9. Alternative performance measures

Management uses a number of measures to assess the performance of the Group that are not defined in IFRS, including 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 agreements 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. Adjusted earnings per share is presented in note 10 while net capital expenditure and free cash flow are presented in note 11. Information about the Group’s net leverage ratio is included in note 21. In the prior period, management also used core revenue as an alternative performance measure (see note 6). Core revenue excluded revenue from the sale of folding box board.

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 on 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, integration 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.

The transaction- and acquisition-related costs as well as the integration costs for the year ended 31 December 2022 mainly relate to the acquisitions of Scholle IPN and Evergreen Asia in 2022 (see notes 4 and 27). For the year ended 31 December 2021, the transaction- and acquisition-related costs related to costs incurred for the acquisitions of Scholle IPN and Evergreen Asia in 2022 as well as the acquisition of the remaining shares of the joint ventures in the Middle East in 2021 (€6.5 million).

The settlement of the deal-contingent foreign currency derivatives that the Group entered into relating to the consideration paid in cash for Scholle IPN on 1 June 2022 and for Evergreen Asia on 2 August resulted in a total realised gain of €61.1 million in the year ended 31 December 2022 (€25.5 million for Scholle IPN and €35.6 million for Evergreen Asia), of which €16.6 million is recognised in profit or loss as part of other income (€11.9 million for Scholle IPN and €4.7 million for Evergreen Asia). Due to the designation of the derivatives as hedging instruments in a cash flow hedge, the larger part of the realised gain reduced the amounts of goodwill recognised for Scholle IPN and Evergreen Asia. See further note 27.

The fair value adjustment on inventories of €20.6 million in the year ended 31 December 2022 relates to the fair value increases of the inventories of Scholle IPN and Evergreen Asia that were made in connection with the acquisition accounting (see note 27). These inventories have subsequently been sold. The fair value adjustment on inventories of €10.4 million in the year ended 31 December 2021 related 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 were subsequently sold.

The change in the fair value of the contingent consideration of €74.0 million relates to the remeasurement of the US Dollar contingent consideration for Scholle IPN at fair value as of 31 December 2022 (see further notes 27 and 33).

The restructuring costs for the year ended 31 December 2021 mainly related to the Group’s paper mill in New Zealand (€9.8 million, net of reversals of provisions – see note 26) and to the closure of the Australian sleeves manufacturing operations (€8.6 million). In light of the opening of the Group’s new plant for aseptic carton sleeves in China in 2020, the Group decided to close its Australian sleeves manufacturing operations and consolidate the production of aseptic carton sleeves into the Group’s existing plants. The Australian sleeves plant was vacated in 2022.

A loss of €12.1 million arose upon the sale of the Group’s paper mill in New Zealand in the year ended 31 December 2021 (see note 26).

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).

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 a 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 arose due to the acquisition accounting that was performed when the Group was acquired by Onex in 2015. The PPA amortisation relates to all acquisitions of the Group.

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

See note 27 for information about the realised gain on settlement of the deal-contingent derivative of €15.5 million, which relates to the repayment of the acquired US Dollar loan of Scholle IPN.