Building business through packaging

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1 Buildig busiess through packagig ANNUAL REPORT 2017

2 Overview Fiacials at a Glace 4 Who We Are 6 What We Do 7 Where We Are 8 Products 12 Iovatio 14 Strategic Report Chairma s Statemet 20 Chief Executive s Review 24 Operatios Review 28 Busiess Model 32 Strategy 34 Risk Report 36 Fiace Review 44 Sustaiability 54 People 60 Goverace Board of Directors 68 Corporate Goverace Statemet 72 Directors Report 78 Audit Committee Report 80 Remueratio Report 84 Nomiatio Committee Report 101 Fiacial Statemets Statemet of Directors Resposibilities 104 Idepedet Auditors Report 105 Cosolidated Icome Statemet 112 Cosolidated Statemet of Comprehesive Icome 113 Cosolidated Balace Sheet 114 Compay Balace Sheet 115 Cosolidated Statemet of Chages i Equity 116 Compay Statemet of Chages i Equity 117 Cosolidated Statemet of Cash Flows 118 Compay Statemet of Cash Flows 119 Notes to the Cosolidated Fiacial Statemets 120 Shareholder Iformatio 176

3 The Smurfit Kappa Group strives to be a customer-orietated, market led compay where the satisfactio of customers, the persoal developmet of employees ad respect for local commuities ad the eviromet are see as beig iseparable from the aim of creatig value for the shareholders. AT A GLANCE Sustaiable Growth Geographic Diversity Corrugated packagig is a valuable merchadisig tool as well as the most sustaiable, cost effective, evirometally friedly ad versatile trasport ad merchadisig medium. We are committed to helpig our customers grow sales ad reduce costs. Our primary goal is to support our customers through the dedicatio ad creativity of our people. Our people are highly motivated, well traied ad have urivalled packagig expertise which provides the foudatio for our iovatio. Itegratio Iovatio Smurfit Kappa is a itegrated busiess. We produce 5.9 millio toes (over 10.8 billio square metres) of corrugated packagig usig the majority of the 6.0 millio toes of cotaierboard produced withi our ow mill system. Itegratio provides certaity of quality ad supply of paper for our operatios ad, i tur, our customers. We are a highly iovative, desig-led compay. With over 700 desigers across our busiess ad over 7,000 packagig cocepts, we use cuttig edge techology to provide iovative desigs i packagig ad display for our customers. 1

4 VISION Our visio is to be a globally admired busiess, dyamically deliverig secure ad superior returs for all stakeholders. 2 Smurfit Kappa Aual Report 2017

5 Overview Strategic Report Goverace Fiacials Overview Fiacials at a Glace 4 Who We Are 6 What We Do 7 Where We Are 8 Products 12 Iovatio 14 3

6 FINANCIALS AT A GLANCE Well positioed for future growth i 2018 ad beyod REVENUE ( millio) 8,562 OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS ( millio) PROFIT BEFORE INCOME TAX ( millio) ,562 8, EBITDA* ( millio) EBITDA MARGIN TO REVENUE* (%) NET DEBT* ( millio) 1, ,805 1,240 1, ,805 2, *These fiacial key performace idicators are ot defied uder Iteratioal Fiacial Reportig Stadards ( IFRS ). Defiitios ad a explaatio for the use of these Alterative Performace Measures ( APMs ) are icluded i the Fiace Review of this Aual Report. 4 Smurfit Kappa Aual Report 2017

7 Overview Strategic Report Goverace Fiacials NET DEBT TO EBITDA* (ratio) 2.3x FREE CASH FLOW* ( millio) RETURN ON CAPITAL EMPLOYED* (%) BASIC EARNINGS PER SHARE (cet) PRE-EXCEPTIONAL EARNINGS PER SHARE* (cet)

8 WHO WE ARE A leadig provider of paper-based packagig solutios Smurfit Kappa ( SKG ), a FTSE 100 compay, is oe of the leadig providers of paper-based packagig solutios i the world, with aroud 46,000 employees i approximately 370 productio sites across 35 coutries ad with reveue of 8.6 billio i We are located i 22 coutries i Europe ad 13 i the Americas. We are the oly large-scale pa-regioal player i Lati America. We maufacture, distribute ad sell cotaierboard, corrugated cotaiers ad other paper-based packagig products such as solidboard, graphicboard ad bag-i-box. I Europe, our busiess is highly itegrated ad icludes a system of mills ad plats that primarily produces a full lie of cotaierboard that is coverted ito corrugated cotaiers. Give this high degree of itegratio, particularly i terms of cotaierboard, the Group s ed customers are primarily i the corrugated packagig market, which uses the packagig for product protectio ad product merchadisig purposes. I Lati America, we are the largest pa-regioal producer of cotaierboard ad corrugated cotaiers. With our pro-active team, we reletlessly use our extesive experiece ad expertise, supported by our scale, to ope up opportuities for our customers. We collaborate with forward thikig customers by sharig superior product kowledge, market uderstadig ad isights i packagig treds to esure busiess success i their markets. We have a urivalled portfolio of paper-packagig solutios, which is costatly updated with our market-leadig iovatios. This is ehaced through the beefits of our itegratio, with optimal paper desig, logistics, timeliess of service ad our packagig plats sourcig most of their raw materials from our ow paper mills. Our products, which are 100% reewable ad produced sustaiably, improve the evirometal footprit of our customers. Etrepreeurship We value etrepreeurial spirit ad a decetralised maagemet style with staff fuctios challegig ad supportig the operatios, with experiece, expertise ad igeuity. People Our goal is to attract, egage, develop ad retai our 46,000 employees, offerig them the opportuity to achieve their full potetial i a safe ad ope work eviromet. Eviromet Our objective is to protect the eviromet ad progressively improve our performace o emissios to air ad discharges to water ad soil. 6 Smurfit Kappa Aual Report 2017

9 Overview Strategic Report Goverace Fiacials WHAT WE DO Paper We maufacture a wide rage of papers maily used for packagig purposes. Our total global paper ad board capacity is approximately 7 millio toes per aum. Packagig We desig, maufacture ad supply paper-based packagig to package, promote ad protect our customers products. We maufacture over 10.8 billio square metres of corrugated packagig ad have key supply positios i solidboard, foldig carto ad tube markets. Recyclig We provide recyclig solutios to esure our cliets corrugated packagig ad paper is recycled resposibly, efficietly ad reliably. We reprocess over 6 millio toes of recovered paper across the globe. Forestry We ow approximately 103,000 hectares of forest globally. Our forest estate maagemet is based o sustaiable developmet priciples, promotig ecoomic growth, a resposible use of atural resources ad fosterig social equity. Customers We provide customers with iovative customer-focused, sustaiable ad cost-efficiet packagig ad logistics solutios. Shareholder Returs Our visio is to be a globally recogised ad respected busiess deliverig secure ad superior returs for all stakeholders. Meet Stakeholder Commitmets We are determied to meet our commitmets ad will put i place the ecessary resources to support their achievemet. 7

10 WHERE WE ARE As a world leader i paper-based packagig, we have operatios i 35 coutries across the globe OUR BUSINESS IN NUMBERS TOTAL COUNTRIES OF OPERATION 35 Our two operatig segmets i Europe ad the Americas cosist of approximately 370 operatios across 35 coutries. The Europe segmet, which is highly itegrated, icludes a system of mills ad plats that primarily produces a full lie of cotaierboard, that is coverted ito corrugated cotaiers, i additio to other types of paper, such as solidboard ad sack kraft paper, ad paper-based packagig, such as solidboard packagig ad foldig cartos. This segmet icludes the Group s bag-i-box operatios. The Americas segmet comprises all the Group s forestry, paper, corrugated, paper sack ad foldig carto activities i a umber of Lati America coutries ad i the Uited States. We operate i 22 coutries i Europe ad are the Europea leader i corrugated packagig ad cotaierboard with key positios i several other packagig ad paper market segmets. We also have three bag-i-box facilities, located i Argetia, Caada ad Mexico, which are maaged as part of our Europea bag-i-box operatios. The Group operates i 13 coutries i the Americas ad is the largest pa-regioal producer of cotaierboard ad corrugated cotaiers i Lati America. I terms of world market positios, the Group is oe of the largest producers of corrugated packagig. The Group s large maufacturig footprit provides it with a competitive advatage because the corrugated packagig market is a localised market ad corrugated box plats eed to be close to customers (geerally 300 kilometres or less) due to the relatively high cost of trasportig the product. Approximately 60% of the Group s corrugated customers are i the fast movig cosumer goods ( FMCG ) sector, comprisig food, beverage ad household cosumables, the remaider beig split across a wide rage of differet idustries. I 2017, the Group s Europe ad Americas segmets accouted for approximately 75% ad 25% of reveue respectively. MILLS 36 CONVERTING PLANTS 248 OUR GLOBAL SALES VOLUMES EUROPE Volumes (Millio Toes) THE AMERICAS Volumes (Millio Toes) OTHER PRODUCTION FACILITIES 33 FIBRE 48 FORESTRY PLANTATIONS (HECTARES) 103,000 Kraftlier 1.6 Recycled Cotaierboard 3.1 Other Paper & Board 0.8 Corrugated 4.5 Solidboard Packagig 0.1 Cotaierboard 1.3 Other Paper & Board 0.3 Corrugated 1.4 Other Paper-based Packagig Smurfit Kappa Aual Report 2017

11 Overview Strategic Report Goverace Fiacials GROUP OPERATIONS Virgi Mills Recycled Mills Corrugated Cartos Paper Sacks Bag-i-box Recovered Fibre Forestry 9

12 AN INTEGRATED MODEL PRODUCTS Our world-class, award wiig, paper-based packagig desigers are settig the global bechmark for creativity ad iovatio. They work closely with our customers, cotiuously strivig to develop ew, iovative ad sustaiable products to help our customers meet ad exceed their evolvig requiremets. 10 Smurfit Kappa Aual Report 2017

13 Overview Strategic Report Goverace Fiacials 11

14 PRODUCTS Poit of Sale Displays Bull Dog Our poit of sale displays help brads to attract shopper attetio ad alert them to ew products or promotios which drives icreased sales. E-commerce Packagig La Poste-Colissimo Our e-commerce packagig always provides the highest levels of protectio ad delivers the ultimate uboxig experiece. Retail Ready Packagig Huggies The right packagig makes products highly visible ad easier to avigate, reiforcig the brad ad drivig sales. Bag-i-box Packagig Wyld Wood The shelf life of liquid, or semi-liquid food products, ca be exteded with oe of our iovative bag-i-box solutios. 12 Smurfit Kappa Aual Report 2017

15 Overview Strategic Report Goverace Fiacials Cosumer Packagig Deasto Our holistic approach to cosumer packagig desig cosiders the vital role it plays i attractig ad commuicatig a brad s value to shoppers. Stadard Packagig Boi We supply cost effective ad risk-free solutios by applyig our uique performace packagig techology. Food Packagig Riviere Our rage of paper-based food cotact packagig esures that goods remai fresh ad protected whilst meetig all the relevat legislative requiremets for food hygiee. Idustrial Packagig Budweg We have aalysed over 45,000 supply chais globally to esure products arrive i optimal coditio, o matter how demadig the requiremets. 13

16 INNOVATION Our approach to iovatio demostrates how we help our customers save more, sell more, optimise their packagig solutios ad improve cosumer experiece 14 Smurfit Kappa Aual Report 2017

17 Overview Strategic Report Goverace Fiacials HOW WE INNOVATE Our iovatio process starts by uderstadig our customers markets Kowledge, experiece ad passio Iovatio challeges the status quo ad is a fudametal part of our strategy. Our approach to iovatio is market drive ad focused o solvig our customers challeges. Whether through product developmet, process improvemet or optimisig supply-chai efficiecy, our iovatio process starts by uderstadig our customers markets. Our primary goal is to support our customers through the dedicatio ad creativity of our people. Our people are highly motivated, well traied ad have urivalled packagig expertise which provides the foudatio for our iovatio. The sciece of iovatio A customer focus At Smurfit Kappa, iovatio is data drive. We therefore have a supportig etwork of laboratories, facilities ad applicatios to help us create fit-for-purpose, costeffective ad sustaiable packagig solutios. Our uique services, such as SupplySmart, ShelfSmart ad esmart described below, are based o scietific kowledge of how packagig behaves i the supply chai, so we ca optimise the performace of the packagig to deliver tagible busiess beefits We look past our products ad go oe step further to provide our customers with the best data ad aalysis to make better busiess decisios with miimal risk. 15

18 INNOVATION SMART APPLICATIONS AND MACHINE SYSTEMS EXPERTISE HELP OUR CUSTOMERS WIN IN THEIR MARKETPLACE SupplySmart Drivig supply chai performace through optimised packagig solutios Aalysig supply chais to give credible cost take-out optios Esurig that your packagig is fit for purpose, ot just lower cost Scietifically backed approach 60,000 supply chais aalysed Packagig ad automatio, we uderstad both worlds ShelfSmart Icreasig the visibility ad o shelf presece of our customers product Icreased visibility improves the probability of the product beig purchased Data from over 50,000 shoppers aalysed Scietifically backed approach Early adopters seeig their sales icrease by over 10% esmart Drivig ecommerce growth through packagig Focusig o 12 key areas, icludig packagig processes, supply chai efficiecy ad cosumer experiece Optimisig the packagig portfolio Over 500 ecommerce packagig desigs created 4,000 ecommerce supply chais aalysed Machie Systems Buildig machie systems sice ,200 machies istalled Eablig customers to icrease productivity ad reduce labour costs Eablig customers to optimise their packagig desig for o shelf presece Supported by idustry leadig depth of data 16 Smurfit Kappa Aual Report 2017

19 Overview Strategic Report Goverace Fiacials GLOBAL NETWORK OF EXPERIENCE CENTRES Helpig chage how corrugated packagig is perceived Our worldwide Experiece Cetres are a way for us to share kowledge with customers ad help them gai real busiess value from hads-o experiece. Whe people discuss the power of experiece i packagig, it s usually i relatio to the ed cosumer. Whether it s the way a product is preseted o a shelf, or how a package opes whe a olie delivery arrives, retailers ad marketers focus o impressig cosumers to create a momet of truth drivig a purchase or ispirig future brad loyalty. Of course these are vitally importat momets i the packagig lifecycle but there are coutless others occurrig throughout the supply chai, such as packig, palletisatio ad distributio to ame a few. Ad each of these details ca mea the differece betwee a product arrivig o time ad i perfect coditio, or turig up late ad damaged. We created the Smurfit Kappa Experiece Cetres to give our customers hads-o experiece of the impact of packagig at every step of the supply chai, right through to the shopper ad cosumer. We believe it s icredibly powerful to be able to see the differet stages at work i the packagig process, to problem solve i real-time ad be ispired by what others have doe. Durig the year, the Group cotiued to expad its etwork of Global Experiece Cetres opeig our first cetres i the Americas i Dallas, Texas, ad i Cali, Colombia. The expasio of our Global Experiece Cetre etwork cotiues to drive real value for customers ad fudametally chages how corrugated packagig is see withi our customers world. Curretly, the Group has 23 Experiece Cetres ad plas to ope more across Europe ad the Americas i At these cetres, customers come to explore how packagig ca meet their busiess eeds, lear from leadig behavioural isights, aalyse supply chai treds ad observe our advaced packagig ad desig tools. 17

20 AN INTEGRATED MODEL CORRUGATED PLANTS Our corrugated plats are cotiuously deliverig high quality, iovative, sustaiable ad biodegradable packagig to our customers. Smurfit Kappa is oe of the largest producers of corrugated packagig i the world. Pictured is the corrugator at our Smurfit Kappa March facility i the UK. 18 Smurfit Kappa Aual Report 2017

21 Overview Strategic Report Goverace Fiacials Strategic Report Chairma s Statemet 20 Chief Executive s Review 24 Operatios Review 28 Busiess Model 32 Strategy 34 Risk Report 36 Fiace Review 44 Sustaiability 54 People 60 19

22 CHAIRMAN S STATEMENT Year i Review Buildig o the mometum of recet years, 2017 was aother strog year for the Smurfit Kappa Group. We reported full year EBITDA of 1,240 millio, which was a ew record for the Group ad ROCE at 15% was i lie with the Group target. This result was delivered agaist a backdrop of a icrease i excess of 120 millio i recovered fibre costs, geerally higher raw material costs ad adverse currecy movemets. This improved result for the year reflects the beefits of our cotiued focus o offerig our customers cost effective ad iovative solutios, our capital expediture programme, iput cost recovery through paper ad box price icreases ad geerally strog markets. We also cotiue to beefit from the Group s geographic reach ad itegrated model, which support our customers by esurig security of supply i very tight markets. O behalf of the Board, I would like to ackowledge the huge commitmet show by our employees i the delivery of a record result for the Group. This result is testimoy to the professioalism ad performace of the whole team. Strategy ad Medium Term Outlook A key strategic objective for the Group is to deliver a icreasigly strog retur o capital. Our strategy to meet this objective is set out o pages 34 to 35. A core teet of this strategy is to develop log-term customer relatioships by providig our customers with differetiated packagig solutios that ehace the customers prospects of success i their ed markets. The Medium Term Outlook ad ew mediumterm target metrics were preseted to the market with the year-ed results ad are set out i the CEO Review o pages 24 to 26. The Medium Term Outlook presetatio is available o the Group s website. Goverace ad Board The Board ad maagemet of SKG are committed to support the highest stadards of corporate goverace ad ethical busiess coduct. We believe that corporate goverace is ot just a matter for the Board but that a culture of high stadards of goverace must be promoted from the top ad fostered throughout the whole orgaisatio. We believe that effective goverace is about esurig that: 1) we have the right strategy to deliver for our shareholders ad other stakeholders; 2) the executive team is leadig ad maagig effectively to reach our strategic goals ad i doig so, they are held accoutable ad at the same time are fairly remuerated; ad 3) the risks to the Group are maaged ad mitigated ad appropriate cotrols are i place at all levels of the orgaisatio. The key priciples ad practices desiged to achieve these stadards are set out i the Corporate Goverace Statemet. I would like to thak all our Directors for their cotiued support ad cotributio to the developmet ad effectiveess of the Board ad its various Committees durig the year. Directors I March 2018, Ms Rosemary Thore aouced that she would ot be seekig re-electio at the forthcomig AGM. Ms Thore has bee a Director ad Chairma of the Audit Committee sice Ms Thore made a substatial cotributio i both capacities durig a period of sigificat growth ad developmet for the Group. The Board would like to exted our sicere appreciatio to Rosemary ad to wish her well for the future. We were pleased to aouce that Ms Carol Fairweather was appoited to the Board i Jauary We look forward to drawig o her expertise i the global retail sector ad her experiece as Chief Fiacial Officer of a FTSE 100 compay. 20 Smurfit Kappa Aual Report 2017

23 Overview Strategic Report Goverace Fiacials Ms Fairweather brigs a extesive rage of skills ad experiece to the Board ad will be a valuable cotributor to the future success of SKG. It is plaed that Carol will become Chairma of the Audit Committee followig the forthcomig AGM. Operatioal Visits As part of a ogoig programme, the Board travelled to Austria durig the year where we visited our Nettigsdorfer mill ad our Iterwell corrugated operatio, toured the plats ad met the local maagemet teams durig the visit. The Board was also pleased to meet ad review our curret performace ad medium-term strategy with the seior maagemet teams from Europe ad the Americas. These visits cotiue to be extremely valuable i givig the members of the Board a deeper first-had uderstadig of the stregth ad extet of our local busiesses, their strategic positioig ad the eterprise of our teams at all levels throughout the orgaisatio. Durig 2017, I made additioal visits to various facilities i Europe ad i the Americas, coverig mills, corrugated plats ad other operatios. As always, I came away extremely impressed by the competece ad commitmet of our people right across our operatios. Differetiatio The Group has a busiess profile that is uique ad sets us apart from our peers ad with operatios i Europe, North America ad Lati America, our geographic footprit ad diversity are key stregths. We cotiue to be the best-positioed supplier of differetiated paper-based packagig solutios i our chose markets, providig customers with iovative, cosumer-focused, sustaiable ad cost-efficiet packagig ad logistics solutios that i tur helps to drive the sale of their products. The Group differetiates itself i the market through a cotiuous focus o providig better isights ito customer requiremets, through superior service, quality ad delivery ad through our strog customer relatioships. Our proactive team draws upo our extesive experiece ad expertise ad, together with the beefits ad capability provided by the scale of our covertig operatios, all supported by our self-sufficiecy i paper supply, to ope up opportuities for our customers. We collaborate with forward-thikig customers by sharig our superior product kowledge, our market uderstadig ad our isights ito packagig treds to help our customers achieve busiess success i their markets. We have a urivalled portfolio of paperpackagig solutios, which we costatly update with our market-leadig iovatios. The beefits of this are ehaced by our strog vertical itegratio which icludes optimal paper desig, quality, logistics, timeliess of service ad the fact that our packagig plats source most of their paper from our ow mills. As we start 2018, the beefits of paper-based packagig are beig icreasigly recogised as the most sustaiable, biodegradable solutio for both our customers ad their ed customers. SKG cotiues to ivest i ad develop these iovative ad sustaiable packagig applicatios which will further broade our product portfolio. These ivestmets will cotiue to esure security of supply for our customers ad help them address growig treds such as e-commerce ad icreasig supply chai complexity. The Group is clearly established as a key parter to may of our customers, workig i their idustries ad i may cases withi their operatios to defie ad meet their icreasigly complex packagig eeds. This is evideced by the sizeable market share that SKG has with the major iteratioal braded compaies as well as with local customers i the 35 coutries i which we operate. Customer parterig is a area o which we cotiue to place sigificat emphasis ad which will see importat ogoig developmets over the ext umber of years. Sustaiability Evirometal resposibility, corporate social resposibility (icludig our most importat resposibility safety) ad circular busiess models that use resources efficietly are all becomig ever more essetial to global busiess operatios. All three of these are at the heart of our sustaiable busiess model ad Board ad maagemet have adopted them as core values at SKG. We welcome ad embrace the challege to make our products, operatios, raw materials ad supply chai more evirometally sustaiable, more circular ad more socially robust year-o-year ad, i doig so, to make a cotributio to tacklig climate chage. As well as the challeges ad busiess opportuities it provides, we see sustaiability as a key platform for differetiatio i a competitive market ad I am particularly pleased to ackowledge the third-party recogitio of our work i this area, especially the awards we have received from key customers ad idustry groups. This is covered i greater detail i our teth aual Sustaiable Developmet Report, for a summary of which see pages 54 to 58 of this Aual Report. The full report is available o the Sustaiability page of the Group s website. 21

24 Acquisitios The Group completed three acquisitios i 2017, primarily i Russia ad Greece, for a total cosideratio of approximately 55 millio. We acquired a itegrated corrugated plat i Moscow makig us the largest iteratioal corrugated packagig producer i Russia. We also etered the Greek market for the first time by purchasig a high-ed display ad corrugated busiess i Thessaloiki which provides us with a platform for future expasio i the regio. The Group cotiues to evaluate potetial acquisitios capable of deliverig log-term value ad is well positioed to pursue ay opportuities that arise. Through suitable disciplied acquisitios ad orgaic growth, supported by our ogoig capital ivestmet programme, we remai committed to developig ad stregtheig our global reach ad further improvig our packagig offerig to multiatioal customers. Capital Structure The Group has a stable fiacig base with a log-term ad well-spread maturity profile. The Group s credit ratig of Ba1/ BB+ cotributes to a lower cost of capital ad access to the widest rage of fiacig optios available. These positios were achieved as a result of the Group s cotiuig cosistet ability to geerate strog free cash flows together with active maagemet of its debt portfolio. The stregth of the Group s capital base together with cosistet delivery of strog free cash flows provides a solid ad cost effective support to the Group s growth ageda over the medium-term. Divideds Reflectig the Board s cotiued cofidece i the stregth ad capabilities of the busiess, we are proposig a 12% icrease i the fial divided from 57.6 cet to 64.5 cet per share. Combied with a iterim divided of 23.1 cet per share paid i October 2017, this will brig the total divided to 87.6 cet, a 10% icrease year-o-year. This is the sixth cosecutive year of sigificat divided icrease, reflectig that fact that our divided is a core compoet of our commitmet to drivig value for shareholders. Outlook While we cotiue to experiece currecy volatility, wage iflatio as well as higher eergy ad other iput costs, 2018 has see the cotiuatio of good demad i Europe, further iput cost recovery ad sigs of improvemet i our Americas busiess. The Group has excitig plas i place to cotiue the developmet of our busiess, ehace our idustry leadership ito the future ad, i the process, deliver ogoig strog returs for our shareholders. Liam O Mahoy Chairma 22 Smurfit Kappa Aual Report 2017

25 Overview Strategic Report Goverace Fiacials 23

26 CHIEF EXECUTIVE S REVIEW 24 Smurfit Kappa Aual Report Overview I am pleased to report our full-year EBITDA was 1,240 millio, a record for the Group, with a EBITDA margi of 14.5%. I Europe, EBITDA icreased by 3% to 955 millio. This was achieved despite icreased raw material iput costs ad adverse currecy impacts. Average recovered fibre iput prices were 14% higher for the full year. The beefits of prior years capital ivestmets, iput cost recovery together with strog volume growth were fudametal i achievig this result. EBITDA margi for the year was 14.9% agaist 15.1% i Reported box volume growth was over 3% for the full year. Adjustig for acquisitios ad workig days, the year-o-year growth i total corrugated volume was over 3% for the year. Iput cost recovery i corrugated pricig cotiued to progress throughout the year with further progress expected i The stregth of the Group s Europea itegrated model has delivered security of supply to all our customers i what has bee a extremely tight market. This security of supply esures our customers have a sustaiable, biodegradable packagig solutio that meets their supply chai requiremets, available at all times ad from certified sustaiable sources. I recycled cotaierboard, price icreases of over 100 per toe achieved earlier i 2017 were maitaied, buoyed by strog demad. Due to icreased demad, risig iput costs i raw materials, eergy, chemicals ad labour ad a volatile outlook for recovered fibre costs, the Group aouced a further price icrease of 60 per toe i December. Agaist a backdrop of weakeig recovered fibre prices, a price icrease of 30 per toe was implemeted i February Kraftlier has remaied i tight supply through 2017 with the Group implemetig price icreases totallig 150 per toe durig the year. As i the case of recycled cotaierboard, with demad for kraftlier cotaierboard remaiig robust, the Group aouced a further price icrease of 60 per toe i December, per toe of which was implemeted i February Our itegrated positio remais a key differetiator i meetig our customers packagig requiremets at a time of scarce availability, especially i kraftlier. I 2017, the Group completed the acquisitios of Soyuz, ear Moscow i Russia, ad Chatziioaou, ear Thessaloiki i Greece. The Group also acquired the assets of Litbag, a Portuguese producer of bags for bag-i-box. Recovered fibre costs were also higher year-o-year i the Americas. The Group cotiues to aticipate a log-term upward tred i pricig for this raw material. I the Americas, EBITDA at 311 millio was dow 8% o The EBITDA margi i the Americas for the year reduced to 14.4% from 16.8% i Corrugated volumes icreased by 2% year-o-year excludig Veezuela. The results were impacted by a umber of factors icludig: icreased export prices for cotaierboard from the Uited States ito Lati America, where our system is short of kraftlier; a icrease of 26% i recovered fibre costs; adverse currecy movemets; adverse atural evets; ad some coutries that experieced a uexpected slowdow i the fourth quarter which ow shows sigs of reversig. The Group cotiues to recover these iput cost pressures as we move ito The regio will also beefit i 2018 from the ivestmets made i our mill i Los Reyes i Mexico as well as the expasio of the Papelsa mill i Colombia. At full ru rate, these two projects will itegrate a additioal 140,000 toes of cotaierboard ito our corrugated system.

