Directors’ report 2015

The Board and CEO of ÅR Packaging Group AB (publ) Reg. No 556702-3006, herby submit the annual report for the 2015 financial year.

General information about the business

AR Packaging was formed in 2011 by a merger of A&R Carton and Flextrus, and is one of Europe’s leading companies in the packaging sector. Its core markets are the folding carton and the flexible packaging market in Europe. By combining these areas of expertise we can be a true and reliable partner to our customers. The Group designs and manufactures packaging solutions to a broad customer base comprising large established companies that it has served on a long-term basis as well as a large number of smaller regional and local customers in more than 50 countries globally. The Group’s main markets are in Europe.

Group structure and ownership

The Company’s shareholders:

Participation: Share of votes:
AC Pack BV (Ahlström Capital) 65% 65%
A16 Packaging Ltd (Accent Equity) 35% 35%
100% 100%

AC Pack BV is a part of Ahlström Capital group, which parent company Ahlström Capital Oy (ultimate parent company) is based in Finland. Ahlström Capital is a private investment company and further information can be found at

A16 Packaging Limited is a company owned by Accent Equity 2008 L.P. which is based in Jersey. Accent Equity is one of the leading private equity firms in the Nordic mid-market segment. For further information visit

Operations in 2015 and comments on the financial statements

Net sales amounted to 513.5 MEUR (404.3) for the whole year 2015, which is an increase of 27% compared to the same period previous year. The major part of the sales increase is related to the acquired business from Mead Westvaco (105.7 MEUR), but also existing business is showing a growth of around 1%. Our business in Russia recovered compared to the previous year. Sales per division (operating segment) is divided as follows for 2015; Branded Products (52%), Barrier Packaging (30%) and Food Packaging (18%). The acquired business is included in division Branded Products.

For more information about the sales split by operating segment and geographical area, please see Note 5.

The operating profit for the period January-December was 36.6 MEUR (25.7). Adjusted for non-recurring items amounting to 8.1, MEUR mainly consisting of write downs of 5,5 MEUR and costs related to the acquired business, the operating profit was 44.8 MEUR (27.4) with an operating margin of 8.7% (6.8). EBITDA for 2015 was 62.5 MEUR (42.5) and the EBITDA margin was 12.2% (10.5).

For the whole year 2015 the financial net was -9.9 MEUR (-9.8). Translation effects have been negative in the period with -1.4 MEUR compared to -2.4 MEUR the same period last year.

The total reported tax expense for the year was -6.7 MEUR (-0.3). Income tax expenses for 2014 has had a positive impact of 2.7 MEUR due to a change of deferred tax assets related to tax losses carry forward in Sweden.

As a result of the increased operating profit etc. the net profit increased to 20.0 MEUR (15.6). Earnings per share for the whole year 2015 increased to 2.00 EUR from 1.56 EUR for the same period last year.

Research & development
Most of AR Packaging’s development work takes place locally in close collaboration with the customer’s development and marketing departments. Products developed within the framework of these programs are also launched very quickly.
Specific development projects are run within Performance Packaging in Lund, for the development of special packaging machines. These projects are of a more long term nature and provide revenues over a longer period, both in form of machine sales and sales of own developed packaging. We foresee a continued high level of interest in our packaging concepts and the outlook for new project orders in 2016 is promising.

Capital expenditures (acquisition excluded) for the period was net 11.3 MEUR (10.4). The main part of the investments during the year were related to normal ongoing replacement investments. Depreciations and amortisations for the year amounted to 17.8 MEUR (15.1).

Cash flow and financial position
The Group’s operating cash flow for 2015 was positive with 67.0 MEUR (32.9). Cash balance as per December 31st 2015 was 63.1 MEUR (37.9). Including not utilized overdraft facilities of 19.8 MEUR (15.6), the total cash available amounted to 82.9 MEUR (53.5) as per year end.

The Group’s interest bearing net debt on December 31st 2015 was 106.3 MEUR (87.1). The calculated net debt to EBITDA was 1.7 times (2.1).

The total number of employees within AR Packaging was 2 231 as per December 31, 2015 (1 594 as per December 31, 2014). For more information see Note 16.

Risk management

The Group is exposed to a number of operational and financial risks that the Group continuously monitors. Below is a description of the Group’s management of various risks.

