Smurfit WestRock PLC (SW) 2017 Q4 法說會逐字稿

Okay, good morning, ladies and gentlemen. And thank you all for joining us. We welcome those of you all in the room and who are joining us on the live call and the audio webcast.

I'd especially like to thank our 2 directors for joining us, Rosemary and Carol. Thank you for coming here.

At the outset, let me refer you to the disclaimer on Slide 2 of the presentation and the principal risks and uncertainties that are set out in the press release. Those apply to both our discussions this morning and to our later presentation. As you may know -- as you do know, our plan this morning is to present our full year results, followed by a Q&A on the results. And then we'll take a very short break and come back to discuss the medium-term outlook. For those of you on the call or the webcast, please remain on the line for the entire time. We'll remain live and hope to commence the second half of our event at around 9:40, when we will outline our medium-term targets and the investment plans that we have in place.

Now turning to our full year results.

2017 has been a strong year for SKG. Against the backdrop of higher recovered fiber costs, increased other raw material costs and adverse currency movements, we delivered a 10% increase in fourth year (sic) [fourth quarter] EBITDA to EUR 351 million, driving a margin of 15.9%. Our full year EBITDA was EUR 1.24 billion, which is a record for us and equates to a full year margin of 14.5%.

Our strong fourth quarter and full year reflect the benefits of our team continuing to provide our customers with cost-effective and innovative solutions, the benefits of an effective CapEx program that we've put in, in the past, our ability to recover input cost increases and a broadly strong market backdrop. Our performance also reflects 2 core components of the investment thesis which we continue in Smurfit Kappa to highlight. That is our geographic reach and our integrated model, which supports our customers across markets and provides security and quality of supply in very tight markets.

Our 2017 ROCE was 15%, which is in line with our group target. And we'll discuss our revised targets later this morning. Cash generation remained strong, and we delivered free cash flow of over EUR 300 million for the full year. Net debt-to-EBITDA is also consistently trending lower, finishing the year at 2.26x. Again, we'll discuss our leverage targets and objective later.

Finally, consistent with our commitment to drive shareholder returns, our final dividend has been increased to -- 12% to EUR 0.645 per share. This brings our total dividend to EUR 0.876, a 10% increase year-on-year.

Turning to Europe. We delivered a 3% increase in full year EBITDA to EUR 955 million in 2017. This performance reflects the benefit of our capital investment programs, the ongoing input cost recovery and strong growth in most of the markets in which we operate. EBITDA margin for the year was 14.9%, with a particularly strong outcome up 16.5% in Q4.

Our approach to innovation and differentiated and unique market offerings increasingly positions Smurfit Kappa as the key partner for our customers delivering real tangible benefits through increased sales for our customers, reduced costs in their supply chain and providing the most sustainable packaging solutions in the market. The strength of our European integrated model also delivers security of supply to customers in what has been an extremely tight market. The security of supply ensures our customers have a sustainable biodegradable packaging solution that meets their supply chain requirements, available at all times and from certifiable, sustainable sources.

Looking at how this translates into growth. Reported box volume grew 5% in the fourth quarter or 6% on a days-adjusted basis. Growth was broad based across most sectors and markets, with strong growth in eCommerce customers across the region, as you would expect. We continued to see strong growth and demand and tight supply in paper, both recycled and kraftliner, which is supportive to corrugated pricing in the medium term. This market dynamic is driven by a long-term upward trend in recovered fiber pricing.

Turning to the Americas. Our full year EBITDA was actually down 8% to EUR 311 million, equating to a margin of 14.4%, which did not meet our expectations due to a number of factors. These include increased export prices for containerboard from the U.S., where we're short about 300,000 tonnes of kraftliner; increased recovered fiber costs, which we're all well aware of; and very significant currency volatility in some of our countries.

We recorded growth in Colombia and Mexico, although Colombia did slowdown in the fourth quarter, where we also had 2 successful startups of mill projects in the latter part of the year. Both of these projects will continue to ramp up through 2018, further reducing our reliance on third-party purchases of containerboard. In Brazil we delivered a good performance with 10% volume growth year-on-year. Our U.S. operations performed well primarily as the result of a strong performance by our Texas mill operation. Argentina for the year was challenged. However, we do see signs of recovery following a devaluation in the latter part of Q4. As you would expect, Venezuela, the group operations are challenged. However, we continued to perform in extremely difficult circumstances as we continued to export paper to other Smurfit Kappa Group operations in the region.

Now thank you for your attention. And I will hand over to Ken to give you a financial summary.

Thank you, Tony. And good morning, everybody.

I'm just going to run quite quickly through the quarter and indeed the full year and some of the cash flow in detail.

So looking in more detail at the fourth quarter performance.

Revenue for the quarter was just over EUR 2.2 billion, up 7% on last year and 5% on quarter 3. Fourth quarter EBITDA of EUR 351 million was 10% up, with earnings growth of 18% in Europe offset by reduced earnings in the Americas of 12%, but on an underlying basis, group EBITDA was up by over 15%. The EBITDA margin in the fourth quarter was ahead of last year at 15.9% but, more importantly for us, has shown progression quarter-on-quarter as we kind of continued to recover the input cost pressures we had during 2017.

Exceptional items in the quarter amounted to EUR 23 million, EUR 12 million related to reorganization and restructuring costs in relation to our operations in the Americas, and EUR 11 million related to impairment charges taken in both Europe and indeed the Americas.

Free cash flow for the year -- for the quarter increased 5% year-on-year. And our net debt for the year ended at EUR 2.805 billion, just at 2.26x and probably reflected the fact that the year-end ended on a Saturday and we had a couple of extra holidays that didn't quite get me to the 2.2 we would have hoped for. But still down from 2.4x last year and very much at the lower end of our stated range.

Turning now to the full year, where revenue for the full year was almost EUR 8.6 billion, 5% higher than last year. The EBITDA for the year was EUR 1.24 billion but only marginally ahead of last year. Given the range of challenges that Tony has outlined, particularly in the form of higher input costs, it's a very strong result and indeed a record for the group. The margin for the year declined modestly but remains quite strong at 14.5%. And as we've always mentioned, it is improving as we continue to recover costs through pricing increases both in our paper system and indeed in our box system.

Our return on capital employed is very much bang in line with our stated target of 15%. Pre-exceptional EPS was slightly down for the year, driven primarily by interest costs as a result of some financing activities we did in the early part of 2017; and some slightly higher interest rates in our Latin American countries, predominantly Brazil and indeed Argentina.

Free cash flow for the group, as you know, is a key focus. And the year shows an improvement to EUR 307 million, almost 1%. The year-on-year increase, it's small and modest but reflects higher EBITDA with higher outflows in relation to capital, higher interest expense, higher working capital. And indeed, we'll talk about that in more detail on the next slides.

Turning now to kind of the bridge for the free cash flow. In terms of the factors that influenced free cash flow through 2017, cash interest expense and capital outflows were indeed higher. The working capital move of EUR 112 million primarily relates to inventories and compares with EUR 95 million in the prior period. That kind of outflow in inventories is really built on a couple of pillars. Average pricing and average volumes in terms of recovered fiber paper and boxes were higher across the system. There was some pre-building in advance of our maintenance shut for Facture in March. And indeed, as Tony noted in his comments, the small slowdown during the latter part of the fourth quarter in a couple of our Latin American countries, that was small inventory build, but that's all expected to reverse in the early part of '18. And indeed when you look at the underlying metric that we focus on, which is working capital as a percentage of sales, it's very much again at the lower end of that range at 7.3%.

CapEx for the year at EUR 430 million was down from almost EUR 500 million last year, but when you kind of bake in the capital debtor, creditor move, they're broadly similar moves year-on-year. So CapEx for the year ended at about 109% of depreciation, slightly down from the 127% of depreciation we would have had in 2016.

Cash interest at EUR 158 million was EUR 10 million higher than 2016 as a result primarily of that -- the bond we took out in January 2017 but also those relatively higher interest rates in some of our Latin American territories. Tax payments were EUR 154 million, EUR 3 million higher than last year predominantly due to some timing of payments but mostly due to the reduction in our tax losses forward as we kind of continued to generate higher revenues and earnings throughout the group.

And lastly for me, just to kind of save a question from the next session, is really to give you some technical guidance on the year ahead.

We expect cash interest to kind of drop year-on-year, and that's really as a result of the prefinancing we did in 2017 for some 2018 maturities. Cash taxes, we expect to be around EUR 170 million, again the further utilization of tax losses forward and higher earnings. Working capital will very much remain in that range of 7% to 8%. And as you know, we tend to build up a bit towards the half year and then release that back in the system in the second part of the year. The effective tax rate for '17 was 23%, probably slightly lower than it would be, but then we had large deferred tax credits [and the effect of] some recognition of deferred tax assets and some unwinding of deferred tax assets on some derivatives not expected to reoccur. So we expect the ETR for '18 and beyond to be more on the 28%.

And just given the volatility in some of the exchange rates around the group, we're kind of guiding, as we always do, a $0.01 move in the dollar probably equates to about EUR 2.5 million move on the EBITDA. On the debt side, that probably equates to about EUR 6 million of reductions. So if it's a positive movement in EBITDA, it's a negative movement in debt, and vice versa.

So CapEx guidance we will be giving in a short while in relation to the presentation.

And lastly, you will have seen in the release that we are considering a move to semiannual reporting, in line with many of our FTSE peers. We're just starting that process, and indeed we will continue to update that as we move through that over the next couple of months.

Yes, I'll hand back to Tony for the outlook and some closing comments.

Thanks, Ken.

So in summary, we're pleased to have delivered continued earnings growth for 2017. And while a modest increase from 2016, it is still a record for the group. Against a backdrop of cost input pressures, we have demonstrated our ability to drive box price recovery through the strengths of our relationships with our customers, our proven innovation and ability to ensure security of supply in what have been very tight markets. The tangible benefits of our innovation and our integrated model are clear in the progressive recovery of our EBITDA margin throughout the year. We still anticipate the realization of 6% to 8% box price recovery over our first quarter 2017 base.