27 Overview Strategic Report Goverace Fiacials Capital Structure Net debt was 2,805 millio at the ed of December, resultig i a et debt to EBITDA ratio of 2.3x compared to 2.4x at the ed of The Group s balace sheet cotiues to provide cosiderable fiacial strategic flexibility, subject to the stated leverage rage of 2.0x to 3.0x through the cycle ad SKG s Ba1/BB+ credit ratig. At 31 December 2017, the Group s average iterest rate was 4.1% compared to 4.3% at 31 December The Group s diversified fudig base ad log dated maturity profile of 3.4 years provide a stable fudig outlook. As a key focus we will cotiue to balace the maiteace of a strog capital structure with our growth objectives through 2018 ad beyod. Medium Term Outlook As part of a groud up strategic review over the last year with each of our approximately 370 operatig uits across the globe, we have developed a extesive market/ customer drive pla for the ext four to five years to support our customer offerig. We ited to: Use our iovative market offerig ad leadig sustaiability credetials to ehace box demad Deliver o multiple sources of earigs growth Deploy capital to deliver icreased log-term returs either through capital expediture or M&A The pla assumes demad growth ot solely reliat o market/gdp but also as a result of SKG s iovatio led growth as we develop customer relatioships both existig ad prospective usig our uique busiess applicatios coupled with our value sellig process to grow profitably i the marketplace. Agaist this backdrop of demad growth, iflatioary cost pressures across our maufacturig cost bases, we pla to ivest across three mai areas: Havig idetified the growth areas of our busiess, ivestig to achieve that growth ad associated retur Maitaiig the paper balace ad itegratio of our system to esure the cotiuous supply of our iovative paper products to our packagig solutios system ad to cotiue to esure certaity of supply to our ed customers Cost reductio projects to esure that the returs ad value created ad maximised through maagemet of both the fixed ad variable cost elemets of our busiess are maitaied This ivestmet pla is both ambitious ad flexible. However, should a M&A opportuity preset itself which egates the requiremet for iteral ivestmet, we have the ability to flex our plas accordigly. Today we see a opportuity to ehace returs by icreasig our sped above maiteace capital expediture by approximately 1.6 billio over the ext four years. This will result i a total capital expediture outlay of approximately 2.9 billio over the period. A copy of the Medium Term Outlook presetatio is available o the Group s website. Medium Target Metrics Upo completio ad the full ramp up of our ivestmet plas, we are targetig a ew ROCE target through the cycle of 17%. Our credit ratig has bee the solid uderpi to all our capital allocatio decisios, desiged to give certaity to our stakeholders i relatio to the stregth of our balace sheet. We are targetig a ew reduced et debt to EBITDA rage of 1.75 times to 2.5 times through the cycle. Commercial Offerig ad Iovatio SKG has a urivalled market offerig which helps our customers succeed i their chose markets. This is uderpied by our uique differetiatio ad market uderstadig as well as our market-leadig product iovatios, all of which are supported by our ogoig capital expediture programmes ad our leadig sustaiable busiess practices across all operatios. The scale of our operatios, together with our extesive experiece ad expertise, eable us to ope up opportuities for our customers. We work together with our customers as much as possible sharig product kowledge ad market uderstadig ad isights ito packagig treds to help brig them tagible success i their markets. We have a urivalled portfolio of paperpackagig solutios, which we are costatly updatig with market-leadig iovatios. Durig the year the Group cotiued to expad its etwork of global experiece cetres with the opeig i Jue of our first cetre i the Americas i Dallas, Texas. I October, we opeed our first Experiece Cetre i South America i Cali, Colombia. The expasio of our global experiece cetre etwork cotiues to drive real value for customers ad fudametally chages how corrugated packagig is see withi our customers world. The Group opeed a Experiece Cetre i Mexico City i the first quarter of I 2017, the Group added to the existig portfolio of idustry leadig busiess applicatios that help our customers wi i their marketplace. Our uique ecommerce packagig service, esmart, lauched i October 2017, allows our experts to scrutiise ad optimise the performace of our customers packagig across 12 differet areas, from optimisig their plaig ad icreasig supply chai efficiecy to deliverig a positive customer experiece. SupplySmart, lauched i September 2017, is a combiatio of uique tools, data ad expertise, eablig our customers to optimise the role of packagig 25

28 CHIEF EXECUTIVE S REVIEW (CONTINUED) across their supply chais, givig them reassurace that they ca make fully risk assessed decisios that will deliver measurable cost savigs. These services complemet ShelfSmart, lauched i 2016, a applicatio that allows our brad owers to use the Group s techology to evaluate, measure ad validate their o-shelf shopper marketig strategies i test coditios, rapidly deliverig optimised Shelf-Ready Packagig that disrupts ad egages shoppers. The Group was recogised with 43 awards for desig, prit ad sustaiability across our global operatios i 2017, with 17 awards i the fourth quarter aloe. These awards were spread across Colombia, the Czech Republic, Frace, Germay, Irelad, the Netherlads, Polad, Russia, Switzerlad ad the Uited Kigdom. I would like to thak all our customers worldwide for the cotiuig cofidece ad trust they place i us ad we look forward to cotiuig to work with them to ehace their success i their marketplaces. Corporate Social Resposibility I our teth aual Sustaiable Developmet Report, released i May 2017, we highlighted the Group s cotiued progress ad commitmet to social ad evirometal best practices. As part of the Group s commitmet to the local commuities i which we have the privilege to operate, our local operatios made, i cojuctio with our related foudatios, close to 5 millio of social ivestmets focused o the educatio of disadvataged childre ad youg people. SKG is a leader i the area of corporate social resposibility, which has bee recogised by a umber of third party orgaisatios, ad we are committed to supportig the commuities i which we operate. We recorded improvemets i all our regios (Group, Europe ad the Americas), with egagemet levels up i all the differet drivers of our egagemet model. At the same time, further areas of improvemet arose ad specific areas of itervetio were idetified, recofirmig that egagemet is a cotiuous jourey. The safety of every member of the workforce is a key cosideratio for the Group. I 2017, the Health ad Safety performaces of the Group improved sigificatly, reachig the lowest ever level of Lost Time Accidet frequecy i our recet history. This achievemet opes up the opportuity to move to a more sophisticated Health ad Safety metric i 2018, the Total Recordable Ijury Rate ( TRIR ) frequecy. While the Health ad Safety performaces of the Group improved sigificatly i 2017, tragically, two employees sustaied fatal ijuries i separate accidets durig the year, details of which are set out i the Sustaiability review. I would like to ackowledge the effort ad commitmet of our approximately 46,000 employees i the 35 coutries i which we operate for their sigificat cotributio to the results achieved i We look forward to the opportuities of 2018, to deliverig o our medium-term targets ad to makig SKG the safest ad most customer-focused compay i which to work i our idustry. Toy Smurfit Group Chief Executive Officer Our People Our key competitive advatage ad poit of differetiatio is our people, both as idividuals ad as members of cohesive teams. Our cotiued focus is o recruitig, developig, motivatig ad retaiig skilled employees dedicated to workig as a team to support ad service our diverse customer base. I our People Visio, we strive to be a great place to work for all our employees ad a compay of choice for targeted talet. I 2017, our secod global employee egagemet survey, MyVoice, was held, buildig o the first survey that took place i With 84% of our employees takig the time to participate i the survey, we have the assurace that our employees have cofidece i MyVoice as a effective opportuity to have their voice heard o their work experiece i Smurfit Kappa. 26 Smurfit Kappa Aual Report 2017

29 Overview Strategic Report Goverace Fiacials 27

30 OPERATIONS REVIEW Reveue for 2017 was 8,562 millio 430m Amout ivested i our busiess i m Average capital sped over the last three years I 2017, we cotiued to realise the beefits of our capital expediture programme, which icluded a umber of high retur ivestmets i our mill systems alog with the Quick Wi programme. Reveue for 2017 was 8,562 millio compared to 8,159 millio i The year-o-year icrease of 403 millio equated to 5% ad reflected higher reported reveue i both Europe ad i the Americas. Net egative currecy movemets, primarily i the Americas, were partly offset by a positive hyperiflatioary adjustmet ad the cotributio from acquisitios. The resultig uderlyig (1) move was a icrease of 515 millio or over 6%, with relatively stroger growth i the Americas. EBITDA for 2017 was 1,240 millio compared to 1,236 millio i 2016, with earigs growth i Europe ad lower Group Cetre costs, partly offset by lower earigs i the Americas. The uderlyig move i EBITDA was a icrease of 41 millio, equatig to 3%, with higher earigs i both Europe ad the Americas. 8,562m Reveue ,240m EBITDA 2017 (1) Uderlyig i relatio to fiacial measures throughout this Aual Report excludes acquisitios, disposals, currecy ad hyperiflatio movemets, where applicable. 28 Smurfit Kappa Aual Report 2017

31 Overview Strategic Report Goverace Fiacials Europe The Europe segmet is the larger of the Group s two segmets, accoutig for 75% of its reveue ad 77% of its EBITDA i It comprises primarily our itegrated cotaierboard mills ad corrugated operatios as well as the bag-i-box ad solidboard busiesses. Followig the acquisitio i late 2017 of the Chatziioaou corrugated plat i Greece, the Group has facilities i 22 coutries i Europe. These comprise 21 mills (of which 15 produce cotaierboard), 190 covertig plats (the majority of which produce corrugated packagig products) ad 27 other productio facilities carryig out related activities. The mills are supported by 15 recovered fibre collectio facilities ad two wood procuremet operatios. The Group s Europea cotaierboard mill system cosists of three kraftlier mills i Swede, Frace ad Austria, which betwee them produced approximately 1.6 millio toes of brow ad white kraftlier i 2017 ad 12 recycled cotaierboard mills which produced approximately 3.1 millio toes of paper. We also have two virgi fibre based mills i Spai, which produced approximately 150,000 toes of sack kraft paper ad 80,000 of machie glazed ( MG ) paper i Our four other recycled mills i Germay together produced approximately 490,000 toes of solidboard ad boxboard ad 80,000 toes of graphicboard i O the coversio side, the operatios comprise 53 sheet plats ad 106 corrugated plats which produced approximately 8.5 billio square metres (4.5 millio toes) i I additio, we have 31 plats which produce high-ed differetiated packagig products such as litho-lamiated corrugated products, display uits ad solidboardbased packagig, all of which exted the rage of the packagig solutios i our portfolio. Our covertig operatios are supported by a umber of other small plats producig pre-prit packagig, fulfilmet activities ad other packagig related products. Our Europea-maaged bag-i-box operatios comprise eight plats located i Europe, Argetia, Caada ad Mexico. Reveue for the Europe segmet was 6,404 millio i 2017 compared to 6,146 millio i 2016, with uderlyig growth of 275 millio ad the cotributio from acquisitios, partly offset by egative currecy movemets, pricipally i respect of Sterlig. As reported, EBITDA icreased by 27 millio or 3% to 955 millio from 928 millio i 2016, with a uderlyig icrease of 31 millio. The year-o-year icrease i our Europea EBITDA, which was achieved despite icreased raw material iput costs ad adverse currecy movemets, reflected the beefits of our capital expediture programme, ogoig iput cost recovery ad strog growth i most markets. With a relatively larger icrease i reveue, however, the EBITDA margi was 14.9% compared to 15.1% i I 2017, the Group cotiued to experiece sigificat cost headwids i Europe i the form of higher recovered fibre costs. Average iput prices were up by 14% year-o-year, represetig a headwid agaist 2016 of approximately 80 millio for our paper mills. The Group cotiues to aticipate a log-term upward tred i recovered fibre pricig, which should provide positive support to the cotaierboard price ad, i tur, to the packagig busiess i the medium-term. I recycled cotaierboard, the price icreases of over 100 per toe achieved earlier i the year were maitaied, buoyed by strog demad. Kraftlier has remaied i tight supply throughout 2017 with the Group implemetig price icreases totallig 150 per toe durig the year. Total corrugated volumes for the year were up almost 3% o 2016, with boxes up over 3%. The Group cotiued its recovery of raw material cost rises through corrugated price icreases i 2017 ad further cost recovery is expected as we progress through For the full year, the Group s average corrugated pricig i Europe was almost 1% higher tha i The Americas The Group s operatios i the Americas cosist of 15 paper mills i six coutries (Argetia, Brazil, Colombia, Mexico, the Uited States ad Veezuela) producig cotaierboard, boxboard ad sack paper with a combied productio of 1.6 millio toes i The mills are supported by 31 recovered fibre facilities i eight coutries ad forestry operatios i Colombia ad Veezuela. We have 45 corrugated plats i 10 coutries with a 2017 productio of approximately 2.3 billio square metres (1.4 millio toes). We also have 13 other covertig plats i seve coutries producig maily paper sacks or foldig cartos, a preprit facility ad three foam packagig plats i Mexico ad two flexible packagig plats, oe i the Uited States ad oe i El Salvador. 29

32 OPERATIONS REVIEW (CONTINUED) The Group s Americas busiess cotiues to provide geographic diversificatio ad growth opportuities. Reveue of 2,158 millio i 2017 was 145 millio higher tha i 2016, with uderlyig growth more tha offsettig et egative currecy ad hyperiflatioary movemets. Drive partly by egative currecy movemets, EBITDA for the Americas fell by 28 millio to 311 millio i 2017 from 339 millio i The uderlyig year-o-year move i EBITDA was a icrease of 5 millio. The reported EBITDA of 311 millio ad a 14.4% margi came i below our expectatios. The result was impacted by a umber of factors icludig icreased export prices for cotaierboard from the Uited States ito Lati America, where our system is short of kraftlier, icreased recovered fibre costs, egative currecy movemets ad adverse atural evets. Recovered fibre costs i the Americas were 26% higher i 2017 tha i 2016, represetig a sigificat headwid of approximately 40 millio for the operatios. I additio, some coutries experieced a uexpected slowdow i the fourth quarter but this is ow showig sigs of reversig. Excludig Veezuela, where shipmets were 35% lower tha i 2016, reported corrugated volumes i the Americas were 2% higher overall i I Colombia, corrugated volumes were up 2% for the year as a whole but with a cotractio i demad sice September as a combiatio of higher iterest rates ad local VAT rates impacted local cosumptio. This is expected to ormalise i The Group s operatios are also set to beefit from cotiued iput cost recovery ad the ramp up of the Papelsa mill expasio which started up i late At its full ru-rate, the mill will deliver a additioal 40,000 toes of recycled cotaierboard for itegratio. I Mexico, corrugated volumes were up 3% for the year as a whole. Although volumes i the fourth quarter were flat year-o-year, margis improved compared to the third quarter as the Group prioritised iput cost recovery over volume. We expect both margis to improve ad volumes to recover as we progress through 2018 with the regio also beefittig from the ramp-up of the ew paper machie (PM-6) at the Los Reyes mill which started i mid I the Uited States, our margis ad profitability improved year-o-year as price icreases progressed ad our Texas mill cotiued to perform well. Corrugated volumes were lower tha i 2016, however, due to some ratioalisatio projects i our operatios i Califoria, alog with the impact of adverse atural evets durig the secod half of the year. Our Argetiea busiess had a difficult year due to macroecoomic reforms which ow seem to be showig sigs of progress as we eter I Brazil, the ecoomy cotiues to show sigs of recovery. Corrugated volumes were up 10% i 2017 ad, with relatively stable raw material costs ad ogoig iput cost recovery, the Group s operatios i Brazil reported a strog set of results, which were up sigificatly o The Group s operatios i Veezuela cotiue to perform i extremely difficult circumstaces. The macro situatio remais ucertai ad we cotiue to moitor evets as they ufold. Although corrugated shipmets were sigificatly lower i 2017, we cotiue to export cotaierboard to other Group operatios i the regio. The busiess represeted 2% of Group EBITDA i 2017 compared to 3% i As a result of higher iflatio i 2017, et assets i Veezuela icreased to 128 millio as at 31 December 2017 (31 December 2016: 91 millio). 30 Smurfit Kappa Aual Report 2017

33 Overview Strategic Report Goverace Fiacials 31

34 BUSINESS MODEL A itegrated model providig cost efficiecies ad iovatio Smurfit Kappa Busiess Model We believe that a itegrated model, from the sources of fibre to ed products, is the most efficiet way to provide iovative packagig, logistics solutios ad high quality service to the Group s customers. The Group s recyclig, wood procuremet ad forestry operatios provide raw material to our mills which is processed ito paper primarily for our corrugated covertig plats. Similarly, the Group s solidboard, recycled boxboard ad sack kraft mills are itegrated with our respective solidboard packagig, foldig carto ad paper sack operatios. Virgi Fibres Paper Mill Sortig Recycled Paper Recovered Fibres 32 Smurfit Kappa Aual Report 2017

35 Overview Strategic Report Goverace Fiacials The beefits of this itegratio i the Group s mai busiess area iclude: Security of paper supply durig periods of market fluctuatio where major producers decrease utilisatio or implemet closures; The ability to offer products tailored to the requiremets of ed customers (such as quality, grades ad iovatio) through the Group s cotrol of the supply chai; The capability to iovate i a sustaiable maer through the whole supply chai i areas such as origial fibre, paper recipes, techology advaces, structural ad graphic desig; Lower exposure to volatility i cotaierboard prices ad, i regios i which SKG ows forests, less depedece upo recovered paper; Achievig efficiecies i the supply chai, icludig through paper machie optimisatio, maagemet of logistics; ad The ability to provide better service to corrugated box customers through iovatio ad tailored services. The Group geerates a sigificat portio of its reveue from packagig products for FMCG (icludig food, beverages ad household cosumables). Demad for cosumer staples, ad by extesio demad for SKG s products, is resiliet especially durig periods of ecoomic dowtur. While the Group is ivolved at all levels of the supply chai, the Group s fial products are desiged to protect, trasport ad assist i the promotio ad marketig of the Group s customers products to their ed cosumers. Paper Reels Corrugated Plats Palletisatio Productio Process ad Supply Chai for Corrugated Cotaiers Cosumers Trasport Warehouse 33

36 STRATEGY Deliverig a icreasigly strog retur o capital Visio Our visio is to be a globally admired busiess, dyamically deliverig secure ad superior returs for all stakeholders. STRATEGIC PRIORITY Expad our market positios i Europe ad the Americas through selective focused growth STRATEGIC PRIORITY Become the supplier/ parter of choice Strategic Objective The Group s objective is to develop log-term customer relatioships by providig customers with differetiated packagig solutios that ehace the customers prospects of success i their ed markets. Our ambitio is to maitai our premier positio by deliverig: Superior customer satisfactio; The most sustaiable, biodegradable solutio for our customers ad their ed customers; Cost ad operatig efficiecies; Proactive evirometal awareess; ad STRATEGIC PRIORITY Ehace our operatioal excellece through the cotiuous upgrade of our customer offerig STRATEGIC PRIORITY Recruit, retai, develop ad motivate the best people Cotiuous improvemet i the areas of health ad safety ad corporate social resposibility. STRATEGIC PRIORITY Maitai a disciplied approach to capital allocatio ad maitai the focus o cash geeratio 34 Smurfit Kappa Aual Report 2017

37 Overview Strategic Report Goverace Fiacials Orgaic growth from icreased market share through cosolidatig, ad where appropriate, extedig our leadership positio; ad Pursuit of accretive acquisitios i higher growth markets such as Easter Europe ad Lati America. Deepeig SKG s uderstadig of our customers world ad developig proactive iitiatives to improve their offerig; Costatly iovatig our products, service, quality ad delivery i order to develop ad/or maitai preferred supplier status; ad Pursuig superior performace measured agaist clearly defied metrics i all aspects of our busiess ad at all levels i our orgaisatio. Improvig the output from the Group s high quality asset base through judicious capital ivestmet, cotiuous improvemet programmes, trasfer of best practice, idustrial egieerig ad other progressive iitiatives; Icreasig the proportio of differetiated ideas, products ad services o offer to our customers through the use of the Group s developmet ad techology cetres ad our iovatio tools ad deliverig the results to customers; ad Esurig that the drivig force behid all our operatios is oe of customer satisfactio ad excellece i the marketplace. High quality graduate ad other recruitmet iitiatives, progressive goal settig, ad performace appraisal programmes; Focused job traiig ad coachig; Cross divisioal i-house developmet programmes; ad Selective executive developmet programmes. Preservig our credit ratig ad our positio as a strog crossover credit; Capital spedig to optimise our asset base ad ehace operatig efficiecy; Acquirig strategically attractive ad accretive assets; ad Progressive divided supported by strog free cash flow. 35

38 RISK REPORT The Board determies the ature ad extet of the pricipal risks it is willig to take to achieve its strategic objectives. Risks are idetified ad evaluated ad appropriate risk maagemet strategies are implemeted at each level i the orgaisatio. Risk Maagemet ad Iteral Cotrol The Board has overall resposibility for the Group s system of risk maagemet ad iteral cotrol ad for moitorig ad reviewig its effectiveess, i order to safeguard shareholders ivestmets ad the Group s assets. Such a system is desiged to maage rather tha elimiate the risk of failure to achieve busiess objectives ad ca therefore oly provide reasoable ad ot absolute assurace agaist material misstatemet or loss. The Board carries out a review of the effectiveess of the Group s risk maagemet ad iteral cotrol systems at least aually. Group executive maagemet is resposible for implemetig strategy ad for the cotiued developmet of the Group s operatios withi parameters set dow by the Board. Day-to-day maagemet of the Group s operatios is devolved to operatioal maagemet withi clearly defied authority limits ad subject to tight reportig of fiacial performace. Maagemet at all levels is resposible for iteral cotrol over the respective operatios that have bee delegated to them. As such, the system of iteral cotrol throughout the Group s operatios esures that the orgaisatio is capable of respodig quickly to evolvig operatioal ad busiess risks ad that sigificat iteral cotrol issues should they arise are reported promptly to appropriate levels of maagemet. The Board is resposible for determiig the ature ad extet of the pricipal risks it is willig to take to achieve its strategic objectives. Risk assessmet ad evaluatio is a itegral part of the maagemet process throughout the Group. Risks are idetified ad evaluated, ad appropriate risk maagemet strategies are implemeted at each level. The key busiess risks are idetified by the seior maagemet team. The Audit Committee ad the Board i cojuctio with seior maagemet review the key busiess risks faced by the Group ad determie the appropriate course of actio to maage these risks. The Iteral Audit fuctio moitors compliace ad cosiders the effectiveess of iteral cotrol throughout the Group. The Audit Committee meets with the Group Compliace Maager ad the Group Iteral Auditor at least quarterly i order to satisfy itself o the adequacy of the Group s iteral cotrol system. The Chairma of the Audit Committee reports to the Board o all sigificat issues cosidered by the Committee. Goig Cocer After makig equiries, the Directors have a reasoable expectatio that the Compay ad the Group as a whole, have adequate resources to cotiue i operatioal existece for the foreseeable future. For this reaso, they cotiue to adopt the goig cocer basis i preparig the Cosolidated Fiacial Statemets. Viability Statemet The Directors have assessed the prospects of the Group over a three-year period. The Directors cosider this period to be appropriate as the Group s strategic busiess pla is devised ad assessed over a three-year period i lie with the cyclical ature of the busiess i which the Group operates. A three-year cosolidated fiacial model was built usig a bottom up approach reflectig the Group s curret positio ad icludig maagemet s estimates of future profitability ad assumptios for the Icome Statemet, Cash Flows ad Balace Sheet. The model icorporates ad cosiders the importat idicators of uderlyig performace of the operatios of the Group, EBITDA, EBITDA margi, Free Cash Flow, Net Debt to EBITDA, Retur o Capital Employed ad Earigs per Share. The Directors have udertake a robust assessmet of the pricipal risks facig the Group, as detailed i this sectio, which would threate the Group s busiess model, future performace, solvecy or liquidity. Usig the pricipal risks idetified, stress test sceario aalysis has bee applied to the Group s cosolidated fiacial model to assess the effect o the Group s key idicators of uderlyig performace. Based o the results of this aalysis, the Directors cofirm they have a reasoable expectatio that the Group will be able to cotiue i operatio ad meet its liabilities as they fall due over the three-year period of their assessmet. 36 Smurfit Kappa Aual Report 2017

39 Overview Strategic Report Goverace Fiacials Risk heat map Occurrece REMOTE UNLIKELY POSSIBLE PROBABLE Veezuela Health & Safety Employee Recruitmet & Retetio Currecy Evirometal Iput Costs Ecoomic Pricig Cyber ad Iformatio Security Ati-trust Busiess Iterruptio MINOR MODERATE MAJOR CRITICAL CATASTROPHIC Impact Net Gross 37