Operational risks
An international presence can involve complex situations that give rise to operational risks. This can apply to AR Packaging’s relations with customers and suppliers and can, for example, relate to the ability of customers to pay or the quality and reliability of suppliers. AR Packaging is constantly reviewing its customers and suppliers. Price risk is another business risk that is managed in form of an ongoing, continuous dialogue between purchasing and sales, together with an increasingly coordinated harmonization of contracts within the group. AR Packaging has a relatively high dependence on a few customers with the ten biggest customers accounting for around 65% (58%) of the Group’s total revenue.

Legal matters
On occasions, AR Packaging is a party in legal disputes relating to commercial activities. Management considers the likelihood of any material risk in this respect to be insignificant.

Insurable risks
AR Packaging has the usual insurance cover in respect of property and liability risks for the group.

Market risk
Market risk is the risk that fluctuations in market rates, such as currency exchange rates and interest rates, will impact the Group’s profits or financial position.

Currency risk
The Group is partially exposed to currency risk as it operates internationally. The currency risk comprises both transaction exposure and translation exposure. Transaction exposure arises when the Group conducts purchasing and sales in another currency than Euro (EUR) which is the reporting currency of the Group. Transaction exposure is attributable to trade receivables and trade payables. However, the major part of the Groups sales and purchases are denominated in EUR. Transaction exposure relates primarily to Swedish kronor (SEK), Polish zloty (PLN) and British Pounds (GBP).
The Group’s objective is to minimize the short-term impact of movements in foreign exchange rates. This is mainly achieved by matching revenues and expenses in business transactions with currencies other than EUR. When matching cannot be achieved, the Group sometimes utilizes foreign exchange forward contracts for currency hedging. The currency hedging is performed mainly by the Flextrus subgroup having SEK as functional currency.

Interest rate risk
Interest risk is attributable to fluctuations in market interest rates and their effect on the Group’s loan portfolio. Consolidated interest-bearing loans and borrowings are subsequent to the refinancing during 2013, mainly subject to variable interest rate (1 months Euribor + 5.75%).

Liquidity risk
The Group is a net borrower and a refinancing risk arises in connection with the extension of existing loans and the raising of new loans. Access to external financing, which is affected by factors such as the general trend in the capital and credit markets, as well as the creditworthiness and credit capacity of the Group, may be limited and there may be unforeseen events and costs associated with this. Subsequent to the refinancing during 2013, the Group’s liquidity risk has substantially decreased. The 80 MEUR bond loan has a maturity in mid-2017. The terms in the bond agreement gives us the possibility to issue additionally 35 MEUR bond financing during the term period, which was done in March 2015 as a part of the financing of the acquisition made. For the bond loan there are no covenant measures on a running basis, but if new financing is obtained there are certain incurrence covenants to be met with regards to interest coverage ratio and net debt in relation to EBITDA. For more information see under bond terms at our web-site.

Credit risk
When entering new business relationships and extending the existing ones, a commercial assessment is performed. The risk that payment will not be received on accounts receivable represents a customer credit risk. The Group applies credit policies to manage this risk by limiting the outstanding credit extended and terms for various customers. Short credit terms contribute to reducing credit risk. However the concentrations towards individual customers on the other hand increases the credit risk to some extent, even though the Group has had long-term relationships with those customers that are stable and did not experience any previous credit losses. Please refer to Note 26 for more information regarding risk concentration of trade receivables and provisions for doubtful accounts.

Environmental impact

AR Packaging and its subsidiaries work actively to minimize the environmental impact of their activities and the resulting products. All Swedish manufacturers operate businesses that require a permit under the Swedish Environmental Code. Around 80% of sales are operations that require a permit. Operations involve the manufacturing of carton and plastic film packaging products designed for the food industry. The permits define volume levels/limits for the use of carton, plastic and the use of organic solvents, inks and varnish. These emissions affect the environment through evaporation, and to lesser extent through emissions to water and noise pollution.

Parent company

The Parent Company, ÅR Packaging Group AB, is a holding company which provides some administrative services like general management and financing of the Group. The net loss for the period January – December 2015 was -4.5 MEUR (- 1.3).


AR Packaging’s corporate governance is focused on how to govern, lead and control operations aimed at creating value for the company’s shareholders and other stakeholders. Corporate governance strives to create the conditions for active, responsible corporate bodies, clarify allocation of roles and responsibilities and ensure fair reporting and information. Both external and internal regulations provide the foundation for AR Packaging’s corporate governance.