As we start 2018, paper-based packaging is being increasingly recognized as the most sustainable biodegradable solution for both our customers and indeed their end customers. We continue to invest and develop innovative and sustainable packaging applications, which broaden our product portfolio. These investments ensure security of supply for our customers and help them address the growing trends such as e-commerce and increasing supply chain complexity.

For the period ahead, while there are no doubt challenges in the form of currency issues, wage inflation and rising energy costs, however, we -- in the early start of the -- part of the year, we're seeing the continuation of good demand in Europe, further input cost recovery and signs of improvement in our Americas business. We have exciting plans in place to continue to grow and sustain our industry leadership position into the future, most of which we'll talk about in a few minutes.

So thank you all for your attention, and we're now happy to take any questions. We'll take questions from the room first and then from those on the call. And questions on the medium-term plan and value drivers, perhaps you'll hold those over to the next session when we can provide more context on the outlook for Smurfit Kappa Group up to 2021 and beyond.

Okay, questions? Let's start right here. Justin?

Tony, Justin Jordan from Jefferies. Just 1 or 2 quick things. Obviously, continued focus on organic volume growth in Q4. Can you just give us some sense of the first 6 weeks for calendar '18? And secondly, just on the targeted EUR 60 a tonne price increase for both kraft and test in 2018, you talk in the statement about the majority of that being implemented in February. Can you just give us some more color on that? And just thirdly, just can -- I appreciate the technical guidance page on Page 11, but can you give us any guidance on the impact of raw material cost inflation? And I appreciate you've got an OCC tailwind as we sit today, but net-net-net, overall are we looking at raw material headwinds in '18?

Part of the problem not bringing up a pen here is I can't remember all the questions. So on the increase, I would say that most of the kraftliner increase is going through somewhere between EUR 50 and EUR 60, depending on the grade, our white top, our kraft, our brand kraft. Markets remain tight. On recycled, we would expect to see about EUR 40 go through, again depending on the market, sometimes a little bit more, sometimes a little bit less, but basically around EUR 40 will be a good average. And on the technical question...

So well, Justin, mostly we focus on recovered fiber and where it might be going in '18. And indeed, while it's kind of been trending low over the last couple of months, I don't think that's a situation which we expect to kind of remain for the long term. I think it's a situation that'll have to sort itself out in time. The Chinese will need to buy paper or pulp to make paper, so -- but when you look beyond recovered fiber, which is short-term lower, a little bit long-term trending back up, I think, for 2018, in terms of cost take-ins you might look at energy, which will certainly be a headwind in the order of maybe [20, 25]. I think our cost take-out program which designed predominantly to offset inflation, certainly on the labor line -- I think we've seen labor and wage increases in certainly the Eastern European countries have been higher than the norm, some 6%, 7%, 8% in certain territories. So you'd expect certainly a headwind there; and indeed in some other raw materials that we use in our business, caustic soda, starch, pulp. Again, you could be looking at double -- low double digits or low double-digit kind of headwinds there. And indeed FX volatility, as I point out, is the $0.01 equals EUR 2.5 million. And given where the dollar has weakened probably average year-on-year would equally be a headwind in terms of translation for our Americas business. So beyond recovered fiber, which is we expect to trend upwards, they're probably the other kind of key cost take-ins for the year.

And Justin, your first question was...

The test and kraft implementation.

The first question was just a cheeky one, but (inaudible)...

It's been a continuation, I think. I think it's been a very strong January. Lars?

Lars Kjellberg, Crédit Suisse. Input costs recovery, I guess we're really talking about box price increases. Could you talk us through what you actually managed to get through in the fourth quarter? And to your target that you just talked about, 6% to 8% in this quarter, how much do you expect to realize? And also, on the Americas side, it's been a bit of a disappointing period in the Americas. Is this mostly macro driven or discrete events? Or is it anything operationally that is not going right? And if so, what plans do you have to fix whatever issues there may be?

Okay, on the pricing we're still pretty comfortable at the 6% to 8%. We're very happy with the contracts that we said would click in. As in January, they are clicking in. And the recovery is happening, so therefore where we end up landing at the end of the quarter, we're not 100% sure yet because there are so many different moving parts. And now there's another increase going in, and that has gone in a little bit earlier in the U.K. market, so that might have a positive effect as the U.K. start to implement their pricing, say, in March, April type scenario. So there might be a slight positive there, but I think we're still saying 6% to 8%, and probably in the middle of those 2 is a good number to look at. And so if you said we're at 5%, we'll have broadly around 2% by the end of this quarter, maybe a bit less but somewhere around that level. With regard to the Americas, it was a disappointing year, some of which was -- most of which was out of our control. But of course, I'm not going to stand here and say that everything that we do is perfect in Europe either. We had not a very good operational performance in some of our mills in the fourth quarter in Europe. So you do have -- in a company of 380 units or 370 units, you are going to have disappointments from time to time. And in the Americas I wouldn't say that we had any more problems in our operations than we did in Europe. Clearly there is more momentum in Europe for pricing, and they had less natural issues in Europe that happened. So what we're seeing is box price recovery in all of our situations in the Americas. We're seeing higher prices coming through. And if January -- it's early. One summer -- one swallow doesn't make a summer, but it does feel a lot better as we start January. And things like Argentina, which was really not a very good year for us last year, they have devalued in the fourth quarter. And that has made the currency much, much better; and [so the] demand has picked up a lot both in December and January. And you saw the turnaround we had in Brazil this year. It was pretty impressive. Colombia was disappointing for us in Q4 because the government introduced some new taxes, which dampened demand. For some reason, nobody expected it, but again it seems to be coming back in January. And first few days in February seem to be good, but like there's nothing fundamental. Most of our businesses are operating well, with the odd one that is -- needs remedying, but that's the same in Europe.

Just 2 follow-ups, if I may. Should we expect this to round -- return to the 17% to 18% margin in a reasonable time frame? And can you give us any color on -- you called out a significant maintenance event in -- I guess, in Facture this year. Do you have annualized more maintenance or heavy work this year that will add to potential cost pressures?

With Facture, it's going to cost us EUR 5-plus million for the month that we take out. The -- there is nothing else other than normal maintenance that we have in the third and fourth quarter in our 2 other kraft mills. Obviously Facture has to -- it's quite a big job we're doing in the boiler, so it has to start up correctly. And the market is extremely tight there, so we need the paper. As Ken mentioned, we're building the inventories. And with regard to the 17%, 18%, I see no reason why we won't get back there. I mean I -- we still have fundamentally very good businesses with very good market positions. We've got exciting plans to grow the businesses, so there's no reason why the team can't and we can't bring it back to a more normal level. Barry?

It's Barry Dixon from Davy. And just to follow on from the -- on the pricing question, Tony, and just to clarify. The 6% to 8% guidance was pre the latest increase in containerboard prices. Is that correct? And therefore, is there more scope in terms of box price increases given the success of the implementation of the -- on the containerboard price? The second question is really just around the growth rate and the 6% reported or 4% underlying. As you look into the year and talking to your customers, how sustainable do you think that growth rate is in volumes? And what are the drivers, I suppose, thinking in terms of the kind of cyclical recovery element, with more of the structural growth element of it from eCommerce? And so therefore just trying to get a sense as to how sustainable that is. And are you gaining share in the market? Are you and the other big operators gaining share from the smaller operators who can't compete on the innovation side? And then I suppose the last question is around what you're seeing on the supply response. Because the big concern in the market for the last couple of years has been there's a lot of new capacity set to come into the industry, and yet all we're hearing is really around projects being delayed and IP talking again last week about the delay in the Holmen mill in Madrid. Maybe just your own thoughts around that whole supply response given the very positive dynamics we're seeing around containerboard at the moment. One would have thought that, given those dynamics, people would be doing whatever in their power to get mills up and running, and yet we're not seeing it happening.

I'm glad I brought a pen. Yes, obviously there is another increase in the market, and that will require box makers to go ahead and recover that. So therefore, the speed of that will be second quarter onwards primarily, so I would see that there is scope for further increases. There must be because, otherwise, our box businesses are going to be not very healthy again during the current year. So there must be further scope for further box price increases. I mean it's a very good question. I mean, is the 4% sustainable? I mean, if you believe in the European economy, which everybody is talking about as being recovering and doing well; and assuming that Wall Street doesn't infect Main Street, which in Europe it tends to not, it can have some effects in America because of their 401(k)s in the stock market. And there they lose a little bit of confidence if there are some sort of tumbles. But if you look at Europe and assuming no trade issues with regard to Brexit or Catalonia or something like that, there is -- probably you could have a normally higher growth rate than the 2% to 2.5% that we talk about structurally underlying. And then after that, I think there are cyclical things working in our favor -- or structural things, I should say, working in our favor, which is the eCommerce, which is the sustainability agenda. And so when you look at what we're planning to do in a little while, we're planning to invest behind that because we believe that our -- we have always believed that paper-based packaging is a great product, sustainable, better for the environment, more hygienic. We have always believed that. It's great that other people are starting to believe it too. And that can be positive for us, and so that's why we will continue to invest behind it. And then on supplies response, there was 700,000 tonnes of additional production in recycled containerboard last year, and that was eaten up by the market very easily. That was about 6%. And that's -- there's a number of reasons behind that, but it's a tremendous amount of capacity that was eaten up. I think that there are others that are going to inevitably increase capacity, but the lead time is 2, 2.5 years to 3 years, depending on the machine you order. And obviously we have some issues ourselves, which we have to -- which we'll talk about in a little while, but I think there's -- I'm never going to stand here and say there's not going to be a supply disruption problem in our industry at some point in the future. What they have to worry about is where they're going to get the raw material from, and that's something that we are also addressing ourselves. But it does look reasonably good because of some of these delays you're talking about have continued to be delayed. Machines don't start up. If you've got a 400,000 tonne machine, it takes you 3 years to get it up and running to that kind of level, broadly. So it does look pretty good for the supply side of things, assuming normal growth of 2.5%, 3%. And if there's any more than that, then the market will remain tight. Robert? I'm sorry. I'm going to go this way. I'm not -- okay, 2, one from Robert and one from the gentleman here.

