Smurfit WestRock PLC (SW) 2014 Q4 法說會逐字稿

Okay, good morning, everybody. First of all, a very warm welcome to all the people in the room here and a warm welcome to those who are on the call.

My name is Gary McGann and I'm here with Tony Smurfit, Ian Curley, Paul Regan, and a new name to you all whom I'll introduce to you all, Damian Devaney. For those on the call, we're going to signal to you when we're turning the slides so that you can follow us hopefully.

Let me turn to the first slide which is the normal disclaimer. And I'm sure you'll be relieved to know that I'm not going to walk you through the disclaimer. You know the contents of it. You'll understand its purpose. So without further ado I'll move to the next slide, which is entitled 2015 & Beyond.

You've heard from us over the last few quarters discussions around differentiation and branding and the like and this morning, or this afternoon, we're going to take it a step further.

We have with us the man with probably the longest title in Smurfit Kappa Group, and that is Damian Devaney, who is Director of Brand Strategy, Communications and Organizational Engagement, and anything else that we can think of.

So before we go into the normal presentations on results I'm going to ask Damian to talk to you a little bit further on what we are doing in this whole area. So without further ado let me handover to Damian.

Thanks, Gary. Good afternoon, ladies and gentlemen. I'm going to give you a brief presentation and I want to give you a taste for what we're going to share with you in Schiphol at our investors' conference in April that you're all very welcome to attend.

The brand initiative is the natural next step for Smurfit Kappa in developing its market-facing capabilities. And it's a full brand initiative, it's a full brand strategy, so it's communications, plus product development, plus training, plus internal engagement, and the whole focus is to develop an ability for us to drive organic growth.

It's been based -- I'm going to change. And for those on the call I'll just mention as I change slides. Change slide.

It's based on robust research and robust data and robust analysis, where we wanted to find out about the industry, our competitive set and then down to Smurfit Kappa. And I'm going to change.

We've done about 1,000 interviews internally and externally from customers, suppliers and internal stakeholders to really understand our strengths and weaknesses. And we did that over 27 countries in local languages and with local partners who understood the nuances of those countries.

But we didn't do it in isolation. Sometimes they research initiatives happen in isolation of the real business. So from the very start -- change slide -- we did it with CEOs, sales and marketing directors and key managers in the business, who participated in this process at every stage.

So from brief, to research, to idea creation and eventually to rollout they participated to keep it real, to identify what was important and for us to also take ownership and champion the end result. And during that process we found out some things that we were delighted to get confirmed.

We have a very strong performance-based culture and there is a recognition of being reliable problem solvers, being strong on sustainability and having real expertise in packaging.

But there are opportunities to be develop, being more proactive and more strategic in certain situations, and to shift our emphasis on innovation from probably engineering based to market based. And I'll speak about that in a moment.

Our idea was Open the Future -- Smurfit Kappa Open the Future. That's shorthand for our proposition, because we didn't reinvent the brand. We've a really strong brand.

But what we did do is articulate our proposition, which was market focus, which [re-open] up opportunities with forward-thinking customers by relentlessly applying experience, expertise and ingenuity. And that relentless never-give-up attitude has been recognized as being one of the characteristics of the Company by our stakeholders.

In business to business, if you're developing a brand strategy and it's not bought by your internal customer first you're not going to succeed. So again we had a robust internal road show strategy where we went to 18 countries, three continents and ensured that everybody understood the research, the opportunity, the brand proposition and where we're going to go next with it.

And that was given significant support from senior leadership right across the organization. And we used simple tools to ensure that everybody understood in their own language the power of this opportunity for the Company.

Although we articulated our proposition, it wasn't the first time we've ever done this. We've been doing it for years, so it was important that we started to put up stories on videos on micro site of examples of how we open up opportunities for customers for their businesses to become more successful, for small, medium and large customers.

And the micro site contains examples from around the world that puts flesh on the bone of our proposition. But the important question here, the important point to make is this brand initiative is not just about communications. It's about much more than that.

We used the research to identify specifically how can we become more proactive and strategic in certain situations. And we've developed our own bespoke insights program.

Now, insights has been an overused term. In simplest terms it just gets you to understand the underlying issue of a problem. Sometimes the customer doesn't realize that. And then work through a specific process to come up with a solution.

Now, this has been used in blue-chip companies around the world for decades. And I've seen it implemented and succeed in Coca-Cola, O2 Telefonica and Diageo. And it's one of those areas that gives people confidence to really start to understand and solve customer issues probably more precisely than they did before.

We didn't take it off the shelf. We took best practice. We converted it into a packaging-orientated module and then specific for Smurfit Kappa. And we're training key teams around the world on this and the reaction to it has been significant.

So as we go through this year and into early next year we will be building up a library of insights on proven insights with associated commercial successes, what we think is a competitive advantage to build organic growth.

Another area is innovation. In the past we may have talked about innovation and talked about the box and the features and what it can do. There's been a step-change because we've such a strong innovation team. And we are creating a potent mix of packaging expertise, the right type of technology, be it 3D visualizer or be it EyeSee tracking, overlaid with insights.

And when you hopefully join us in April at our innovation conference we will be launching a global innovation center so more people can come and see what we're doing and how we offer potentials that open opportunities.

But also we'll be launching new products and services at the event that are a manifestation of that new potent mix, products and services that have been tested, that are new to the market, add real value to brand managers and move us to that area of being a packaging solutions company that opens opportunities.

So 2014 -- we only launched in May. We've had a strong set of successes. We established the brand proposition that was bought by the customers and by ourselves.

We engaged and prime the organization not only for the launch, but also for the changes coming, because one of the key opportunities here is to create real excitement, momentum around the potential for us to take a great company and make it even stronger.

We build skills, like on insights, and we've step-changed our communications. There is a copy on your seats of our white paper which we launched in November.

And that was a step-change for us to actually put forward publicly what's happening in shopper marketing and, within that, what are the opportunities for brand owners and, within that, how can a packaging solutions provider add performance to brands at the point of purchase, where 70% of all decisions are still being made.

And that's a step-change in our type of communication and thought leadership. Now, the objective of that will come to full fruition in April because we'll be launching products on the back of it.

