Smurfit Kappa Group Plc

Okay. Good morning, everybody and I would like to very much thank you for your attendance both here and on the phone.

And as is custom, I will draw your attention to Slide 2 and I am sure we ask you to repeat this, you'd be able to repeat it verbatim. So I'll take it as read.

And today, I am really delighted to report a set of results that once again demonstrates the strength of Smurfit Kappa Group’s performance against all measures. As we’ve said before, Smurfit Kappa Group is a transformed, but more importantly, transforming business, which is leading, innovating and consistently delivering.

We are living our vision and this performance represents yet another step towards the realization of that vision. Our returns reflect both the quality of our people, and our ever-improving asset base and this has delivered an EBITDA growth of 7% and margin of 18.2% with a return on capital of 17%.

During the year, and consistent with our medium-term plan, we completed a large number of very significant capital projects. In 2020, we expect to complete the majority of our medium-term plan European paper projects, leaving us free to continue to our investments in our market-facing corrugated operations.

Our leverage multiple stands at 2.1 times and our free cash flow is a strong €547 million and this is after investing €730 million in our business. As you all have seen, the Board is recommending a final dividend increase of 12%, which reflects its belief in the unique strength of the Smurfit Kappa Group business model and of course, our future profits.

In our earnings release this morning, we talked about the consistency of delivery, strategically, operationally, and financially and we set this against a longer-term context against key performance measures on this slide. You can see here readily a structural improvement across all key performance metrics.

While success is never the straight-line, our longer-term journey of transformation has delivered for Smurfit Kappa an increase of over €600 million in EBITDA, a 360 basis point increase in our EBITDA margin, a 570 basis point increase in our ROCE. And this has enabled the progressive and attractive dividend stream with a CAGR of 28% since 2011.

In 2020, our focus is on continued free cash flow and continuing to build a better platform for long-term performance and success. Now on Smurfit Kappa, we are leaders in our chosen markets and segments and this is a central tenant of all that we do and think about.

Let me develop this with you. Sustainability is increasingly important for Smurfit Kappa and our customers.

Our product corrugated is the most sustainable and environmentally-friendly transport and merchandising medium that exists today. As you are all aware, our strong financial performance has not been to the exclusion of our CSR activities.

You can see that against the 2005 baseline, we’ve reduced our CO2 footprint on both an absolute and relative basis by over 30% and we have plans to improve this further with our new 40% targeted reduction by 2030. We launched our 12th Sustainability Report in May 2019 and having met or exceeded our previous targets ahead of the 2020 deadline.

That progress has been recognized strongly by many independent third parties as Smurfit Kappa continues to progress towards and to support the UN's 2030 Sustainable Development Goal initiative. The level of interest from our customers, which is absolutely key in our Better Planet Packaging has really been incredible, with two recent events in particular to highlight this.

In May, we hosted over 350 customers, more than double, more than double the previous event from across the globe to our Global Innovation Event in The Netherlands. The cornerstone of that event was Better Planet Packaging and particularly pleasing was the level of seniority represented at the event dominated demonstrating the importance that this topic has with all of our customer base.

On the 21st of November, starting in St. Petersburg and ending in Los Angeles, we hosted up our Global Better Planet Packaging Day across 18 countries, engaging with over 650 customers, brand owners, and retailers.

We used our 26 global experience centers as the platform to help our customers navigate in this new world. These two events illustrate that when catering for changing consumer habits, leading brands come to Smurfit Kappa Group as the leader to develop innovative sustainable solutions, Our Better Planet Packaging initiative was launched just one-and-a-half years ago and has already received - achieved a disruptive effect on the packaging markets.

As a corrugated industry leader, we operate in a growth industry with many of our markets growing at or ahead of the global growth forecast of 1.5% to 2023. There are number of structural or secular growth drivers, which are not just fundamentally changing the applications of corrugated, but also its long-term value.

These include corrugated been increasingly used as an effective merchandising medium, e-commerce developments, where corrugated is the transport medium-of-choice and the growth of private-label. And we will develop sustainable packaging as a structural growth story, as we go through the presentation.

Bearing in mind the positive outlook for our industry, Smurfit Kappa is the company that is best placed to take advantage in the short, medium and long-term of these positive structural trends. We have developed applications that are truly unique and incapable of replication by any other player in our business, where it’s the 145,000 store views in Shelf Viewer, the 84,000 supply chains and pack experts, are the greater than 8000 bespoke machine systems owned, operated or maintained by Smurfit Kappa Group for its customers.

Our global footprint cannot be matched equally over time we continue to invest to make the most efficient innovative and world-class asset base that is able to offer our customers the best products at the lowest possible cost. Our integrated model allows Smurfit Kappa to take full advantage of both its position, its asset base, and the knowledge that we have in our business.

And on top of this all, we have our people. And of course, every company talks about their people.

But I am especially proud of the culture that we have developed whereby people embrace the values of loyalty, integrity, and respect in this company. In return, Smurfit Kappa has initiated global training programs, such as with INSEAD where all of our senior management will have completed a multi-week leadership program by the end of 2020.

This program is of course in addition to the training we give many other thousands of up-and-coming young talent who perpetuate Smurfit Kappa’s values and culture into the future. And finally, as previously mentioned, sustainability is a serious competitive advantage.

Firstly for SKG, but also for our industry, as the use of paper-based packaging is excellent in a sustainable world. In Smurfit Kappa, innovation and sustainability are in our DNA.