Robert Eason from Goodbody. Just really follow-up questions in terms of that 4% growth in Europe. Can you just give us a sense of the variation across Europe? Like, what were the strongest countries? What were the weakest ones? And more specifically on the U.K., just given the various end markets that you serve in the U.K., is there anything that you can help us to understand what is happening in the U.K. economy? Is there any new areas of slowdown that could be a concern as you -- as the next 12 to 18 months evolve?

I mean I wouldn't -- I'd say the Eastern European markets have been very strong, and that's been a big driver of pulling a lot of tonnage. And that's because their economies are doing very well, and that's because there is plenty of wage inflation there. And I'd say the other standout economies have been sort of Spain has done well. U.K. has done extremely well. And to your point about the U.K., we're not seeing anything in the U.K. yet that's any way negative on demand. In fact, you could argue that there's -- the Brexit has called for -- with a lower pound, this has actually made some other guys bring production here. We've seen 1 or 2 major customers shift lines of production from the continent to the U.K. because those are mainly U.K.-sourced products, so they want to make it here rather than bring it in. So I think, all in all when I look at the market, there's -- we were a little bit disappointed with our German growth last year, but then we were leading with our chin, so to speak, on price increases. And so we lost a little bit, but now the market is catching up on that, so I think that's generally positive. But aside from the Eastern European markets, Robert, I don't see too many structural differences across Europe. I think it's just generally good. So all right, one last question from the room.

Alexander Berglund from Bank of America Merrill Lynch. 2 questions. First, in this environment that we are right now, how important is higher OCC prices to keep the box prices at the level you're aiming to go? And -- or is just the general inflation that you're seeing in other parts enough to keep box prices here? Second question, given what you've been seeing on your containerboard hikes, it seems like the spread between kraftliner and testliner is increasing by somewhere about EUR 10 or EUR 20 per tonne from here. How sustainable is that in the medium term, especially with testliner and OCC, the testliner and OCC spread being so high?

Thanks, Alex. I suppose that's a very big question about OCC. Where can it go? It's temporarily down, so we would see that as a very short-term phenomenon, and I don't think we're alone in that. I think, when it spikes, it's going to spike pretty hard because, if you believe in global growth, there is not enough OCC around. But the Chinese have temporarily restricted, let's say, normal OCC and mixed waste from going into their country. So therefore, there's this very stringent ban on that. It's going to change. I'm surprised it hasn't changed already, but is it going to be second quarter or end of the first quarter? I don't know when. Everybody would expect a change, and I'm no different. And so why we're going for price increases is because, yes, we have other costs, but we're in a very tight market. And it does seem that there is plenty, plenty of demand for containerboard; and very restricted supply. We came out of January with -- we don't actually know what the inventories are for the industry, but we know our own inventories. They're pretty low. And then we're finding it difficult to get paper in a very strong market in January, which is unusual. So if you actually project going forward into the second part of the year, that is setting you up, assuming normal growth, to be very, very tight situation. So there's no reason why in a supply-demand in a commodity business why people don't push the price up, which they obviously are. And we are part of that. With regard to the kraftliner spread, again kraftliner is in tight supply. And it's kind of irrelevant in these kind of markets. So we are pushing the price of kraft. It has specific uses, as you know, in kraftliner. And those that can switch out of kraftliner have been doing so all of last year. That's part of the reason why you had 6% absorption of containerboard because there wasn't kraftliner and people have had to use heavier-weight, basis-weight recycled papers. And I'm not saying the price is irrelevant, but it's a distinct product in its own right.

Okay, so I think we are going to have to call a halt here until 9:40 and take some questions further on after the presentation of the medium-term plan. So thanks a lot for your attendance, and we'll see you in 10 minutes. (inaudible). Thank you.

(Break)

Ladies and gentlemen, again I want to thank you for your attendance here to listen to our Q4 presentation and to our medium-term outlook. Let me say, first of all, that sometimes you have to look back to see how far you've come. And I think Smurfit Kappa has been on a bit of a journey over the last number of years. And I would say that, having been in this industry, and unfortunately I'm being told I'm a veteran, which really scares me, but this industry is looking like it's in a really good place for a number of the factors which we'll talk about.

As I said earlier on the TV, that success is never a straight line. So what you have in here and what you'll see is a plan that has been developed upwards from the company and downwards from myself and Ken and the whole team to really analyze what is the best way to take the company forward. And in a sense, we're saying we're backing ourselves because acquisitions are very expensive. We have done them. We will do them, and we will remain open to doing them. But a sure certainty of returns is by looking after what we have under our control and hence the reason why we've developed a plan that we're going to put forward and develop.

Obviously, you've read the disclaimer. And I'll take you through. Basically this is the program of the day, where I'll talk to -- for about 20 minutes. Ken will talk for about another 20 minutes. And then I'll wrap up within 10 minutes, giving you a flavor of what we're doing. I am joined today by some very handsome men. Ken Bowles, you know, who's our CFO. Paul Regan, who's also sitting at the top table, is our Group Treasurer. We've got Saverio Mayer. Saverio, maybe you'll stand up. He's our CEO of European business. We have Juan Guillermo Castañeda, who's our CEO of the Americas business. And we have the ever-effervescent Arco Berkenbosch, who is in charge of our innovation. And of course, you know Kieran and Garrett, who are also here.

I would say the objective out of today is really to see how Smurfit Kappa can really utilize the innovative marketing that we have -- or market that we have to open up the opportunities that we have ahead of us because we have to capitalize on the sustainability credentials, which I've already mentioned earlier. And we have multiple sources of earnings growth that we can deliver on. We can deploy capital, and that's what we intend to do, to increase our long-term returns. And we are going to update you today on what are our key metrics. And as the ad said today in the FT, we're going to develop packaging solutions today for the needs of tomorrow. And we're doing this basically at the backdrop of the performance culture that Smurfit Kappa have.

The culture of a company is really important. And what I think is really unique about Smurfit Kappa is that we have core values of integrity, loyalty and respect. And we're sort of like a familial type of company without being -- without obviously being a family company, yet we're extremely professional. And I think that's what -- when people come in to Smurfit Kappa who have not worked in the company before, they see the drive, the energy, the performance that we demand. Every profit center is important. Every man is running their own business as though it's their own business. And that is what we make sure people are responsible for. So a great culture with professionalism behind it, which is I think really important to make sure that we are successful going forward.

Our mission is -- vision is to be -- I'll use the adjectives here, globally admired. That's very important to me. The more admired you are, the more good that you do, the better the reputation of the company is. And ultimately, the way you get rated is on that basis. So I think that we have lots still to do, but we're doing a lot in getting ourselves globally admired and respected. Dynamically delivering is really important. I mean obviously we need to maintain that our company ethos of opportunity comes to pass, not to pause, is always there. And so we've got to make sure that we have a balance sheet in place to ensure that we have and we're able to take the opportunities, and we're at that point. Secure is obviously very important to everyone in this room who's a shareholder, myself included; and the gentlemen around me; and yourselves. We believe in making sure that everything that we do is verifiable, secure and ensuring that we don't go outside of our metrics. And superior returns, which we are frankly not there yet. Yes, 16.5% for Q4 was reasonably good, but overall 14.5% for the year, it's not that great. And there are other people doing better, so we have to figure out a way to do that, and we think we have.

So clearly, how are we going to do that? I mean that's accelerating our vision is by our innovation. We have the unique offering in the market to grow profitably. You all know that. Any of you who've been to our -- 1 of our 19 experience centers will see the tremendous applications that we have, in that we're able to solve our customers' challenges. We are positioning ourselves in the customer's world. And we're generating tremendous partnerships with our customers across all of the -- across all of our world with 64,000 customers. And to do that and to meet their demands, we are going to invest a lot more in our business. We're going to put about EUR 1.6 billion in base -- above base CapEx of around EUR 300 million into our business between 2018 and 2021. We are going to ensure that we drive our return on capital employed to 17%. And we're going to make sure that we continue to be -- remain agile and flexible in that. So in other words, it's not a straight line. We're going to make sure that -- each time that we decide and invest, that they're still going to pay back, but at the same time, that is our target. This is a bottom-up target to really drive our return on capital employed up to 17%.

Significantly, we're also going to -- because we've stressed test this, the investment thesis, and we see we're fairly -- we're 100% sure that we can keep our level of debt to 1.75x to 2.5x instead of the 2.2 -- 2.0x to 3.0x net debt-to-EBITDA. So we have a new target of net debt-to-EBITDA of 1.75x to 2.5x. And that is well within the scope of all the investment plans that we're planning.

Importantly as well, we're not giving up on M&A. We have very significant capacity to do M&A. And that's what we will intend to do, as long as it remains long term a good deal for the company. We have walked away from over EUR 2 billion of M&A over the last 2-plus years because we're disciplined. We have done some. We've done some here in the U.K. We've done some in -- recently in Moscow and in Greece. And we'll continue to look at stuff, but we're only going to do it if it makes sense; if the quality of the asset is good; and we can get a return over the long term, not just the short term for a short-term [pick].

We are the leader -- or a leader in a growing growth industry. Here you'll see from 1990 how the growth of the industry has grown from, [yes], around 5 million tonnes per month to nearly 14 million tonnes. We are the leader in Europe, and we are a pan-American leader. As you'll have seen from the previous slide, and it goes right through the organization, we have a very experienced management team, and so therefore you can -- while the stock market will say that past performance is no guarantee of future success, I think in the paper industry it is. So I think we will deliver as we go forward. And we're leading the market in what we do, in all the applications and all the things that we're able to do as a company.

