. The Group previously had one single operating and reportable segment. The CODM only received and reviewed financial information on a Group level for the purpose of resource allocation and assessment of performance, and did not review disaggregated operating results at a lower level or at a product/services or geographic areas level. The changed internal reporting structure and the identification of a new CODM triggered a reassessment of the Group’s segmentation that resulted in the identification of three operating segments.

The Group has restated the segment information for the comparative period as if the Group had always had three segments.

Overview of segments and Group Functions

The following section provides an overview of the Group’s three segments (EMEA, APAC and Americas) as well as the activities not forming part of any of the segments (Group Functions).

EMEA includes sleeves manufacturing as well as production of closures for the Group’s customers in Europe. EMEA also supplies APAC and Americas with sleeves and, to a lesser extent, closures. EMEA further includes the result from the sale of supply from the Group’s European manufacturing entities to the Group’s joint ventures in the Middle East. The Group’s central procurement activities are part of EMEA with the European sleeves manufacturing and closures production entities being the main internal customers. The Group’s joint ventures in the Middle East contribute to the performance of EMEA by dividend payments and royalty payments related to the use of SIG technical solutions and sleeves sales in the Middle East.

APAC includes sleeves manufacturing for the Group’s customers in China and South East Asia. The China-based filling machine assembly plant is also included in APAC, together with the production of liquid paper board and folding box board in New Zealand. The liquid paper board produced in New Zealand is mainly used by the sleeves manufacturing facilities in Asia and the joint ventures in the Middle East.

Americas covers the Group’s customers in North and South America. North America is primarily supplied by sleeves from the European and Asian sleeves manufacturing facilities. South America has its own sleeves manufacturing facility.

The Group Functions include activities that are supportive to the Group’s business, such as global filling machine assembly, global technology (including R&D), information technology, marketing, finance, legal, human resources and other support functions. The Group Functions are involved in transactions with third parties only in relation to the Group’s joint ventures, of which the majority relate to the sale of filling machines. Global filling machine assembly also sells filling machines and spare parts, and provides assembly-related services, to the segments.

Inter-company transactions between the segments, and between the segments and the Group Functions, are eliminated in consolidation. They mainly relate to the sale of filling machines, sleeves and closures. Pricing is determined on a cost plus basis.

Information about the Group’s segments is reported to the CODM on a regular basis for the purposes of resource allocation and assessment of performance of the segments. The performance of the segments is assessed by the CODM primarily on the basis of adjusted EBITDA (as defined in the section below).

Segment financial information

The tables below present financial information about the segments. They include the key financial information regularly provided to and used by the CODM. The same measurement basis is used when presenting the segment information as used in the Group’s consolidated financial statements.

 

 

Year ended 31 December 2018

(in € million)

 

EMEA

 

APAC

 

Americas

 

Total segments

 

Group Functions

 

Reconciling items

 

Total

(1)

Core revenue from transactions with external customers represents revenue from external customers, excluding revenue from sales of laminated board to the Group’s joint ventures in the Middle East and revenue from sales of folding box board to third parties. Core revenue is not a defined performance measure in IFRS (see further note 9).

(2)

The performance of the segments is presented with reference to adjusted EBITDA. Adjusted EBITDA is defined as EBITDA (i.e. profit or loss before net finance expense, income tax expense, depreciation of property, plant and equipment and amortisation of intangible assets), adjusted to exclude certain non-cash transactions and items of a significant or unusual nature, including but not limited to, transaction- and acquisition-related costs, restructuring costs, unrealised gains or losses on derivatives, gains or losses on the sale of non-strategic assets, asset impairments and write-downs and share of result of joint ventures, net of cash distributed in the form of dividends. Adjusted EBITDA is not a defined performance measure in IFRS. Refer to note 9 for the reconciliation between the Group’s profit or loss, EBITDA and adjusted EBITDA.

(3)

The Group’s capital expenditure mainly relates to investments in its own production, plant and equipment (PP&E capital expenditure, excluding filling machines) and to the manufacture and deployment of filling machines with customers (filling machine capital expenditure).
Net capital expenditure is defined as capital expenditure less upfront cash. Upfront cash is defined as consideration received as an upfront payment for the filling machines from customers. Capital expenditure relating to filling machines is presented net of this upfront payment in the table above. Net capital expenditure is not a defined performance measure in IFRS. Refer to note 11 for the reconciliation between capital expenditure and net capital expenditure.

(4)

Group Functions may report positive net filling machine capital expenditure if the capital expenditure of the global filling machine assembly during a period is smaller than the payments it received under intra-group sales of filling machines. This could occasionally also happen in the case of PP&E capital expenditure, excluding filling machines.

Revenue from transactions
with external customers

 

733.3

 

630.2

 

297.3

 

1,660.8

 

15.3

 

 

1,676.1

Revenue from inter-segment
transactions

 

202.6

 

9.6

 

2.8

 

215.0

 

39.1

 

(254.1)

 

Segment revenue

 

935.9

 

639.8

 

300.1

 

1,875.8

 

54.4

 

(254.1)

 

1,676.1

Core revenue
from transactions with
external customers (1)

 

733.3

 

598.4

 

297.3

 

1,629.0

 

15.3

 

 

1,644.3

Adjusted EBITDA (2)

 

245.4

 

191.1

 

81.0

 

517.5

 

(56.0)

 

 

461.5

Capital expenditure: (3)

 

(70.0)

 

(137.5)

 

(37.2)

 

(244.7)

 

30.8

 

 

(213.9)

PP&E (excl. filling machines) (3)(4)

 

(24.6)

 

(47.5)

 

(2.2)

 

(74.3)

 

17.3

 

 

(57.0)

Net filling machines (3)(4)

 

(11.1)

 

(55.1)

 

(33.5)

 

(99.7)

 

13.5

 

 

(86.2)

Net capital expenditure (3)

 

(35.7)

 

(102.6)

 

(35.7)

 

(174.0)

 

30.8

 

 

(143.2)

 

 

Year ended 31 December 2017

(in € million)

 

EMEA

 

APAC

 

Americas

 

Total segments

 

Group Functions

 

Reconciling items

 

Total

(1)

Core revenue from transactions with external customers represents revenue from external customers, excluding revenue from sales of laminated board to the Group’s joint ventures in the Middle East and revenue from sales of folding box board to third parties. Core revenue is not a defined performance measure in IFRS (see further note 9).

(2)

The performance of the segments is presented with reference to adjusted EBITDA. Adjusted EBITDA is defined as EBITDA (i.e. profit or loss before net finance expense, income tax expense, depreciation of property, plant and equipment and amortisation of intangible assets), adjusted to exclude certain non-cash transactions and items of a significant or unusual nature, including but not limited to, transaction- and acquisition-related costs, restructuring costs, unrealised gains or losses on derivatives, gains or losses on the sale of non-strategic assets, asset impairments and write-downs and share of result of joint ventures, net of cash distributed in the form of dividends. Adjusted EBITDA is not a defined performance measure in IFRS. Refer to note 9 for the reconciliation between the Group’s profit or loss, EBITDA and adjusted EBITDA.

(3)

The Group’s capital expenditure mainly relates to investments in its own production, plant and equipment (PP&E capital expenditure, excluding filling machines) and to the manufacture and deployment of filling machines with customers (filling machine capital expenditure).
Net capital expenditure is defined as capital expenditure less upfront cash. Upfront cash is defined as consideration received as an upfront payment for the filling machines from customers. Capital expenditure relating to filling machines is presented net of this upfront payment in the table above. Net capital expenditure is not a defined performance measure in IFRS. Refer to note 11 for the reconciliation between capital expenditure and net capital expenditure.

(4)

Group Functions may report positive net filling machine capital expenditure if the capital expenditure of the global filling machine assembly during a period is smaller than the payments it received under intra-group sales of filling machines. This could occasionally also happen in the case of PP&E capital expenditure, excluding filling machines.

Revenue from transactions
with external customers

 

768.1

 

571.8

 

320.3

 

1,660.2

 

3.9

 

 

1,664.1

Revenue from inter-segment
transactions

 

190.9

 

20.6

 

0.1

 

211.6

 

40.5

 

(252.1)

 

Segment revenue

 

959.0

 

592.4

 

320.4

 

1,871.8

 

44.4

 

(252.1)

 

1,664.1

Core revenue
from transactions with
external customers(1)

 

752.8

 

513.3

 

320.3

 

1,586.4

 

3.9

 

 

1,590.3

Adjusted EBITDA (2)

 

243.6

 

180.3

 

92.8

 

516.7

 

(61.6)

 

 

455.1

Capital expenditure: (3)

 

(65.5)

 

(123.4)

 

(31.9)

 

(220.8)

 

8.5

 

 

(212.3)

PP&E (excl. filling machines) (3)(4)

 

(30.7)

 

(14.8)

 

(7.3)

 

(52.8)

 

(7.3)

 

 

(60.1)

Net filling machines (3)(4)

 

(5.3)

 

(91.6)

 

(23.0)

 

(119.9)

 

15.8

 

 

(104.1)

Net capital expenditure (3)

 

(36.0)

 

(106.4)

 

(30.3)

 

(172.7)

 

8.5

 

 

(164.2)

Segment revenue per major product/service lines

Information about the Group’s revenue is included in note 6, where total revenue is disaggregated by major product/service lines. In respect of the segments, the split of revenue between revenue from sale of sleeves and closures, filling line revenue and service revenue is broadly the same as at Group level and over time. Other revenue is primarily divided between EMEA and APAC.

Geographic information

The Group operates six manufacturing plants that produce carton sleeves (two in Germany and one in each of Austria, China, Thailand and Brazil). It also operates two assembly facilities for filling machines in Germany and China, a production facility for closures in Switzerland and a paper mill for the production of liquid paper board and folding box board in New Zealand. The Group further operates three R&D centres (one in each of Germany, Switzerland and China) as well as four training centres (one in each of Germany, Brazil, Thailand and China). Furthermore, the joint ventures in the Middle East operate a carton sleeve manufacturing plant and a training centre in their region.

The table below includes information about the Group’s non-current assets on a country basis. Non-current assets exclude financial instruments, deferred tax assets and post-employment assets.

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

(1)

The Company's country of domicile is Switzerland. Prior to the IPO in 2018, the Company was domiciled in Luxembourg.

Germany

 

1,138.4

 

1,174.0

Switzerland (1)

 

515.7

 

575.6

China

 

550.9

 

504.5

Thailand

 

515.1

 

473.7

Austria

 

348.1

 

345.5

Luxembourg (1)

 

1.0

 

3.6

Other countries

 

704.8

 

739.5

Total non-current assets

 

3,774.0

 

3,816.4

The non-current assets are reported based on the geographic location of the business operations. The non-current assets are predominantly located in the countries in which the Group’s manufacturing plants, assembly and production facilities are situated. The Group’s intellectual property is primarily held by a company based in Switzerland.

The table below includes information about the Group’s revenue from external customers on a country basis.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

China

 

278.1

 

245.0

Germany

 

192.0

 

194.6

Brazil

 

150.8

 

185.6

Switzerland

 

11.5

 

10.6

Other countries

 

1,043.7

 

1,028.3

Total revenue from external customers

 

1,676.1

 

1,664.1

Revenue is reported based on the geographic location of customers. There is no revenue from external customers in Luxembourg where the Company was domiciled prior to the IPO. The customer base of the Group includes international companies, large national and regional companies as well as small local companies.

Information about major customers

The Group does not have revenue from transactions with a single external customer amounting to 10% or more of the Group’s revenue in any of the periods presented.

8. Other income and expenses

Other income and expenses relate to activities and transactions that are outside the Group’s principal revenue generating activities. Activities and transactions of a significant or unusual nature are generally adjusted for in the performance measures adjusted EBITDA and adjusted net income used by management (see note 9).

Foreign currency exchange gains and losses and fair value changes on commodity and foreign currency exchange derivatives entered into as part of the operating business are also presented as other income and expenses.

Composition of other income

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Net change in fair value of derivatives

 

 

5.2

Income from miscellaneous services

 

4.1

 

3.6

Rental income

 

0.7

 

0.9

Other

 

3.7

 

2.0

Total other income

 

8.5

 

11.7

Net change in fair value of derivatives consists of fair value changes on commodity and foreign currency exchange derivatives entered into as part of the operating business.

Composition of other expenses

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Net foreign currency exchange loss

 

(3.4)

 

(3.1)

Net change in fair value of derivatives

 

(23.1)

 

Transaction-related costs

 

(19.7)

 

Change in contingent purchase price obligation

 

 

(2.5)

Operational process-related costs

 

(3.6)

 

Other

 

(0.1)

 

Total other expenses

 

(49.9)

 

(5.6)

Net change in fair value of derivatives consists of fair value changes on commodity and foreign currency exchange derivatives entered into as part of the operating business.

Transaction-related costs include IPO-related costs that relate to the listing of existing shares on SIX Swiss Exchange and costs for pursuing other initiatives. These costs are considered in adjusted EBITDA and adjusted net income. See note 9 for further details about these costs and the change in contingent purchase price obligation for the year ended 31 December 2017.

9. Non-IFRS performance measures

Management uses a number of measures to assess the performance of the Group that are not defined in IFRS, including core revenue, adjusted EBITDA, adjusted net income, adjusted earnings per share, free cash flow, adjusted free cash flow and net capital expenditure.

These non-IFRS measures are presented as management believes that they are important supplemental measures of the Group’s performance. Management believes that they, and other similar non-IFRS measures, are useful and widely used in the markets in which the Group operates as a means of evaluating performance. In certain cases, these non-IFRS measures are also used to determine compliance with covenants in the Group’s credit agreement and compensation of certain members of management. However, these non-IFRS measures should not be considered as substitutes for the information contained elsewhere in these consolidated financial statements.

This note includes information about adjusted EBITDA and adjusted net income. Core revenue is presented in notes 6 and 7, net capital expenditure in note 7 and note 11, adjusted earnings per share in note 10 and free cash flow and adjusted free cash flow in note 11.

Adjusted EBITDA

Adjusted EBITDA is used by management to measure operational performance. Management believes that adjusted EBITDA gives investors meaningful information to help them understand the Group’s operating results and to analyse its financial and business trends on a period-to-period basis.

EBITDA is defined as profit or loss before net finance expense, income tax expense, depreciation of property, plant and equipment and amortisation of intangible assets. Adjusted EBITDA is defined as EBITDA, adjusted to exclude certain non-cash transactions and items of a significant or unusual nature including, but not limited to, transaction- and acquisition-related costs, restructuring costs, unrealised gains or losses on derivatives, gains or losses on the sale of non-strategic assets, asset impairments and write downs and share of result of joint ventures, net of cash distributed in the form of dividends.

The following table reconciles profit or loss to EBITDA and adjusted EBITDA.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Loss for the period

 

(83.9)

 

(96.9)

Net finance expense

 

206.4

 

238.7

Income tax expense

 

0.9

 

26.2

Depreciation and amortisation

 

271.7

 

265.9

Earnings before interest, tax, depreciation and amortisation (“EBITDA”)

 

395.1

 

433.9

Adjustments to EBITDA:

 

 

 

 

Share of result of joint ventures, net of dividends distributed

 

14.8

 

6.2

Restructuring costs, net of reversals

 

4.3

 

19.4

Unrealised (gain)/loss on derivatives

 

23.1

 

(5.2)

Transaction-related costs

 

19.7

 

Change in contingent purchase price obligation

 

 

2.5

Operational process-related costs

 

3.6

 

Other

 

0.9

 

(1.7)

Adjusted earnings before interest, tax, depreciation and amortisation (“adjusted EBITDA”)

 

461.5

 

455.1

In 2016 and 2017, the Group initiated restructuring programmes focused on reducing costs, streamlining the organisation and adjusting headcount to align more closely with the Group’s needs going forward. The Group continues to implement these programmes. In the year ended 31 December 2018, the Group initiated a small number of restructuring programs focused on rationalising the organisation to reduce costs and to meet the Group’s needs and changed market demands going forward. The majority of the Group’s existing restructuring programmes are expected to be executed in 2019.

Transaction-related costs include IPO-related costs that relate to the listing of existing shares on SIX Swiss Exchange (€7.4 million) and costs for pursuing other initiatives. Costs incurred for the IPO that are directly attributable to the issue of new shares (€38.6 million) are recognised as a deduction from equity (see further note 23). IPO-related costs relating to both the issue of new shares and the listing of existing shares have been proportionally allocated between new shares and existing shares based on the total number of shares (new and existing).

Payments of IPO-related costs for listing new and existing shares are presented as part of cash flows from financing activities. Payments of other transaction-related costs are presented as part of cash flows from operating activities.

The “Other” category for the year ended 31 December 2018 primarily includes management fees. It also includes a gain of €0.7 million relating to the sale of a piece of land regarded as an investment property. The sale resulted in a cash inflow of €13.9 million. For the year ended 31 December 2017, “Other” primarily includes out of period indirect tax recoveries, impairment losses on property, plant and equipment and management fees.

In the year ended 31 December 2017, the Group settled its remaining obligation under the share purchase agreement relating to the acquisition of the SIG Group by Onex Corporation (“Onex”) in 2015. The change in contingent purchase price obligation that year represents the increase of the Group’s contingent purchase price obligation from €7.5 million to €10 million resulting from the determination of the consideration that related to defined earnings targets for the 2016 financial year. The payment of €10 million was made in the same year.

Adjusted net income

Adjusted net income is used by management to measure performance. Management believes that adjusted net income is a meaningful measure because by removing certain non-recurring charges and non-cash expenses, the Group’s operating results directly associated with the period’s performance are presented. The use of adjusted net income may also be helpful to investors because it provides consistency and comparability with past performance and facilitates period-to-period comparisons of results of operations.

Adjusted net income is defined as profit or loss adjusted to exclude certain items of significant or unusual nature including, but not limited to, the non-cash foreign exchange impact of non-functional currency loans, amortisation of transaction costs, the net change in fair value of financing-related derivatives, purchase price allocation (“PPA”) depreciation and amortisation, adjustments made to reconcile EBITDA to adjusted EBITDA and the estimated tax impact of the foregoing adjustments. The PPA depreciation and amortisation arose due to the acquisition accounting that was performed when the SIG Group was acquired by Onex in 2015.

The following table reconciles profit or loss for the period to adjusted net income.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Loss for the period

 

(83.9)

 

(96.9)

Non-cash foreign exchange impact of non-functional currency loans
and realised foreign exchange impact due to refinancing

 

(58.8)

 

67.6

Amortisation of transaction costs

 

11.0

 

15.5

Net change in fair value of derivatives

 

7.4

 

(7.3)

Net effect of early redemption of notes

 

82.5

 

Net effect of early repayment of term loans

 

56.3

 

PPA depreciation and amortisation

 

140.1

 

144.3

Adjustments to EBITDA:

 

 

 

 

Share of result of joint ventures, net of dividends distributed

 

14.8

 

6.2

Restructuring costs, net of reversals

 

4.3

 

19.4

Unrealised (gain)/loss on derivatives

 

23.1

 

(5.2)

Transaction-related costs

 

19.7

 

Change in contingent purchase price obligation

 

 

2.5

Operational process-related costs

 

3.6

 

Other

 

0.9

 

(1.7)

Tax effect on above items

 

(72.1)

 

(38.6)

Adjusted net income

 

148.9

 

105.8

10. Earnings per share

This note provides details about the calculation of earnings per share. The Group presents earnings per share for the first time in these consolidated financial statements. As a listed company, the Group must present earnings per share. Comparative information is also presented. In addition, adjusted earnings per share is included in this note.