Between 25% and 30% of our business each year, is a newly designed or printed box for new or existing customers. With this amount of change, it is imperative to have knowledge and ability to innovate, to add value, to reduce costs, and give customers the best solution for their business and marketplace.

This underscores the importance as set out in our vision of dynamically delivering for our customers day in and day out. As I mentioned already, to meet and define the need for packaging innovation, Smurfit Kappa, over the past 10 years has developed 26 experience centers across the world.

They are true innovation hubs, which connect the Smurfit Kappa world for the benefit of our customers. Our Global Experience Centers are a total differentiator, as this world is connected with all of our applications, giving our customers the company's global innovation at just the click of a button and this provides access to the depth and knowledge and the breadth of our company with the geographic reach that we have.

So what is it in these innovation hubs that makes a difference for our customers? Firstly, we take a scientific approach with the assets and insights we can demonstrate to our customers that they get optimized packaging that is fit-for-purpose with minimum waste.

SKG, through its applications is committed to reduce waste through science, including in our own product of corrugated, we do not want to see overpackaged products. Crucially, we give our brand owners assurance through our position as an established leader that their brand will be protected through the use of Smurfit Kappa products.

To ensure that we meet these critical objectives, we have over 1000 designers every day ensuring new concepts are at our customers disposal. These designers constantly invent new ideas that create a repository for our customers to utilize for their business.

Our experience centers also demonstrate our end-to-end solutions, whether it's our machine system’s capability or our sustainability credentials. Being able to service whatever discipline our customers wish to utilize.

Our innovation hubs provide increased access across the customers disciplines, within our customers’ worlds whether that is in procurement, marketing, sustainability or any other discipline that our customer wishes to visit with. Ultimately though, our centers provide the ability for our customers to succeed in their own marketplace.

Their need is to sell more and in SKG, we can help them do that. With over 90,000 customer insights, and with the unique and irreplaceable applications that we have, we demonstrate to those customers every day that the corrugated box is a fabulous merchandising and marketing medium.

And innovation is delivering every day for Smurfit Kappa Group. Here is the evidence of how just for a few of some of the largest, both sophisticated customers in the world, how we have grown strongly.

Their appreciation of our offering is shown tangibly by the growth illustrated in this slide. These examples are just a few of the many thousands and thousands examples of success that we continue to have, because of our innovation offering.

Today, our customers see Smurfit Kappa Group as the partner-of-choice, because we consistently, every day deliver the unique offering in our sector. We help them increase their sales.

We help them reduce their costs, and we help them mitigate risk. So with that, I will hand you over to Ken, who will talk about delivering.

Thank you, Tony and good morning, everybody. And before I talk about the results in a little bit detail, I just want to focus on one of the key aspects and drivers that Tony talked about the sustainability agenda.

It’s important to remember that SKG has got a focus on sustainability for a very long time. This year will be our 13th year of delivery against our objectives and when we talk about sustainability, it is sustainability in every fiber including human fiber.

But there has been a shift in recent years and that consumers, governments and retailers are just a few of the stakeholders driving the awareness around sustainable packaging in a way that we have never seen before. And generally, that conversation revolves around two topics.

The role of packaging in the climate change is the base and the challenges with single-use, single-direction plastic that was triggered at the base around the impact of all packaging waste. The consumer expects product manufacturers to take the lead.

So our retailers and NGOs are reacting to consumer requests. They expect producers, our customers to take the lead.

And given our long history in the area, we are uniquely positioned to help them. And as I already, we have sustainability in every fiber.

What’s also becoming clear is that, paper-based packaging is becoming the preferred solution and this is primarily as a result of recent trends, rising e-commerce, rising consumer power and above all, sustainability in its wider sense, both products and indeed environmental impacts. Every piece of research, whether it’s environmental perception, likability or quality perception, confirms that moving to paper-based packaging increases the positive perception of your brand.

I also believed that in time with the increased regulation and legislation in this area and as you will see in the next slide, Smurfit Kappa already has those solutions in place. And as Tony mentioned, in order to lead the industry and further support our customers and the end consumer, we launched Better Planet Packaging.

This unique initiative gave purpose to the sustainable packing agenda by developing and implementing end-to-end stable packaging concepts. It is an initiative mobilizing the entire value chain to multiple ends, to educate and inspire all stakeholders in the value chain, including the most important one, the consumer.

To drive innovation it’s more sustainable material and the design a more sustainable packing solutions. And above all, to implement sustainable packaging solutions to relate sustainable packaging materials.

At Smurfit Kappa, our knowledge, experience and expertise has allowed us to develop over 7,500 innovative packaging solutions, ready to implement and address the consumers’ desire to move away from less sustainable packaging. Our complete product portfolio from paper to boxes, to bag and box and honeycomb, covering the entire spectrum of consumer and transfer packaging makes us the most reliable innovation partner.

But to truly tackle the challenge of the day, intensive paper knowhow, especially in kraftliner needs to be combined with world-class, award-winning designing capabilities, built on data and proven scientific concepts, along with unrivaled expertise and machine optimization. One fantastic example of how the Smurfit Kappa innovation applies that knowledge and inspires corporations across the value chain is top clue.

We have developed a unique solution for bundling cans and together, one of the largest automation providers in the world in KHS, we are ready making this real for our customers. This clearly has application across a large number product categories and most importantly, is available now globally for all our customers.

