EX-99.1 2 ex-99d1.htm EX-99.1 ard_Ex99_1

Exhibi 99.1

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Ardagh Group S.A.

F-1

 

Picture 1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Ardagh Group S.A.

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statement of financial position of Ardagh Group S.A. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. 

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provide a reasonable basis for our opinion.

 

PricewaterhouseCoopers

Dublin, Ireland

February 22, 2018

 

We have served as the Company’s auditor since at least 1968, which includes periods before the Company became subject to SEC reporting in 2017. We have not determined the specific year we began serving as auditor of the Company or its predecessors.

 

Ardagh Group S.A.

F-2

 

Picture 1

ARDAGH GROUP S.A.

CONSOLIDATED INCOME STATEMENT

 

 

 

 

Year ended December 31, 2017

 

Year ended December 31, 2016

 

Year ended December 31, 2015

 

    

 

    

Before

    

 

    

 

 

    

Before

    

 

    

 

 

    

Before

    

 

    

 

 

 

 

 

 

exceptional

 

Exceptional

 

 

 

 

exceptional

 

Exceptional

 

 

 

 

exceptional

 

Exceptional

 

 

 

 

 

 

 

items

 

Items

 

Total

 

items

 

Items

 

Total

 

items

 

Items

 

Total

 

 

Note

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

 

 

 

 

 

Note 4

 

 

 

 

 

 

Note 4

 

 

 

 

 

 

Note 4

 

 

 

Revenue

 

3

 

7,644

 

 —

 

 

7,644

 

6,345

 

 —

 

 

6,345

 

5,199

 

 —

 

 

5,199

Cost of sales

 

 

 

(6,321)

 

(85)

 

 

(6,406)

 

(5,221)

 

(15)

 

 

(5,236)

 

(4,285)

 

(37)

 

 

(4,322)

Gross profit/(loss)

 

 

 

1,323

 

(85)

 

 

1,238

 

1,124

 

(15)

 

 

1,109

 

914

 

(37)

 

 

877

Sales, general and administration expenses

 

 

 

(359)

 

(43)

 

 

(402)

 

(300)

 

(116)

 

 

(416)

 

(274)

 

(44)

 

 

(318)

Intangible amortization

 

9

 

(235)

 

 —

 

 

(235)

 

(173)

 

 —

 

 

(173)

 

(109)

 

 —

 

 

(109)

Operating profit/(loss)

 

 

 

729

 

(128)

 

 

601

 

651

 

(131)

 

 

520

 

531

 

(81)

 

 

450

Finance expense

 

5

 

(459)

 

(123)

 

 

(582)

 

(450)

 

(165)

 

 

(615)

 

(514)

 

(13)

 

 

(527)

Finance income

 

5

 

 —

 

 —

 

 

 —

 

 —

 

78

 

 

78

 

 —

 

 —

 

 

 —

Profit/(loss) before tax

 

 

 

270

 

(251)

 

 

19

 

201

 

(218)

 

 

(17)

 

17

 

(94)

 

 

(77)

Income tax (charge)/credit

 

6

 

(87)

 

122

 

 

35

 

(93)

 

43

 

 

(50)

 

(95)

 

32

 

 

(63)

Profit/(loss) for the year

 

 

 

183

 

(129)

 

 

54

 

108

 

(175)

 

 

(67)

 

(78)

 

(62)

 

 

(140)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) attributable to:

 

 

 

  

 

  

 

 

  

 

  

 

  

 

 

  

 

  

 

  

 

 

  

Owners of the parent

 

 

 

  

 

  

 

 

54

 

  

 

  

 

 

(67)

 

  

 

  

 

 

(140)

Non-controlling interests

 

 

 

  

 

  

 

 

 —

 

  

 

  

 

 

 —

 

  

 

  

 

 

 —

Profit/(loss) for the year

 

 

 

  

 

  

 

 

54

 

  

 

  

 

 

(67)

 

  

 

  

 

 

(140)

Profit/(loss) per share:

 

 

 

  

 

  

 

 

  

 

  

 

  

 

 

  

 

  

 

  

 

 

  

Basic profit/(loss) for the year attributable to equity holders

 

7

 

  

 

  

 

€

0.24

 

  

 

  

 

€

(0.33)

 

  

 

  

 

€
(0.69)

 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

 

Ardagh Group S.A.

F-3

 

Picture 1

ARDAGH GROUP S.A.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

Year ended December 31,

 

    

 

    

2017

    

2016

    

2015

 

 

Note

 

€m

 

€m

 

€m

Profit/(loss) for the year

 

 

 

54

 

(67)

 

(140)

Other comprehensive income/(expense)

 

  

 

 

 

  

 

  

Items that may subsequently be reclassified to income statement

 

  

 

 

 

  

 

  

Foreign currency translation adjustments:

 

  

 

 

 

  

 

  

—Arising in the year

 

  

 

(2)

 

(52)

 

(137)

 

 

  

 

(2)

 

(52)

 

(137)

Effective portion of changes in fair value of cash flow hedges:

 

  

 

 

 

  

 

  

—New fair value adjustments into reserve

 

  

 

(226)

 

50

 

44

—Movement out of reserve

 

  

 

230

 

(77)

 

(43)

—Movement in deferred tax

 

  

 

 1

 

(4)

 

 —

 

 

  

 

 5

 

(31)

 

 1

Items that will not be reclassified to income statement

 

  

 

 

 

  

 

  

—Re-measurements of employee benefit obligations

 

19

 

43

 

(121)

 

72

—Deferred tax movement on employee benefit obligations

 

  

 

(6)

 

16

 

(27)

 

 

  

 

37

 

(105)

 

45

Total other comprehensive income/(expense) for the year

 

  

 

40

 

(188)

 

(91)

Total comprehensive income/(expense) for the year

 

  

 

94

 

(255)

 

(231)

Attributable to:

 

  

 

 

 

  

 

  

Equity holders

 

  

 

94

 

(255)

 

(231)

Non-controlling interests

 

  

 

 —

 

 —

 

 —

Total comprehensive income/(expense) for the year

 

  

 

94

 

(255)

 

(231)

 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

Ardagh Group S.A.

F-4

 

Picture 1

ARDAGH GROUP S.A.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

    

 

    

2017

    

2016

 

 

Note

 

€m

 

€m

Non-current assets

 

  

 

  

 

 

Intangible assets

 

9

 

3,422

 

3,904

Property, plant and equipment

 

10

 

2,808

 

2,911

Derivative financial instruments

 

18

 

 6

 

124

Deferred tax assets

 

12

 

184

 

259

Other non-current assets

 

11

 

21

 

20

 

 

  

 

6,441

 

7,218

Current assets

 

  

 

  

 

  

Inventories

 

13

 

1,128

 

1,125

Trade and other receivables

 

14

 

1,062

 

1,164

Derivative financial instruments

 

18

 

13

 

11

Cash and cash equivalents

 

15

 

654

 

772

 

 

  

 

2,857

 

3,072

TOTAL ASSETS

 

  

 

9,298

 

10,290

Equity attributable to owners of the parent

 

  

 

  

 

  

Issued capital

 

16

 

22

 

 —

Share premium

 

16

 

1,090

 

136

Capital contribution

 

16

 

431

 

431

Other reserves

 

  

 

(321)

 

(324)

Retained earnings

 

  

 

(2,370)

 

(2,313)

 

 

  

 

(1,148)

 

(2,070)

Non-controlling interests

 

  

 

 1

 

 2

TOTAL EQUITY

 

  

 

(1,147)

 

(2,068)

Non-current liabilities

 

  

 

  

 

  

Borrowings

 

18

 

6,926

 

8,142

Employee benefit obligations

 

19

 

831

 

905

Derivative financial instruments

 

18

 

251

 

 —

Deferred tax liabilities

 

12

 

486

 

694

Related party borrowings

 

20

 

 —

 

673

Provisions

 

21

 

37

 

57

 

 

  

 

8,531

 

10,471

Current liabilities

 

  

 

  

 

  

Borrowings

 

18

 

 2

 

 8

Interest payable

 

  

 

59

 

81

Derivative financial instruments

 

18

 

 2

 

 8

Trade and other payables

 

22

 

1,658

 

1,539

Income tax payable

 

  

 

135

 

182

Provisions

 

21

 

58

 

69

 

 

  

 

1,914

 

1,887

TOTAL LIABILITIES

 

  

 

10,445

 

12,358

TOTAL EQUITY and LIABILITIES

 

  

 

9,298

 

10,290

 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

 

Ardagh Group S.A.

F-5

 

Picture 1

ARDAGH GROUP S.A.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

Attributable to the owner of the parent

 

 

 

 

 

    

 

    

 

    

 

    

Foreign

    

 

    

 

    

 

    

 

    

 

 

 

 

 

 

 

 

 

currency

 

Cash flow

 

 

 

 

 

Non‑

 

 

 

 

Share

 

Share

 

Capital

 

translation

 

hedge

 

Retained

 

 

 

controlling

 

 

 

 

capital

 

premium

 

contribution

 

reserve

 

reserve

 

earnings

 

Total

 

interests

 

Total equity

 

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

 

Note 16

 

Note 16

 

Note 16

 

 

 

 

 

 

 

 

 

 

 

 

At January 1, 2015

 

 —

 

400

 

 —

 

(102)

 

(3)

 

(2,046)

 

(1,751)

 

 2

 

(1,749)

Loss for the year

 

 —

 

 —

 

 —

 

 —

 

 —

 

(140)

 

(140)

 

 —

 

(140)

Other comprehensive (expense)/income

 

 —

 

 —

 

 —

 

(137)

 

 1

 

45

 

(91)

 

 —

 

(91)

At December 31, 2015

 

 —

 

400

 

 —

 

(239)

 

(2)

 

(2,141)

 

(1,982)

 

 2

 

(1,980)

Loss for the year

 

 —

 

 —

 

 —

 

 —

 

 —

 

(67)

 

(67)

 

 —

 

(67)

Other comprehensive expense

 

 —

 

 —

 

 —

 

(52)

 

(31)

 

(105)

 

(188)

 

 —

 

(188)

Contribution from parent

 

 —

 

 —

 

431

 

 —

 

 —

 

 —

 

431

 

 —

 

431

Share issuance (Note 16)

 

 —

 

 6

 

 —

 

 —

 

 —

 

 —

 

 6

 

 —

 

 6

Reduction in share premium

 

 —

 

(270)

 

 —

 

 —

 

 —

 

270

 

 —

 

 —

 

 —

Dividends paid (Note 25)

 

 —

 

 —

 

 —

 

 —

 

 —

 

(270)

 

(270)

 

 —

 

(270)

At December 31, 2016

 

 —

 

136

 

431

 

(291)

 

(33)

 

(2,313)

 

(2,070)

 

 2

 

(2,068)

Profit for the year

 

 —

 

 —

 

 —

 

 —

 

 —

 

54

 

54

 

 —

 

54

Other comprehensive (expense)/income

 

 —

 

 —

 

 —

 

(2)

 

 5

 

37

 

40

 

 —

 

40

Share re-organization (Note 16)

 

22

 

(22)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share issuance (Note 16)

 

 —

 

303

 

 —

 

 —

 

 —

 

 —

 

303

 

 —

 

303

Conversion of related party loan (Note 16)

 

 —

 

673

 

 —

 

 —

 

 —

 

 —

 

673

 

 —

 

673

Dividends paid (Note 25)

 

 —

 

 —

 

 —

 

 —

 

 —

 

(148)

 

(148)

 

 —

 

(148)

Non-controlling interest in disposed business

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1)

 

(1)

At December 31, 2017

 

22

 

1,090

 

431

 

(293)

 

(28)

 

(2,370)

 

(1,148)

 

 1

 

(1,147)

 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

 

Ardagh Group S.A.

F-6

 

Picture 1

ARDAGH GROUP S.A.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

    

 

    

2017

    

2016

    

2015

 

 

Note

 

€m

 

€m

 

€m

Cash flows from operating activities

 

  

 

  

 

  

 

  

Cash generated from operations

 

23

 

1,330

 

1,109

 

950

Interest paid - excluding cumulative PIK interest paid

 

(i)

 

(406)

 

(372)

 

(323)

Cumulative PIK interest paid

 

(i)

 

 —

 

(184)

 

 —

Income tax paid

 

  

 

(90)

 

(84)

 

(59)

Net cash from operating activities

 

  

 

834

 

469

 

568

Cash flows from investing activities

 

  

 

  

 

  

 

  

Purchase of business net of cash acquired

 

24

 

 —

 

(2,685)

 

 —

Purchase of property, plant and equipment

 

  

 

(422)

 

(310)

 

(304)

Purchase of intangible assets

 

  

 

(19)

 

(12)

 

(8)

Proceeds from disposal of property, plant and equipment

 

  

 

 5

 

 4

 

 8

Net cash used in investing activities

 

  

 

(436)

 

(3,003)

 

(304)

Cash flows from financing activities

 

  

 

  

 

  

 

  

Proceeds from borrowings

 

  

 

3,497

 

3,950

 

 —

Repayment of borrowings

 

  

 

(4,061)

 

(2,322)

 

(198)

Proceeds from borrowings with related party

 

20

 

 —

 

673

 

 —

Proceeds from share issuance

 

16

 

306

 

 6

 

 —

Contribution from parent

 

16

 

 —

 

431

 

 —

Repayment of borrowings issued to related party

 

20

 

 —

 

404

 

 —

Dividends paid

 

25

 

(148)

 

(270)

 

 —

Early redemption premium paid

 

  

 

(85)

 

(108)

 

(8)

Deferred debt issue costs paid

 

  

 

(35)

 

(60)

 

(1)

Proceeds from the termination of derivative financial instruments

 

18

 

42

 

 —

 

81

Net cash (outflow)/inflow from financing activities

 

  

 

(484)

 

2,704

 

(126)

Net (decrease)/increase in cash and cash equivalents

 

  

 

(86)

 

170

 

138

Cash and cash equivalents at the beginning of the year

 

15

 

772

 

553

 

414

Exchange (losses)/gains on cash and cash equivalents

 

  

 

(32)

 

49

 

 1

Cash and cash equivalents at the end of the year

 

15

 

654

 

772

 

553

 

(i)

Total interest paid for the year ended December 31, 2017 is €406 million (2016: €556 million; 2015: €323 million).

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

 

 

Ardagh Group S.A.

F-7

 

Picture 1

 

ARDAGH GROUP S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General information

Ardagh Group S.A. (the “Company”) was incorporated in Luxembourg on May 6, 2011. An extraordinary general meeting of the shareholders of the Company on February 22, 2017 resolved to change the Company’s name from Ardagh Finance Holdings S.A. to Ardagh Group S.A. The name change became effective on the same day. The Company’s registered office is 56, rue Charles Martel, L‑2134 Luxembourg, Luxembourg.

On March 20, 2017, the Company closed its initial public offering (“IPO”) of 18,630,000 Class A common shares on the New York Stock Exchange (“NYSE”).

Ardagh Group S.A. and its subsidiaries (together the “Group” or “Ardagh”) are a leading supplier of innovative, value‑added rigid packaging solutions. The Group’s products include metal and glass containers primarily for food and beverage markets. End‑use categories include beer, wine, spirits, carbonated soft drinks, energy drinks, juices and flavored waters, as well as food, seafood and nutrition. Ardagh also supplies the paints & coatings, chemicals, personal care, pharmaceuticals and general household end‑use categories.

These consolidated financial statements reflect the consolidation of the legal entities forming the Group for the periods presented. The principal operating legal entities forming the Group are listed in Note 26.

The principal accounting policies that have been applied to the consolidated financial statements are described in Note 2.

2. Summary of significant accounting policies

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with, and are in compliance with, International Financial Reporting Standards (“IFRS”) and related interpretations as adopted by the International Accounting Standards Board (“IASB”). IFRS is comprised of standards and interpretations approved by the IASB and IFRS and interpretations approved by the predecessor International Accounting Standards Committee that have been subsequently approved by the IASB and remain in effect. References to IFRS hereafter should be construed as references to IFRS as adopted by the IASB.

The consolidated financial statements, are presented in euro which is the functional currency of the Company, rounded to the nearest million and have been prepared under the historical cost convention except for the following:

·

derivative financial instruments are stated at fair value; and

·

employee benefit obligations are measured at the present value of the future estimated cash flows related to benefits earned and pension assets valued at fair value.

The preparation of consolidated financial information in conformity with IFRS requires the use of critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and income and expenses. It also requires management to exercise judgment in the process of applying Group accounting policies. These estimates, assumptions and judgments are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances and are subject to continual re‑evaluation. However, actual outcomes may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are discussed in the critical accounting estimates, assumptions and judgments.

Ardagh Group S.A.

F-8

 

Picture 1

The consolidated financial statements for the Group were authorized for issue by the Board of Directors of Ardagh Group S.A. (the “Board”) on February 21, 2018.

Re-presentation of prior year comparatives

In accordance with IFRS 3R “Business Combinations”, a number of fair value adjustments were made in relation to the net assets acquired as part of the acquisition of certain beverage can manufacturing assets from Ball Corporation and Rexam PLC (the “Beverage Can Acquisition”) completed on June 30, 2016. The measurement period in respect of the Beverage Can Acquisition during which the Group may adjust the provisional amounts recognized for the assets and liabilities acquired closed on June 30, 2017. The purchase price allocation in respect of the Beverage Can Acquisition was completed on June 30, 2017.