40 RISK REPORT (CONTINUED) RISK AREA Ecoomic RISK AREA Pricig RISK AREA Busiess iterruptio RISK DESCRIPTION If the curret ecoomic climate were to deteriorate, especially as a result of Brexit, ad result i a icreased ecoomic slowdow which was sustaied over ay sigificat legth of time, or the sovereig debt crisis (icludig its impact o the euro) were to re-emerge or exacerbate as a result of Brexit, it could adversely affect the Group s fiacial positio ad results of operatios. RISK DESCRIPTION The cyclical ature of the packagig idustry could result i overcapacity ad cosequetly threate the Group s pricig structure. RISK DESCRIPTION If operatios at ay of the Group s facilities (i particular its key mills) were iterrupted for ay sigificat legth of time it could adversely affect the Group s fiacial positio ad results of operatios. MITIGATION The Group supplies 60% of its packagig to FMCG customers whose cosumptio volumes remai relatively stable through market dowturs. The Group s customer base is spread across Europe ad the Americas spaig 35 coutries across multiple idustries. The Group could sigificatly curtail capital expediture ad take additioal cost cuttig measures withi a relatively short period as required. Stress testig for the viability statemet idicates we will cotiue to have sigificat headroom o our coveats eve i a sustaied dowtur. MITIGATION As a highly itegrated player we are better able to cope with the effects of cyclicality ad capacity additios tha a pure paper or corrugated producer. Our differetiatio programmes esure we are at the forefrot of the idustry i developig cost-efficiet solutios for our customers through performace packagig, quality maagemet, supply chai optimisatio ad strog sustaiability credetials. This service offerig distiguishes the Group from pure commodity suppliers, providig a support for more stable pricig. Our cotiuous ivestmet programmes i our operatios esure we remai competitive ad have low cost mill systems. I a eviromet of overcapacity, our well ivested, low cost mill system will eable the Group to cotiue ecoomic productio through a period of lower prices while higher cost mills will be forced to shut. MITIGATION The Group esures that all facilities have adequate isurace to mitigate the impact of sigificat iterruptio. Operatioal cotigecy plas are i place for all mills ad plats i the evet of a shutdow, which have bee demostrated to work durig shorter iterruptios i the past. I Europe, the Group has a etwork of operatios which ca facilitate the trasfer of sigificat volume to other mills i the evet of a shutdow. Furthermore, our Europea Paper Sourcig operatio cetrally coordiates all exteral paper purchases for the Europea operatios. There is cotiuous ivestmet i a rigorous programme of prevetative maiteace for all key mills ad other plats. KEY TO STRATEGIC OBJECTIVES Market positio Parter of choice Operatioal excellece People Capital allocatio 38 Smurfit Kappa Aual Report 2017

41 Overview Strategic Report Goverace Fiacials RISK AREA Raw materials & other iput costs RISK AREA Currecy RISK AREA Employee recruitmet & retetio RISK DESCRIPTION Price fluctuatios i raw materials ad eergy costs could adversely affect the Group s maufacturig costs. RISK DESCRIPTION The Group is exposed to currecy exchage rate fluctuatios. RISK DESCRIPTION The Group may ot be able to attract ad retai suitably qualified employees as required for its busiess. MITIGATION The Group maitais a dedicated purchasig fuctio which has resposibility for all iput costs ad ogoig cost reductio programmes. The Group maitais a strog supply arragemet o approximately 78% of its recovered fibre requiremets which provides it with security of supply for its primary raw material while maitaiig a optimum level of flexibility with respect to pricig. I lie with the usual time lag, the Group would expect implemeted cotaierboard price icreases to support corrugated price recovery of icreased iput cost. A proactive policy of forward pricig is i place which is desiged to miimise where possible material short-term volatility i eergy price risk withi approved parameters. The Group cotiually ivests i a rage of cost reductio projects, primarily i the areas of eergy ad raw material efficiecy that ca deliver demostrable ecoomic returs. MITIGATION The Group esures that short-term tradig exposures are hedged ad where practical are fiaced as much as possible i local currecy. The Group cotiually moitors ad maages its foreig currecy exposures for all coutries ad costatly seeks opportuities to reduce these exposures. The Group Treasury Policy sets out rules ad guidace for maagig this area. MITIGATION Cotiuous developmet by our HR departmet of a People Strategy to attract, egage, trai, motivate ad retai our people. MyVoice survey was completed i 2017 to measure employee egagemet ad set future priorities as well as programmes to icrease egagemet. The ext survey will take place by Processes i place to idetify ad develop our high potetial people together with a cotiuous focus o leadership traiig ad successio plaig. Developmet of our existig competitive remueratio packages ad review processes. Reiforcemet of our talet recruitmet strategy (uiversities, graduate programmes etc.), to attract highly taleted people with the potetial to become the future leaders of the Group. 39

42 RISK REPORT (CONTINUED) RISK AREA Health ad Safety RISK AREA Legislatio & regulatio Evirometal Ati-trust RISK DESCRIPTION Failure to maitai good health ad safety practices may have a adverse effect o the Group s busiess. RISK DESCRIPTION The Group is subject to a growig umber of evirometal laws ad regulatios, ad the cost of compliace or the failure to comply with curret ad future laws ad regulatios may egatively affect the Group s busiess. RISK DESCRIPTION The Group is subject to ati-trust ad similar legislatio i the jurisdictios i which it operates. MITIGATION Health ad Safety is a core cosideratio i all maagemet reviews. The protectio of the health ad safety of the workforce is a cotiual focus i a idustry with a broad profile of hazards. Icreased focus is give to the strict adoptio of good maagemet, employee practices ad a mid-set that complemets existig risk mitigatio measures. The Group has a established formal practice of ivestigatig accidets ad preparig safety bulletis which are shared across divisios. MITIGATION The Group s evirometal structure esures each mill has a maager who is resposible for evirometal issues icludig moitorig air, oise ad water emissios ad esurig that the mill is ruig withi its permits. The Group s evirometal maagemet is i cotact with appropriate local authorities ad evirometal upgrades are made i cosultatio with them. All our paper ad board mills with the exceptio of our mills i Brazil, which were acquired i December 2015, are operated uder a EMS (Evirometal Maagemet System) (ISO 14001). The Group has a IT reportig system i over 300 sites esurig evirometal data is reported o a regular basis. The Group have a cetralised co-ordiatio of all evirometal activity providig a key iterface to the EU, supported by a committee of seior executives who meet regularly to review such issues, ad report directly to the CEO. MITIGATION Group Competitio Law Compliace Policy is i place ad commuicated to all employees. All seior maagemet ad market-facig employees are required to formally cofirm adherece to the policy by sigig a Competitio Law Compliace Certificate o a aual basis. Group Geeral Cousel advises ad supports employees ad maagemet i this area. Regular commuicatio ad promotio of Competitio Law Compliace ad other similar legislatio to staff ad local maagemet. Cotiuous process to esure uderstadig of issues ad implicatios of regulatory ad legislative amedmets. KEY TO STRATEGIC OBJECTIVES Market positio Parter of choice Operatioal excellece People Capital allocatio 40 Smurfit Kappa Aual Report 2017

43 Overview Strategic Report Goverace Fiacials RISK AREA Cyber & iformatio security RISK AREA Veezuela RISK DESCRIPTION The Group, similar to other large global compaies, is susceptible to cyber attacks with the threat to the cofidetiality, itegrity ad availability of data i its systems. RISK DESCRIPTION The Group is exposed to potetial risks i relatio to political istability i Veezuela. MITIGATION Formally documeted policies i relatio to iformatio security icludig cyber security are i place. The Group maitais a framework to esure awareess at each level of the orgaisatio with regard to the implemetatio of cyber security. This framework is regularly audited. Specific cotrols are i place to prevet ad detect security issues relatig to busiess critical systems. Defied busiess cotiuity ad IT disaster recovery plas are i place ad are frequetly tested. The Group is committed to ogoig capital expediture as appropriate to cotiually ehace the IT ifrastructure. MITIGATION The Group s Veezuela operatios have mitigated to some extet the loss of reveue due to the drop i corrugated volumes i the coutry by exportig paper to its operatios i the Uited States ad other Lati America coutries. This export of paper is subject to: the availability of local raw materials to produce the paper; the quality of the paper beig maitaied to a satisfactory stadard for our ed markets; ad the reewal of a export licece by the Govermet every six moths. Net assets i Veezuela amouted to 128 millio at year-ed. 41

44 AN INTEGRATED MODEL CONTAINERBOARD I our 36 mills across the globe, we produce both virgi ad recycled paper, primarily cotaierboard. Our mill i Pitea, Swede (pictured) produces 700,000 toes of kraftlier aually, which is used withi our corrugated system. This is oe of the beefits of our itegrated model, security of paper supply at all times. 42 Smurfit Kappa Aual Report 2017

45 Overview Strategic Report Goverace Fiacials 43

46 FINANCE REVIEW Results The Group s et debt cotiues to reduce i both absolute ad multiple terms, positioig the Group with cosiderable fiacial strategic flexibility. At 8,562 millio, reveue i 2017 was 403 millio or 5% higher tha i 2016, with growth i both Europe ad the Americas. Net egative currecy movemets, primarily i the Americas, were partly offset by a positive hyperiflatioary adjustmet ad the cotributio from acquisitios. The resultig uderlyig move i reveue was a icrease of 515 millio, equatig to over 6%, with higher comparable reveue i both Europe ad the Americas. Europea reveue rose by 258 millio year-o-year, with uderlyig growth of 275 millio ad the cotributio of 24 millio from acquisitios, partly offset by egative currecy movemets of 41 millio, maily i respect of Sterlig. The icrease i uderlyig reveue equated to 4% ad reflected both slightly higher average box prices i 2017 ad volume growth of almost 3%. Although average corrugated box prices were oly slightly higher tha i 2016, prices improved progressively i the secod half of 2017 reflectig the lag effect i recoverig cotaierboard price icreases through higher box prices. Further progress o iput cost recovery is expected i Reported reveue i the Americas was 145 millio higher tha i 2016, with uderlyig growth of 240 millio, equatig to 12%, together with the modest cotributio for the full year of the acquisitios made i 2016 ad the hyperiflatioary adjustmet i Veezuela partly offset by egative currecy movemets. The uderlyig growth i reveue across the regio was drive by a combiatio of price ad volume. Coditios varied across the regio, with icreased shipmets i Mexico, Colombia ad Brazil partly offset by lower volumes primarily i Veezuela but also i the Uited States, reflectig some ratioalisatio projects i our operatios i Califoria ad Argetia. Despite a 35% drop i shipmets, reveue i Veezuela was higher i 2017 with iflatioary pressures supportig pricig. Excludig Veezuela, comparable corrugated volumes i the Americas were 2% higher i At 1,240 millio i 2017 compared to 1,236 millio i 2016, EBITDA was up 4 millio with earigs growth i Europe ad lower Group Cetre costs partly offset by reduced earigs i the Americas. At 955 millio, reported EBITDA i Europe was 27 millio higher tha i This icrease was achieved despite icreased raw material iput costs, ad reflected the beefits of our capital expediture programme, ogoig iput cost recovery ad strog growth i most markets. With a et egative currecy movemet of 6 millio ad a cotributio of 2 millio from acquisitios, uderlyig earigs were 31 millio (equatig to 3%) higher tha i At 311 millio, reported EBITDA i the Americas was 28 millio lower tha i 2016 with geerally reduced earigs across the regio. Earigs were impacted by a umber of factors icludig icreased export prices for US cotaierboard ito Lati America, icreased recovered fibre costs, egative currecy movemets ad adverse atural evets. Allowig maily for a egative currecy movemet of 40 millio, the uderlyig year-o-year move i earigs was a icrease of 5 millio. Allowig for currecy movemets, hyperiflatio ad acquisitios, the uderlyig year-o-year icrease i EBITDA for the Group overall was 41 millio, equatig to over 3%. The year-o-year growth of 4 millio i reported EBITDA was more tha offset by a icrease of 11 millio i the share-based paymet expese ad a icrease of 3 millio i the overall charge for depreciatio, depletio ad amortisatio. As a result, the Group s pre-exceptioal operatig profit decreased by 10 millio to 820 millio i 2017 compared to 830 millio i Smurfit Kappa Aual Report 2017

47 Overview Strategic Report Goverace Fiacials With icreases i both cash ad o-cash iterest costs, the Group s pre-exceptioal et fiace costs amouted to 219 millio (costs of 248 millio less icome of 29 millio) i 2017 compared to 175 millio i Cash iterest was 10 millio higher year-o-year, maily as a result of the impact of the bod issued i Jauary 2017 ad our exposure to the relatively high local iterest rates i Lati America. No-cash iterest was 34 millio higher i 2017, drive largely by a egative swig of 28 millio from a et moetary gai i 2016 of 4 millio relatig to hyperiflatio to a loss of 24 millio i As a result of the decrease of 10 millio i operatig profit together with the icrease of 44 millio i et fiace costs ad a decrease of 2 millio i our share of associates profit, the pre-exceptioal profit before tax was 56 millio lower year-o-year at 601 millio i 2017 compared to 657 millio i Exceptioal Items Exceptioal items charged withi operatig profit i 2017 amouted to 23 millio. These icluded impairmet losses of 11 millio relatig to property, plat ad equipmet i oe of our Europea mills ad a corrugated plat i the Uited States. The remaiig 12 millio related to reorgaisatio ad restructurig costs i the Uited States. Exceptioal fiace costs of 2 millio i 2017 represeted the accelerated amortisatio of the issue costs relatig to the debt withi our seior credit facility which was paid dow with the proceeds of the 500 millio bod issued i Jauary Exceptioal items charged withi operatig profit i 2016 amouted to 15 millio. These were reported i the fourth quarter ad related to reorgaisatio ad restructurig costs i Veezuela. The exceptioal fiace icome of 12 millio i 2016 represeted the profit o the sale of our shareholdig i the Swedish compay, IL Recyclig. Profit before Icome Tax After exceptioal items, the Group s total profit before icome tax amouted to 576 millio i 2017, comprisig the pre-exceptioal profit of 601 millio ad a et exceptioal charge of 25 millio. I 2016, the total profit before icome tax was 654 millio, comprisig the pre-exceptioal profit of 657 millio ad a et exceptioal charge of 3 millio. The year-o-year decrease of 78 millio reflected both the reductio of 56 millio i the pre-exceptioal profit ad a higher et charge for exceptioal items. Icome Tax Expese The icome tax expese i 2017 was 153 millio (comprisig a curret tax charge of 191 millio ad a deferred tax credit of 38 millio) compared to 196 millio (comprisig a curret tax charge of 156 millio ad a deferred tax charge of 40 millio) i The year-oyear decrease of 43 millio arose maily i the Americas. The curret tax expese was 35 millio higher tha i 2016, with a icrease i Europe partly offset by a decrease i the Americas. I Europe, the curret tax expese was higher by 56 millio i 2017 reflectig the impact of the full utilisatio i a umber of coutries of the Group s historic tax losses together with other timig items. I the Americas, the curret tax expese was 21 millio lower tha i 2016 reflectig the tax effects of lower profitability. I 2017, there was a deferred tax credit of 38 millio, broadly evely split betwee Europe ad the Americas, compared to a charge of 40 millio, primarily i Europe, i The year-o-year movemet icludes the effects of the reversal of timig differeces o which deferred tax liabilities were previously recogised, other credits ad the use ad recogitio of tax losses. The icome tax expese icludes a 6 millio tax credit i respect of exceptioal items compared to a 3 millio credit i Earigs per Share The basic earigs per share amouted to cet i 2017 compared to cet i O a diluted basis, our earigs per share i 2017 amouted to cet compared to cet i The year-o-year decrease i the Group s basic earigs per share equated to 6% ad reflected the drop i the profit before icome tax, icludig the impact of a higher charge for exceptioal items, partly offset by the lower icome tax expese. O a pre-exceptioal basis, our earigs per share i 2017 decreased by 2% from cet i 2016 to cet. The earigs per share figures are calculated o the basis of the weighted average umber of shares i issue durig the year, which was 235,369,000 i 2017 compared to 234,505,000 i

48 FINANCE REVIEW (CONTINUED) Fiacial Key Performace Idicators Certai fiacial measures set out below, are ot defied uder IFRS. These APMs are preseted because we believe that they, ad similar measures, are widely used i the paper ad packagig maufacturig idustry as a meas of evaluatig a compay s operatig performace ad fiacig structure. These measures may ot be comparable to other similarly titled measures of other compaies ad are ot measuremets uder IFRS or other geerally accepted accoutig priciples, ad they should ot be cosidered as substitutes for the iformatio cotaied i our Fiacial Statemets. These APMs have limitatios as aalytical tools, ad should ot be cosidered i isolatio, or as a substitute for aalysis of our operatig icome or cash flows as reported uder IFRS. We cosider the followig measures to be importat idicators of the uderlyig performace of our operatios. EBITDA EBITDA margi to Reveue DEFINITION EBITDA is earigs before exceptioal items, share-based paymet expese, share of associates profit (after tax), et fiace costs, icome tax expese, depreciatio ad depletio (et) ad itagible assets amortisatio. It is a appropriate ad useful measure used to compare recurrig fiacial performace betwee periods. A recociliatio of profit to EBITDA is icluded below. PERFORMANCE EBITDA of 1,240 millio i 2017 was 4 millio higher tha i 2016, with earigs growth i Europe ad lower Group Cetre costs, partly offset by lower earigs i the Americas. The uderlyig move i EBITDA was a icrease of 41 millio, with earigs growth primarily i Europe. This was achieved despite icreased raw material costs ad reflected the beefits of our capital sped programme, o-goig iput cost recovery ad strog growth i most markets. Reported corrugated shipmets i Europe were almost 3% higher year-oyear while average box prices were almost 1% higher. DEFINITION EBITDA margi is a measure of profitability by takig our EBITDA divided by reveue. PERFORMANCE With a margial year-o-year icrease i EBITDA compared to 5% i reveue, our EBITDA margi decreased from 15.1% i 2016 to 14.5% i 2017, with lower margis i both Europe ad the Americas. While earigs i the Europea operatios grew through higher corrugated volumes ad slightly higher box prices, the beefit was offset by higher recovered fibre iput prices. I the Americas, margis were geerally lower across the regio. I the Americas, coditios varied across the regio. Excludig Veezuela, where shipmets were dow 35% year-o-year, corrugated volumes i the Americas were 2% higher tha i For the Group as a whole, absolute corrugated volumes were over 2% higher year-o-year. 1,240 EBITDA ( millio) 1, EBITDA margi to reveue (%) KEY TO STRATEGIC OBJECTIVES Market positio Parter of choice Operatioal excellece People Capital allocatio 46 Smurfit Kappa Aual Report 2017

49 Overview Strategic Report Goverace Fiacials Recociliatio of Profit to EBITDA m m Profit for the fiacial year Icome tax expese Exceptioal items charged i operatig profit Share of associates profit (after tax) - (2) Net fiace costs (after exceptioal items) Depreciatio, depletio (et) ad amortisatio Share-based paymet expese EBITDA 1,240 1,236 Net Debt Net Debt to EBITDA DEFINITION Net debt comprises borrowigs et of cash ad cash equivalets ad restricted cash. We believe that this measure highlights the overall movemet resultig from a compay s operatig ad fiacial performace. PERFORMANCE Net debt amouted to 2,805 millio at December 2017 compared to 2,941 millio at December The year-o-year decrease of 136 millio reflected the free cash flow of 307 millio for the year ad et positive traslatio adjustmets of 115 millio, partly offset by et ivestmet ad fiacig outflows of 268 millio, et debt acquired ad the amortisatio of deferred debt issue costs. DEFINITION Leverage (ratio of et debt to EBITDA) is a importat measure of our overall fiacial positio. PERFORMANCE With the beefit of both EBITDA growth ad lower et debt, our leverage was 2.3 times at December 2017 compared to 2.4 times at December Net debt ( millio) Net debt to EBITDA (ratio) 2,805 2,

50 FINANCE REVIEW (CONTINUED) Free Cash Flow ( FCF ) Retur o Capital Employed ( ROCE ) DEFINITION Free cash flow is the result of the cash iflows ad outflows from our operatig activities, ad is before those arisig from acquisitio ad disposal activities. We use free cash flow to assess ad uderstad the total operatig performace of the busiess ad to idetify uderlyig treds. A recociliatio of free cash flow (APM) to cash geerated from operatios (IFRS) is icluded i the cash geeratio sectio below. DEFINITION ROCE is a effective measure of esurig that we are geeratig profit from the capital employed. It is calculated as pre-exceptioal operatig profit plus share of associates profit (after tax) divided by the average capital employed (where average capital employed is the average of total equity ad et debt at the begiig ad ed of the year). Capital employed at 31 December 2017 was 5,464 millio, (2016: 5,444 millio, 2015: 5,376 millio). PERFORMANCE Our free cash flow of 307 millio i 2017 was 4 millio higher tha the 303 millio reported i The year-o-year icrease reflected the margially higher EBITDA ad lower other outflows, primarily i respect of retiremet beefits, partly offset by higher cash iterest, a higher workig capital outflow ad slightly higher capital outflows. Lik to Remueratio Report: See page 93 for Aual Bous metrics ad page 94 for Deferred Aual Bous Pla ( DABP ) metrics. PERFORMANCE At 15.0% our ROCE is i lie with our target. With a slightly lower level of operatig profit combied with a higher level of average capital employed, our ROCE decreased from 15.4% at December 2016 to 15.0% at December Lik to Remueratio Report: See page 93 for Aual Bous metrics ad page 94 for DABP metrics Free cash flow ( millio) Retur o capital employed (%) KEY TO STRATEGIC OBJECTIVES Market positio Parter of choice Operatioal excellece People Capital allocatio 48 Smurfit Kappa Aual Report 2017

51 Overview Strategic Report Goverace Fiacials Earigs per Share ( EPS ) DEFINITION Pre-exceptioal EPS serves as a effective idicator of a compay s profitability as it excludes exceptioal oe-off items ad, i cojuctio with other metrics such as ROCE, is a measure of the compay s fiacial stregth. Give the fudametal repositioig of the Group through debt pay dow ad iterest savigs ad, cosequetly, earigs growth ad lower leverage, pre-exceptioal EPS is a importat measure for the Group. Pre-exceptioal EPS is calculated by dividig profit attributable to owers of the paret, adjusted for exceptioal items icluded i profit before icome tax ad icome tax o exceptioal items, by the weighted average umber of ordiary shares i issue. The calculatio of pre-exceptioal EPS is show i Note 10 to the Cosolidated Fiacial Statemets. PERFORMANCE Our basic EPS i 2017 of cet was 6% lower tha 2016 s cet, reflectig a 27 millio decrease i the profit attributable to owers of the paret, with the 78 millio decrease i the profit before icome tax partly offset by a reduced icome tax expese ad a lower profit attributable to o-cotrollig iterests. Our basic EPS i 2017 was impacted by a higher et exceptioal charge tha i With a et exceptioal charge of 25 millio i 2017, compared to oly 3 millio i 2016, our pre-exceptioal EPS was 2% lower year-o-year at cet compared to cet i Lik to Remueratio Report: See page 93 for Aual Bous metrics. Pre-exceptioal EPS (cet)

52 FINANCE REVIEW (CONTINUED) Cash Geeratio Free cash flow i 2017 was 307 millio compared to 303 millio i The year-o-year icrease of 4 millio reflected margially higher EBITDA ad lower other outflows, offset partially by higher cash iterest, a higher workig capital outflow ad slightly higher capital outflows. Summary Cash Flow (1) m m EBITDA 1,240 1,236 Exceptioal items (12) (15) Cash iterest expese (158) (148) Workig capital chage (112) (95) Curret provisios (2) (8) Capital expediture (430) (499) Chage i capital creditors (28) 49 Tax paid (154) (151) Sale of fixed assets 5 3 Other (42) (69) Free cash flow Share issues 1 - Purchase of ow shares (et) (10) (10) Sale of busiesses ad ivestmets 5 17 Purchase of busiesses ad ivestmets (63) (44) Divideds (195) (170) Derivative termiatio (paymets)/receipts (6) 13 Net cash iflow Net debt acquired (6) (1) Deferred debt issue costs amortised (12) (10) Currecy traslatio adjustmets Decrease i et debt (1) The summary cash flow is prepared o a differet basis to the Cosolidated Statemet of Cash Flows uder IFRS ( IFRS cash flow ) ad as such the recocilig items betwee EBITDA ad decrease/(icrease) i et debt may differ to amouts preseted i the IFRS cash flow. The pricipal differeces are as follows: (a) The summary cash flow details movemets i et debt. The IFRS cash flow details movemets i cash ad cash equivalets. (b) Free cash flow recociles to cash geerated from operatios i the IFRS cash flow as show i the table below. The mai adjustmets are i respect of cash iterest, capital expediture, tax paymets ad the sale of fixed assets ad busiesses. (c) The IFRS cash flow has differet sub-headigs to those used i the summary cash flow. Curret provisios i the summary cash flow are icluded withi chage i employee beefits ad other provisios i the IFRS cash flow. The total of capital expediture ad chage i capital creditors i the summary cash flow icludes additios to itagible assets which is show separately i the IFRS cash flow. It also icludes capitalised leased assets which are excluded from additios to property, plat ad equipmet ad biological assets i the IFRS cash flow. Other i the summary cash flow icludes chages i employee beefits ad other provisios (excludig curret provisios), amortisatio of capital grats, receipt of capital grats ad divideds received from associates which are show separately i the IFRS cash flow. 50 Smurfit Kappa Aual Report 2017

53 Overview Strategic Report Goverace Fiacials Recociliatio of Free Cash Flow to Cash Geerated from Operatios m m Free cash flow Add back: Cash iterest Capital expediture (et of chage i capital creditors) Tax paymets Less: Sale of fixed assets (5) (3) Profit o sale of assets ad busiesses o-exceptioal (9) (9) Receipt of capital grats (i Other per summary cash flow) (4) (3) Divideds received from associates (i Other per summary cash flow) (1) (1) Cash geerated from operatios 1,058 1,036 The outflow of 12 millio for exceptioal items i 2017 related to reorgaisatio ad restructurig costs i the Uited States. The 15 millio for exceptioal items i 2016 related to reorgaisatio ad restructurig costs i Veezuela. Cash iterest of 158 millio i 2017 was 10 millio higher tha i 2016, maily as a result of the impact of the ew bod issued i Jauary 2017 as well as our exposure to the relatively high local iterest rates i Lati America. The workig capital move i 2017 was a outflow of 112 millio compared to 95 millio i The outflow i 2017 was the combiatio of a icrease i debtors ad stocks partly offset by a icrease i creditors. These icreases reflected the combiatio of volume growth, stregtheig Europea corrugated pricig ad higher recovered fibre costs. Workig capital amouted to 644 millio at December 2017, represetig 7.3% of aualised reveue compared to 7.0% at December Capital expediture (fixed asset additios) amouted to 430 millio i 2017 ad equated to 109% of depreciatio, depletio ad amortisatio compared to 499 millio (127%) i Capital outflows i total at 458 millio i 2017 were 8 millio higher tha i 2016 with a lower level of capital expediture i 2017 largely matched by a egative swig of 77 millio i the move o capital creditors, from a iflow i 2016 to a outflow i Tax paymets of 154 millio i 2017 were 3 millio higher tha i 2016, primarily due to the timig of paymets. The other et outflow of 42 millio i 2017 was maily i respect of employee beefits, with a offsettig hyperiflatioary adjustmet related iflow. The larger outflow of 69 millio i 2016 also related maily to employee beefits but icluded a umber of oe-off settlemet ad curtailmet gais i Europe, icludig the elimiatio of a deficit i oe of our Dutch pesio fuds. Ivestmet ad fiacig cash flows i 2017 amouted to 268 millio compared to 194 millio i The year-o-year icrease of 74 millio was drive maily by a icreased divided to Group shareholders together with lower disposal proceeds ad a higher outflow for the purchase of busiesses ad ivestmets. I additio, the termiatio of derivative cotracts resulted i a outflow i 2017 compared to a iflow i At 10 millio, the outflow for share purchases uder the DABP was uchaged. I 2017, the sale of busiesses ad ivestmets resulted i a iflow of 5 millio, 4 millio of which related to the solidboard operatios ad 1 millio to our holdigs i three Slovakia associates, which operated i the recovered fibre sector. Of the iflow of 17 millio i 2016, 13 millio related to IL Recyclig ad 4 millio to the solidboard operatios. The 63 millio i respect of the purchase of busiesses i 2017 related maily to Soyuz ad Chatziioaou with additioal amouts for the assets of Litbag, the buy-out of the Fustelpack miority ad some deferred cosideratio for previous acquisitios. The 44 millio i respect of the purchase of busiesses i 2016 related to the US corrugated plats (Soud, Corrugated Professioals, Empire ad Scope) ad Saxo Packagig i the Uited Kigdom, together with some deferred cosideratio for previous acquisitios. With our free cash flow i 2017 partly offset by the et ivestmet ad fiacig outflows, the result was a et iflow of 39 millio compared to 109 millio i After the amortisatio of deferred debt issue costs, et debt acquired ad et positive currecy traslatio adjustmets, the overall move i et debt was a decrease of 136 millio to 2,805 millio at December 2017 from 2,941 millio at December

