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9 Alternative 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, net capital expenditure, free cash flow and net leverage ratio.

These alternative non-IFRS performance measures are presented as management believes that they are important supplemental measures of the Group’s performance. Management believes that they are useful and widely used in the markets in which the Group operates as a means of evaluating performance. In certain cases, these alternative performance measures are also used to determine compliance with covenants in the Group’s credit agreement and compensation of certain members of management. However, these alternative performance 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, adjusted earnings per share in note 10 and net capital expenditure and free cash flow in note 11. Information about the Group’s net leverage ratio is included in note 21.

Adjusted EBITDA

Adjusted EBITDA is used by management for business planning and to measure operational performance. Management believes that adjusted EBITDA provides investors with further transparency into the Group’s operational performance and facilitates comparison of the performance of the Group on a period-to-period basis and versus peers.

EBITDA is defined by the Group as profit or loss before net finance expense, income tax expense, depreciation of property, plant and equipment and right-of-use assets, and amortisation of intangible assets. Adjusted EBITDA is defined by the Group 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 profit or loss of joint ventures, and to include the cash impact of dividends received from joint ventures.

The following table reconciles profit to EBITDA and adjusted EBITDA.

(In € million)

 

Year ended
31 Dec. 2020

 

Year ended
31 Dec. 2019

Profit for the period

 

68.0

 

106.9

Net finance expense

 

81.0

 

44.6

Income tax expense

 

23.0

 

41.1

Depreciation and amortisation

 

277.7

 

287.1

EBITDA

 

449.7

 

479.7

Adjustments to EBITDA:

 

 

 

 

Replacement of share of profit of joint ventures with cash dividends received from joint ventures

 

5.3

 

5.3

Restructuring costs, net of reversals

 

6.3

 

1.8

Unrealised gain on derivatives

 

(21.5)

 

(10.1)

Transaction- and acquisition-related costs

 

3.1

 

4.3

Impairment losses

 

49.3

 

2.8

Other

 

6.1

 

1.6

Adjusted EBITDA

 

498.3

 

485.4

The Group has a number of ongoing restructuring programmes focused on reducing costs, streamlining the organisation and reducing headcount to be more closely aligned with the Group’s needs and changing market demands. For the year ended 31 December 2020, restructuring costs primarily relate to a move of production resources within the APAC segment and organisational changes in the leadership team. See also notes 19 and 29.

Transaction- and acquisition-related costs include acquisition-related costs and costs for pursuing other initiatives.

Impairment losses for the year ended 31 December 2020 primarily relate to impairment of production-related assets comprising the Group’s paper mill in New Zealand (€38.0 million) and impairment losses resulting from the reallocation of production within the APAC segment. See further notes 4, 12 and 15.

The “Other” category for the year ended 31 December 2020 mainly includes termination benefits relating to the former CEO (see further note 29) and integration costs in respect of Visy Cartons, which was acquired in November 2019. For the year ended 31 December 2019, “Other” mainly includes operational process-related costs.

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 result directly associated with the period’s performance is 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 by the Group 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 Group was acquired by Onex in 2015. No adjustments are made for PPA depreciation and amortisation other than in connection with the Onex acquisition.

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

(In € million)

 

Year ended
31 Dec. 2020

 

Year ended
31 Dec. 2019

Profit for the period

 

68.0

 

106.9

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

 

24.6

 

(1.2)

Amortisation of transaction costs

 

3.1

 

2.8

Net change in fair value of derivatives

 

(0.5)

 

1.5

Net effect of early repayment of secured term loans

 

19.7

 

Onex acquisition PPA depreciation and amortisation

 

125.4

 

136.5

Adjustments to EBITDA:

 

 

 

 

Replacement of share of profit of joint ventures with cash dividends received from joint ventures

 

5.3

 

5.3

Restructuring costs, net of reversals

 

6.3

 

1.8

Unrealised gain on derivatives

 

(21.5)

 

(10.1)

Transaction- and acquisition-related costs

 

3.1

 

4.3

Impairment losses

 

49.3

 

2.8

Other

 

6.1

 

1.6

Tax effect on above items

 

(56.6)

 

(34.8)

Adjusted net income

 

232.3

 

217.4