It’s clear that over the last number of years SKG has increased visibility of its product on shelves as marketing mediums appealing directly to the end-consumer. And while we are at the very early stages of what might be an inevitable move towards paper-based packaging, the products we continue to innovate with will address the end-consumers’ concerns around sustainability.

So moving on to see how some of that translates into results in our financial performance and turning now to the full year in a bit more detail. We are please to deliver another strong set of results for the full year 2019 either at or ahead of all our key metrics.

Group revenue was €9 billion for the year, up 1% on 2018, which is a strong result considering the backdrop of lower containerboard prices. EBITDA was up 7% to €1.65 billion with earnings growth in both Europe and the Americas.

I’d expand on the divisional split in a moment, but at a Group level, EBITDA was negatively impacted by currency, while net acquisitions and the impact of IFRS 16 were positive. We also saw improvement in the EBITDA margins from 17.3% in 2018 to 18.2% in 2019.

We saw improved margins in both Europe and the Americas, primarily reflecting the benefits of our customer-focused innovation, the resilience of the Group’s integrated model, the returns from our capital spend programmed and the contribution from acquisitions and in the volume growth. We delivered a return on capital employed of 17%, very much in line with our stated targets.

And as a reminded, that target was set on the basis of the full implementation of our medium-term plan exiting 2021 and before the impact of IFRS was taken into consideration. So on a like-for-like basis, excluding IFRS-16 our ROCE would have been close to 17.5% for 2019.

Free cash flow for the year was with €547 million and a 11% increase on the €494 million delivered in 2018 and while EBITDA was significantly up year-on-year so to as Tony mentioned with CapEx. Offsetting this is a swing in working capital from an outflow of €94 million in 2018 to an inflow of €45 million in 2019.

And as you know the management of working capital has always been and remains a key focus for us and the working capital as a percent of sales at 7.2% in December 2019 is well within our stated 7% to 8% range and below the 7.5% number at December 2018. Net debt to EBITDA at 2.1 times was slightly up on the two times we reported December 2018, but lower than the 2.2 times at the half year.

And the move in leverage should again be seen in the context of taking on the debt associated with IFRS 16 and indeed the completion of some acquisitions in the year. So, again, excluding IFRS 16 on a like-for-like basis, leverage will be two times at the end of December 2019 and whether it's with or without IFRS 16, very much well within our stated range.

And finally, and reflecting the confidence, the Board has in both the current and indeed the future prospects of the Group, it’s approved the 12% increase in the final dividend 80.9 cent per share and this gives the year-on-year increase in the total dividend of 11%. And turning to our European operations and their performance in 2019.

And EBITDA increased by 5% to $1.32 2 billion. The EBITDA margin was 19%, up from 18.3% in 2018 and the reasons for the strong performance are really as I already outlined as part of the overall Group performance.

Box price retention has been ahead of our expectations given the European pricing for testliner has reduced by about a €145 tonne and €185 tonne respectively from the high of October 2018 to December 2019. And as noted in the press release, we have recently announced to our customers an increase of €60 tonne on recycled containerboards effective immediately.

During 2019, we also completed acquisitions in Serbia and Bulgaria, a further step in our Southeastern European strategy. And as of previous mergers and acquisitions, the integration of these assets and more importantly, the people into the Group is progressing well and they continue to increase to support the geographic spread of the Group and indeed, deepen the brand strength for talent.

And now turning to the Americas and in the Americas for the year, EBITDA increased by 13% to €360 million. The EBITDA margin also improved from 15.7% in 2018 to 17.5% in 2019 and driven once again by the drivers noted as part of the overall Group performance.

And for the full year, 84% of the region’s earnings were delivered by Colombia, Mexico and the US with strong year-on-year performances in all three countries driven by increased volumes, low recovered fiber costs and continued progression in our investment programs. In Colombia, volumes were up 9% for the year, primarily driven by high-growth in the FMCG sector and in June, we also announced the success with tender offer to acquire the minority shares in Cartón de Colombia.

The consideration paid there was about €81 million and it really simplifies the corporate structure in Colombia for us for us. In Mexico, we saw continued improvement on both an EBITDA and EBITDA margin basis, as well as continued volume growth.

And in Mexico, the continued - the increasing focus on sustainable packaging solutions together with our ability to provide a unique Pan-American sales offering has continued to drive demand for our Mexican business. And in the U.S., our margins continued progressing year-on-year due to a very strong performance of our mill and the benefits of lower recovered fiber costs.

So, that’s the results for the year in kind of summary. And just, really now I want to recap on capital allocation.

This slide will be very familiar to at this stage. It’s our constant.

We've always been a generator of significant free cash flow and that continued focus on free cash flow enables us to balance our capital allocation priorities while ensuring the balance sheet stays strong. And as you can see, it’s a balance sheet with considerable flexibility, well within the target leverage range of one and three quarter time to two and a half times.

And as you know our ROCE target is 17% through the cycle. The returns profile of our business has been consistently improving over time and we remain confident in our ability to maintain that target over time.

The dividend is a key part of our allocation and we’ve grown it from 15 cents back in 2011 108.8 cents in 2019. And I think it’s a clear example of how we think about capital allocation, because the work we did on refinancing during 2019 means that the increase in the dividend would be leverage-neutral event.