54 FINANCE REVIEW (CONTINUED) The et positive currecy traslatio adjustmets of 115 millio i 2017 related maily to the US dollar, with its relative weakeig agaist the euro reducig the value of our dollar deomiated debt. The dollar weakeed from US$1.05/euro at December 2016 to US$1.20 at December 2017, resultig i a positive currecy traslatio adjustmet of 99 millio. The et positive currecy traslatio adjustmets of 9 millio i 2016 related maily to Sterlig, with the relative stregtheig of the euro reducig the value of our Sterlig deomiated debt, with offsettig egative adjustmets, maily i respect of the US dollar. With et debt of 2,805 millio ad EBITDA of 1,240 millio, our leverage ratio was 2.3 times at December 2017 compared to 2.4 times at December The improvemet i our leverage is drive primarily by the lower level of et debt i 2017, with oly a small icrease i EBITDA year-o-year. Capital Resources ad Liquidity Committed facilities (excludig short-term sudry bak loas ad overdrafts) amouted to 4,385 millio (2016: 4,007 millio) of which 3,230 millio (2016: 3,278 millio) was utilised at 31 December The weighted average period util maturity of udraw committed facilities is 2.4 years (2016: 3.0 years). The Group s et debt cotiues to reduce i both absolute ad multiple terms, positioig the Group with cosiderable fiacial strategic flexibility subject to the medium-term leverage ratio rage of 1.75 times to 2.5 times. Our growth strategy will be uderpied by strog cash flow geeratio, eablig the Group to maitai its Ba1/BB+ credit ratig. At 31 December 2017, the Group s average iterest rate was 4.1% compared to 4.3% i The Group s diversified fudig base ad log dated maturity profile at 3.4 years cotiue to provide a stable fudig outlook. I terms of liquidity, the Group held cash o the balace sheet of 539 millio at the ed of the year that was further supplemeted by available commitmets uder its revolvig credit facility of approximately 834 millio. I Jauary 2017, the Group issued 500 millio of seve-year euro deomiated seior otes at a coupo of 2.375%, the proceeds of which were used to prepay term debt uder the seior credit facility, reduce idebtedess uder existig securitisatio facilities ad for geeral corporate purposes. I February 2017, the Group icreased the revolvig credit facility uder the seior credit facility by 220 millio thereby further ehacig the Group s liquidity. I May 2017, the Group ameded, restated ad exteded its 175 millio receivables securitisatio programme, which utilises the Group s receivables i Austria, Belgium, Italy ad the Netherlads, extedig the maturity to February 2022 ad reducig the margi of the variable fudig otes from 1.70% to 1.375%. The Group has a stable fiacig base with a log-term ad well spread maturity profile. The Group s credit ratig of Ba1/BB+ cotributes to a lower cost of capital ad access to the widest rage of fiacig optios available. These positios were achieved as a result of the Group s cosistet ability to geerate strog free cash flows together with active maagemet of its debt portfolio. The stregth of the Group s capital base together with cosistet delivery of strog free cash flows provides solid ad cost effective support to the Group s medium-term plas, which iclude ivestig 1.6 billio i capital projects i the years 2018 to This expediture is i additio to the base level of approximately 320 millio per aum for maiteace ad evirometal requiremets ad is focused o reducig costs, maitaiig itegratio levels ad caterig for targeted growth. The Group s primary sources of liquidity are cash flow from operatios ad borrowigs uder the revolvig credit facility. The Group s primary uses of cash are for fudig day-to-day operatios, capital expediture, debt service, divideds ad other ivestmet activity. Market Risk ad Risk Maagemet Policies The Board of Directors sets the Group s treasury policies ad objectives, which iclude cotrols over the procedures used to maage fiacial market risks. These are set out i detail i Note 29 to the Cosolidated Fiacial Statemets. The Group is exposed to the impact of iterest rate chages ad foreig currecy fluctuatios arisig from its ivestig ad fudig activities ad its operatios i differet foreig currecies. Iterest rate risk exposure is maaged by achievig a appropriate balace of fixed ad variable rate fudig. As at 31 December 2017, the Group had fixed a average of 79% of its iterest cost o borrowigs over the followig twelve moths. At 31 December 2017, the Group s fixed rate debt comprised 200 millio 5.125% seior otes due 2018, US$300 millio 4.875% seior otes due 2018 (US$50 millio swapped to floatig), 400 millio 4.125% seior otes due 2020, 500 millio 3.25% seior otes due 2021, 500 millio 2.375% seior otes due 2024, 250 millio 2.75% seior otes due 2025 ad US$292.3 millio 7.50% seior debetures due I additio, the Group had 349 millio i iterest rate swaps with maturity dates ragig from October 2018 to Jauary Smurfit Kappa Aual Report 2017

55 Overview Strategic Report Goverace Fiacials The Group s earigs are affected by chages i short-term iterest rates as a result of its floatig rate borrowigs. For each oe per cet icrease i LIBOR/EURIBOR iterest rates o these borrowigs, the Group s iterest expese would icrease, ad icome before taxes would decrease, by approximately 8 millio over the followig twelve moths. Iterest icome o the Group s cash balaces would icrease by approximately 5 millio assumig a oe per cet icrease i iterest rates eared o such balaces over the followig twelve moths. The Group uses foreig currecy borrowigs, currecy swaps, optios ad forward cotracts i the maagemet of its foreig currecy exposures. Coclusio The ivestmets evisaged i our Medium Term Outlook are uderpied by the stregth of the Group s Balace Sheet. As a result, our ew ROCE target is 17% with et debt to equity i the rage of 1.75 times to 2.5 times through the cycle. Ke Bowles Group Chief Fiacial Officer 53

56 SUSTAINABILITY Sustaiability is a cetral part of SKG s busiess strategy Sustaiability is a cetral part of SKG s busiess strategy. As a customer-orieted, market-led compay, the satisfactio of customers, persoal developmet of employees ad respect for local commuities ad the eviromet are all iseparable from our goal of creatig value for the shareholders. I their daily lives, people eed food, clothig ad household goods. Robust paper-based packagig will protect these from damage ad waste, while deliverig them i a efficiet ad sustaiable way. Estimated global populatio growth, from seve billio today to ie billio i 2050, will offer sigificat busiess opportuities ad challeges to compaies such as SKG. I respose to risig global wealth ad wellbeig, commerce will chage ad worldwide demad for packagig goods ad services will cotiue to grow. Sice its foudatio over 80 years ago, the circular ecoomy has bee at the core of the Group s busiess ad we ited to maitai our leadig role as it becomes the idustry stadard. Climate chage, limited atural resources, growig populatio ad ueve distributio of wealth, are pressig global challeges that will require a respose from idustry. At SKG, these factors are the foudatio of our circular model: sustaiably sourcig our key raw materials, miimisig our operatioal impact ad lowerig the evirometal footprit of our customers ad cosumers. 54 Smurfit Kappa Aual Report 2017

57 Overview Strategic Report Goverace Fiacials Workig towards global sustaiability gives busiess ew opportuities, while requirig us all to set commo targets. The UN Sustaiable Developmet Goals ( SDGs ) provide relevat guidace, ad SKG will play its part i makig them a reality for our stakeholders. I our materiality assessmet, we compared the SDGs agaist our busiess strategy ad policies, as well as agaist stakeholder expectatios. This allows us to strategically build o opportuities ad miimise risks withi the sustaiability cotext. The corerstoe of our sustaiability strategy, as with all our work, is our Code of Busiess Coduct. We focus our sustaiability efforts o five strategic priorities, idetified through a robust materiality assessmet process. These are explaied i the table below. FOREST CLIMATE CHANGE WATER WASTE PEOPLE SCOPE OF THE STRATEGIC PRIORITY Covers forest maagemet, biodiversity, fibre-sourcig ad commuicatig how we use sustaiable fibres through certified Chais of Custody. It also looks ito efficiet use of fibres, icludig recyclig. Covers eergy use, climate chage ad greehouse gas emissios. Covers water itake ad discharge from our processes. Our key cocer is with the quality of our water discharge as we evetually release early all the water we use back ito the eviromet. Producig paper-based packagig geerates very little waste. However, i the paper recyclig process we receive additioal extra materials that we caot yet fully recycle. Our goal is to reduce the amout of these additioal materials beig set to ladfill. This is built aroud three key elemets: SKG as a resposible employer; Health ad Safety at our operatios; ad commitmets to our commuities. All these elemets are itegral for our future success. OUR COMMITMENTS All fibre produced ad/or purchased will be Chai of Custody certified uder FSC, PEFC or SFI. Over 90% of our packagig will be sold as Chai of Custody certified uder FSC, PEFC or SFI. A 25% reductio i relative total fossil CO 2 emissios compared to 2005 (scope 1 ad 2) from our mill system by Collaborate with customers to calculate the carbo footprit of the packagig life cycle. A oe-third reductio of COD (chemical oxyge demad) i water retured to the eviromet from our mill system by 2020 (compared to 2005). Perform evirometal impact assessmets of water use at our sites where relevat. Reduce waste geerated at our paper ad board mills ad set to ladfill by 30% per produced toe of paper by 2020 (compared to 2013). Operate with Health ad Safety as a core value with zero fatalities ad a 5% improvemet i Health ad Safety performace measures aually. Ivest i our host commuities cotributig to social developmet. Be recogised as a great place to work by our curret employees ad a compay of choice for targeted talet. 55

58 SUSTAINABILITY (CONTINUED) SKG aually reports o its sustaiability performace the 2017 Sustaiable Developmet Report will be published i the secod quarter of SKG published its teth Sustaiable Developmet Report i May 2017, ad it ca be foud o our website: smurfitkappa.com. All previous Sustaiable Developmet Reports are also available. The Group s Sustaiable Developmet Reports covers a overview of SKG s performace agaist its log-term sustaiability commitmets ad sustaiability strategy. SKG is committed to the priciples of the UN Global Compact ad reports i lie with the Global Reportig Iitiative ( GRI ) G4 comprehesive criteria, agaist which our sustaiability data ad reportig has bee assured for eight years (the 2017 report will be the ith assured report). This provides a trasparecy i SKG s operatioal reportig ad guaratees our credibility to stakeholders, especially customers, ivestors ad the commuities i which we operate. Circular Approach Based o Evidece For may years our operatios ad products have bee based o a circular model ispired by our raw material. Forests are a closed loop, from which we ca positively beefit whe they are used sustaiably. Withi our idustry SKG has pioeered full Chai of Custody, eablig us to sell over 90% of our products as FSC, PEFC or SFI certified, drivig a sustaiable loop for our raw materials. Havig itegrated paper recyclig operatios i our busiess, we ca efficietly maage our raw material sourcig, esurig good quality i each regio where we operate. We take our producer resposibility seriously, usig 75% recycled fibres as our raw material. Sustaiably sourcig our fibres beefits us ad our stakeholders: with 100% Chai of Custody certified raw material sourcig ad productio, we have traceability systems that comply with regulatios, ad with customer ad ivestor requiremets. Usustaiable forests ad fibrous raw material are the mai risks to our stakeholders. We ehace our customers brad value by guarateeig risk-maagemet through Forest Certificatio, ad related Chai of Custody Certificatio. This leads to operatioal cotiuity ad busiess growth for SKG. SKG has led from the frot o sustaiability for the past decade. As part of that commitmet to sustaiable busiess practices, we have rigorously collected sustaiability data o our operatios for the past decade. We use this iformatio to cotiually improve our process efficiecy ad meet our sustaiability targets, such as reducig CO 2 emissios. I our paper mills we are resource efficiet, usig raw materials ad their by-products to their fullest. For example, our Piteå mill i Swede is ow ru almost etirely o biofuels derived from the wood pulpig process. I may mills, biogases from waste water treatmet are fuel for heat ad power productio. Our Roermod mill has bee iteratioally recogised for fidig circular ecoomic syergies with its eighbours. Customer Value Collaboratio Brad Value Packagig solutios Log-term profitability Opportuities maagemet Risk Busiess Growth Sustaiability i busiess strategy beefits through multiple layers Operatioal cotiuity Compliace Measurable targets Drivig Efficiecy Cost efficiecy efficiecy Prcoess Resource improvemet Circularity Iclusiveess Iovatio 56 Smurfit Kappa Aual Report 2017

59 Overview Strategic Report Goverace Fiacials Product developmet ad iovatio at SKG is data drive, with a prove scietific approach iformig good busiess decisios. Data collected from our operatios is combied with ogoig research ad aalysis of customer challeges ad specific markets. We employ a rage of tools, Iotools, uiquely exclusive to SKG, eablig us to create the optimal fit-for-purpose packagig solutios for our customers, thereby addig value to their busiesses. Furthermore, the Iotools feed iformatio to our customer value-added services: SupplySmart; ShelfSmart; ad esmart i the areas of supply chai optimisatio, brad growth ad ecommerce. We are proud of the trasparecy we offer our stakeholders ad the credibility that third-party assured data delivers. This strategy is itegral to deliverig busiess growth, operatioal cotiuity ad efficiecy. Corporate Citizeship Policies SKG has specific policies o key areas of sustaiability which are itegral i improvig future performace. These cover Eviromet, Sustaiable Forestry, Social Citizeship ad Health ad Safety. These policies complemet other policies i place, coverig: Good Faith Reportig, Code of Busiess Coduct, Code of Ethics for Seior Fiacial Officers, Group Fiacial Reportig Guide, Group Treasury Policy, Fiacial Moitorig Policy, Treasury Compliace Programme ad Competitio Compliace Programme. A report o Corporate Goverace is detailed o pages 72 to 77 of this Aual Report. Social Citizeship SKG coducts a large part of its commitmet to corporate social resposibility uder the headig of Social Citizeship. SKG is committed to maagig its busiess i accordace with its declared values which recogise that good social citizeship, reflected i the maer i which it iteracts with its employees, busiess parters ad local commuities, is a essetial igrediet i creatig ad maitaiig a sustaiable future. SKG applies the priciples of respect for huma rights, freedom of associatio, fair compesatio, ad diversity regardless of age, geder, sexual orietatio, ethic origi, disability or atioality. Merit is the key determiat i recruitmet ad promotio. SKG values ope, costructive, regular ad timely dialogue with its employees ad their represetatives, particularly i all matters affectig the busiess icludig safety, workig coditios, profitability, busiess outlook, ivestmet decisios or the terms ad coditios of employmet. The Europea Works Coucil ( EWC ), which was created to assist i the developmet of a ope two-way commuicatio process for all employees ad uios o all such matters, had two meetigs durig the year, with a additioal three meetigs with the Select Committee of the EWC. Matters typically discussed at the EWC iclude employmet opportuities, fiacial status, projected developmets, busiess coditios, relocatio, curtailmet or busiess closures ad health ad safety. Implemetig SKG s Social Citizeship Policy is the resposibility of lie maagemet who are supported by the huma resource maagers at coutry, segmet ad Group level. Moder Slavery Act SKG is subject to the provisios of the UK Moder Slavery Act. I keepig with the Uited Natios Guidig Priciples o Busiess ad Huma Rights ad the Fudametal priciples ad Rights at Work developed by the Iteratioal Labour Orgaisatio, we are committed to the priciples of respect, diversity, workig fairly, fair pay, compesatio ad beefits ad acquisitio practices. They are maitaied i every coutry i which we have a presece ad are set out i our Code of Busiess Coduct, our Social Citizeship Policy Statemet ad our Sustaiability Report. SKG has thousads of suppliers globally ad we believe that our suppliers are a itegral part of the value chai of our busiess. We are committed to workig with our suppliers i accordace with our sustaiability priciples ad objectives which highlight our requiremets i the areas of compliace, performace risk maagemet, social resposibility ad goverace. Maitaiig trasparet ad log-term relatioships with suppliers is essetial for our busiess. This partership approach esures we ca audit suppliers o their compliace ad our sustaiable supply chai stadards ad, where they fall short, work with them to improve sustaiability i their busiess. I recogitio of the ature ad cocer about moder slavery we cotiue to develop our priciples ad policies with respect to our employees ad our suppliers to esure compliace with the Moder Slavery Act. We issued a statemet uder sectio 54 of the Act i 2017 ad will issue a updated statemet i Jue Commuities We egage i the commuities i which we are located ad strive to be see as a good corporate citize. We are trasparet about our activities, ad our mills ad plats have a ope-door policy for differet stakeholder groups. SKG ivests sigificatly i its host commuities, cotributig to ecoomic ad social developmet. Iterally ad exterally, we adhere to high ethical ad professioal stadards, makig the well-beig ad safety of people a priority withi ad outside our orgaisatio. Commuity ivolvemet builds trust ad improves commuicatio. This plays a positive part i our developmet ad mitigates risks related to operatioal cotiuity. I our charitable work we focus o self-help iitiatives, educatio ad health programmes for the less advataged ad especially for youg people. 57

60 SUSTAINABILITY (CONTINUED) Health ad Safety SKG h as made the health ad safety of its workforce a overridig cosideratio. It adopts a structured ad systematic approach to the maagemet of health ad safety cosideratios i the workplace. The SKG Health ad Safety Policy statemet states that: At Smurfit Kappa, we promote a health ad safety culture fouded o uderstadig, resposibility ad accoutability. Our visio is to operate with Health ad Safety as a core value, ot just a priority. We aim to cotiually improve our performace by adoptig a structured systematic approach to the maagemet of health ad safety aspects supported by cotiual improvemet of our systems. It is Smurfit Kappa policy to implemet good health ad safety practice by adoptig prove idustry practice across the orgaisatio ad foster a work eviromet where every member of the workforce has a idividual resposibility to execute their tasks i a safe, diliget ad professioal maer. The commitmets withi the revised Group health ad safety policies are cosistet with those of the iteratioally recogised OHSAS18001 occupatioal health ad safety system specificatio. Every facility withi SKG adopts a suite of good health ad safety maagemet systems desiged to protect employees, visitors to its sites, cotractors ad the public at large from ijury ad ill-health. All performace reviews at plat, coutry, divisio ad regioal level iclude a review of recet health ad safety performace. O a quarterly basis the Board receive a progress report outliig key health ad safety developmets. SKG promotes the developmet ad implemetatio of techical ad egieerig improvemets through cotiual iteral bechmarkig of health ad safety performace ad promotes the itroductio of iovative solutios through its aual health ad safety awards programme. SKG recogises the importace of strog leadership, cotiual employee ivolvemet, ad represetatio i the developmet ad maiteace of a positive safety culture. To that extet, it maitais a itercoected ad collaborative health ad safety expert commuity that supports the operatios maagemet teams as they take steps, both locally ad regioally, to address commo ad uique challeges. This expert etwork leverages the rich kowledge of employees i areas such as huma resources, productio, idustrial desig, ad process cotrol. This etwork positios SKG to deliver iovative solutios based o prove priciples. The safety of every member of the workforce is a key cosideratio for the Group. SKG devotes cosiderable time ad effort to the maagemet of health ad safety aspects so that employees ad subcotracted workers are aware of ad follow the appropriate protective procedures. The Group Health ad Safety performace improved agai i 2017 with a further reductio i the umber of Lost Time Accidets compared to previous years due to a umber of health ad safety measures ad iitiatives implemeted across the Group. Relative safety frequecy has sigificatly reduced i 2017 with a reductio of almost 10%, reachig the lowest level i our most recet history. Regrettably, we have to report two fatalities i 2017: oe employee at our Elcorr site i the Netherlads suffered a fatal ijury whilst operatig a palletisig lie. Aother employee at the forestry divisio i Veezuela sustaied a fatal ijury while cuttig a tree which collapsed o him. The prevetio of every accidet is ad will remai a key priority for the Group. SKG is committed to makig cotiual advaces i its health ad safety maagemet processes. We regularly perform comprehesive health ad safety verificatio ad audit process tailored specifically to its global operatios. Based o its iteral health ad safety operatig stadards, this audit process verifies the presece of the appropriate protective measures. 58 Smurfit Kappa Aual Report 2017

61 Overview Strategic Report Goverace Fiacials 59

62 PEOPLE We have developed a People Strategy to attract, egage, develop ad retai taleted people As part of our overall busiess visio ad strategy, we have developed a People Strategy to attract, egage, develop ad retai taleted people i SKG, offerig both employees ad potetial employees the opportuities ad coditios to become highperformers ad to achieve their full potetial. The People Strategy is a key facilitator for achievig SKG s short ad log-term busiess targets, ad is based o six mai pillars ad a umber of foudatios: Each of these pillars is described i more detail below. SMURFIT KAPPA Missio ad Strategy Talet Attractio Employee Egagemet People Developmet Diversity & Iclusio Performace Maagemet Compesatio Safety ad Well-beig Legal Framework Idustrial Relatios HR Iformatio Systems Iteral Comms 60 Smurfit Kappa Aual Report 2017

63 Overview Strategic Report Goverace Fiacials PILLAR 1 Talet Attractio SKG aims at all times to match the right perso to the right role. The uderlyig process is two-fold: esurig that our existig talet is properly developed ad that we are attractig ew talet with the correct skill set. The Group offers a umber of graduate programmes which typically last two years ad offer a umber of challegig assigmets ad opportuities. The aim is to attract top talet i various disciplies ad offer the cadidates the prospect of a successful career at SKG. Followig the Group bradig strategy Ope the Future, we have ow developed a global Employer Brad i order to calibrate all of our talet attractio programmes ad approach the employee recruitmet market i a uified maer. A employer bradig campaig has bee developed that ivites talet to joi SKG ad shape the future of the Group uder the taglie Where will you take us?. The campaig message is supported by a umber of commuicatios, promotig erichig the diversity ad depth of the world of SKG. PILLAR 2 Employee Egagemet We believe that a compay with egaged employees geerates higher growth, faster iovatio, greater customer satisfactio ad better results, ad that employees thrive i a better workig eviromet. Over the last three years sice the first global employee egagemet survey, MyVoice, was held i 2014, the Group has implemeted over 1,000 actios across our plats ad mills based o local results. The 84% respose rate of the MyVoice survey i 2017 exceeded the already high respose rate of 80% of the first survey. MyVoice was very well received, with our employees voicig their opiios o their work experiece, their maagers ad workig eviromet ad o the potetial areas of improvemet. tred. Strog improvemets were made i areas such as Career Opportuities, Commuicatio ad Reward ad Recogitio. Health ad Safety came out at the top of all egagemet drivers, oce agai exceedig exteral bechmarks. Overall our employees are strogly committed to the compay ad proud to be part of Smurfit Kappa. At the same time, further areas of improvemet were idetified, recofirmig that egagemet is a cotiuig jourey. The MyVoice survey is cosidered a trusted tool for cotiuous improvemet helpig to make Smurfit Kappa a eve greater place to work. I MyVoice 2017, we recorded improvemets i the egagemet scores of all our regios (Group, Europe ad The Americas). Also, all the differet drivers of egagemet used i our egagemet model saw a higher positive respose, showig a overall positive 61

64 PEOPLE (CONTINUED) PILLAR 3 People Developmet Developmet of our employees is a key objective for the Group. We ecourage our employees to reach their potetial through cotiuous traiig ad persoal developmet. We support several learig ad developmet programmes at all levels i the orgaisatio ad promote opportuities for idividual progressio ad learig activities. Withi our Smurfit Kappa Academy there are a wide rage of learig ad developmet iitiatives icludig: Graduate Workshop Advaced Maagemet Developmet Programme ( AMD ) Global Maager Programme ( GMP ) Ope Leadership INSEAD busiess school Busiess Ecoomics Traiig Maagemet for Cotiuous Improvemet Value Sellig Process Eglish Immersio Programme. I additio, across our operatios, a wide rage of traiig programmes are beig delivered locally for both teams ad idividual employees, accordig to local eeds ad local developmet strategies. The Group believes that learig ever stops ad we seek to esure that all employees i the orgaisatio receive appropriate traiig. GRADUATE WORKSHOP, EUROPE Smurfit Kappa Aual Report 2017

65 Overview Strategic Report Goverace Fiacials PILLAR 3 (CONTINUED) Leadership Developmet Ope Leadership is a traiig programme that helps to idetify the leadership qualities we expect our maagers to develop i order to cotiue to improve performace ad to aticipate ad meet the chagig demads of the markets we serve. It is based o our Ope Leadership model which covers four mai areas: Leadig Self, Leadig People, Leadig the Orgaisatio ad Leadig the Market. A total of ie key capabilities are idetified as key compoets of the ope leadership style we wish to foster i our maagers ad eable them to become true leaders ad to promote employee egagemet. Ope Leadership traiig programmes were iitiated i partership with INSEAD, the busiess school based i Fotaiebleau, Frace. The Ope Leadership programme is a recet additio i the Group traiig offerig, with the first course rolled out i SKG has partered with INSEAD, oe of the world s leadig busiess schools, to desig a fully customised programme. I parallel, a umber of coutries across the Group are also desigig ad implemetig similar leadership programmes for local middle maagers, supervisors ad shift leaders. We are cofidet that this programme will help alig our leadership developmet practice to the highest iteratioal stadards ad that we will meet ad exceed the developmet eeds of our diverse SKG leaders. Empower ad develop people Take a strategic perspective Balace global ad local Ispire ad egage people Maximise value ad iovatio Be authetic Ope up ad make the most of diversity Deliver operatioal excellece ad results Kow yourself ad embrace learig The ie leadership capabilities of the SKG Ope Leadership Model OPEN LEADERSHIP PROGRAMME, INSEAD