Three key objectives for this coming year. One, we want to launch our new products and services in April and maximize the opportunity. Two, we want to test a list of business-to-business marketing tools that have worked in other sectors.

We're going to test them in specific sectors in very specific situations and build up a business case not only to have a proven library of tools that work, but also how it impacts and can be scaled globally in 2016.

And finally we want to just get our brand to stand out even more. And what does that mean? We'll start talking about our sustainability credentials in a different way.

We have great sustainability credentials. We issue a report every year, [but] now it's to communicate the benefits and tangible benefits to our customers and stakeholders in a way that's truly engaging. And that will happen in the near future. I'll just touch on one of those, which is our pilot.

We've identified specific markets and, within them, specific sectors where we're working with a local team. And we've [brought] in some skills of individuals who've spent a decade building business-to-business successful marketing plans.

And we will implement, test, monitor and during the year build up a coherent, robust business case for not only increasing the performance of those individual projects, but also building a business case for Smurfit Kappa sales and marketing, driving organic growth in the future.

Now, late this year, early next year, we'll have the business case and the hard facts behind that.

Finally, last year was successful because we launched and we engaged. This year it's about building, testing, improving. And next year is all those points coming together to maximize our ability to drive organic growth.

I want to thank you for your attention. I hope to see all in Schiphol where we'll have our innovation conference and our investors' day. And thank you for your attention.

Thanks, Damian. So now I'm going to move to the business review and Ian will then take us through the financials. So I'm on slide entitled Business Repositioned. And in many ways that defines effectively what we have done and where we're at.

Let me begin by giving some medium-term perspectives on this repositioning. In essence, since 2008 our focus has been, as you know, on maximizing the available cash to pay down debt, which we have done with a good degree of success.

Since then we have delivered EUR2b of free cash flow, we've reduced our operating costs by over EUR700m and we've delivered a net debt reduction of EUR650m. And we've done that while reporting industry-leading EBITDA margins and return on capital employed.

Our focus now is to continue to deliver sustainable and consisting -- consistent earnings growth. And the steps we have taken so far, but, more particularly, the steps including what Damian has been talking about, that we will take, will support us in that focus.

Turning to the next slide, basically, in 2014 we've delivered strong performance across all of our measures. As you can see from the press release, we've delivered an EBITDA growth of 5% year on year and, in fact, the underlying growth is higher than that. And Ian will touch on that.

Our basic EPS in cents has grown by 42% pre-exceptional and our return on capital employed has increased by almost 200 basis points. And, as you know, we started life at IPO time in 2007 with a target of 10% return on capital employed, so we've come a distance in that regard.

Turning to the next slide, and putting the 2007 to 2014 period in some context, over the eight-year period we have progressively repositioned this business to expand effectively its range of strategic and financial options.

First of all, obviously, the operating performance has delivered strong EBITDA growth, albeit from a trough in probably one of the worst years in the history of this industry and the industry in general, but our EBITDA is up EUR400m, or over 50%.

Most importantly, we've delivered that activity with a continued focus on disciplined capital expenditure. And our CapEx to depreciation over that eight years has been about 90% on average through the period.

Most importantly of all, which has been a key focus over the last number of years, we've transitioned from a leveraged business to a corporate credit with a rating of BB plus and a peak leverage of 4.1 times down to 2.4 times today or, indeed, pro forma 2.3 times.

As I said earlier, we reduced our debt by EUR650m, a CapEx of EUR2.6b during that period, EUR400m of acquisitions and EUR300m of dividends.

But most importantly I think in terms of where we are on the journey, we were probably -- we are probably never better positioned that we are today to invest in growth and to drive enhanced returns, which in effect, if you think back, was the launch proposition in the IPO in 2007.

Turning to the next slide, we believe, in reality, in the period 2007 to 2014 we've set targets and we've met those targets without getting in any way complacent. The target of 10% return on capital employed we upgraded to 13% in 2013 and, indeed, we're upgrading it to 15% through the cycle today.

Our CapEx-to-depreciation targets were between 90% and 100% and, as I said to you, over the eight years the average has been about 90%.

We had to cancel the dividend back in the bad days. It's not something we did lightly and it's something we did voluntarily, but we thought it was the right thing to do to protect the Company. We reinstated at the first opportunity in 2012 and we have progressed from there.

And mostly importantly we reduced our net debt, achieving the BB rating and the Ba1 rating, effectively [one and a notch bit] on investment grade by all the ratings agencies.

So looking forward, from 2015 onwards our target is an average return on capital employed of 15% through the cycle, as I said.

Our 2014-2016 CapEx indication to you last year and continues to be the case is that we will add EUR150m over the three years for quick-win CapExs that should deliver in excess of 20% IRRs on the projects we're going to invest in. And we'll talk about what we've done so far later.

We have delivered I think so far on what we committed to in terms of a progressive dividend policy, where in 2012 we increased by 37%, by 50% in 2013 and today we're announcing a further 30% increase in the dividend. And above all else, as an underpin to everything we do, we want to sustain our Ba1/BB plus credit rating in all of our strategic actions.

So let me now handover to Ian to take you through the quarterly and full-year results.

Thank you, Gary. So I'll turn first to the quarter-four financial highlights. So looking at the performance in the fourth quarter we see here that reported revenue in the quarter was 4% higher than in 2013, with higher revenue both in Europe and the Americas. The contribution from recent acquisitions was offset by negative currency movements.

Although reported EBITDA increased by only 1% the underlying move was an increase of over 6%, with higher earnings in Europe partly offset by marginally-lower earnings in the Americas.

Our EBITDA margin for the quarter decreased slightly, to 14%, with an improved margin in Europe more than offset by a lower margin in the Americas. At EUR0.473, our pre-exceptional EPS was 18% higher year on year, though down on the third quarter as a result of higher income tax expense.

In terms of free cash flow the modest increase in EBITDA was more than offset by higher CapEx and a lower working capital inflow than the fourth quarter of 2013. Compared to the third quarter, capital expenditure was considerably higher in the fourth quarter, with higher payments and also a lower working capital inflow.

At EUR2.759b, our net debt was higher year on year and, compared to the third quarter with the free cash flow, reduced by acquisition expenditure, higher dividends and negative currency movements. With a higher net debt offset by EBITDA growth leverage was unchanged year on year, at about 2.4%.