Accordingly, the consolidated income statement and consolidated statement of comprehensive income for the year ended December 31, 2016, the consolidated statement of financial position at December 31, 2016, and the consolidated statement of changes in equity for the year ended December 31, 2016 were re-presented to reflect the revised fair values and related tax consequences. This re-presentation has no impact on the consolidated statement of cash flows as previously reported. Please refer to Note 24 for details of the final fair value of assets acquired and liabilities assumed as part of the Beverage Can Acquisition.

Recent accounting pronouncements

The impact of new standards, amendments to existing standards and interpretations issued and effective for annual periods beginning on or after January 1, 2017 has been assessed by the Board. Amendments to IAS 7, “Statement of cash flows”, effective from January 1, 2017 do not have a material effect on the consolidated financial statements. Other new standards or amendments to existing standards effective January 1, 2017 are not currently relevant for the Group. The Directors’ assessment of the impact of new standards, as listed below, which are not yet effective and which have not been early adopted by the Group, on the consolidated financial statements and disclosures is on-going, unless otherwise stated.

IFRS 15, “Revenue from contracts with customers” replaces IAS 18, “Revenue” and IAS 11, “Construction contracts” and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018 and earlier application is permitted.  IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service.

During 2017 the Group completed its assessment of the potential impact of the new standard, including performing a review of revenue streams and customer contracts in order to evaluate the effects that this standard may have on the consolidated income statement and consolidated statement of financial position. Under current standards the Group recognizes revenue primarily on dispatch of goods. Upon adoption of IFRS 15, where the Group manufactures products for customers that have no alternative use and for which the group has an enforceable right to payment for production completed to date, the standard will require the Group to recognize revenue earlier than current standards such that, for certain contracts, a portion of revenue will be recognized prior to dispatch of goods.

Based on the analysis performed to date, the Group does not expect that the adoption of the new standard will have a material impact on the amount of revenue recognized, when compared to the previous accounting guidance. The Group will recognize a contract asset as opposed to inventory as of the date of adoption of the new standard representing revenue that is accelerated as of that date under the new guidance. The Group expects that the adoption of the standard will not have any other material impact on the consolidated statement of financial position. The new guidance will have no impact on the consolidated statement of cash flows. The Group has determined that it shall report under the new standard on a modified retrospective basis upon adoption in the first quarter of 2018 which results in the Group retaining prior period figures as reported under the previous standards and recognising the cumulative effect of applying IFRS 15 as an adjustment to the opening balance of retained earnings as at the date of initial adoption.

Ardagh Group S.A.

F-9

 

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IFRS 9, “Financial instruments”, replaces IAS 39 “Financial instruments: Recognition and measurement” (“IAS 39”). IFRS 9 has been completed in a number of phases and includes requirements on the classification and measurement of financial instruments, impairment of financial instruments and hedge accounting. It also includes an expected credit loss model that replaces the incurred impairment loss model currently used as well as hedge accounting amendments. This standard becomes effective for annual periods commencing on or after January 1, 2018 and the Group will adopt the new standard from the effective date. The Group does not expect there to be a significant impact on the consolidated income statement, the consolidated statement of comprehensive income and the consolidated statement of financial position in respect of the classification of financial assets and liabilities, the adoption of the new hedge accounting model and the introduction of an expected credit loss model. 

IFRS 16, “Leases”, sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that appropriately represents those transactions. This information provides a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the entity. IFRS 16 replaces IAS 17, “Leases”, and later interpretations and will result in most operating leases being recorded on the consolidated statement of financial position. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. The Group is continuing to assess the effects that the adoption of IFRS 16 will have on the Group’s consolidated financial statements. 

The IFRS Interpretations Committee issued IFRIC 23 “Uncertainty over income tax treatments”, which clarifies how the recognition and measurement requirements of IAS 12 “Income taxes”, are applied where there is uncertainty over income tax treatments.  IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The Group’s assessment of the impact of IFRIC 23 is on-going and it is not expected that the application of this interpretation will have a material impact on the consolidated financial statements of the Group.

Basis of consolidation

(i)

Subsidiaries

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de‑consolidated from the date on which control ceases. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is the consideration given in exchange for control of the identifiable assets, liabilities and contingent liabilities of the acquired legal entities. Directly attributable transaction costs are expensed and included as exceptional items within sales, general and administration expenses. The acquired net assets are initially measured at fair value. The excess of the cost of acquisition over the fair value of the identifiable net assets acquired is recorded as goodwill. Any goodwill and fair value adjustments are recorded as assets and liabilities of the acquired legal entity in the currency of the primary economic environment in which the legal entity operates (the “functional currency”). If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the legal entity acquired, the difference is recognized directly in the consolidated income statement. The Group considers obligations of the acquiree in a business combination that arise as a result of the change in control, to be cash flows arising from obtaining control of the controlled entity, and classifies these obligations as investing activities in the consolidated statement of cash flows.

(ii)

Non-controlling interests

Non-controlling interests represent the portion of the equity of a subsidiary which is not attributable to the Group. Non-controlling interests are presented separately in the consolidated financial statements. Changes in ownership of a subsidiary which do not result in a change in control are treated as equity transactions.

 

Ardagh Group S.A.

F-10

 

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(iii)

Transactions eliminated on consolidation

Transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated. Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.

Foreign currency

(i)

Foreign currency transactions

Items included in the financial statements of each of the Group’s entities are measured using the functional currency of that entity.

Transactions in foreign currencies are translated into the functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized in the consolidated income statement, except: (i) differences on foreign currency borrowings that provide an effective hedge against a net investment in a foreign entity (“net investment hedges”), which are taken to other comprehensive income until the disposal of the net investment, at which time they are recognized in the consolidated income statement; and (ii) differences on certain derivative financial instruments discussed under “Derivative financial instruments” below. Net investment hedges are accounted for in a similar manner to cash flow hedges. The gain or loss relating to the ineffective portion of a net investment hedge is recognized immediately in the consolidated income statement within finance income or expense.

(ii)

Financial statements of foreign operations

The assets and liabilities of foreign operations are translated into euro at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated to euro at average exchange rates for the year. Foreign exchange differences arising on retranslation and settlement of such transactions are recognized in other comprehensive income. Gains or losses accumulated in other comprehensive income are recycled to the consolidated income statement when the foreign operation is disposed of.

Non‑monetary items measured at fair value in foreign currency are translated using the exchange rates as at the date when the fair value is determined.

Business combinations and goodwill

All business combinations are accounted for by applying the acquisition method of accounting. This involves measuring the cost of the business combination and allocating, at the acquisition date, the cost of the business combination to the assets acquired and liabilities assumed. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non‑controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non‑controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition‑related costs are expensed as incurred and included in sales, general and administration expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Any contingent consideration is recognized at fair value at the acquisition date.

Ardagh Group S.A.

F-11

 

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Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to those groups of cash‑generating units (“CGUs”) that are expected to benefit from the business combination in which the goodwill arose for the purpose of assessing impairment. Goodwill is tested annually for impairment.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash‑generating unit retained.

Intangible assets

Intangible assets are initially recognized at cost.

Intangible assets acquired as part of a business combination are capitalized separately from goodwill if the intangible asset is separable or arises from contractual or other legal rights. They are initially recognized at cost which, for intangible assets arising in a business combination, is their fair value at the date of acquisition.

Subsequent to initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The carrying values of intangible assets with finite useful lives are reviewed for indicators of impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that the carrying values may not be recoverable.

The amortization of intangible assets is calculated to write off the book value of finite lived intangible assets over their useful lives on a straight‑line basis on the assumption of zero residual value as follows:

 

 

 

 

 

 

Computer software

 

2

-

7

years

Customer relationships

 

5

-

15

years

Technology

 

8

-

15

years

 

(i)

Computer software

Computer software development costs are recognized as assets. Costs associated with maintaining computer software programs are recognized as an expense as incurred.

(ii)

Customer relationships

Customer relationships acquired in a business combination are recognized at fair value at the acquisition date. Customer relationships have a finite useful economic life and are carried at cost less accumulated amortization.

(iii)

Technology

Technology based intangibles acquired in a business combination are recognized at fair value at the acquisition date and reflect the Group’s ability to add value through accumulated technological expertise surrounding product and process development.

(iv)

Research and development costs

Research costs are expensed as incurred. Development costs relating to new products are capitalized if the new product is technically and commercially feasible. All other development costs are expensed as incurred.

Ardagh Group S.A.

F-12

 

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Property, plant and equipment

(i)

Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, except for land which is shown at cost less impairment. Spare parts which form an integral part of plant and machinery and which have an estimated useful economic life greater than one year are capitalized. Spare parts which do not form an integral part of plant and machinery and which have an estimated useful economic life less than one year are included as consumables within inventory and expensed when utilized.

Where components of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

(ii)

Leased assets

The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets, and the arrangement conveys a right to use the asset.

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases.

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight‑line basis over the period of the lease.

(iii)

Subsequent costs

The Group recognizes in the carrying amount of an item of property, plant and equipment, the cost of replacing the component of such an item when that cost is incurred, if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. When a component is replaced the old component is de‑recognized in the period. All other costs are recognized in the consolidated income statement as an expense as incurred. When a major overhaul is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria above are met.

(iv)

Depreciation

Depreciation is charged to the consolidated income statement on a straight‑line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

Buildings

 

30

-

40

 years

Plant and machinery

 

3

-

40

 years

Molds

 

2

-

3

 years

Office equipment and vehicles

 

3

-

10

 years

 

Assets’ useful lives and residual values are adjusted if appropriate, at each balance sheet date.

Impairment of non‑financial assets

Assets that have an indefinite useful economic life are not subject to amortization and are tested annually for impairment or whenever indicators suggest that impairment may have occurred. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

Ardagh Group S.A.

F-13

 

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For the purposes of assessing impairment, assets excluding goodwill and long lived intangible assets, are grouped at the lowest levels at which cash flows are separately identifiable. Goodwill and long lived intangible assets are allocated to groups of CGUs. The groupings represent the lowest level at which the related assets are monitored for internal management purposes.

Non‑financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

The recoverable amount of other assets is the greater of their value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value, using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first‑in, first‑out basis and includes expenditure incurred in acquiring the inventories and bringing them to their current location and condition. In the case of finished goods and work‑in‑progress, cost includes direct materials, direct labor and attributable overheads based on normal operating capacity.

Net realizable value is the estimated proceeds of sale less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution.

Spare parts which are deemed to be of a consumable nature, are included within inventories and expensed when utilized.

Non‑derivative financial instruments

Non‑derivative financial instruments comprise trade and other receivables, cash and cash equivalents, restricted cash, borrowings and trade and other payables. Non‑derivative financial instruments are recognized initially at fair value plus any directly attributable transaction costs, except as described below. Subsequent to initial recognition, non‑derivative financial instruments are measured as described below.

(i)

Trade and other receivables

Trade and other receivables are recognized initially at fair value and are thereafter measured at amortized cost using the effective interest rate method less any provision for impairment. A provision for impairment of trade receivables is recognized when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

(ii)

Securitized assets

The Group previously entered into a series of securitization transactions involving certain of its trade receivables. The securitized assets are recognized on the consolidated statement of financial position, until all of the rights to the cash flows from those assets have expired or have been fully transferred outside the Group, or until substantially all of the related risks, rewards and control of the related assets have been transferred to a third party. On December 7, 2017 the Group closed its securitization facility. The Group entered into a Global Asset Based Loan transaction (“ABL”) involving certain of its trade receivables and inventory. The lenders under the ABL have security over those receivables, inventory and the bank accounts where the associated cash flows are received. The risks, rewards and control of these assets are still retained by the Group and are, therefore, recognized on the statement of financial position.

Ardagh Group S.A.

F-14

 

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(iii)

Cash and cash equivalents

Cash and cash equivalents include cash in hand and call deposits held with banks. Cash and cash equivalents are carried at amortized cost.

Short term bank deposits of greater than three months’ maturity which do not meet the definition of cash and cash equivalents are classified as financial assets within current assets and stated at amortized cost.

(iv)

Restricted cash

Restricted cash comprises cash held by the Group but which is ring‑fenced or used as security for specific financing arrangements, and to which the Group does not have unfettered access. Restricted cash is measured at amortized cost.

(v)

Borrowings (including related party debt)

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the Group’s consolidated income statement over the period of the borrowings using the effective interest rate method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

(vi)

Trade and other payables

Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.

Derivative financial instruments

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re‑measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 18. The full fair value of a hedging derivative is classified as a non‑current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

(i)

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in other comprehensive income. Amounts accumulated in other comprehensive income are recycled to the consolidated income statement in the periods when the hedged item will affect profit or loss.

The gain or loss relating to the ineffective portion is recognized immediately in the consolidated income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing at that time remains in equity and is recognized in the consolidated income statement when the forecast cash flow arises. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement.

Ardagh Group S.A.

F-15

 

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(ii)

Net investment hedges

Derivative financial instruments are classified as net investment hedges when they hedge changes in the Group’s net investments in its subsidiaries due to exposure to foreign currency. Net investment hedges are accounted for in a similar manner to cash flow hedges.

 

(iii)

Fair value hedges

Derivative financial instruments are classified as fair value hedges when they hedge the Group’s exposure to changes in the fair value of a recognized asset or liability. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Group’s consolidated income statement, together with any changes in the fair value of the hedged item that is attributable to the hedged risk.

The gain or loss relating to the effective portion of derivatives with fair value hedge accounting is recognized in the consolidated income statement within “finance income/(expense)”. The gain or loss relating to the ineffective portion is also recognized in the consolidated income statement within “finance income/(expense)”. If a hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortized to profit or loss over the period to maturity.

Fair value measurement

The Group measures financial instruments such as derivatives and pension assets at fair value at each balance sheet date. Fair value related disclosures for financial instruments, related party convertible borrowings and pension assets that are measured at fair value or where fair values are disclosed, are summarized in the following notes:

·

Disclosures for valuation methods, significant estimates and assumptions (Notes 18 and 19)

·

Contingent consideration

·

Quantitative disclosures of fair value measurement hierarchy (Note 18)

·

Financial instruments (including those carried at amortized cost) (Note 18)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

·

in the principal market for the asset or liability; or

·

in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non‑financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

Ardagh Group S.A.

F-16

 

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Employee benefits

(i)

Defined benefit pension plans

Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the consolidated statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs are recognized immediately in the consolidated income statement.

(ii)

Multi‑employer pension plans

Multi‑employer craft or industry based pension schemes (“multi‑employer schemes”) have arrangements similar to those of defined benefit schemes. In each case it is not possible to identify the Group’s share of the underlying assets and liabilities of the multi‑employer schemes and therefore in accordance with IAS 19(R), the Group has taken the exemption for multi‑employer pension schemes to account for them as defined contribution schemes recognizing the contributions payable in each period in the consolidated income statement.

(iii)

Other end of service employee benefits

In a number of countries, the Group pays lump sums to employees leaving service. These arrangements are accounted in the same manner as defined benefit pension plans.

(iv)

Other long term employee benefits

The Group’s obligation in respect of other long term employee benefits plans represents the amount of future benefit that employees have earned in return for service in the current and prior periods for post‑retirement medical schemes, partial retirement contracts and long service awards. These are included in the category of employee benefit obligations on the consolidated statement of financial position. The obligation is computed on the basis of the projected unit credit method and is discounted to present value using a discount rate equating to the market yield at the reporting date on high quality corporate bonds of a currency and term consistent with the currency and estimated term of the obligations. Actuarial gains and losses are recognized in full in the Group’s consolidated statement of comprehensive income in the period in which they arise.

(v)

Defined contribution plans

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as employee benefit expense when they are due.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be reliably estimated.

Ardagh Group S.A.

F-17

 

Picture 1

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre‑tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

Revenue recognition

Revenue from the sale of goods is recognized in the consolidated income statement when the significant risks and rewards of ownership have been transferred to the buyer, primarily on dispatch of the goods. Allowances for customer rebates are provided for in the same period as the related revenues are recorded. Revenue is presented net of such rebates as well as cash discounts and value added tax.

Exceptional items

The Group’s consolidated income statement, cash flow and segmental analysis separately identify results before specific items. Specific items are those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence to provide additional information. Such items include, where significant, restructuring, redundancy and other costs relating to permanent capacity realignment or footprint reorganization, directly attributable acquisition costs and acquisition integration costs, profit or loss on disposal or termination of operations, start‑up costs incurred in relation and associated with plant builds, significant new line investments or furnaces, major litigation costs and settlements and impairment of non‑current assets. In this regard the determination of “significant” as included in our definition uses qualitative and quantitative factors. Judgment is used by the Group in assessing the particular items, which by virtue of their scale and nature, are disclosed in the Group’s consolidated income statement, and related notes as exceptional items. Management considers columnar presentation to be appropriate in the consolidated income statement as it provides useful additional information and is consistent with the way that financial performance is measured by management and presented to the Board. Exceptional restructuring costs are classified as restructuring provisions and all other exceptional costs when outstanding at the balance sheet date are classified as exceptional items payable.

Finance income and expense

Finance income comprises interest income on funds invested, gains on disposal of financial assets, ineffective portions of derivative instruments designated as hedging instruments and gains on derivative instruments that are not designated as hedging instruments and are recognized in profit or loss.

Finance expense comprises interest expense on borrowings (including amortization of deferred debt issuance costs), finance lease expenses, certain net foreign currency translation related to financing, net interest cost on net pension plan liabilities, losses on extinguishment of borrowings, ineffective portions of derivative instruments designated as hedging instruments, losses on derivative instruments that are not designated as hedging instruments and are recognized in profit or loss, and other finance expense.