Earnings per share

Basic and diluted earnings (or loss) per share are calculated by dividing the consolidated result for the period by the weighted average number of ordinary shares in issue during the respective periods.

Change of share structure

The Group changed its share structure in connection of the IPO (as further described in note 23). Prior to the IPO, different classes of ordinary and preference shares were converted into one class of ordinary shares. The conversion was made on a one-share-for-one-share basis and the number of shares remained unchanged. The earnings per share information is therefore calculated as if the Group had always had only one class of ordinary shares, also in the comparative period.

Number of shares

 

Total number of ordinary shares

Issued shares as of 1 January 2017

 

214,960,547

Capital increase on 30 June 2017

 

92,693

Issued shares as of 31 December 2017

 

215,053,240

Issued shares as of 1 January 2018

 

215,053,240

Capital increase in connection with the IPO

 

105,000,000

Issued shares as of 31 December 2018

 

320,053,240

Weighted average number of shares

Number of shares

 

Weighted average number of ordinary shares

Issued shares as of 1 January 2017

 

214,960,547

Effect of capital increase on 30 June 2017

 

46,981

Weighted average number of shares as of 31 December 2017

 

215,007,528

Issued shares as of 1 January 2018

 

215,053,240

Effect of capital increase in connection with the IPO

 

26,178,082

Weighted average number of shares as of 31 December 2018

 

241,231,322

Basic and diluted earnings per share

The table below shows the loss attributable to the shareholders and the weighted average number of outstanding ordinary shares used in the calculation of basic and diluted earnings per share.

(In € million unless indicated)

 

Year ended
31 Dec. 2018

 

Year ended 
31 Dec. 2017

Loss for the period

 

(83.9)

 

(96.9)

Weighted average number of ordinary shares for the period (in numbers)

 

241,231,322

 

215,007,528

Basic and diluted loss per share (in €)

 

(0.35)

 

(0.45)

Basic and diluted earnings per share are the same. The Group does not have any shares or other instruments that are convertible into ordinary shares. The Group also incurred a loss for the periods presented.

Adjusted earnings per share

Adjusted earnings per share is defined as adjusted net income divided by the weighted average number of ordinary shares. Management believes that adjusted earnings per share is a useful measure as adjusted net income is used to measure the operating performance (see further note 9). Adjusted earnings per share is not a defined measure in IFRS.

The table below shows the adjusted net income and the weighted average number of outstanding ordinary shares used in the calculation of adjusted earnings per share.

(In € million unless indicated)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Adjusted net income

 

148.9

 

105.8

Weighted average number of ordinary shares for the period (in numbers)

 

241,231,322

 

215,007,528

Adjusted earnings per share (in €)

 

0.62

 

0.49

11. Cash flow information

This note includes information about the Group’s cash flows from a capital expenditure perspective and from a performance perspective in general. It also includes information about non-cash transactions. Where more relevant for the understanding of a transaction, cash in- and outflows are described in the notes of the respective assets or liabilities to which the cash flows relate. The same applies to non-cash transactions.

Net capital expenditure

The Group’s capital expenditure mainly relates to investments in own production, plant and equipment (PP&E capital expenditure, excluding filling machines) and to the manufacture and deployment of filling machines with customers (filling machine capital expenditure).

Net capital expenditure is defined as capital expenditure less upfront cash. Upfront cash is defined as consideration received as an upfront payment for the filling machines from our customers. Net capital expenditure is not a defined performance measure in IFRS (see further note 9).

Management uses net capital expenditure as it better demonstrates how cash generative the business is. As the Group typically receives a portion of the total consideration for a filling line as an upfront payment from the customer, the cash outflow relating to filling lines is generally lower than implied by the gross capital expenditure figure. Payments received for filling lines (including upfront payments) are presented as part of cash flows from operating activities.

The following table reconciles capital expenditure to net capital expenditure.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

PP&E (excluding filling machines)

 

57.0

 

60.1

Gross filling machines

 

156.9

 

152.2

Capital expenditure (gross)

 

213.9

 

212.3

Upfront cash (for filling machines)

 

(70.7)

 

(48.1)

Net capital expenditure

 

143.2

 

164.2

Free cash flow and adjusted free cash flow

Free cash flow and adjusted free cash flow are used by management to evaluate the performance of the Group, considering also payments for capital expenditure, interest and finance lease liabilities as well as dividend payments received.

Free cash flow is defined as net cash from operating activities plus dividends received from the joint ventures less capital expenditure and payments of finance lease liabilities. Adjusted free cash flow is defined as free cash flow plus interest paid, payment of transaction and other costs relating to financing (e.g. original issue discount) and other payments relating to refinancing. These two measures are not defined performance measures in IFRS (see further note 9). The Group presents interest paid, payment of transaction and other costs relating to financing and other payments relating to refinancing (i.e. fee for early redemption of notes) as part of cash flows from operating activities.

The following table reconciles net cash from operating activities to free cash flow and adjusted free cash flow.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Net cash from operating activities

 

260.2

 

245.2

Dividends received from joint ventures

 

23.7

 

25.0

Acquisition of PP&E and intangible assets

 

(213.9)

 

(212.3)

Payment of finance lease liabilities

 

(1.8)

 

(1.3)

Free cash flow

 

68.2

 

56.6

Interest paid

 

133.0

 

143.6

Payment of transaction and other costs relating to financing

 

29.7

 

1.5

Payment of fee for early redemption of notes

 

26.2

 

Adjusted free cash flow

 

257.1

 

201.7

Non-cash transactions

The Group has entered into lease contracts in the years ended 31 December 2018 and 2017 that qualify to be accounted for as finance leases (see notes 12 and 21). The initial recognition of a finance lease is a non-cash transaction. Other significant non-cash transactions for the year ended 31 December 2018 include the derecognition of capitalised transaction costs and original issue discount resulting from the early redemption of notes and repayment of term loans, the derecognition of derivative instruments that were related to the debt (see notes 21 and 22) and the conversion of shares (see note 23).

Our operating assets and liabilities

This section includes information about the Group’s operating assets and liabilities. The main operating assets relate to the Group’s production equipment and its deployed filling lines accounted for as operating leases. The trade receivables balance is reduced by selling trade receivables under the Group’s securitisation and factoring programmes. A substantial part of the Group’s assets relates to goodwill and other intangible assets. Impairment testing of goodwill and trademarks with indefinite useful lives is described in this section. The main operating liabilities relate to trade payables and accruals for various incentive programmes.

12. Property, plant and equipment

Property, plant and equipment (“PP&E”) is mainly composed of filling lines that are deployed at customers’ sites under contracts accounted for as operating leases and the Group’s plant and production equipment. Work in progress relates to construction of filling machines and to filling lines under installation at customers’ sites as well as to construction of various types of production equipment used by the Group in its manufacturing plants and assembly facilities. Assets leased by the Group under finance lease contracts are also presented as part of PP&E.

Composition of PP&E

(in € million)

 

Land

 

Buildings

 

Plant and equipment

 

Work in progress

 

Filling lines

 

Total

Cost

 

39.7

 

168.1

 

495.4

 

209.2

 

489.1

 

1,401.5

Accumulated depreciation
and impairment losses

 

 

(26.1)

 

(221.4)

 

 

(138.6)

 

(386.1)

Carrying amount as of 31 December 2017

 

39.7

 

142.0

 

274.0

 

209.2

 

350.5

 

1,015.4

Cost

 

39.3

 

184.5

 

559.4

 

170.0

 

680.1

 

1,633.3

Accumulated depreciation
and impairment losses

 

 

(36.3)

 

(309.2)

 

 

(219.0)

 

(564.5)

Carrying amount as of 31 December 2018

 

39.3

 

148.2

 

250.2

 

170.0

 

461.1

 

1,068.8

Carrying amount as of 1 January 2017

 

41.8

 

156.3

 

346.5

 

157.8

 

326.4

 

1,028.8

Additions

 

 

1.3

 

11.3

 

201.6

 

9.6

 

223.8

Disposals

 

 

 

(8.2)

 

(5.2)

 

(0.3)

 

(13.7)

Depreciation

 

 

(10.0)

 

(86.6)

 

 

(66.6)

 

(163.2)

Impairment losses

 

 

 

(0.9)

 

 

(1.0)

 

(1.9)

Transfers

 

 

0.7

 

31.2

 

(135.5)

 

104.2

 

0.6

Effect of movements in exchange rates

 

(2.1)

 

(6.3)

 

(19.3)

 

(9.5)

 

(21.8)

 

(59.0)

Carrying amount as of 31 December 2017

 

39.7

 

142.0

 

274.0

 

209.2

 

350.5

 

1,015.4

Carrying amount as of 1 January 2018

 

39.7

 

142.0

 

274.0

 

209.2

 

350.5

 

1,015.4

Additions

 

 

14.9

 

3.3

 

205.6

 

7.8

 

231.6

Disposals

 

 

(0.1)

 

(0.6)

 

(1.8)

 

(0.5)

 

(3.0)

Depreciation

 

 

(9.9)

 

(83.8)

 

 

(78.6)

 

(172.3)

Impairment losses

 

 

 

 

 

(0.6)

 

(0.6)

Transfers

 

 

3.2

 

61.6

 

(242.9)

 

178.1

 

Effect of movements in exchange rates

 

(0.4)

 

(1.9)

 

(4.3)

 

(0.1)

 

4.4

 

(2.3)

Carrying amount as of 31 December 2018

 

39.3

 

148.2

 

250.2

 

170.0

 

461.1

 

1,068.8

The Group leases buildings and facility and production equipment under contracts accounted for as finance leases. The net carrying amount of leased assets was €27.6 million as of 31 December 2018 (€13.0 million as of 31 December 2017). The increase between the periods mainly reflects leases of buildings under finance lease contracts entered into in 2018 relating to the new SIG Tech Centre in China. See note 21 for information about the related finance lease liabilities.

Notes 7 and 11 include more information about the Group’s capital expenditure with regard to its production equipment and filling lines.

Depreciation of PP&E

Depreciation of PP&E is recognised in the following components in the statement of profit or loss and other comprehensive income.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Cost of sales

 

167.0

 

158.2

Selling, marketing and distribution expenses

 

1.2

 

1.4

General and administrative expenses

 

4.1

 

3.6

Total depreciation

 

172.3

 

163.2

Capital expenditure commitments

As of 31 December 2018, the Group had entered into contracts to incur capital expenditure of €42.1 million (€39.4 million as of 31 December 2017) for the acquisition of PP&E. The commitments relate to the filling machine assembly, certain downstream equipment and equipment used in the Group’s sleeves manufacturing facilities.

Accounting policy, significant judgements and estimates

Items of PP&E are measured at cost less accumulated depreciation and accumulated impairment losses. Gains and losses on disposals of items of PP&E are recognised in profit or loss as part of other income or expenses.

The cost of an acquired or self-constructed item of PP&E includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. The cost of the Group’s filling lines also includes the estimated cost of dismantling to the extent such an amount is recognised as a provision. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. The costs of the day-to-day servicing of PP&E are recognised in profit or loss as incurred.

Items of PP&E are depreciated on a straight-line basis over their estimated useful lives, with depreciation generally recognised in profit or loss. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows:

Buildings:

15 to 40 years

Plant and equipment:
Production-related equipment and machinery:
Furniture and fixtures:


4 to 12 years
3 to 8 years

Filling lines (leased assets, SIG as the lessor):

10 years

The Group as a lessor – filling line operating lease contracts

The Group mainly deploys filling lines under contracts that qualify to be accounted for as operating leases. As further described in this accounting policy section, the filling lines are measured at cost and depreciated over their estimated useful life of 10 years and tested for impairment when there is an impairment indicator.

The Group as lessee – finance lease contracts

Assets leased under contracts accounted for as finance leases are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Minimum lease payments made under finance leases are apportioned between a finance expense and a reduction of the outstanding liability. The finance expense is allocated to each period during the lease term in order to produce a constant periodic rate of interest on the remaining balance of the liability.

Impairment of PP&E

Items of PP&E are reviewed regularly and at least annually to identify whether there is an indication of impairment. If an impairment indicator exists, the asset’s recoverable amount is estimated. See note 5.6.4 for further details about impairment testing of non-financial assets.

A change in the Group’s intended use of certain assets, such as a decision to rationalise manufacturing locations, may trigger a future impairment. Value in use calculations require management to estimate the future cash flows expected to arise from an individual asset or cash generating unit and to determine a suitable discount rate to calculate present value.

13. Intangible assets

The largest portion of the Group’s intangible assets is goodwill, arising as a result of the acquisition of the SIG Group by Onex in 2015. The other intangible assets mainly consist of trademarks, customer relationships and technology related assets. The trademarks have indefinite useful lives.

Composition of intangible assets

(in € million)

 

Goodwill

 

Trademarks

 

Customer relationships

 

Technology and other assets

 

Total

Cost

 

1,577.5

 

287.1

 

629.4

 

345.6

 

2,839.6

Accumulated amortisation
and impairment losses

 

 

 

(176.1)

 

(102.5)

 

(278.6)

Carrying amount as of 31 December 2017

 

1,577.5

 

287.1

 

453.3

 

243.1

 

2,561.0

Cost

 

1,583.7

 

298.2

 

626.6

 

359.9

 

2,868.4

Accumulated amortisation
and impairment losses

 

 

 

(238.0)

 

(143.8)

 

(381.8)

Carrying amount as of 31 December 2018

 

1,583.7

 

298.2

 

388.6

 

216.1

 

2,486.6

Carrying amount as of 1 January 2017

 

1,630.4

 

312.9

 

535.8

 

300.9

 

2,780.0

Additions

 

 

 

 

3.4

 

3.4

Disposals

 

 

 

 

(0.1)

 

(0.1)

Amortisation

 

 

 

(64.2)

 

(38.5)

 

(102.7)

Effect of movements in exchange rates

 

(52.9)

 

(25.8)

 

(18.3)

 

(22.6)

 

(119.6)

Carrying amount as of 31 December 2017

 

1,577.5

 

287.1

 

453.3

 

243.1

 

2,561.0

Carrying amount as of 1 January 2018

 

1,577.5

 

287.1

 

453.3

 

243.1

 

2,561.0

Additions

 

 

 

 

2.1

 

2.1

Amortisation

 

 

 

(62.7)

 

(36.7)

 

(99.4)

Effect of movements in exchange rates

 

6.2

 

11.1

 

(2.0)

 

7.6

 

22.9

Carrying amount as of 31 December 2018

 

1,583.7

 

298.2

 

388.6

 

216.1

 

2,486.6

Research and development

Research and development costs (excluding depreciation and amortisation expense) are recognised as a component of general and administrative expenses, and totalled €52.6 million for the year ended 31 December 2018 and €63.3 million for the year ended 31 December 2017. The Group incurred higher research and development costs in the comparative period due to the launch of a new filling machine (combismile) in that period.

Amortisation of intangible assets

Amortisation of intangible assets is recognised in the following components in the statement of profit or loss and other comprehensive income.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Cost of sales

 

64.3

 

66.5

Selling, marketing and distribution expenses

 

0.1

 

0.1

General and administrative expenses

 

35.0

 

36.1

Total amortisation

 

99.4

 

102.7

Annual impairment tests of goodwill and trademarks with indefinite useful lives

Goodwill with a carrying amount of €1,583.7 million as of 31 December 2018 (€1,577.5 million as of 31 December 2017) and trademarks with indefinite useful lives with a carrying amount of €298.2 million as of 31 December 2018 (€287.1 million as of 31 December 2017) are not subject to amortisation but tested for impairment on an annual basis and whenever there is an impairment indicator. The annual impairment tests are performed at the same time each year (in the fourth quarter).

Reallocation of goodwill in 2018

The IPO of the Group on 28 September 2018 triggered a change in the Group’s identification and reporting of segments (see note 7 for additional information), which also had an impact on the impairment testing of goodwill.

Prior to the IPO, the Company had one segment and goodwill was tested for impairment at Group level. After the IPO, goodwill is tested for impairment at a lower level. The Group does not monitor goodwill at a lower level than Group level for internal management purposes but goodwill must for impairment testing purposes be allocated to a cash generating unit (“CGU”), or group of CGUs, that is not larger than an operating segment before aggregation. The Group has therefore allocated the goodwill for impairment testing purposes to its three operating segments (EMEA, APAC and Americas).

2018 annual impairment tests
Goodwill

For the impairment test of goodwill, the recoverable amount has been estimated with reference to value in use. In assessing the value in use, the estimated future cash flows over the next four years have been discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money as well as the risks specific to each segment. The weighted average cost of capital (“WACC”) is used to determine the discount rate. Cash flows for the first four years are based on financial plans approved by management. Cash flows after the four-year internal planning period are extrapolated using terminal growth rates based on the estimated global and regional market growth for companies in the aseptic carton packaging industry. The terminal growth rates used by the Group for impairment testing purposes are conservative and do not exceed the estimated long-term growth rates in the aseptic carton packaging industry.

Goodwill is allocated to the Group’s three operating (and reportable) segments as per the table below. The table also includes information about the key assumptions used in the impairment test.

 

 

Year ended 31 December 2018

(in € million)

 

Carrying amount

 

Growth rate

 

Pre-tax discount rate

EMEA

 

757.2

 

1.25%

 

7.5%

APAC

 

620.8

 

2.5%

 

9.4%

Americas

 

205.7

 

2.25%

 

14.5%

Total goodwill

 

1,583.7

 

 

 

 

No impairment of goodwill was identified. Management considers it unlikely that any realistic change in the assumptions used would result in an impairment loss. The estimated recoverable amounts of the goodwill allocated to the segments significantly exceed the respective carrying amounts.

Trademarks with indefinite useful lives

The value of the Group’s trademarks with indefinite useful lives is associated with the Group as a whole. Trademarks are tested for impairment at Group level as all SIG entities benefit from the trademarks. The entities are charged a royalty fee for the use of the SIG trademarks. For the impairment test, the recoverable amount has been estimated with reference to value in use. The assessed royalty fees over the next four years have been discounted to their present value using a pre-tax discount rate at Group level of 9.8% and a terminal growth rate at Group level of 2.0%. The WACC is used to determine the discount rate. The royalty fees for the first four years are based on financial plans approved by management. Cash flows after the four year internal planning period are extrapolated using a terminal growth rate based on the estimated global market growth for companies in the aseptic carton packaging industry. The terminal growth rate used by the Group for impairment testing purposes is conservative and does not exceed the estimated long-term growth rates in the aseptic carton packaging industry.

