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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 operating 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 for the period to EBITDA and adjusted EBITDA.

(In € million)

 

Year ended
31 Dec. 2021

 

Year ended
31 Dec. 2020

Profit for the period

 

172.1

 

68.0

Net finance expense

 

31.4

 

81.0

Income tax expense

 

52.3

 

23.0

Depreciation and amortisation

 

306.6

 

277.7

EBITDA

 

562.4

 

449.7

Adjustments to EBITDA:

 

 

 

 

Unrealised gain on operating derivatives

 

(7.8)

 

(21.5)

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

 

1.6

 

5.3

Restructuring costs, net of reversals

 

26.0

 

6.3

Loss on sale of subsidiary

 

12.1

 

Transaction- and acquisition-related costs

 

16.5

 

3.1

Fair value adjustment on inventories

 

10.4

 

Gain on pre-existing interest in former joint ventures

 

(48.8)

 

Out-of-period indirect tax recoveries

 

(10.3)

 

Impairment losses

 

4.4

 

49.3

Other

 

4.1

 

6.1

Adjusted EBITDA

 

570.6

 

498.3

The restructuring costs for the year ended 31 December 2021 mainly relate to the Group’s paper mill in New Zealand (€9.8 million, net of reversals of provisions – see also notes 4 and 26) and to the closure of the Australian sleeves manufacturing operations (€8.6 million). In the light of the opening of the Group’s new production plant for sleeves in China in 2020, the Group has decided to close its Australian sleeves manufacturing operations and consolidate the production of aseptic carton packaging sleeves into the Group’s existing plants. The Australian sleeves production plant was part of the Visy Cartons acquisition in 2019. For the year ended 31 December 2020, restructuring costs primarily related to a move of production resources within the APAC segment and organisational changes in the leadership team (see note 29).

A loss of €12.1 million arose upon the sale of the Group’s paper mill in New Zealand in June 2021. See note 26.

For the year ended 31 December 2021, transaction- and acquisition-related costs mainly relate to costs incurred for the planned acquisitions of Evergreen Asia and Scholle IPN. An amount of €6.5 million relates to the acquisition of the remaining shares of the joint ventures in the Middle East. See further notes 4 and 27.

The fair value adjustment on inventories of €10.4 million in the year ended 31 December 2021 relates to the fair value increase of the inventories of the former joint ventures in the Middle East that was made in connection with the acquisition accounting (see note 27). These inventories have subsequently been sold.

The remeasurement to fair value of the Group’s pre-existing 50% interest in the former joint ventures in the Middle East resulted in a gain of €48.8 million in the year ended 31 December 2021 (see note 27).

Impairment losses for the year ended 31 December 2020 primarily related 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 notes 12 and 15.

The “Other” category for the year ended 31 December 2021 mainly includes integration costs. For the year ended 31 December 2020, “Other” mainly included termination benefits relating to the former CEO (see note 29) and integration 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 better 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. 2021

 

Year ended
31 Dec. 2020

Profit for the period

 

172.1

 

68.0

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

 

(10.6)

 

24.6

Amortisation of transaction costs

 

3.6

 

3.1

Net change in fair value of financing-related derivatives

 

 

(0.5)

Onex acquisition PPA depreciation and amortisation

 

103.1

 

125.4

Net effect of early repayment of loans

 

3.7

 

19.7

Interest on out-of-period indirect tax recoveries

 

(3.1)

 

Adjustments to EBITDA:

 

 

 

 

Unrealised gain on operating derivatives

 

(7.8)

 

(21.5)

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

 

1.6

 

5.3

Restructuring costs, net of reversals

 

26.0

 

6.3

Loss on sale of subsidiary

 

12.1

 

Transaction- and acquisition-related costs

 

16.5

 

3.1

Fair value adjustment on inventories

 

10.4

 

Gain on pre-existing interest in former joint ventures

 

(48.8)

 

Out-of-period indirect tax recoveries

 

(10.3)

 

Impairment losses

 

4.4

 

49.3

Other

 

4.1

 

6.1

Tax effect on above items

 

(24.6)

 

(56.6)

Adjusted net income

 

252.4

 

232.3