66 PEOPLE (CONTINUED) PILLAR 4 Diversity ad Iclusio SKG promotes all forms of diversity at all levels of the orgaisatio. We firmly believe that diversity serves to erich the Group s perspective, improve corporate performace, icrease shareholder value ad ehace the probability of achievig the Group s strategic objectives. Through our Group s egagemet survey, MyVoice, we are able to moitor the perceptio of our 46,000 employees o diversity ad iclusio, with specific questios set o this particular subject. Focus is give to three mai areas i relatio to diversity: Attractig ad retaiig people who erich diversity withi the Group Esurig the Group s culture ad maagemet systems are aliged with, ad promote the achievemet of diversity Moitorig, reviewig ad reportig o the achievemet of diversity withi the Group, with a specific focus o geder diversity. Diversity is ow embedded i the Group s Ope Leadership model as oe of the ie leadership capabilities: Ope up ad make the most of diversity. Our leaders value diversity ad utilise the ew ad differet ideas that come from a diverse team. PILLAR 5 Performace Maagemet SKG is committed to the cotiuous persoal ad professioal developmet of all its people. To deliver o this commitmet a cotiuous dialogue betwee employees ad their maagers is coducted focusig o the skills, capabilities, stregths ad areas of improvemet of each employee. Our Performace Appraisal process, kow as Performace Dialogue focuses o the two-way ature of commuicatio betwee maagers ad employees. dialogue o a aual basis so the uderstadig of our strategy ad values is shared throughout the orgaisatio. To participats i our leadership traiig programme ad GMP, we also offer the opportuity to be part of a 360-degree feedback exercise, where the assessmet of leadership styles ad the idetificatio of areas for improvemet come ot just from their maagers, but also from their colleagues ad peers. Performace Dialogue cetres ot oly o the employee s performace but also o the employees objectives, their idividual stregths ad areas of improvemet with a agreed developmet pla for employee progressio as the outcome. This appraisal practice is a key elemet of the SKG performace maagemet process ad its mai objective is to eable every employee ot oly to reach their ow idividual performace potetial, but also to cotribute to their team ad to meetig the Group s overall objectives. We aim to cotiuously icrease the umber of employees egagig i performace 64 Smurfit Kappa Aual Report 2017

67 Overview Strategic Report Goverace Fiacials PILLAR 6 Compesatio Compesatio is a core part of our employee maagemet strategy i SKG. We provide competitive rates of pay ad esure fair compesatio practices across all our locatios. Where applicable we egage with uios, works coucils ad employee represetatives to esure fair ad sustaiable Collective Labour Wage Agreemets. The employees are rewarded i lie with their idividual ad busiess performace. I settig remueratio levels, SKG takes ito cosideratio the employees performace appraisal, exteral bechmark data for their role i compaies of similar size ad scope while also esurig reasoable iteral equity withi the Group. SKG key objectives for its Compesatio policy are to: Create a framework to eable the Group to attract ad retai taleted employees Motivate employees at every level of the orgaisatio to achieve the Group s objectives both short ad log-term i order to create sustaiable value Alig with the Group s values of supportig a performace culture The overall employee beefit package is tailored to help meet a variety of short ad log-term eeds. The key elemets of the package may iclude salary, performace related aual bous, a log-term icetive pla ( LTIP ) ad pesio beefits, all of which play a key role i drivig performace throughout the orgaisatio. Safety ad Wellbeig At SKG, we promote a Health ad Safety culture fouded o uderstadig, resposibility ad accoutability. Our visio is to operate with Health ad Safety as a core value, ot just a priority. We believe that operatig safely is o-egotiable ad o task is so importat it ca t be doe safely. The Group Health ad Safety performace improved agai i 2017, with a reductio i the umber of accidets compared to previous years due to a umber of health ad safety measures ad iitiatives implemeted across the Group. Full details ca be foud o page 58 i the Sustaiability sectio. This key focus was further highlighted as part of our aual Health ad Safety Day where the theme this year was Speak up & Be safe. I Smurfit Kappa, we champio the talet of over 46,000 employees ad we recogise that our people have differet skills ad stregths as a result of their iterests, educatio ad experiece. As a compay, our resposibility is to idetify the idividual talets of our people ad offer them the opportuity to develop ad reach their full potetial. Traiig ad developmet is a essetial part of this. We ecourage all of our employees to embrace learig ew iformatio ad skills, o matter what stage they are at i their Smurfit Kappa careers or whatever their level i the orgaisatio. With the MyVoice egagemet survey we regularly capture what our employees feel ad thik about workig i Smurfit Kappa ad this gives valuable isights o the areas where we ca ad will make improvemets. We cotiue to implemet actios to foster meritocracy ad promote diversity ad iclusio, equity ad respect i a safe ad ope work eviromet. Gialuca Castellii, Group VP Huma Resources 65

68 AN INTEGRATED MODEL PAPER MILL Our paper mills i both Europe ad the Americas offer the widest rage of high-quality paper grades supported by our urivalled services. At our Los Reyes mill i Mexico, we recetly ivested i a high performig, state of the art machie (pictured). The mill s capacity icreased to 176,000 toes, which allows for the itegratio of additioal cotaierboard ito our corrugated system. 66 Smurfit Kappa Aual Report 2017

69 Overview Strategic Report Goverace Fiacials Goverace Board of Directors 68 Corporate Goverace Statemet 72 Directors Report 78 Audit Committee Report 80 Remueratio Report 84 Nomiatio Committee Report

70 BOARD OF DIRECTORS Liam O Mahoy Chairma Age: 71 Natioality: Irish 1 1 Liam O Mahoy joied the Board upo the Compay beig admitted to tradig o the Irish Stock Exchage ad the Lodo Stock Exchage i March He was appoited Chairma i December He was the Chief Executive Officer of CRH plc from Jauary 2000 util his retiremet i December 2008, prior to which i a 37 year executive career withi the CRH Group he held a umber of seior maagemet positios icludig Chief Executive of its US operatios ad Maagig Director, Republic of Irelad ad UK compaies. He retired from the Board of CRH plc i He was previously Chairma of IDA Irelad. Athoy Smurfit Group Chief Executive Officer Age: 54 Natioality: Irish Athoy Smurfit has served as a Director of the Group sice 1989 ad was appoited Group Chief Executive Officer i September He has worked i various parts of the Smurfit Group both i Europe ad the Uited States sice he joied the Group. He was Group Chief Operatios Officer from November 2002 to September 2015 ad Chief Executive of Smurfit Europe from October 1999 to 2002 prior to which he was Deputy Chief Executive of Smurfit Europe ad previously Chief Executive Officer of Smurfit Frace. He is a board member of the Irish Busiess ad Employers Cofederatio ad is a member of the Europea Roud Table of Idustrialists. Ke Bowles Group Chief Fiacial Officer Age: 46 Natioality: Irish Ke Bowles was appoited Group Chief Fiacial Officer i April 2016 ad was appoited a Director i December He joied the Group i 1994 ad has occupied a umber of fiace roles i various parts of the Group. I 2004 he was appoited as the Group s first Head of Compliace, i 2007 he became the Group s Head of Tax ad i 2010 he was appoited Group Fiacial Cotroller. Mr Bowles is a associate member of the Istitute of Chartered Maagemet Accoutats ad holds a first class MBA from the UCD Graduate School of Busiess. BOARD COMMITTEES Audit Compesatio Nomiatio (1) Joied the Committee o IPO i 2007 or appoitmet date if later (See page 73) (2) Joied the Nomiatio Committee i 2013 (3) Joied the Audit Committee i 2014 ad the Compesatio Committee i 2015 (4) Joied the omiatio committee i Smurfit Kappa Aual Report 2017

71 Overview Strategic Report Goverace Fiacials Frits Beurskes Age: 70 Natioality: Dutch 2 Frits Beurskes has served as a Director of the Group sice December He joied the Kappa Group i 1990 ad held various Maagig Director positios util his appoitmet as its Presidet i 1996 which he held util the merger with Smurfit. He is a former Chairma of both the Cofederatio of Europea Paper Idustries ad the Iteratioal Corrugated Cases Associatio ad a former member of the Board of Sappi Limited. I December 2007 he was kighted ad appoited by the Dutch Quee as Officer i the Order of Oraje Nassau. Christel Bories Age: 53 Natioality: Frech 1 1 Christel Bories joied the Board i November Ms Bories joied Eramet SA i February 2017 ad was appoited Group Chairma ad Chief Executive Officer i May Ms Bories was previously Deputy Chief Executive Officer of Ipse SA from March 2013 to March She was Presidet ad Chief Executive Officer of Costellium (formerly Egieered products, Rio Tito) from 2007 to the ed of 2011 prior to which she was a seior executive i both Pechiey ad Alca for fourtee years of which eight years was as the Geeral Maager of the Packagig busiess. Ms Bories spet seve years i strategic cosultig prior to her idustrial experiece. She is a o executive Director of Legrad SA. Carol Fairweather Age: 56 Natioality: British 1 Carol Fairweather joied the Board i Jauary Ms Fairweather was Chief Fiacial Officer ad a executive Director of Burberry Group plc from July 2013 to Jauary She joied Burberry i Jue 2006 ad prior to her appoitmet as CFO, she held the positio of Seior Vice Presidet, Group Fiace. Prior to joiig Burberry, Ms Fairweather was Director of Fiace at News Iteratioal Limited from 1997 to 2005 ad UK Regioal Cotroller at Shadwick plc from 1991 to Ms Fairweather curretly serves as a o-executive Director of Segro plc. Ms Fairweather is a Associate of the Istitute of Chartered Accoutats. Irial Fia Age: 60 Natioality: Irish 1 1 CHAIRMAN Irial Fia joied the Board i February He was Executive Vice Presidet of The Coca-Cola Compay ad Presidet of the Bottlig Ivestmets Group from 2004 util he stepped dow from the role i December 2017 ad retires i March Prior to this Mr Fia served as Chief Executive Officer of Coca-Cola Helleic Bottlig Compay SA. He joied the Coca-Cola System i Mr Fia is resposible for the stewardship of The Coca-Cola Compay s Equity Ivestmets. He also serves o the Boards of Coca-Cola Europea Parters plc ad Coca-Cola Bottlers Japa Holdigs plc. Mr Fia is a Fellow of the Istitute of Chartered Maagemet Accoutats. James Lawrece Age: 65 Natioality: America 1 1 James Lawrece joied the Board i October He is curretly Chairma of Great North Star LLC, a ivestmet ad advisory firm. He served as Chairma of Rothschild North America from 2012 to 2015 ad previously served as Chief Executive Officer of Rothschild North America from 2010 to Prior to this, Mr Lawrece served as Chief Fiacial Officer ad a executive Director of Uilever plc. Mr Lawrece joied Uilever from Geeral Mills where he was Vice-Chairma ad Chief Fiacial Officer. He previously also held seior positios with Northwest Airlies ad Pepsico Ic. He is a o-executive Director of Avet, Ic., Iteratioal Cosolidated Airlies Group S.A. ad Aercap Holdigs N.V, 69

72 BOARD OF DIRECTORS (CONTINUED) Joh Moloey Age: 63 Natioality: Irish 3 3 Joh Moloey joied the Board i December He is the former Group Maagig Director of Glabia plc, a global performace utritio ad igrediets compay. He served as Group Maagig Director of Glabia plc from 2001 util he retired from this positio i November He joied Glabia plc i 1987 ad held a umber of seior maagemet positios before he was appoited Deputy Group Maagig Director i He is Chairma of Coillte Teo ad Chairma of DCC plc ad a o-executive Director of Greecore Group plc. Roberto Newell Seior Idepedet Director Age:70 Natioality: Mexica 1 4 CHAIRMAN Roberto Newell joied the Board i Jue He is Vice Chairma of the Board of the Istituto Mexicao para la Competitividad, A.C. ( IMCO ), a idepedet thik-tak i Mexico, established to develop policies to ehace Mexico s competitiveess. Prior to joiig IMCO, Mr Newell served Mexico s Federal Govermet, most recetly as Deputy Secretary for Agriculture. Betwee 1984 ad 2001, Mr Newell worked for McKisey & Co., where he served cliets i North America ad Lati America. At McKisey, Mr Newell advised large corporatios ad atioal govermets with a focus o the fiacial ad telecommuicatios sectors. Mr Newell serves o the Board of a umber of istitutios i Mexico. Jørge Buhl Rasmusse Age: 62 Natioality: Daish 1 1 Jørge Buhl Rasmusse joied the Board i March He is the former Chief Executive Officer of Carlsberg AS. He served as the Chief Executive Officer of Carlsberg AS from 2007 util he retired from this positio i 2015 havig joied the compay i He previously held seior positios i several global FMCG compaies, icludig Gillette Group, Duracell, Mars ad Uilever over the previous 28 years. He is Chairma of Novozymes AS ad Uhreholt AS ad a o-executive director of the charity Huma Practice Foudatio. Gozalo Restrepo Age: 67 Natioality: Colombia 1 1 Gozalo Restrepo joied the Board i Jue He is the former Chief Executive Officer of Almacees Exito SA, a leadig retail compay i Lati America ad a subsidiary of the Frech compay, Casio Group. He served as the Chief Executive Officer of Almacees Exito from 1990 util he retired from this positio i He is a o-executive Director of Cardif Colombia Seguros Geerales SA. He is a member of the Etrepreeurs Coucil of Proatioguia i Colombia. Rosemary Thore Age: 66 Natioality: British 1 1 CHAIRMAN Rosemary Thore joied the Board i March Durig her executive career she was Group Fiace Director for Ladbrokes plc from 2006 to 2007, Bradford ad Bigley plc from 1999 to 2005 ad at J Saisbury plc from 1992 to Ms Thore has extesive experiece as a o-executive Director ad curretly serves as a o-executive Director of Solvay S.A. ad Merrill Lych Iteratioal. Ms Thore is a Fellow of the Istitute of Chartered Maagemet Accoutats ad a Fellow of the Associatio of Corporate Treasurers. Ms Thore has decided ot to seek re-electio at the forthcomig AGM. 70 Smurfit Kappa Aual Report 2017

73 Overview Strategic Report Goverace Fiacials 71

74 CORPORATE GOVERNANCE STATEMENT The Directors are committed to maitaiig the highest stadards of corporate goverace. This Corporate Goverace Statemet describes how throughout the fiacial year eded 31 December 2017 Smurfit Kappa Group plc applied the priciples of the 2016 UK Corporate Goverace Code ( the Code ) published by the Fiacial Reportig Coucil ( FRC ). The Directors believe that the Group has complied with the provisios of the Code throughout the year uder review. A copy of the Code ca be obtaied from the FRC s website: frc.org.uk. Board of Directors The Board is primarily resposible for the log-term success of the Group, for settig the Group s strategic aims, for the leadership ad cotrol of the Group ad for reviewig the Group s system of iteral cotrol ad risk maagemet. There is a clear divisio of resposibilities withi the Group betwee the Board ad executive maagemet, with the Board retaiig cotrol of strategic ad other major decisios uder a formal schedule of matters reserved to it which icludes: Approval of the Group s strategy which is set out o page 34 Board appoitmets icludig those of the Chairma ad Group Chief Executive Officer Agreemet of terms of appoitmet of the Chairma, Group Chief Executive Officer ad other executive Directors Agreemet of ay fudametal chages to the Group maagemet ad cotrol structure Approval of the aual fiacial budgets Approval of capital expediture above fixed limits Approval of material acquisitios ad disposals of busiesses Approval of the Iterim Maagemet Statemets, the Iterim Report, the Prelimiary Results Release ad the Aual Report Establishmet ad review of corporate goverace policy ad practice Moitorig of the Group s risk maagemet ad iteral cotrol systems Cofirmig that the Aual Report ad Cosolidated Fiacial Statemets, take as a whole, are fair, balaced ad uderstadable ad provides the iformatio ecessary for shareholders to assess the positio ad performace of the Group, its busiess model ad strategy. As recommeded by the Code, the roles of Chairma ad Group Chief Executive Officer are held by separate idividuals ad the divisio of resposibilities betwee them is clearly established ad has bee set out i writig ad approved by the Board. The Board has delegated resposibility for the day-to-day maagemet of the Group, through the Group Chief Executive Officer, to executive maagemet. The Group Chief Executive Officer is resposible for implemetig strategy ad policy as approved by the Board. As discussed below, the Board has also delegated some of its resposibilities to Committees of the Board. The powers of Directors are determied by Irish legislatio ad the Articles of Associatio of the Compay. The Directors have access to idepedet professioal advice at the Group s expese, if ad whe required. No such advice was sought by ay Director durig the year. The Board Committees are provided with sufficiet resources to udertake their duties. Membership, Board Size ad Idepedece Followig the appoitmet of Ms Fairweather, there are thirtee Directors o the Board, comprisig: a o-executive Chairma, two executive Directors ad te o-executive Directors. A list of Directors is set out o page 73 ad biographical details are set out o pages 68 to 70. The Board cosiders that the Board comprisig thirtee Directors is ot so large as to be uwieldy ad that the Directors with a broad spread of atioalities, backgrouds ad expertise brig the breadth ad depth of skills, kowledge ad experiece that are required to effectively lead the Group. The Group has i place a effective Board which provides the highest stadards of goverace to a iteratioally diverse busiess with iterests spaig three cotiets ad 35 idividual coutries. Each of the Group s o-executive Directors has broad-based iteratioal busiess expertise ad may have gaied sigificat ad relevat idustry specific expertise over a umber of years. The compositio of the Board reflects the eed, as outlied by the Code, for a effective Board to maitai a balace of skills, kowledge ad experiece. The experiece of each Director is set out i their biographies which are detailed o pages 68 to 70. The Board through the Nomiatio Committee reviews the compositio of the Board o a aual basis. This icludes a review of refreshmet ad reewal policies, Board diversity, icludig geder diversity ad the skills, kowledge ad experiece of the Directors. I particular, a cetral aspect of maitaiig Board effectiveess is a ogoig programme of Board refreshmet, which fosters the sharig of diverse perspectives i the boardroom ad the geeratio of ew ideas ad busiess ideas. Durig the year, the Board s ogoig refreshmet cotiued, with the appoitmet of Jørge Buhl Rasmusse ad Carol Fairweather to the Board. The Board cotiues to iclude a appropriate balace of loger servig ad more recetly appoited Directors. Followig these reviews, the Board is satisfied that the Board ad its Committees are performig effectively ad that the balace of skill, experiece, diversity, idepedece ad kowledge of the Group are sufficiet to eable the Directors to discharge their respective duties ad resposibilities effectively ad believe the Board has a sufficiet balace of diversity. The culture of the Board is ope, trasparet ad collegiate. The Chairma demostrates leadership ad ecourages a ope ad trasparet style aroud the Board table. The Code recommeds that, apart from the Chairma, at least half of the Board of Directors of a listed compay should comprise o-executive Directors determied by the Board to be idepedet. Durig the year uder review the Compay complied with the Code recommedatio o Board idepedece. The Chairma was idepedet o appoitmet. The Board reviewed the compositio of the Board ad determied that Ms Bories, Ms Fairweather, Mr Fia, Mr Lawrece, Mr Moloey, Mr Newell, Mr Rasmusse, Mr Restrepo ad Ms Thore are idepedet. I reachig that coclusio the Board took ito accout the priciples relatig to idepedece cotaied i the Code ad specifically whether ay o-executive Director: 72 Smurfit Kappa Aual Report 2017

75 Overview Strategic Report Goverace Fiacials has bee a employee of the Group; has or had withi the last three years, a material busiess relatioship with the Group; receives remueratio from the Group other tha a Director s fee; has close family ties with ay of the Group s advisers, Directors or seior employees; holds cross-directorships or has sigificat liks with other Directors through ivolvemet i other compaies or bodies; represets a sigificat shareholder; or has served o the Board for more tha ie years from the date of their first electio. The Board is satisfied that the idepedece of the relevat Directors is ot compromised by these or ay other factors. While Mr Beurskes was previously a employee of the Group ad Ms Thore has served o the Board for more tha ie years, the Board does ot believe these facts compromise their idepedece of judgemet, their cotributio to the Board or the quality of their oversight. Executive ad No-executive Directors Experiece ad Skills Each of the executive Directors has extesive experiece of the paper-based packagig idustry. Their kowledge is backed up by the geeral busiess skills of the idividuals ivolved ad previous relevat experiece. The o-executive Directors use their broad based skills, their diverse rage of busiess ad fiacial experieces ad their iteratioal backgrouds i reviewig ad assessig ay opportuities or challeges facig the Group ad play a importat role i developig the Group s strategy ad scrutiisig the performace of maagemet i meetig the Group s goals ad objectives. Two of the oexecutive Directors have the additioal beefit of may years exposure to paper-based packagig compaies either as employees, directors or stakeholders which complemets the experieces of the executive Directors. Appoitmets, Retiremet ad Re-electio to the Board Ay Director co-opted to the Board by the Directors is subject to electio by the shareholders at the first Aual Geeral Meetig ( AGM ) after their appoitmet ad, pursuat to the Articles of Associatio of the Compay, all Directors are subject to re-electio at itervals of o more tha three years. However, i accordace with the Code, the Directors idividually retire at each AGM ad submit themselves for re-electio if appropriate. The procedures goverig the appoitmet ad replacemet of Directors are cotaied i the Compay s Articles of Associatio. Chages to the Articles of Associatio must be approved by the shareholders i accordace with Irish compay law. The stadard letter of appoitmet of o-executive Directors will be available for ispectio at the AGM ad is available o request, from the Compay Secretary. Each of the Directors, other tha Ms Thore, are offerig themselves for re-electio at the 2018 AGM. Exteral Directorships The Board believes that there is beefit for the Group if executive Directors hold o-executive directorships with other compaies as it ehaces their overall busiess experiece. Cosequetly, the executive Directors are ecouraged to accept a small umber of exteral appoitmets as oexecutive Directors or o idustry associatios. Directors are permitted to retai ay paymets received i respect of such appoitmets. Director Role Idepedet Appoitmet Date * Liam O Mahoy No-executive Chairma ** 2007 Athoy Smurfit Group Chief Executive Officer No 1989 Ke Bowles Group Chief Fiacial Officer No 2016 Frits Beurskes No-executive Director former Executive No 2005 Christel Bories No-executive Director Yes 2012 Carol Fairweather No-executive Director Yes 2018 Irial Fia No-executive Director Yes 2012 James Lawrece No-executive Director Yes 2015 Joh Moloey No-executive Director Yes 2013 Roberto Newell No-executive Director Yes 2010 Jørge Buhl Rasmusse No-executive Director Yes 2017 Gozalo Restrepo No-executive Director Yes 2015 Rosemary Thore No-executive Director Yes 2008 * For Smurfit Kappa Group plc or its predecessor compaies. SKG retured to the ISE ad LSE i March 2007 ** O his appoitmet as Chairma i December 2008 Mr O Mahoy was idepedet 73

76 CORPORATE GOVERNANCE STATEMENT (CONTINUED) Remueratio Details of remueratio paid to Directors (executive ad o-executive) are set out i the Remueratio Report o pages 84 to 100. No-executive Directors are paid fees for their services ad oe of their remueratio is performace related. They are ot eligible to participate i the Group s aual bous scheme or log-term icetive plas ( LTIP ). No-executive Directors fees are ot pesioable. The Remueratio Policy ad the Remueratio Report will be preseted to shareholders for the purposes of a o-bidig advisory vote at the AGM o 4 May A ew LTIP will also be preseted to the shareholders at that meetig. Chairma Mr Liam O Mahoy who joied the Board upo the Compay beig admitted to tradig o the ISE ad the LSE i March 2007 was appoited Chairma i December As recommeded by the Code, the Chairma was idepedet at his time of appoitmet. The Chairma is resposible for the leadership of the Board ad the efficiet ad effective workig of the Board. He sets ad maages the Board ageda i order that at appropriate times it addresses all matters reserved to the Board ad esures that adequate time is available for discussio o strategy ad the strategic issues facig the Group. He esures that the Directors receive accurate, timely ad clear iformatio, ad that the Directors are updated periodically o the views or cocers of the major ivestors. He also esures that a culture of opeess ad debate is fostered to facilitate the effective cotributio of the o-executive Directors to the Board. Seior Idepedet Director Mr Roberto Newell was appoited the Group s Seior Idepedet Director i May His duties iclude beig available to shareholders if they have cocers which caot be resolved through the Chairma or Group Chief Executive Officer or where cotact with either of them is iappropriate. He is available to serve as a itermediary for other Directors where ecessary. The Seior Idepedet Director also coducts a aual evaluatio of corporate goverace compliace, the operatio ad performace of the Board, the Directors, its Committees ad the Chairma s performace i cojuctio with the other oexecutive Directors o a aual basis except i the year whe a exteral evaluatio takes place. Group Secretary The Directors have access to the advice ad services of the Group Secretary who is resposible to the Board for esurig that Board procedures are followed, applicable rules ad regulatios are complied with ad that the Board is advised o its corporate goverace obligatios ad developmets i best practice. The Group Secretary is resposible for formal miutig of ay uresolved cocers that ay Director may have with the operatio of the Compay. Durig the year, there were o such uresolved issues. The Group Secretary also acts as secretary to all of the Board Committees. Board Meetigs The Board meets at least five times each year with additioal meetigs as required. The Board met five times i Details of the meetigs held durig the period are cotaied i the schedule o page 77, which also icludes iformatio o idividual attedace. The Board holds at least oe of its meetigs each year at a Group operatio to give the Directors a opportuity to meet with a wider rage of maagemet ad to see ad remai familiar with the Group s operatig activities. I 2017 the July Board meetig was held i Austria at our Nettigsdorfer Mill. The Board is supplied o a timely basis i advace of Board meetigs with a Board Report comprisig strategic updates, operatioal, fiacial, health ad safety, ad ivestor relatios iformatio together with Board papers o key issues i a form ad of a quality to eable it to discharge its duties effectively. The Board papers also iclude the miutes of all Board Committee meetigs ad at each Board meetig the Chairma of each Committee gives a report o major ageda items discussed at Committee meetigs held sice the last Board meetig. Whe Directors are uable to atted a meetig, havig bee advised i the Board papers circulated prior to the meetig of the matters to be discussed, they are give a opportuity to make their views kow to the Chairma or the Group Chief Executive Officer prior to the meetig. Iductio ad Developmet O appoitmet, all o-executive Directors receive comprehesive briefig documets o the Group, its operatios ad their duties as a Director. They are also give presetatios by the seior maagemet team ad are give the opportuity to visit sites ad meet with the local maagemet. Durig the year Directors meet with seior maagemet at Board meetigs, o idividual site visits ad at the aual visit by the Board to a Group operatio. Directors also receive regular briefigs ad presetatios o a wide rage of the Group s activities together with all sigificat aalyst ad ratig reports. All Directors are ecouraged to go for traiig to esure they are kept up to date o relevat legal developmets or chages i best practice. Successio Plaig ad Diversity The Board believes that appoitig the best people to the Group s Board is critical to the success of the Compay ad as a result all appoitmets are made purely o merit regardless of geder, race, religio, age or disability. The Board recogises that diversity is a essetial corerstoe for buildig log-term busiess success ad esures differet perspectives are itroduced ito Board discussio. The Board cosiders geder, teure ad a wide geographical experiece base to be essetial aspects of diversity for a compay with busiesses i 35 coutries worldwide, with eight atioalities represeted o the Board. This policy plays a key role i the Group s successio plaig whe cosiderig ew appoitmets to the Board. Suitable cadidates are selected o the basis of their relevat experiece, employmet backgroud, skills, kowledge ad isight, havig due regard to the beefits of diversity to the Board. For example, Ms Fairweather, whose appoitmet as o-executive Director was cofirmed by the Board i December 2017, has sigificat expertise i the global retail sector ad this, together with her experiece as Chief Fiacial Officer of a FTSE 100 compay, will add to the Board s skill base. Her biography is set out o page 69. Durig the year the Nomiatio Committee evaluated the compositio of the Board with respect to the balace of skills, kowledge, experiece ad diversity, icludig geographical ad 74 Smurfit Kappa Aual Report 2017