What are the drivers? The development of customers' omnichannel requirements are clearly one of the major issues that is working in our favor. People who go in to shops today are using their smartphones and ordering online, and when it's ordered online, it comes in a box. That's a new channel. We as a company understand how to deal with all the various, different channels that our customers are striving to adapt to in this changing world. eCommerce, you all know that eCommerce is a huge area of growth for the world in general but obviously for packaging providers such as ourselves that is a very big area of opportunity for us, and it's going to continue. Discount retailers, they are using very significant amount of packaging. All of you who go in to discount retailers will know that, when you go into a Lidl or an Aldi or -- they put the box on the floor and it's used as the merchandising medium. That is a big plus for us. It's higher-value packaging. It's white packaging, it's coated packaging. It's printing. It's high-quality glosses. So that's really a big positive for our industry.

Corrugated, we talked about earlier, sustainable, renewable, biodegradable. That trend is just starting. I mean we would have said it should have started a long time ago, but it's starting to get into the public's imagination. The merchandising medium, I've mentioned. And basically the high-growth channels, as I mentioned, of eCommerce and discount retailers are using corrugated all the time. So -- and on top of that, you've got general GDP.

So clearly the backdrop for our business is extremely positive. And you'll have seen from previous slides the growth is there and will continue.

For ourselves, what does that mean? Because obviously what does it -- what does that mean to Smurfit Kappa? That means that we are -- we have the leading tools. I mean, as one of the largest in the world, you would expect us to have the leading tools. And again as I said, anyone of you who's been to our 19 experience center will see the tremendous applications that we have. We have over 8,000 machines in the marketplace. And what does that mean? That means, when you have a machine in the marketplace, it's sticky product. In other words, that the customers tend to stay with you supplying the corrugated box. So that's a thing that we continue to invest in our machine system business.

We have the smart applications, as we call them. SupplySmart is for the logistics supply chain, where we're able to serve our customers by reducing their logistics costs. eSmart is e-tailing, which is where we have -- I think, Arco, we've got 80 customers coming to the experience center in Amsterdam at the end of this month to tell them all about how to e-tail better. And with ShelfSmart, which is the merchandising medium that I've already alluded to.

So they help our customers win. When you look at security of supply, I mean if you go to the last quarter, having the supply of boxes is really important for our customers. And that's a very, very important issue for us to make sure that we have the paper behind our boxes, to ensure that we have -- we're able to deliver to our customers on time and with the quality and speed that they need. Because that's what's happening in the market, make sure that they have the ability to serve their customers. One of the things, another trend working in our favor is consolidation of suppliers. I mean obviously, as the -- as our customers get bigger and stronger, they're also needing bigger and stronger customers -- or suppliers like ourselves. And that's a trend that we see -- continue to see happening. And leader in sustainability: Of course, Smurfit Kappa continues to lead in that area. And we've got so many awards from what we do in sustainability.

When you look at our diversified customer base, 64,000 customers across the world. Our top 5 customers represent less than 10% of our volume, but we're in every industry, in every part of the supply chain in every part of the industry and in every part of FMCG. We deliver all the big customers. Generally speaking, we don't lose customers. Customers tend to be sticky. We might lose a line here and there, but in general we tend to keep our customers because of the customer offering that we give them.

And how do we do that? We solve our customers' challenges. To give a few examples: If you look at this customer, by increasing sales. And Agua de Benassal in Spain, where we were able to help them with their printing, and they increased their sales by 10%. That's one way of solving our customers' challenges. Another way is by reducing their costs. If you look at Philips Lighting. We reduced the costs in their supply chain by analyzing the whole logistics supply, and that goes to the whole SupplySmart concept that we do. They were able to reduce, lets' say, their packaging costs by 10%. And we're okay with the margin as well because obviously we make sure that, that works better for us as well. And then some customers are moving progressively forward on the whole area of renewable and recyclable packaging. And AB InBev, we just won a lot of business from them on the basis of our credentials in ESG.

And we've got a couple of samples here. And you'll see some of the boxes in the room actually and some of the statements from Aldi, from Zalando, from mabe and from Lavazza. I mean again using different parts of our network. One is to reduce polystyrene. One is for a returnable packaging for eCo customers that need to get their products back with them forwards. One is talking about how the shopper experiences is needed in a discount retailer. And then one is using machine systems. I won't go into the detail of how those work, but what does this actually mean? It means they're stickier customers. Those customers stay with us longer because we're able to solve their problems. And these are just 4 examples of the myriad of examples as -- our 64,000 customers we do every day. Remember we have 60 -- we have 700 designers putting in new designs every day into what we call our InnoBook that is basically a library for all of our people to look at. No other company has that kind of resource. We have, I think, 70,000 supply chains that we're able to stick into our computers and show our customers how their competitors do things. No other company has to do that -- is able to do that.

When you look at it, what makes us different is it's an integrated approach. We talk about this all the time. It means that we have control of the sustainability sourcing. We have the highest industry standards, whether it's PEFC or FSC, our chain of custody. What it actually means to us in financial terms is 2 profitabilities. We make a paper profitably, and we make a box profitability. Those go out of sync from time to time as one goes up and the other goes down, but clearly, over time, paper prices will go up. Box prices take a while to come back up to recover that. If paper prices go down, equally box prices take a while to go down to get to the paper price. And that's the seesaw movement we have. As long as we're investing in our paper assets to make them low cost, as long as we're investing in our corrugated business to make them also low cost but also innovative, then clearly that's going to be an advantage to us. It optimizes our supply chain. So in other words, from our paper mills to our box plants, we have very low transportation costs. It significantly reduces earnings volatility. And security of supply in all market conditions is vital for us.

Our containerboard system, we need to talk about that because it's an important part of the investment case in Smurfit Kappa. We have recycling depots that support the mill system. We have containerboard mills that support our box plants, as I've just mentioned. And we've been investing very strongly. We've gone from -- we closed 14 machines over the last 7 -- 10 years. And we've reduced our production cost per tonne on the remaining tonnes that we've added by EUR 20 a tonne. It gives security of supply to our box system. This is just an overview of some of the investments that we've made. We've made them in the U.K., Mexico, Netherlands, Germany, France, Colombia. And we've added 400,000 tonnes onto existing footprint. And the good news for you as investors is we can continue to do that over the next couple of years.

Within our system, we need to talk about kraftliner. We have 3 very strong kraftliner machines in Europe. It is a very good grade for us to be in. It's a grade where Europe is short. We continue to invest in those mills. They're world class. They are -- the replacement cost of any of those, if we were to -- which you wouldn't do, but if you were to rebuild those mills, that will cost you EUR 2.5 billion. There are very significant barriers to entry and new capacity. And in the Latin American areas we have the capacity and potential to develop our mill system down there with 100,000 hectares of forestry, which is already planted with the correct type of material to produce kraftliner if and when we decide to expand our kraftliner capacity down there.

Just one other point to make on this slide is that why do you use virgin fibers versus recycled. You use virgin fibers for strength and humidity and to carry weight essentially, so you use it when you need to. And then when you don't, you use it -- you use recycled. So it's -- really it's too hard -- too easy to say it's a niche grade. It's not, but it is a grade that has niche characteristics.

You have all on your seats our CSR credentials. This is something I'm particularly proud of. Some of the things that we're doing in our local communities are very, very important to our businesses. And this is something that we are very proud of what we're doing. We've invested EUR 5 million last year in local initiatives whereby we're helping the local communities in which we operate. And that really has a double benefit. Of course, it's good for all of us to see kids getting a chance and things happening positively for them, but it's also good for our business. It makes good business sense because we're helping around the communities where we have factories people to do well. And that pays off in our local governments and countries. We recently won an award for the whole of Colombia as the most sustainable company. That makes us very proud as a company to be able to do that.

And before I hand over to Ken. What are we going to do to resource our -- or why do we need to resource our growth to maintain our leadership position? Basically, as I've said, it's increased box demand driven by, of course, the market and our own specific issues. We need to invest to maintain the strength of our integrated model. We will invest to drive profitable growth. We're not losing run of ourselves. It's only got to have to -- it's got to have a return. And we will invest to maintain our market leadership position and security of supply to our customers. This chart on the right shows you, if you just run out a 2% growth across our world, we're going to be 1 million tonnes short. And that is ignoring the kraftliner piece which is a niche grade, so you could add an extra 400,000 tonnes on that. And if you took a relatively extreme version at 4%, we'd be 1.6 million tonnes short, which is far too much profitability to be giving away to our competitors. And that's something that we need to address as we look forward.

So when you look at where we sit right now, we're in a very good place. We've got exciting plans that have been driven from the bottom up. And Ken will talk to -- talk you through some of those plans now. And then I'll finish up with the conclusion in a few minutes.

Thanks, Tony. And good morning again, everybody.

Over the next few slides, I just want to kind of build on what Tony has talked about. I mean, why now for this plan? And the kind of key elements of the plan, where we see capital being deployed over the next 4 to 5 years in the context of the group and indeed the M&A backdrop as it currently applies to Smurfit Kappa. And from a simple fundamental perspective, we're coming at this from a place of balance sheet strength. I mean that's clear: leverage at the lower end of our range; very solidly Ba1, BB+; and our free cash flow-generating operation that has been strong consistently. I mean, if we go back in our history, as you may recall, we've only ever been free cash flow negative twice. And that was 2005 and '06 as a result of the post-Kappa-merger restructuring. So since then, it's always been a machine that has delivered strong free cash flow, and indeed that is the firm basis for the underpin of this plan.

But as Tony said, before we look forward, it is important to take a glance back and see what we've achieved in the last 10 years since we went public for the second time. I think it's fair to say that the track record of delivery within SKG is unrivaled. And it's that delivery over that time period that gives us the confidence in the plan we have here today. And as Tony says, we're backing ourselves here. The track record of delivery means we're confident that we can do it again. And indeed that's certainly clear from the operations too. We have a history of continually meeting -- setting targets and meeting those targets. And most recently, our return on capital target of 15%, which was set in 2013, has been kind of met for a while now. And part of today is indeed to upgrade that target to 17%.