In effect, we are giving our shareholders the benefits that deleveraging. And we believe capital allocated to internal projects is key to the continued growth and performance of the business.

As you expect, we take a returns-based approach to all our capital allocation decisions. Equally, and as returns show, we were effective stewards of capital, disciplined with those requiring targets and discipline when it comes to internal investments.

And this slide is just a reminder of the evolution of the Group’s both free cash flow and the effect of those capital allocation decisions over time on leverage and indeed cash interest since our full year of operations post IPO in 20017. It also shows the evolution of the dividend since 2011.

As Tony has indicated, an important component of our vision is to deliver secure and superior returns for all stakeholders. Consistently delivering these levels of returns primarily reflects the strength of our free cash regeneration, which I believe that the graph shows we can deliver irrespective of market conditions.

Since 2007, our cash generation has allowed us to significantly transfer the balance sheet of the Group, reduce leverage and take advantage of multiple opportunities to refinance our cash. We are at a point now where our average interest rate is a little over 3%.

Our cash interest bill has reduced significantly and as I have already mentioned, we’ve given some of those benefits back to shareholders. Dividends form an integral part of our capital allocation decision-making process and provides certainty of value for shareholders.

We've always described it as a progressive dividend policy and it’s delivered the CAGR of around 28% since 2011. This iterative process of investment in the business with value-enhancing M&A delivering superior returns, facilitate the further strengthening of the balance sheet and in turn ever greater returns for shareholders.

And finally, just turning to some technical guidance for 2020. As usual, it is very detailed modeling questions, probably more effectively and efficiently dealt with offline.

What’s clear though as Tony mentioned that given this backdrop of cash flows, we are going to have another year of strong free cash flow delivery. And now, I’ll hand it back to Tony for some concluding remarks.

Thank you, Ken. In 2016, we set out a new and shared vision for Smurfit Kappa Group.

And this is something that in the company, we strive for every day as it defines our approach to business and our performance-led culture. This is not an aspirational state.

Smurfit Kappa has dynamically and consistently delivered strategically, operationally, and financially. As Ken has said, our balance sheet is within our stated range and our returns have exceeded the targets set out in the medium-term plan.

I believe our recent performance and recognitions show significant progress towards this vision and I hope it’s apparent to all of you today. With regard to be globally admired, I am satisfied that we're making good progress towards this objective.

Our awards in both the areas of CSR and for innovation make all of us in Smurfit Kappa Group feel that we are on the right track. This of course is a never-ending journey with our culture.

However, I am sure our commitment to motivation of the people are going to accelerate in both innovation and CSR activities. Global recognition enhances the company's position as the partner-of-choice for our customers and of course, as an employer-of-choice for our people providing us with the ability to attract, retain, and motivate the very best talents available.

With regard to dynamically delivering, I hope you can see we are doing this strongly in Smurfit Kappa Group. With our experience centers and people, we continue to innovate for our customers who are growing and developing with us.

Our operations continue to improve in all aspects, be that safety, quality, and efficiency. Our company has been dynamically delivering also through acquisition and we’ve been able to find opportunities and new businesses that enter our company that gives value for our stakeholders.

Our medium-term plan has demonstrably delivered. The heavy lifting in the European mill system will be behind us by 2020 year-end.

There still exists very significant potential to invest in our market-facing business to either take advantage of expansion opportunities due to the markets we are in, our long-term trends, such as sustainability are to take our costs due to rising labor costs. With regard to sustainability, the consumer and the population are demanding a better planet for all of our future.

The Smurfit Kappa approach is a significant differentiator in delivering for us and our stakeholders in this area. And again, as Ken has demonstrated, and as our longer-term performance measures clearly show, we continue to deliver secure and progressively superior returns over the long-term moving from 11.3% when we went public in 2007 to 17% in 2019 on return on capital employed, which is in line with our medium-term target.

This business is truly being transformed and is delivering on our vision. And turning to a summary of what we said and an outlook.

Let’s revisit what we said at this venue just two years ago in February 18 at the launch of the medium-term plan that Smurfit Kappa in five years would have an optimized model. It would have increased geographic diversity.

It would have increased balance sheet strength and it would have secure superior returns. Just two years later, we are well ahead of our expectations with delivery of our European containerboard requirements by the acquisition of Reparenco progress on the many kraftliner projects in our French mill, Austria mill, Swedish mill, along with continued developments in Colombia and Mexico in the mill systems.

We've entered into new geographies, Serbia and Bulgaria. We have increasingly strong balance sheet with a longer-term maturity and lower average interest rates, well executed by Paul Brendan and the teams.

And we have delivered progressively superior returns in line with or above our stated medium-term targets. We committed to a range strategic and operational and financial objectives and I hope we’ve shown we have delivered and in many instances exceeded these commitments.

In Smurfit In Smurfit Kappa Group, we say as we do and we do as we say. By way of conclusion, I’d like to comment that over the last few years, the quality of the Smurfit Kappa business has improved immeasurably.

This is the result of our investments through the medium-term plan; the acquisitions that we've made and added to our business; our effective capital allocation framework; and perhaps most of all the culture and people within our business who have customers and performance at the very heart. And equally, we ask our managers to treat capital as if it's their own as an owner/operator culture.

And as you all know our interests are aligned with our shareholders. As a result of this, we are improving in all that we do.

Our balance sheet is secure and with strong free cash flow generation. And as we said today, future performance depends on what you're made of.