77 Overview Strategic Report Goverace Fiacials geder diversity, o the Board ad updated a policy documet o Board successio which was approved by the Board. Exteral Board Evaluatio A idepedet exteral Board evaluatio was carried out i 2016 by ICSA Board Evaluatio ( ICSA ), a divisio of the Istitute of Chartered Secretaries ad Admiistrators who also carried out the previous evaluatio i The overall outcome was positive ad idicated that the Board was operatig effectively ad cohesively with performace beig rated very good ad i the upper quartile of a six poit scale ragig from poor to excellet. ICSA was part of a orgaisatio that supplied some IT services to the Group, however, the aual value of the cotract was ot material to either party. Iteral Board Evaluatio The Seior Idepedet Director co-ordiates a aual evaluatio of corporate goverace compliace, the operatio ad performace of the Board, the Directors, its Committees ad the performace of the Chairma except i years whe a exteral evaluatio is carried out. This is achieved through the completio of a detailed questioaire by each Director ad separate discussios with each Director. A evaluatio was carried out durig the fourth quarter of 2017 ad idicated that a robust cosesus exists that the Board is fuctioig effectively, both as a Board ad at Committee level. The Chairma coducts a aual evaluatio of the performace of the Directors. The Committees udertake a aual evaluatio of their performace ad report back to the Board. At least oce a year the Chairma meets with the o-executive Directors without the executive Directors to review the Board s performace. The Board discusses the results of its evaluatios i order to idetify ad address areas i which the effectiveess of the Board might be improved. Share Owership ad Dealig Details of Directors shareholdigs are set out o pages 97 ad 99. The Group has a policy o dealig i shares that applies to restricted persos comprisig all Directors, ad seior maagemet ad certai other employees. Uder the policy, restricted persos are required to obtai clearace from prescribed persos before dealig. Restricted persos are prohibited from dealig i SKG securities durig desigated closed periods ad at ay other time whe the idividual is i possessio of Iside Iformatio (as defied by the Market Abuse Regulatio (EU 596/2014)). Board Committees As recommeded by the Code, the Board has established three Committees to assist i the executio of specific matters withi its resposibility. These are the Audit Committee, the Compesatio Committee ad the Nomiatio Committee. The resposibilities of each of these Committees are set out clearly i writte terms of referece, which are reviewed aually ad are available o the Group s website. The Chairma of each Committee reports to the Board o the major ageda items discussed sice the last Board meetig ad the miutes of all Committee meetigs are circulated to all of the Directors. The curret membership of each Committee, details of attedace ad each member s teure are set out i the idividual Committee reports o pages 80 to 101. Stock Exchage Listigs SKG, which is icorporated i Irelad ad subject to Irish compay law, has a premium listig o the Lodo Stock Exchage ad a secodary listig o the Irish Stock Exchage. Commuicatio with Shareholders The Board gives a high priority to effective commuicatios with shareholders ad recogises the beefits of shareholder egagemet i order to foster mutual uderstadig of the Compay s strategy ad the views of major ivestors. O a day-to-day basis, cotact with istitutioal shareholders is the resposibility of the Group Chief Executive Officer, the Group Chief Fiacial Officer ad the Head of Ivestor Relatios. There is regular dialogue with idividual shareholders, as well as geeral presetatios, plat visits, attedace at relevat cofereces ad coferece calls ad presetatios at the time of the release of the aual ad quarterly results. Ivestors ad aalysts also atted the Group s Iovatio ad Sustaiability Awards exhibitio which is held every 18 moths. The Chairma, Group Chief Executive Officer, Group Chief Fiacial Officer, Chief Executive Officer Europe ad the Chief Executive Officer the Americas also participate i these evets. The Chairma, Seior Idepedet Director ad ay other member of the Board are available to meet major ivestors if required. The Chairma also had a umber of meetigs with major shareholders durig the year. As part of the revisios to the remueratio framework proposed o pages 86 to 90, the Compesatio Committee actively egaged with, ad received feedback from a sigificat proportio of the Group s shareholders. The papers for each Board meetig iclude a comprehesive report summarisig ivestor relatios activity durig the precedig period icludig cotacts betwee executive maagemet ad curret ad prospective istitutioal shareholders. The views ad issues highlighted by shareholders are also icluded i the report. The Group issues its aual ad quarterly results promptly to shareholders ad also publishes them o the Group s website: smurfitkappa.com. The Group operates a ivestor relatios sectio o the website, which i additio to the aual ad quarterly reports, cotais ivestor presetatios ad all press releases immediately after their release to the Stock Exchage. The Group also has a Ivestor Relatios web app which makes it easier for ivestors to lear about the Group ad keep i touch with relevat corporate activity. The Group s AGM affords each shareholder the opportuity to questio the Chairma of the Board, the Chairme of all Committees ad all other Board members. The Notice of the AGM ad related papers together with the Aual Report are set to shareholders at least 20 workig days before the meetig. I additio, the Group respods throughout the year to umerous queries from shareholders o a broad rage of issues. Shareholder Meetigs ad Shareholder Rights Shareholders meetigs are govered by the Articles of Associatio of the Compay ad the Compaies Acts 2014 (the Compaies Act ). The Compay must hold a AGM each year i additio to ay other shareholder meetig i that year ad must specify that meetig as such i the otices callig it. The Directors may covee geeral meetigs. Extraordiary geeral meetigs 75

78 CORPORATE GOVERNANCE STATEMENT (CONTINUED) may also be coveed as provided by the Compaies Act. Notice of a geeral meetig must be provided as required by the Compaies Act. At its geeral meetigs the Compay proposes a separate resolutio o each substatially separate issue ad does ot budle resolutios together iappropriately. Resolutios o the receipt of the Aual Report ad the approval of the Directors Remueratio Report ad Remueratio Policy are put to shareholders at the AGM. The Chairma of the Board of Directors or, i his absece, aother Director omiated by the Directors will preside as chairma of a geeral meetig. Ordiary Shares carry votig rights. Three members etitled to vote at the meetig preset either i perso or by proxy costitute a quorum. Votes may be give either persoally or by proxy. O a show of hads, every member preset i perso ad every proxy will have oe vote ad o a poll, every member preset i perso or by proxy, shall have oe vote for every share carryig votig rights of which he is the holder. The followig persos may demad a poll: the Chairma of a geeral meetig, at least five members preset i perso or by proxy havig the right to vote at the meetig, ay member(s) preset i perso or by proxy represetig at least oe-teth of the total votig rights of all the members havig the right to vote at the meetig, or, a member(s) preset i perso or by proxy holdig shares o which a aggregate sum has bee paid up equal to ot less tha oe-teth of the total sum paid up o all the shares coferrig that right. The Compaies Act provides for a umber of key powers of geeral meetigs, icludig the right to elect or re-elect a Director, the right to give authority to the Compay to disapply pre-emptio rights, the right to give authority to the Compay to buy back shares ad the right to amed the Memoradum ad Articles of Associatio of the Compay. The Compaies Act also provides for a umber of shareholder rights i respect of the geeral meetig ad the methods of exercisig of those rights, which are set out i the otes to the Notice of the AGM, icludig the right a) to table ageda items ad resolutios for iclusio o the ageda of a aual geeral meetig b) to table a draft resolutio i respect of a item already o the ageda of the geeral meetig c) to ask questios i relatio to a item o the ageda of a geeral meetig ad d) to appoit a proxy electroically. Code of Busiess Coduct The Smurfit Kappa Code of Busiess Coduct icludes priciples of best practice i this area which apply to the Group s Board of Directors, officers ad employees worldwide. We also require idividuals, etities, agets or ayoe actig o the Group s behalf to comply with its Code. The Code is available o the Group s website: smurfitkappa.com ad is traslated ito 17 laguages. Sustaiability Sustaiability is cocered with esurig that the huma ad atural eviromet remais itact both today ad ito the future as we cotiue to use atural resources. SKG maages its busiess i a way which recogises its key resposibilities i all aspects of its corporate social resposibility especially i the areas of Eviromet, Sustaiable Forestry, Social Citizeship ad Health ad Safety. The Group s priciples are summarised o pages 54 to 58 ad are described i detail i the Sustaiable Developmet Report for 2016 which is available o the Group s website. The Sustaiable Developmet Report for 2017 will be published i the secod quarter of Risk Maagemet ad Iteral Cotrol The Board has overall resposibility for the Group s system of risk maagemet ad iteral cotrol ad for moitorig ad reviewig its effectiveess, i order to safeguard shareholders ivestmets ad the Group s assets. Details i relatio to Risk Maagemet ad Iteral Cotrol are icluded i the Risk Report o page 36. The Directors cofirm there is a ogoig process for idetifyig, evaluatig ad maagig the pricipal risks faced by the Group which is i accordace with the FRC s Guidace o Risk Maagemet, Iteral Cotrol ad Related Fiacial ad Busiess Reportig. This process has bee i place throughout the accoutig period ad up to the date of approval of the Aual Report ad Cosolidated Fiacial Statemets ad is subject to regular review by the Board. The Directors cofirm that they have carried out a robust assessmet of the pricipal risks facig the Group s busiess model, future performace, solvecy ad liquidity. The Directors also cofirm they have coducted a aual review of the effectiveess of the Group s risk maagemet ad system of iteral cotrol up to ad icludig the date of approval of the Aual Report ad Cosolidated Fiacial Statemets. This had regard to the pricipal risks that could affect the Group s busiess (as outlied o pages 36 to 41), the methods of maagig those risks, the cotrols that are i place to cotai them ad the procedures to moitor them. Fiacial Reportig As part of its overall system of iteral cotrol, the Group has i place cotrol ad risk maagemet systems to gover the Group s fiacial reportig process ad the process for the preparatio of the Group s Cosolidated Fiacial Statemets. The requiremets for producig fiacial iformatio are govered by the Group s Fiacial Reportig Guide ad Fiacial Moitorig Policy which gives guidace o the maiteace of records that accurately ad fairly reflect trasactios, provide reasoable assurace that trasactios are recorded correctly to permit the preparatio of Cosolidated Fiacial Statemets i accordace with Iteratioal Fiacial Reportig Stadards ad that require reported data to be reviewed ad recociled. These systems iclude the followig fiacial reportig cotrols: access cotrols, recociliatios, verificatio cotrols, asset security cotrols ad segregatio of duties. Segmet maagemet ad the Group s executive maagemet team review the results of the operatios o a mothly basis. The Group s executive maagemet team receive detailed mothly reports from all operatios ad meet with the segmet maagemet at least o a quarterly basis to review the year to date results agaist budget ad rollig forecasts eablig them to moitor ad challege ay variace agaist the expected fiacial outcome for the period. Iteral Audit review fiacial cotrols i differet locatios o a test basis each year ad report quarterly to the Audit Committee. Each operatio through to segmet level is required to self-assess o the effectiveess of its fiacial cotrol eviromet. This icludes the completio of a Iteral Cotrol Questioaire which is reviewed by the Group Fiacial Cotroller ad audited o a test basis by Iteral Audit. Seior maagemet represetatios with respect to the Group Cosolidated Fiacial Statemets showig a true ad fair view are also required ad supplied at year-ed. 76 Smurfit Kappa Aual Report 2017

79 Overview Strategic Report Goverace Fiacials Directors Report The Chage of Cotrol, Capital Structure ad Purchase of Ow Shares iformatio are set out o pages 78 ad 79 i the Directors Report ad form part of this Corporate Goverace Statemet. Attedace at Board Meetigs durig the Year to 31 December 2017 A* B* L. O Mahoy 5 5 F. Beurskes 5 5 C. Bories 5 4 T. Brodi** 2 2 I. Fia 5 5 J. Lawrece 5 5 G. McGa** 2 2 J. Moloey 5 5 R. Newell 5 5 J. Buhl Rasmusse** 4 4 G. Restrepo 5 5 R. Thore 5 5 A. Smurfit 5 5 K. Bowles 5 5 * Colum A idicates the umber of meetigs held durig the period the Director was a member of the Board ad was eligible to atted ad Colum B idicates the umber of meetigs atteded. ** Mr Rasmusse joied the Board i March Mr McGa ad Mr Brodi retired from the Board i May Smurfit Kappa Group plc has a secodary listig o the Irish Stock Exchage. For this reaso, Smurfit Kappa Group plc is ot subject to the same ogoig listig requiremets as those which would apply to a Irish compay with a primary listig o the Irish Stock Exchage icludig the requiremet that certai trasactios require the approval of shareholders. For further iformatio, shareholders should cosult their ow fiacial adviser. 77

80 DIRECTORS REPORT Report of the Directors The Directors submit their Report ad Audited Fiacial Statemets for the fiacial year eded 31 December Pricipal Activity ad Busiess Review The Group is a itegrated paper ad paperboard maufacturer ad coverter whose operatios are divided ito Europe ad the Americas. Geographically, the major ecoomic eviromets i which the Group coducts its busiess are Europe (pricipally the Eurozoe, Swede ad the Uited Kigdom) ad the Americas (pricipally Argetia, Brazil, Colombia, Mexico, Veezuela ad the Uited States). The Chairma s Statemet, Chief Executive s Review, Operatios Review, Strategy Statemet, Fiace Review (icludig fiacial risk maagemet policies), Sustaiability Strategy ad People Strategy o pages 20 to 30 ad 34 to 65 report o the performace of the Group durig the year ad o future developmets. Results for the Year The results for the year are set out i the Cosolidated Icome Statemet o page 112. The profit attributable to the owers of the paret amouted to 417 millio (2016: 444 millio). Fiacial key performace idicators are set out i the Fiace Review o pages 46 to 49. The Cosolidated Fiacial Statemets for the fiacial year eded 31 December 2017 are set out i detail o pages 112 to 175. Divideds I October 2017, a iterim divided of 23.1 cet per share was paid to holders of ordiary shares. The Board is recommedig a fial divided of 64.5 cet per share for Subject to shareholders approval at the AGM o 4 May 2018, it is proposed to pay the fial divided o 11 May 2018 to all holders of ordiary shares o the share register at the close of busiess o 13 April Research ad Developmet The Compay s subsidiaries are egaged i ogoig research ad developmet aimed at providig iovative paper-based packagig solutios ad improvig products ad processes ad expadig product rages. Expediture o research ad developmet i the year amouted to 7 millio. Accoutig Records The Directors are resposible for esurig that adequate accoutig records, as outlied i Sectio of the Compaies Act, are kept by the Compay. The Directors are also resposible for the preparatio of the Aual Report. The Directors have appoited professioally qualified accoutig persoel with appropriate expertise ad have provided adequate resources to the fiace fuctio i order to esure that those requiremets are met. The accoutig records of the Compay are maitaied at the Group s pricipal executive offices located at Beech Hill, Closkeagh, Dubli 4, D04 N2R2. Directors The members of the curret Board of Directors are amed o pages 68 to 70 together with a short biographical ote o each Director. Mr Thomas Brodi ad Mr Gary McGa acted as o-executive Directors of the Compay util the coclusio of the 2017 AGM (5 May 2017), at which they did ot seek re-electio. Mr Jørge Buhl Rasmusse was appoited to the Board as a o-executive director i March 2017 ad Ms Carol Fairweather was appoited to the Board as a o-executive Director o 1 Jauary Ms Rosemary Thore has idicated she will ot seek re-electio at the forthcomig AGM. Ay Director co-opted to the Board by the Directors is subject to electio by the shareholders at the first AGM after their appoitmet ad, pursuat to the Articles of Associatio of the Compay, all Directors are subject to re-electio at itervals of o more tha three years. However, i compliace with the Code, all Directors will retire at the 2018 AGM ad other tha Ms Thore will offer themselves for re-electio. To eable shareholders to make a iformed decisio, referece should be made to pages 68 to 70 which cotais a biographical ote o each Director offerig themselves for re-electio ad to the Notice of the AGM which explais why the Board believes the relevat Directors should be re-elected. The Directors ited to cofirm at the AGM that the performace of each idividual seekig re-electio cotiues to be effective ad demostrates commitmet to the role. Shareholders are referred to the iformatio cotaied i the Corporate Goverace Statemet o pages 72 to 77 cocerig the operatio of the Board ad the compositio ad fuctios of the Committees of the Board. Directors ad Secretary s Iterests Details of the Directors ad Compay Secretary s iterests i the share capital are set out i the Remueratio Report o pages 97 ad 99 ad are icorporated ito this Directors Report. Pricipal Risks ad Ucertaities Uder Irish compay law (Sectio 327 of the Compaies Act), the Directors are required to give a descriptio of the pricipal risks ad ucertaities which it faces. These pricipal risks ad ucertaities are set out o pages 38 to 41, ad form part of this report as required by Sectio 327 of the Compaies Act. Corporate Goverace Uder Sectio 1373 of the Compaies Act, the Directors Report is required to iclude a Corporate Goverace Statemet. The Directors Corporate Goverace Statemet is set out o pages 72 to 77 ad forms part of this report. The Audit Committee Report, the Remueratio Report ad the Nomiatio Committee Report are set out o pages 80 to 101. Purchase of Ow Shares Special resolutios will be proposed at the AGM to reew the authority of the Compay, or ay of its subsidiaries, to purchase up to 10% of the Compay s ordiary shares i issue at the date of the AGM ad i relatio to the maximum ad miimum prices at which treasury shares (effectively shares purchased by the Compay ad ot cacelled) may be re-issued off-market by the Compay. If grated, the authority will expire o the earlier of the date of the AGM i 2019 or 3 August A similar authority was grated at the AGM i 2017, which is due to expire o the earlier of the date of the AGM i 2018 or 4 August Iformatio o ow shares is set out i Note 23 to the Cosolidated Fiacial Statemets. Chage of Cotrol O a chage of cotrol followig a bid, the Leders uder the Seior Credit Facility would have the optio to cacel the commitmets uder the facility ad/or to declare all outstadig amouts immediately due ad payable, ad uder the Seior Notes Idetures the Group is obliged to offer to repurchase the otes at 101% of the pricipal amout due. 78 Smurfit Kappa Aual Report 2017

81 Overview Strategic Report Goverace Fiacials Number of shares 31 December March 2018 % of issued ordiary share capital Number of shares % of issued ordiary share capital Norges Bak 16,534, % 16,534, % BlackRock, Ic 9,942, % 9,942, % GIC Private Limited 7,478, % 7,478, % Jaus Hederso Group plc - - 7,699, % Substatial Holdigs The table above shows all otified shareholdigs i excess of 3% of the issued ordiary share capital of the Compay as at 31 December 2017 ad 22 March Subsidiary ad Associated Udertakigs A list of the Group s pricipal subsidiaries ad associates as at 31 December 2017 is set out i Note 35 to the Cosolidated Fiacial Statemets. Capital Structure Details of the structure of the Compay s capital are set out i Note 23 to the Cosolidated Fiacial Statemets ad are deemed to form part of this Directors Report. Details of the Group s log-term icetive plas are set out i the Remueratio Report ad Note 26 to the Cosolidated Fiacial Statemets ad are icorporated ito this Directors Report. Directors Compliace Statemet The Directors ackowledge that they are resposible for securig compliace by the Compay of its relevat obligatios as set out i the Compaies Act (the Relevat Obligatios ). The Directors further cofirm that there is a Compliace Policy Statemet i place settig out the Compay s policies which, i the Directors opiio, are appropriate to esure compliace with the Compay s Relevat Obligatios. The Directors also cofirm that appropriate arragemets ad structures are i place which, i the Directors opiio, are desiged to secure material compliace with the Compay s Relevat Obligatios. For the fiacial year eded 31 December 2017, the Directors, with the assistace of the Audit Committee, have coducted a review of the arragemets ad structures i place. I dischargig their resposibilities uder Sectio 225 of the Compaies Act, the Directors relied o the advice of persos who the Directors believe have the requisite kowledge ad experiece to advise the Compay o compliace with its Relevat Obligatios. Disclosure of Iformatio to the Statutory Auditor Each of the Directors idividually cofirm that: I so far as they are aware, there is o relevat audit iformatio of which the Compay s Statutory Auditor is uaware; ad They have take all the steps that they ought to have take as Directors i order to make themselves aware of ay relevat audit iformatio ad to establish that the Compay s Statutory Auditor is aware of such iformatio. Statutory Auditor A formal exteral audit teder process has ow bee completed by the Audit Committee o behalf of the Board ad KPMG have bee selected by the Board as the ew Statutory Auditors i respect of the fiacial year edig 31 December A shareholder resolutio at the AGM is required for the appoitmet of ew Statutory Auditors ad the Board is recommedig that KPMG be appoited. PricewaterhouseCoopers ( PwC ), ited to resig as Statutory Auditors upo coclusio of the 2017 Statutory Audit, ad have cofirmed, i accordace with Sectio 400 of the Compaies Act, that there are o circumstaces coected with their resigatio which should be brought to the attetio of members or creditors of the Compay. A. Smurfit K. Bowles Directors 22 March

82 AUDIT COMMITTEE REPORT Rosemary Thore Chairma of the Audit Committee As Chairma of the Audit Committee it is my pleasure to report to you o our activities i relatio to the fiacial year eded 31 December Role of the Audit Committee The Audit Committee ( the Committee ) is resposible for providig oversight ad assurace to the Board regardig: the itegrity of the Group s fiacial reportig; risk maagemet ad iteral cotrol processes; the iteral audit fuctio; the Statutory Audit arragemets; the goverace framework ad; whether the Aual Report ad Cosolidated Fiacial Statemets, take as a whole, are fair, balaced ad uderstadable ad provide the iformatio ecessary for shareholders to assess the Group s performace, busiess model ad strategy. The role ad resposibilities of the Committee are set out i its Terms of Referece which is available o the Group s website: smurfitkappa.com. The Terms of Referece ad the performace of the Committee were reviewed ad the Committee is cosidered to be operatig effectively ad efficietly. Membership of the Committee The Board has reviewed the compositio of the Committee durig the year ad is satisfied that the mix of busiess ad fiacial experiece eables the Committee to effectively fulfil its resposibilities. The Committee is curretly comprised of ie idepedet o-executive Directors. Of these Ms Carol Fairweather, Mr Irial Fia, Mr James Lawrece, ad I, the Committee Chairma, have recet ad relevat fiacial experiece. The Committee met five times durig the year uder review. Details of the Committee members ad meetigs atteded are provided i the table below. The Group Chief Executive Officer, the Group Chief Fiacial Officer, the Group Iteral Auditor, the Group Compliace Maager, ad seior members of the Group fiace team ormally atted meetigs of the Committee. The Statutory Auditor also atteds all meetigs ad together with the Group Iteral Auditor have direct access to the Committee Chairma at all times. I advace of every meetig, the Committee Chairma meets idividually with the Group fiace team, the Group Compliace Maager, the Group Iteral Auditor ad the Statutory Auditor. Attedace record A* B* Appoitmet date R. Thore (Chairma) C. Bories T. Brodi ** C. Fairweather *** I. Fia J. Lawrece J. Moloey R. Newell J. Rasmusse *** G. Restrepo * Colum A idicates the umber of meetigs held durig the period the Director was a member of the Committee ad was eligible to atted ad Colum B idicates the umber of meetigs atteded. ** Mr Brodi retired from the Board i May 2017 *** Mr Rasmusse was appoited to the Board i March 2017 ad Ms Fairweather was appoited to the Board i Jauary Fiacial Reportig ad Sigificat Fiacial Issues The Group s Cosolidated Fiacial Statemets are prepared by fiace persoel with the appropriate level of qualificatios ad expertise. The Committee reviews ay published fiacial iformatio icludig the Aual Report ad quarterly fiacial reports, ad ay other published iformatio for statutory ad regulatory compliace. The Committee reports its views to the Board to assist i the Board s approval of the results aoucemets ad the Aual Report. The Committee assesses whether suitable accoutig policies have bee adopted ad whether maagemet has made appropriate estimates ad judgemets. The Committee reviews accoutig papers prepared by maagemet which provide details o the mai fiacial reportig judgemets. For example, i the curret year the Committee cosidered a umber of accoutig papers i relatio to developig matters i Veezuela ad the impact of the icreasigly difficult operatig eviromet o the Group s ability to cotrol ad direct the operatioal ad strategic policies of its operatios i the coutry. 80 Smurfit Kappa Aual Report 2017