But what have been the key features that have kind of underpinned that delivery and performance over those years? In the last number of years, I think our approach to innovation and differentiation; and kind of moving much closer to our customers' worlds, moving down the aisle with them, looking at their shelf presence, helping in their supply chain; ever increasing complexity in the eCommerce worlds have all been very much part of that kind of stickiness of relationship and growing customer partnerships beyond transactions. I think that's been a key underpin to some of the margin performance and progression we've seen and certainly through 2017. You might recall, in 2014 and in 2013, we began our -- a high-return capital expenditure program of an excess EUR 50 million over for 3 years. The genesis of that was quite simple. The business said, "If you give us capital, we will deliver on this." And

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Saverio and Juan, their teams did. I think what's clear is the energy that, that program creates within the organization; and indeed the sheer volume of projects that we have, some of which didn't make the initial program -- or in this program, are clear to us. So that again gives us kind of bedrock and a foundation for how we go about large-scale programs like this.

And indeed we've added to our base in terms of our geographic footprint. We talked about Greece this year, which is a platform into a bigger Balkan region. We've added to our Russian footprint. And indeed we expanded out in our Americas operations through Brazil in 2015, so we haven't been idle in the M&A space either.

The 2 key elements from the shareholder perspective there are that we've grown the dividends. So when we reintroduced the dividend back in 2011, it was at -- the aim was to grow it progressively in line with the cash flows we were generating to get it back to a very competitive place in relation to our peer set. And I think, as we sit here with a 12% increase in the final dividend, 10% year-over-year, I think that is a very competitive dividend and aligns very well of -- aligns very well with our peer set in that regard.

The certainty we've always given to everybody and I'm sure to my friends from our syndicate in the room is that we've always been very solidly Ba1, BB+. And we've always kind of wedded to that as the underpin to our balance sheet, and that's been a discipline that we like, and it's a discipline we'll continue to have.

So we're at a place where we set our targets, we met our targets. We finished the high-return program. The dividend is being grown, and our credit rating is solid.

And really, when we look now at the opportunity set, growing that internal investment, both internal and through M&A, is very much how we see the future. But quite simply, if you look back over the 10 years, in very simple terms, we've deployed about EUR 5 billion of capital, most of it internally, about EUR 3.6 billion, but we spent about EUR 1 billion on acquisitions. And we've returned EUR 800 million back to the shareholder. But fundamentally, reduced the leverage from 3.2x to 2.3x at the end of 2017.

A number of you have had the opportunity to spend time in our operations, and I think it's clear when you're out there, you can see the discipline and approach to how we deploy capital. We have the phrase that every euro is a prisoner, and that applies to peso and the dollar also. So our general managers and our mill managers treat capital as if it's their own. So when we talk about plans like this, it's from that backdrop.

I think you've seen and you see on the left-hand side of the room here today how we're beginning to be much more centric to our customers' world. The days of kind of simple paper supplier are over for us. We very much live in our customers' world. I mean you see customers like Zalando and Aldi, and Lavazza and mabe that we talked about earlier on, Smurfit Kappa is uniquely placed to serve those all through the supply chain, whether it's innovating at the paper brand or innovating at the box end, it's really -- it's an unrivaled supply chain that we can deliver.

We benchmark all our projects against all other capital alternatives. So when we talk about internal investments, that's always against the backdrop, is there a better way of using that capital? So quite simply, everything we do internally is always returns based. It's a fundamental principle.

We talked about M&A, and Tony mentioned that we stepped away from a lot of deals in the last number of years. And that's for a very simple reason. I mean, if we don't fundamentally believe that they can deliver long-term accretion and value to the shareholders of Smurfit Kappa Group, we don't believe short-term fix in terms of low capital and high multiple is going to do it. So but we'll return to M&A more at the back end of this presentation.

And as you can see in the chart, return on capital employed really is the fundamental driver of the business. And from going from 11.3% back in '07 to 15% at the end of '17 and now at an upgraded target of 17% for this plan, that's quite a progression for us.

So Tony has set the challenge, and I suppose the challenge for us in the financial community is, how are we going to deploy that capital and how are we going to achieve that?

Well, as Tony mentioned, with 370 operating units, it was quite simple. They all had an opportunity, an opportunity to deliver plans that will deliver growth, the improvement in their business, whatever that might be. They've all been collated, so this is very much a forensic look, an internal lens at our business and building from there.

The priority will be towards CapEx and M&A. And that isn't an either or. It can be either CapEx on its own or if an M&A opportunity presents itself to replace that CapEx, that works. Or indeed, an M&A opportunity that help support the CapEx, that will equally be looked at. So it isn't either or, never was for Smurfit Kappa. But in the context of this plan, when we talk about strategic spend, that could be a strategic spend either CapEx only, CapEx and M&A or some combination of both.

As Tony also mentioned, that we're tightening the range from 1.7 -- to 1.75x to 2.5x. And there's a very simple logic for that. Quite simply, that's where when we look at the cash flows over the next few years, that's where we believe the leverage will land. Still very solidly Ba1/BB+. But like I said, this is underpinned by the ability of this group to continue to deliver free cash flow, so that isn't -- there is no challenge in that for us. It felt right at this point to kind of move from our 2x to 3x, which is an old wide range from a higher leverage and higher coupon yield company.

The key underpins of this plan are that it's agile and flexible. As Tony mentioned, too, opportunities come to pass, not pause, so we've always been aware and available for that. So whether it's flexibility in terms of the timing or agile in terms of the projects available to us, the plan contains a tremendous amount of that. So we're not pinned to cash flows in any particular time period. We have enough flexibility to flex as either market conditions or market opportunities present themselves.

We're also keen that the dividend will remain very much progressive. And we don't -- as you know, we don't necessarily have a strict dividend policy. We don't focus on payout ratios, but we do focus on the idea that the dividend will remain competitive. And certainly at the level it's at today, and we -- obviously going forward, that, that will be very much how it will be.

Fundamentally, it can only be supported by cash. So the ability of the organization to continue to drive free cash flow, as it has always done, will be key to this. And certainly, when we look out across the next 4 to 5 years, it's the free cash flow generation of the organization that will give us the ability not only to finance the project, but to continue to ease into some of that leverage.

As I said, the default position for this plan is that it's going to be internal investment, internal investment between 2018 through to 2021 for this particular section of the plan.

And we've kind of broken, if you like, the bucket of EUR 1.6 billion into 3 distinct areas. We've started from the premise of, where are the growth opportunities in our business? Where are the new markets, new territories, new geographies that we need to look at? And that's the first basis.

When we step back from that, it's about putting the support structures in place to make sure that we meet that objective. So there's an element of this plan that we'll be focusing on the paper mill investment, and Tony talked about the paper shortfall that we could have at the end of this. So a good chunk of that investment is aimed at making sure that we retain the integration levels we have and maintain the strength of the integrated model. So those incremental tonnes that we might produce are all internal tonnes.

And lastly, with a project of this size and scale and with the amount of opportunity and growth that's attached to us, we do need to look at the cost base that goes along with that. So an element of the plan will be focused at cost reduction projects, at cost take-out projects over the life of plan, too. And then that, that's -- they tend to be very high return, very quick payback program. So whether that's robotization, palletization, conveyors and corrugated plants or spend on energy plants and mills, they all tend to be relatively quick return.

The one figure that was missing from the technical guidance slide earlier on, which is now revealed to you all is that we're guiding CapEx currently at EUR 600 million for 2018. That equates to about 150% of depreciation. And that spend is very much part of this plan. And indeed, it linked to projects, not only that will start and finish in '18, but some that will finish in '19 and some of it will finish in '20 so. But again, when we talk about this, the level of flexibility within the plan is very much key to it, too. So that agility and flexibility means we can flex the EUR 600 million up or down should the conditions and opportunities present themselves.

So yes, the plan is ambitious. It's EUR 1.6 billion. We've never spent that much on the business over 4 years, but our track record of delivery says we're in good shape to do it. Yes, it's agile because we believe it needs to be. And certainly agile in the context of opportunities that may present themselves given what's ahead in front of us. Agile in the context of accelerating to meet that market growth, which we did last year in terms of an increased investment in our packaging business. But fundamentally achievable, and achievable because, quite simply, we've done this before. We've been here before, and we've delivered before. So that's the kind of the fundamental basis on which we go forward. And as Tony talked about, when you look at the big investments we made over the last number of years, with Townsend Hook or Roermond or Los Reyes or Papelsa, all highly successful.

We talk about disciplined M&A. And I wouldn't confuse discipline for lack of ambition. That isn't the key factor here. It's actually -- it's more that when we sit back and look at it, we leave behind what we don't believe brings long-term strategic value for the Smurfit Kappa Group. Whether that's a double-digit multiple that doesn't represent long-term value or whether just, quite simply, in due diligence, we see investment in 3, 4, 5 years' time, which incrementally add to the underlying consideration, and it just drives it to a place where we're not particularly willing to travel.

Our history here, and you can see some of it on the right-hand side is that, when we do buy, we buy smartly. When we do buy, we're able to bring the expertise, the synergies, the global presence of Smurfit Kappa across both sides of the organization. So whether that's transferring knowledge from our European business to our North American business, as we would have done with the acquisition of Orange County and the Forney Mill, or whether it's bringing the expertise from our Latin American business into Europe, which we've done over the years, it's an irrelevance to us. What's relevant is that when we buy acquisitions, we integrate them well with the skill set and the resources that the entire Smurfit Kappa Group has to bring. That's across the 35 countries, the 370 facilities, and indeed, the 46,000 people that work here.

So when we talk about M&A and M&A going forward, there really isn't a scenario where I see Smurfit Kappa not being an acquirer of assets and businesses. That just isn't in our DNA. And I think when you look back over history, that's very much part of who we are. But the opportunities do have to get benchmarked against all other capital projects, and they will compete quite actively with some internal projects. But the reality is, as we know, and we've seen this, assets appear, and where assets appear, we will be engaged in chasing those if we believe they deliver value. But the issue at the moment is, in a low-cost capital environment, everything is accretive, but is it accretive for the long term, and this balance sheet has been around since 1934, so we tend to focus on the long term in that regard.