No impairment of trademarks with indefinite useful lives was identified. Management considers it unlikely that any realistic change in the assumptions used would result in an impairment loss.

2017 annual impairment test

Prior to the IPO, goodwill was tested for impairment at Group level. The Group represented the lowest level at which goodwill was monitored for internal management purposes and was not larger than an operating segment (before aggregation). Trademarks with indefinite useful lives were also tested for impairment at the Group level as all SIG entities benefit from the trademarks. The Group was accordingly the cash generating unit that was tested for annual impairment to determine if goodwill and trademarks with indefinite useful lives were impaired.

For the impairment test, fair value less costs of disposal was estimated. The fair value was estimated using the actual adjusted EBITDA result for the last 12 months ended 30 September 2017 multiplied by an earnings multiple. An earnings multiple of 9.5x was applied, which was consistent with the prudent end of the range of earnings multiples of comparative companies in the packaging industry. Costs of disposal were estimated to be 1.25% of the fair value, which was consistent with the prudent end of the range of estimates based on historical experience of the ultimate owner of the Group. No impairment was identified.

As the earnings multiple and disposal cost assumptions were already at the prudent end of the estimate range, management considered it unlikely that any realistic change in these assumptions would result in an impairment loss. However, adjusted EBITDA is sensitive to movements. A decrease of adjusted EBITDA of more than 5.9% in the period would have resulted in an impairment loss (assuming all other assumptions remain constant).

The assessment of fair value was categorised as level 3 fair value based on the inputs used in the valuation technique.

Accounting policy

Goodwill arising upon business combinations is measured at cost less accumulated impairment losses. With respect to investments in joint ventures accounted for using the equity method, the carrying amount of goodwill is included in the carrying amount of the investment.

The Group’s trademarks are assessed to have indefinite useful lives considering the long history of the SIG brand and its expected future continuous use. They are measured at cost less accumulated impairment losses. Other intangible assets, including customer relationships and technology assets, have finite useful lives and are measured at cost less accumulated amortisation and accumulated impairment losses. Gains and losses on disposals of intangible assets are recognised in profit or loss as part of other income or expenses.

Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technologically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete the development and to use or sell the asset. If the capitalisation criteria are not met, development expenditure is recognised in profit or loss as incurred. Due to uncertainties inherent in the development of new products and processes, notably regarding the difficulty to reliably estimate expected future economic benefits, development costs typically do not meet the capitalisation criteria but are recognised as general and administrative expenses as incurred. Expenditure on research activities is recognised in profit or loss as incurred.

Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives, with amortisation generally recognised in profit or loss. The estimated useful lives of amortisable intangible assets for the current and comparative periods are as follows:

Customer relationships

10 years

Technology assets
(including patented and non-patented technology and know-how)

6 to 10 years

Other intangible assets (including software)

3 to 6 years

Impairment of goodwill and other intangible assets

Intangible assets with finite useful lives are reviewed regularly and at least annually to identify whether there is an indication of impairment. If an impairment indicator exists, the asset’s recoverable amount is estimated. Goodwill and intangible assets with indefinite useful lives are tested for impairment on an annual basis and whenever there is an indication that they may be impaired. Note 5.6.4 includes further details about the assessment of the recoverable amounts of non-financial assets and recognition of any impairment losses.

Significant judgements and estimates

Significant judgement is involved in the annual impairment testing of goodwill and trademarks with indefinite useful lives. The judgements and assumptions used in estimating the recoverable amount are included above under “Annual impairment tests of goodwill and trademarks with indefinite useful lives”, where the outcome of the annual impairment tests is described.

14. Inventories

Composition of inventories and other financial information

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Raw materials and consumables

 

59.6

 

51.0

Work in progress

 

17.6

 

13.6

Finished goods

 

67.2

 

57.8

Total inventories

 

144.4

 

122.4

As of 31 December 2018, inventories included a provision of €13.4 million due to write-downs to net realisable value (€13.2 million as of 31 December 2017).

Raw materials and consumables recognised as an expense in cost of sales in the statement of profit or loss and other comprehensive income amounted to €676.0 million in the year ended 31 December 2018 (€666.7 million in the year ended 31 December 2017).

Accounting policy

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost formula and includes costs incurred in acquiring the inventories and bringing them to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price less the estimated costs of completion and estimated costs necessary to make the sale.

15. Trade and other receivables

Trade and other receivables are mainly comprised of trade receivables. The Group has a securitisation programme under which it sells a portion of its sleeves-related trade receivables without recourse. It also maintains a few minor factoring programmes.

Impact of new IFRS standards

The Group adopted IFRS 9 Financial Instruments on 1 January 2018 as further described in note 5.2. The adoption had a limited impact on the presentation of trade and other receivables.

Trade receivables that will be sold under the Group’s securitisation and factoring programmes are under IFRS 9 presented separately from other trade receivables.

Under IFRS 9, the loss allowance for trade and other receivables carried at amortised cost is assessed using an expected credit loss model rather than the previous incurred loss model. The change from the incurred loss model to an expected credit loss model had an inconsequential impact on the Group’s loss allowance.

Composition of trade and other receivables

The table below provides an overview of the Group’s current and non-current trade and other receivables. It includes information as of 1 January 2018 to illustrate the impact of adopting IFRS 9 and the requirement to present trade receivables to be sold under the securitisation and factoring programmes separately from other trade receivables. Trade receivables to be sold under the securitisation and factoring programmes are presented as trade receivables at fair value. Trade receivables that will not be sold are presented as trade receivables at amortised cost.

(in € million)

 

As of
31 Dec. 2018

 

As of
1 Jan. 2018

 

As of
31 Dec. 2017

Trade receivables at amortised cost

 

80.2

 

116.0

 

173.1

Trade receivables at fair value

 

54.8

 

57.1

 

Related party trade receivables

 

16.3

 

23.8

 

23.8

Related party loan receivables

 

 

0.5

 

0.5

Note receivables

 

34.1

 

35.3

 

35.3

VAT receivables

 

14.1

 

16.3

 

16.3

Other receivables

 

43.2

 

38.3

 

38.3

Current trade and other receivables

 

242.7

 

287.3

 

287.3

Non-current receivables

 

4.4

 

7.9

 

7.9

Total current and non-current receivables

 

247.1

 

295.2

 

295.2

Trade receivables at amortised cost – loss allowance and ageing

(in € million)

 

31 Dec. 2018

 

1 Jan. 2018

 

31 Dec. 2017

Current

 

50.8

 

88.2

 

145.3

Past due up to 29 days

 

19.5

 

21.0

 

21.0

Past due 30 days to 89 days

 

7.3

 

3.7

 

3.7

Past due 90 days or more

 

2.6

 

3.1

 

3.1

Trade receivables at amortised cost, net of provision for doubtful debts

 

80.2

 

116.0

 

173.1

Loss reserve

 

(3.8)

 

(3.5)

 

(3.5)

Trade receivables at amortised cost, gross

 

84.0

 

119.5

 

176.6

The loss allowance represents the Group’s estimate of individually impaired trade receivables as well as expected credit losses on trade receivables that are not individually impaired. It primarily relates to trade receivables past due more than 90 days. The expected credit losses are calculated using a provision matrix based on historical credit loss experience and assessments of current and future conditions. The expected loss rate for trade receivables past due more than 90 days that are not individually impaired is between 25% and 100%. For trade receivables past due 30 to 89 days that are not individually impaired, the expected loss rate is around 5%.

Management believes that the recognised loss allowance sufficiently covers the risk of default based on historical payment behaviour and assessments of future expectations of credit losses, including regular analysis of customer credit risk.

The table below shows the movements in the loss reserve for trade receivables at amortised cost.

(in € million)

 

2018

 

2017

Loss reserve as of 1 January

 

3.5

 

4.5

Change in provision for doubtful debts recognised in profit or
loss during the year

 

0.6

 

(0.5)

Foreign exchange differences

 

(0.3)

 

(0.5)

Loss reserve as of 31 December

 

3.8

 

3.5

Effect of transition to IFRS 9 on 1 January 2018

 

 

 

Securitisation programme

The Group has an asset-backed securitisation programme under which it sells a portion of its sleeves-related trade receivables without recourse to a special purpose entity. This entity is not controlled, and therefore not consolidated, by the Group. The trade receivables sold qualify for derecognition by the Group. The Group transfers the contractual rights to the cash flows of the trade receivables at their nominal value less a retained reserve in exchange for cash. The net amount is presented as part of other current receivables and represents the Group’s right to receive this amount once the trade receivables sold have been settled by the customers.

Trade receivables sold under the securitisation programme amounted to €102.3 million as of 31 December 2018 (€99.3 million as of 31 December 2017), of which €84.0 million (€83.9 million as of 31 December 2017) has been derecognised and €18.3 million (€15.4 million as of 31 December 2017), representing the retained reserve, is presented as part of other current receivables. The retained reserve represents the Group’s maximum exposure to any losses in respect of trade receivables previously sold under the programme. The interest expense paid under the asset-backed securitisation programme amounted to €2.0 million in the year ended 31 December 2018 (€1.2 million as of 31 December 2017) and is presented as part of other finance expenses.

Factoring programmes

The Group has a small number of minor factoring programmes under which trade receivables sold by the Group qualify for derecognition. The factored amounts totalled €21.3 million as of 31 December 2018 (€23.0 million as of 31 December 2017). The interest expense paid under the factoring programmes amounted to €0.4 million in the year ended 31 December 2018 (€0.7 million as of 31 December 2017) and is presented as part of other finance expenses.

Accounting policy

Trade receivables at amortised cost

Trade and other receivables that will not be sold under the Group’s securitisation and factoring programmes are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these receivables are carried at amortised cost using the effective interest method less a loss allowance. The loss allowance represents the Group’s estimate of individually impaired trade receivables as well as expected credit losses on trade receivables that are not individually impaired. The expected credit losses are calculated using a provision matrix based on historical credit loss experience and assessments of current and future conditions. Any subsequent recoveries of amounts previously written off relating to individually impaired trade receivables are credited to the same line item in profit or loss where the original write-off was recognised. The Group holds these trade receivables to collect the contractual cash flows and these cash flows are solely payments of principal and interest on the principal outstanding.

Trade receivables at fair value through profit or loss

Trade receivables that will be sold under the Group’s securitisation and factoring programmes are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are also recognised at fair value. These trade receivables are sold and derecognised shortly after their initial recognition in the statement of financial position. Any change in fair value is recognised through profit or loss. The objective with these trade receivables is to realise the cash flows primarily through selling them.

Derecognition of trade receivables

A financial asset is derecognised when the contractual rights to the cash flows from the asset have expired, when the contractual rights to receive the cash flows have been transferred and the Group has transferred substantially all of the risks and rewards of ownership, or when the Group transfers a financial asset but retains the contractual rights to receive the cash flows but at the same time assumes a contractual obligation to pay the cash flows to another recipient (and remits the cash flows to the other recipient once having collected an amount from the original asset without material delay, also being prohibited to sell or pledge the original asset). Any interest in such a derecognised financial asset that is retained by the Group is recognised as a separate asset or liability.

16. Cash and cash equivalents

(in € million)

 

31 Dec. 2018

 

31 Dec. 2017

Cash and cash equivalents (unrestricted)

 

154.5

 

101.7

Restricted cash

 

2.6

 

2.2

Total cash and cash equivalents

 

157.1

 

103.9

Cash and cash equivalents mainly consist of cash at banks but may also include short-term deposits at banks with maturities of three months or less from the date of acquisition. The restricted cash relates to cash collected for the benefit of the Group’s securitisation partner.

17. Trade and other payables

Trade and other payables are mainly comprised of trade payables, accruals for various customer incentives and other accrued expenses.

Composition of trade and other payables

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Trade payables

 

165.8

 

152.7

Related party payables

 

2.2

 

0.1

Accruals for various customer incentive programmes

 

144.8

 

107.2

VAT payables

 

5.9

 

8.8

Accrued interest third parties

 

3.3

 

20.1

Other current payables and accrued expenses

 

118.6

 

121.2

Current trade and other payables

 

440.6

 

410.1

Related party payables

 

3.1

 

Other non-current payables

 

4.5

 

4.7

Non-current payables

 

7.6

 

4.7

Total current and non-current trade and other payables

 

448.2

 

414.8

Current payables with an impact on the Group’s revenue

In respect of liabilities relating to contracts with customers accounted for under the revenue standard, the Group has refund and contract liabilities.

Refund liabilities represent the Group’s accruals for various customer incentive programmes. They relate to trade discounts, volume rebates and other customer incentives linked to sleeves volumes that are expected to be paid to customers. The accruals are recognised against revenue from sale of sleeves and closures. As of 31 December 2018, the Group had accruals for various incentive programmes in the amount of €144.8 million (€107.2 million as of 31 December 2017 and €87.7 million as of 1 January 2017). The incentive programmes generally run over a calendar year, resulting in a gradual build-up of the accrual liability over the year. The Group has recognised an insignificant amount as revenue in the current period that was included in the accrual balance at the beginning of the period that was never paid out as the conditions for the incentive payments were not met (also applicable to the comparative period).

The Group’s contract liabilities relate to advance payments received from customers in relation to the sale of sleeves and the sale of filling lines under contracts accounted for under the revenue standard. These advance payments are recognised as revenue within a short time frame from their initial recognition in the statement of financial position. As of 31 December 2018, the Group had contract liabilities in the amount of €18.2 million (€31.0 million as of 31 December 2017 and €6.5 million as of 1 January 2017). These advance payments are presented in the table above as part of other current payables and accrued expenses. The amount of advance payments recognised as of 31 December 2017 has been recognised as revenue in 2018.

Accounting policy and significant estimates

Trade and other payables are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are carried at amortised cost using the effective interest method. The liability for accruals for various customer incentives is estimated based on historical and current market trends as further described in note 6. The accruals are presented against revenue.

18. Provisions

The Group’s provisions mainly relate to dismantling costs, warranties and restructuring programmes.

Composition of provisions

(in € million)

 

Dismantling

 

Product warranty

 

Restructuring

 

Other

 

Total

Carrying amount as of 1 January 2017

 

6.3

 

8.4

 

17.8

 

11.6

 

44.1

Provisions made

 

2.3

 

8.9

 

19.9

 

5.4

 

36.5

Provisions used

 

 

(6.4)

 

(12.4)

 

(11.4)

 

(30.2)

Provisions reversed

 

(0.5)

 

(3.5)

 

(0.5)

 

(1.8)

 

(6.3)

Effect of movements in exchange rates

 

(0.5)

 

(0.2)

 

(0.1)

 

(0.5)

 

(1.3)

Carrying amount as of 31 December 2017

 

7.6

 

7.2

 

24.7

 

3.3

 

42.8

Current

 

 

7.2

 

16.5

 

0.6

 

24.3

Non-current

 

7.6

 

 

8.2

 

2.7

 

18.5

Carrying amount as of 31 December 2017

 

7.6

 

7.2

 

24.7

 

3.3

 

42.8

Carrying amount as of 1 January 2018

 

7.6

 

7.2

 

24.7

 

3.3

 

42.8

Provisions made

 

3.7

 

5.7

 

7.2

 

1.4

 

18.0

Provisions used

 

(0.4)

 

(3.1)

 

(15.7)

 

(1.2)

 

(20.4)

Provisions reversed

 

(0.1)

 

(1.3)

 

(2.9)

 

(0.2)

 

(4.5)

Effect of movements in exchange rates

 

0.4

 

(0.1)

 

 

 

0.3

Carrying amount as of 31 December 2018

 

11.2

 

8.4

 

13.3

 

3.3

 

36.2

Current

 

 

8.4

 

10.7

 

1.0

 

20.1

Non-current

 

11.2

 

 

2.6

 

2.3

 

16.1

Carrying amount as of 31 December 2018

 

11.2

 

8.4

 

13.3

 

3.3

 

36.2

Restructuring provision

The restructuring provision relates primarily to restructuring programmes focused on reducing costs, streamlining the organisation and adjusting headcount to align more closely with the Group’s needs and changed market demands going forward (see also note 9).

Other provisions

Other provisions mainly relate to legal claims. For the year ended 31 December 2017, changes of other provisions mainly related to the Group’s contingent purchase price obligation (see further note 9).

Accounting policy

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are discounted if the time value of money is material. The unwinding of the discount is recognised as part of finance expenses. A provision is classified as current or non-current depending on if the expected timing of the payment of the amounts provided for is more than 12 months after the reporting period.

A provision for dismantling is recognised when the Group has an obligation to pay for dismantling costs arising upon the return of a filling line. This obligation typically arises upon deployment of the filling line.

A provision for warranties is recognised for products under warranty as of the reporting date based upon known failures and defects as well as sales volumes and past experience of the level of problems reported and product returns.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been publicly announced. The provision only includes direct costs that are necessarily entailed by the restructuring and not associated with ongoing activities. No provision is made for future operating costs.

A provision for onerous contracts is recognised when the expected benefits to be derived by an entity from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

A provision for legal claims reflects management’s best estimate of the outcome based on the facts known as of the reporting date.

19. Other assets and liabilities

The Group’s derivative assets and liabilities are presented as part of other assets or other liabilities. The derivatives primarily relate to commodity and foreign currency exchange derivatives as well as to interest rate swaps. See notes 24 and 30 for additional details about the Group’s derivatives. The remaining part of other assets mainly includes accrued income, prepaid expenses and deferred expenditure. The remaining part of other liabilities mainly includes deferred revenue relating to advance payment received in relation to filling lines deployed under contracts qualifying to be accounted for as operating leases.

Composition of other assets

(in € million)

 

31 Dec. 2018

 

31 Dec. 2017

Derivative assets

 

0.2

 

11.3

Other current assets

 

19.0

 

16.9

Other current assets

 

19.2

 

28.2

Derivative assets

 

 

71.0

Other non-current assets

 

18.3

 

31.0

Other non-current assets

 

18.3

 

102.0

Total other current and non-current assets

 

37.5

 

130.2

The decrease in the derivative asset balance is a result of the Group’s refinancing (see note 21). The Group had an embedded derivative relating to its notes that were redeemed in October 2018, which was presented as part of non-current derivative assets. The Group also had interest rate swaps relating to the repaid term loans.

Composition of other liabilities

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Derivative liabilities

 

18.8

 

8.3

Deferred revenue

 

34.6

 

25.9

Other current liabilities

 

53.4

 

34.2

Derivative liabilities

 

1.2

 

12.6

Deferred revenue

 

100.0

 

74.4

Deferred option premium

 

 

2.6

Other non-current liabilities

 

101.2

 

89.6

Total other current and non-current liabilities

 

154.6

 

123.8

The derivative liabilities balance for the year ended 31 December 2018 mainly relates to commodity derivatives. The Group’s refinancing resulted in the derecognition of embedded derivatives relating to the term loans that were repaid in October 2018 (see note 21). The embedded derivatives were presented as part of current and non-current derivative liabilities. The Group also had interest rate swaps relating to the repaid term loans.

Deferred revenue relates to deployment of filling lines under contracts qualifying to be accounted for as operating leases. Advance payments received under such contracts are recognised as a deferred revenue liability in the statement of financial position and released to profit or loss to achieve recognition of lease income on a straight-line basis over the contract term.