External regulations:

  • Swedish Companies Act
  • Swedish Annual Accounts Act
  • Other relevant laws

Internal regulations:

  • Articles of Association
  • The Board’s formal procedures
  • The Board’s instructions for the CEO
  • Policies and guidelines


Remuneration to senior executives
Fees and other remuneration to Directors, including the Chairman, are decided at the AGM. In accordance with the resolution adopted at the AGM April 28, 2015; total fees paid amounted to a total of SEK 440 000 to two external members. Other board members receive no remuneration.

The remuneration of the CEO and other members of management are paid in accordance with guidelines for remuneration to senior executives set by the Board. Remuneration should reflect market norms and consist of fixed and variable remuneration, other benefits and pension. The variable remuneration shall not exceed the basic salary.

AR Packaging has not granted any loans, extended or issued any guarantees or provided any security in favour of the AR Packaging’s directors or officers. None of the directors or other senior executives have directly or indirectly through an affiliate, entered into transactions with AR Packaging.

Chief Executive Officer
The Chief Executive Officer of AR Packaging is Harald Schulz. The Board has adopted a charter for the CEO’s performance and role. The CEO is responsible for the ongoing management of the Group’s activities in accordance with the Board’s guidelines.

As per December 31, 2015, Harald Schulz holds 0 shares (26 435) and 91 200 warrants (0) in ÅR Packaging Group AB. No related party of the CEO has any significant shareholding in ÅR Packaging Group AB. Harald Schulz has no ownership in companies where the company has significant business relations.

Incentive program
The main owners of ÅR Packaging Group AB have during the third quarter acquired the shares previously held by management. A new long term incentive program has been established for key management and the Chairman of the Group. The purpose of the incentive program is to promote and maintain a strong commitment to ensure maximum long term value for shareholders. At the extraordinary general shareholders meeting of ÅR Packaging Group AB on September 3, 2015 a resolution was passed to issue warrants as a part of the incentive program for management and key personnel. This program consists of 500 000 warrants in total, all of which have been issued and subscribed for. The subscription price was 0.74 EUR with a strike price of 20.00 EUR for each warrant. The duration of the program is until December 2020. If all warrants are converted into shares it will mean a dilution of around 5% of the total number of shares. For more information about remuneration of employees, see Note 17.

Work of the Board

At the first regular board meeting after the AGM, the Board agrees upon a written charter describing the Board’s working practices. The outlined working practices indicate how work should be divided among the directors, and how often the Board should meet. Further, the working practices regulate the Board’s obligations, a charter to the CEO, the era of responsibilities between the Board and the CEO and more.

Tero Telaranta has replaced Panu Routila as member of the Board of ÅR Packaging Group AB, which was decided at an extraordinary shareholders’ meeting held on October 1, 2015. Sebastian Burmeister has also been appointed vice chairman of the Board.

The Board has during the fourth quarter of 2015 decided to establish two working committees within the Board; an audit committee and a remuneration and HR committee. The audit committee consists of Sebastian Burmeister (Chairman), Jan Olsson and Walter Ahlström. The remuneration and HR committee consists of Tero Telaranta (Chairman), Hans Petersson and Jan Olsson.

The Board meets according to a prearranged annual timetable and additional meetings are arranged if necessary. The Board had twelve minuted meetings in 2015.

Events after the closing date

AR Packaging has appointed a financial advisor to evaluate strategic alternatives, with a focus on a potential public listing on Nasdaq Stockholm. No decision has yet been made and the Group will inform the market if and when any such decisions are made.

The Group is currently looking into possible refinancing alternatives of its long term debt and discussions are ongoing with various banks.

AR Packaging and PT Maju Jaya Sarana Grafika, Jakarta Indonesia, have signed a strategic partnership agreement. The objective of this agreement is to establish a cooperation in the manufacture, procurement, sale and marketing in Indonesia of packaging made out of card board or other materials in combination with card board.

Outlook 2016

Looking ahead, 2016 will be a year of opportunities for AR Packaging. With the acquisition from MeadWestvaco Corporation (MWV) well integrated during 2015, we have gained a strengthened market position for the benefit of our customers which we will continue to build on. With our devoted and skilled employees, we strongly believe that 2016 will be another successful year for AR Packaging.

Proposed appropriation of profits, Parent Company (EUR)


Unrestricted equity in the Parent Company (EUR)
Share premium reserve 52 041 205
Retained earnings -3 317 547
Net loss for the year -4 476 814
Total unrestricted equity in the Parent Company 44 247 144
The Board and the CEO propose that:
Total unrestricted equity in the Parent Company be carried forward
44 247 144