83 Overview Strategic Report Goverace Fiacials The Committee also reviews reports by the Statutory Auditor o the hard-close ad year-ed audit procedures which highlight ay issues idetified from the work udertake o the audit. The sigificat issues that the Committee cosidered i relatio to the Fiacial Statemets are detailed below: 1. Goodwill Impairmet Review The Committee cosidered the risk of impairmet i respect of the carryig value of goodwill held by the Group ad reviewed the aual impairmet test prepared by maagemet. I particular it cosidered the judgemets aroud the assumptios uderlyig the calculatio of the value-i-use of the busiesses beig tested; icludig the reasoableess of the busiess pla ad the overall macroecoomic assumptios uderlyig the valuatio process ad also the determiatio of a appropriate discout rate ad termial value. Maagemet have developed what the Committee cosiders to be a extesive, detailed ad robust process to idetify ay potetial impairmet of goodwill at a cash geeratig uit ( CGU ) level. This is performed aually or where a impairmet idicator has bee separately idetified. The busiess pla used i the impairmet review was approved by the Board. The aual impairmet test icludes the egagemet of idepedet experts to assist maagemet with the developmet of a appropriate discout rate. They also cosider other macroecoomic assumptios icluded i the forecasts as well as the termial value multiple used. The Committee addressed these matters usig reports received from maagemet outliig the basis for assumptios used ad by reviewig the idepedet expert s report. The Committee reviewed the methodology applied icludig esurig the discout rate used was withi a acceptable rage ad that the termial value multiple used was appropriate. The Committee also cosidered a umber of differet scearios to test the sesitivity of the model to chages i its key drivers ad to uderstad the level of headroom available at a CGU level. The Committee oted that headroom i the Frech CGU had materially icreased o the prior year ad that the recet improved performace is forecast to cotiue. The Committee also oted that headroom i Brazil was tight due to cotiued challegig operatig coditios. It will remai o watch ad be moitored throughout Followig this process, the Committee is satisfied that the judgemets made by maagemet are reasoable ad that appropriate disclosures have bee icluded i the Cosolidated Fiacial Statemets. The Committee cocluded that the goodwill is ot impaired ad approved the disclosures i Note 13 to the Cosolidated Fiacial Statemets. 2. Veezuela The Committee has cosidered the recet developmets i Veezuela ad their potetial impact o the Group s Cosolidated Fiacial Statemets as follows: Exchage cotrol The Committee has discussed the exchage cotrol mechaisms employed durig the year. Based o the facts ad circumstaces, the Committee cosidered that the DICOM rate was the appropriate rate at which to cosolidate the Veezuela operatios for the fiacial year eded 31 December The Committee also cosidered the impact of exchage cotrol o the et assets of its operatios ad its cash balaces i Veezuela. The Committee cosider the disclosures i Note 3 to the Cosolidated Fiacial Statemets to be appropriate. Cotrol The Committee has reviewed accoutig papers prepared by maagemet which cosider the Group s ability to cotrol ad direct the operatioal ad strategic policies of its operatios i Veezuela i a icreasigly difficult operatig ad political eviromet. After due cosideratio ad discussio with maagemet ad our Statutory Auditor, the Committee is satisfied that the Group cotiues to cotrol its operatios i Veezuela ad, as a result, cotiues to cosolidate the results ad et assets of these operatios at year-ed i accordace with the requiremets of IFRS 10, Cosolidated Fiacial Statemets. Iflatio rate Durig 2017, o official iflatio statistics were published by the Cetral Bak of Veezuela. I the absece of such iformatio, maagemet egaged a idepedet expert to determie a estimate of the aual iflatio rate, for the purposes of recordig the hyperiflatioary adjustmets required by IAS 29. After due cosideratio ad discussio with maagemet, the Committee is satisfied that this iflatio rate fairly reflects the iflatioary eviromet i Veezuela i Price cotrol The Committee has previously cosidered the law eacted i 2014 by the Veezuela govermet that compaies i Veezuela ca oly seek price icreases if they have clearace that their margis are withi certai guidelies. The Committee has cosidered the risk that if its Veezuela operatios caot implemet price icreases i a timely maer to cover the icreasig costs of raw material ad labour as a result of iflatio, that this may have a adverse impact o the results of the operatios. Based o discussios with maagemet ad our cosideratio of these matters, the Committee is satisfied that these developmets do ot have a impact o the Group s operatios at 31 December The Committee will cotiue to moitor developmets i this area with maagemet. 3. Taxatio Valuatio of Deferred Tax Assets I cojuctio with their goodwill impairmet review, the Committee also assessed the recoverability of deferred tax assets. The value of deferred tax assets at 31 December 2017 was 200 millio. The Committee reviewed the estimates of future profitability, which maagemet provided ad relied o maagemet s work with local tax specialists who cosidered ay regulatory chages which would impact the recoverability of deferred tax assets. The Committee cocluded that the deferred tax asset recogised o the Group Cosolidated Balace Sheet at 31 December 2017 was appropriate. 4. Employee Beefits The Committee oted that the liability for post-retiremet ad other log-term employee beefits had decreased durig The Group Compesatio ad Beefits Maager iformed the Committee that the key driver was positive asset performace over The Committee cocluded that the assumptios used to calculate the pesio liabilities are appropriate ad cosistet with market practice at the balace sheet date. 81

84 AUDIT COMMITTEE REPORT (CONTINUED) 5. Exceptioal Items The Committee oted that the exceptioal items for the Group i 2017 were 25 millio. Maagemet preseted the Committee with detailed assumptios ad calculatios i relatio to the proposed exceptioal items ad discussed them i the cotext of the Group s accoutig policy for such matters ad prior years disclosure of similar items. The Committee cocluded that the size ad ature of the items disclosed as exceptioal items complied with the Group s accoutig policy to be separately disclosed as exceptioal items. 6. Treasury Durig 2017, the Committee oted that the Group had completed a ew Seior Notes issue with a seve-year maturity at a coupo of 2.375% o 24 Jauary The Committee also discussed maagemet s processes, procedures ad cotrols i respect of the Group s Treasury fuctio. The Committee cocluded that the disclosure of fiacial istrumets ad key fiacial risks was appropriate at 31 December Developmets i IFRS The Committee has received reports from maagemet ad discussed future accoutig developmets which are likely to affect the presetatio of the Group s Cosolidated Fiacial Statemets. Review of Aual Report The Committee reviewed the Aual Report ad Cosolidated Fiacial Statemets ad were able to cofirm to the Board that, i its view, take as a whole, they were fair, balaced ad uderstadable ad provided the iformatio ecessary for shareholders to assess the Group s performace, busiess model ad strategy. Risk Maagemet ad Iteral Cotrol The Committee has processes i place to satisfy itself o the adequacy of the Group s risk maagemet ad iteral cotrol systems. For further details o the Group s Risk Maagemet ad Iteral Cotrol please see the Risk Report o page 36. Whistleblowig I lie with best practice, the Group has a idepedet ad cofidetial whistleblowig procedure which allows all employees through aoymous submissios to raise cocers regardig accoutig or auditig matters or questioable busiess practice. The Committee esures through the Group Compliace Maager that arragemets are i place for a proportioate, idepedet ivestigatio ad appropriate follow up of such matters. It receives reports from the Group Compliace Maager o the follow up to all whistleblowig cocers received by the Compay. Statutory Auditor The Committee is resposible to the Board for recommedatios o the appoitmet, re-appoitmet ad removal of the Statutory Auditor. As part of this process the Committee assesses aually the idepedece ad objectivity of the Statutory Auditor takig ito accout relevat professioal ad regulatory requiremets ad the relatioship with the Statutory Auditor as a whole, icludig the provisio of ay o-audit services. The Committee moitors the Statutory Auditor s performace, behaviour ad effectiveess durig the exercise of their duties, which iforms the Committee s decisio to recommed re-appoitmet o a aual basis. The Statutory Auditor atteds all meetigs of the Committee. The Committee discusses ad agrees the scope of the aual audit pla with the Statutory Auditor before they commece. The Statutory Auditor provides reports at each Committee meetig o topics such as the cotrol eviromet, key accoutig matters ad madatory commuicatios. It is stadard practice for the Statutory Auditor to meet privately with the Committee without ay member of maagemet or the executive Directors beig preset so as to provide a forum to raise ay matters of cocer i cofidece. Exteral Audit Teder Process As oted i last year s Audit Committee Report, the Committee approved the commecemet of a formal audit teder process to select a ew exteral Statutory Auditor for the year edig 31 December It was also oted that due to the EU (Statutory Audits) Regulatios 2016 the icumbet Statutory Auditor, PwC, would ot be ivited to teder. I March 2017, three mai exteral audit firms were ivited to submit detailed teder proposals. Followig this, key site visits were held for the three firms i Irelad, Europe ad the Americas icludig detailed site maagemet presetatios ad presetatios from the tederig firms. O evaluatio of these meetigs by maagemet ivolved, it was agreed to ivite two of the firms to make fial presetatios to the Chairma of the Audit Committee i July These presetatios were also atteded by the Group Chief Fiacial Officer, the Group Secretary ad the Group Fiacial Cotroller. Followig these fial presetatios ad discussios, the Committee ad maagemet recommeded to the Board that KPMG be appoited Statutory Auditor for the year edig 31 December The Board accepted this recommedatio ad appoited KPMG as Statutory Auditor for the year edig 31 December This appoitmet will be put to shareholders for their approval at the AGM o 4 May PwC ited to resig as Statutory Auditors upo coclusio of the 2017 Statutory Audit, ad have cofirmed, i accordace with Sectio 400 of the Compaies Act, that there are o circumstaces coected with their resigatio which should be brought to the attetio of members or creditors of the Compay. Iteral Audit The Group operates a iterally resourced Iteral Audit fuctio which reports directly to the Committee. The Committee reviews Iteral Audit, icludig its pla ad performace ad moitors its relatioship with the Statutory Auditor. It reviews ad assesses the quarterly Iteral Audit reports together with maagemet s actios o fidigs to gai assurace as to the effectiveess of the iteral cotrol framework throughout the Group. A third party review of the effectiveess of the Iteral Audit fuctio was carried out i 2015 ad the recommedatios are beig implemeted. 82 Smurfit Kappa Aual Report 2017

85 Overview Strategic Report Goverace Fiacials Statutory Auditor No-audit Services The Committee has agreed the types of permitted ad o-permitted o-audit services ad those which require explicit prior approval. The Group has a policy goverig the coduct of o-audit work by the Statutory Auditor. All cotracts for o-audit services i excess of 50,000 must be otified to ad approved by the Chairma of the Committee. The egagemet of the Statutory Auditor to provide ay o-audit services must be pre-approved by the Committee or etered ito pursuat to pre-approval policies ad procedures established by the Committee. The policy exists to esure that the Statutory Auditor does ot audit their ow work, participate i activities that would ormally be udertake by maagemet, have a mutuality of fiacial iterest with the Group or act i a advocacy role for the Group. Details of the amouts paid to the Statutory Auditor durig the year for audit ad other services are set out i Note 5 o page 133. The value of o-audit services provided by PwC i 2017 amouted to 0.4 millio (2016: 0.5 millio). No-audit services relates to the provisio of tax advisory ad other o-audit services. These services provided by the Group Statutory Auditor are cosidered by the Committee to be ecessary i the iterests of the busiess ad, by their ature, these services could ot easily be provided by aother professioal auditig firm. The provisio of tax advisory services ad due diligece/ trasactio services may be permitted with the Committee s prior approval. The provisio of iteral audit services, valuatio work ad ay other activity that may give rise to ay possibility of self-review are ot permitted uder ay circumstace. Durig the year, there were o circumstaces where PwC was egaged to provide services which might have led to a coflict of iterests. How the Committee has Addressed its Resposibilities I order to discharge the resposibilities set out i the Terms of Referece, the Committee i 2017: Reviewed with maagemet the Group s 2016 prelimiary results aoucemet, its 2016 Aual Report, its 2017 first ad third quarter results, its 2017 iterim report ad maagemet s aual goig cocer report ad viability statemet Reviewed the Statutory Auditor s year-ed audit report for December 2016, the limited procedures reports o the 2017 first ad third quarter results ad the limited procedures report o the 2017 iterim report Reviewed the Statutory Auditor s pla for the audit of the Group s 2017 Cosolidated Fiacial Statemets, which icluded cosideratio of the scope of the audit, key risks to the Cosolidated Fiacial Statemets, the proposed audit fee ad approval of the terms of egagemet for the audit Carried out a exteral Audit Teder process as set out above ad recommeded to the Board that KPMG be appoited as the Statutory Auditors for the year edig 31 December 2018 Addressed the aual fraud equiries carried out by the Statutory Auditor as part of its year-ed audit Reviewed tax ad accoutig services ad fees from firms other tha the Statutory Auditor Reviewed the quarterly iteral audit reports with the Group Iteral Auditor ad maagemet ad ay cosequet actios Approved the iteral audit pla ad the related resourcig of the fuctio required to meet that pla Approved chages proposed to the Group Iteral Audit Charter by the Group Iteral Auditor ad maagemet Reviewed all reports submitted by the Group Compliace Maager which comprised a Iteral Cotrol Effectiveess Report, a Iteral Cotrol Questioaire update for 2017, the Treasury Compliace Certificatios, the Competitio Law Policy Compliace Certificatio results, updates o the Group s Geeral Data Protectio Regulatio readiess project ad various Whistleblower ad Code of Coduct updates Reviewed the cotrol eviromet ad esured that the Code of Busiess Coduct, the Code of Ethics for Seior Fiacial Officers, the Good Faith Reportig Policy, the Group Fiacial Reportig Guide, the Group Treasury Policy, the Fiacial Moitorig Policy, the Treasury Compliace Programme ad the Competitio Compliace Programme are up to date ad embedded i the Group s processes Had a presetatio from ad discussio with Geeral Cousel o the Group s Competitio Law Policy Reviewed ad approved the Group s risk assessmet framework (see Risk Maagemet ad Iteral Cotrol - page 76) Reviewed ad approved each sigificat risk facig the Group together with the actios proposed by maagemet to accept, avoid or mitigate risk Reviewed stress test scearios applied to the three-year fiacial model based o the pricipal risks for the purpose of the viability statemet Reviewed the Group s moitorig processes over iteral cotrol Reviewed the Statutory Auditor s report o the 2017 hard-close audit procedures ad the 2017 year-ed audit ad also reviewed the cofirmatio of Statutory Auditor idepedece Reviewed the Committee s performace ad its Terms of Referece. Fially havig served te years as a Board member, I will be steppig dow at the AGM o 4 May I would like to thak my fellow Board members together with the seior maagemet team ad the fiace team for their support over the years ad I wish SKG cotiuig success i the future. Rosemary Thore Chairma of the Audit Committee 22 March 2018 Reviewed o a quarterly basis the Statutory Auditor services ad fees Reviewed o a quarterly basis cyber-attack reports 83

86 REMUNERATION REPORT Irial Fia Chairma of the Compesatio Committee 84 Dear Shareholder As Chairma of SKG s Compesatio Committee, I am pleased to preset our Directors Remueratio Report for the fiacial year eded 31 December Although the Group is listed o the Lodo Stock Exchage, give that the Group is icorporated i Irelad, it is ot subject to the UK remueratio reportig regulatios (The Large ad Medium-sized Compaies ad Groups (Accouts ad Reports) (Amedmet) Regulatios 2013) which apply to UK icorporated compaies. Nevertheless, the Compesatio Committee ( the Committee ) recogises the importace of effective corporate goverace ad is therefore volutarily adoptig a umber of the requiremets of these reportig regulatios. I lie with this, the Committee is submittig a ew Directors Remueratio Policy (which ca be foud o pages 86 to 90) to a advisory vote at the 2018 AGM, ad has ehaced the disclosure provided withi the aual Remueratio Report (which ca be foud o pages 84 to 100). Remueratio Policy Review While the Group received strog shareholder support for the curret Remueratio Policy at the 2017 AGM, the Policy was largely uchaged from the Policy approved at the 2014 AGM. Sice the last substative review, the Group has grow sigificatly, our strategy has cotiued to develop ad likewise, shareholder expectatios o remueratio have evolved. Cosequetly, durig the course of 2017, the Committee udertook a full review of the curret Remueratio Policy i place for executive Directors ad other seior maagemet to esure that it cotiued to both support the Group s strategic priorities ad alig with exteral views o executive compesatio. The Group s strategic priorities As set out i further detail earlier i the Aual Report, Smurfit Kappa s strategic objective is to develop log-term customer relatioships by providig customers with differetiated packagig solutios that ehace the customers prospects i their ed markets. To deliver this, the Group s key aims are: Expad our market positios i Europe ad the Americas through selective focused growth Become the supplier parter of choice through the cotiuous upgrade of our customer offerig Ehace our operatioal excellece Recruit, retai, develop ad motivate the best people Maitai a disciplied approach to capital allocatio ad maitai the focus o cash geeratio. Successful implemetatio of our strategy will ultimately result i the delivery of sustaiable log-term shareholder value, strog profit growth ad retur o capital. Smurfit Kappa Aual Report 2017 Outcome of the remueratio review As part of the review of the curret remueratio framework, the Committee idetified the followig key challeges with the Group s curret approach to remueratio: It placed sigificat pressure o the aual bous pla, through the lik betwee the aual bous ad the log-term icetive (with matchig awards made o the portio of bouses deferred ito shares) Whilst broadly aliged to the Group s strategic priorities the Committee was of the view that more could be doe to cetre the policy o the delivery of sustaiable log-term shareholder value, strog profit growth ad retur o capital employed It was out of lie with market practice ad emergig views o executive compesatio where there is a geeral preferece for compaies to operate simple remueratio structures with a sigle log-term icetive pla which operates separately from the aual bous arragemets. Withi the cotext of the above, the Committee cosidered it appropriate to make oe pricipal chage to the curret remueratio framework at Smurfit Kappa: the replacemet of the curret deferred aual bous matchig awards with a ew performace share pla ( PSP ), the key details of which ca be foud below. Key area Award limit Time horizos Performace measures Uderpi Malus ad clawback Approach goig forward Set at 225% of salary which is uchaged from the curret maximum level. Operatioally, the Committee iteds to make awards at this level for the CEO, whilst the maximum award for the CFO will be set at 180% of salary. From 2018 up to five years i total. Awards will be subject to a three-year performace period ad a post vestig holdig period such that they will be delivered to the executives pro-rata betwee years three ad five from grat. Aliged directly with the Group s strategic priorities. Awards will be based o the followig three performace measures (all equally weighted): retur o capital employed; earigs per share; ad relative total shareholder retur agaist a bespoke group of global paper ad packagig compaies. A uderpi will apply to awards based o the uderlyig fiacial performace of the Group to provide the Committee with flexibility to cosider the quality of the performace whe determiig out-turs. Updated to be aliged with market practice. Further details of these are set out o page 87.

87 Overview Strategic Report Goverace Fiacials I additio to the above, to further icrease aligmet of the executives with shareholders, the Committee has icreased the shareholdig guidelies from their curret level of 150% of salary to 300% of salary for the CEO ad from 100% of salary to 200% of salary for the CFO. Improved trasparecy As part of the commitmet to ehaced disclosure, the Committee recogises that market practice has evolved sigificatly i terms of disclosure. As such, the Committee has also made the followig ehacemets to our disclosure this year: Performace share awards i lie with the itroductio of the ew log-term icetive pla, for the first time, the Committee has disclosed the targets for log-term icetive awards o a prospective basis. Details of the targets for the 2018 performace share pla award ca be foud o page 91. Aual bous i lie with best practice, the Committee has disclosed the fiacial targets used for the aual bous (i.e. the 2017 aual bous) i full, which ca be foud o page 93. Shareholder cosultatio As part of the revisios to the remueratio framework, the Committee actively egaged with a sigificat proportio of the Group s shareholders ad the proxy advisory bodies. The Committee listeed to ad reviewed feedback from shareholders, ad the updated proposals set out above, icludig the proposed operatioal maximum PSP opportuity, the shareholdig requiremets ad the ehaced disclosure i relatio to aual bous targets reflect the feedback received. The Committee was pleased with the support it received from shareholders o the approach goig forward ad o behalf of the Committee, I wated to thak shareholders that actively egaged i the cosultatio process Performace ad Icetive Out-Turs I 2017, the Group delivered cotiued earigs growth with EBITDA of 1,240 millio, a ew record for the Group. The Group also delivered ROCE at 15.0%, strog free cash flow at 307 millio ad we ivested approximately 430 millio i our busiess to cotiue to build a platform to deliver performace ad growth. I February 2018, the Committee reviewed performace agaist the metrics uder the aual bous pla for 2017 ad the Deferred Aual Bous Pla (DABP) for the three years to 31 December 2017 ad approved aual bous awards of 41.4% of maximum ad DABP awards vestig at 45% of maximum. Further details o these awards are set out o page 93 ad 94, respectively. Coclusio O behalf of the Committee, I thak you for your cotiued support. We trust that you fid the report iformative ad I hope you fid the ratioale provided for the ew remueratio framework ad the ehaced disclosure helpful. As always, I welcome ay commets you have. Irial Fia Chairma of the Compesatio Committee 22 March

88 REMUNERATION REPORT (CONTINUED) Remueratio Policy Itroductio The Remueratio Policy is desiged to attract, retai ad motivate Directors ad seior maagemet of the highest calibre who are expected to deliver superior performace ad to provide strog leadership to the Group. I retur, the Group aims to provide a attractive compesatio package which esures that maagemet are focused o those corporate metrics. These are desiged to support the Group s busiess strategy ad the objective of developig superior sustaiable returs ad value at acceptable levels of risk but with a clear ad itelligible lik to performace ad the fiacial prosperity of the Group ad cosequetly its shareholders. Give that the Group is icorporated i Irelad, it is ot subject to the UK remueratio reportig regulatios (The Large ad Mediumsized Compaies ad Groups (Accouts ad Reports) (Amedmet) Regulatios 2013) which apply to UK icorporated compaies. Nevertheless, the Committee recogises the importace of effective corporate goverace ad is therefore volutarily adoptig a umber of the requiremets of these reportig regulatios. We are therefore submittig our Remueratio Policy to a advisory vote at the 2018 AGM, which will be the effective date of the policy, ad will be i place for a period of up to three years. Executive Director Policy Table Compoet Purpose ad lik to strategy (i) Basic Salary Competitive salaries are set to attract, retai ad motivate executives to deliver superior performace i lie with the Group s busiess strategy. (ii) Beefits (iii) Pesio Competitive beefits takig ito accout market value of role. To provide a market competitive package to attract ad retai executives. Operatio Opportuity Performace metrics Reviewed aually; chages are geerally effective o 1 Jauary. Set by takig ito cosideratio the idividual s skills, experiece, performace ad positio agaist peers. Whe determiig icreases, cosideratio is give to: (i) scope of role ad resposibility; (ii) persoal performace; (iii) Group performace; (iv) step chages i resposibility; (v) remueratio treds across the Group; ad (vi) competitive market practice. Beefits relate pricipally to the use of compay cars. Other beefits may be provided, icludig but ot limited to club subscriptios. I the evet of recruitmet or relocatio, additioal beefits may be provided as cosidered appropriate by the Committee. Cotributios are made to the Group s defied cotributio pesio arragemet, or equivalet cash allowaces are paid. The defied beefit pla was closed to future accrual with effect from 30 Jue The Group cotiues to hoour legacy arragemets. Whilst there is o maximum salary level, basic salary icreases will ormally be i lie with the rage of icreases for the wider workforce. The Committee may at its discretio award larger icreases i certai circumstaces, such as a chage i resposibilities or developmet i the role. The level of beefit provisio is determied based o the cost to the Compay ad as such o maximum level is set. Curret executive Directors - maximum compay cotributio, or cash equivalet, of 21% of salary. For ay ew executive Director the maximum compay cotributio, or cash equivalet, is 15% of salary. Not applicable. Not applicable. Not applicable. 86 Smurfit Kappa Aual Report 2017

89 Overview Strategic Report Goverace Fiacials Executive Director Policy Table (cotiued) Compoet (iv) Aual Bous Pla (v) Performace Share Pla Other Features Share owership requiremets Recovery provisios Purpose ad lik to strategy To icetivise the executives to achieve clearly defied stretchig aual targets which are aliged with the Group strategy. A deferral elemet i shares provides a retetio elemet ad aligs executives with shareholder iterests. To icetivise the executives to achieve clearly defied stretchig log-term targets which are aliged with the Group s log-term strategy ad to further alig executives with shareholder iterests. Operatio Opportuity Performace metrics Performace measures ad targets are reviewed each year by the Committee to esure cotiued aligmet with the Group strategy. Payouts are determied by the Committee after the year-ed based o performace agaist targets. To esure that the paymets accurately reflect the uderlyig performace of the busiess, the Committee may the adjust the outcome. 50% of ay bous award is ormally deferred i to shares for a period of, ormally, three years. Deferred awards accrue divideds over the deferral period. Malus ad clawback provisios are i place. Awards are subject to a performace period of ot less tha three years. Subject to performace, awards will the ormally be subject to a holdig period such that they are released i three equal aual traches followig the third, fourth ad fifth aiversaries of the grat date. Performace measures ad targets are reviewed each year by the Committee to esure cotiued aligmet with the Group s log-term strategy. Vestig levels are determied by the Committee after the ed of the performace period based o performace agaist targets. To esure that vestig levels accurately reflect the uderlyig performace of the busiess, the Committee may the adjust the outcome. Awards accrue divideds over the performace ad holdig periods. Malus ad clawback provisios are i place. The maximum bous opportuity i respect of a fiacial year is 150% of basic salary. 25% of the bous pays out for threshold performace. The maximum PSP award opportuity i respect of a fiacial year is 225% of basic salary. Up to 25% of the award pays out for threshold performace. Performace is measured agaist a rage of key fiacial, operatioal/ strategic ad idividual performace metrics. The idividual performace metric will accout for o more tha 20% of the bous opportuity. Performace measures for the PSP are selected by the Committee to be aliged with the Group s log-term strategic priority of deliverig sustaiable returs to shareholders. Prior to each grat, the Committee will select performace measures ad targets. Measures may be fiacial, o-fiacial, share-price based, strategic, or o ay other basis that the Committee cosiders appropriate. PSP awards for 2018 will be subject to the followig performace measures, each of which will be equally weighted: - earigs per share; - retur o capital employed; ad - relative total shareholder retur. The Group Chief Executive Officer is required to build a shareholdig equivalet to 300% of basic salary, ad other executive Directors a shareholdig equivalet to 200% of basic salary. Recovery provisios (clawback ad malus) may apply where stated i the table above. The provisios may be eforced i the evet of: A material misstatemet of the Group s cosolidated audited fiacial statemets; Where a award was determied by referece to a assessmet of a performace coditio which was based o a error, or iaccurate or misleadig iformatio; Fraud or other material fiacial irregularity affectig the Group; The occurrece of a evet that causes or is likely to cause reputatioal damage to the Group; Serious miscoduct by a participat; or Other circumstaces which the Committee i its discretio cosiders to be similar i their ature or effect as the above. Recovery provisios may be eforced i respect of the cash bous for three years followig paymet, i respect of deferred shares for three years from grat ad i respect of PSP awards for five years from grat. 87