Our financing and financial risk management

This section includes information about the Group’s financing in the form of loans and borrowings and equity. The expenses for the financing are also presented in this section. Lastly, the Group’s financial risk management policy and exposure to liquidity, market and credit risks are described.

20. Capital management

The Directors of the Company are responsible for monitoring and managing the Group’s capital structure, which is comprised of equity (share capital and additional paid-in capital) as well as loans and borrowings.

The Directors’ policy is to maintain an acceptable capital base to promote the confidence of the Group’s shareholders and lenders under the senior secured credit facilities and to sustain the future development of the business. The Directors monitor the Group’s financial position to ensure that it complies at all times with its financial and other covenants as set out in its credit agreement for the senior secured credit facilities.

In order to maintain or adjust the capital structure, the Directors may elect to take a number of measures, including for example to dispose of assets of the business, alter its short to medium term plans with respect to capital projects and working capital levels, or to rebalance the level of equity and debt in place by, for example, issuing more shares.

21. Loans and borrowings

The Group repaid its existing Euro and US Dollar denominated term loans and redeemed its notes by using part of the proceeds received from the IPO and proceeds from its new senior secured credit facilities that were entered into in connection with the IPO. The credit agreement covering the new senior secured credit facilities was negotiated with a new loan syndicate.

Liabilities under finance lease contracts where SIG is the lessee are also presented as part of loans and borrowings. Changes in liabilities arising from the Group’s financing activities are also part of this note.

Impact of new IFRS standards

The Group adopted IFRS 9 Financial Instruments on 1 January 2018 as further described in note 5.2. The accounting guidance for modifications of liabilities that do not result in derecognition has been revised but did not have an impact on how the Group had accounted for repricings of its term loans.

Composition of loans and borrowings

The table below shows the carrying amount of the Group’s loans and borrowings.

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Senior secured credit facilities

 

31.2

 

20.7

Finance lease liabilities

 

3.7

 

1.7

Current loans and borrowings

 

34.9

 

22.4

Notes

 

 

675.9

Senior secured credit facilities

 

1,533.7

 

1,847.7

Finance lease liabilities

 

22.8

 

10.6

Non-current loans and borrowings

 

1,556.5

 

2,534.2

Total loans and borrowings

 

1,591.4

 

2,556.6

The following table presents the components of the carrying amount of the loans and borrowings.

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Notes

 

 

 

 

Principal amount

 

 

675.0

Deferred transaction costs

 

 

(22.4)

Bifurcated embedded derivative

 

 

23.3

Carrying amount of notes

 

 

675.9

Senior secured credit facilities

 

 

 

 

Principal amount (including repayments)

 

1,592.2

 

1,939.4

Deferred original issue discount

 

(14.2)

 

(6.3)

Deferred transaction costs

 

(13.1)

 

(53.4)

Bifurcated embedded derivatives

 

 

(11.3)

Carrying amount of senior secured credit facilities

 

1,564.9

 

1,868.4

Carrying amount of finance lease liabilities

 

26.5

 

12.3

Total loans and borrowings

 

1,591.4

 

2,556.6

Senior secured credit facilities – post-IPO

The Group entered into new senior secured credit facilities in October 2018 consisting of two Euro denominated term loans (A and B) and a revolving credit facility. It used the proceeds from the new term loans and part of the proceeds from the IPO to repay its existing term loans.

The principal amount of the five year Euro term loan A is €1,250 million. It matures in October 2023. The interest terms are Euribor with a floor of 0.00% plus a margin of 2.00%. Interest is paid on a quarterly basis. Term loan A will be repaid in quarterly instalments of 0.625% of the initial principal amount in the first two years and in quarterly instalments of 1.25% of the principal amount over the remaining term, with the remaining balance due at maturity. The Group has the right to repay the loan in full or in part at the end of each interest period without premium or penalty.

The principal amount of the seven year Euro term loan B is €350 million. It matures in October 2025. The interest terms are Euribor with a floor of 0.00% plus a margin of 2.50%. Interest is paid on a quarterly basis. No repayments of the principal amount are required during the term of the loan. The full balance is due at maturity. However, the Group has the right to repay the loan in full or in part at the end of each interest period (without premium or penalty) with effect from six months after the closing date. Repayment within six months after the closing date as a result of a repricing transaction is also possible but subject to a soft call premium of 1%.

Directly attributable transaction costs in the form of arrangement and advisory fees for the two term loans amounted to €14.9 million and will, together with an original issue discount for the two term loans of €14.8 million, be amortised over the respective terms of the loans, using the effective interest method.

The obligations under the senior secured credit facilities are guaranteed and secured by Group subsidiaries in Luxembourg, Switzerland, the United States, Germany, Brazil, Austria and the United Kingdom. The credit agreement contains customary affirmative and negative covenants. It also contains customary events of default. The Group was in compliance with all covenants and there were no events of default as of 31 December 2018.

The senior secured credit facilities also include a multi-currency revolving credit facility of €300 million, which matures in October 2023. The interest terms for the Euro currency amounts drawn under the revolving credit facility are Euribor with a floor of 0.00% plus a margin of 1.75%. The Group pays a fee for the undrawn revolver amount per year for the right to use the revolving credit facility (30% of the margin percentage on an annualised basis applied to the undrawn balance of the revolving credit facility). The amount available under the revolving credit facility is €292.5 million as of 31 December 2018 due to €7.5 million of letters of credit being outstanding under an ancillary facility.

Notes – pre-IPO

On 10 February 2015, SIG Combibloc Holdings S.C.A. issued €675 million aggregate principal amount of 7.75% senior notes due on 15 February 2023. The notes were redeemable at par between 15 February 2020 and 15 February 2023. The notes could be redeemed earlier, but at a higher redemption price. In October 2018, the Group redeemed the notes at a redemption price of 103.875% by using part of the proceeds from the IPO. The redemption fee amounted to €26.2 million.

The notes were traded on the Global Exchange Market of the Irish Stock Exchange. The interest due on the notes was payable semi-annually. The fair value of the notes was €704 million as of 31 December 2017.

The Group separately accounted for an embedded derivative in respect of its early redemption option, which is presented as part of other non-current assets in the statement of financial position in the comparative period.

The obligations under the notes were guaranteed on a senior subordinated basis by Group subsidiaries in Luxembourg, Switzerland, the United States, Germany, Brazil, Austria, the United Kingdom and New Zealand. The indenture governing the notes contained customary restrictive covenants. It also contained customary events of default. The Group was in compliance with all covenants and there were no events of default as of 31 December 2017.

The difference between the carrying amount of notes as of the redemption date and the amount paid is presented as part of the net finance expense (see further note 22). The derivative instrument associated with the notes was also derecognised. For additional details, refer to the section “Changes in liabilities arising from financing activities” in this note.

Senior secured credit facilities – pre-IPO

In October 2018, the Group fully repaid its term loans existing as of that time without premium or penalty by using part of the proceeds from the IPO and proceeds from its new term loans.

The Group’s prior senior secured credit facilities consisted of a Euro denominated seven year term loan facility of €1,050 million and a US Dollar denominated seven year term loan facility of $1,225 million. The term loans were to mature in March 2022. Interest was paid on a monthly basis. The term loans were to be repaid in equal quarterly instalments of 0.25% of the initial principal amounts, with the remaining balance due at maturity. However, the term loans could be prepaid without premium or penalty. The fair value of the term loans was €1,949 million as of 31 December 2017.

The interest terms on the Euro denominated term loan facility were Euribor with a floor of 0.00% plus a margin of 3.25%. The Group completed a repricing of its US Dollar denominated term loan facility, with an effective date of 14 March 2018. The margin decreased from LIBOR 3.00% to 2.75%, while the floor of 1.00% remained unchanged. The repricing was not a debt modification under IFRS 9. Directly related transaction costs that were incurred to execute the modification of the credit agreement adjusted the carrying amount of the US Dollar denominated term loan and would have been amortised over the remaining term of the loan.

The Group separately accounted for two embedded derivatives in respect of the embedded interest rate floors in the term loans, which were presented as part of other current and non-current liabilities in the statement of financial position for the comparative period.

The obligations under the senior secured credit facilities were guaranteed by Group subsidiaries in Luxembourg, Switzerland, the United States, Germany, Brazil, Austria, the United Kingdom and New Zealand. As of 31 December 2017, 66% of the Group’s assets were pledged as collateral under the senior secured credit facilities. The credit agreement contained customary confirmative and negative covenants. It also contained customary events of default. The Group was in compliance with all covenants and there were no events of default as of 31 December 2017.

The senior secured credit facilities also included a multi-currency revolving credit facility of €260 million, which were to mature in March 2021. The applicable margin for the Euro currency amounts drawn under the revolving credit facility was 3.00%. The Group paid 1.125% of the undrawn revolver amount per year for the right to use the revolving credit facility. The amount available under the revolving credit facility was €255.8 million as of 31 December 2017 due to €4.2 million of letters of credit outstanding under an ancillary facility.

The difference between the carrying amount of term loans as of the repayment date and the amount paid is presented as part of the net finance expense (see note 22). The derivative instruments associated with the term loans were also derecognised. For additional details, see section “Changes in liabilities arising from financing activities” in this note.

Finance lease liabilities

Finance lease liabilities are payable as follows.

 

 

Future minimum lease payments

 

Interest

 

Present value of minimum lease payments

(in € million)

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

Less than 1 year

 

5.1

 

1.9

 

1.5

 

0.2

 

3.6

 

1.7

Between 1 and 5 years

 

18.0

 

9.2

 

5.2

 

0.7

 

12.8

 

8.5

More than 5 years

 

22.0

 

2.2

 

11.9

 

0.1

 

10.1

 

2.1

 

 

45.1

 

13.3

 

18.6

 

1.0

 

26.5

 

12.3

In the year ended 31 December 2018, the Group entered into a finance lease for its new SIG Tech Centre in China resulting in an initial finance lease liability of €14.8 million. The Group also had sale (at carrying amount) and leaseback transactions relating to some of its production equipment that resulted in finance leases with corresponding initial liabilities in the total amount of €1.4 million. In the year ended 31 December 2017, the Group entered into sale and leaseback transactions for production equipment and one if its facilities (with initial financial liabilities of €13.1 million recognised).

Changes in liabilities arising from financing activities

The tables below present changes in liabilities arising from financing activities, including changes arising from both cash flows and non-cash changes. The main changes for the year ended 31 December 2018 relate to the repayment of the term loans and early redemption of the notes as well as the entering into of new term loans.

 

 

1 Jan. 2018

 

Cash flows from/(used in)

 

Net effect of early redemption/repayment

 

Fair value changes and other non cash move­ments

 

Effect of move­ments in exchange rates

 

31 Dec. 2018

(in € million)

 

 

financing activities

 

operating activities

 

notes

 

loans

 

 

 

(1)

 

The cash flow amount relating to the principal amount of loans and borrowings shows the net effect of entering into new term loans (€1,600.0 million of cash inflow) and repayment of debt (€2,637.0 million of cash outflow, split between €675.0 million for the redemption of the notes and €1,962.0 million relating to the final repayment of the pre-IPO term loans and quarterly repayments of pre- and post-IPO term loans). For further information, see previous sections in this note on notes and senior secured credit facilities and note 22.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal amount (1)

 

2,614.4

 

(1,037.0)

 

 

 

 

 

14.8

 

1,592.2

Transaction costs

 

(75.8)

 

 

(14.9)

 

19.7

 

46.1

 

12.6

 

(0.8)

 

(13.1)

Original issue discount

 

(6.3)

 

 

(14.8)

 

 

5.3

 

1.7

 

(0.1)

 

(14.2)

Embedded derivatives

 

12.0

 

 

 

(20.5)

 

10.2

 

(1.0)

 

(0.7)

 

Loans and borrowings, excl.
finance lease liabilities

 

2,544.3

 

(1,037.0)

 

(29.7)

 

(0.8)

 

61.6

 

13.3

 

13.2

 

1,564.9

Finance lease liabilities

 

12.3

 

(0.4)

 

 

 

 

14.8

 

(0.2)

 

26.5

Total loans and borrowings

 

2,556.6

 

(1,037.4)

 

(29.7)

 

(0.8)

 

61.6

 

28.1

 

13.0

 

1,591.4

Capitalised cost for revolving
credit facility

 

(3.6)

 

(1.1)

 

 

 

2.7

 

0.9

 

 

(1.1)

Interest: Accrued/paid

 

20.1

 

 

(133.5)

 

 

 

116.7

 

 

3.3

Early redemption fee (notes)

 

 

 

(26.2)

 

26.2

 

 

 

 

 

 

2,573.1

 

(1,038.5)

 

(189.4)

 

25.4

 

64.3

 

145.7

 

13.0

 

1,593.6

Derivative (assets)/liabilities
from financing activities

 

(56.5)

 

 

0.5

 

57.1

 

(6.8)

 

6.9

 

 

1.2

Deferred option premium

 

2.6

 

 

 

 

(1.2)

 

(1.4)

 

 

Total (assets)/liabilities from financing activities and cash/non-cash changes

 

2,519.2

 

(1,038.5)

 

(188.9)

 

82.5

 

56.3

 

151.2

 

13.0

 

1,594.8

 

 

1 Jan. 2017

 

Cash flows from/(used in)

 

Fair value changes and other non-cash move­ments

 

Effect of move-ments in exchange rates

 

31 Dec. 2017

(in € million)

   

financing activities

 

operating activities

     

Principal amount

 

2,815.2

 

(67.9)

 

 

 

(132.9)

 

2,614.4

Transaction costs

 

(94.9)

 

 

(1.5)

 

16.7

 

3.9

 

(75.8)

Original issue discount

 

(8.4)

 

 

 

1.7

 

0.4

 

(6.3)

Embedded derivatives

 

10.0

 

 

 

 

2.0

 

12.0

Loans and borrowings, excl. finance lease liabilities

 

2,721.9

 

(67.9)

 

(1.5)

 

18.4

 

(126.6)

 

2,544.3

Finance lease liabilities

 

0.5

 

11.8

 

 

 

 

12.3

Total loans and borrowings

 

2,722.4

 

(56.1)

 

(1.5)

 

18.4

 

(126.6)

 

2,556.6

Capitalised cost for revolving credit facility

 

(4.7)

 

 

 

 

1.1

 

 

(3.6)

Interest: Accrued/paid

 

19.9

 

 

(140.1)

 

140.3

 

 

20.1

 

 

2,737.6

 

(56.1)

 

(141.6)

 

159.8

 

(126.6)

 

2,573.1

Derivative (assets)/liabilities from
financing activities

 

(49.3)

 

 

(3.5)

 

(3.7)

 

 

(56.5)

Deferred option premium

 

5.3

 

 

 

(2.7)

 

 

2.6

Total (assets)/liabilities from financing activities and cash/non-cash changes

 

2,693.6

 

(56.1)

 

(145.1)

 

153.4

 

(126.6)

 

2,519.2

Accounting policy

Loans and other borrowings are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are carried at amortised cost using the effective interest method. Loans and other borrowings are classified as current or non-current liabilities depending on whether the Group has an unconditional right to defer settlement for at least 12 months after the reporting period.

The accounting for a change to the cash flows of a financial liability measured at amortised cost (such as the Group’s term loans) depends on the nature of change. When a floating rate debt instrument is modified to change its interest rate, the modification is regarded as a repricing to the new market interest rate, which is accounted for prospectively by adjusting the effective interest over the remaining life of the debt instrument. A floating-rate instrument is one whose original contractual terms contain a provision such that the cash flows will (or might) be reset to reflect movements in market rates of interest. If a change in cash flows arises due to renegotiation or other modifications, and the renegotiation or modification does not result in the derecognition of the financial liability, the gross carrying amount is recalculated and any gain or loss recognised in profit or loss as part of the net finance expense. If a renegotiation or other modification would represent a settlement of the original debt, it is accounted for as being extinguished.

A financial liability (or a part of it) is derecognised when it is extinguished, i.e. when the contractual obligations are discharged, cancelled, expired or replaced by a new liability with substantially modified terms. The difference between the carrying amount of the financial liability (or part of a financial liability) extinguished and the consideration paid is recognised in profit or loss as part of the net finance expense. Any costs or fees incurred are recognised as part of the gain or loss on extinguishment.

The accounting for derivatives and embedded derivatives is described in note 30. The accounting for finance leases is described in note 12.

22. Finance income and expenses

The Group’s net finance expense is mainly related to finance expenses for the Group’s loans and borrowings, fair value changes on associated derivative instruments and to foreign exchange gains and losses relating to the loans and borrowings.

Composition of net finance expenses

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Interest income

 

2.3

 

2.9

Net foreign currency exchange gain

 

64.4

 

Net change in fair value of derivatives

 

 

7.3

Net interest income on interest rate swaps

 

0.6

 

Finance income

 

67.3

 

10.2

Interest expense on:

 

 

 

 

– Notes

 

(39.5)

 

(52.3)

– Senior secured credit facilities

 

(67.0)

 

(80.9)

– Finance lease liabilities

 

(0.9)

 

(0.2)

Amortisation of original issue discount

 

(1.8)

 

(1.7)

Amortisation of transaction costs

 

(11.0)

 

(15.5)

Net foreign currency exchange loss

 

 

(86.9)

Net change in fair value of derivatives

 

(7.4)

 

Net interest expense on interest rate swaps

 

 

(3.5)

Net effect of early redemption of notes

 

(82.5)

 

Net effect of early repayment of term loans

 

(56.3)

 

Other

 

(7.3)

 

(7.9)

Finance expenses

 

(273.7)

 

(248.9)

Net finance expense

 

(206.4)

 

(238.7)

The Group used part of the proceeds from the IPO and the proceeds from its new term loans to redeem its notes and repay its existing term loans. The net effect of the early redemption of the notes is €82.5 million, which includes a redemption fee of €26.2 million. The net effect of the early repayment of the existing term loans is €56.3 million. For additional details, see the sections on notes and senior secured credit facilities (pre-IPO) and the section “Changes in liabilities arising from financing activities” in note 21.

In the year ended 31 December 2018, the net foreign currency exchange gain primarily consists of positive translation effects on loans and borrowings resulting from the strengthening of the Swiss Franc against the Euro.

Net change in fair value of derivatives consists of fair value changes on financing-related derivatives.

Other finance expenses primarily consist of revolver commitment fees and securitisation and factoring expenses.

In the year ended 31 December 2017, the net foreign currency exchange loss primarily consists of negative translation effects on loans and borrowings resulting from the weakening of the Swiss Franc against the Euro, partially offset by the weakening of the US Dollar against the Swiss Franc.

23. Equity

This note includes information about the Group’s share capital and additional paid-in capital. The other components of equity consist of the translation reserve and retained earnings. The Company’s shares are listed on SIX Swiss Exchange.

Issued share capital

The table below provides an overview of the shares in issue as of 31 December 2018, all fully paid.