Corrugated and containerboard is a business for the present and the future, both for our planet and for our customers who can use our product for their business benefits. As to the current year, from the demand perspective, the year started well.

Our macro and economic risks obviously remain. We expect another year of strong free cash flow and consistent progress against our strategic objectives.

So with that, I will finish the presentation and start taking questions from the floor and then, after that we’ll take question from the above.

Lars Kjellberg, Credit Suisse. Three questions from me.

Tony, if you could elaborate a bit on your talks had at disruptive effect in the market from what you are doing and Better Planet Packaging et cetera? And also the medium-term plan as you said demonstrably delivering, can you give us a sense of what you have actually delivered from that in 2019?

How we should think about that and the opportunity in 2020. And finally, you talk about box price retention which is pretty clear.

Can you give us any hint sort of where we ended the year in terms of box price relative to where they started?

Just on the last point, I mean, we cannot break that out, because obviously that’s commercial issue for us Lars. But I think, where we where we are headed over the year is to offer our customers value.

And so, that might mean, lower box prices for them and higher margin for us because we’re able to innovate as the box differently. And so, price is an indicator, but obviously margin is another indicator.

And part of the objective of having the kind of investment that we have in innovation is that, we are able to get a win-win with our customers and that can be across different spectrums, whether that's across the logistical savings and helping them from the start. And one of the big positives for us as we are seeing this whole trend develop is that customers come to us at the very start.

And that's where they get the biggest savings because they can actually utilizes less products themselves in their inner packaging and have maybe a stronger box or have a lighter box, so that we can actually get more product inside. I mean there is all sorts of different ways once the customer starts to work with is that we can reduce significant cost for them.

So I think, we don't really – I mean, there are formulas that go down for the standard business. But clearly, we’re trying to innovate as much as possible for customers.

With regard to your first question, what's the disruptive effect of Better Planet Packaging. I mean, the only evidence that I can really say to that is how many events that we run for customers on sustainability and how to change things and I mean, there is a time lag to it.

Because, for example, Ken is talking about this uplift. I mean, were not a 1000% percent sure it's going to work.

But we can tell you that a very large machinery supplier is working with us and our customers to make these machines to fill these cans at the speeds they need to be filled at which will take a number of years to come out. But when what it does happen I don’t know, if it does happen, you are talking many billions of tops instead of shrink film, which and I have my son here and his friends and they are sort of saying they hate the particular plastic thing that goes around the top.

So, that's because the consumer of today that is thinking that and that's a big advantage is, whether it’s our system that ends up being working system, I don't know. But it’s patented worldwide.

We have massive interest in this and that’s just one product. I mean, we talk about Styrofoam.

We talk about all other plastics. So, it is a it is a game-changer and I just - another illustration to that was when I was on C&B this morning, one of the questions was all around the fact that we are in the right space by one of the presenters.

And know that - those illustrated the fact that our business, not just Smurfit Kappa business, but the business of corrugated packaging is a very exciting business for the future as we sit here. But Ken, do want to take the medium-term?

Hey, Lars. In terms of medium-term plan, let’s keep it simple, that’s €35 million for 2019 and that’s €50 million for 2020.

Okay. Thank you.

David O'Brien from Goodbody. Probably following on Lars’ question, on Slide, 13, you kind of highlight the success you had in some of the FMCG players.

What kind of changes in the behaviors of those customers have you seen over that five-year period in terms of contract lengths, contract stickiness which I am sure is culminated in a better margin performance? Has there been a significantly better margin performance than the rest of the business?

And then on sustainability, particularly on successes that you’ve had today, what type of premium are customers willing to pay for sustainable solutions? And when we think about that premium who is swallowing the cost to us.

Is it the consumer at the end or is it your customer? And finally, just on your comments, Tony, around a good demand start to the year.

Could you maybe quantify where that’s gone to versus the plus 1% in Q4? And what areas or market or region seem to be better sequentially?

On the contract length piece, I think that we do have a lot more stickiness in general. I mean, I think as a company, we tend not to lose that many customers.

We dilute the odd one, but generally speaking, we tend not lose them and it's part of the whole offering that we do. I mean, I think as our customers face the same pressures that we do, which is to reduce their costs they are obviously making changes in their organization and they require much more expertise from their supplier than heretofore to help them in their marketplace.

And so, that's a big positive. Another big positive is as they take out cost in their facilities and they automation and they have more high speeds of - it works both ways.

When we win business it takes longer to get it. But, when they have put in high-speed lines, the height of our corrugated box fluting differs from company-to-company.

And you have to machine trials and you have to market trials and you need somebody to do that. And often times they don’t have that and machine time is very important to those customers.

So, therefore you don't – you tend not to get difficult to get machine time to try - time for you to put your product on. So, as we say, we are exposed, when you are winning business.

And then, when you talk about customers, one of the things that’s really thought about it in the room when you talk about a particular customer, you think, it’s one customer with one product that’s the natural inclination. But that one customer might have 40 different lines going to 50 different countries with different prints and he needs somebody to manage that for him.

So, the complexity of change is very difficult when you have a business that is high-speed, automated at with very strong quality requirements, with very strong focus, with very strong TPM. So, I think we have very sticky customers.

I mean, we don't take it for granted, of course. But we tend not to lose customers and we tend to win customers, because of our innovation.

As I sit here today, we’re very happy with the outlook going forward. But again, we can never rest on - we can never rest on our laurels in that regard.