Turning now to the next slide, and to the full-year financial highlights, reported revenue was 2% higher with underlying growth of over 4%, with higher revenue in both Europe and the Americas.

Reported EBITDA increased by 5% with good underlying growth offset by negative currency movements. The underlying move was an increase of almost 13% with higher earnings in both Europe and the Americas. With stronger growth in earnings than in revenue our EBITDA margin increased to 14.4%.

At EUR1.625, our pre-exceptional EPS is 42% higher year on year primarily as a result of higher profit before income tax, with higher operating profit boosted by interest cost savings.

Our free cash flow for the full year was broadly unchanged with an improved earnings and cash interest saving offset by higher capital expenditure, as we expected, and a negative swing in working capital from an inflow in 2013 to an outflow. Working capital at December 2014 represented 6.7% of revenue compared to 6.6% in December 2013.

Our return on capital for the year was 15%, having continued to improve over the course of 2014 as the result of operating profit growth, from 13.1% in 2013.

We turn to the free cash flow bridge on the next slide. The Group has reported another strong year of free cash flow conversion.

You can see here that this largely reflects the benefits of sharply lower interest expense as a consequence of our progressive debt pay down and was delivered in spite of a EUR70m increase in capital expenditure and higher working capital requirements year on year.

Turning to some detail on Europe, so looking first to an overview of market conditions in 2014, corrugated markets in 2014 were good with a 1% higher average price and a 2% volume growth year on year.

On price specifically we saw some currency headwinds into the year end negatively impact price, but at a stable outlook in 2015, as we see here on the chart.

Turning to containerboard, testliner markets are balance with a benign supply/demand outlook and a robust demand through 2014 into 2015. OCC prices have remained steady and continue to provide a solid underpin to testliner prices.

In kraftliner the current strong demand, coupled with the increased strength of the US dollar, should be positive for SKG's kraftliner business into 2015. As you will have seen, the Group announced a EUR40 a ton price increase in kraftliner in southern Europe effective from March 15.

Turning to the next slide, and to the Americas, we are reporting a solid year-on-year volume growth. We have increased our presence in the Americas principally through the conclusion of the Bates acquisition in the period.

Overall the environment in Venezuela continues to be difficult and in the prevailing circumstances we have quantified Venezuela's impact on our overall contribution at 7% to our Group EBITDA in 2014 and we've guided approximately 5% into 2015.

Turning to the next slide, and discussing driving performance into 2015, to recap on the overall performance drivers, the core driver of our business in 2014 was organic growth across our regions, evidenced by both improved volumes and pricing levels.

Underlying volumes increased by 3% in the Americas and 2% in Europe, supported by target CapEx. Price improved by 1% in Europe and in all countries across our Americas segment, with the impact of our differentiated initiative beginning to show some initial impact with customers across the Group.

We also delivered an accelerated level of growth through acquisition, completing over EUR160m of transactions into 2014, and we have a pipeline into 2015. The Group is focused on maintaining and building on this business growth into 2015.

Further to this, the Group continues to progress its series of cost-efficiency projects which either support or directly contribute to profitability. Within this we have successfully delivered EUR117m of cost reduction through our cost take-out program in 2014, an out-performance of our original objective of EUR100m.

For 2015 we have launched a EUR75m target and are confident that this will suitably support the integrity of our earnings.

We are continuing to progress our quick-wins CapEx projects and expect to deliver EUR18m incremental EBITDA in 2015.

Also the Group is progressing its progress of rationalizations in Europe, as announced in our third-quarter press release, and has included a reference and associate exceptional charge associated with the potential disposal of our solidboard business in Belgium, the Netherlands and the UK.

Turning to the capital structure slide, so we see here the capital structure slide sets the progress and benefits of our debt pay down in context.

To emphasize the evolution of our capital structure in recent years we issued a 10-year bond in 2009 at 7.75. And our seven-year bonds issued in June last year are trading today at a yield of less than 2.2%.

We have committed, as Gary said, to maintain our credit rating at Ba1/BB plus.

I will now hand back to Gary.

Thanks, Ian. I'm now on the slide entitled Capital Allocation 2015 Onwards. And obviously after the focus on debt pay down over the last number of years the key focus now is on what are we going to do with the capital and the capital allocation.

Turning to the next slide, the evolution of the capital allocation on this slide shows you that effectively for the period particularly from 2008/2009 to 2014 the key focus was on net debt reduction.

Obviously, in 2012 we reinstated our dividend. Capital expenditure we maintained at a reasonable level, bearing in mind that our maintenance CapEx is around 60% of depreciation, so we were up at around 80% to 90%.

And the focus on M&A was very much only in extremis. And the only main acquisition we did was the end of the 2012 where the opportunity to do the Orange County acquisition arose.

And we took the view that that was a good use of funds notwithstanding our commitment to debt pay down. And I think history has demonstrated that to have been a good call.

But if you look on the right-hand side of this slide, looking at 2015 onwards, and in no particular order but, nonetheless, all of them being particularly important, our commitment to a progressive dividend remains. And I think our announcement today in terms of the dividend increase is proof positive of that.

We have very clearly then identified that we will grow our capital expenditure program in a very focused way to give real returns from projects that we have been holding back on, but which will deliver real IRRs of 20% plus.

We are very much focused on the opportunity to grow by acquisition, particularly in the markets where we have already got footprint and, most importantly, people skills, so in the Americas and in Europe opportunistically and Eastern Europe by -- in the growth markets.

And as we've been saying for some time, in the event that we have a sound underpin to our credit ratings at Ba1/BB plus, as Ian has said, and in the event that we have cash that is not capable of being deployed for the first three items, then we will look at returning capital to the shareholders.

Turning to the next slide, the dividends have become an important part of the equity story for Smurfit Kappa. Our commitment is to grow the dividend progressively, but not to get ahead of ourselves in terms of any risk to the dividend level or the dividend itself.

It's very much a play on our profitability and, most particularly, our free cash flow and every time we grow it it's a strong statement of confidence in the future potential of this company to deliver on both of those fronts.

Since 2011, it's a big number but, obviously, from a relatively low base, but we've increased our dividend by 167% and 30% this year in terms of the final dividend, which is now EUR0.40. And bear in mind that the final dividend is two-thirds effectively of the full-year dividend in most years.