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of manufacturing plants that require a substantial period of time to build that would have been avoided if the expenditure on the qualifying asset had not been made.

Costs related to the issuance of new debt are deferred and amortized within finance expense over the expected terms of the related debt agreements by using the effective interest rate method.

Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the consolidated income statement except to the extent that it relates to items recognized in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years.

Ardagh Group S.A.

F-18

 

Picture 1

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Segment reporting

The Board has been identified as the Chief Operating Decision Maker (“CODM”) for the Group.

Operating segments are identified on the basis of the internal reporting provided to the Board in order to allocate resources to the segment and assess its performance.

Critical accounting estimates, assumptions and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i)

Estimated impairment of goodwill and other long lived assets

In accordance with IAS 36 “Impairment of assets” (“IAS 36”), the Group tests whether goodwill and other long lived assets have suffered any impairment in accordance with the accounting policies stated. The determination of recoverable amounts requires the use of estimates as outlined in Note 9. The Group’s judgments relating to the impairment of goodwill and other long lived assets are included in Notes 9 and 10.

(ii)

Establishing lives for the purposes of depreciation and amortization of property, plant and equipment and intangibles

Long lived assets, consisting primarily of property, plant and equipment, customer intangibles and technology intangibles, comprise a significant portion of the Group’s total assets. The annual depreciation and amortization charges depend primarily on the estimated lives of each type of asset and, in certain circumstances, estimates of fair values and residual values. The Board regularly review these asset lives and change them as necessary to reflect current thinking on remaining lives in light of technological change, prospective economic utilization and physical condition of the assets concerned. Changes in asset lives can have a significant impact on the depreciation and amortization charges for the period. It is not practical to quantify the impact of changes in asset lives on an overall basis, as asset lives are individually determined and there are a significant number of asset lives in use.

Ardagh Group S.A.

F-19

 

Picture 1

(iii)

Income taxes

The Group is subject to income taxes in numerous jurisdictions and judgment is therefore required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit matters based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(iv)

Measurement of employee benefit obligations

The Group follows guidance of IAS 19(R) to determine the present value of its obligations to current and past employees in respect of defined benefit pension obligations, other long term employee benefits, and other end of service employee benefits which are subject to similar fluctuations in value in the long term. The Group with the assistance of professional actuaries, values such liabilities designed to ensure consistency in the quality of the key assumptions underlying the valuations. The critical assumptions and estimates applied are discussed in detail in Note 19.

(v)

Exceptional items

The consolidated income statement and segment analysis separately identify results before exceptional items. Exceptional items are those that in our judgment need to be disclosed by virtue of their size, nature or incidence.

The Group believes that this presentation provides additional analysis as it highlights exceptional items. The determination of “significant” as included in our definition uses qualitative and quantitative factors which remain consistent from period to period. Management uses judgment in assessing the particular items, which by virtue of their scale and nature, are disclosed in the consolidated income statement and related notes as exceptional items. Management considers the consolidated income statement presentation of exceptional items to be appropriate as it provides useful additional information and is consistent with the way that financial information is measured by management and presented to the Board. In that regard, management believes it to be consistent with paragraph 85 of IAS 1 “Presentation of financial statements” (“IAS 1”), which permits the inclusion of line items and subtotals that improve the understanding of performance.

(vi)

Business combinations and goodwill

Goodwill only arises in business combinations. The amount of goodwill initially recognized is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management’s judgment. Allocation of the purchase price affects the results of the Group as finite lived intangible assets are amortized, whereas indefinite lived intangible assets, including goodwill, are not amortized and could result in differing amortization charges based on the allocation to indefinite lived and finite lived intangible assets.

3. Segment analysis

The Group’s four operating and reportable segments are Metal Packaging Europe, Metal Packaging Americas, Glass Packaging Europe and Glass Packaging North America. This reflects the basis on which the Group performance is reviewed by management and presented to the CODM.

Net finance expense is not allocated to segments as these are reviewed by the CODM on a group‑wide basis. Performance of the segments is assessed based on Adjusted EBITDA. Adjusted EBITDA consists of profit/(loss) before income tax (credit)/charge, net finance expense, depreciation and amortization and exceptional operating items. Segment revenues are derived from sales to external customers. Inter‑segmental revenue is not material.

Ardagh Group S.A.

F-20

 

Picture 1

Segment assets consist of intangible assets, property, plant and equipment, derivative financial instrument assets, deferred tax assets, other non‑current assets, inventories, trade and other receivables and cash and cash equivalents and restricted cash. The accounting policies of the segments are the same as those in the consolidated financial statements of the Group as set out in Note 2.

Reconciliation of profit/(loss) for the year to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

    

2017

    

2016

    

2015

 

 

€m

 

€m

 

€m

Profit/(loss) for the year

 

54

 

(67)

 

(140)

Income tax (credit)/charge (Note 6)

 

(35)

 

50

 

63

Net finance expense (Note 5)

 

582

 

537

 

527

Depreciation and amortization (Notes 9, 10)

 

611

 

507

 

403

Exceptional operating items (Note 4)

 

128

 

131

 

81

Adjusted EBITDA

 

1,340

 

1,158

 

934

 

The segment results for the year ended December 31, 2017 are:

 

 

Metal

 

Metal

 

Glass

 

Glass

 

 

 

 

Packaging

 

Packaging

 

Packaging

 

Packaging

 

 

 

 

Europe

 

Americas

 

Europe

 

North America

 

Group

 

    

€m

 

€m

 

€m

 

€m

 

€m

Revenue

 

2,967

 

1,714

 

1,376

 

1,587

 

7,644

Adjusted EBITDA

 

491

 

235

 

301

 

313

 

1,340

Capital expenditure

 

156

 

71

 

98

 

111

 

436

Segment assets

 

3,740

 

1,549

 

1,823

 

2,186

 

9,298

 

The segment results for the year ended December 31, 2016 are:

 

 

Metal

 

Metal

 

Glass

 

Glass

 

 

 

 

Packaging

 

Packaging

 

Packaging

 

Packaging

 

 

 

 

Europe

 

Americas

 

Europe

 

North America

 

Group

 

    

€m

 

€m

 

€m

 

€m

 

€m

Revenue

 

2,235

 

1,059

 

1,392

 

1,659

 

6,345

Adjusted EBITDA

 

366

 

139

 

296

 

357

 

1,158

Capital expenditure

 

72

 

35

 

90

 

121

 

318

Segment assets

 

3,946

 

1,835

 

1,895

 

2,614

 

10,290

 

The segment results for the year ended December 31, 2015 are:

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal

 

Metal

 

Glass

 

Glass

 

 

 

 

Packaging

 

Packaging

 

Packaging

 

Packaging

 

 

 

 

Europe

 

Americas

 

Europe

 

North America

 

Group

 

    

€m

 

€m

 

€m

 

€m

 

€m

Revenue

 

1,650

 

390

 

1,452

 

1,707

 

5,199

Adjusted EBITDA

 

260

 

44

 

284

 

346

 

934

Capital expenditure

 

46

 

15

 

109

 

134

 

304

Segment assets

 

1,863

 

405

 

1,765

 

2,305

 

6,338

 

Capital expenditure is the sum of purchases of property, plant and equipment and software and other intangibles, net of proceeds from disposal of property, plant and equipment, as per the consolidated statement of cash flows.

No customer accounted for greater than 10% of total revenue in 2017 (2016: none; 2015: one customer).

Ardagh Group S.A.

F-21

 

Picture 1

Total revenue and non‑current assets, excluding derivative financial instruments, taxes, pensions and goodwill arising on acquisitions, in countries which account for more than 10% of total revenue or non‑current assets, in the current or prior years presented, are as follows:

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

Revenue

    

€m

 

€m

 

€m

U.S.

 

2,899

 

2,437

 

1,997

United Kingdom

 

781

 

724

 

662

Germany

 

712

 

656

 

573

 

 

 

 

 

 

 

 

At December 31,

 

 

2017

 

2016

Non-current assets

    

€m

 

€m

U.S.

 

1,849

 

2,189

Germany

 

855

 

760

United Kingdom

 

564

 

527

 

The revenue above is attributed to countries on a destination basis.

The Company is domiciled in Luxembourg. During the year the Group had revenues of €3 million (2016: €2 million, 2015: €2 million) with customers in Luxembourg. Non‑current assets located in Luxembourg were €nil (2016: €nil).

Within each reportable segment our packaging containers have similar production processes and classes of customers. Further, they have similar economic characteristics as evidenced by similar profit margins, similar degrees of risk and similar opportunities for growth. Based on the foregoing, we do not consider that they constitute separate product lines and therefore additional disclosures relating to product lines is not necessary.

4. Exceptional items

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Exceptional impairment - property, plant and equipment

 

46

 

 8

 

 —

Restructuring costs

 

32

 

14

 

12

Start-up costs

 

 7

 

 5

 

27

Exceptional impairment - working capital

 

 —

 

 —

 

(2)

Non-cash inventory adjustment

 

 —

 

 9

 

 —

Past service credit

 

 —

 

(21)

 

 —

Exceptional items - cost of sales

 

85

 

15

 

37

Transaction related costs - acquisition, integration and IPO

 

43

 

114

 

41

Restructuring and other costs

 

 —

 

 2

 

 3

Exceptional items - SGA expenses

 

43

 

116

 

44

Debt refinancing and settlement costs

 

109

 

140

 

13

Exceptional loss on derivative financial instruments

 

14

 

10

 

 —

Interest payable on acquisition notes

 

 —

 

15

 

 —

Exceptional items - finance expense

 

123

 

165

 

13

Exceptional gain on derivative financial instruments

 

 —

 

(78)

 

 —

Exceptional items - finance income

 

 —

 

(78)

 

 —

Total exceptional items

 

251

 

218

 

94

 

Exceptional items are those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence.

Ardagh Group S.A.

F-22

 

Picture 1

2017

Exceptional items of €251 million have been recognized for the year ending December 31, 2017, primarily comprising:

·

€109 million debt refinancing and settlement costs relating to the notes and loans redeemed and repaid in January, March, April, June, and August 2017, principally comprising premiums payable on the early redemption of the notes and accelerated amortization of deferred finance costs and issue discounts.

·

€46 million plant, property and equipment impairment charges arising principally from capacity realignment in Glass Packaging North America and Metal Packaging Europe.

·

€43 million transaction related costs, primarily comprised of costs directly attributable to the acquisition and integration of the Beverage Can Acquisition and other IPO and transaction related costs.

·

€14 million exceptional loss on the termination in June 2017, of $500 million of the Group’s U.S. dollar to British pound cross currency interest rate swaps (“CCIRS”), of which €11 million relates to cumulative losses recycled from other comprehensive income.

·

€32 million relating to capacity realignment and restructuring costs in Metal Packaging Europe.

·

€7 million of start-up costs in Metal Packaging Americas and Glass Packaging North America.

2016

Exceptional items of €218 million have been recognized in the year ended December 31, 2016, primarily comprising:

·

€21 million pension service credit in Glass Packaging North America, following the amendment of certain defined benefit pension schemes during the period.

·

Restructuring costs relate principally to €7 million in Metal Packaging Europe, €2 million in Metal Packaging Americas and €4 million in Glass Packaging North America.

·

€114 million transaction related costs attributable primarily to the IPO and Beverage Can Acquisition.

·

€140 million debt refinancing and settlement costs related to the notes repaid in May, September, and November 2016 including premiums payable on the early redemption of the notes, accelerated amortization of deferred finance costs, debt issuance premium and discounts and interest charges incurred in lieu of notice.

·

€15 million net interest charged in respect of notes held in escrow for the period between their issuance and the completion of the Beverage Can Acquisition.

·

€8 million plant, property and equipment impairment charges, of which €5 million relates to impairment of plant and machinery in Metal Packaging Europe and €3 million relates to the impairment of a plant in Metal Packaging Americas.

·

€78 million exceptional gain on derivative financial instruments relating to the gain on fair value of the CCIRS which were entered into during the second quarter and for which hedge accounting had not been applied until the third quarter.

·

The €10 million exceptional loss on derivative financial instruments relating to hedge ineffectiveness on the Group’s CCIRS.

Ardagh Group S.A.

F-23

 

Picture 1

2015

Exceptional items of €94 million have been incurred in the year ended December 31, 2015, primarily comprising:

·

€38 million transaction costs, largely associated with the Group’s withdrawn initial public offering of its Metal Packaging business.

·

€27 million start‑up costs related to two plants in Metal Packaging Americas.

·

Restructuring costs of €9 million in Metal Packaging Europe and €5 million in Glass Packaging North America.

·

€3 million acquisition and disposal costs.

·

€2 million reversal of impairment of assets in Metal Packaging Europe.

·

€13 million finance costs comprised of €8 million premium on redemption of the €180 million 8¾% Senior notes due 2020 and repaid in February 2015, €3 million accelerated amortization of deferred finance costs relating to the €180 million 8¾% Senior notes and €2 million other finance costs.

5. Finance income and expense

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Senior secured and senior notes

 

384

 

416

 

378

Term loan

 

 5

 

26

 

26

Other interest expense

 

 6

 

 7

 

 8

Interest expense

 

395

 

449

 

412

Net pension interest cost (Note 19)

 

22

 

24

 

23

Loss on derivative financial instruments

 

24

 

 —

 

 —

Foreign currency translation losses/(gains)

 

19

 

(18)

 

77

Other finance (income)/expense

 

(1)

 

(5)

 

 2

Finance expense before exceptional items

 

459

 

450

 

514

Exceptional finance expense (Note 4)

 

123

 

165

 

13

Total finance expense

 

582

 

615

 

527

Exceptional finance income (Note 4)

 

 —

 

(78)

 

 —

Net finance expense

 

582

 

537

 

527

 

6. Income tax

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

 

€m

 

€m

Current tax:

 

 

 

 

 

 

Current tax for the year

 

88

 

63

 

54

Adjustments in respect of prior years

 

 1

 

(18)

 

 8

Total current tax

 

89

 

45

 

62

Deferred tax:

 

  

 

  

 

  

Deferred tax for the year

 

(119)

 

(10)

 

17

Adjustments in respect of prior years

 

(5)

 

15

 

(16)

Total deferred tax

 

(124)

 

 5

 

 1

Income tax (credit)/charge

 

(35)

 

50

 

63

 

Ardagh Group S.A.

F-24

 

Picture 1

Reconciliation of income tax (credit)/charge and the accounting loss multiplied by the Group’s domestic tax rate for 2017, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Profit/(loss) before tax

 

19

 

(17)

 

(77)

Profit/(loss) before tax multiplied by the standard rate of Luxembourg corporation tax: 27.08% (2016: 29.22%; 2015: 29.22%)

 

 5

 

(5)

 

(22)

Tax losses for which no deferred income tax asset was recognized

 

 —

 

 1

 

 2

Re-measurement of deferred taxes

 

(69)

 

(5)

 

(5)

Adjustment in respect of prior years

 

(4)

 

(3)

 

(8)

Income subject to state and other local income taxes

 

15

 

 9

 

11

Income taxed at rates other than standard tax rates

 

(17)

 

19

 

27

Non-deductible items

 

28

 

37

 

62

Other

 

 7

 

(3)

 

(4)

Income tax (credit)/charge

 

(35)

 

50

 

63

 

The total income tax (credit)/charge outlined above for each year includes tax credits of €122 million in 2017 (2016: €43 million; 2015: €32 million) in respect of exceptional items. This includes a credit of €68 million on remeasurement of deferred tax positions following the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”) in the United States of America.

On December 22, 2017, the TCJA was signed into US law. On re-measurement of Ardagh Group’s deferred tax positions following the enactment of the TCJA, a one-time non-cash benefit of €68 million was recorded to the income statement.  This credit reflects a reduction in Ardagh Group’s US net deferred tax liability due to the reduction in the US federal corporate tax rate, which will apply when the existing temporary differences reverse, from the existing rate of 35% to 21% with effect from January 1, 2018. The additional tax credit on re-measurement of deferred tax positions of €1 million is attributable to the progressive reduction in the French corporate income tax rate, which will apply when the existing temporary differences reverse, from 28% to 25%.

Non‑deductible items principally relate to non‑deductible interest expense in Ireland and Luxembourg and income taxed at non‑standard rates takes account of foreign tax rate differences (versus the Luxembourg standard 27.08% rate) on earnings.

7. Earnings per share

Basic earnings per share (EPS) is calculated by dividing the profit/(loss) for the year attributable to equity holders by the weighted average number of ordinary shares outstanding during the year.

The following table reflects the income statement profit/(loss) and share data used in the basic EPS computations:

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

    

2016

    

2015

 

    

€'m

 

€'m

 

€'m

Profit/(loss) attributable to equity holders

 

 

54

 

 

(67)

 

 

(140)

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

Weighted average number of ordinary shares for basic EPS (millions of shares)

 

 

229.6

 

 

202.0

 

 

202.0

Profit/(loss) per share

 

€

0.24

 

€

(0.33)

 

€

(0.69)

 

The weighted average number of ordinary shares at December 31, 2016 and 2015 has been re-presented to adjust for the share reorganization completed in March 2017 as set out in Note 16 (i). Please refer to Note 16 for details of transactions involving ordinary shares for the year ended December 31, 2017.

Ardagh Group S.A.

F-25

 

Picture 1

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the authorization of these financial statements.