With regard to the last question, which was?

Demand. Demand Q4 and Q1.

Well, why don’t you take that?

I think, is that when you look at Q4, October November, were very strong and very much in line with 2% that we would have always guided. I think where at Christmas fell is on a Wednesday just meant as, I’d say the working days throughout addition kind of bridging days, which have been more holidays in December really, so less shipping.

So, I think when you strip all that back out, you sort of end up back out that broadly, 1.5% to 2% that would have guided. I think, in terms of regions and where we saw that, I think the Iberian Peninsula is quite strong and Russia started getting quite strong.

I think Germany which was flat which actually considering the backdrop, the Germany is a good result for us. And France continues to do a little bit well.

But I think while the UK as you can imagine, kind of slight drag there, given Brexit in and Brexit out and all that. But I think while Germany is where it is I don’t think that the Euro take off necessarily, but it will takes up then we are going to pay to that.

But we are still doing better than the market generally. And I think, it’s fair to say that we made came back in January.

Those markets have continued to perform well. And when we think about the outlook ahead, and we talk about demand for the year, are using kind of target range of 200 BPS, talking natural at this point in time.

All right.

Yes, morning. This is Barry Dixon from Davy.

A couple of questions. Just you mentioned on – and the thing that you had your price retention was better than expected in Europe in 2019.

Do you think that’s just a timing issue or is there something structural happening here that you are better able to retain given all of the value-added sustainability issues that you have talked about? And then, the second question, kind of maybe, just in terms of the medium-term plan, just going back to that maybe give us a sense as to of the 1.67 billion, how much of that has actually been spent at this stage to deliver that €35 million and €50 million in 2020?

And you indicated in the statements that you're going to look at expanding, I think or extending the plan. Could you maybe give some color around that either in terms of is it in terms of timing or is it in terms of the amount of money that you are planning to spend?

And then just one last add-on in terms of your thoughts around OCC costs and OCC pricing. Thanks.

Okay. I’ll take the first one on price retention and then Ken, you take the rest.

And I think that it is fair to say that that because of what we are bringing to our customers, there is - there has been better retention than heretofore. Obviously, we are not going to forecast as that’s going to continue.

But we certainly have strong belief it should continue and certainly all of our people are working very hard to ensure that it does have better retention. But I am not going to stand up here and say, absolutely it’s going to happen, but we are working very hard to make sure that we will retain and obviously the price increase announced in the marketplace helps that agenda in a sense that if prices are going down, they will go back up again.

And so, as we have 65,000 plus customers, everyone is different and we have different discussions with everything to one of those customers. And so - so, but I would say, in general, yes, but again, it’s not resting on our laurels on it.

And Barry, in terms of medium-term plan, I suppose, first, that's kind of rebate the €1.6 billion because obviously it changed a bit as we went through it. So, the €1.6 billion as you remember was broadly over four years with the kind of somewhere between, 330, 350 as a kind of base number.

It looks like probably 330 at the start but then we’ve done a lot of acquisitions to increase the base CapEx there, Serbia, Bulgaria, et cetera. So but the €1.6 billion had two fundamental paper projects in there and that was paper machine in Europe and a paper machine in the Americas.

The paper machine in Europe was not done, because we bought Reparenco, and the paper machine in the Americas, we won’t do as part of this plan currently. In essence we don’t need to do it given the market conditions and where we sit in terms of pricing and demand or supply of containerboard in the Americas where, as you know, we are 300,000 tonnes short.

So, in essence, you could probably rebate that plan down to €1.6 billion towards call it €1 billion over the life of the plan that what we spent. And then if you look at last year’s 733 and the year before, and I think the guidance for this year on 615, you could probably see that’s just about all that medium-term plan, money if you like in the initial time where we spent at the back-end of 2021 – or 2020 to 2021.

And even with €350 million of base CapEx, still not a growth CapEx in that 615 number, albeit €60 million mean leases. And I think when we think about the next iteration or change in the medium-term plan, it’s really just – if you think about what we spoke about two years ago, and the way the world has pushed on either the things we spoke about this morning around sustainability or the continued growth in other regions and areas.

And indeed, how the Group has evolved, we didn’t have Reparenco, no Serbia, Bulgaria, and more plants in France it kind of caused us to sit back and think about that model forward and to kind of rebate, retarget reshape what we might need in terms of structural drivers to see ahead of us. So, it’s not rally pause or change or move, it’s just a natural place given the amount of work we’ve done to-date, to kind of say actually where we would now target our focus over the next four years.

So, we are going to still spend €615 million this year. So, it’s not exactly part in that sense.

I think it’s more of an indication that at some point you're going to hear us stand up and again and talk about where we see the next four years at Smurfit Kappa in terms of outlook has. And we are already beginning to think about it.

There is not even guidance on numbers on what that might mean, but I think fundamentally it’s about traffic and attracting some the structural drivers you see ahead of us. And the OCC cost Barry, what was the actual question?

Are they going up?

Are they going up? Well, they either go up or down, Barry.

They might stay the same.

Or they might stay the same. I suppose too.

Look, I think we – you know – I’d tell you how they are doing. I think it’s a case of, we spoke about floors in OCC for a long, long time and we see that continued to go down.

I think as we sit here today, you could argue, maybe it can't go down, but it can certainly go back up. So, I think, if the direction travel is not asymmetric anymore, I think it’s – maybe slightly the downside.