In terms of capital allocation to the -- on the next slide, I think we have a reasonably good track record of disciplined capital expenditure and that is not going to change.

And even though we have increased our capital expenditure levels for the next three years -- well, 2014 to 2016, nonetheless, we believe it's a very judicious use of capital. And the extra EUR150m over the three years is very clearly focused on projects that are well worked out and a lot of the control of the outcome is within our own power.

In terms of our CapEx in general, above maintenance CapEx, which is about 60% of depreciation, we expect minimum of IRRs of 15%. And the focus tends to be on improving our asset base and our asset quality particularly in our mill [systems], more systems efficiencies.

But also as we go forward, and as we bear in mind the statements that Damian has made around our positioning as a market-facing business, our assets that are market-facing and customer-facing will also get a significant amount of investment, and have done over the last few years, but will get more.

And the high-return projects it's very clear; EUR150m over three years with expectations of 20% plus IRR. In 2015 we expect the start of that to come through, where we've basically approved about 75m in -- sorry, we've approved a fair amount of CapEx, which will start to deliver in 2015 of the order of magnitude of EUR18m EBITDA, growing to in the order of EUR75m by 2017.

Turning to M&A, basically, there are two ways we expect to grow this business, which is the commitment to the market. One is organically through Open the Future and the branding initiatives that Damian is talking about, underpinned by continued operating discipline and operating efficiencies and cost take-out programs.

And the second one is accretive acquisitions. Basically, our focus is on delivery of increased returns in our target markets and sectors, which are clear. Basically, they're the markets we're currently operating in.

Part of the focus of these acquisitions is operational enhancement. Integration is a key part of our strategic model and, therefore, market-facing businesses backward integrated in our mill systems are obviously very attractive, but also businesses that have integration in their own right equally so.

The minimum IRR threshold is 15%. Obviously, we set out to achieve more than that, but those types of numbers will deliver for us, particularly where we've a strong record of integrating well. The acquisitions quite often can be the easy part, the integration is the challenge.

And we have capacity for these acquisitions within the defined debt metrics that we've talked about, up to EUR300m a year from our free cash flows and still maintaining a very strong BB plus/Ba1 credit status. And, as I said earlier, in the absence of accretive acquisitions we will evaluate alternative uses of capital.

So let me conclude by basically going back to where I began, which is that in terms of 2015 and beyond we have I believe delivered a strong earnings and free cash flow activity over the last number of years, notwithstanding the economic environment out there.

Our credit metrics are now strong and our capital base is equally strong, providing us a platform to deliver on the growth agenda. Our commitment to financial and operating disciplines is paramount. That's what's got us to where we are today. That's what's going to continue to sustain us into the future.

And we expect to deliver continued earnings growth and improved returns into 2015 irrespective of the general environment. Obviously, the macro environment is not within our control, but based on what we can see today we expect to deliver continued earnings growth.

I'll just draw your attention then to the final slide -- no, we don't have a final slide. You see in your pack also we refer to our new investor app, which hopefully will be of assistance to all of those who follow the Company.

So now I'm going to turn it over to you for questions and answers. We're going to start in the room here and then I'll go to the people on the call. And can I ask those in the room to wait until we get a microphone to them so that we can benefit the people on the lines as well. Barry.

Thanks, Gary. It's Barry Dixon from Davy. Three questions, Gary, if I could. The first one just in terms of the new target on return on capital employed. You might just give us some sense of your thinking around the assumptions underlying that which give you the confidence to make that change.

And I was thinking in terms of what measures you see contributing to that improvement, either self-help internally, or the market structure, or what Damian has talked about in terms of maybe some more structural changes in the industry.

Maybe also that 15%, which in the historic context is very high, maybe you might talk about what sort of volatility or range you see around that? 15% in 2015; does it get to up to 18% at the peak and back to 7% at the trough? Or how do you see that playing out?

The second question just in terms of the acquisition pipeline, you might talk us through that in terms of how big the pipeline is at the moment and where and what you might be looking at just maybe more in terms of regional focus.

And just thirdly, in terms of the dividend, does today's move -- the 30% increase. Does that strike some sort of a policy change around dividend either in terms of earnings cover or cash cover? And are you still reiterating your progressive policy of only improving the dividend from here? Thank you.

Thanks, Barry. Let me take the first one and maybe I can get, say, Tony to take acquisitions, Ian to take dividends, or between you.

The target ROCE, basically, Smurfit Kappa I think has a reasonable track record of not being excessively bullish or pushing the boundaries. I can remember in 2005, Tony, Ian and myself being on the IPO road show and getting a lot of grief from investors that we were seriously conservative in our target of 10%.

That was at a time when the industry was basically flattering to deceive. And we did say at the time if we deliver consistently we will have no hesitation in upgrading it, and we didn't. We went to 13% I think in 2013 and today we're going to 2015.

So you can assume a couple of things. One, you can assume we've done the homework in terms of how that could be achieved. Two, you can be assured that we're not being speculative in the sense of hoping that something will actually break to give us the opportunity.

And thirdly, I suppose in terms of the volatility of it, one of the big pluses of our business model -- and we've been constantly making this case to the market.

The integrated model overlaid by the geographic footprint means that the extremes of peaks and valleys that Smurfit Kappa and the Smurfit Kappa model experiences compared to others is much narrower, so we don't have the highs of the long-paper guys and we don't have the lows of the -- of maybe the long-corrugated guys.

And so therefore you can assume that while it's an average 15% through the cycle -- and obviously some -- the key question is what's the cycle any more. Cycles tend to be within years almost rather than across years. But within the cycle you can assume that there's not huge deviations from that.

And most importantly, I suppose, we would have a high degree of confidence in being able to deliver that based on where we are today rather than assuming that we're going to have some major breakthroughs in terms of acquisitions or otherwise.

It's underpinned by two factors. One, organic growth, which is branding differentiation, Open the Future and top-line quality growth in terms of the customer-facing activities, operational efficiency and cost take-out programs which have to continue, because this is a manufacturing industry at heart.

And then secondly, obviously, accretive acquisitions which potentially have upside in that regard, bearing in mind, obviously, that we have taken a lot of costs out of our system and we have driven a lot of efficiencies.