8. Employee costs

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Wages and salaries

 

1,196

 

1,076

 

927

Social security costs

 

186

 

151

 

133

Defined benefit plan pension costs (Note 19)

 

41

 

42

 

45

Defined benefit past service credit (Note 19)

 

(9)

 

(39)

 

 —

Defined contribution plan pension costs (Note 19)

 

31

 

31

 

14

 

 

1,445

 

1,261

 

1,119

 

 

 

 

 

 

 

 

 

 

At December 31,

Employees

    

2017

    

2016

    

2015

Production

 

20,793

 

20,823

 

17,068

Administration

 

2,698

 

2,711

 

1,789

 

 

23,491

 

23,534

 

18,857

9. Intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Customer

    

Technology

    

 

    

 

 

 

Goodwill

 

relationships

 

and other

 

Software

 

Total

 

 

€m

 

€m

 

€m

 

€m

 

€m

Cost

 

  

 

  

 

  

 

  

 

  

At January 1, 2016

 

1,047

 

851

 

181

 

49

 

2,128

Acquisitions (Note 24)

 

904

 

1,247

 

31

 

11

 

2,193

Additions

 

 —

 

 —

 

 8

 

 3

 

11

Impairment

 

 —

 

 —

 

 —

 

(2)

 

(2)

Exchange

 

30

 

44

 

 2

 

 —

 

76

At December 31, 2016

 

1,981

 

2,142

 

222

 

61

 

4,406

Amortization

 

  

 

  

 

  

 

  

 

  

At January 1, 2016

 

  

 

(233)

 

(51)

 

(34)

 

(318)

Charge for the year

 

  

 

(143)

 

(23)

 

(7)

 

(173)

Exchange

 

  

 

(2)

 

(9)

 

 —

 

(11)

At December 31, 2016

 

  

 

(378)

 

(83)

 

(41)

 

(502)

Net book value

 

  

 

  

 

  

 

  

 

  

At December 31, 2016

 

1,981

 

1,764

 

139

 

20

 

3,904

Cost

 

  

 

  

 

  

 

  

 

  

At January 1, 2017

 

1,981

 

2,142

 

222

 

61

 

4,406

Additions

 

 —

 

 —

 

 5

 

14

 

19

Derecognition of fully amortized assets

 

 —

 

(36)

 

 —

 

 —

 

(36)

Exchange

 

(146)

 

(142)

 

(18)

 

(2)

 

(308)

At December 31, 2017

 

1,835

 

1,964

 

209

 

73

 

4,081

Amortization

 

  

 

  

 

  

 

  

 

  

At January 1, 2017

 

  

 

(378)

 

(83)

 

(41)

 

(502)

Charge for the year

 

  

 

(199)

 

(28)

 

(8)

 

(235)

Derecognition of fully amortized assets

 

 

 

36

 

 —

 

 —

 

36

Exchange

 

  

 

35

 

 6

 

 1

 

42

At December 31, 2017

 

  

 

(506)

 

(105)

 

(48)

 

(659)

Net book value

 

  

 

  

 

  

 

  

 

  

At December 31, 2017

 

1,835

 

1,458

 

104

 

25

 

3,422

 

Ardagh Group S.A.

F-26

 

Picture 1

In the year ended December 31, 2017 an intangible asset relating to an acquired customer relationship in Glass Packaging North America was derecognised. This asset had reached the end of its estimated useful life and had a net book value of €nil at the date of derecognition.

Goodwill

Allocation of goodwill

Goodwill has been allocated to groups of CGUs for the purpose of impairment testing. The groupings represent the lowest level at which the related goodwill is monitored for internal management purposes. Goodwill acquired through business combination activity is allocated to CGUs that are expected to benefit from synergies arising from that combination. The allocation of goodwill arising from the Beverage Can Acquisition was finalized on June 30, 2017.

The lowest level within the Group at which the goodwill is monitored for internal management purposes and consequently the CGUs to which goodwill is allocated, is set out below:

 

 

 

 

 

 

 

At December 31,

 

 

2017

 

2016

 

    

€m

 

€m

Metal Packaging Europe - excluding the Beverage Can Business ('Metal Europe')

 

267

 

268

Metal Packaging Americas - excluding the Beverage Can Business ('Metal Americas')

 

24

 

28

Metal Packaging Europe - Beverage Can Business ('Beverage Europe')

 

504

 

507

Metal Packaging Americas - Beverage Can Business ('Beverage Americas')

 

364

 

414

Glass Packaging Europe

 

54

 

57

Glass Packaging North America

 

622

 

707

Total Goodwill

 

1,835

 

1,981

 

Impairment tests for goodwill

The Group performs its impairment test of goodwill annually following approval of the annual budget.

Recoverable amount and carrying amount

The Group used the value in use (“VIU”) model for the purposes of the goodwill impairment testing as this reflects the Group’s intention to hold and operate the assets.

The VIU model used the 2018 budget approved by the Board (2016: 2017 two‑year budget). The budget was then extended for a further four‑year period (2016: 2017 three‑year period) making certain assumptions including that long - term capital expenditure equals depreciation and that any increase in input cost will be passed through to customers, in line with historic practice and contractual terms.

The terminal value assumed long term growth in line with long term inflation.

Cash flows considered in the VIU model included the cash inflows and outflows related to the continuing use of the assets over their remaining useful lives, expected earnings, required maintenance capital expenditure, depreciation, tax and working capital.

The discount rate applied to cash flows in the VIU model was estimated using the Capital Asset Pricing Model with regard to the risks associated with the cash flows being considered (country, market and specific risks of the asset).

Ardagh Group S.A.

F-27

 

Picture 1

The modelled cash flows take into account the Group’s established history of earnings, cash flow generation and the nature of the markets in which we operate, where product obsolescence is low. The key assumptions employed in modelling estimates of future cash flows are subjective and include projected Adjusted EBITDA, discount rates and growth rates, replacement capital expenditure requirements, rates of customer retention and the ability to maintain margin through the pass through of input cost inflation.

A sensitivity analysis was performed reflecting potential variations in terminal growth rate and discount rate assumptions. In all cases the recoverable values calculated were in excess of the carrying values of the CGUs. The variation applied to terminal value growth rates and discount rates was a 50 basis points decrease and increase respectively and represents a reasonably possible change to the key assumptions of the VIU model. Further, a reasonably possible change to the operating cash flows would not reduce the recoverable amounts below the carrying values of the CGUs.

The additional disclosures required under IAS 36 in relation to significant goodwill amounts arising in the groups of CGUs are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Glass

 

 

 

 

 

 

 

 

 

 

Glass

 

Packaging

 

 

Metal

 

Metal

 

Beverage

 

Beverage

 

Packaging

 

North

 

 

Europe

 

Americas

 

Europe

 

Americas

 

Europe

 

America

 

 

€m/%

 

€m/%

 

€m/%

 

€m/%

 

€m/%

 

€m/%

2017

 

  

 

  

 

  

 

  

 

  

 

  

Carrying amount of goodwill

 
267

 
24

 
504

 
364

 
54

 
622

Excess of recoverable amount

 
2,588

 
376

 
1,376

 
655

 
2,424

 
716

Pre-tax discount rate applied

 
7.3

 
8.3

 
7.4

 
9.6

 
8.2

 
9.1

Growth rate for terminal value

 
1.5

 
1.5

 
1.5

 
1.5

 
1.5

 
1.5

2016

 

  

 

  

 

  

 

  

 

  

 

  

Carrying amount of goodwill

 

268

 

28

 

507

 

414

 

57

 

707

Excess of recoverable amount

 

2,178

 

372

 

582

 

274

 

2,057

 

1,630

Pre-tax discount rate applied

 

8.3

 

9.8

 

8.9

 

11.9

 

8.7

 

10.3

Growth rate for terminal value

 

1.5

 

2.0

 

1.5

 

2.0

 

1.5

 

2.0

 

Ardagh Group S.A.

F-28

 

Picture 1

10. Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

    

 

    

Plant,

    

Office

    

 

 

 

Land and

 

machinery

 

equipment

 

 

 

 

buildings

 

and other

 

and vehicles

 

Total

 

 

€m

 

€m

 

€m

 

€m

Cost

 

  

 

  

 

  

 

  

At January 1, 2016

 

761

 

2,855

 

51

 

3,667

Acquisitions (Note 24)

 

171

 

461

 

 —

 

632

Additions

 

 3

 

315

 

 5

 

323

Impairment

 

 —

 

(8)

 

 —

 

(8)

Disposals

 

(6)

 

(192)

 

(10)

 

(208)

Transfers

 

13

 

(29)

 

16

 

 —

Exchange

 

(9)

 

(43)

 

(1)

 

(53)

At December 31, 2016

 

933

 

3,359

 

61

 

4,353

Depreciation

 

  

 

  

 

  

 

  

At January 1, 2016

 

(174)

 

(1,161)

 

(25)

 

(1,360)

Charge for the year

 

(26)

 

(299)

 

(9)

 

(334)

Disposals

 

 4

 

191

 

 9

 

204

Exchange

 

 6

 

41

 

 1

 

48

At December 31, 2016

 

(190)

 

(1,228)

 

(24)

 

(1,442)

Net book value

 

  

 

  

 

  

 

  

At December 31, 2016

 

743

 

2,131

 

37

 

2,911

Cost

 

  

 

  

 

  

 

  

At January 1, 2017

 

933

 

3,359

 

61

 

4,353

Additions

 

 7

 

447

 

 5

 

459

Impairment (Note 4)

 

 —

 

(46)

 

 —

 

(46)

Disposals

 

(4)

 

(142)

 

(9)

 

(155)

Transfers

 

10

 

(8)

 

 6

 

 8

Exchange

 

(34)

 

(156)

 

(4)

 

(194)

At December 31, 2017

 

912

 

3,454

 

59

 

4,425

Depreciation

 

  

 

  

 

  

 

  

At January 1, 2017

 

(190)

 

(1,228)

 

(24)

 

(1,442)

Charge for the year

 

(31)

 

(336)

 

(9)

 

(376)

Disposals

 

 2

 

139

 

 9

 

150

Transfers

 

 1

 

(2)

 

 1

 

 —

Exchange

 

 3

 

46

 

 2

 

51

At December 31, 2017

 

(215)

 

(1,381)

 

(21)

 

(1,617)

Net book value

 

  

 

  

 

  

 

  

At December 31, 2017

 

697

 

2,073

 

38

 

2,808

 

Depreciation expense of €369 million (2016: €329 million; 2015: €289 million) has been charged in cost of sales and €7 million (2016: €5 million; 2015: €5 million) in sales, general and administration expenses.

Transfers primarily relate to the reclassification of construction in progress to the applicable classification within property, plant and equipment and the reclassification of certain consumables with an estimated useful life of greater than one year, from inventory to property, plant and equipment. Construction in progress at December 31, 2017 was €201 million (2016: €114 million).

Included in property, plant and equipment is an amount for land of €188 million (2016: €195 million).

Substantially all of the Group’s property, plant and equipment is pledged as security under the terms and conditions of the Group’s financing arrangements. No interest was capitalized in the year (2016: €nil).

Ardagh Group S.A.

F-29

 

Picture 1

Impairment

The Board has considered the carrying value of the Group’s property, plant and equipment and assessed the indicators of impairment as at December 31, 2017 in accordance with IAS 36. In the year ended December 31, 2017 an impairment charge of €46 million (2016: €8 million) has been recognized, of which €32 million (2016: €nil) relates to the impairment of plant and machinery in Glass Packaging North America and €14 million (2016: €5 million) relates to the impairment of plant and machinery in Metal Packaging Europe, arising principally from capacity realignment.

Finance leases

The depreciation charge for capitalized leased assets was €1 million (2016: €1 million; 2015: €1 million) and the related finance charges were €nil (2016: €nil; 2015: €nil). The net carrying amount is €10 million (2016: €10 million).

Operating lease commitments

During the year, the expense in respect of operating lease commitments was as follows:

 

 

Year ended December 31,

 

    

2017

    

2016

    

2015

 

 

€m

 

€m

 

€m

Plant and machinery

 

 5

 

 5

 

 5

Land and buildings

 

19

 

24

 

21

Office equipment and vehicles

 

10

 

 9

 

 8

 

 

34

 

38

 

34

 

At December 31, the Group had total commitments under non‑cancellable operating leases which expire:

 

 

At December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Not later than one year

 

29

 

30

 

27

Later than one year and not later than five years

 

64

 

69

 

69

Later than five years

 

67

 

68

 

67

 

 

160

 

167

 

163

 

Capital commitments

The following capital commitments in relation to property, plant and equipment were authorized by management, but have not been provided for in the consolidated financial statements:

 

 

At December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Contracted for

 

84

 

110

 

30

Not contracted for

 

12

  

19

  

 6

 

 

96

  

129

  

36

 

11. Other non‑current assets

At December 31, 2017 other non‑current assets of €21 million (2016: €20 million) include €8 million (2016: €6 million) relating to the Group’s investment in its joint ventures.

Ardagh Group S.A.

F-30

 

Picture 1

12. Deferred income tax

The movement in deferred tax assets and liabilities during the year was as follows:

 

 

 

 

 

 

 

 

    

Assets

    

Liabilities

    

Total

 

 

€m

 

€m

 

€m

At January 1, 2016

 

397

 

(680)

 

(283)

Acquisition (Note 24)

 

73

 

(219)

 

(146)

(Charged)/credited to the income statement (Note 6)

 

(42)

 

37

 

(5)

Credited/(charged) to other comprehensive income

 

17

 

(5)

 

12

Reclassification

 

 3

 

(3)

 

 —

Exchange

 

(3)

 

(10)

 

(13)

At December 31, 2016

 

445

 

(880)

 

(435)

(Charged)/credited to the income statement (Note 6)

 

(60)

 

184

 

124

(Charged)/credited to other comprehensive income

 

(6)

 

 1

 

(5)

Reclassification

 

 4

 

(4)

 

 —

Exchange

 

(26)

 

40

 

14

At December 31, 2017

 

357

 

(659)

 

(302)

 

The components of deferred income tax assets and liabilities are as follows:

 

 

 

 

 

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Tax losses

 

28

 

32

Employee benefit obligations

 

156

 

172

Depreciation timing differences

 

75

 

82

Provisions

 

58

 

94

Other

 

40

 

65

 

 

357

 

445

Available for offset

 

(173)

 

(186)

Deferred tax assets

 

184

 

259

Intangible assets

 

(329)

 

(482)

Accelerated depreciation and other fair value adjustments

 

(308)

 

(359)

Other

 

(22)

 

(39)

 

 

(659)

 

(880)

Available for offset

 

173

 

186

Deferred tax liabilities

 

(486)

 

(694)

 

The tax credit/(charge) recognized in the consolidated income statement is analyzed as follows:

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Tax losses

 

(2)

 

(3)

 

(18)

Employee benefit obligations

 

(19)

 

(12)

 

13

Depreciation timing differences

 

(5)

 

(12)

 

(2)

Provisions

 

(23)

 

 —

 

(7)

Other deferred tax assets

 

(11)

 

(15)

 

(7)

Intangible assets

 

138

 

38

 

30

Accelerated depreciation and other fair value adjustments

 

26

 

 6

 

 2

Other deferred tax liabilities

 

20

 

(7)

 

(12)

 

 

124

 

(5)

 

(1)

 

Ardagh Group S.A.

F-31

 

Picture 1

Deferred tax assets are only recognized on tax loss carry‑forwards to the extent that the realization of the related tax benefit through future taxable profits is probable based on management’s forecasts. The Group did not recognize deferred tax assets of €52 million (2016: €43 million) in respect of tax losses amounting to €311 million (2016: €223 million) that can be carried forward against future taxable income due to uncertainty regarding their utilization. In addition, the Group did not recognize deferred tax assets of €42 million (2016: €70 million) in respect of capital losses amounting to €199 million (2016: €201 million) that can be carried forward against future taxable income due to uncertainty regarding their utilization.

No provision has been made for temporary differences applicable to investments in subsidiaries as the Group is in a position to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Given that exemptions and tax credits would be available in the context of the Group’s investments in subsidiaries in the majority of jurisdictions in which it operates, the aggregate amount of temporary differences in respect of which deferred tax liabilities have not been recognized would not be material.

13. Inventories

 

 

 

 

 

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Raw materials and consumables

 

308

 
289

Mold parts

 

43

 
44

Work-in-progress

 

71

 
68

Finished goods

 

706

 

724

 

 

1,128

 

1,125

 

Certain inventories held by the Group have been pledged as security under the Group’s Global Asset Based Loan facility (Note 18). The amount recognized as a write down in inventories or as a reversal of a write down in the year ended December 31, 2017 was not material.

14. Trade and other receivables

 

 

 

 

 

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Trade receivables

 

846

 
920

Other receivables and prepayments

 

216

 

244

 

 

1,062

 

1,164

 

The fair values of trade and other receivables approximate the amounts shown above. Movements on the provision for impairment of trade receivables are as follows:

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

 

€m

 

€m

 

€m

At January 1,

 

14

 
14

 
14

Provision for receivables impairment

 

 5

 
1

 
2

Receivables written off during the year as uncollectible

 

 —

 
(1)

 
(2)

At December 31,

 

19

 
14

 
14

 

The majority of the provision above relates to balances which are more than six months past due. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable set out above.

Ardagh Group S.A.

F-32

 

Picture 1

Provisions against specific balances

Significant balances are assessed for evidence that the customer is experiencing financial difficulty. Examples of factors considered are high probability of bankruptcy, breaches of contract or major concession being sought by the customer. Instances of significant single customer related bad debts are rare and there is no significant concentration of risk associated with particular customers.