We focus on markets we're in, our adjacent markets, where we can kind of build out the presence. And it's very much a key feature of Latin America. And indeed, now a key feature of our Greek acquisition where we can look further into that kind of Balkan region.

We focus on adjacent projects, products. So for downstream, where you saw with the acquisition of Hexacomb a couple of years ago where we built out that kind of presence. And we also focus on making sure that the integrated model stays strong. So our key factor here is that we don't ever want to end up too short of paper, because we have, at the moment, a neat balance between our kraft long, short test position with perfect paper supply and the Americas are a little short on kraft. And the reality when we do look at acquisitions, the first thing we do look at it is how do we integrate that back into the paper mill system that Smurfit Kappa has, so how do we trap most of the value. But in reality, with M&A, it's going to be -- we will continue to compete. Overpaying is not going to be a thing we've ever done, but fundamentally, deals of any size are not off the table for Smurfit Kappa. Quite simply, because the balance sheet supports that. But fundamentally, and we get back to the cash flow point, it's the ability of any acquisition to drive the free cash flow to return to within that 1.75x to 2.5x range if you need to will be key to all of this.

And lastly, just kind to sum up for myself. We will maintain our disciplined approach. And I think, in reality, you probably didn't expect us to say anything else. I think the key feature of this group is discipline. But like I say, discipline isn't -- it shouldn't be mistaken for some lack of ambition. I think it's incredibly ambitious. I think what we have done though when you look at the returns over the years and where we've driven the group from even from the IPO to now is, it's driven it from leverage to low leverage, returns on the increase, very strong in terms of its model on operating. We've trimmed the business where we've needed to over those years. And in terms of production, the footprint gets bigger in terms of the box system and concentrate on the mill side to take out further costs from that base.

The plan that we presented here is fundamentally built on a few pillars. A lot of what you see in here and the room outside is innovation-led. So this is driven from the customer back into the business. It's not purely chasing growth. Where we do go for growth, that has to be disciplined and profitable. And it goes back to our very simple metric, which is 1% on the price of box is much more valuable to us than 1% of volume, and that continues to be very key for us.

We're intent on growing our footprint and converting. As you know, we tend to stay very close to our customer. We probably have the biggest footprint of any of the packaging companies in Europe. And certainly, the only one that has the footprint in Europe and Latin America that we have. We're intent on growing that. Our investments are aimed at maintaining the strength of the integrated model. And quite simply, we don't see -- foresee a situation where we'll end up structurally very short of paper. And any paper we do bring on will be about integrated tonnes. So that's not new incremental capacity that tonnes for ourselves to consume.

And part of the program will be aimed at reducing that dependence on third-party paper purchase in Latin America. So you will have seen, and we talked about earlier on, the significant headwinds in our Americas business around OCC into our Forney Mill, but primarily kraftliner purchases into Latin America from the U.S. So part of the plan will aim to address that.

We can't stress it enough that this plan really is very flexible around quantum and timing. So as conditions or opportunities present themselves, we can accelerate or decelerate as we see fit. And we can equally swap between particular lines in the cash flow. So whether it's CapEx or investment through business purchase or asset purchase, either works for us. What matters is achieving the 17% return in the plan.

And lastly and fundamentally, we've done this before. So the track record of delivery here is clear, not only in the underlying business, but in the last Quick Win program that we executed. So the record of delivery is quite high and one which we think which will be a key factor in the success of the plan from '18 to '21.

I'll hand you back to Tony for the wrap-up.

Thanks, Ken. So again, just to go back to our vision, because it's something that we really live and die by at in Smurfit Kappa. We want to be globally admired. We are globally admired, but we got to do a lot more in that whole regard. We cherish the environments in which we operate. And I think that's very important throughout the company, that as that gets recognized, I do believe that we will as a company be seen in a much higher light than we have been heretofore.

Dynamically delivering. Again, it's a company that has done this before. We will continue to do that. And this program and this plan will be delivered. And it will be done in a secure way. It will be done in a way that doesn't infect or disrupt our balance sheet. And it will allow us to get to where we need to get to at the bottom part of this, which is superior returns. And if we get to the kind of levels that Ken is alluding to and I've alluded to, at 17% ROCE, then that will be a very significant move for us to get to our returns to a superior level.

And why we're so confident of what we're planning to do is because of what we talked about earlier, the growth in our business. If you take this analysis, and this is taking just a 2.8% compounded annual growth rate, we will need 24 million metric tonnes of paper in the system, in the worldwide system over the next 5 years, including last year. And that's taken, I think, a relatively conservative number of 2.8%, given the fact that the world economy seems to be accelerating. So in an environment where we, Smurfit Kappa, are the best or if not the best, but I would say, we were, certainly, one of the best in the industry, where we have the best applications, where we have the best people is very important for us to take advantage of this opportunity that's ahead of us, which is a high decent growth business with opportunities to reduce cost and take advantage.

So where are we going to do that? We are going to invest in over 100 conversion machines. Our customers are changing in a sense that they are becoming more automized, so they need to have more precise machines, and we're putting those in on the continual basis and will do so. That doesn't mean that all markets are in the way, so we get a cascade effect as we put a new machine in. We're able to move that older machine down to a less efficient plant, our plant that doesn't need the same sort of quality characteristics. So Smurfit Kappa has been famous for utilizing its equipment through the various businesses that we have, and as I say, cascading them. And that's something that we will continue to do, and this gives us an even greater opportunity to do that in the years ahead. We will be bringing in new paper integration into our system. Obviously, M&A is an opportunity here, if they come up. If they don't come up, we will be looking at investing in our own business, or indeed, even buying a machine to convert it over to a containerboard, because we need, as you saw from my last slide in the first presentation I made, we absolutely need our own paper integration to satisfy our business model.

We plan to build 5 new box plants around the world, broadly split mainly in the Americas, but a couple in and around Europe. That will be something that obviously each one will have to stand on its own right, but we think we should be looking at during the plan period to be building around 5 box plants.

To support our whole system, we are going to be adding recycling depots. We just opened one last week in Malaga to support our mill in Central Spain. We'll continue to do that. We have 3 or 4 on the blocks at the moment in Europe and the Americas. And we will be saying at least 7 recycling depots to make sure that we have the fiber for our mills. So as I said, it's making sure we have the fiber, making sure we have the paper, making sure we have the availability of boxes and the standard of boxes that are needed for our customer base. So it's a complete chain.

As Ken mentioned, we're going to have to make sure that we continue to take out costs. So with 40 automation projects that we have in the plan and 10 warehouse investments that are going to continue to reduce our cost base. And then to our 8,000 machines that we have in the market, we expect to add about 800 machines per annum into the market. And as I say, that will continue to bring stickiness of customers across to Smurfit Kappa. And that's a very important part of our agenda as we look forward.

The multiple sources of earnings growth that we have are, of course, innovation, 19 experience centers. We'll grow a few more over the plan period. That's where our customers come in and see the wealth of information, the applications that we have, the technical knowledge that we have in corrugated packaging. And that's what binds customers to us. They tend -- if you innovate for your customers, they want to be with progressive companies. And obviously, that's why they come to Smurfit Kappa. And that's why we help them in the supply chain, on the shelf, in the logistics area, on the presentation, and making sure that they are in -- themselves in a good shape, and that's why we see progressive customers working with Smurfit Kappa.

We are going to grow for -- we believe this is a growth business. We know this is a growth business, so we are investing in growth. We're going to open up new markets when and when the opportunity comes. And we're going to look at capacity additions that are value added.

We need to make sure that we keep our strategic investments in place, which is making sure that we have enough paper to support our integrated model. And it is, as you saw, a very significant shortfall. Effectively, we're giving profitability to, sometimes, our competitors and other people in the paper industry. And that's okay to do to optimize your system. But when you're not optimized, that becomes just giving money away, and that's not something that's very smart.

And cost takeout is, of course, something that is part of our DNA. We do that every year. But clearly, there are some countries where we have very high labor costs that over time and with automation we can actually reduce those costs.

And finally, M&A, it is also part of our DNA. We do have an ambition to acquire. But as Ken mentioned, we are disciplined about this. We have the balance sheet to do practically any M&A we desire to do. But nonetheless, we're not going to overpay. That's not why we've been in business for over 80 years, and that's why we're going to continue to stay in business.

So in 5 years, we will be a clear global leader in paper-based packaging. We will continue to optimize our integrated model. We're going to make sure that we continue to increase our geographic diversity for our customers. We're going to make sure that we have the balance sheet to seize the opportunities. As I say, opportunity comes to pass, not to pause. We need to have the balance sheet to do that. That's why we've reduced our rate 1.75x to 2.5x. And then we need to make sure that we have secure returns. And that's all done as a backdrop of the performance culture that exists within Smurfit Kappa. Those of you that know us a long time know about the passion that we have for our box business. It's great to see the rest of the world getting passionate about fiber-based packaging, and that's something -- that's a trend that's going to be very positive for us. And I think with the kind of values that we have, the kind of culture that we have in Smurfit Kappa, of loyalty, integrity and respect, and the people that we have in our business, then you can be sure that we will deliver on this plan as we go forward.

So with that, I will thank you for your attention. I think we are exactly on time with precision for any Swiss people in the audience. And as I say, we are very excited about the future. We're very excited about the space we're in. And we're ready to take any questions. I have got the 3 guys here who are going to answer any difficult questions. And Ken, and I and Paul will take the easy questions. So we'll start with -- let's start at the back this time. Let's start with you, Alex. We'll go that way around.