And in terms of acquisitions we do have real opportunity to transfer technology and best practice so long as we have the human skills and the human quality in the market to deliver on it.

On the acquisition pipeline --

Well, I think you just answered it, Gary. But I think --

(Multiple speakers).

Well, I think we have a number of bolt-ons that we're looking at, Barry, and it's -- whether we complete them or not will depend on value whether we can get to agreement that's going to lead to shareholder value for all of us in Smurfit Kappa.

So I think if we can bring synergies, if we can bring our skills, as Gary has said, to the acquisition, whether we can bring people, that's really important and we have to look at the acquisitions that we're currently looking at to see whether or not they're going to meet those criteria.

We can't obviously front run that. We have to wait and see if that's going to lead to conclusion -- positive conclusion.

(Inaudible - microphone inaccessible).

I would say mainly -- the ones that we're currently looking at are mainly on the US/Latin American side, but we have a few that we're looking at in Europe.

Ian, do you want to add anything and take the dividend one as well?

It's in the context, Barry, of, as we've said, [we think within a] BB plus credit. When you look at the balance sheet we [can't] actually do a lot, given where we are.

So our focus really is we need to control the cash flows, as we've always said. To Gary's original point, we must stick to our knitting with regards to that. And bear in mind where what we've said to the equity and the debt capital market. And that touches on the dividend.

So our dividend really -- policy and the way the dividend grows is, as profitability grows, the dividend will grow. And that's effectively what we focus on. We don't necessarily focus on payout ratios or anything like that, because looking at the longer term our focus is profits [growth], dividend growth.

(Inaudible -- microphone inaccessible).

We've no ambition to cut it.

Yes. I suppose to that point, Barry, when you look at where we come from, and Gary touched in his slides, in 2012 that was a big -- sorry, it was in 2008 or 2009 to touch the dividend. That was a big issue and we learned a lot from that. And you can read something into that.

(Inaudible - microphone inaccessible).

Thanks, Barry. Lars and then --

Lars Kjellberg, Credit Suisse. Just coming back to the price and the debt, when you're looking into your comment, Gary, about earnings growth in 2015 what are the primary drivers that you're seeing?

Are you seeing a significant benefit from your own actions? You mention the EUR18m, but other costs take-outs. Is there a meaningful volume growth? [Or you're] seeing more of the same relative to 2014 and the 2% you talked about in Europe and I guess 3%, 4% in LatAm?

And how should we view pricing? Pricing was very volatile last year in particular in testliner side. Where are we today in terms of the conditions for that? You obviously mentioned the kraftliner price increase in Mediterranean Europe. If you want to comment on that, how you view the pan-European side on the kraftliner side, please?

Let me take the first bit and I'll ask Tony to talk on the price.

In broad principle our assumptions for growth in 2015 and our guidance that we expect to grow year on year in 2015, obviously, again is grounded in realistic expectations of what is within our control.

The only caveat we put on it is, look, Europe is in an interesting space, to put it mildly, in the broader sense of geopolitical and all that good stuff. Nothing we can do to control it one way or the other.

If something dramatic happens then there's nothing we can do about it. But we're not assuming that. So therefore on the basis that there's no dramatic improvement, or dramatic dis-improvement, our outlook is for growth all other factors being equal.

That growth is delivered by, a, the ongoing -- Damien's focus and Tony's teams and the operating guys in the marketplaces, we are putting a lot of work in behind this whole area of optimizing our relationship and our proposition with our customers in how they successfully do business in their marketplaces, both in terms of understanding their markets and in understanding what works for them.

Secondly, we have ongoing -- we have no choice; we've to find another EUR75m. We have to take costs out. A manufacturing company that doesn't is going to go backwards, because unit costs of production have to come down. So that cost take-out program is good.

The quick wins are beginning to get some traction and we've put some number out there to give people a sense that that's the scale. We've always said it's going to be a slow lift off both in terms of order lead times and so on, but [there's] a lot of it within our control.

And then we've said despite the macroeconomic environment in Europe in particular, Latin America, obviously, in particular is showing better growth, by and large, with the exception of one or two countries.

But notwithstanding the macroeconomic environment in Europe our business, not just our company, but our industry has been showing reasonably sensible and decent growth over the last couple of years. And we've assumed we at least will be part of that, and maybe a bit more, particularly in the differentiation area.

In terms of the pricing, Tony, you want to take that?

And just to add just quickly to what Gary just said, I think every year, Lars, we are getting to be a better and better company. We are investing EUR370m odd in the Company and that is reducing our costs in our mill systems and is improving our corrugated and market-facing businesses.

And, as Damien said, we are using that knowledge to better and better effect each year. And I think that's going to become apparent as we go forward. So that gives us confidence when we look at our own company to say, yes, it's getting a better company every year.

Because, as Gary mentioned and Ian mentioned in their presentations, we've been in debt pay-down mode for a number of years, and now we're in growth mode, which is -- which obviously is better for the team. And it gives them more confidence to go out and use some of the tools that Damien was talking about.

With regard to pricing right now I would say that it's steady on the recycle side. On the kraftliner side the stronger dollar is obviously going to help us. It also helps on the recycle side.

We see the export price moving up because, naturally speaking, [where] Europe ink is more competitive and paper from Europe is more competitive in the global markets against what is effectively a global dollar-denominated world market for paper, so that will help our kraftliner system.

And we see -- we potentially see the effect of that if we are successful in implementing our pricing initiatives in Southern Europe, which are primarily led by the exports from the US into Spain and Italy as the big component of that.

And obviously for the US sellers that -- the pricing there has dramatically deteriorated. And so they need to raise their -- they will probably raise their pricing in order to capture some sort of a margin recovery for them, which will allow us to increase our prices.

Just to follow up also on Townsend Hook, how should we think about Townsend Hook in terms of earnings contribution this year versus buying from third party last year?

We don't break out the individual mills. But I think that we have been carrying the costs of Townsend Hook's closure for the last 18 months, so obviously any tonne that we produce out of Townsend Hook is going to be a contribution to the -- to our system this year.

We are predicting, as we mentioned, about 150,000 tonnes, which has been offset by the closure of Viersen, which is about 80,000 tonnes in Germany. And I think that we would expect Townsend Hook at that sort of level to be close to break even versus -- we're not -- we don't disclose what it lost last year, but it was a money loser for us while we carry costs and no contribution.