Providing against the remaining population of customers

Historic data is monitored and applied as the primary source of evidence to assess the level of losses incurred, although impairments cannot yet be identified with individual receivables. Adverse changes in the payment status of customers of the Group, or national or local economic conditions that correlate with defaults on receivables owing to the Group, may also provide a basis for increase of the level of provision above historic loss experience. However, the fact that payments are made late by customers does not automatically provide evidence that a provision should be recognized.

As of December 31, 2017, trade receivables of €51 million (2016: €46 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

 

 

 

 

 

 

 

At December 31,

 

    

2017

 

2016

 

 

€m

 

€m

Up to three months past due

 

38

 
40

Three to six months past due

 

 4

 
4

Over six months past due

 

 9

 
2

 

 

51

 
46

15. Cash and cash equivalents

 

 

 

 

 

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Cash at bank and in hand

 

535

 

729

Short term bank deposits

 

108

 

16

Restricted cash

 

11

 

27

 

 

654

 

772

 

 

 

Within cash and cash equivalents, the Group had €11 million of restricted cash at December 31, 2017 (2016: €27 million), which includes bank guarantees in the United States and early retirement plans in Germany.

 

 

 

 

16. Issued capital and reserves

Share capital

Issued and fully paid shares:

 

 

 

 

 

At December 31, 2016

    

Number of shares (millions)

    

€m

- Ordinary shares (par value €0.01)

 

11.1

 

 

Cancellation of ordinary shares

(i)

(11.1)

 

 —

Issue of shares:

 

 

 

 

- Class A common shares (par value €0.01)

(ii)

18.6

 

 —

- Class B common shares (par value €0.10)

(i)

217.7

 

22

At December 31, 2017

 

236.3

 

22

 

Ardagh Group S.A.

F-33

 

Picture 1

2017

(i)

Share reorganization

In March 2017, the Company completed a reorganization of its capital structure. The authorized share capital of the Company was set at €55 million, divided into 1 billion Class A common shares at a par value of €0.01 and 450 million Class B common shares at a par value of €0.10 per share.

The 11,111,200 outstanding ordinary shares of the Company were cancelled and the existing shareholders were issued, on a pro rata basis, 1,111,120 Class B common shares with an equivalent total par value to the cancelled shares. In addition, the Company converted its €673 million related party loan payable to ARD Group Finance Holdings S.A. (a subsidiary of its intermediate parent and a shareholder of the Company), into 86,154 Class B common shares, and issued 216,498,726 Class B common shares on a pro rata basis to existing shareholders, for no additional consideration. The par value was satisfied by a reallocation of existing share premium. Consequently, there was a total of 217,696,000 Class B common shares in issue prior to the Company’s IPO, as described below.

(ii)

Share issuance

On March 20, 2017, the Company closed its IPO of 18,630,000 Class A common shares on the NYSE at $19.00 per share. The net proceeds of the IPO were €303 million, after deducting underwriting discounts of €20 million and estimated directly attributable transaction costs of €10 million.   

2016

(i)

Share premium

On September 21, 2016 the Company issued 1,111,200 ordinary shares to ARD Group Finance Holdings S.A. at a par value of €0.01 per share with a share premium of €6 million.

On the same date, the Board approved the reclassification of an element of the Company’s share premium to retained earnings, thereby realizing a distributable reserve, and subsequently paid a dividend to its parent company.

(ii)

Capital contribution

On September 21, 2016 the Company received a contribution of €431 million in cash from its parent company. There were no terms and conditions associated with the contribution. The proceeds from this contribution were mainly used to redeem part of the principal amount outstanding of its $841 million 8.625% Senior PIK Notes due 2019 and €295 million 8.375% Senior PIK Notes due 2019.

All other reserves are as stated in the consolidated statement of changes in equity.

17. Financial risk factors

The Group’s activities expose it to a variety of financial risks: capital risk, interest rate risk, currency exchange risk, commodity price risk, credit risk, and liquidity risk.

Capital structure and risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and provide returns to its shareholders. The Group funds its operations primarily from the following sources of capital: borrowings, cash flow and shareholders’ capital. The Group aims to achieve a capital structure that results in an appropriate cost of capital to accommodate material investments or acquisitions, while providing flexibility in short and medium term funding. The Group also aims to maintain a strong balance sheet and to provide continuity of financing by having a range of maturities and borrowing from a variety of sources. The Group’s overall treasury objectives are to ensure sufficient funds are available for the Group to carry out its strategy and to manage certain financial risks to which the Group is exposed, details of which are provided below.

Ardagh Group S.A.

F-34

 

Picture 1

Financial risks are managed on the advice of Group Treasury and senior management. The Group does not permit the use of treasury instruments for speculative purposes, under any circumstances. Group Treasury regularly reviews the level of cash and debt facilities required to fund the Group’s activities, plans for repayments and refinancing of debt, and identifies an appropriate amount of headroom to provide a reserve against unexpected funding requirements.

Additionally, financial instruments, including derivative financial instruments, are used to hedge exposure to interest rate, currency exchange risk and commodity price risk.

One of the Group’s key metrics has been the ratio of consolidated external net debt as a multiple of Adjusted EBITDA. Adjusted EBITDA consists of profit/(loss) before income tax (credit)/charge, net finance expense, depreciation and amortization and exceptional operating items. As at December 31, 2017 the ratio for the Group was 4.87x (2016: 6.26x; 2015: 6.26x).

Interest rate risk

The Board’s policy, in the management of interest rate risk, is to strike the right balance between the Group’s fixed and floating rate financial instruments, which occasionally includes the use of CCIRS. The balance struck by the Board is dependent on prevailing interest rate markets at any point in time.

At December 31, 2017, the Group’s external borrowings were 91.7% (2016: 73.8%) fixed with a weighted average interest rate of 5.5% (2016: 5.4%; 2015: 6.2%). The weighted average interest rate of the Group for the year ended December 31,2017 was 4.9% (2016: 5.2%; 2015 6.2%). The Group has related party borrowings of €nil as at December 31, 2017 (2016: €673 million).

Holding all other variables constant, including levels of the Group’s external indebtedness, at December 31, 2017 a one percentage point increase in variable interest rates would increase interest payable by approximately €6 million (2016: €20 million).

Currency exchange risk

The Group operates in 22 countries, across five continents. The Group’s main currency exposure in the year to December 31, 2017 was in relation to the U.S. dollar, British pound, Swedish krona, Polish zloty, Danish krone and Brazilian real. Currency exchange risk arises from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations.

The Group has a limited level of transactional currency exposure arising from sales or purchases by operating units in currencies other than their functional currencies.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings and swaps denominated in the Group’s principal foreign currencies.

Fluctuations in the value of these currencies with respect to the euro may have a significant impact on the Group’s financial condition and results of operations as reported in euro. When considering the Group’s position, the Group believes that a strengthening of the euro exchange rate by 1% against all other foreign currencies from the December 31, 2017 rate would decrease shareholders’ equity by approximately €4 million (2016: €6 million increase).

Ardagh Group S.A.

F-35

 

Picture 1

Commodity price risk

The Group is exposed to changes in prices of our main raw materials, primarily energy, aluminum and steel. Production costs in our Metal Packaging division are exposed to changes in prices of our main raw materials, primarily aluminum and steel. Aluminum ingot is traded daily as a commodity (priced in U.S. dollars) on the London Metal Exchange, which has historically been subject to significant price volatility. Because aluminum is priced in U.S. dollars, fluctuations in the U.S. dollar/ euro rate also affect the euro cost of aluminum ingot. The price and foreign currency risk on the aluminum purchases in Metal Packaging Europe and Metal Packaging Americas are hedged by entering into swaps under which we pay fixed euro and U.S. dollar prices, respectively. In contrast, the hedging market for steel, and in particular that for coking coal, is a new market which does not have the depth of the aluminum market and as a consequence, there might be limitations to placing hedges in the market. The majority of our steel purchases are obtained under one-year contracts with prices that are usually fixed in advance. When such contracts are renewed in the future, our steel costs under such contracts will be subject to prevailing global steel and/or tinplate prices at the time of renewal, which may be different from historical prices. Furthermore, the relative price of oil and its by‑products may materially impact our business, affecting our transport, lacquer and ink costs.

Where we do not have pass through contracts in relation to the underlying metal raw material cost the Group uses derivative agreements to manage this risk.  The Group depends on an active liquid market and available credit lines with counterparty banks to cover this risk. The use of derivative contracts to manage our risk is dependent on robust hedging procedures.  Increasing raw material costs over time has the potential, if we are unable to pass on price increases, to reduce sales volume and could therefore have a significant impact on our financial condition.  The Group is also exposed to possible interruptions of supply of aluminum and steel or other raw materials and any inability to purchase raw materials could negatively impact our operations.

Production costs in our Glass Packaging division are sensitive to the price of energy. Our main energy exposure is to the cost of gas and electricity. These energy costs have experienced significant volatility in recent years with a corresponding effect on our production costs. In terms of gas, which represents 50% of our energy costs, there is a continuous de‑coupling between the cost of gas and oil, whereby now only significant changes in the price of oil have an impact on the price of gas. The volatility in gas pricing is driven by shale gas development (United States only), the availability of liquefied natural gas in Europe, as both Europe and Asia compete for shipments, and storage levels. Volatility in the price of electricity is caused by the German Renewable Energy policy, the phasing out of nuclear generating capacity, fluctuations in the price of gas and coal and the influence of carbon dioxide costs on electricity prices.

As a result of the volatility of gas and electricity prices, the Group has either included energy pass‑through clauses in our sales contracts or developed an active hedging strategy to fix a significant proportion of our energy costs through contractual arrangements directly with our suppliers, where there is no energy clause in the sales contract.

Where pass through contracts do not exist the Group policy is to purchase gas and electricity by entering into forward price‑fixing arrangements with suppliers for the bulk of our anticipated requirements for the year ahead. Such contracts are used exclusively to obtain delivery of our anticipated energy supplies. The Group does not net settle, nor do we sell within a short period of time after taking delivery. The Group avails of the own use exemption and, therefore, these contracts are treated as executory contracts.

The Group typically builds up these contractual positions in tranches of approximately 10% of the anticipated volumes. Any gas and electricity which is not purchased under forward price‑fixing arrangements is purchased under index tracking contracts or at spot prices. We have 72% and 73% of our energy risk covered for 2018 and 2019, respectively.

Credit risk

Credit risk is managed on a Group basis. Credit risk arises from derivative contracts, cash and deposits held with banks and financial institutions, as well as credit exposures to the Group’s customers, including outstanding receivables. Group policy is to place excess liquidity on deposit, only with recognized and reputable financial institutions. For banks and financial institutions, only independently rated parties with a minimum rating of “BBB+” from at least two credit rating agencies are accepted, where possible.

Ardagh Group S.A.

F-36

 

Picture 1

The credit ratings of banks and financial institutions are monitored to ensure compliance with Group policy. Group policy is to extend credit to customers of good credit standing. Credit risk is managed on an on‑going basis, by experienced people within the Group. The Group’s policy for the management of credit risk in relation to trade receivables involves periodically assessing the financial reliability of customers, taking into account their financial position, past experience and other factors. Provisions are made, where deemed necessary, and the utilization of credit limits is regularly monitored. Management does not expect any significant counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of each asset. For the year ended December 31, 2017, the Group’s ten largest customers accounted for approximately 36% of total revenues (2016: 33%; 2015: 32%). There is no recent history of default with these customers.

Liquidity risk

The Group is exposed to liquidity risk which arises primarily from the maturing of short term and long term debt obligations. The Group’s policy is to ensure that sufficient resources are available either from cash balances, cash flows or undrawn committed bank facilities, to ensure all obligations can be met as they fall due.

To effectively manage liquidity risk, the Group:

·

has committed borrowing facilities that it can access to meet liquidity needs;

·

maintains cash balances and liquid investments with highly‑rated counterparties;

·

limits the maturity of cash balances;

·

borrows the bulk of its debt needs under long term fixed rate debt securities; and

·

has internal control processes and contingency plans for managing liquidity risk.

Cash flow forecasting is performed in the operating entities of the Group and is aggregated by Group Treasury. Group Treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans and covenant compliance and internal balance sheet ratio targets.

Surplus cash held by the operating entities over and above the balance required for working capital management is transferred to Group Treasury. Group Treasury invests surplus cash in interest‑bearing current accounts and time deposits with appropriate maturities to provide sufficient headroom as determined by the above‑mentioned forecasts.

18. Financial assets and liabilities

The Group’s net external debt was as follows:

 

 

At December 31,

 

    

2017

 

2016

 

 

€m

 

€m

Loan notes

 

6,918

 

7,513

Term loan

 

 —

 

627

Other borrowings

 

10

 

10

Total borrowings

 

6,928

 

8,150

Cash and cash equivalents

 

(654)

 

(772)

Derivative financial instruments used to hedge foreign currency and interest rate risk

 

251

 

(124)

Net debt

 

6,525

 

7,254

 

Ardagh Group S.A.

F-37

 

Picture 1

At December 31, 2017, the Group’s net debt and available liquidity was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum

 

Final

 

 

 

 

 

 

 

 

 

 

 

 

amount

 

maturity

 

Facility

 

 

 

 

 

Undrawn

Facility

 

Currency

 

drawable

 

date

 

type

 

Amount drawn

 

amount

 

    

  

    

Local

    

  

    

  

    

Local

    

€m

    

€m

 

 

 

 

currency

 

 

 

 

 

currency

 

 

 

 

 

 

 

 

m

 

 

 

 

 

m

 

 

 

 

2.750% Senior Secured Notes

 

EUR

 

750

 

15-Mar-24

 

Bullet

 

750

 

750

 

—

4.625% Senior Secured Notes

 

USD

 

1,000

 

15-May-23

 

Bullet

 

1,000

 

834

 

—

4.125% Senior Secured Notes

 

EUR

 

440

 

15-May-23

 

Bullet

 

440

 

440

 

—

4.250% Senior Secured Notes

 

USD

 

715

 

15-Sep-22

 

Bullet

 

715

 

596

 

—

4.750% Senior Notes

 

GBP

 

400

 

15-Jul-27

 

Bullet

 

400

 

451

 

—

6.000% Senior Notes

 

USD

 

1,700

 

15-Feb-25

 

Bullet

 

1,700

 

1,414

 

—

7.250% Senior Notes

 

USD

 

1,650

 

15-May-24

 

Bullet

 

1,650

 

1,376

 

—

6.750% Senior Notes

 

EUR

 

750

 

15-May-24

 

Bullet

 

750

 

750

 

—

6.000% Senior Notes

 

USD

 

440

 

30-Jun-21

 

Bullet

 

440

 

367

 

—

Global Asset Based Loan Facility

 

USD

 

813

 

07-Dec-22

 

Revolving

 

—

 

—

 

678

Finance Lease Obligations

 

GBP/EUR

 

 

 

 

 

Amortizing

 

7

 

7

 

—

Other borrowings/credit lines

 

EUR

 

4

 

Rolling

 

Amortizing

 

3

 

3

 

1

Total borrowings / undrawn facilities

 

 

 

 

 

 

 

 

 

 

 

6,988

 

679

Deferred debt issue costs and bond premium

 

 

 

 

 

 

 

 

 

 

 

(60)

 

—

Net borrowings / undrawn facilities

 

 

 

 

 

 

 

 

 

 

 

6,928

 

679

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

(654)

 

654

Derivative financial instruments used to hedge foreign currency and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

251

 

—

Net debt / available liquidity

 

 

 

 

 

 

 

 

 

 

 

6,525

 

1,333

 

Net debt includes the fair value of associated derivative financial instruments that are used to hedge foreign exchange and interest rate risks relating to finance debt.

Certain of the Group’s borrowing agreements contain certain covenants that restrict the Group’s flexibility in certain areas such as incurrence of additional indebtedness (primarily maximum borrowings to Adjusted EBITDA and a minimum Adjusted EBITDA to interest expense), payment of dividends and incurrence of liens. The Global Asset Based Loan Facility is subject to a number of financial covenants including a fixed charge coverage ratio. The facility also includes cash dominion, representations, warranties, events of default and other covenants that are generally of a nature customary for such facilities.

Ardagh Group S.A.