But certainly, you could definitely see it go back up depending on, now introduce what might coronavirus two weeks into that particular problem or issue bring in terms of demand generally. But I think, we – our thesis would be long-term pricing for OCC is better higher for both paper prices and box prices, but you know, we’ve been – as I think I said last year, I was wrong in OCC prices 12 months in a row.

So, but I think, yes, it can stay the same up or down I think is my considered answer, Barry.

Justin? I am sorry.

Cole Hathorn from Jefferies. I just wanted to follow-up on your recycled containerboard price increase and I was just wondering on virgin.

You’ve got some downtime in the Finland mills and is this a situation where you need the recycled hike to go through before you can push through a virgin hike? And then, secondly, back in May, at your Innovation Event, you show that some of your packaging machinery doing boxes for strawberry packaging and things like that.

You already talk about your actual underlying box machines. Could you just give a little bit color of how that helps with your customer base?

And some of the paper volumes you’ve seen through, going through your own machines?

And on the virgin side, Cole, you know there is a very large gap between the pricing of virgin and recycled. And obviously, that’s something we keep an eye on and but you know they are slightly different – they are used for different applications.

But there is a crossover piece that we always have to keep an eye on in gap because of the fall and recycled paper plus the cost of recycled paper due to its main input cost going down has meant that the gap has been pretty big than – more big than historically. And we don’t have the same drivers on wood.

Wood is not going down to the same extent, as recycled paper. So, as Ken just alluded to, higher waste paper price ultimately is good for Smurfit Kappa.

But we’ll have to go if waste paper goes up, we’ll have to go through some pain as we go through the cycle again. But that we don’t see that in the – certainly in the short-term.

And so, with regard to the market, it’s extremely tight for virgin. I mean, we ran terribly in our Swedish mills during the month of January.

So we lost some tonnage and therefore we are scrambling to get tones and we can’t get them. And so, the market is extremely tight and then adding fuel to that is the strike in Finland where there is a strike going on which now two weeks into the strike or close to two weeks and that’s obviously taking some virgin capacity out of the marketplace.

So it is a tight market and we continue to watch the space with regard to the success of the recycle price increase and then, maybe we’ll have to consider what we do on virgin. If that price increase is successful.

And with regard to machine systems, like we have 8,000 out of them in the business. We’re doing - I think, how many per month approximately...

I think [Indiscernible]

So, we are – I mean, it’s just part of our offering co that we continue to be able to say to our customers either we make it ourselves we have in the UK, Germany, Italy, we have our own manufacturing for machine systems, our own design or we buy it as we are working with this particular company that is going to help us with the beverage industry where we don't have the capability internally to provide the machine. So, I mean, we tend to - we have a machine system division that tends to act as an adjunct to our selling arm and it’s a very positive thing.

As I would say, whether we do it internally or externally that’s sort of a matter of the machine and the products that we are offering. So, it's just another string to our bow I would call like that.

Thank you.

I think, Cole, as well as kind of feedback into David’s point around stickability of customers in a sense that’s very difficult with your machine systems supplier. Really this could kind of change the way, short notice if it’s on the base of price or something else.

Also, much easy to innovate on the box end if you are the supplier. And so, I think we’ve seen great success in that part of the machine systems business.

But it kind of, it blends Smurfit Kappa beyond the – it used to be the supplier of paper and that’s a supply chain partner all the way through, which is really has the kind of stickability of customers who want a better.

And the same is, we provide the most modern, the most own designed machines in our bag and box business. So, basically, if you are high-speed seller of bag and box line you come to Smurfit Kappa and we provide the machine and they can buy us or they can lease us.

But we service that and they use our bag and they use our taps for whatever period of time.

I am Justin Jordan from Exane. I appreciate you can't give us an OCC forecast, but could you just – one factual, historical question.

Can you tell us how much of a benefit it was in terms of an EBITDA bridge to the business in 2019?

Sure. It was - for the full year 2019, the benefit was 83 million.

And that was €33 million in the first half and €50 million in the second half.

Okay. And can you just – again, another sort of factual question.

Appreciate that. What sort of quantum of OCC are you buying in Europe and Americas as the business sits today?

In the Americas, it’s about 1 billion tonnes and in Europe it’s a net 4 million tonnes to 4.5 million tonnes. If you remember, it was slightly higher, but when we bought Reparenco, we acquired or recovered fiber facility as well.

So, in essence, we probably – it was about 1 million tonnes in there. We kind of transfer it from, if you like, that operation to a paper mill.

So we don’t get the benefit of 1 million tonnes of any benefit in OCC it just, it’d be like the paper pricing transfers from one division to another. But net-net, between 4 million, 4.5 million tonnes of OCC consumed in Europe by European mills.

Thank you. And if we think about bridging from, let's say, the €1,650 million 2019 EBITDA to whatever the outcome may be for 2020 and I appreciate there are a number of things that are frankly beyond your control in terms of ultimate box price concessions and ultimately industry volume growth.

But the things that are within your control, you've already told us about a €50 million contribution from the medium-term plan additionally in 2020. Then who knows, there might be some positive from OCC.

Are there any other sort of major cost items, up or down we should be aware of?

Yes. I suppose going in the usual kind of cost as we talk about, I should say medium-term plan will probably deliver €50 million in 2019.