Thanks, Lars. Yes, Justin.

Justin Jordan at Jefferies. Can I've just two quick questions? Firstly, obviously, we are in what seems like an environment of lower oil prices globally. Can you just talk through just the impact of that going forward potentially on your energy costs bill and your transport and logistics bill? And I appreciate for good business reasons you're substantially hedged for several months, but --

And secondly can we just talk a little bit about Venezuela? Sorry. I appreciate, obviously, there's a hyperinflation issue, but can we just talk about just your domestic volumes in Venezuela and just what -- have they been impacted by, obviously, just the geopolitical issues in the country? And what's the pricing domestically in Venezuela for the business?

Okay. Let me get Ian first of all on the energy one and then let's get Tony on how our Venezuelan business is doing domestically.

If you look at the bridge, say, into guidance for 2012 on energy, so --

2012?

2015, okay, EUR472m. So energy costs for 2014 were EUR472m. Townsend Hook will come, on as you outlined yourself, and that'll cost us about EUR12m. Then the other bits and pieces we'll have a bit of exchange rate movement around.

So overall our energy bill will be about -- for 2015 will be at or about EUR485m. So you have Townsend Hook coming on, you've got some euro/dollar exchange rate and then some net movement, so about EUR485m.

And Tony --

And Jason, just to add to what Ian said --

Justin.

Sorry, Justin.

Just to add what Ian said, we did have a lot of benefit last year. We had lower gas prices and the market in Europe is primarily gas for us rather than oil. So what we focus on is the gas price more than the oil price in Europe, so we had a benefit last year during -- especially in the middle part of the year.

(Inaudible - microphone inaccessible).

There will be, yes. Obviously, trucking -- hopefully trucking rates will go down and we'll get the benefit of that.

(Inaudible - microphone inaccessible).

It's outsourced, yes. One or two of our companies have some degree of shipping, but it's minor.

On the Venezuelan situation demand there, as you can understand, is weak given the environment. I think that our team there have managed exceptionally well in a very difficult environment.

We have last year, as you know, taken the decision to have a different exchange rate to the official one -- sorry, to have -- use the -- stick at one exchange rate rather than the 6.2 times or 6.3 times that the government gives money out at. And we got all of our supplies at 6.3 times, all of our money for running our business at 6.3 times.

But the environment is difficult and we would expect it to remain difficult as we move into 2015, because, clearly, government is not giving out a lot of dollars and our customers in general are suffering.

So I think that last year was about minus 10% odd in volume terms and this year will be probably equally as difficult as we go through the year. But we are managing extremely well in that environment.

Our focus is -- as you would expect in any marketplace, is cost efficiency, cost take-out programs, so a lot of expenditure around cost take-out, but the -- putting monetary values on things in Venezuela is an interesting exercise because there's a lot of [noughts] attaching to it.

So our focus is on operating efficiency. Our whole incentive program for our management is driven heavily by international operating metrics so that we don't lose sight of how to be efficient on the ground, notwithstanding the challenges of the marketplace. This will recover some day and we will have a very good business there in time and that's what transparent -- sorry, Ian.

And that's why you'll have seen a slight move [against] ahead of guidance on CapEx. We used the opportunity to use some [Bs] in quarter four to buy some assets in recycling depots.

Gerard?

Gerard Moore from Investec. I've a few questions around three general themes. So first of all, just following on from the Americas, could you maybe talk a little bit more about the individual countries?

The region as a whole, the 3% volume growth, which is obviously better than Europe, but the region probably has more potential than that. So what's the outlook for Mexico? Do you think they can have a better year this year?

Colombia, can it be as good as 2014? And on Argentina you say that you expect to see EBITDA progression there in the statement. Just to be clear, is that in US dollar terms?

Then, switching over to Europe, the margin in Q4 slipped down a little bit compared to Q3. I'm assuming some of that was due to mix and perhaps the additional sheet -- corrugated sheet that you were producing in the quarter. If so, could you maybe quantify that and give us an indication of how you feel that's trending in the next quarter or so?

And then just attached to Europe if you could give us an idea of what your ex-euro sales are within the region.

And then finally just to the last question then just on the tax rate. Thanks.

My God, I think that covers it all, Gerard. (Inaudible). Why don't we start, Tony, with you and the Latin American countries?

Okay, yes. If you take the Mexican business, Mexico was a country that actually didn't meet our expectations; did well operationally. We did well profitability wise.

But as a growth area didn't meet our expectations last year primarily as a function of the government imposing some taxes in the country on -- that were seen to be against the consumer, and also some energy -- prevaricating about what to do about the energy bill. And that was a bit of a dampener on the general -- the central Mexican, or our old Mexican business.

On the contrary, our border Mexican business, which is what we acquired with Orange County, did very, very well, expanded strongly, because we do see some significant importation of business from -- back from China to the Mexican border, the Maquiladora region, which is going to benefit us going forward. And we've seen strong customer growth there.

The US itself we had a -- we've mentioned we had a drought in California which affected a couple of our customers and so we expect that to normalize a little bit as we go forward. Certainly, we've taken actions and cost-reduction actions to meet that, because we obviously didn't expect it, and we should see an improvement in our US business.

The Colombian business is going from strength to strength. We can see no reason why that won't continue. In fact, our biggest challenge in Colombia right now is getting equipment in to meet the demand of our customers.

And Argentina I think we would say that we have positioned ourselves correctly in that market with regard to some of the investments we've made. And we would expect and hope for an improvement in that country, especially next year, after the presidential elections get out of the way. And I think that's the general commentators' view.

We've had good improvements in Chile. Our box business in Chile and our Dominican Republic business is doing very nicely following the acquisition of the number-one player on that island where we've merged our position into theirs.

So I think we've -- obviously the uncertainty of Venezuela is set out for you in the release, but I think in general we feel pretty optimistic about the Americas as we look forward.

Ian, you want to take the quarter-four margin?

I'll go straight to tax and (multiple speakers).

All right, you'll go backwards then.

-- talking about that.

I still get you on the quarter-four margin.

Yes, when you look at the tax expense is due to the higher profit and lower credits in 2014 which we booked in 2013. So when you back out the credits and the exceptional items, Gerard, the underlying tax rate is 27%, versus 28% 2014 versus 2013.