Number of shares

 

(Initial) ordinary shares

 

Ordinary shares
(class A1-A5)

 

Non-redeemable preference shares
(class P1-P5)

 

Total shares

Balance as of 1 January 2017

 

14,871,102

 

100,042,757

 

100,046,688

 

214,960,547

Capital increase on 30 June 2017

 

6,259

 

42,107

 

44,327

 

92,693

Balance as of 31 December 2017

 

14,877,361

 

100,084,864

 

100,091,015

 

215,053,240

Conversion of share categories

 

200,175,879

 

(100,084,864)

 

(100,091,015)

 

Capital increase in connection with the IPO

 

105,000,000

 

 

 

105,000,000

Balance at 31 December 2018

 

320,053,240

 

 

 

320,053,240

Prior to the IPO

As of 31 December 2017 and prior to the IPO, the share capital consisted of 215,053,240 shares totalling €1,156.3 million, of which €2.2 million was share capital and €1,154.1 million was additional paid-in capital.

The shares were divided into different categories (ordinary shares and preference shares), with each share entitled to one vote at shareholders’ meetings. The nominal value of each share was €0.01. Right to dividends and rights in case of dissolution of the Company varied depending upon the category of shares and the respective class within each category. Whether dividends were paid or the shares were redeemed was solely at the discretion of the Company.

The non-redeemable preference shares were classified as equity as they bore discretionary dividends, did not contain any obligations to deliver cash or other financial assets and did not require settlement in a variable number of the Group’s equity instruments.

On 30 June 2017, additional equity contributions of €0.7 million were made. An additional 92,693 shares with a nominal value of €0.01 per share were issued and fully paid, of which €0.1 million of share capital and additional paid-in capital of €0.6 million.

Conversion of shares

Prior to the IPO, the different classes of ordinary shares (class A1-A5, each with a nominal value of €0.01) were converted into one class of ordinary shares with a nominal value of €0.01 per share, and the different classes of preference shares (class P1-P5, each with a nominal value of €0.01) were converted into one class of preference shares with a nominal value of €0.01 per share. The resulting 100,091,015 single class preference shares were then converted into 100,091,015 ordinary shares with a nominal value of €0.01 per share. Finally, the nominal value of the only remaining class of ordinary shares was changed from €0.01 per share to CHF 0.01 per share. This change resulted in an insignificant reduction of the share capital and an increase of the additional paid-in capital of the same amount.

Issue of shares in IPO

The Company issued 105,000,000 new shares in the IPO, each with a nominal value of CHF 0.01. The gross proceeds from the IPO amounted to €1,043.9 million (CHF 11.25 per share), resulting in an increase in the share capital of €0.9 million and an increase in the additional paid-in capital of €1,043.0 million. Costs incurred of €38.6 million that are directly attributable to the issue of the new shares have been recognised as a deduction from equity (additional paid-in capital). The net proceeds from the IPO amount to €1,005.3 million. An amount of €3.4 million of costs incurred and recognised in the year ended 31 December 2018 that are directly attributable to the issue of the new shares will be paid in 2019.

After the IPO

As of 31 December 2018, the share capital consists of 320,053,240 shares, authorised and fully paid, representing €2.8 million of share capital and €2,197.4 million of additional paid-in capital (before deduction of costs of €38.6 million relating to the issue of new shares in connection with the IPO). Net of the deducted IPO costs, the additional paid-in capital amounts to €2,158.8 million. The nominal value of each share is CHF 0.01. Each share is entitled to one vote at shareholders’ meetings. The shareholders are entitled to dividends as declared from time to time. The additional paid-in capital as of 31 December 2018 in the amount of €2,158.8 million qualifies as capital contribution reserves for Swiss tax purposes at the level of the Company.

Authorised share capital and conditional share capital

The Company has authorised share capital and conditional share capital of CHF 640,106.48 each as of 31 December 2018.

The Board of Directors is authorised to increase the share capital out of authorised and/or conditional share capital at any time until 27 September 2020 by a maximum of CHF 640,106.48 through the issue of up to 64,010,648 shares of CHF 0.01 nominal value each. Capital increases from authorised and conditional share capital are mutually exclusive, i.e. they are subject to a single combined limit, and may not exceed 64,010,648 shares (equalling CHF 640,106.48 or 20% of the existing share capital).

The authorised share capital can be used for various purposes. This creates a flexibility to seek additional capital, if required. The conditional share capital is divided into CHF 160,026.62 for employee benefit plans and CHF 480,079.86 for equity linked financing instruments.

Dividends

No dividends were paid in the years ended 31 December 2018 and 2017.

For the year ended 31 December 2018, the Board of Directors will propose a dividend payment of CHF 0.35 per share, totalling CHF 112.0 million (which, as per the exchange rate as of 31 December 2018, would equal €99.4 million) to the Annual General Meeting to be held on 11 April 2019. The dividend payment to be proposed is not recognised as a liability.

Accounting policy

Incremental costs directly attributable to the issue of shares are recognised as a deduction from equity. Any resulting tax effects of any transaction costs that are recognised in equity are also reflected in equity.

24. Financial risk management

In the course of its business, the Group is exposed to a number of financial risks: liquidity risk, market risk (including currency risk, commodity risk and interest rate risk) and credit risk. This note presents the Group’s objectives, policies and processes for managing its exposure to these financial risks. Note 30 includes an overview of the derivative financial instruments that the Group has entered into to mitigate its market risk exposure.

Exposure to liquidity, market and credit risks arises in the normal course of the Group’s business. Management and the Board of Directors have the overall responsibility for the establishment and oversight of the Group’s financial risk management framework. Management has established a treasury policy that identifies risks faced by the Group and sets out policies and procedures to mitigate those risks. Financial risk management is primarily carried out by the Treasury function of the Group. Management has delegated authority levels and authorised the use of various financial instruments to a restricted number of personnel within the Treasury function.

Liquidity risk

Liquidity risk is the risk that the Group will not meet its contractual obligations as they fall due. The Group evaluates its liquidity requirements on an ongoing basis using various cash and financial planning analyses and ensures that it has sufficient cash to meet expected operating expenses including repayments of and interest payments on its debt.

The Group generates sufficient cash flows from its operating activities to meet its obligations arising from its financial liabilities. It has a revolving credit facility in place to cover potential shortfalls and access to local working capital facilities in various jurisdictions, which are available if needed to support the cash management of local operations. The Group had unrestricted cash and cash equivalents in the amount of €154.5 million (€101.7 million as of 31 December 2017) and access to an additional €292.5 million under its revolving credit facility as of 31 December 2018 (€255.8 million as of 31 December 2017).

The following table includes information about the Group’s remaining contractual maturities for its non-derivative financial liabilities as of 31 December 2018. The table includes both interest and principal cash flows. Balances due within one year equal their carrying amounts as the impact of discounting is not significant.

 

 

 

 

Contractual cash flows

(in € million)

 

Carrying amount

 

Total

 

Up to 1 year

 

1-2 years

 

2-5 years

 

More than 5 years

As of 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

(442.3)

 

(442.3)

 

(434.7)

 

(0.9)

 

(4.5)

 

(2.2)

Loans and borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

– Senior secured credit facilities

 

(1,564.9)

 

(1,770.8)

 

(66.8)

 

(74.1)

 

(1,264.3)

 

(365.6)

– Finance lease liabilities

 

(26.5)

 

(45.1)

 

(5.1)

 

(5.3)

 

(12.7)

 

(22.0)

Total non-derivative
financial liabilities

 

(2,033.7)

 

(2,258.2)

 

(506.6)

 

(80.3)

 

(1,281.5)

 

(389.8)

Notes 21 and 22 include details about the Group’s refinancing transactions that took place in October 2018.

The Group’s senior secured credit facilities contain covenants and certain clauses that may require earlier repayments than indicated in the table above. The Group monitors the covenants as well as the aforementioned clauses on a regular basis to ensure that it is in compliance with the credit agreement at all times.

The interest payments on the senior secured credit facilities are variable, thus the interest rate amounts included in the table above will change if the market interest rate changes. The Group uses interest-rate swaps that fix the variable rate on a portion of its term loans (see section “Interest rate risk” in this note).

The Group enters into derivative contracts as part of operating and financing the business. The derivative contracts are net-cash settled, with the financial asset or liability recognised as of 31 December 2018 and 31 December 2017 representing the liquidity exposure to the Group as of that date. The cash flows resulting from a settlement of the derivative contracts may change as commodity prices, interest rates and exchange rates change. However, the overall impact on the Group’s liquidity from the derivative contracts is not deemed to be significant.

The following table includes information about the Group’s remaining contractual maturities for its non-derivative financial liabilities as of 31 December 2017.

 

 

 

 

Contractual cash flows

(in € million)

 

Carrying amount

 

Total

 

Up to 1 year

 

1-2 years

 

2-5 years

 

More than 5 years

As of 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

Trade, other payables and other
liabilities

 

(408.6)

 

(408.6)

 

(401.3)

 

(3.6)

 

(1.8)

 

(1.9)

Loans and borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

– Notes

 

(675.9)

 

(962.7)

 

(52.3)

 

(52.3)

 

(156.9)

 

(701.2)

– Senior secured credit facilities

 

(1,868.4)

 

(2,253.6)

 

(97.5)

 

(96.7)

 

(2,059.4)

 

– Finance lease liabilities

 

(12.3)

 

(13.3)

 

(1.9)

 

(2.7)

 

(6.5)

 

(2.2)

Total non-derivative
financial liabilities

 

(2,965.2)

 

(3,638.2)

 

(553.0)

 

(155.3)

 

(2,224.6)

 

(705.3)

Market risks

Market risk is the risk that changes in market prices, such as foreign currency exchange rates, commodity prices and interest rates, will affect the cash flows or the fair value of the Group’s holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. The Group buys and sells derivatives in the ordinary course of business to manage market risks. The Group does not enter into derivative contracts for speculative purposes. Hedge accounting under IFRS 9 is not applied.

Currency risk

As a result of the Group’s international operations, foreign currency exchange risk exposures exist on sales, purchases, borrowings and dividend payments that are denominated in currencies that are not the functional currency of the entity involved in the transaction. The Group is also exposed to translation currency risk arising from the translation of the assets, liabilities and results of its foreign entities into Euro, the Group’s presentation currency, from their respective functional currencies. The functional currencies of the subsidiaries are mainly Euro, US Dollar, Swiss Franc, Chinese Renminbi, Thai Baht, Brazilian Real, Mexican Peso and New Zealand Dollar.

In accordance with the Group’s treasury policy, the Group seeks to minimise transaction currency risk via natural offsets to the extent possible. Therefore, when commercially feasible, the Group incurs costs in the same currencies in which cash flows are generated. In addition, the Group uses foreign currency exchange derivatives to hedge additional transaction currency risks as deemed appropriate.

The Group does not hedge its exposure to translation gains or losses related to the financial results of its non-Euro functional currency entities.

As previously noted, the Group manages operational transaction currency risk via natural offsets and by entering into foreign currency exchange derivative contracts. The following table provides an overview of the outstanding foreign currency exchange derivative contracts entered into as part of the operating business as of 31 December 2018.

Type

 

Contract type

 

Currency

 

Contracted volume

 

Counter-currency

 

Contracted conversion range

 

Contracted date of maturity

Non-deliverable
forwards

 

Buy

 

$

 

6,188,700

 

BRL

 

3.4266 - 4.0455

 

Jan. 2019 - Jan. 2020

Non-deliverable
forwards

 

Buy

 

 

26,945,000

 

BRL

 

4.4996 - 4.7842

 

Jan. 2019 - Jan. 2020

Currency forwards

 

Buy

 

 

28,163,000

 

THB

 

37.332 - 37.992

 

Jan. 2019 - Dec. 2019

Currency forwards

 

Sell

 

$

 

14,187,000

 

THB

 

32.104 - 32.521

 

Jan. 2019 - Dec. 2019

Currency forwards

 

Buy

 

 

15,844,000

 

CNY

 

7.9286 - 8.1504

 

Jan. 2019 - Dec. 2019

Currency forwards

 

Buy

 

$

 

7,953,000

 

CNY

 

6.9161 - 6.9344

 

Jan. 2019 - Dec. 2019

Currency forwards

 

Sell

 

$

 

12,154,000

 

NZD

 

0.6801 - 0.6833

 

Feb. 2019 - Nov. 2019

Currency swap

 

Sell

 

 

20,000,000

 

$

 

1.14170

 

Jan. 2019

Currency forwards

 

Buy

 

 

27,074,000

 

$

 

1.1521 - 1.1863

 

Jan. 2019 - Dec. 2019

Currency forwards

 

Buy

 

 

9,174,000

 

MXN

 

22.946 - 24.990

 

Jan. 2019 - Dec. 2019

The following table provides an overview of the outstanding foreign currency exchange derivative contracts as of 31 December 2017.

Type

 

Contract type

 

Currency

 

Contracted volume

 

Counter-currency

 

Contracted conversion range

 

Contracted date of maturity

Non-deliverable
forwards

 

Buy

 

$

 

9,600,000

 

BRL

 

3.2557 - 3.4266

 

Feb. 2018 - Jan. 2019

Currency forwards

 

Buy

 

 

39,000,000

 

THB

 

38.950 - 39.810

 

Jan. 2018 - Nov. 2018

Currency forwards

 

Sell

 

$

 

51,000,000

 

THB

 

32.320 - 32.510

 

Jan. 2018 - Nov. 2018

Currency forwards

 

Buy

 

$

 

21,000,000

 

CNY

 

6.6802 - 6.7331

 

May 2018 - Dec. 2018

Currency forwards

 

Sell

 

AUD

 

11,539,000

 

NZD

 

1.1059 - 1.1077

 

Jan. 2018 - Nov. 2018

Currency forwards

 

Sell

 

$

 

11,465,000

 

NZD

 

1.4647 - 1.4714

 

Feb. 2018 - Dec. 2018

Currency swap

 

Buy

 

$

 

16,000,000

 

 

1.19085

 

Jan. 2018

Currency swap

 

Sell

 

 

3,000,000

 

$

 

1.19920

 

Jan. 2018

For the year ended 31 December 2017, the Group’s primary residual transaction currency exposure related to an intra-group US Dollar denominated loan and intra-group Euro denominated loans held by a Swiss Franc functional currency entity. Changes in the foreign currency exchange rate between the US Dollar and the Swiss Franc and between the Euro and the Swiss Franc resulted in the Group recognising either foreign currency exchange gains or losses on the translation of this intra-group debt into Swiss Francs. A 5% weakening of the Swiss Franc against the US Dollar and the Euro as of 31 December 2017 would have resulted in an additional unrealised foreign currency exchange loss of €106.1 million as of 31 December 2017.

The external refinancing transactions that took place in October 2018 (see further note 21) has reduced the Group’s transaction currency exposure. The Group’s primary transaction currency exposure as of 31 December 2018 relates to Euro net balances held by US Dollar functional currency entities and to US Dollar net balances held by Euro functional currency entities. Changes in the foreign currency exchange rate between the Euro and the US Dollar resulted in the Group recognising either foreign currency exchange gains or losses on the translation of the Euro net balances into US Dollar and the US Dollar net balances into Euro. A 5% strengthening of the Euro against the US Dollar as of 31 December 2018 would have resulted in an additional unrealised foreign currency exchange loss of €4.4 million as of 31 December 2018.

Commodity price risk

Commodity price risk is the risk that changes in the price of commodities purchased by the Group and used as inputs in the production process may impact the Group, as such price changes cannot always be passed on to the customers.

The Group’s exposure to commodity price risk arises principally from the purchase of resin and aluminium. The Group’s objective is to ensure that the commodity price risk exposure is kept at an acceptable level. The Group generally purchases commodities at spot market prices and uses derivatives to hedge the exposure in relation to the cost of resin (and its components) and aluminium. Due to this strategy, the Group is able to fix the raw material prices one year forward for approximately 80% of the resin and aluminium purchases, which substantially minimises the exposure to raw material price fluctuations over that period.

The realised gain or loss arising from derivative commodity contracts is recognised in cost of sales, while the unrealised gain or loss associated with derivative commodity contracts is recognised in other income or expenses.

The Group recognised an unrealised loss of €22.0 million in the year ended 31 December 2018 and an unrealised gain of €3.4 million in the year ended 31 December 2017 relating to its derivative commodity contracts as a component of other income or expenses. The Group recognised a realised loss of €1.4 million in the year ended 31 December 2018 and a realised gain of €2.8 million in the year ended 31 December 2017 relating to its derivative commodity contracts as a component of cost of sales.

The following table provides an overview of the outstanding commodity derivative contracts as of 31 December 2018.

Type

 

Unit of measure

 

Contracted volume

 

Contracted price range

 

Contracted date of maturity

Aluminium swaps

 

metric tonne

 

20,760

 

$2,020.00 - $2,200.00

 

Jan. 2019 - Dec. 2019

Aluminium premium

 

metric tonne

 

8,400

 

$166 - $185

 

Jan. 2019 - Dec. 2019

Resin swaps

 

metric tonne

 

47,748

 

€1,450 - €1,490

 

Jan. 2019 - Dec. 2019

Resin swaps

 

metric tonne

 

28,680

 

$1,245.00 - $1,320.00

 

Jan. 2019 - Dec. 2019

Ethylene swaps

 

metric tonne

 

9,240

 

€1,085 - €1,108

 

Jan. 2019 - Dec. 2019

Propylene swaps

 

metric tonne

 

8,040

 

€1,430 - €1,495

 

Jan. 2019 - Dec. 2019

Electricity swaps

 

megawatt hour

 

43,824

 

NZD 73.00 - NZD 101.50

 

Jan. 2019 - Dec. 2019

There would have been an impact of €14.9 million on profit or loss from a remeasurement of commodity derivative contracts as of 31 December 2018 (an impact of €15.4 million on profit or loss as of 31 December 2017), assuming a 10% parallel upward or downward movement in the price curve used to value the contracts assuming all other variables remain constant.

The following table provides an overview of the outstanding commodity derivative contracts as of 31 December 2017.

Type

 

Unit of measure

 

Contracted volume

 

Contracted price range

 

Contracted date of maturity

Aluminium swaps

 

metric tonne

 

18,900

 

$1,916.00 - $2,179.00

 

Jan. 2018 - Dec. 2018

Aluminium premium

 

metric tonne

 

6,997

 

$139 - $172

 

Jan. 2018 - Dec. 2018

Resin swaps

 

metric tonne

 

40,476

 

€1,438 - €1,580

 

Jan. 2018 - Dec. 2018

Resin swaps

 

metric tonne

 

25,110

 

$1,245.00 - $1,326.00

 

Jan. 2018 - Jan. 2019

Ethylene swaps

 

metric tonne

 

17,328

 

€988 - €1,065

 

Jan. 2018 - Dec. 2018

Propylene swaps

 

metric tonne

 

8,280

 

€1,438 - €1,580

 

Jan. 2018 - Dec. 2018

Electricity swaps

 

megawatt hour

 

43,800

 

NZD 71,80

 

Jan. 2018 - Dec. 2018

Interest rate risk

The Group’s interest rate risk primarily arises from its term loans at variable interest. The interest paid on the notes, which were redeemed in October 2018, was fixed. The interest rate profile of the Group’s significant interest-bearing financial instruments as of 31 December 2018 and 31 December 2017 is presented in the following table.