As usual, labor is definitely a headwind and it tends to be 1.5% to 2% a year, so call it €50 million to €60 million. And but we tend to do a lot of cost takeout programs that primarily offsets the inflation there.

But given the good results in the last number of years, as you know, we’ve had increased profit participation in places like France and indeed Mexico and Europe. So, whether it’s a full off or not we’ll see in time.

I think we are still seeing a headwind on things like distribution costs, probably to kind of 15 million, 20 million. I think when we go beyond our broader business, into kind of more discrete grades of paper, call it, sack, MG, those kind of grades of paper.

I think we’d see probably a drag 2020 over 2019 and somewhere to 10 to 15. Energy will probably be a tailwind as we go through the year, Justin, but it’s too early to call it yet.

So call it flat to slight tailwind as we kind of sit here today. And beyond that, I can’t think of any big cost drivers that I think of….

Think of doing it for modeling purposes.

All, but the number he wants, Tony.

My next question. Okay.

Historically, clearly a smaller business a year or two ago, you've talked about potentially every 1% of box volume being something like €17 million, €18 million of EBITDA and 1% of box prices being about €45 million, €48 million of EBITDA. I am just conscious about the business continues to grow.

Well done. Presumably, what are those numbers today?

I think, yes, usually 1% was 15 on volume, 1% was 45 on boxes. I think, with the increase in box prices over the last year, year-and-a-half, I think you could logically say that that 1% on box prices are probably more 45 to 50 in terms of quantum and equally on volume given, again the scale and size of the business.

You are probably 50 and it’s probably gone to 15 to 17 in terms of volumes.

Thank you. Just one final question for Tony, on Better Planet.

Yes, I appreciate we are at the early innings of this. And you know your son and every millennial consumer is probably the driving force of this as much as anything.

But can you give us some sense of, again, historical factual question, in 2019, of the 1.5% organic volume growth, what contribution to that was from plastic replacing with corrugated packaging? And then, as we think about it going forward, I would appreciate it's going to be a larger number per annum over the next five years.

But can you give us some idea of the scale of the opportunity potentially ahead?

It’s very – I mean, I would say that it would be very minimal in 2019. I mean, for example, we did a launch with a medium sized Belgium beer customer which we have planned in 2018 take up the machine and they are just launching now the product in – let’s say the last quarter or so.

That was really – I want to be out of drink, I want to be out of all plastics. I want to just be in paperboard packaging.

And it took 18 months to go from start to finish. And we put it online.

So it’s a public thing. It’s a great initiative by them.

But changing the packing lines and filling lines takes a long time. So it’s really impossible to quantify us.

The only evidence that we can see is that, we are working on tonnes and tonnes of projects all over the place. And it’s going to be a very – it’s a very big positive tailwind for us as we look out into the years ahead and that multi clip thing that I told you about is, if that works, then, it is the huge amount of not only, amounts of top clips, but it’s a huge amount of paper.

You are talking in the many billions. So, obviously we have to see it work.

But, I mean, the cost - relative cost it is more expensive for the filler than what they are currently using. But over the – I mean, we have a Chairman who is next in that space and he would say that, it’s cost with this consumer will be happy to pay peanuts for many questions, cents on this, not even cents on this, percentage of cents.

So it’s nothing per can. Okay, we would take anything on the phones.

Thank you. Good morning everybody.

Just a couple of questions. In terms of the mid-term investment plan, you mentioned the €50 million benefits in 2020.

Could you talk a little bit about the – what is going in there? What is driving that?

Good morning, Mik. I think it’s impossible to kind of break it down at the individual projects or indeed across divisions, because ultimately, that if you remember was a portfolio of many, many investments across the paper and the corrugated division.

But I think it’s fair to say that the €50 million is being driven by efficiency and increased capacity in the paper mills. It’s been driven by new investments and growth in differentiation innovations in the box system and indeed by some cost takeout projects.

So, it’s across 370 sites, the €50 million has been delivered by some or all in the some small ways. So, hard to break it down into bigger buckets than that.

Okay. Thank you.

And then, just a final question on Latin America. How do you see the trading environment there right now in terms of demand and pricing and cost inflation?

Yes. Hi Mik.

I think it’s – you have to look at every country differently in a sense, because they are distinct. I mean, we are seeing as we pointed out in the press release, extremely strong growth in Colombia all through last year and that has continued into the month of January.

Mexico, didn’t grow as much as we had anticipated and that has continued also in January. It’s still not a booming economy.

The North American business, which is smaller for us is doing okay. It’s acceptable.

And then, one of the interesting thing actually is that, where we’ve had difficulty in Brazil and Argentina and Chile from a demand perspective over the first nine months of last year. That reversed in the month of – in the last quarter and has continued in January where we have seen much higher than anticipated demand out of those three countries.

And I think the pricing environment is fine, pretty well everywhere. I mean, there is no – we have some input cost tailwinds in certain countries and we have some input cost headwinds in other countries.

So, I think, in the round, I think it’s doing well and then, certainly we started off the year well in those – practically all of the countries in the Americas.

Great. Thank you very much.

Okay. I think we’ve finished the questions and we are finishing on time.

To all those on the line, I’d say, thank you and of course to all of you in the room, I very much appreciate your attendance and on behalf of Ken and Paul and myself and the whole team in Smurfit Kappa Group, thanks for your support during 2019 and we look forward to 2020 with some optimism. Thank you.

Thank you.