Alexander Berglund from Bank of America Merrill Lynch. Two questions for me. The first one is basically a key question. I mean when will you reap the rewards of this investment? I know it's a tricky one especially because of the flexible nature of your program. But I mean, as an investor, you quite easily can calculate that the near-term free cash flow is probably going to go down, I think, with CapEx. So maybe, if you could give some color of the EUR 600 million you're investing now, of the growth part of that, how much of that return are you going to return in 2018 versus '19 and '20? And the second question is, how would you reply to a cyclical investor who is concerned that you're increasing all this CapEx at the top of the cycle or possibly near the top of the cycle?

I'll take a bit of that, and I'll let Ken take a bit of that. And whether -- I mean, it's very hard to say that we're at the top of the cycle. If you were sitting here in the room 2 years ago, you would have said the exact same question. The top of the cycle, we don't know when the top of the cycle is. If you take the -- if you take some of the underlying things about our business, the underlying metrics which we talked about, you could say that we're far away from any top. But we obviously don't know that, where the top of the cycle is. So we have to actually invest based upon the characteristics that we see and the opportunities that we see to grow our business and grow our margins, and that's what we are doing. As I said, we have a model that has continued to go upwards. Other than the very sharp raw material price increases that we saw at the start of last year, our EBITDA margins have been growing because we've been investing in innovation and we've been investing in our mill system already. Now what we're going to do, if you imagine that we were a private equity owned and we were constraining investments, we were doing adequate investment, but we were -- and we were taking the low-hanging fruit, but there's a tremendous amount more of opportunity that we need to take to grow that margin, and that's what we're going to do. Where we are in the cycle, who's to say? Maybe it's 5 years away or 10 years away, we can't predict that. On the other point, on the cash flow, it depends on your view of our earnings. I'll let Ken take the technical piece of that, but it depends on your view where our earnings are going to this year, how much cash flow is going to be influenced.

(inaudible) will leave your top line to you on your modeling capability. Then when you look down the rest of that kind of free cash flow model, I think given the price environment we've had for the last couple of years, whether it's recovered fiber through '16 to '17, paper in '17 and box in '17, we've had a lot of investments in working capital. Over the last 2 years, almost EUR 200 million. So we're coming into, I think, a more stable pricing environment in some of those grades. So you wouldn't necessary expect that continued investments in working capital. I think a lot of these projects will be linked to trying to ease into other elements of that, whether it's savings through the tax line or something else. And the financing costs, equally as we guided earlier, are going to come down, for that the prefinance work we did. So it's not a straight line between the incremental CapEx equals a reduction in FCF. I think you have to take a view on that entire structure of free cash flow income there somewhere, but we're expecting to unlock elsewhere and savings elsewhere to offset at least some of that in line with the top growth.

And you are on the growth part, now what you're guiding with the EUR 600 million, how much of that return are you going to get in 2018, '19 and '20, if there's anything you could say?

There's probably very little we can say, Alex, we're getting to kind of difficult from our probabilities around proper forecasting. So I think our intention here is we'll guide as we go in terms of the potential outflows and expected timing. I think as we see it develop, we will give you more in that regard. But as we sit here today, I can't give you a number for '18.

Robert? We will just go that way around the room.

Robert Eason from Goodbody. And forgive me if I'm using simple numbers here. So just trying to put the building blocks together. If you just look at it simply in terms of getting that 17% of return on capital employed on a incremental investment of EUR 1.6 billion, let's call that EUR 300 million of EBIT, where you are now to get to that 17%. Is that the way to look at it in terms of how profits will improve, everything else being equal? Secondly, just on that 17%, just to be absolutely clear, that's a through at the cycle return on capital employed target. So how should we look at the range around that 17% in what you believe is a typical cycle? Is it plus or minus 2 percentage points on that if that is a through the cycle target? And you've touched on this numerous times through the presentation in terms of improving your integration. You are roughly 700 short testliner. How should we view in terms of what are you comfortable with? And therefore, taking a view on how much you are looking to bring on stream and to reduce that dependence on third parties?

Yes. I'll take the last question and let Ken take the other ones. And basically, I would say that we'll be looking around, at the end of this, somewhere around 1 million tonnes right at the end, and that's in to 2022, 2023, as we bring on -- because paper machines don't happen overnight, if we decide to build a paper machine. We have to look at all the various different alternatives that are out there, including M&A and conversions. But generally speaking, you're looking at around 1 million tonnes across the European and American system at the end of all of this. Additional.

I'm sorry, Tony. I know the sensitivity of it, that could be kraftliner or testliner?

It could be kraft. Well, it will be primarily testliner in Europe, and it may or may not be kraftliner in the Americas. We're still evaluating what is the best course of action based upon our growth in the Americas. And we see opportunities in both, but we just got to figure out on what -- it depends on the growth and where the growth is coming from in the Americas.

Robert, I'll take the second and first. On the 17%, I think is the case of, let's get there first and then see how it sustains beyond that. I think it's not going to be a straight line from 15% to 17% over the next 4 years because you'll have certain projects that will populate themselves in certain years and have a longer time frame. But I think we will certainly keep you as we go, we'll keep you guided. But the 17%, for the avoidance of any doubt is full implementation of the plan. So post-2021 is the expected 17%, but nothing within the plan given the flexibility or agility of it, I guess that couldn't be earlier depending on how we see it. But like I say, it's a case of let's get there first and then we'll decide whether that's sustainable or not. To your EBIT question, I suppose when we sit back to transfers indirectly all the projects that we have in the plan in reality have to deliver IRRs in excess of 20%. So that's the fundamental base on which we built the plan. And they're risk weighted, risk adjusted for the regions that they happen in, and even the countries that they're in and the type of phasing and planning of them. So I know it's not the direct answer to your question, but that's sort of the basis and thesis forward.

Barry?

Barry Dixon from Davy. And 3 questions, I suppose. The first really is, this is related to you, Ken and Tony, you mentioned the split between growth integration and cost savings. Could you give us some sense in your own thinking as to the split between the -- of the EUR 1.6 billion between those 3? Or is this kind of almost as you kind of you assess it as you go along? And then secondly, looking at the split, your own thinking, it sounds like it's more of CapEx-driven plan rather than M&A. But again, in your own thought process around how much of that is likely to be CapEx and how much is likely to be M&A. And secondly, just a follow-on to Robert's question there. I suppose if you assume that sort of 20% IRR, does the 17% require a structural improvement in the current legacy business on top of the return from the new investment? And then finally, just in terms of the EUR 280-odd million, I think, of incremental investment in 2018. Can you give us some sense as to the projects? Any specific projects that are in train currently which will use up that EUR 280 million? And maybe even give us some sense as to some more specifics around the projects which are in train that will consume that EUR 1.6 billion over the next 4 years.

Okay. I'll take the first and the third one, definitely. I'll take the first and third one, definitely. And Barry's math was never good, that's 4 questions. In terms of the CapEx...

That's an upgrade so.

In terms of the CapEx, Barry, I think if you think of the 3 buckets of for growth, for integration and for cost takeout, I think it's probably -- as we sit here today, and you're right, it could be flexed or changed as we go through. But our initial thesis is, it's EUR 700 million for growth, it's EUR 700 million for integration, and it's about EUR 200 million for cost takeouts in and around. I suppose we're thinking about it in the context of the EUR 1.6 billion spend. We're not necessarily splitting that between M&A or CapEx initially. I think that will develop itself as the plan continues. As I said, our initial thesis is this is an internal investment program where we're backing ourselves to do it. But if opportunities present themselves, then absolutely we will seize on those. In terms of getting to the 17%, so I think we're still seeing the benefits from the Quick Win program coming through the organization. We're still seeing the benefit from all the work we're doing, whether it's innovation, differentiation, these 50 machine networks, reorganizing the organization to be better fit towards the customer, all of that still coming through the organization. So it doesn't necessarily require any kind of uplift in the underlying business. But I think all of that improvement is naturally coming through as we continue to finish the programs we've had in place for the last number of years. And on the specific projects, I think I'd leave to the guys.

I'll ask the guys to comment from the Americas and from Europe. Maybe you just talk about some of the projects you got on frame, and what you've approved and what's going forward. Introduce yourself, Juan.

Yes. Let's say that we have, well, in particular, in the Americas, we have 2 areas in which we are going to apply our resources during 2018. One is we need to expand our converting capacity in the north part of our operation, mainly Mexico, Central Mexico and North Mexico. Also around Texas, now we have a big operation that could cover Southwest U.S. and we need to get it stronger there. But also, we need that to have -- at least in here, we have a shortage of paper, and we have still some short-term opportunities in a way to expand part of our actual paper machines in Mexico, in Brazil. So let's say that those are the main areas in which our investment in 2018 going to be.

And Brazil?

Yes. And we will start also. We have taken some time to analyze but we want to do in Brazil. We got to a point now in which we are already full in our converting capacity after the growth that we have had the last 2 years. You listened Tony talking about 10% in 2017. So we are starting now to increase our converting capacity in our operations in Brazil as well those machines are already on their way.

Saverio?

Saverio Mayer, I'm the CEO of Smurfit Kappa Europe. I would say if we look at the 2 key parts of the business, as it's just been said, on the paper side, for sure, we need to increase our capacity on the recycled paper, so we are evaluating different ways of doing that. And this is one of the key projects in this area, plus the normal activities of improving the existing mills. But of course, with the growth, as we forecast, we need to increase our capacity there and reduce the shortage that we have today. And on the converting part, looking at the evolving complexity of the business, where we can see all the logistics getting much more complicated for our customers, I would say the key part is on the converting machines to be capable of reacting in a much quicker way. Time to market is reducing every day and our customers are asking for that. And we need to give a quick and agile solution for solving their issue. That is the key to gain business from them and that's linked to the whole innovation part that we do. And to give them solutions that allows them to solve the increasing complexity.

Yes. I think, very specifically, we have a large project going on in one of our paper machines in Roermond where we're bringing, I think, 50,000 tonnes or so next year.

60,000 tonnes, yes.

60,000 tonnes next year, which is being progressed during this year, we will bring -- we've already ordered lots of converting machines that will be coming in and during the part of this year and some what we call palletizers and pre-series which take out people. But they -- one of the challenges that we have right now is that the lead times on equipment is stretched because the industry is doing pretty well.