F-38

 

Picture 1

At December 31, 2016, the Group’s net debt and available liquidity was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum

 

Final

 

 

 

 

 

 

 

 

 

 

 

 

amount

 

maturity

 

Facility

 

 

 

 

 

Undrawn

Facility

 

Currency

 

drawable

 

date

 

type

 

Amount drawn

 

amount

 

    

  

    

Local

    

  

    

  

    

Local

    

€m

    

€m

 

 

 

 

currency

 

 

 

 

 

currency

 

 

 

 

 

 

 

 

m

 

 

 

 

 

m

 

 

 

 

4.250% First Priority Senior Secured Notes

 

EUR

 

1,155

 

15-Jan-22

 

Bullet

 

1,155

 

1,155

 

—

4.625% Senior Secured Notes

 

USD

 

1,000

 

15-May-23

 

Bullet

 

1,000

 

949

 

—

4.125% Senior Secured Notes

 

EUR

 

440

 

15-May-23

 

Bullet

 

440

 

440

 

—

First Priority Senior Secured Floating Rate Notes

 

USD

 

1,110

 

15-Dec-19

 

Bullet

 

1,110

 

1,053

 

—

Senior Secured Floating Rate Notes

 

USD

 

500

 

15-May-21

 

Bullet

 

500

 

474

 

—

6.000% Senior Notes

 

USD

 

440

 

30-Jun-21

 

Bullet

 

440

 

417

 

—

6.250% Senior Notes

 

USD

 

415

 

31-Jan-19

 

Bullet

 

415

 

394

 

—

6.750% Senior Notes

 

USD

 

415

 

31-Jan-21

 

Bullet

 

415

 

394

 

—

7.250% Senior Notes

 

USD

 

1,650

 

15-May-24

 

Bullet

 

1,650

 

1,565

 

—

6.750% Senior Notes

 

EUR

 

750

 

15-May-24

 

Bullet

 

750

 

750

 

—

Term Loan B Facility

 

USD

 

663

 

17-Dec-21

 

Amortizing

 

663

 

629

 

—

HSBC Securitization Program

 

EUR

 

102

 

14-Jun-18

 

Revolving

 

—

 

—

 

102

Bank of America Facility

 

USD

 

155

 

11-Apr-18

 

Revolving

 

—

 

—

 

147

Finance lease obligations

 

GBP/EUR

 

 

 

 

 

Amortizing

 

7

 

7

 

—

Other borrowings/credit lines

 

EUR

 

4

 

Rolling

 

Amortizing

 

3

 

3

 

1

Total borrowings / undrawn facilities

 

 

 

 

 

 

 

 

 

 

 

8,230

 

250

Deferred debt issue costs and bond discount

 

 

 

 

 

 

 

 

 

 

 

(80)

 

—

Net borrowings / undrawn facilities

 

 

 

 

 

 

 

 

 

 

 

8,150

 

250

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

(772)

 

772

Derivative financial instruments used to hedge foreign currency and interest rate risk

 

 

 

 

 

 

 

 

 

 

 

(124)

 

—

Net debt / available liquidity

 

 

 

 

 

 

 

 

 

 

 

7,254

 

1,022

 

The following table summarizes the Group’s movement in net debt:

 

 

 

 

 

 

    

2017

    

2016

 

 

€m

 

€m

Net decrease/(increase) in cash and cash equivalents per consolidated statement of cash flows

 

118

 

(219)

(Decrease)/increase in net borrowings and derivative financial instruments

 

(847)

 

1,622

(Decrease)/increase in net debt

 

(729)

 

1,403

Net debt at January 1,

 

7,254

 

5,851

Net debt at December 31,

 

6,525

 

7,254

 

The (decrease)/increase in net borrowings and derivative financial instruments includes proceeds from borrowings of €3.5 billion (2016: €4.0 billion), repayments of borrowings of €4.1 billion (2016: €2.3 billion), a fair value loss on derivative financial instruments used to hedge foreign currency and interest rate risk of €0.4 billion (2016: gain of €0.1 billion) which partially offsets a corresponding foreign exchange gain on borrowings of €0.7 billion (2016: loss of €0.3 billion), with the net foreign exchange gain on borrowings impacting net debt by approximately €0.3 billion (2016: loss of €0.2 billion).

Ardagh Group S.A.

F-39

 

Picture 1

The maturity profile of the Group’s borrowings is as follows:

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Within one year or on demand

 

 2

 

 8

Between one and two years

 

 1

 

 8

Between two and five years

 

962

 

3,332

Greater than five years

 

5,963

 

4,802

 

 

6,928

 

8,150

 

The table below analyzes the Group’s financial liabilities (including interest payable) into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contracted undiscounted cash flows.

 

    

 

    

Derivative

    

Trade and

 

 

 

 

financial

 

other

 

 

Borrowings

 

instruments

 

payables

At December 31, 2017

 

€m

 

€m

 

€m

Within one year or on demand

 

380

 

 2

 

1,658

Between one and two years

 

379

 

70

 

 —

Between two and five years

 

2,068

 

55

 

 —

Greater than five years

 

6,568

 

126

 

 —

 

 

    

 

    

Derivative

    

Trade and

 

 

 

 

financial

 

other

 

 

Borrowings

 

instruments

 

payables

At December 31, 2016

 

€m

 

€m

 

€m

Within one year or on demand

 

447

 

 8

 

1,539

Between one and two years

 

447

 

 —

 

 —

Between two and five years

 

4,400

 

 —

 

 —

Greater than five years

 

5,339

 

 —

 

 —

 

The carrying amount and fair value of the Group’s borrowings are as follows:

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

 

    

 

    

Deferred debt

    

 

    

 

 

 

Amount

 

issue costs and

 

 

 

 

 

 

drawn

 

premium

 

Total

 

Fair value

At December 31, 2017

 

€m

 

€m

 

€m

 

€m

Loan notes

 

6,978

 

(60)

 

6,918

 

7,334

Finance leases

 

 7

 

 —

 

 7

 

 7

Bank loans, overdrafts and revolving credit facilities

 

 3

 

 —

 

 3

 

 3

 

 

6,988

 

(60)

 

6,928

 

7,344

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

 

 

 

 

Deferred debt

 

 

 

 

 

 

Amount

 

issue costs and

 

 

 

 

 

 

drawn

 

bond discount

 

Total

 

Fair value

At December 31, 2016

    

€m

    

€m

    

€m

    

€m

Loan notes

 

7,591

 

(78)

 

7,513

 

7,817

Term loan

 

629

 

(2)

 

627

 

635

Finance leases

 

 7

 

 —

 

 7

 

 7

Bank loans, overdrafts and revolving credit facilities

 

 3

 

 —

 

 3

 

 3

 

 

8,230

 

(80)

 

8,150

 

8,462

 

Ardagh Group S.A.

F-40

 

Picture 1

Financing activity

2017

On January 30, 2017, the Group issued $1,000 million 6.000% Senior Notes due 2025. The proceeds, together with certain cash, were used to partially redeem, on the same day, $845 million First Priority Senior Secured Floating Rate Notes due 2019, to redeem in full on March 2, 2017, $415 million 6.250% Senior Notes due 2019 and to pay applicable redemption premiums and accrued interest.

On March 8, 2017, the Group issued €750 million 2.750% Senior Secured Notes due 2024, $715 million 4.250% Senior Secured Notes due 2022 and $700 million 6.000% Senior Notes due 2025. On March 9, 2017, using the proceeds from the notes issued on March 8, 2017, the Group redeemed €750 million 4.250% First Priority Senior Secured Notes due 2022, redeemed in full the $265 million First Priority Senior Secured Floating Rate Notes due 2019 and repaid in full the $663 million Term Loan B Facility, together with applicable redemption premiums and accrued interest.

On March 21, 2017, Ardagh Group S.A. replaced its wholly owned subsidiary, Ardagh Packaging Holdings Limited, as the parent guarantor under the then outstanding notes issued by Ardagh Holdings USA Inc. and Ardagh Packaging Finance plc.

On April 10, 2017, using the proceeds of the notes issued on March 8, 2017, the Group redeemed in full $415 million 6.750% Senior Notes due 2021 and paid applicable redemption premiums and accrued interest.

On June 12, 2017, the Group issued £400 million 4.750% Senior Notes due 2027. The proceeds, together with certain cash, were used to redeem, on June 12, 2017, the Group’s $500m Senior Secured Floating Rate Notes due 2021, and to pay applicable redemption premiums and accrued interest.

On August 1, 2017, the Group redeemed in full the 4.250% First Priority Senior Secured Notes due 2022, together with applicable redemption premiums and accrued interest.

On December 7, 2017, the Group closed a committed five year $850 million Global Asset Based Loan facility. This facility, secured by trade receivables and inventories, replaces the HSBC Securitization Program and the Bank of America Facility. It will provide funding for working capital and general corporate purposes. On December 31, 2017, the Group has €678 million available under this facility.

2016

On May 16, 2016 the Group issued the following notes:

·

$1,000 million aggregate principal amount of 4.625% Senior Secured Notes due 2023;

·

$500 million aggregate principal amount of Senior Secured Floating Rate Notes due 2021 at a coupon of LIBOR plus 3.250%;

·

€440 million aggregate principal amount of 4.125% Senior Secured Notes due 2023;

·

$1,650 million aggregate principal amount of 7.250% Senior Notes due 2024; and

·

€750 million aggregate principal amount of 6.750% Senior Notes due 2024.

The net proceeds from the issuance and sale of these notes were used to finance the Beverage Can Acquisition and to repay the following notes:

·

€475 million aggregate principal amount of 9.250% Senior Notes due 2020;

Ardagh Group S.A.

F-41

 

Picture 1

·

$920 million aggregate principal amount of 9.125% Senior Notes due 2020; and

·

$15 million aggregate principal amount of $150 million 7.000% Senior Notes due 2020.

These notes were repaid on May 16, 2016.

The notes issued to finance the Beverage Can Acquisition were held in escrow from the issuance date to the acquisition completion date. Interest charged during this period has been classified as an exceptional finance expense (see Note 4).

On September 16, 2016, the Group repaid in full the principal amount outstanding of its $841 million 8.625% Senior PIK Notes due 2019 and €295 million 8.375% Senior PIK Notes due 2019. Costs associated with the early redemption have been classified as exceptional in the consolidated income statement.

On October 3, 2016 the Group agreed to extend the maturity of the Term Loan B Facility by two years to December 2021.

On November 15, 2016, the Group repaid in full the principal amount outstanding of its $135 million 7.000% Senior Notes due 2020. Costs associated with the early redemption have been classified as exceptional in the consolidated income statement.

Effective interest rates

The effective interest rates of borrowings at the reporting date are as follows:

 

 

2017

 

2016

 

    

USD

    

EUR

    

GBP

    

USD

    

EUR

    

GBP

2.750% Senior Secured Notes due 2024

 

 —

 

2.92

%  

 —

 

 —

 

 —

 

 —

4.625% Senior Secured Notes due 2023

 

5.16

%  

 —

 

 —

 

5.18

%  

 —

 

 —

4.125% Senior Secured Notes due 2023

 

 —

 

4.63

%  

 —

 

 —

 

4.66

%  

 —

4.250% Senior Secured Notes due 2022

 

4.51

%  

 —

 

 —

 

 —

 

 —

 

 —

4.250% First Priority Senior Secured Notes due 2022

 

 —

 

 —

 

 —

 

 —

 

4.52

%  

 —

First Priority Senior Secured Floating Rate Notes due 2019

 

 —

 

 —

 

 —

 

3.49

%  

 —

 

 —

Senior Secured Floating Rate Notes due 2022

 

 —

 

 —

 

 —

 

4.26

%  

 —

 

 —

4.750% Senior Notes due 2027

 

 —

 

 —

 

4.99

%  

 —

 

 —

 

 —

6.000% Senior Notes due 2025

 

6.14

%  

 —

 

 —

 

 —

 

 —

 

 —

7.250% Senior Notes due 2024

 

7.72

%  

 —

 

 —

 

7.74

%  

 —

 

 —

6.750% Senior Notes due 2024

 

 —

 

7.00

%  

 —

 

 —

 

7.01

%  

 —

6.000% Senior Notes due 2021

 

6.38

%  

 —

 

 —

 

6.38

%  

 —

 

 —

6.750% Senior Notes due 2021

 

 —

 

 —

 

 —

 

7.45

%  

 —

 

 —

6.250% Senior Notes due 2019

 

 —

 

 —

 

 —

 

7.25

%  

 —

 

 —

USD Term Loan B Facility due 2021

 

 —

 

 —

 

 —

 

4.16

%  

 —

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The carrying amounts of the Group’s net borrowings are denominated in the following currencies:

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Euro

 

1,934

 

2,332

U.S. dollar

 

4,546

 

5,816

British pound

 

448

 

 2

 

 

6,928

 

8,150

 

Ardagh Group S.A.

F-42

 

Picture 1

The Group has the following undrawn borrowing facilities:

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

Expiring within one year

 

 1

 

 1

Expiring beyond one year

 

678

 

249

 

 

679

 

250

 

Derivative financial instruments

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments:

Level 1        Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2        Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3        Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between Level 1 and Level 2 during the year. 

Fair values are calculated as follows:

(i)

Senior secured and senior notes - The fair value of debt securities in issue is based on quoted market prices and represent Level 1 inputs.

(ii)

Loan notes - The fair values are based on quoted market prices; however, these quoted market prices represent Level 2 inputs because the markets in which the loan notes trade are not active.

(iii)

Bank loans, overdrafts and revolving credit facilities - The estimated value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.

(iv)

Finance leases - The carrying amount of finance leases is assumed to be a reasonable approximation of fair value.

(v)

CCIRS - The fair values of the CCIRS are valued using Level 2 valuation inputs.

(vi)

Commodity and foreign exchange derivatives - The fair value of these derivatives are based on quoted market prices and represent Level 2 inputs.

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Liabilities

 

    

 

    

Contractual

    

 

    

Contractual

 

 

 

 

or notional

 

 

 

or notional

 

 

Fair values

 

amounts

 

Fair values

 

amounts

 

 

€m

 

€m

 

€m

 

€m

Fair Value Derivatives

 

  

 

  

 

  

 

  

Metal forward contracts

 

14

 

164

 

 —

 

 —

Cross currency interest rate swaps

 

 —

 

 —

 

251

 

2,591

Forward foreign exchange contracts

 

 3

 

149

 

 1

 

43

NYMEX gas swaps

 

 —

 

 —

 

 1

 

17

Carbon futures

 

 2

 

 8

 

 —

 

 —

At December 31, 2017

 

19

 

321

 

253

 

2,651

 

Ardagh Group S.A.

F-43

 

Picture 1

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Liabilities

 

    

 

 

Contractual

 

 

 

Contractual

 

 

 

 

or notional

 

 

 

or notional

 

 

Fair values

 

amounts

 

Fair values

 

amounts

 

 

€m

 

€m

 

€m

 

€m

Fair Value Derivatives

 

  

 

  

 

  

 

  

Metal forward contracts

 

 8

 

187

 

 —

 

 —

Cross currency interest rate swap

 

124

 

1,499

 

 —

 

 —

Forward foreign exchange contracts

 

 —

 

 —

 

 8

 

195

NYMEX gas swaps

 

 2

 

15

 

 —

 

 —

Carbon Futures

 

 1

 

 2

 

 —

 

 —

At December 31, 2016

 

135

 

1,703

 

 8

 

195

 

Derivative instruments with a fair value of €6 million (2016: €124 million) are classified as non-current assets and €13 million (2016: €11 million) as current assets in the consolidated statement of financial position at December 31, 2017. Derivative instruments with a fair value of €251 million (2016: €nil) are classified as non-current liabilities and €2 million (2016: €8 million) as current liabilities in the consolidated statement of financial position at December 31, 2017.

The majority of derivative assets and liabilities mature within one year with the exception of the cross currency interest rate swaps (“CCIRS”) which mature at dates between February 2019 and February 2023 and certain metal forward contracts which mature at dates between October 2019 and October 2020.

With the exception of interest on the CCIRS, all cash payments in relation to derivative instruments are paid or received when they mature. Bi‑annual interest cash payments and receipts are made and received in relation to the CCIRS.

The Group mitigates the counterparty risk for derivatives by contracting with major financial institutions which have high credit ratings.

Cross currency interest rate swaps

2017

The Group hedges certain of its external borrowings and interest payable thereon using CCIRS, with a net liability at December 31, 2017 of €251 million (December 31, 2016: net asset of €124 million). In the year ended December 31, 2017 the Group executed a number of CCIRS to swap (i) the U.S. dollar principal and interest repayments on $1,250 million of its U.S. dollar-denominated borrowings into euro, and (ii) the euro principal and interest repayments on €332 million of its euro denominated borrowings into British pounds.

In June 2017, as a result of the issuance of the £400 million 4.750% Senior Notes due 2027, the Group terminated $500 million of its existing U.S. dollar to British pound CCIRS, due for maturity in May 2022. The Group received net proceeds of €42 million in consideration and recognized an exceptional loss of €14 million on the termination (see Note 4). 

2016

In June 2016 the Group entered into cross currency interest rate swaps totaling $1,300 million.  These swaps were entered into in order to partially swap the US dollar principal and interest repayments on the Group’s $1,650 million 7.250% Senior Notes due 2024 equally into euro and British pounds. The Group also hedges a further $440 million of its external debt and interest thereon into euro using a CCIRS.

An exceptional gain of €78 million was recognised in the consolidated income statement for the year relating to the gain on fair value of the CCIRS which were entered into during the second quarter and for which hedge accounting had not been applied until the third quarter. Further an exceptional loss of €10 million was incurred relating to cross currency interest rate swaps for which hedge accounting did not apply (see Note 4).

Ardagh Group S.A.

F-44

 

Picture 1

In December 2015, the Group terminated its existing CCIRS due for maturity in June 2019, and replaced it with a new CCIRS with a maturity date of June 2019. The Group received proceeds of €81 million in consideration of the termination.

Net investment hedge in foreign operations

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.

Hedges of net investments in foreign operations are accounted for whereby any gain or loss on the hedging instruments relating to the effective portion of the hedge is recognized in other comprehensive income. The gain or loss relating to an ineffective portion is recognized immediately in the consolidated income statement within finance income or expense respectively. Gains and losses accumulated in other comprehensive eincome are recycled to the consolidated income statement when the foreign operation is disposed of. The amount that has been recognised in the consolidated income statement due to ineffectiveness is €nil (2016: €nil; 2015: €nil).

Metal forward contracts

The Group hedges a substantial portion of its anticipated metal purchases. Excluding conversion and freight costs, the physical metal deliveries are priced based on the applicable indices agreed with the suppliers for the relevant month.

 

Fair values have been based on quoted market prices and are valued using Level 2 valuation inputs. The fair value of these contracts when initiated is €nil; no premium is paid or received.