I suppose another way to look at it -- I'll come back to a bit of guidance in a second. So when you look at then -- so that's from the P&L perspective. When you look from the cash tax you see in 2013 -- in 2012 our cash tax is EUR113m, in 2013 it was EUR112m, in 2014 it was EUR107m, so the underlying cash tax is about just northwards of EUR110m.

We're giving guidance cash tax wise in the order of about EUR140m for 2015. So underlying tax rate 27%, 28%, to then cash tax of EUR140m for the following year.

And I was trying to think rapidly what your question was as I was doing the tax.

If you -- I'll get back to you on the currency split between and let me just deal with this. In our business, as you know, we don't publish it this way because we get into all sorts of reconciliation discussions with the authorities etc.

But the reality of life is that quarters differ in our business. They differ in terms of length. They differ in terms of the type of activity level we are engaged in. You can see, for example, seasonality around agricultural produce, the need to build inventories to meet them etc., etc.

So if you look at quarter four, traditionally, our quarter-four margins are lighter than the previous quarters. So looking at it in isolation isn't telling you anything in particular in terms of trend.

Specifically, there is the classic haven of the bewildered, there's a bit of mix in there, so obviously that's dead safe because trying to reconcile that is always a nightmare even for the people with the numbers. And there is certainly an element of currency.

There's a lot of noise around currency. And the general trends in currency, which Ian will touch on in a moment, are positive for us within the context of Europe.

And the nature of the business we do and the transfer of paper into different geographies and so on there can be a bit of noise, which actually settled down, because the market response to that noise in terms of the pricing.

Ian, you want to talk about the split of the non -- euro/non-euro?

Yes. So if you take -- I don't have the full detail of 2014, but I have it for 2012, 2013 and you can make the same assumption. So if you take our sales -- the percentage of sales in the Eurozone is actually around 56% and has been fairly consistent in that period. I'm sorry, when I talk Eurozone I'm talking about currency there, right?

So -- and then in the UK it's between 8% and 9%; in Scandinavia around 6%; and then Eastern Europe, I include Poland, Czech Republic, Russia, around 4%; and then the Americas 24%, 25%.

Yes.

And then, turning to the currency, when you look at the currency itself what actually moves -- a EUR0.01 move, so moves -- so if it goes from 1.21, for example, down to 1.20 the gain -- the P&L gain for us is euro by EUR2.7m.

The overarching point -- you've often heard us say this and it's not just opportunistic in the current climate, is that a strong dollar both in terms of our customers' economics and in terms of our own economics is always good for us. We obviously are hedged to the dollar in terms of our borrowings, but it's an economic hedge.

The other thing to remember -- and Paul keeps making this point. Because a lot of our business is local, and even though we've a lot of big companies and a lot of big customers across different nationalities, the business execution and activity is very local.

And so the extent of our transaction exposures are much lower than you would expect of a company this size and this geography. And that's something to bear in mind. Obviously, with the strong dollar and strong sterling relative to the euro the translation benefits [are] very clear.

Sorry. How are we doing? I just think we need to go maybe online (inaudible).

Okay, we'll just -- let me just check any more in the room. Okay, let's go on -- sorry, we will go on the line.

(Operator Instructions). Matthias Pfeifenberger, Deutsche Bank.

Yes, good afternoon, gents. Two questions from my side. Firstly, on the dynamics of the working capital in the fourth quarter you mentioned a lower working capital inflow and a higher working capital requirement.

Now, at Q3 you mentioned you would keep inventories very lean into the year end, so can you explain a bit what the drivers are? Is that a reflection of higher pricing, or are you a bit preparing for a good start of the year? I guess what we read is customer inventories were lean on the box side. Maybe some color?

And then secondly, just to mention it, the solidboard disposal. I think that one can be [decked] under the remaining portfolio cleanup. Is that everything, or are you thinking about other areas that you will now maybe get rid of? And I think what we can expect is a EUR50m cash inflow, as we discussed before. Thanks.

Thanks, Matthias. Ian, do you want to take the working capital?

Sure, no problem. Matthias, when you look at the working capital -- first, I'll do it year on year. So when you look at, for example, the year-end 2011 working capital as a percentage of sales was 7.1%, in 2012 was 8.2%, in 2013 was 6.6% and in 2014 was 6.7%. So you can see overall an improving working capital.

And when you break that out and when you get into the detail -- and I'll come to the move in a second. So when you take the move [first, I think we had a] move in the order of about, excuse me, 68m. And that move of the 68m mainly arose in quarter four, where when you look at year to date the outflow to September had broadly changed -- unchanged.

But when you break -- when you go into it you can see what it is, is effectively when you look at the debtors our debtor days effectively have stayed the same. So we started the year with debtor days in the order of 48.6 days and we ended up at 47.9 days.

But there was a slight dis-improvement in the days in Latin America. It went out from 35 days out to 38 days, so there was a small bit of dis-improvement there and that was effectively in Mexico, Argentina and Orange County.

In the case of inventories, inventories started of the year effectively at 64.3 days. There was an improvement to 61, 62 days by the end of the year, so overall a slight dis-improvement in the Americas, but no particular concern there.

Where the movement really was, was on the creditor days, and where you see in the creditor days we started the year in the order of -- sorry, the total year effectively for about [65.8] days and we came down to 64.5 days, so the movement there. We did pay a bit earlier coming into quarter four and you can see where that movement was. It was effectively in Latin America.

So there was a couple of things that we did. First was as I just touched on earlier. We bought some assets in Venezuela and in anticipation of a possible devaluation coming into the year end in Venezuela we actually paid some people early, so that's where the movement in the creditor days.

But overall when you look at the working capital as a percentage of sales, as I said, 7.1% 2011, 8.5%, 6.6%, down to 6.7%, and there'll always be moves in quarter four [around the place].

Yes, thanks.

And on the solidboard, obviously, we've basically designated these as assets for sale -- or businesses for sale, should I say, and we've obviously impaired the business. But obviously we can't front run on, a, the likelihood that we will get a deal completed or, indeed, the value of it. But in terms of your broader question we've no plans for further disposals.