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Fixed rate instruments

 

 

 

 

Financial liabilities

 

(26.5)

 

(687.3)

 

 

(26.5)

 

(687.3)

Effect of interest rate swaps

 

(800.0)

 

(1,033.6)

 

 

(826.5)

 

(1,720.9)

Variable rate instruments

 

 

 

 

Financial assets

 

157.1

 

103.9

Financial liabilities

 

(1,592.2)

 

(1,939.4)

 

 

(1,435.1)

 

(1,835.5)

Effect of interest rate swaps

 

800.0

 

1,033.6

 

 

(635.1)

 

(801.9)

The Group has entered into interest rate swaps to hedge a portion of the cash flow exposure arising on its new Euro denominated term loans at variable interest rates. See note 21 for further information about the new term loans entered into in October 2018. The swaps are presented as part of other non-current liabilities in the statement of financial position. The Group has not designated the interest rate swaps as hedging instruments, thus the fair value changes have been recognised in profit or loss.

The Group had entered into interest rate swaps to hedge a portion of the cash flow exposure that arose on its Euro and US Dollar denominated term loans at variable interest rates that were repaid in October 2018. The interest swaps were bought back at market rates in connection with the repayment of the term loans. The Group had not designated the interest rates swaps as hedging instruments, thus the fair value changes have been recognised in profit or loss.

A 100 basis point increase in the variable component (three month Euribor) of the interest rate on the new term loans would increase the annual interest expense by €5.5 million as of 31 December 2018. A 100 basis point increase in the variable component (one month Euribor/LIBOR) of the interest rate on the term loans repaid in October 2018 would have increased the annual interest expense by €7.2 million as of 31 December 2017.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk arises principally from the Group’s receivables from its customers. The carrying amount of financial assets represents the maximum credit exposure. Historically, there has been a low level of losses resulting from default by customers.

The credit risk relating to trade receivables is influenced mainly by the individual characteristics of each customer. Given the diverse global operations and customers across the Group, credit control procedures are jointly managed by the Group’s Treasury function and each of the operating businesses within the Group. These joint responsibilities include, but are not limited to, reviewing the individual characteristics of new customers for creditworthiness before accepting the customer and agreeing upon purchase limits and terms of trade as well as regularly reviewing the creditworthiness of existing customers and previously agreed purchase limits and terms of trade.

The Group limits its exposure to credit risk by executing a credit limit policy, requiring advance payments in certain instances, taking out insurance for specific debtors as well as utilising securitisation and non-recourse factoring programmes. These programmes are further described in note 15.

In addition, concentration of credit risk is limited due to the customers comprising a diversified mix of international companies, large national and regional companies as well as small local companies, of which most have been customers of the Group for many years.

Management believes that the recognised loss allowance sufficiently covers the risk of default based on historical payment behaviour and assessments of future expectations of credit losses, including regular analysis of customer credit risk.

In line with its treasury policy, the Group generally enters into transactions only with banks and financial institutions having a credit rating of at least investment grade (long term: A rating and short term: A1 or P1 rating, as per Standard & Poor’s or Moody’s). However, due to the recent developments on the financial markets, the Group may also enter into transactions with banks and financial institutions with a currently lower investment grade (long term: BBB rating and short term: A2 or P2 rating).

Our Group structure and related parties

This section provides details about the Group’s subsidiaries and joint ventures. It also covers other related parties.

25. Group entities

The Group only has wholly owned subsidiaries. It also has three joint ventures (see further note 26).

Change of seat and name of parent company

Prior to the IPO, the parent company was SIG Combibloc Group Holdings S.à r.l. with its domicile in Luxembourg. In September 2018, it converted from a Luxembourg limited liability company (“société à responsabilité limitée”) into a Luxembourg corporation (“société anonyme”). SIG Combibloc Group Holdings S.A. then migrated its legal seat from Luxembourg to Switzerland and was reorganised as a stock corporation (“Aktiengesellschaft”) and changed its name to SIG Combibloc Group AG.

Overview of Group entities

 

 

Reporting date

 

Country of incorporation

 

Interest held (1) as of

 

     

Dec. 31, 2018

 

Dec. 31, 2017

(1)

The ownership and voting interests are the same.

(2)

The registered address is Laufengasse 18, 8212 Neuhausen am Rheinfall, Switzerland. In connection with the IPO, the seat and name of the parent company changed as described above. The registered address of SIG Combibloc Group Holdings S.à r.l. was 6C, rue Gabriel Lippmann, L-5365 Munsbach, Grand Duchy of Luxembourg.

(3)

Previously SIG Combibloc Holdings S.C.A. The Company was converted into a société à responsabilité limitée in the fourth quarter of 2018.

(4)

The functional currency of SIG Schweizerische Industrie-Gesellschaft GmbH has changed from Swiss Francs to Euro. The IPO and the refinancing that took place, with consequential changes to the Group’s set up of intra-group loans and flows of funds, triggered the change. The change in functional currency has been accounted for prospectively from the date of change.

(5)

Liquidated in the second quarter of 2018.

(6)

Established in the third quarter of 2018.

(7)

SIG Information Technology GmbH and SIG International Services GmbH were not subject to audit for the 2017 financial year under German BilRUG. The Company guaranteed all outstanding liabilities of these subsidiaries as of 31 December 2018.

(8)

Established in the first quarter of 2018.

(9)

Previously SIG Combibloc Group AG. Renamed to SIG Combibloc Services AG in the third quarter of 2018.

(10)

SIG Combibloc Ltd. was not subject to audit for the 2017 financial year under the UK Companies Act section 479A. The Company guaranteed all outstanding liabilities of this subsidiary as of 31 December 2018.

(11)

Established in the second quarter of 2018. SIG has entered into a joint venture partnership with Dai Nippon Printing (“DNP”) in Japan. Refer to note 26 for further information.

Parent company

 

 

 

 

 

 

 

 

SIG Combibloc Group AG (2)

 

31 Dec.

 

Switzerland

 

 

 

 

Subsidiaries

 

 

 

 

 

 

 

 

SIG Combibloc Holdings GP S.à r.l.

 

31 Dec.

 

Luxembourg

 

100%

 

100%

SIG Combibloc Holdings S.à r.l. (3)

 

31 Dec.

 

Luxembourg

 

100%

 

100%

SIG Combibloc PurchaseCo S.à r.l.

 

31 Dec.

 

Luxembourg

 

100%

 

100%

SIG Schweizerische Industrie-Gesellschaft GmbH (4)

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Combibloc US Acquisition Inc.

 

31 Dec.

 

USA

 

100%

 

100%

SIG Combibloc US Acquisition II Inc.

 

31 Dec.

 

USA

 

100%

 

100%

SIG Combibloc Argentina S.R.L. (5)

 

31 Dec.

 

Argentina

 

 

100%

Combibloc S.R.L.

 

31 Dec.

 

Argentina

 

100%

 

100%

Whakatane Mill Australia Pty Ltd.

 

31 Dec.

 

Australia

 

100%

 

100%

SIG Austria Holding GmbH

 

31 Dec.

 

Austria

 

100%

 

100%

SIG Combibloc GmbH

 

31 Dec.

 

Austria

 

100%

 

100%

SIG Combibloc GmbH & Co. KG

 

31 Dec.

 

Austria

 

100%

 

100%

SIG Combibloc Bangladesh Ltd. (6)

 

31 Dec.

 

Bangladesh

 

100%

 

SIG Beverages Brasil Ltda.

 

31 Dec.

 

Brazil

 

100%

 

100%

SIG Combibloc do Brasil Ltda.

 

31 Dec.

 

Brazil

 

100%

 

100%

SIG Combibloc Chile Ltda.

 

31 Dec.

 

Chile

 

100%

 

100%

SIG Combibloc (Suzhou) Co. Ltd.

 

31 Dec.

 

China

 

100%

 

100%

SIG Combibloc s.r.o.

 

31 Dec.

 

Czech Republic

 

100%

 

100%

SIG Combibloc S.à.r.l.

 

31 Dec.

 

France

 

100%

 

100%

SIG Combibloc GmbH

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Combibloc Holding GmbH

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Combibloc Systems GmbH

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Combibloc Zerspanungstechnik GmbH

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Euro Holding GmbH

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Information Technology GmbH (7)

 

31 Dec.

 

Germany

 

100%

 

100%

SIG International Services GmbH (7)

 

31 Dec.

 

Germany

 

100%

 

100%

SIG Combibloc Kft.

 

31 Dec.

 

Hungary

 

100%

 

100%

SIG Combibloc India Private Ltd.

 

31 Dec.

 

India

 

100%

 

100%

P.T. SIG Combibloc Indonesia

 

31 Dec.

 

Indonesia

 

100%

 

100%

SIG Combibloc S.r.l.

 

31 Dec.

 

Italy

 

100%

 

100%

SIG Combibloc Korea Ltd.

 

31 Dec.

 

Korea

 

100%

 

100%

SIG Combibloc Malaysia SDN. BHD (8)

 

31 Dec.

 

Malaysia

 

100%

 

SIG Combibloc México, S.A. de C.V.

 

31 Dec.

 

Mexico

 

100%

 

100%

SIG Combibloc B.V.

 

31 Dec.

 

Netherlands

 

100%

 

100%

Whakatane Mill Ltd.

 

31 Dec.

 

New Zealand

 

100%

 

100%

SIG Combibloc Sp. z o.o.

 

31 Dec.

 

Poland

 

100%

 

100%

SIG Combibloc Services S.R.L.

 

31 Dec.

 

Romania

 

100%

 

100%

OOO SIG Combibloc

 

31 Dec.

 

Russia

 

100%

 

100%

SIG Combibloc S.A.

 

31 Dec.

 

Spain

 

100%

 

100%

SIG Combibloc AB

 

31 Dec.

 

Sweden

 

100%

 

100%

SIG allCap AG

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Combibloc Services AG (9)

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Combibloc Procurement AG

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Combibloc Receivables Management AG

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Technology AG

 

31 Dec.

 

Switzerland

 

100%

 

100%

SIG Combibloc Taiwan Ltd.

 

31 Dec.

 

Taiwan

 

100%

 

100%

SIG Combibloc Ltd.

 

31 Dec.

 

Thailand

 

100%

 

100%

SIG Combibloc Ltd. (10)

 

31 Dec.

 

United Kingdom

 

100%

 

100%

SIG Combibloc Inc.

 

31 Dec.

 

USA

 

100%

 

100%

SIG Holding USA, LLC

 

31 Dec.

 

USA

 

100%

 

100%

SIG Vietnam Ltd.

 

31 Dec.

 

Vietnam

 

100%

 

100%

Joint ventures

 

 

 

 

 

 

 

 

SIG Combibloc Obeikan Company Ltd.

 

31 Dec.

 

Saudi Arabia

 

50%

 

50%

SIG Combibloc Obeikan FZCO

 

31 Dec.

 

UAE

 

50%

 

50%

DNP • SIG Combibloc Co., Ltd. (11)

 

31 Dec.

 

Japan

 

50%

 

Accounting policy / basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from their respective acquisition date, which is the date on which the Group obtains control. Subsidiaries are deconsolidated from their respective disposal date, which is the date on which control ceases. Any resulting gain or loss is recognised in profit or loss.

Interests in joint ventures

A joint venture is a contractual arrangement in which the Group has joint control and has rights to the net assets of the arrangement rather than rights to its assets and obligations for its liabilities. Investments in joint ventures are accounted for using the equity method. On the date joint control is obtained, joint ventures are recognised at cost (including transaction costs). Subsequent to initial recognition, the Group’s share of the profit or loss and other comprehensive income is included in the consolidated financial statements until the date on which joint control ceases.

Intra-group transactions and balances

Intra-group transactions and balances are eliminated upon consolidation. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment.

26. Joint ventures

The Group has investments in three joint ventures, which provide aseptic carton packaging solutions in their respective geographic markets. The Group and its 50-50 joint venture partner invested in the two joint ventures in the Middle East in 2001. The joint venture in Japan was formed in 2018.

The Group’s share of the profit or loss of its joint ventures (net of income tax) is presented as part of the Group’s profit or loss from operating activities due to the Group’s close interaction with its joint ventures.

Composition of the Group’s joint ventures

The table below provides an overview of the Group’s joint ventures.

 

 

 

 

 

 

Interest held 2018

 

 

Reporting date

 

Country of incorporation

 

Interest held 2018

 

Interest held 2017

SIG Combibloc Obeikan Company Ltd.

 

31 Dec.

 

Saudi Arabia

 

50%

 

50%

SIG Combibloc Obeikan FZCO

 

31 Dec.

 

UAE

 

50%

 

50%

DNP • SIG Combibloc Co., Ltd.

 

31 Dec.

 

Japan

 

50%

 

SIG Combibloc Obeikan Company Limited operates a carton sleeve manufacturing facility in Saudi Arabia. Both the joint ventures in the Middle East deploy filling lines in the Middle East and Africa and provide sleeves and other associated products and services to their customers.

The Group has invested in a newly formed joint venture in Japan together with DNP. The Group will, via the joint venture, offer its aseptic carton packaging solution in Japan. The two joint venture parties contributed €0.6 million each to the formation of the joint venture. There have been no significant transactions with this joint venture in the year ended 31 December 2018.

Summary joint venture financial information

The following tables provide summary financial information about the three joint ventures, representing the amounts presented in the IFRS financial statements of the joint ventures and not adjusted for the Group’s ownership percentage.

(in € million)

 

Current assets

 

Non-current assets

 

Total assets

 

Current liabilities

 

Non-current liabilities

 

Total liabilities

 

Net assets

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIG Combibloc Obeikan Company Ltd.,
Saudi Arabia

 

63.6

 

84.8

 

148.4

 

85.3

 

33.4

 

118.7

 

29.7

SIG Combibloc Obeikan FZCO, UAE

 

106.1

 

129.2

 

235.3

 

83.4

 

90.1

 

173.5

 

61.8

DNP • SIG Combibloc Co., Ltd., Japan

 

3.7

 

 

3.7

 

2.7

 

 

2.7

 

1.0

Total

 

173.4

 

214.0

 

387.4

 

171.4

 

123.5

 

294.9

 

92.5

31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIG Combibloc Obeikan Company Ltd.,
Saudi Arabia

 

70.4

 

88.1

 

158.5

 

60.1

 

44.4

 

104.5

 

54.0

SIG Combibloc Obeikan FZCO, UAE

 

99.5

 

122.9

 

222.4

 

85.1

 

80.0

 

165.1

 

57.3

Total

 

169.9

 

211.0

 

380.9

 

145.2

 

124.4

 

269.6

 

111.3

(in € million)

 

Revenue

 

Expenses

 

Profit after tax

2018

 

 

 

 

 

 

SIG Combibloc Obeikan Company Ltd., Saudi Arabia

 

162.3

 

(145.3)

 

17.0

SIG Combibloc Obeikan FZCO, UAE

 

216.5

 

(208.7)

 

7.8

DNP • SIG Combibloc Co., Ltd., Japan

 

0.5

 

(0.7)

 

(0.2)

Total

 

379.3

 

(354.7)

 

24.6

2017

 

 

 

 

 

 

SIG Combibloc Obeikan Company Ltd., Saudi Arabia

 

177.4

 

(156.3)

 

21.1

SIG Combibloc Obeikan FZCO, UAE

 

237.7

 

(221.2)

 

16.5

Total

 

415.1

 

(377.5)

 

37.6

Joint venture impact on consolidated financial statements

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

(1)

An unrealised gain of €3.4 million recognised by one of the joint ventures in the Middle East resulting from an upstream sale of an asset to the Group in 2018 (that will not be sold on) has in the consolidated financial statements been eliminated against the asset purchased.

Carrying amount as of the beginning of the period

 

206.9

 

219.7

Investment in joint venture in Japan

 

0.6

 

Share of profit (net of income tax) (1)

 

12.3

 

18.8

Dividends received

 

(23.7)

 

(25.0)

Effect of movements in exchange rates

 

2.0

 

(6.3)

Other

 

0.6

 

(0.3)

Carrying amount as of the end of the period

 

198.7

 

206.9

Amount of goodwill in carrying amount of joint ventures

 

152.4

 

151.2

Guarantees

As of 31 December 2018, the Group has provided guarantees with an aggregate maximum exposure of €34.3 million to banks granting credit facilities to SIG Combibloc Obeikan Company Ltd. (€24.3 million as of 31 December 2017).

Accounting policy

The accounting policy for joint ventures is included in note 25.

27. Related parties

The Group has related party relationships with its shareholders, its subsidiaries and joint ventures, its key executive officers and Directors (including the members of the Group Executive Board of SIG and the Board of Directors) and companies affiliated with Onex.

Shareholders

The ultimate parent company of the Group is Onex.

The Company’s shares are listed on SIX Swiss Exchange. To the best knowledge of the Company, the publicly held shares as of 31 December 2018 represented 47.4% of the issued shares. The remaining shares are held indirectly by Onex, certain members of management and a number of co-investors.

Certain members of SIG management (key executive officers and Directors) participate in a management equity plan that was established in 2015. They hold shares in the Company, acquired at fair value, via its participation in two limited liability partnerships. No additional shares have been, or will be, issued to these limited liability partnerships since the IPO. They held 1.7% of the shares as of 31 December 2018.

Certain parties, including Onex, members of the SIG management and other co-investors entered into investment and shareholders’ agreements in 2015 with respect to their investment in Company. These agreements, along with certain ancillary agreements thereto, contain agreements among the parties with respect to, among other things, tag-along rights, drag-along rights, pre-emptive rights and restrictions on the transfer of shares. The agreements also contain provisions regarding the transfer of shares held by employees who cease to be employees or officers and regarding circumstances in which such rights and restrictions terminate.

Other related parties

The Group’s subsidiaries are listed in note 25. Information about the joint ventures is included in note 26. Key management personnel compensation is presented in note 28.

Further details about compensation paid to the members of the Group Executive Board and the Board of Directors are presented in the Compensation Report included elsewhere in the 2018 Annual Report. Information about SIG shareholdings of these persons can be found in the financial statements of the Company included elsewhere in the 2018 Annual Report.

Related party transactions and balances

The Group had a consulting services agreement with Onex under which it paid to Onex (i) an annual fee of approximately €1 million for certain advisory, consulting and other services performed by Onex and/or its affiliate(s), in addition to reimbursement of certain out-of-pocket expenses incurred in connection with the performance of such services, and (ii) additional reasonable compensation for other services provided by Onex and/or its affiliate(s) from time to time, including advisory and other services with respect to acquisitions and divestitures or offerings of equity or debt interests. The Group paid Onex an annual fee, including reimbursement of expenses, of €0.8 million for the year ended 31 December 2018 (€1.1 million for the year ended 31 December 2017). The agreement was terminated without compensation in connection with the IPO.