 

Forward foreign exchange contracts

The Group operates in a number of countries and, accordingly, hedges a portion of its currency transaction risk. The fair values are based on Level 2 valuation techniques and observable inputs including the contract prices. The fair value of these contracts when initiated is €nil; no premium is paid or received.

NYMEX gas swaps

The Group hedges a portion of its Glass Packaging North America anticipated energy purchases on the New York Mercantile Exchange (“NYMEX”).

Fair values have been based on NYMEX‑quoted market prices and Level 2 valuation inputs have been applied. The fair value of these contracts when initiated is €nil; no premium is paid or received.

Carbon futures

The Group hedges a portion of its carbon purchases using European Union Allowance (“EUA”) futures contracts. The fair values are based on Level 2 valuation techniques and observable inputs including the contract prices.

19. Employee benefit obligations

The Group operates defined benefit and defined contribution pension schemes in most of its countries of operation and the assets are held in separately administered funds. The principal funded defined benefit schemes, which are funded by contributions to separately administered funds, are in the U.S and the United Kingdom. Other defined benefit schemes are unfunded and the provision is recognized in the consolidated statement of financial position. The principal unfunded schemes are in Germany.

Ardagh Group S.A.

F-45

 

Picture 1

The contribution rates to the funded plans are agreed with the Trustee boards, plan actuaries and the local pension regulators periodically. The contributions paid in 2017 were those recommended by the actuaries. In addition, the Group has other employee benefit obligations in certain territories.

Total employee obligations recognized in the consolidated statement of financial position of €831 million (2016: €905 million) include other employee benefit obligations of €110 million (2016: €122 million).

The employee obligations and assets of the defined benefit schemes included in the consolidated statement of financial position are analyzed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Germany

 

UK

 

Netherlands

 

Other

 

Total

 

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

    

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

Obligations

 

(1,094)

 

(1,137)

 

(338)

 

(345)

 

(834)

 

(898)

 

(16)

 

(540)

 

(21)

 

(22)

 

(2,303)

 

(2,942)

Assets

 

983

 

1,012

 

 —

 

 —

 

589

 

626

 

 —

 

513

 

10

 

 8

 

1,582

 

2,159

Net obligations

 

(111)

 

(125)

 

(338)

 

(345)

 

(245)

 

(272)

 

(16)

 

(27)

 

(11)

 

(14)

 

(721)

 

(783)

 

Defined benefit pension schemes

The amounts recognized in the consolidated income statement are:

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Current service cost and administration costs:

 

  

 

  

 

  

Cost of sales - current service cost

 

(38)

 

(37)

 

(40)

Cost of sales - past service credit

 

 7

 

29

 

 —

SGA - current service cost

 

(3)

 

(5)

 

(5)

SGA - past service credit

 

 2

 

10

 

 —

 

 

(32)

 

(3)

 

(45)

Finance expense (Note 5)

 

(22)

 

(24)

 

(23)

 

 

(54)

 

(27)

 

(68)

 

The amounts recognized in the consolidated statement of comprehensive income are:

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Re-measurement of defined benefit obligation:

 

  

 

  

 

  

Actuarial (loss)/gain arising from changes in demographic assumptions

 

(5)

 

24

 

 8

Actuarial (loss)/gain arising from changes in financial assumptions

 

(93)

 

(251)

 

99

Actuarial gain/(loss) arising from changes in experience

 

 2

 

(10)

 

30

 

 

(96)

 

(237)

 

137

Re-measurement of plan assets:

 

 

 

  

 

  

Actual return/(loss) less expected return on plan assets

 

140

 

112

 

(81)

Actuarial gain/(loss) for the year on defined benefit pension schemes

 

44

 

(125)

 

56

Actuarial (loss)/gain on other long term and end of service employee benefits

 

(1)

 

 4

 

16

 

 

43

 

(121)

 

72

 

The actual return on plan assets resulted in a gain of €203 million in 2017 (2016: €186 million gain; 2015: €9 million loss).

Ardagh Group S.A.

F-46

 

Picture 1

Movement in the defined benefit obligations and assets:

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

Obligations

Assets

 

 

2017

 

2016

 

2017

 

2016

 

    

€m

    

€m

    

€m

    

€m

At January 1,

 

(2,942)

 

(2,614)

 

2,159

 

1,976

Interest income

 

 —

 

 —

 

63

 

74

Acquired

 

 —

 

(354)

 

 —

 

271

Current service cost

 

(41)

 

(42)

 

 —

 

 —

Past service credit

 

 9

 

39

 

 —

 

 —

Interest cost

 

(82)

 

(95)

 

 —

 

 —

Administration expenses paid from plan assets

 

 —

 

 —

 

(2)

 

(3)

Re-measurements

 

(96)

 

(237)

 

140

 

112

Obligations/(assets) extinguished on reclassification

 

535

 

187

 

(535)

 

(187)

Employer contributions

 

 —

 

 —

 

45

 

43

Employer contributions—acquisition related

 

 —

 

 —

 

 —

 

 7

Employee contributions

 

(2)

 

(5)

 

 2

 

 5

Benefits paid

 

145

 

118

 

(145)

 

(118)

Exchange

 

171

 

61

 

(145)

 

(21)

At December 31,

 

(2,303)

 

(2,942)

 

1,582

 

2,159

 

The defined benefit obligations above include €379 million (2016: €380 million) of unfunded obligations. Employer contributions above include €6 million contributed under schemes extinguished during the year (2016: €11 million).

Interest income and interest cost in the table above does not include interest cost of €3 million (2016: €3 million; 2015: €2 million) relating to other employee benefit obligations.

During the year ended December 31, 2017 a defined benefit pension scheme in the Netherlands was transferred to a multi-employer scheme. Prior to the date of transfer, a past service credit of €9 million was recognised such that on the date of transfer the defined benefit obligation and asset were both €535 million (December 31, 2016: €524 million and €513 million respectively). The Group has taken the exemption under IAS 19 (R) to account for multi-employer schemes as defined contribution schemes. As a result, the scheme is no longer accounted for as a defined benefit obligation scheme at December 31, 2017.

During the year ended December 31, 2016 the Group recognized a past service credit of €21 million following the amendment of certain defined benefit pension schemes in Glass Packaging North America. This was classified as an exceptional gain (Note 4). The remaining past service credit of €18 million was recognized following the transfer of a Netherlands defined benefit pension scheme to a multi‑employer scheme as outlined hereafter, and following other defined benefit pension scheme amendments in Glass Packaging North America. During the year ended December 31, 2016 a defined benefit pension scheme in the Netherlands was transferred to a multi‑employer scheme. Prior to the date of transfer, a past service credit of €8 million was recognized such that on the date of transfer, the defined benefit obligation and asset were both €187 million (December 31, 2015: €174 million and €168 million respectively).

The net obligations and assets acquired as part of the Beverage Can Acquisition exclude €33 million other employee benefit obligations mainly relating to a post‑retirement medical scheme in North America. The Group was required to make a once‑off contribution of €7 million in respect of the acquired defined benefit schemes.

Ardagh Group S.A.

F-47

 

Picture 1

Plan assets comprise:

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

2017

 

2017

 

2016

 

2016

 

    

€m

 

%

 

€m

 

%

Equities

 

981

 

62

 

1,152

 

53

Target return funds

 

248

 

16

 

275

 

13

Bonds

 

208

 

13

 

558

 

26

Cash/other

 

145

 

 9

 

174

 

 8

 

 

1,582

 

100

 

2,159

 

100

 

The pension assets do not include any of the Company’s ordinary shares, other securities or other Group assets.

Investment strategy

The choice of investments takes account of the expected maturity of the future benefit payments. The plans invest in diversified portfolios consisting of an array of asset classes that attempt to maximize returns while minimizing volatility. The asset classes include national and international equities, fixed income government and non‑government securities and real estate, as well as cash.

Characteristics and associated risks

Glass Packaging North America and Metal Packaging Americas each sponsor a defined benefit pension plan which is subject to Federal law (ERISA), reflecting regulations issued by the Internal Revenue Service (IRS) and the Department of Labor.

The Glass Packaging North America plan covers both hourly and salaried employees. The plan benefits are determined using a formula which reflects an employee’s years of service and either their final average salary or a dollar per month benefit level. The plan is governed by a Fiduciary Benefits Committee (“the Committee”) which is appointed by the Company and contains only employees of Ardagh Group. The Committee is responsible for the investment of the plan’s assets, which are held in a trust for the benefit of employees, retirees and their beneficiaries, and which can only be used to pay plan benefits and expenses.

The defined benefit pension plan is subject to IRS funding requirements with actuaries calculating the minimum and maximum allowable contributions each year. The defined benefit pension plan currently has no cash contribution requirement due to the existence of a credit balance following a contribution of approximately $200 million made in 2014 in connection with the VNA Acquisition. The Pension Benefit Guaranty Corporation (“PBGC”) protects the pension benefits of employees and retirees when a plan sponsor becomes insolvent and can no longer meet its obligation. All plan sponsors pay annual PBGC premiums that have two components: a fixed rate based on participant count and a variable rate which is determined based on the amount by which the plan is underfunded.

The Metal Packaging Americas plan covers hourly employees only. Plan benefits are determined using a formula which reflects the employees’ years of service and is based on a final average pay formula.

The UK pension plans are trust‑based UK funded final salary defined benefit schemes providing pensions and lump sum benefits to members and dependents. There are two pension plans in place relating to Metal Packaging Europe, one of which relates to the Beverage Can Business. There are two pension plans in place in Glass Packaging Europe. One of the pension plans in the Metal Packaging Europe division has been closed to future accrual from July 1, 2014. For this plan, pensions are calculated based on service to the point of closure, but with members’ benefits retaining a final salary link while employed by the Company. The other Metal Packaging Europe pension plan, relating to the Beverage Can Business, is closed to new entrants. For this plan, pensions are calculated based on service to retirement with members’ benefits based on final career earnings. The pension plans relating to the Glass Packaging Europe division have been closed to future accrual from March 31, 2013 and September 30, 2015 respectively.

Ardagh Group S.A.

F-48

 

Picture 1

The UK pension plans are each governed by a board of trustees which is independent of the Company. The trustees are responsible for managing the operation, funding and investment strategy. The UK pension plans are subject to the UK regulatory framework, the requirements of the Pensions Regulator and are subject to a statutory funding objective.

The Group operates a number of defined benefit pension schemes in Germany including three relating to the Beverage Can Business. The pension plans in Germany operate under the framework of German Company Pension Law (BetrAVG) and general regulations based on German Labor Law. The entitlements of the plan members depend on years of service and final salary. Furthermore, the plans provide lifelong pensions. No separate assets are held in trust, i.e. the plans are unfunded defined benefit plans.

Assumptions and sensitivities

The principal pension assumptions used in the preparation of the financial statements take account of the different economic circumstances in the countries of operations and the different characteristics of the respective plans, including the duration of the obligations.

The ranges of the principal assumptions applied in estimating defined benefit obligations were:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Germany

 

UK

 

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

    

%

    

%

    

%

    

%

    

%

    

%

Rates of inflation

 

2.50

 

2.50

 

1.50

 

1.50

 

3.10

 

3.20

Rates of increase in salaries

 

2.00 - 3.00

 

2.00 - 3.00

 

2.50

 

2.50

 

2.60

 

2.20

Discount rates

 

3.80

 

4.45

 

1.68 - 2.24

 

1.57 - 2.06

 

2.70

 

2.80

 

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience.

These assumptions translate into the following average life expectancy in years for a pensioner retiring at age 65. The mortality assumptions for the countries with the most significant defined benefit plans are set out below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Germany

 

UK

 

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

    

Years

    

Years

    

Years

    

Years

    

Years

    

Years

Life expectancy, current pensioners

 

22

 

22

 

21

 

21

 

21

 

21

Life expectancy, future pensioners

 

23

 

23

 

24

 

24

 

22

 

22

 

If the discount rate were to decrease by 50 basis points from management estimates, the carrying amount of the pension obligations would increase by an estimated €180 million (2016: €243 million). If the discount rate were to increase by 50 basis points, the carrying amount of the pension obligations would decrease by an estimated €192 million (2016: €242 million).

If the inflation rate were to decrease by 50 basis points from management estimates, the carrying amount of the pension obligations would decrease by an estimated €80 million (2016: €93 million). If the inflation rate were to increase by 50 basis points, the carrying amount of the pension obligations would increase by an estimated €76 million (2016: €93 million).

If the salary increase rate were to decrease by 50 basis points from management estimates, the carrying amount of the pension obligations would decrease by an estimated €86 million (2016: €93 million). If the salary increase rate were to increase by 50 basis points, the carrying amount of the pension obligations would increase by an estimated €81 million (2016: €92 million).

The impact of increasing the life expectancy by one year would result in an increase in the Group’s liability of €46 million at December 31, 2017 (2016: €63 million), holding all other assumptions constant.

Ardagh Group S.A.

F-49

 

Picture 1

The Group’s best estimate of contributions expected to be paid to defined benefit plans in 2018 is €30 million (2017: €37 million).

The principal defined benefit schemes are described briefly below:

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal Packaging

 

Glass Packaging

 

 

Europe

 

Europe

 

North

 

Europe

 

Europe

 

North

 

 

UK

 

Germany

 

America

 

UK

 

Germany

 

America

Nature of the schemes

    

Funded

    

Unfunded

    

Funded

    

Funded

    

Unfunded

    

Funded

2017

 

  

 

  

 

  

 

  

 

  

 

  

Active members

 

467

 

1,694

 

943

 

 —

 

1,011

 

4,137

Deferred members

 

954

 

706

 

139

 

1,527

 

759

 

2,697

Pensioners including dependents

 

756

 

1,081

 

150

 

744

 

762

 

6,379

Weighted average duration (years)

 

21

 

17

 

17

 

23

 

18

 

13

2016

 

  

 

  

 

  

 

  

 

  

 

  

Active members

 

467

 

1,803

 

970

 

 —

 

1,032

 

4,043

Deferred members

 

954

 

664

 

115

 

1,527

 

732

 

2,648

Pensioners including dependents

 

756

 

1,011

 

133

 

744

 

786

 

6,302

Weighted average duration (years)

 

20

 

18

 

20

 

23

 

19

 

12

 

The expected total benefit payments over the next five years are:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

Subsequent

 

 

2018

 

2019

 

2020

 

2021

 

2022

 

five years

 

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

Benefits

 

97

 

95

 

98

 

101

 

104

 

560

 

The Group also has defined contribution plans; the contribution expense associated with these plans for 2017 was €31 million (2016: €31 million; 2015: €14 million). The Group’s best estimate of the contributions expected to be paid to these plans in 2018 is €36 million.

Other employee benefits

 

 

At December 31,

 

    

2017

    

2016

 

 

€m

 

€m

End of service employee benefits

 

21

 

23

Long term employee benefits

 

89

 

99

 

 

110

 

122

 

End of service employee benefits comprise principally amounts due to be paid to employees leaving the Group’s service in France and Italy.

Long term employee benefit obligations comprise amounts due to be paid under post‑retirement medical schemes in Glass Packaging North America and Metal Packaging Beverage Americas, partial retirement contracts in Germany and other obligations to pay benefits primarily related to long service awards.

20. Related party borrowings and receivables

During the year ended December 31, 2017, a related party loan of €673 million, payable to ARD Group Finance Holdings S.A. (a subsidiary of the Group’s intermediate parent company), was converted into 86,154 Class B common shares in accordance with the terms of the loan agreement (Note 16). Following the conversion, the related party borrowings at December 31, 2017 were €nil (December 31, 2016: €673 million).

During the year ended December 31, 2016, a related party loan of €404 million, was repaid in full, owed by the Group’s immediate parent, ARD Finance S.A.

Ardagh Group S.A.

F-50

 

Picture 1

21. Provisions

 

 

At December 31,

 

 

2017

 

2016

 

    

€m

 

€m

Current

 

58

 

69

Non-current

 

37

 

57

 

 

95

 

126

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

Restructuring

 

provisions

 

provisions

 

    

€m

    

€m

    

€m

At January 1, 2016

 

18

 

78

 

96

Acquisitions (Note 24)

 

 —

 

38

 

38

Provided

 

25

 

29

 

54

Released

 

(11)

 

(15)

 

(26)

Paid

 

(10)

 

(28)

 

(38)

Exchange

 

 —

 

 2

 

 2

At December 31, 2016

 

22

 

104

 

126

Provided

 

11

 

23

 

34

Released

 

(2)

 

(28)

 

(30)

Paid

 

(9)

 

(19)

 

(28)

Exchange

 

(1)

 

(6)

 

(7)

At December 31, 2017

 

21

 

74

 

95

 

The restructuring provision relates to redundancy and other restructuring costs. Other provisions relate to probable environmental claims, customer quality claims, workers’ compensation provisions in Glass Packaging North America, and onerous leases.

The provisions classified as current are expected to be paid in the next twelve months. The majority of the restructuring provision is expected to be paid in 2018. The remaining balance contains longer term provisions for which the timing of the related payments is subject to uncertainty.

22. Trade and other payables

 

 

 

 

 

 

 

At December 31,

 

 

2017

 

2016

 

    

€m

    

€m

Trade payables

 

1,225

 

1,055

Other payables and accruals

 

364

 

419

Amounts owed to parent company

 

 —

 

 3

Other tax and social security payable

 

41

 

32

Payables and accruals for exceptional items

 

28

 

30

 

 

1,658

 

1,539

 

The fair values of trade and other payables approximate the amounts shown above.

Other payables and accruals mainly comprise accruals for operating expenses, deferred income and value added tax payable.