And getting worse.

And it's getting worse. So in actuality, that's something that -- I mean it's a very good question, Barry, is are we going to be able spend this money, because there is some degree of lead time expectation or length of lead time that we didn't expect when we were building this plan. But we should get there, basically I'd say, because we're preordered. Lars?

Yes. There is obviously a lot of questions to follow up. But to get 1 million tonnes, given the time frame we're talking about, 2.5 to 3 years lead time to get it up and cracking, you've got to have some pretty good line of sight of what projects you're looking at. And I think most of us would like to kind of understand what you're looking at. I understand you can't maybe share all the details if you're going to acquire something and build, but it will take time to get that 1 million tonnes incremental to the system. And also, just so I'm getting these coordinates right, the EUR 1.6 billion, does that potentially include some M&A, and you can swap between the 2 buckets? Or would M&A come over and above or subject to it may influence the CapEx number? Just to gain some clarity on that.

Well, the second point, it may influence the CapEx number, especially on the paper side. But clearly, if we can't find other opportunities, we will be building a lot of those tonnes ourselves either in America and in Europe. And that's a decision that is under review at the moment. So not where -- we know where we need to put the tonnes, but we're not there yet. We obviously have to do the right engineering and make sure that it's all ready, and then at the appropriate time, we'll tell you. But in answer to your question, if by '20 and 2022, we need to have those -- a lot of those tonnes either bought or up and running, because the reality is the way that these guys are growing their systems, at the conversion, we need to have the tonnes. We can't rely on third parties to give them to us. So we do have the line of sight, but as we -- because there is a process. I mean we have to make sure that the return is there. So therefore, this is what we believe is going to happen. But I need to go to the Board of Directors and make sure that they sign off on it before I tell you exactly what's happening. But it's through the system, it's been looked at. We think it's the right idea. These are the kind of numbers that it spews out. And then in the end, that's what we'll end up doing, assuming everything is equal. As Ken has said and I said, we need to remain agile in this plan. That's been a -- it's a tradition of Smurfit Kappa.

In terms of how quickly is the integration level to achieving the 17% return. And I was slightly surprised, actually, the comparatively low numbers for costs, i.e., the EUR 200 million spend on cost takeout were returns, are typically quite high, given the size of your system. If you want to shed some color to that, if -- some other companies...

But they're very specific points on this plan. There are other cost takeout projects obviously within the normal CapEx, that we have the maintenance CapEx. But we have the EUR 300 million or so of maintenance CapEx of which -- some of which is going to be cost takeout. You'll get some cost takeout with that. So that's just the way the numbers are.

I think that the initial bill, Lars, too, I think that the EUR 772 million, if you like is how we see this business as we kind of sit here today but when we think about the cost takeout program, I mean, we've put it there, it's over 40 automation projects and some warehousing projects. That's 50 alone trying to get through. So you run up against some kind of capacity issues and how much can you get through to. So to the extent that you run through those projects quicker and maybe you add to that focus to do more cost takeout, but as opposed to our initial thesis when we start off is, what can the organization take in terms of projects for cost takeout in any given year without disrupting the underlying business versus the ambition in terms of spend elsewhere. So it's always a balance. But that's our initial kind of bucket of spend. If that changes, we'll have to look and let you know.

And in terms of securing the integration, how critical that is to the 17%?

It's very critical, because, as you know, we can't be handing away profitability to our third parties when it's guaranteed -- I mean, it's a guaranteed profitability for us. So obviously, we need to have that in the system.

And one final question for me. The machine systems installation, the 800-plus you talked about, you said per annum?

Yes. And some of them are quite small. I mean you're talking about machines. Some of them are very big and some of them are very small. It depends on if you're talking about an agricultural customer where you need platform machines to erect boxes, that's one machine. Equally, when you're putting in line for a big cereal producer, that's many millions, so it just depends.

But I thought that was something that client paid for and you're selling the machinery to them.

Sometimes, they do. Sometimes, they don't. It depends. Maybe, Arco, do you want to talk about the machine systems a little bit? It's actually a very nice piece of our business.

Yes. So it's something we do for 50 years now. And it helps us a lot to bank in the customer, to have a long-term relations to customers. So do we sell them? Sometimes not. Sometimes, it goes by the boxes. Sometimes, it's a sale. But in general, it always gives us a great lock-in, and we are by far the biggest producer of packing lines for customers in our industry. So we're now 10 years active in developing packing machinery for eCommerce, which is, of course, also boosting the sales in that area.

Okay. Next? Justin?

I'm Justin Jordan, Jefferies. Just on the EUR 1.6 billion, just, sorry, (inaudible) to say Robert and everyone else is trying to push you on returns. But given the EUR 600 million initial guidance for 2018, you are talking about essentially back end loading here in 2019 to 2021, implying, assuming EUR 320 million maintenance, obviously, just likely trend higher as you go. You're probably talking about EUR 700 million to EUR 800 million on average in '19 to 2021 on average, and I appreciate there will be timing and everything else, and then maybe M&A.

Hopefully M&A.

Of course. What I'm getting to is, your free cash flow is going to be, again, I know you can't give out projections, potentially halved versus where current expectations might be. My back of the envelope right now would be probably about EUR 100 million to EUR 250 million in 2018 to 2021. Is that your sort of thinking as well?

Broadly, no. I think when you think about the spend aspects of the program, I think when you see some of that bigger spend, that tends to be on the paper integration project. So where they come in big lumps, I think in the earlier years, we probably focused more on the automation, cost takeout, growth-driven projects, which will deliver returns here. We're almost trying to balance the higher return and quicker return projects in the early part of the year versus the bigger spend, lower return projects in the back half of the program to deliver the tonnes that we talk about by 2022. So when we've looked across this, it's on a plant-by-plant, year-by-year, quarter-by-quarter basis in terms of the cash flow and the returns. So and it kind of blends out for us. But again, it will depend on flexibility and timing, and whether we bring it from here to here in terms of the cash flow construct. But without getting into forecasting, no, we've looked at it, and we're happy with the way it flows for us.

And just given the flexibility, I know, obviously, M&A may be part of this EUR 1.6 billion. I remember at the Capital Markets Day you did in June '16 where you personally, Tony, described M&A valuation as out of control at that point, I remember the phrase.

And they've gone worse.

And they've got worse. But obviously, who knows what will happen over the next 4 years. If higher interest rates in the U.S. change people's valuation, change people's cost of capital, maybe the world will change in that regard. I don't know. But where is the -- presumably, you are just going to try and retain as much flexibility as possible between...

Of course.

M&A and organic.

I mean it is very important for us to continue to do a M&A if it makes sense. So we will be doing M&A if it makes sense, with or without -- with this plan, obviously, it would be quicker to get the paper integration if we can find somebody that makes sense for us, but it has to make sense, otherwise, we'll do it ourselves. Should we go online? Any questions? I appreciate they've been waiting a while.

(Operator Instructions) And we first go to the line of Gerard Moore at Investec.

It's just one kind of clarification question. In terms of, I guess, the overall package of EUR 1.6 billion, just to be very clear that, if for some reason, the M&A opportunities don't present themselves, you have the plans in place that would allow you to deploy that full EUR 1.6 billion on CapEx if that's the way the kind of the opportunities unfold themselves. So one way or another, you are committing to investing EUR 1.6 billion by 2021 even if M&A doesn't occur. Is that right?

Nearly right. I think, if obviously things change, we will obviously adapt. That's why we've said that it's agile. We have the plan in place to bring this forward to that kind of returns under these market conditions. But obviously, if things change, we're not going to be like the lemming running off the cliff and continue to do exactly what a plan is in place, that we are going to make sure that the plan is adaptable. So we won't get ahead of ourselves too much. Obviously, to have 2 major projects on paper at the same time wouldn't probably be the smartest thing to do because then you can't stop. But obviously, you need to launch some of the plans, and so there will be some degree of spend going to happen of the EUR 1.6 billion, no matter what.

We'll go next over to the line of Lizelle du Plessis of APG Asset Management.

I just wanted to know how exactly do you plan to fund the investment? Will it be a combination of debt and equity? Or will it be out of existing cash flows? How do you look at that?

It's out of existing cash flows as we see it, but there's no concept in here of needing additional equity or debt to finance the program.

We now go to the line of Rob (inaudible) at PGM.

And a lot of the questions you're getting are from an equity perspective. From a credit perspective, the lowering of the leverage target to 1.75x to 2.5x and the kind of the capping of the investment, I mean is that a signal that you're pushing towards becoming investment grade? And I guess, with the performance of the business, you would expect upward rating pressure from the agencies. And to ask the question in a different way, is that something that you would resist?

Sorry. We'll ask Paul Regan, our Treasurer, to answer that.

It's not something we're specifically targeting. Right now, we're strongly positioned in the Ba1/BB+ credit rating. We don't see -- perhaps that in the past, there was a very bright line between investment grade and sub-investment grade, but that's no longer the case. We found with our recent bond issues that we typically tend to have more investment-grade buyers than high-yield buyers for our bonds. And so we are not specifically targeting an investment grade here. And we will be very strongly at Ba1/BB+, and we will continue to source funds from the Americas with a large portion of investment-grade buyers. And but clearly, in so far there is a direction of travel, it is far less leverage rather than more leverage, but not specifically investment grade at this point of time.

No questions on the phones. May I please pass it back to you.

Okay. Thank you very much. So again, thank you all for listening to us. I think we're well on time. And I think be assured that, as I said, we have delivered in the past and we will deliver in the future. That's the kind of company that Smurfit Kappa is. We have great people, great equipment, great market positioning, great geographic diversity, and in a product ray -- product in a -- that is going to continue to grow and a market that's going to continue to grow. So we look forward to seeing how this evolves over the next number of years. And thank you very much for your time, and being with us and your attention today. Thank you very much.

This now concludes our call. Thank you all very much for attending. You may now disconnect.