Onex continues to provide consultancy services to the Company on various matters without any compensation. The Company and Onex have entered into an information sharing agreement on the mutual sharing of information, including, but not limited to information to comply with legal, regulatory, tax and accounting requirements. The agreement does not provide for any compensation payments.

Information about other related parties is provided in the following table.

There were no other significant related party transactions during the years ended 31 December 2018 and 31 December 2017.

Our people

This section covers information about the Group’s employee-related expenses and pension plans, including compensation paid to the Group’s key management.

28. Employee benefits

The Group operates various defined benefit plans, of which the largest is in Switzerland.

Overview of employee benefits

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Salaries and wages accrued

 

26.6

 

19.1

Provision for annual leave

 

8.0

 

7.4

Provision for other employee benefits

 

0.7

 

0.7

Net defined benefit obligations:

 

 

 

 

Pension benefit liabilities

 

108.0

 

106.4

Total employee benefit liabilities

 

143.3

 

133.6

Current

 

34.6

 

26.5

Non-current

 

108.7

 

107.1

Total employee benefit liabilities

 

143.3

 

133.6

The Group has a net defined benefit asset in the amount of €129.3 million as of 31 December 2018 (€131.3 million as of 31 December 2017). It relates to the defined benefit pension plan in Switzerland. The Group’s net defined benefit liabilities relate to defined benefit pensions plans in other countries.

Personnel expenses

Personnel expenses recognised in the statement of profit or loss and other comprehensive income were €303.9 million in the year ended 31 December 2018 and €313.4 million in the year ended 31 December 2017.

Key management compensation

Compensation to the Group Executive Board for the year ended 31 December 2018 includes short-term employee benefits of €4.9 million (€3.6 million for the year ended 31 December 2017) and post-employment benefits of €0.4 million (€0.5 million for the year ended 31 December 2017). In addition, selected members of the Group Executive Board were awarded a total of €2.5 million in the year ended 31 December 2018 for their significant contribution to the process of going public.

Compensation to the members of the Board of Directors totalled €0.4 million for the year ended 31 December 2018.

Starting in 2019, the members of the Group Executive Board will be entitled to participate in a share-based long-term incentive plan (a performance share units (“PSUs”) plan). As of 31 December 2018, no PSUs have been granted. The members of the Board of Directors will in 2019 receive part of its compensation in restricted share units (“RSUs”).

Further details about compensation paid to the members of the Group Executive Board and the Board of Directors are included in the Compensation Report included elsewhere in the 2018 Annual Report.

Defined benefit pension plans

The Group makes contributions to defined benefit pension plans. The Group operates defined benefit pension plans in countries including Austria, France, Germany, Indonesia, Switzerland, Taiwan and Thailand. The majority of the Group’s pension obligations are in Switzerland and are subject to governmental regulations relating to the funding of retirement plans. The Group generally funds its retirement plans in an amount equal to the annual minimum funding requirements specified by government regulations covering each plan. The Group has generally provided aggregated disclosures in respect of these plans on the basis that these plans are not exposed to materially different risks.

The Group’s largest pension plan is the Swiss Retirement Plan. As of 31 December 2018, the Swiss Retirement Plan comprises 77% (78% as of 31 December 2017) of the Group’s present value of pension plan obligations. Therefore, certain information applicable to the Swiss Retirement Plan has been separately disclosed. As of 31 December 2018, the fair value of the assets of the Swiss Retirement Plan exceeded the present value of its pension obligations by €129.3 million (€131.3 million as of 31 December 2017). An assessment of the investment strategy of the Swiss Retirement Plan is performed yearly.

Expected annual contributions to the Group’s defined benefit pension plans during the year ending 31 December 2019 are estimated to be €4.5 million. The Group’s pension plans had a weighted average duration of 13 years as of 31 December 2018 (13 years as of 31 December 2017).

Movement in net defined benefit obligation

Information about the net defined benefit obligation as of and for the year ended 31 December 2018 and the year ended 31 December 2017 is included below.

 

 

Defined benefit obligation

 

Fair value
of plan assets

 

Net defined benefit
liability/(asset)

(in € million)

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

Carrying amount as of the beginning
of the year

 

500.2

 

551.6

 

(525.1)

 

(561.1)

 

(24.9)

 

(9.5)

Service cost

 

6.4

 

7.4

 

 

 

6.4

 

7.4

Interest cost/(income)

 

4.0

 

3.9

 

(2.9)

 

(2.5)

 

1.1

 

1.4

Administrative expenses

 

 

 

0.5

 

0.5

 

0.5

 

0.5

Total expense/(income) recognised in profit or loss

 

10.4

 

11.3

 

(2.4)

 

(2.0)

 

8.0

 

9.3

Actuarial (gains)/losses arising from:

 

 

 

 

 

 

 

 

 

 

 

 

Demographic assumptions

 

(4.2)

 

4.7

 

 

 

(4.2)

 

4.7

Financial assumptions

 

(0.5)

 

(2.6)

 

 

 

(0.5)

 

(2.6)

Return on plan assets,
excluding interest income

 

 

 

9.5

 

(33.0)

 

9.5

 

(33.0)

Total remeasurement (gains)/losses included in other comprehensive income

 

(4.7)

 

2.1

 

9.5

 

(33.0)

 

4.8

 

(30.9)

Contributions by the Group

 

 

 

(4.5)

 

(4.5)

 

(4.5)

 

(4.5)

Contributions by plan participants

 

1.6

 

1.6

 

(1.6)

 

(1.6)

 

 

Benefits paid by the plans

 

(25.2)

 

(30.8)

 

25.2

 

30.8

 

 

Effect of movements in exchange rates

 

14.7

 

(35.6)

 

(19.4)

 

46.3

 

(4.7)

 

10.7

Total other movements

 

(8.9)

 

(64.8)

 

(0.3)

 

71.0

 

(9.2)

 

6.2

Carrying amount as of the end
of the year

 

497.0

 

500.2

 

(518.3)

 

(525.1)

 

(21.3)

 

(24.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprised of:

 

 

 

 

 

 

 

 

 

 

 

 

Swiss Retirement Plan

 

384.7

 

389.3

 

(514.0)

 

(520.6)

 

(129.3)

 

(131.3)

All other plans

 

112.3

 

110.9

 

(4.3)

 

(4.5)

 

108.0

 

106.4

Carrying amount as of the end
of the year

 

497.0

 

500.2

 

(518.3)

 

(525.1)

 

(21.3)

 

(24.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in the statement of financial position as:

 

 

 

 

 

 

 

 

 

 

 

 

Employee benefits (asset)

 

 

 

 

 

 

 

 

 

(129.3)

 

(131.3)

Employee benefits (liability)

 

 

 

 

 

 

 

 

 

108.0

 

106.4

Total net defined pension benefits

 

 

 

 

 

 

 

 

 

(21.3)

 

(24.9)

Expense recognised in profit or loss

The net pension expense is recognised in the following components in the statement of profit or loss and comprehensive income.

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Cost of sales

 

3.6

 

4.1

Selling, marketing and distribution expenses

 

1.2

 

0.9

General and administrative expenses

 

3.2

 

4.3

Total net pension expense

 

8.0

 

9.3

thereof the Swiss Retirement Plan

 

3.5

 

5.1

Plan assets

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Equity instruments

 

125.5

 

133.5

Debt instruments

 

213.8

 

213.7

Real estate

 

154.7

 

146.0

Other

 

24.3

 

31.9

Total plan assets

 

518.3

 

525.1

Approximately 99% of total plan assets are held by the Swiss Retirement Plan as of 31 December 2018 (99% as of 31 December 2017). The debt instruments consist principally of corporate and government bonds. The equity and debt instrument values are based on quoted market prices in active markets. The real estate is held through unlisted funds. The investment policy of the Swiss Retirement Plan is to target an asset mix of around 25% equity instruments, 45% debt instruments, 25% real estate funds and hold 5% in cash.

Actuarial assumptions

The amounts recognised under the Group’s defined benefit pension plans are determined using actuarial methods. The actuarial valuations involve assumptions regarding discount rates, expected salary increases and the retirement age of employees. These assumptions are reviewed at least annually and reflect estimates as of the measurement date. Any change in these assumptions will impact the amounts reported in the statement of financial position plus the net pension expense or income that may be recognised in future years. The mortality table used for the Swiss Retirement Plan for 2018 and 2017 was BVG 2015 GT.

While the Swiss Retirement Plan does not provide for compulsory benefit increases for pensioners, increases have been granted at the discretion of the foundation board, depending on the then current funding situation.

The assumed discount rate and future salary increases are the assumptions with the most significant effect on the defined benefit obligation. They are presented in the table below.

 

 

Swiss Retirement Plan

 

All plans

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Discount rates

 

0.70%

 

0.55%

 

0.70% - 8.00%

 

0.55% - 6.50%

Future salary increases

 

1.50%

 

1.50%

 

0.00% - 9.00%

 

0.00% - 9.00%

The table below shows the effect on the defined benefit obligation of a change in the discount rate and future salary increases.

 

 

Swiss Retirement Plan

 

All plans

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Discount rates

 

 

 

 

 

 

 

 

0.5% increase

 

(1.3)

 

(1.2)

 

(9.4)

 

(9.5)

0.5% decrease

 

4.6

 

4.2

 

13.8

 

13.6

Future salary increases

 

 

 

 

 

 

 

 

0.5% increase

 

1.0

 

1.0

 

1.8

 

1.8

0.5% decrease

 

(1.0)

 

(1.0)

 

(1.7)

 

(1.7)

Accounting policy

Short-term employee benefits

Short-term employee benefits are expensed in profit or loss as the related services are provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans and outstanding annual leave balances if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably.

Pension obligations

The Group operates various defined benefit pension plans. The Group’s obligation with respect to defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits to which employees are entitled in return for their services in the current and prior years, discounting that amount to determine the present value of the Group’s obligation and then deducting the fair value of any plan assets. The discount rate used is the yield on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have maturity dates approximating the terms of the Group’s obligations. The calculations are performed annually by qualified actuaries using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurements of the net defined liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and, if any, the effects of the asset ceiling (excluding interest) are recognised immediately in other comprehensive income.

The net interest expense/(income) on the net defined benefit liability/(asset) for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined liability/(asset) as of that time, taking into account any changes from contributions and benefit payments. Net interest expense and other plan expenses are recognised in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past services or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Termination benefits

Termination benefits, when applicable, are payable when employment is terminated by the Group before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for such benefits. Termination costs are expensed at the earlier of when the Group can no longer withdraw the offer of the benefits or when the Group recognises any related restructuring costs.

Significant judgements and estimates

Amounts recognised under the Group’s defined benefit pension plans are determined using actuarial methods. These actuarial valuations involve various assumptions that reflect estimates as of the measurement date. See the section “Actuarial assumptions” above for an overview of the impact of any change in these assumptions.

Other

This section provides details about the Group’s income tax exposure, different categories of financial instruments (including derivative instruments), fair value information and off-balance sheet information.

29. Income tax

This note covers the Group’s current and deferred income tax exposure, with corresponding impacts on the statement of profit or loss and other comprehensive income and the statement of financial position.

Amounts recognised in profit or loss

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Current year

 

(64.2)

 

(59.6)

Adjustments for prior years

 

0.3

 

2.3

Current tax expense

 

(63.9)

 

(57.3)

Origination and reversal of temporary differences

 

62.2

 

34.8

Tax rate modifications

 

(7.0)

 

(1.3)

Adjustments for prior years

 

7.8

 

(2.4)

Deferred tax benefit

 

63.0

 

31.1

Income tax expense

 

(0.9)

 

(26.2)

Amounts recognised in other comprehensive income

The Group has recognised in other comprehensive income a deferred tax income of €2.1 million relating to defined benefit plans for the year ended 31 December 2018 (€5.2 million deferred tax expense for the year ended 31 December 2017).

Reconciliation of effective tax expense

(in € million)

 

Year ended
31 Dec. 2018

 

Year ended
31 Dec. 2017

Loss before income tax

 

(83.0)

 

(70.7)

Income tax using the Swiss tax rate 16% (year 2018)

 

13.3

 

Income tax using the Luxembourg tax rate 27.08% (year 2017)

 

 

19.1

Effect of tax rates in foreign jurisdictions

 

10.1

 

(33.3)

Non-deductible expenses

 

(6.3)

 

(8.6)

Tax exempt income

 

5.7

 

7.8

Withholding tax

 

(9.7)

 

(6.6)

Tax rate modifications

 

(7.0)

 

(1.3)

Unrecognised tax losses and temporary differences

 

(14.1)

 

(1.6)

Tax uncertainties

 

(0.1)

 

(0.2)

Tax on undistributed profits

 

(0.9)

 

(1.4)

Over/(under) provided in prior years

 

8.1

 

(0.1)

Total income tax expense

 

(0.9)

 

(26.2)

As the Company was migrated into Switzerland from Luxembourg in connection with the IPO in 2018 (see further note 25), the income tax reconciliations for the periods presented are calculated using tax rates from different tax jurisdictions.

Current tax assets and liabilities

Current tax assets of €1.0 million as of 31 December 2018 (€2.5 million as of 31 December 2017) represent the amount of income taxes recoverable with respect to current and prior periods and arise from the payment of tax in excess of the amounts due to the relevant tax authorities. Current tax liabilities of €25.6 million as of 31 December 2018 (€35.8 million as of 31 December 2017) represent the amount of income taxes payable with respect to current and prior periods.

Current tax liabilities include an amount of €3.8 million (€2.3 million as of 31 December 2017) for prior periods that will be reimbursed by Reynolds Group Holdings Limited and its subsidiaries (“RGHL”, the owner of the SIG Group prior to 13 March 2015) in line with the share purchase agreement that was signed when Onex acquired the SIG Group in 2015. The same amount has been recognised as part of other receivables.

Recognised deferred tax assets and liabilities

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Included in the statement of financial position as:

 

 

 

 

Deferred tax assets

 

12.1

 

2.9

Deferred tax liabilities

 

(187.8)

 

(227.5)

Total recognised net deferred tax liabilities

 

(175.7)

 

(224.6)

The table below provides details about the components of deferred tax assets and liabilities.

(in € million)

 

Property, plant and equipment

 

Intangible assets

 

Employee benefits

 

Tax loss carry-forwards

 

Other items

 

Net deferred tax assets/(liabilities)

Carrying amount as of 1 January 2017

 

(97.7)

 

(206.3)

 

1.3

 

10.3

 

31.3

 

(261.1)

Recognised in profit or loss

 

2.3

 

20.0

 

0.5

 

(1.7)

 

10.0

 

31.1

Recognised in other comprehensive
income

 

 

 

(5.2)

 

 

 

(5.2)

Effect of movements in exchange rates

 

2.5

 

10.0

 

1.5

 

(0.9)

 

(2.5)

 

10.6

Carrying amount as of 31 December 2017

 

(92.9)

 

(176.3)

 

(1.9)

 

7.7

 

38.8

 

(224.6)

Carrying amount as of 1 January 2018

 

(92.9)

 

(176.3)

 

(1.9)

 

7.7

 

38.8

 

(224.6)

Recognised in profit or loss

 

(2.1)

 

35.0

 

0.4

 

2.4

 

27.3

 

63.0

Recognised in other comprehensive
income

 

 

 

2.1

 

 

 

2.1

Other movements

 

 

 

 

 

(13.6)

 

(13.6)

Effect of movements in exchange rates

 

(1.3)

 

(0.5)

 

(1.3)

 

0.6

 

(0.1)

 

(2.6)

Carrying amount as of 31 December 2018

 

(96.3)

 

(141.8)

 

(0.7)

 

10.7

 

52.4

 

(175.7)

The net deferred tax assets for other items mainly relate to inventories, receivables, deferred revenue and derivatives. The Group reclassified in the year ended 31 December 2018 an amount of €13.6 million from current tax liabilities to deferred tax liabilities relating to its tax liability for unremitted and distributable earnings. The impact of this reclassification is presented as an other movement in the table above. The reclassification is made on a prospective basis as the nature of the change does not represent a correction of a material prior year error.

Unrecognised deferred tax assets

Deferred tax assets have not been recognised with respect to tax losses in the amount of €23.0 million as of 31 December 2018 (€9.9 million as of 31 December 2017) because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. The unrecognised tax losses do not expire under the current applicable tax legislation.

(in € million)

 

2018

 

2017

Balance as of 1 January

 

9.9

 

9.6

Additions

 

14.1

 

1.6

Effect of movements in exchange rates

 

(1.0)

 

(1.3)

Balance of unrecognised deferred tax assets as of 31 December

 

23.0

 

9.9

Accounting policy

Income tax expense is comprised of current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income.

For subsidiaries in which the profits are not considered to be permanently reinvested, the additional tax consequences of future dividend distributions are recognised as income tax expense.

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect to previous years. Current tax assets and liabilities are only offset if certain criteria are met.

Deferred tax

Deferred tax is recognised using the balance sheet method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint arrangements to the extent that they probably will not reverse in the foreseeable future and the Group is in a position to control the timing of the reversal of the temporary differences. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. The recoverability of deferred tax assets is reviewed at each reporting date. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax assets and liabilities are only offset if certain criteria are met.

Significant judgements and estimates

Determining the Group’s worldwide income tax liability requires significant judgement and the use of estimates and assumptions, some of which are highly uncertain. Each tax jurisdiction’s laws are complex and subject to different interpretations by the taxpayer and the respective tax authorities. Significant judgement is required in evaluating the Group’s tax positions, including evaluating uncertainties. To the extent actual results differ from these estimates relating to future periods, and depending on the tax strategies that the Group may implement, the Group’s financial position may be directly affected.

Deferred tax assets represent deductions available to reduce taxable income in future years. The Group evaluates the recoverability of deferred tax assets by assessing the adequacy of future taxable income, including reversal of taxable temporary differences, forecasted earnings and available tax planning strategies. Determining the sources of future taxable income rely heavily on the use of estimates. The Group recognises deferred tax assets when the Group considers it probable that the deferred tax assets will be recoverable.

30. Financial instruments and fair value information

This note provides an overview of the Group’s financial instruments, including derivative financial instruments, and their categorisation under IFRS. Further details about the different types of financial assets and financial liabilities are provided throughout these consolidated financial statements. This note also contains information about the fair value of the Group’s financial instruments and some general accounting policies covering more than one type of financial assets and liabilities.

Impact of new IFRS standards

The adoption of IFRS 9 Financial Instruments as of 1 January 2018 changed the categorisation and presentation of trade receivables. Trade receivables that will be sold under the Group’s securitisation and factoring programmes are under IFRS 9 classified and presented in the notes as financial assets measured at fair value through profit or loss rather than as loans and receivables as under IAS 39. The Group reclassified an amount of €57.1 million relating to trade receivables to be sold under securitisation and factoring programmes to the financial asset category “At fair value through profit or loss”. See note 5.2 for further information about the adoption of IFRS 9.

Categories of financial instruments and fair value information

The Group’s financial assets and liabilities are classified into the following categories: financial assets at amortised cost, financial assets at fair value through profit or loss, financial liabilities at amortised cost and financial assets and liabilities at fair value through profit or loss.