Ardagh Group S.A.

F-51

 

Picture 1

23. Cash generated from operating activities

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Profit/(loss) for the year

 

54

 

(67)

 

(140)

Income tax (credit)/charge (Note 6)

 

(35)

 

50

 

63

Net finance expense (Note 5)

 

582

 

537

 

527

Depreciation and amortization (Notes 9, 10)

 

611

 

507

 

403

Exceptional operating items (Note 4)

 

128

 

131

 

81

Movement in working capital

 

64

 

120

 

90

Acquisition-related, IPO, start-up and other exceptional costs paid

 

(65)

 

(159)

 

(54)

Exceptional restructuring paid

 

(9)

 

(10)

 

(20)

Cash generated from operations

 

1,330

 

1,109

 

950

 

24. Business combinations and disposals

On April 22, 2016 the Group entered into an agreement with Ball Corporation and Rexam PLC to acquire Beverage Can. The acquisition was completed on June 30, 2016.

The acquired business comprises ten beverage can manufacturing plants and two end plants in Europe, seven beverage can manufacturing plants and one end plant in the United States, two beverage can manufacturing plants in Brazil and certain innovation and support functions in Germany, the UK, Switzerland and the United States. The acquired business has annual revenue of approximately €2.8 billion ($3.0 billion).

This was a strategically important acquisition which was highly complementary to the Group's existing metal and glass packaging businesses.

The following table summarizes the consideration paid for the Beverage Can Business and the fair value of assets acquired and liabilities assumed.

 

 

 

 

    

€m

Cash and cash equivalents

 

10

Property, plant and equipment

 

632

Intangible assets

 

1,289

Inventories

 

265

Trade and other receivables

 

331

Trade and other payables

 

(436)

Net deferred tax liability

 

(146)

Employee benefit obligations

 

(116)

Provisions

 

(38)

Total identifiable net assets

 

1,791

Goodwill

 

904

Total consideration

 

2,695

 

The allocations above are based on the fair values at the acquisition date. The purchase price allocation was completed on June 30, 2017.

Goodwill arising from the acquisition reflects the anticipated synergies from integrating the acquired business into the Group and the skills and the technical talent of the acquired workforce.

Goodwill of €268 million which relates to the North American Beverage Can Business is expected to be deductible for tax purposes.

Ardagh Group S.A.

F-52

 

Picture 1

25. Dividends

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

 

€m

Cash dividends on ordinary shares declared and paid:

 

 

 

 

 

 

Interim dividend for 2017: €0.30 per share (2016: €nil per share)

 

(64)

 

 —

 

 —

Interim dividend for 2017: €0.13 per share (2016: €nil per share)

 

(29)

 

 —

 

 —

Interim dividend for 2017: €0.12 per share (2016: €1.34 per share)

 

(27)

 

(270)

 

 —

Interim dividend for 2017: €0.12 per share (2016: €nil per share)

 

(28)

 

 —

 

 —

 

 

(148)

 

(270)

 

 —

 

·

On March 1, 2017 the Board declared and paid a dividend of €64 million to its parent company.

·

On April 27, 2017 the Board declared a cash dividend of $0.14 per common share. The dividend of €29 million was paid on May 31, 2017 to shareholders of record on May 17, 2017.

·

On July 26, 2017 the Board declared a cash dividend of $0.14 per common share. The dividend of €27 million was paid on August 31, 2017 to the shareholders of record on August 17, 2017.

·

On October 25, 2017 the Board declared a cash dividend of $0.14 per common share. The dividend of €28 million was paid on November 30, 2017 to the shareholders of record on November 16, 2017.

26. Related party information

(i)

Interests of Mr. Paul Coulson

As of February 21, 2018, the approval date of these financial statements, companies owned by Paul Coulson own approximately 25% of the issued share capital of ARD Holdings S.A., the ultimate parent company. Through its investment in the Yeoman group of companies, one of these companies has an interest in a further approximate 34% of the issued share capital of ARD Holdings S.A..

(ii)

Yeoman Capital S.A.

At December 31, 2017, Yeoman Capital S.A. owned approximately 34% of the ordinary shares of ARD Holdings S.A.. During 2017, the Group incurred costs of €nil (2016: €nil; 2015: €nil) for fees charged by the Yeoman group of companies. The amount outstanding at year end was €nil (2016: €nil; 2015: €nil).

(iii)

Common directorships

Five of the ARD Holdings S.A. directors (Paul Coulson, Brendan Dowling, Wolfgang Baertz, Gerald Moloney and Herman Troskie) also serve as directors in the Yeoman group of companies. All of the existing directors of Ardagh Group S.A. with the exception of Edward White and Damien O’Brien, are members of the Board of Directors of ARD Holdings S.A..

(iv)

Joint ventures

At December 31, 2017, the Group’s investment in joint ventures is €8 million (2016: €6 million). Transactions and balances outstanding with joint ventures are not material for the year ended and as at December 31, 2017 (2016: not material, 2015: not material).

Ardagh Group S.A.

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Picture 1

(v)

Key management compensation

Key management are those persons who have the authority and responsibility for planning, directing and controlling the activities of the Group. Key management is comprised of the members who served on the Board and the Group’s executive leadership team during the reporting period. The composition of key management was re-defined during 2017. As a result, amounts previously reported for the years ended December 31, 2016 and 2015 have been re-presented in order to improve comparability. The amount outstanding at year end was €6 million (2016: €4 million, 2015: €4 million).

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Salaries and other short term employee benefits

 

11

 

11

 

 9

Post-employment benefits

 

 1

 

 1

 

 1

 

 

12

 

12

 

10

Transaction related and other compensation

 

 6

 

26

 

 —

 

 

18

 

38

 

10

 

(vi)

Pension schemes

The Group’s pension schemes are related parties. For details of all transactions during the year, please see Note 19.

(vii)

Related party balances

With the exception of the balances outlined in (i) to (vi) above, there are no material balances outstanding with related parties at December 31, 2017. Please refer to Note 20 for details of related party loan transactions for the year ended of December 31, 2017.

Ardagh Group S.A.

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Picture 1

(viii) Subsidiaries

The following table provides information relating to our principal operating subsidiaries, all of which are wholly owned, at December 31, 2017 and 2016.

 

 

 

 

 

Company

    

Country of
incorporation

    

Activity

Ardagh Metal Beverage Manufacturing Austria GmbH

 

Austria

 

Metal Packaging

Ardagh Metal Beverage Trading Austria GmbH

 

Austria

 

Metal Packaging

Latas Indústria de Embalagens de Alumínio do Brasil Ltda

 

Brazil

 

Metal Packaging

Ardagh Metal Packaging Czech Republic s.r.o.

 

Czech Republic

 

Metal Packaging

Ardagh Glass Holmegaard A/S

 

Denmark

 

Glass Packaging

Ardagh Aluminium Packaging France SAS

 

France

 

Metal Packaging

Ardagh MP West France SAS

 

France

 

Metal Packaging

Ardagh Metal Packaging France SAS

 

France

 

Metal Packaging

Ardagh Metal Beverage Trading France SAS

 

France

 

Metal Packaging

Ardagh Metal Beverage France SAS

 

France

 

Metal Packaging

Ardagh Glass GmbH

 

Germany

 

Glass Packaging

Heye International GmbH

 

Germany

 

Glass Engineering

Ardagh Metal Packaging Germany GmbH

 

Germany

 

Metal Packaging

Ardagh Germany MP GmbH

 

Germany

 

Metal Packaging

Ardagh Metal Beverage Trading Germany GmbH

 

Germany

 

Metal Packaging

Ardagh Metal Beverage Germany GmbH

 

Germany

 

Metal Packaging

Ardagh Glass Sales Limited

 

Ireland

 

Glass Packaging

Ardagh Packaging Holdings Limited

 

Ireland

 

Glass and Metal Packaging

Ardagh Group Italy S.r.l.

 

Italy

 

Glass and Metal Packaging

Ardagh Aluminium Packaging Netherlands B.V.

 

Netherlands

 

Metal Packaging

Ardagh Glass Dongen B.V.

 

Netherlands

 

Glass Packaging

Ardagh Glass Moerdijk B.V.

 

Netherlands

 

Glass Packaging

Ardagh Metal Packaging Netherlands B.V.

 

Netherlands

 

Metal Packaging

Ardagh Metal Beverage Trading Netherlands B.V.

 

Netherlands

 

Metal Packaging

Ardagh Metal Beverage Netherlands B.V.

 

Netherlands

 

Metal Packaging

Ardagh Glass S.A.

 

Poland

 

Glass Packaging

Ardagh Metal Packaging Poland Sp. z o.o.

 

Poland

 

Metal Packaging

Ardagh Metal Beverage Trading Poland Sp. z o.o.

 

Poland

 

Metal Packaging

Ardagh Metal Beverage Poland Sp. z o.o.

 

Poland

 

Metal Packaging

Ardagh Metal Beverage Trading Spain SL

 

Spain

 

Metal Packaging

Ardagh Metal Beverage Spain SL

 

Spain

 

Metal Packaging

Ardagh Metal Packaging Iberica S.A.

 

Spain

 

Metal Packaging

Ardagh Glass Limmared AB

 

Sweden

 

Glass Packaging

Ardagh Metal Beverage Europe GmbH

 

Switzerland

 

Metal Packaging

Ardagh Glass Limited

 

United Kingdom

 

Glass Packaging

Ardagh Metal Beverage Trading UK Limited

 

United Kingdom

 

Metal Packaging

Ardagh Metal Beverage UK Limited

 

United Kingdom

 

Metal Packaging

Ardagh Metal Packaging UK Limited

 

United Kingdom

 

Metal Packaging

Ardagh Metal Packaging USA Inc.

 

United States

 

Metal Packaging

Ardagh Glass Inc.

 

United States

 

Glass Packaging

Ardagh Metal Beverage USA Inc.

 

United States

 

Metal Packaging

 

 

Ardagh Group S.A.

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Picture 1

27. Contingencies

Environmental issues

The Group is regulated under various national and local environmental, occupational health and safety and other governmental laws and regulations relating to:

·

the operation of installations for manufacturing of metal packaging and surface treatment using solvents;

·

the generation, storage, handling, use and transportation of hazardous materials;

·

the emission of substances and physical agents into the environment;

·

the discharge of waste water and disposal of waste;

·

the remediation of contamination; and

·

the design, characteristics, and recycling of its products.

The Group believes, based on current information that it is in substantial compliance with applicable environmental laws and regulations and permit requirements. It does not believe it will be required, under both existing or anticipated future environmental laws and regulations, to expend amounts, over and above the amount accrued, which will have a material effect on its business, financial condition or results of operations or cash flows. In addition, no material proceedings against the Group arising under environmental laws are pending.

Legal matters

In 2015, the German competition authority (the Federal Cartel Office) initiated an investigation of the practices in Germany of metal packaging manufacturers, including Ardagh. The investigation is ongoing, and there is at this stage no certainty as to the extent of any charge which may arise. Accordingly, no provision has been recognized.

 

On April 21, 2017 a jury in the United States awarded $50 million in damages against the Group's US glass business, formerly Verallia North America (“VNA”), in respect of one of two asserted patents alleged to have been infringed by VNA. Ardagh disagrees with the decision of the jury, both as to liability and quantum of damages, and strongly believes that the case is without merit. Ardagh will vigorously pursue all options, including appeal. The case was filed before Ardagh acquired VNA and customary indemnifications are in place between Ardagh and the seller of VNA. 

 

With the exception of the above legal matters, the Group is involved in certain other legal proceedings arising in the normal course of its business. The Group believes that none of these proceedings, either individually or in aggregate, are expected to have a material adverse effect on its business, financial condition, results of operations or cash flows.

 

28. Events after the reporting period

On February 8, 2018, the Board declared a dividend of $0.14 per common share, payable on March 13, 2018 to shareholders of record on February 27, 2018.

29. Company financial information

This note has been included in these financial statements in accordance with the requirements of Regulation S‑X rule 12.04 Condensed financial information of registrant. The financial information provided below relates to the individual company financial statements for Ardagh Group S.A. as presented in accordance with IFRS as issued by the IASB.

Ardagh Group S.A.

F-56

 

Picture 1

Certain information and footnote disclosures normally included in financial statements prepared in accordance with International Financial Reporting Standards have been condensed or omitted. The footnote disclosures contain supplemental information only and, as such, these statements should be read in conjunction with the notes to the accompanying consolidated financial statements.

The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financial statements, except that investments in subsidiaries are included at cost less any provision for impairment in value.

i)

Statement of financial position

 

 

At December 31,

 

 

2017

 

2016

 

    

€m

    

€m

Non-current assets

 

 

 

 

Investments in subsidiary undertakings

 

1,809

 

1,510

 

 

1,809

 

1,510

Current assets

 

  

 

  

Amounts receivable from subsidiary undertakings

 

10

 

 —

Cash and cash equivalents

 

 1

 

 —

Other receivables

 

 —

 

 2

 

 

11

 

 2

Total assets

 

1,820

 

1,512

Equity attributable to owners of the parent

 

  

 

  

Issued capital

 

22

 

 —

Share premium

 

1,090

 

136

Legal reserve

 

 2

 

 —

Capital contribution

 

431

 

431

Retained earnings

 

267

 

270

Total equity

 

1,812

 

837

Non-current liabilities

 

  

 

  

Amounts payable to related parties

 

 —

 

673

 

 

 —

 

673

Current liabilities

 

  

 

  

Amounts payable to subsidiary undertakings

 

 4

 

 —

Other payables

 

 4

 

 2

 

 

 8

 

 2

Total liabilities

 

 8

 

675

Total equity and liabilities

 

1,820

 

1,512

 

Ardagh Group S.A.

F-57

 

Picture 1

ii)

Statement of comprehensive income

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

`

    

€m

    

€m

    

€m

 

 

 

 

 

 

 

Dividend income

 

150

 

267

 

 —

Other external charges

 

(1)

 

 —

 

 —

Finance expense

 

(1)

 

(64)

 

(84)

Finance income

 

 —

 

112

 

85

Profit before exceptional items

 

148

 

315

 

 1

Exceptional finance costs

 

 —

 

(47)

 

 —

Profit before tax

 

148

 

268

 

 1

Income tax

 

 —

 

 —

 

 —

Profit and total comprehensive income for the year

 

148

 

268

 

 1

 

iii)

Statement of cash flows

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

Cash flows from operating activities

 

 

 

 

 

 

Cash generated from operations

 

(1)

 

 —

 

 —

Increase in receivables

 

(10)

 

 

 

 

Cumulative PIK interest paid

 

 —

 

(184)

 

 —

Net cash used in operating activities

 

(11)

 

(184)

 

 —

Cash flows from investing activities

 

  

 

  

 

  

Repayment of loans from subsidiary undertakings

 

 —

 

1,112

 

 —

Contribution to subsidiary undertaking

 

(299)

 

(1,110)

 

 —

Dividends received

 

150

 

267

 

 —

Net cash received (used in)/from investing activities

 

(149)

 

269

 

 —

Cash flows from financing activities

 

  

 

  

 

  

Repayment of borrowings

 

 —

 

(880)

 

 —

Net proceeds from borrowings with related parties

 

 —

 

671

 

 —

Contribution from parent

 

 —

 

431

 

 —

Proceeds from share issuance

 

309

 

 6

 

 —

Dividends paid

 

(148)

 

(270)

 

 —

Early redemption premium costs

 

 —

 

(45)

 

 —

Net cash inflow/(outflow) from financing activities

 

161

 

(87)

 

 —

Net increase/(decrease) in cash and cash equivalents

 

 1

 

(2)

 

 —

Cash and cash equivalents at the beginning of the year

 

 —

 

 2

 

 2

Cash and cash equivalents at the end of the year

 

 1

 

 —

 

 2

 

iv)

Maturity analysis of the Company’s borrowings

At December 31, 2017, the Company had €nil borrowings (2016: €673 million). Borrowings of €673 million at December 31, 2016 had a maturity of greater than five years.

v)

Distributions paid and received

During the year ended December 31, 2017 the Company received a dividend of €150 million (2016: €267 million, 2015: €nil) from a subsidiary company. The Company also paid a dividend to its equity holders of €148 million (2015: €270 million, 2015: €nil).

Ardagh Group S.A.

F-58

 

Picture 1

vi)

Commitments and contingencies

The Company has guaranteed certain liabilities of a number of its subsidiaries for year ended December 31, 2017.

With exception of the above guarantee the Company had no commitments and contingencies at December 31, 2017 (2016: €nil).

vii)

Additional information

The following reconciliations are provided as additional information to satisfy the Schedule I SEC Requirements for parent‑only financial information.

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

IFRS profit/(loss) reconciliation:

 

 

 

 

 

 

Parent only—IFRS profit for the year

 

148

 

268

 

 1

Additional loss if subsidiaries had been accounted for using the equity method of accounting as opposed to cost

 

(94)

 

(335)

 

(141)

Consolidated IFRS profit/(loss) for the year

 

54

 

(67)

 

(140)

 

 

 

At December 31,

 

 

2017

 

2016

 

2015

 

    

€m

    

€m

    

€m

IFRS equity reconciliation:

 

 

 

 

 

 

Parent only—IFRS equity

 

1,812

 

837

 

402

Additional loss if subsidiaries had been accounted for using the equity method of accounting as opposed to cost

 

(2,960)

 

(2,907)

 

(2,384)

Consolidated—IFRS equity

 

(1,148)

 

(2,070)

 

(1,982)

 

Ardagh Group S.A.

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