Okay. Can I just follow up on the comment you made on slide number -- I don't know, on the European slide, box prices up 1%? And you mentioned there was some currency impact into year end. Can you maybe elaborate a bit on that?

Tony, do you want to take that?

Yes, we have a lot of moving parts, obviously, with the British pound, the Polish zloty, the Russian ruble, so that would have affected us a lot in the last quarter, especially the Russian ruble. And that does have an impact on pricing.

Okay.

I think you can take it, Matthias, that obviously currencies move quickly and pricing moves slower.

Great. I was just curious a bit on the underlying dynamics in the corrugating market. Is there a risk that the competition among corrugators increases this year? It was quite tough in 2014. But you mentioned prices being stable, so I guess it's an unchanged situation to be expected in 2015.

There's no particular reason, no.

No, the -- it's always tough.

[We] don't expect it any worse or any better.

Okay, great. Thank you.

James Armstrong, Vertical Research Partners.

Good day. Thanks for taking my question.

Hi, James.

Hi. My first question is how do inventories look as you come out of 2014 and into 2015?

And then, secondly, you started the presentation talking about innovation, but in the past you've said that you haven't been paid for it. Are you seeing either market share pick up or higher margins coming from your innovation focus so far?

Okay. In terms of the inventories, as is normal, the inventories build over the year end. We had a very, very strong run into the year end this year -- or 2014. We've had a good start to 2015.

January is always a weak enough month. We've very strong competitiveness out of Europe now with the currencies and so the export markets are good. And so we have no particular problems in terms of inventories.

And in terms of innovation, clearly, we are playing the long game here. It is a fundamental challenge to differentiate ourselves long term in the eyes of customers and how we do business with them.

And obviously the objective is to get rewarded for it, not because we are trying to extract more out of the customers, but because they're going to do better and we should do better as well.

So it'll be a -- it can be a marriage of longer contracts, more rewarding contracts, or some other relationship as we prove out the principle of our innovative proposition and obviously execute it through the medium of packaging.

Okay, thank you very much.

Thanks, James.

Fabio Lopes, Bank of America Merrill Lynch.

Hello. Good afternoon, gentlemen.

Hi.

Thanks for taking my question. Can you hear me?

Yes, indeed.

Okay. So I have three quick questions. One, on the capital structure, your target between 2 times and 2.5 times net debt to EBITDA and you used to be between 2 times and 3 times before. Any special reason for that? Are you becoming a bit more conservative?

The second question would be, there's been articles in the press recently speculating that you would be considering -- or you could be considering moving the listing -- the primary listing of the shares [for] London in order to join the FTSE100. Could you please elaborate on that, because we've been getting a lot of questions on that?

And the third one would be regarding the market inventories of testliner in Europe, that number that we were all discussing last year, 500,000 tonnes to 600,000 tonnes, do you have visibility on how we started the year 2015? Thank you.

Okay. Ian, do you want to take the capital structure one first?

Yes, sure. When we go back to 2014, we outlined fairly clearly, I think, our -- what we would do with the capital and [what] we were and we said at that stage that our aspiration was to be a BB plus credit. And so we achieved to be a BB plus credit.

And what does that mean within the context that you just outlined? It means that you can operate -- you can go out for an acquisition to keep it in the 2s with the view that you will come back into the low to mid 2s. So it's not really that much of a difference, as we've outlined.

But it's -- more the fundamental message that we are giving is that we are attaching our metric to being a BB plus credit, and that's where we want to be. And you can move up and down within the 2s effectively for that, but overall BB plus.

Just on the listing one, very quickly, since I've been quoted before, and then get Tony then to talk about the market inventories.

On the listing one, we've looked at the listing. Anybody who has basically misconstrued what we said, moving listing won't get us into the FTSE100.

What will get us into FTSE100 is performance and a proper valuation of the business, which is not in our view a function of the listing. In the event that we were a strong and comfortable FTSE100 company we might look at it again, but at this point in time we see no reason to move.

Tony, on the market inventories?

Yes. The market inventories, Fabio, I think we should be looking more -- because there's more mills included in the data now the number that we tend to look at, at around 550, has been on -- in balance.

And we are broadly there, a little bit higher than that, but, as I said earlier, the export market is in very good shape and prices are decent in the export markets. So therefore that should take care of the small excess inventory we have at the moment.

We certainly see no pressure on the inventories as we would have seen 2013 into 2014 in the sense that the market is dealing with it.

Okay. If I could just --

Sorry, yes?

Sorry, I was just closing his line. If you wait one second, I will reopen it. Fabio, your line is reopened.

Okay, sorry. Can I just follow up with one question? When you look at your impressive maps on page -- on Slide 5, when I look at the Americas, Brazil is a clear, blank spot. And in the past we've talked about it, Brazil.

The Company used to be interested in Brazil, but was never able to acquire attractive assets there. It looks like the country situation is declining a little bit. Our strategies here are speculating -- or are discussing the possibility of a downgrade to [bad to junk] and that might leave some opportunities to show up. Would you be interested in the country, or it's a point where it's not attractive any more?

No, no, our -- it's very obvious on the map; we notice it ourselves. We're going to fill it in, in future, with a different color. But, no, we continue to be interested in doing business in Brazil as distinct from interested in the country per se. But our business is a very simple one.

We buy future income streams based on our ability to make money in our core business, which is paper-based packaging. And if the price that we are forced to pay up front is not likely to deliver a return on that basis of net present value then it's not one we are prepared to do.

We've looked at many businesses. I think Ian and Tony have been all over effectively every company that exists in that country. And it continues to be of interest, but only at a price level that makes sense for us in terms of shareholder value.

I think the other issue is that as the margins come down in Brazil it becomes a bit more attractive on the basis that when you have somebody making a 20%, 24% margin it's very difficult to bring some increment to that. So as margins come down, yes, it is an area of interest.

Okay, Gary, can I please pass the call back to you too close?

Thank you very much. Ladies and gentlemen, first of all, for those of you on the line thank you for taking the time. For those of you present, thank you particularly for taking the time to be here. It's good to see you.

Thank you for your interest and have a good day. And if you're going to excuse some of us we are going to run to the next meeting and we'll leave the others to be your victims. Tony, we're gone.

This now concludes the call. Thank you all very much for attending. You may now disconnect your lines.