The following tables present the carrying amounts of financial assets and liabilities as of 31 December 2018 and 31 December 2017. They also present the respective levels in the fair value hierarchy for financial assets and liabilities measured at fair value. Items that do not meet the definition of financial assets or liabilities are not included in the tables.

 

 

Carrying amount as of 31 December 2018

 

 

 

 

 

 

 

 

At amortised cost

 

At fair value through profit or loss (manda­torily)

 

Total

 

Fair value hierarchy Level

(in € million)

 

 

 

 

1

 

2

 

3

Cash and cash equivalents

 

157.1

 

 

 

157.1

 

 

 

 

 

 

Trade and other receivables

 

176.3

 

54.8

 

231.1

 

 

 

x

 

 

Derivatives

 

 

 

0.2

 

0.2

 

 

 

x

 

 

Total financial assets

 

333.4

 

55.0

 

388.4

 

 

 

 

 

 

Trade and other payables

 

(442.3)

 

 

 

(442.3)

 

 

 

 

 

 

Loans and borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

– Senior secured credit facilities

 

(1,564.9)

 

 

 

(1,564.9)

 

 

 

 

 

 

– Finance lease liabilities

 

(26.5)

 

 

 

(26.5)

 

 

 

 

 

 

Derivatives

 

 

 

(20.0)

 

(20.0)

 

 

 

x

 

 

Total financial liabilities

 

(2,033.7)

 

(20.0)

 

(2,053.7)

 

 

 

 

 

 

 

 

Carrying amount as of 31 December 2017

 

Fair value hierarchy Level

 

 

Loans and receivables

 

At fair value through profit or loss

 

Financial liabilities at amortized cost

 

Total

 

(in € million)

 

 

 

 

 

1

 

2

 

3

Cash and cash equivalents

 

103.9

 

 

 

 

 

103.9

 

 

 

 

 

 

Trade and other receivables

 

276.8

 

 

 

 

276.8

 

 

 

 

 

 

Other financial assets

 

0.1

 

 

 

 

 

0.1

 

 

 

 

 

 

Derivatives

 

 

 

82.3

 

 

 

82.3

 

 

 

x

 

 

Total financial assets

 

380.8

 

82.3

 

 

 

463.1

 

 

 

 

 

 

Trade, other payables and other liabilities

 

 

 

 

 

(408.6)

 

(408.6)

 

 

 

 

 

 

Loans and borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Notes

 

 

 

 

 

(675.9)

 

(675.9)

 

 

 

 

 

 

– Senior secured credit facilities

 

 

 

 

 

(1,868.4)

 

(1,868.4)

 

 

 

 

 

 

– Financial lease liabilities

 

 

 

 

 

(12.3)

 

(12.3)

 

 

 

 

 

 

Derivatives

 

 

 

(20.9)

 

 

 

(20.9)

 

 

 

x

 

 

Total financial liabilities

 

 

(20.9)

 

(2,965.2)

 

(2,986.1)

 

 

 

 

 

 

Fair value of financial assets and liabilities at amortised cost

The carrying amount of the financial assets and liabilities that are not measured at fair value is a reasonable approximation of fair value. Excluding transaction costs and an original issue discount, this is also the case for the Group’s new term loans that were entered into in connection with the IPO. Information about the fair value of the term loans that were repaid and the notes that were redeemed in October 2018 is provided in note 21. The fair value of the replaced debts as of 31 December 2017 was based on quoted market prices or broker quotes (on markets considered inactive). The repaid term loans were traded within the loan syndicate. The notes were traded on the Global Exchange Market of the Irish Stock Exchange. The debts were categorised as level 2 fair value measurements as the measurements of fair value were based on significant observable market data.

Fair value of derivatives

The derivatives are entered into as part of the Group’s strategy to mitigate operational risks (commodity and foreign currency exchange derivatives) and to mitigate financing risks (interest rate swaps). See also note 24.

The following tables show the types of derivatives the Group had as of 31 December 2018 and 31 December 2017, and their presentation in the statement of financial position.

(in € million)

 

Current assets

 

Non-current assets

 

Total derivative assets

 

Current liabilities

 

Non-current liabilities

 

Total derivative liabilities

Commodity derivatives

 

0.1

 

 

0.1

 

(18.2)

 

 

(18.2)

Foreign currency exchange derivatives

 

0.1

 

 

0.1

 

(0.6)

 

 

(0.6)

Total operating derivatives

 

0.2

 

 

0.2

 

(18.8)

 

 

(18.8)

Interest rate swaps

 

 

 

 

 

(1.2)

 

(1.2)

Total financing derivatives

 

 

 

 

 

(1.2)

 

(1.2)

Total derivatives as of 31 Dec. 2018

 

0.2

 

 

0.2

 

(18.8)

 

(1.2)

 

(20.0)

(in € million)

 

Current assets

 

Non-current assets

 

Total derivative assets

 

Current liabilities

 

Non-current liabilities

 

Total derivative liabilities

Commodity derivatives

 

6.5

 

 

6.5

 

(2.3)

 

 

(2.3)

Foreign currency exchange derivatives

 

0.8

 

0.1

 

0.9

 

(0.2)

 

 

(0.2)

Total operating derivatives

 

7.3

 

0.1

 

7.4

 

(2.5)

 

 

(2.5)

Interest rate and cross-currency swaps

 

4.0

 

0.6

 

4.6

 

(2.1)

 

(5.8)

 

(7.9)

Embedded derivatives

 

 

70.3

 

70.3

 

(3.7)

 

(6.8)

 

(10.5)

Total financing derivatives

 

4.0

 

70.9

 

74.9

 

(5.8)

 

(12.6)

 

(18.4)

Total derivatives as of 31 Dec. 2017

 

11.3

 

71.0

 

82.3

 

(8.3)

 

(12.6)

 

(20.9)

In connection with the refinancing in October 2018, the financing derivative balances decreased. The Group had embedded derivatives in respect of both the redeemed notes and the repaid term loans as well as interest rate swaps. See further notes 19 and 21.

The Group measures derivative assets and liabilities, including embedded derivatives that are required to be separated from their host contracts, at fair value. The fair value is estimated based on valuation models commonly used in the market and include consideration of credit risk, where applicable, and discounts the estimated future cash flows based on the terms and maturity of each contract, using forward interest rates extracted from observable yield curves and market forward exchange rates at the reporting date. The derivatives are categorised as level 2 fair value measurements in the fair value hierarchy as the measurements of fair value are based on observable market data, either directly (i.e. as prices) or indirectly (i.e. derived from prices). All changes in fair value are recognised in profit or loss as the Group does not apply hedge accounting under IFRS 9.

Fair value of trade receivables to be sold under securitisation and factoring programmes

Trade receivables that will be sold under the Group’s securitisation and factoring programmes are categorised as measured at fair value through profit or loss. They are sold shortly after being recognised by the Group and the amount initially recognised for these trade receivables is representative of their fair value.

Accounting policy

The specific accounting policies for the Group’s different types of financial assets and liabilities are included in other sections of these consolidated financial statements. This section includes the accounting policy for topics covering more than one note.

Initial recognition of financial assets and liabilities

The Group initially recognises loans and receivables and any debt issued on the date when they are originated. All other financial assets and liabilities are initially recognised on the trade date, when the entity becomes party to the contractual provisions of the financial instrument.

Offsetting

Financial assets and financial liabilities are only offset and the net amount presented in the statement of financial position when the Group currently has a legally enforceable right to offset the amounts and intends to either settle them on a net basis or realise the asset and settle the liability simultaneously.

Derivatives

Derivatives are measured at fair value with any related transaction costs expensed as incurred. All derivatives with a positive fair value are presented as other current or non-current assets in the statement of financial position, while all derivatives with a negative fair value are presented as other current or non-current liabilities.

The gain or loss on remeasurement to fair value is recognised in profit or loss. Net changes in the fair value of derivatives entered into as part of the operating business are presented as part of profit from operating activities, while net changes in the fair value of derivatives entered into in relation to the financing of the Group are presented in other finance income or expenses. The Group does not apply hedge accounting under IFRS.

A derivative embedded in another contract is separated and accounted for separately when its economic characteristics and risks are not closely related to those of its host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the host contract is not measured at fair value with the fair value changes recognised in profit or loss. Changes in the fair value of a separated embedded derivative are recognised immediately in profit or loss.

31. Operating leases

The Group has entered into operating lease contracts covering mainly offices, some production-related buildings and equipment, warehouses and cars.

Non-cancellable operating lease payments

(in € million)

 

As of
31 Dec. 2018

 

As of
31 Dec. 2017

Less than 1 year

 

8.6

 

8.5

Between 1 and 5 years

 

11.0

 

11.3

More than 5 years

 

0.6

 

Total

 

20.2

 

19.8

Operating lease expenses recognised in the statement of profit or loss and comprehensive income were €13.1 million in the year ended 31 December 2018 (€13.6 million in the year ended 31 December 2017).

Impact of future new IFRS standards

Most of the Group’s assets leased under operating lease contracts will have to be accounted for on-balance sheet from 1 January 2019 in line with IFRS 16 Leases. See note 5.4 for an assessment of the impact on the Group of adopting the new lease standard.

32. Contingent liabilities

The Group has contingent liabilities relating to legal and other matters arising in the ordinary course of business. Based on legal and other advice, management is of the view that the outcome of any such proceedings will have no significant effect on the financial position of the Group beyond the recognised provision.

Accounting policy

Contingent liabilities are possible obligations arising from a past event to be confirmed by future events not wholly within the control of the Group, or present obligations arising from a past event of which the outflow of economic benefits is not probable, or which cannot be measured reliably. Contingent liabilities are not recognised in the statement of financial position, except for certain items assumed in a business combination, but are separately disclosed.

33. Subsequent events

There have been no events subsequent to 31 December 2018 that would require an adjustment to or disclosure in these consolidated financial statements.

Financial reconciliation

Reconciliation of adjusted net income

(in € million)

 

2018

 

2017

Source: Company information

(1)

Reflects the impact of the post IPO capital structure.

Loss for the period

 

(83.9)

 

(96.9)

Non-cash foreign exchange impact of non-functional currency loans and realised foreign exchange impact due to refinancing

 

(58.8)

 

67.6

Amortisation of transaction costs

 

11.0

 

15.5

Net change in fair value of derivatives

 

7.4

 

(7.3)

Net effect of early redemption of notes

 

82.5

 

Net effect of early repayment of term loans

 

56.3

 

PPA depreciation and amortisation

 

140.1

 

144.3

Adjustments to EBITDA:

 

 

 

 

Share of result of joint ventures, net of dividends distributed

 

14.8

 

6.2

Restructuring costs, net of reversals

 

4.3

 

19.4

Unrealised (gain)/loss on derivatives

 

23.1

 

(5.2)

Transaction-related costs

 

19.7

 

Change in contingent purchase price obligation

 

 

2.5

Operational process-related costs

 

3.6

 

Other

 

0.9

 

(1.7)

Tax effect on above items

 

(72.1)

 

(38.6)

Adjusted net income

 

148.9

 

105.8

Interest expense on borrowings

 

106.0

 

136.7

Pro forma interest expense on new borrowings (1)

 

(35.3)

 

(35.3)

Pro Forma tax effect of reduction in interest expense (1)

 

(7.1)

 

(9.4)

Pro forma adjusted net income

 

212.5

 

197.8

Reconciliation of free cash flow

(in € million)

 

2018

 

2017

Source: Company information

(1)

Reflects the impact of the post IPO capital structure.

Net cash from operating activities

 

260.2

 

245.2

Dividends received from joint ventures

 

23.7

 

25.0

Acquisition of PP&E and intangible assets

 

(213.9)

 

(212.3)

Payment of finance lease liabilities

 

(1.8)

 

(1.3)

Free cash flow

 

68.2

 

56.6

Interest paid

 

133.0

 

143.6

Payment of transaction and other costs relating to financing

 

29.7

 

1.5

Payment of fee for early redemption of notes

 

26.2

 

Adjusted free cash flow

 

257.1

 

201.7

Pro forma interest expense (1)

 

(35.3)

 

(35.3)

Tax effect of reduction in interest expense

 

(9.4)

 

(9.4)

Pro forma free cash flow

 

212.4

 

157.0

Reconciliation of non-IFRS measures

(in € million)

 

2018

 

2017

 

2016

 

2015

 

2014

 

2013

 

2012

 

2011

 

2010

 

2009

Source: Company Information

Note: Totals do not always equal to the sum of the components due to rounding differences

(1)

Reflects the difference between our share of profit of our joint ventures included in EBITDA and the actual cash dividends we received from the joint ventures.

(2)

Reflects restructuring costs that relate to redundancy and severance costs associated with our cost savings initiatives and related legal expenses.

(3)

We use derivative financial instruments to mitigate effects of fluctuations in foreign currency exchange rates and commodity prices, primarily related to resin and aluminium. We do not enter into derivative financial instruments for speculative purposes. This adjustment eliminates the non-cash gains and losses resulting from fair value changes of these instruments.

(4)

For the year 2018 transaction-related costs include IPO-related costs that relate to the listing of existing shares on SIX Swiss Exchange and costs for pursuing other initiatives. Costs incurred for the IPO that are directly attributable to the issue of new shares (€38.6 million) are recognised as a deduction from equity. For the years 2014 to 2016, reflects adjustments relating to various acquisition-related costs and fair value adjustments incurred in conjunction with the Acquisition. The adjustment in the year ended 31-Dec-2007 reflects costs occurred in connection with the acquisition of SIG by the previous owner.

(5)

Change in contingent purchase price obligation (relating to the earn out) represents changes to the Group’s contingent purchase price obligation that related to the 2015 and 2016 financial years.

(6)

Reflects allocated overhead costs of the previous owner that have not continued to incur in periods following the Acquisition.

(7)

Reflects costs related to certain cost savings initiatives.

(8)

Other for the year ended 31-Dec-2018 primarily includes adjustments for management fees and a gain relating to the sale of a piece of land regarded as an investment property. Other for the years ended 31-Dec-2017, 2016 and 2015 primarily includes adjustments for out of period indirect tax recoveries and import duties, impairment losses on property, plant and equipment and management fees. Other for the year ended 31-Dec-2016 also includes adjustments for gain on sale of land and other assets. Other for the years ended 31-Dec-2009 to 2013 primarily includes adjustments for out of period indirect tax recoveries in Brazil and import duties in China and Thailand (with adjustments for €(12.2)m of indirect tax recoveries in 2013 and import duty charges of €7.4m in 2010); impairment losses on property, plant and equipment; reversals of provisions; reversals of inventory write-downs; and gains of sale of businesses, land, properties and other assets. In 2013, other also includes an adjustment of €24.9m for a realised accumulated foreign currency translation loss on the liquidation of a subsidiary. In 2009 and 2011, other also includes adjustments for revaluation of pension plans. An adjustment for business interruption costs was made in 2011.

Profit/(loss) for the period

 

(83.9)

 

(96.9)

 

(39.9)

 

47.1

 

142.9

 

83.4

 

73.7

 

41.0

 

38.1

 

139.3

Net finance expense

 

206.4

 

238.7

 

165.0

 

141.7

 

70.4

 

89.3

 

94.9

 

61.3

 

117.3

 

(22.0)

Income tax expense

 

0.9

 

26.2

 

34.9

 

39.5

 

46.4

 

73.1

 

40.3

 

43.0

 

45.5

 

17.2

Depreciation and amortisation

 

271.7

 

265.9

 

262.1

 

223.5

 

94.1

 

126.0

 

169.5

 

185.7

 

182.7

 

179.7

Earnings before interest, tax, depreciation and amortisation ("EBITDA")

 

395.1

 

433.9

 

422.1

 

451.8

 

353.8

 

371.8

 

378.4

 

331.0

 

383.6

 

314.2

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of result of joint ventures, net of dividends distributed (1)

 

14.8

 

6.2

 

(2.1)

 

(7.3)

 

3.1

 

1.1

 

(15.0)

 

(6.1)

 

(9.1)

 

(5.4)

Restructuring costs, net of reversals (2)

 

4.3

 

19.4

 

18.0

 

2.1

 

24.9

 

8.9

 

14.9

 

1.5

 

8.7

 

26.4

Unrealised (gain) / loss on derivatives (3)

 

23.1

 

(5.2)

 

(3.6)

 

(20.0)

 

14.8

 

(1.7)

 

5.5

 

1.8

 

(0.1)

 

(3.1)

Transaction-related costs (4)

 

19.7

 

 

1.0

 

55.8

 

8.5

 

 

 

 

 

Change in contingent purchase price obligation (5)

 

 

2.5

 

32.5

 

(50.0)

 

 

 

 

 

 

Allocated carve-out expenses (6)

 

 

 

 

1.1

 

11.0

 

11.2

 

13.1

 

4.2

 

 

Operational process-related costs (7)

 

3.6

 

 

 

0.5

 

4.0

 

7.2

 

1.7

 

 

 

Other (8)

 

0.9

 

(1.7)

 

(0.5)

 

1.7

 

(3.2)

 

10.3

 

(9.1)

 

9.9

 

5.7

 

9.0

Adjusted earnings before interest, tax, depreciation and amortisation ("Adjusted EBITDA")

 

461.5

 

455.1

 

467.4

 

435.7

 

416.9

 

408.8

 

389.5

 

342.3

 

388.8

 

341.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E (excluding filling machines)

 

57.0

 

60.1

 

73.1

 

70.1

 

58.4

 

94.3

 

66.7

 

77.5

 

49.0

 

22.5

Gross filling machines

 

156.9

 

152.2

 

113.3

 

89.1

 

91.4

 

59.2

 

65.3

 

62.2

 

75.5

 

45.4

Upfront cash (for filling machines)

 

(70.7)

 

(48.1)

 

(27.0)

 

(34.5)

 

(25.8)

 

 

 

 

 

Net capex

 

143.2

 

164.2

 

159.4

 

124.7

 

124.0

 

153.5

 

132.0

 

139.7

 

124.5

 

67.9

Reconciliation of ROCE calculations

(in € million)

 

2018

 

2017

Source: Company information and Management estimates

(1)

Post-tax ROCE is calculated by adjusting pre-tax ROCE by applying a 30% tax rate, which management has determined reflects a reference tax rate to provide comparability between years and takes into consideration our post-IPO capital structure.

Adjusted EBITDA

 

461.5

 

455.1

Dividends received from joint ventures

 

(23.7)

 

(25.0)

Depreciation of PP&E

 

(172.3)

 

(163.2)

ROCE EBITA

 

265.5

 

266.9

 

 

 

 

 

Current assets (excluding cash and cash equivalents)

 

407.3

 

440.4

Current liabilities (excluding Interest-bearing liabilities)

 

(574.3)

 

(530.9)

PP&E

 

1068.8

 

1015.4

Capital employed

 

901.8

 

924.9

 

 

 

 

 

Pre-tax ROCE

 

29.4%

 

28.8%

ROCE tax rate of 30%

 

30.0%

 

30.0%

Post-tax ROCE(1)

 

20.6%

 

20.2%