90 REMUNERATION REPORT (CONTINUED) Notes to the Remueratio Policy Table Committee discretio i relatio to existig commitmets The Committee reserves the right to make ay remueratio paymets ad paymets for loss of office, otwithstadig that they are ot i lie with the policy set out above where the terms of the paymet were agreed: (i) before the policy set out above, or ay previous policy, came ito effect, or (ii) at a time whe the relevat idividual was ot a Director of the Compay ad the paymet was ot i cosideratio for the idividual becomig a Director of the Compay. For these purposes, paymets iclude the Committee satisfyig awards of variable remueratio i relatio to awards over shares made uder the previous deferred aual bous pla operated by the Group. Committee discretio i relatio to future operatio of the Remueratio Policy The Committee will operate variable pay plas accordig to the respective rules of the plas. The Committee also retais the discretio withi the policy to amed targets ad/or set differet measures ad weightigs if evets happe that cause it to determie that the origial targets or coditios are o loger appropriate ad the amedmet is required so that the targets or coditios achieve their origial purpose. Revised targets/measures will be, i the opiio of the Committee, o less difficult to satisfy tha the origial coditios. The Committee may make mior amedmets to the Remueratio Policy without obtaiig shareholder approval for regulatory, exchage cotrol, tax or admiistrative purposes or to take accout of a chage i legislatio. Approach to settig performace measures ad targets Performace measures ad targets (both short ad log-term) are set each year takig ito accout a rage of iteral ad exteral factors icludig sector ad regulatory developmets ad the strategic progress of the Group. Performace targets will take accout of market expectatios with regards to future developmets i the Group s exteral eviromet, which i tur feed ito specific objectives based o strategy. The combiatio of performace measures ad targets for the icetive arragemets (both short ad log-term) are chose to create direct aligmet to the successful implemetatio of our strategy which will result i the delivery of sustaiable log-term shareholder value. Value ad Compositio of Remueratio Packages The Committee believes it is importat, for executive Directors ad the seior maagemet that a sigificat portio of the package is performace related ad a sigificat portio is delivered i shares to alig their iterests with shareholders. The potetial value ad compositio of the executive Directors remueratio packages at below threshold, target ad maximum scearios uder the proposed policy are set out i the charts below. Value ad compositio of package CEO Fixed Target 100% 43% 1.4m 37% 20% 3.1m Maximum 25% 30% 45% 5.5m 0.00m 1.00m 2.00m 3.00m 4.00m 5.00m 6.00m Fixed 100% Target 43% 37% 20% Maximum 25% 30% 45% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CFO Fixed Target 100% 45% 0.7m 39% 17% 1.6m Maximum 27% 33% 40% 2.7m 0.00m 0.50m 1.00m 1.50m 2.00m 2.50m 3.00m Fixed 100% Target 45% 39% 17% Maximum 27% 33% 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fixed Pay Short-term icetive Log-term icetive I developig the scearios the followig assumptios have bee made: Salary: Salary at 1 Jauary Beefits: Estimate based o beefits received i Pesio: Cash i lieu rate or cotributio rate applied to salary. Below Threshold: No pay-outs uder ay icetive pla. Target: Up to 70% of the maximum potetial uder the aual bous pla ad 25% of the maximum Performace Share Pla awards to be made i 2018 are eared. Maximum: The maximum potetial uder the icetive plas for 2018 is eared. Other: No share price, divideds or discout rate assumptios have bee icluded. 88 Smurfit Kappa Aual Report 2017

91 Overview Strategic Report Goverace Fiacials Recruitmet Policy I determiig the recruitmet package for a ew executive Director the Committee would have regard to the followig priciples: The package should be market competitive to facilitate the recruitmet of idividuals of sufficiet calibre to lead the busiess. At the same time, the Committee would ited to pay o more tha it believes is ecessary to secure the required talet. So far as practical, the Committee would seek to alig the remueratio package for ay icomig executive Director with the remueratio policy set out above. I terms of fixed pay (icludig basic salary, beefits ad pesio), these would be set i lie with the policy table ad at a suitable level to recruit idividuals with the required calibre, skills ad experiece to deliver the Compay s strategy. I terms of variable pay (icludig short ad log-term icetives), the maximum level of variable remueratio which may be awarded (excludig buy-outs ) i the first year of appoitmet is 450% of salary (which is made up of the maximum aual bous opportuity (150%) ad maximum PSP opportuity i the pla rules (300%)). Where a idividual forfeits outstadig variable pay opportuities or cotractual rights at a previous employer as a result of appoitmet, the Committee may offer compesatory paymets or awards, i such form as the Committee cosiders appropriate takig ito accout all relevat factors icludig the form of awards, expected value ad vestig timeframe of the forfeited opportuities. Whe determiig such a buy-out the guidig priciple would be that awards would be o a like for like basis to those forfeited, uless this was ot cosidered appropriate i the particular circumstaces. To facilitate the awards outlied above, the Committee may make awards uder Compay icetive plas, or other available structures as appropriate, for the purpose of makig buy-out awards. Executive Directors Service Cotracts ad Loss of Office Paymet Policy Details of the service cotracts of the executive Directors are as follows: Effective date of cotract Notice period Termiatio paymets A. Smurfit 9 March 2007 (ameded 1 September 2015) 12 moths otice Aual salary, the highest aual bous for the most recet three years, the regular pesio cotributio i respect of the aual salary ad the cash value of ay beefits. K. Bowles 1 April moths otice Aual salary, the regular pesio cotributio i respect of the aual salary ad the cash value of ay beefits. Policy goig forward N/A 12 moths otice For ay ew executive Director, ay paymet i lieu of otice would solely iclude salary, pesio ad other beefits. Treatmet of Icetives o Cessatio I the evet of a executive Director s departure from the Group, ay outstadig share awards will be treated i accordace with the relevat pla rules. The followig table sets out the treatmet of aual bous, deferred share awards ad PSP awards for good ad bad leavers, for awards made i respect of 2018 owards. A Good Leaver is a executive Director who ceases to be a employee of the Group by reaso of: Death; Ill health, ijury or disability; Redudacy; Retiremet with the agreemet of the Committee; The sale of the idividual s employig busiess or compay out of the Group; or Other circumstaces at the discretio of the Committee. Awards Bad leavers Good leavers Aual bous Not eligible to receive a bous, except where a cotractual etitlemet exists. If the termiatio date falls durig the performace year, eligible for a bous pro-rated for time ad performace as appropriate. Deferred bous awards Awards lapse i full o cessatio of employmet. Outstadig awards will be retaied by participats ad would vest i full at the ormal time. The Committee retais discretio to accelerate vestig where it is cosidered appropriate (e.g. o death). PSP awards For leavers durig the performace period, awards lapse i full o cessatio of employmet. Durig the performace period, outstadig awards will be retaied ad would vest at the ormal time takig ito accout the extet to which the performace coditios have bee achieved (measured at the ormal time) ad time i employmet as a proportio of the performace period. For ay leavers durig the holdig period, outstadig awards will be released at the ormal time, except where a participat is summarily dismissed, i which case awards lapse i full o cessatio of employmet. The Committee retais discretio to accelerate the vestig or release of awards where it is cosidered appropriate (e.g. o death). 89

92 REMUNERATION REPORT (CONTINUED) I the evet of a chage of cotrol, awards will be treated i lie with the respective pla rules. Awards uder the Group s legacy deferred aual bous pla will be treated i lie with the pla rules. A copy of the pla rules ca be foud o the Group s website: smurfitkappa.com. No executive Directors ad the Chairma Terms ad coditios for o-executive Directors All o-executive Directors have letters of appoitmet for a period of three years which are reewable but geerally for o more tha three terms i aggregate. I compliace with the UK Corporate Goverace Code, all Directors will retire at each AGM ad offer themselves for re-electio. A copy of the letter of appoitmet is available for ispectio at the Compay s registered office durig ormal busiess hours ad at the AGM. No-executive Directors are ot eligible to participate i the aual bous pla or the log-term icetive plas ad their service as a o-executive Director is ot pesioable. No-executive Director policy table Approach to fees Operatio Other items Fees for the Chairma ad o-executive Directors are set at a appropriate level to reflect the time commitmet, resposibility ad duties of the positio ad the cotributio that is expected from o-executive Directors. The remueratio of the o-executive Directors is determied by the Board withi the limits set out i the Articles of Associatio. The Chairma receives a aggregate fee. The Remueratio Policy for o-executive Directors is to pay: (i) a basic aual fee; ad (ii) fees for additioal board resposibilities (icludig the seior idepedet director ad chairmaship ad membership of a committee). Additioal fees may also be paid where the time commitmet i a particular year was sigificatly more tha aticipated. No-executive Directors are reimbursed for travel ad reasoable persoal expeses (icludig ay related tax liability o such expeses). Additioal fees or beefits may be provided at the discretio of the Board. If a ew Chairma or o-executive Director is appoited, the remueratio arragemets will ormally be i lie with those detailed i the table above. Cosideratio of Remueratio Arragemets Throughout the Group As the Group is multiatioal, remueratio packages i each geographical locatio must be fair ad competitive for that locatio ad at a most seior level, o a iteratioal basis. Our objectives are to a) esure that SKG ca attract ad retai taleted employees of the calibre ecessary for it to compete i all its markets, b) motivate employees at every level of the orgaisatio to achieve the Group s objectives both short ad log-term i order to create sustaiable value ad c) alig remueratio packages with the Group s values of supportig a performace culture. The employees are rewarded i lie with their idividual ad busiess performace. I settig remueratio levels, SKG takes ito cosideratio the employees performace appraisal, exteral bechmark data for their role i compaies of similar size ad scope i their geographical area while also esurig reasoable iteral equity withi the Group. Give the scale of the Group s operatios, the Group does ot specifically ivite employees to commet o the Directors Remueratio Policy. Cosideratio of Shareholder Views The Compay is committed to ogoig shareholder dialogue whe cosiderig chages to the Remueratio Policy. As set out i the letter from the Committee Chairma, the Committee cosulted extesively with shareholders o the proposed Remueratio Policy goig forward ad a umber of chages were made to the origial proposals to reflect the feedback received from shareholders, icludig the maximum operatioal award opportuity uder the PSP for curret executive Directors ad the proposed shareholdig requiremet for the CEO. Ed of Remueratio Policy 90 Smurfit Kappa Aual Report 2017

93 Overview Strategic Report Goverace Fiacials How We Will Implemet Our Policy i 2018 The followig table sets out a summary of how our Remueratio Policy will be implemeted i 2018 i respect of executive Directors. Compoet Implemetatio i 2018 Chief Executive Officer Chief Fiacial Officer Basic salary Salaries icreased effective 1 Jauary 2018 by 0.5%, which was below the icreases for the wider workforce i the core coutries i Europe which raged betwee 1.1% - 3.5%. A. Smurfit = 1,105,500 p.a. K. Bowles = 603,000 p.a. Beefits Market competitive beefits provided i lie with Remueratio Policy. Pesio A. Smurfit = 20.5% of salary (cash allowace) K. Bowles = 17% of salary (DC employer cotributio) Aual bous Performace will be measured over oe year agaist the followig key fiacial, operatioal/ strategic ad idividual performace metrics: Measure Weightig Earigs Before Iterest ad Tax 25% ROCE 25% Free Cash Flow 20% Health ad Safety 10% Persoal/Strategic Goals 20% Actual targets have ot bee disclosed prospectively due to commercial sesitivity. 50% will be delivered i cash ad 50% will be deferred ito Compay shares for three years. A. Smurfit (maximum) = 150% of salary K. Bowles (maximum) = 150% of salary Performace Share Pla Performace measured over three years agaist three equally weighted measures. Awards are subject to a holdig period such that they are released i three equal traches followig the third, fourth ad fifth aiversaries of the grat date. Measure EPS (pre-exceptioal items - cumulative over three-years) Threshold vestig (25% of maximum) 720c Maximum vestig (100% of maximum) 880c ROCE (three-year average) 15.3% 18.7% Relative Total Shareholder Retur* Media performace Upper quartile Straight lie vestig betwee poits *Measured agaist the followig peers: Billerud Korsas, Cascades, DS Smith, Empresas Cmpc, Graphic Packagig, Iteratioal Paper, Klabi, Mayr-Melhof, Metsa Board, Modi, Packagig Corporatio of America, Stora Eso, UPM-Kymmee ad WestRock. A. Smurfit (maximum) = 225% of salary K. Bowles (maximum) = 180% of salary Share owership requiremets A. Smurfit is required to build a shareholdig equivalet to 300% of basic salary. K. Bowles is required to build a shareholdig equivalet to 200% of basic salary. 91

94 REMUNERATION REPORT (CONTINUED) The table below sets out a summary of o-executive Director fees. There are o chages for Aual fee Chairma 350,000 No-executive Director base fee 70,000 Additioal fees: Seior Idepedet Director fee 60,000 Audit Committee Chairma fee 60,000 Remueratio Committee Chairma fee 60,000 Committee membership fee 20,000 Total Executive Directors Remueratio i 2017 The followig table shows a sigle figure of total remueratio for each executive Director for the years 2017 ad The idividual remueratio i the tables below is also set out o page 98. Directors 2017 Basic salary Pesio Beefits 1 Total aual bous 2 Deferred matchig shares 3 LTIP Share price appreciatio elemet 4 Total LTIP Total A. Smurfit 1, ,477 K. Bowles , A. Smurfit 1, ,407 K. Bowles* Beefits iclude the use of a compay car, club subscriptios or cash equivalet. 2 Icludes the total bous paid i respect of 2017 ad 2016, icludig deferred amouts. 3 Deferred matchig shares - for 2017 this represets the matchig shares that vested i February 2018 at the grat price i They vested as a result of the achievemet of the relevat performace targets for the three-year period eded 31 December 2017 (see page 94 for further details). For 2016 this represets the matchig shares that vested i February 2017 at the grat price i They vested as a result of the achievemet of the relevat performace targets for the three-year period eded 31 December Share price appreciatio elemet - the estimated additioal value geerated through share price growth over the grat price i 2015 ad For the 2015 grats the share price used is compared to the grat price of per share. For the 2014 grats the share price used is compared to the grat price of per share. * Mr Bowles was appoited Group Chief Fiacial Officer o 1 April 2016 ad a Director o 8 December Pesios Mr Smurfit ad Mr Bowles participated i a Group cotributory defied beefit pesio pla based o a accrual rate of 1/60th of pesioable salary for each year of pesioable service ad was desiged to provide two thirds of salary at retiremet for full service. The defied beefit pla which Mr Smurfit ad Mr Bowles are members of closed to future accrual with effect from 30 Jue 2016 ad was replaced by a defied cotributio pla. All pesio beefits are determied solely i relatio to basic salary. The Irish Fiace Act 2006 effectively established a cap o pesio provisio by itroducig a pealty tax charge o pesio assets i excess of the higher of 5 millio or the value of idividual prospective pesio etitlemets as at 7 December As a result of these legislative chages, the Compesatio Committee of SKG decided that Irish based executive Directors should have the optio oce they reached the cap of cotiuig to accrue pesio beefits as previously, or of choosig a alterative arragemet with a similar overall cost to the Group. Mr Smurfit (i 2017 ad 2016) chose a alterative arragemet which ivolved cappig his idividual pesio i lie with the provisios of the Fiace Act ad receivig a supplemetary taxable o-pesioable cash allowace, i lieu of prospective pesio foregoe. This was calculated based o actuarial advice as the equivalet of the reductio i SKG s liability to the idividual ad spread over the term to retiremet as aual compesatio allowaces ad was fixed at 30 Jue 2016 o the closure of the defied beefit pla to future accrual. For 2017, the o-pesioable cash allowace for Mr Smurfit represeted 20.5% of salary. For Mr Bowles a compay cotributio equal to 17% of salary was paid ito the defied cotributio pla. 92 Smurfit Kappa Aual Report 2017

95 Overview Strategic Report Goverace Fiacials Aual Bous Executive Directors participate i a aual bous scheme which was based o the achievemet of clearly defied stretchig aual fiacial targets, together with targets for Health ad Safety ad a compariso of the Group s fiacial performace compared to that of its peer group aual bous The key target areas as well as their weightigs ad the specific targets for the 2017 aual bous pla are set out i the table below: Performace metrics Threshold Target Maximum Resultat payout (% of max.) 189c EPS (25%)* 15.7% (63%) 118c 175c 232c 14.7% ROCE (25%)* 11.5% (46%) 11.5% 15% 18.4% 289m Free Cash Flow (20%)* - 363m 435m 507m Peer Compariso** (20%) Health ad Safety (10%) Peer compariso esures that results, especially i a cyclical idustry, while market drive, are a result of the ogoig relative performace of the Group s operatios ad maagemet teams rather tha widfall beefits. Performace is measured agaist six key factors. For 2017, the Group out-performed peer group bechmarks i terms of retur o capital employed (both o a average ad media basis) ad therefore, 33% of this elemet will pay-out. The Group cosolidated frequecy rate of accidets was % payout i rage betwee 0.25 ad % (33%) 7.5% (75%) Total 41.4% * Due to the distortioary effect of hyperiflatio i Veezuela it is excluded from both targets ad actual results. ** The peer group used for the purpose of this measure was: Billerud Korsas, Bio-PAPPEL, Cascades, DS Smith, Iteratioal Paper, Klabi, Metsa Board, Modi, Norske Skog, Packagig Corporatio of America, Stora Eso, UPM-Kymmee ad WestRock. Based o the above performace, the Committee approved the resultat aual bouses for 2017: 2017 Aual cash bous Deferred shares Total bous Executive Directors A. Smurfit K. Bowles I lie with the Remueratio Policy, half of the bouses show above were paid i cash ad half were deferred ito Compay shares which vest after three years subject to the cotiuity of employmet of the executive or i certai circumstaces based o ormal good leaver provisios aual bous As committed to shareholders, the followig table sets out the fiacial performace targets used to determie 2016 aual bous awards for executive Directors. Specific targets were ot disclosed i the 2016 Aual Report as they were cosidered to be commercially sesitive at the time. Performace metrics Threshold Target Maximum Resultat payout (% of max.) 194c EPS (25%)* 9.2% (37%) 148c 212c 276c 14.9% ROCE (25%)* 8.7% (35%) 12.5% 16% 19.6% 293m Free cash flow (20%)* - 337m 414m 490m Peer Compariso (20%)** Above media/average i 2 out of 6 comparators. 6.7% (33%) Health ad Safety (10%) The Group cosolidated frequecy rate of accidets maitaied below % payout below % (100%) Total 34.6% * Due to the distortioary effect of hyperiflatio i Veezuela it is excluded from both targets ad actual results. ** The peer group used for the purpose of this measure was: Billerud Korsas, Bio-PAPPEL, Cascades, DS Smith, Iteratioal Paper, Klabi, Metsa Board, Modi, Norske Skog, Packagig Corporatio of America, Stora Eso, UPM-Kymmee ad WestRock. 93

96 REMUNERATION REPORT (CONTINUED) Deferred Aual Bous Pla Awards vestig i respect of performace to 31 December 2017 I 2015, Mr Smurfit ad Mr Bowles were grated Matchig Share Awards which vested based o the achievemet of performace targets for the three-year period edig o 31 December As previously set out by the Committee, the matchig awards i respect of the performace period were reduced to 2.25 times (from a ormal maximum of 3 times). The targets for the threeyear period edig o December 2017 which were set i 2015, were as follows: Targets ad Match Matrix Three-year performace period Level of performace attaied over three-year period ROCE 44.3% 47.6% 50.9% Below Threshold Threshold Target Stretch Below Threshold FCF ( m) 1,064 Threshold ,230 Target ,383 Stretch ROCE ad FCF for the three-year period to December 2017 amouted to 45.2% ad billio respectively ad as a result a times match from a maximum of 2.25 times was approved by the Committee i February Adjustmets were made to exclude the effect of acquisitios ad disposals ad the hyperiflatioary effects of Veezuela which happeed durig the three-year period to December Awards grated durig the year Durig the year, executive Directors were grated deferred share awards (i respect of the 2016 aual bous) ad Matchig Share Awards that may vest based o the achievemet of performace targets for the three-year period edig o 31 December Details of the executive Directors awards are set out below. Further detail o the executive Directors outstadig shares are set out o page 97. Type of iterest Face value 1 % vestig at threshold Performace period Deferred bous 000 A. Smurfit Deferred shares 285 /a /a K. Bowles Deferred shares 132 /a /a Matchig shares A. Smurfit Matchig shares % 01/01/ /12/2019 K. Bowles Matchig shares % 01/01/ /12/ Share price o the date of grat i February 2017 was Percetage Chage i Group Chief Executive Officer Remueratio i Relatio to All Employees Details of the percetage chage i the salary, aual bous ad beefits from 2016 to 2017 for the Group Chief Executive Officer ad all employees are set out below: Basic salary Total bous Beefits Group Chief Executive Officer % chage 0% 20% (10%) All employees % chage 3.2% 8% /a* *It is ot possible to calculate the percetage chage i beefits for all employees for the purpose of this table. 94 Smurfit Kappa Aual Report 2017

97 Overview Strategic Report Goverace Fiacials Relative Importace of Sped o Pay The followig tables set out the amouts ad percetage chage i profit, divideds ad total employee costs for the fiacial years eded 31 December 2017 agaist m m Profit before icome tax ad exceptioal items Profit before icome tax ( PBT ) Divideds paid to shareholders Total employee costs 1 2,075 1,972 1 Total employee costs for cotiuig operatios, icludes wages ad salaries, social isurace costs, share-based paymet expese, pesio costs ad redudacy costs for all employees, icludig Directors. The average full time equivalet umber of employees, icludig Directors ad part-time employees i cotiuig operatios was 46,350 (2016: 45,524) with the icrease beig maily due to the acquisitios made durig the year. Percetage Chage of Sped o Pay 2017 vs % 10% 15.5% 0% 5.2% (8.5%) (11.9%) (10%) (20%) PBT ad exceptioals PBT Divideds paid Total employee costs Total Shareholder Retur Performace The performace graph below shows the Group TSR performace from 31 December 2008 to 31 December 2017 agaist the performace of the FTSE 100 ad FTSE 250 over the same period. Both the FTSE 100 ad FTSE 250 have bee chose as durig the relevat period these are the two broad equity market idices of which the Group has bee a member. Total Retur Idices - Smurfit Kappa vs FTSE 100 ad FTSE 250 2,000 Total shareholder retur (id) 1,500 1, Smurfit Kappa FTSE 100 (euro) FTSE 250 (euro) 95

98 REMUNERATION REPORT (CONTINUED) Group Chief Executive Officer Remueratio The table below summarises the sigle figure of total remueratio for the Group Chief Executive Officer for the past ie years as well as how the actual awards uder the aual bous ad LTIP compare to the maximum opportuity. Sigle figure of total remueratio Aual bous award agaist maximum opportuity LTIP award agaist maximum opportuity Group Chief Executive Officer A. Smurfit 2,477 41%* 45% A. Smurfit 2,407 35%* 45% A. Smurfit (appoited 1 September) 1,180 42%* 67% G. McGa (retired 31 August) 3,837 42%* 67% G. McGa 7,203 55%* 75% G. McGa 5,278 54%* 93% G. McGa 3,169 60%* 30% G. McGa 3,358 65%* 100% G. McGa 2,641 55% G. McGa 2,231 23% The Matchig ad Coditioal Matchig Awards grated i 2015, 2014, 2013, 2012 ad 2011 vested i February 2018, 2017, 2016, 2015 ad 2014 respectively based o the achievemet of the relevat performace targets for the three-year periods edig o 31 December 2017, 2016, 2015, 2014 ad The awards uder the 2007 Share Icetive Pla ( SIP ) vested 30% i February 2013 with the TSR coditio beig at the media. 3 The SIP awards vested 100% i February 2012 with the TSR coditio beig i the upper quartile of the peer group. 4 The SIP awards lapsed i March 2010 ad March 2011 respectively havig failed to meet the required performace coditios. * The aual bous award for 2017, 2016, 2015, 2014, 2013, 2012 ad 2011 was paid 50% i cash ad 50% i Deferred Share Awards. The iformatio below forms a itegral part of the audited Cosolidated Fiacial Statemets as described i the Basis of Preparatio o page 120. Pesio Etitlemets Defied Beefit Icrease/(decrease) i accrued pesio durig year Trasfer value of icrease/(decrease) i accrued pesio 2017 Total accrued pesio 1 Executive Directors A. Smurfit K. Bowles Accrued pesio beefit is that which would be paid aually o ormal retiremet date. Additioal Iformatio Paymets to former directors I lie with the treatmet disclosed i last years report, Ia Curley retaied uvested LTIP awards o steppig dow as CFO which will vest o a pro-rated basis to reflect the portio of the vestig period durig which he served as a employee of the Compay ad performace delivered at the ed of the performace period. I respect of his 2015 DABP awards, i lie with the performace achieved over the performace period (as oted above) 45% of the pro-rated matchig shares awarded vested o the ormal vestig date. Paymets i lieu of otice There were o paymets i lieu of otice durig the year. 96 Smurfit Kappa Aual Report 2017

99 Overview Strategic Report Goverace Fiacials Executive Directors Iterests i Share Capital at 31 December 2017 Name Owed at 31 December 2016 Owed at 31 December 2017 Shareholdig (% of salary) Shareholdig guidelie * (% of salary) Shareholdig guidelie met? A. Smurfit 1,125,332 1,158,153 2,968% 150% Yes K. Bowles 17,754 24, % 100% Yes * The ew shareholdig guidelie beig proposed will icrease the CEO guidelie to 300% ad other executive directors to 200%. Deferred Aual Bous Pla Awards Deferred Share Awards ad Matchig Share Awards Deferred Share Awards ad Matchig Share Awards were grated to eligible employees i 2017 i respect of the fiacial year eded 31 December The Matchig Share Awards may vest up to a maximum of 3 times the Deferred Share Award, based o the achievemet of the relevat performace targets for the three-year period edig o 31 December December * 2016 Grated (Lapsed) i year 2017 Shares distributed o vestig 31 December ** 2017 Market price o award date Performace period Deferred Matchig Deferred Matchig Deferred Matchig Deferred Matchig Directors A. Smurfit 17,733 17,733 (17,733) 1 (18,088) /01/ /12/ ,450 15,450 15, , /01/ /12/ ,265 13,265 13,265 13, /01/ /12/ ,093 11,093 11,093 11, /01/ /12/2019 K. Bowles 5,742 3,828 (5,742) 1 (3,905) /01/ /12/2016 4,464 2,976 4, , /01/ /12/2017 3, ,559 3, /01/ /12/2018 5,128 5,128 5,128 5, /01/ /12/2019 Secretary M. O Riorda 3 7,239 7,239 (7,239) 1 (7,384) /01/ /12/2016 5,364 5,364 5, , /01/ /12/2017 4,277 4,277 4,277 4, /01/ /12/2018 4,012 4,012 4,012 4, /01/ /12/ The deferred shares vested i February 2017 ad were distributed. The market price at date of distributio was Based o the achievemet of the relevat performace targets for the three-year period edig o 31 December 2016 the matchig shares vested i February 2017 with a match of 1.02 times the level of the Matchig Share Award ad were distributed. The market price at the date of distributio was The deferred shares vested i February Based o the achievemet of the relevat performace targets for the three-year period edig o 31 December 2017 the matchig shares vested i February 2018 with a match of times the level of the Matchig Share Award. 3 The 28,646 covertible shares held by M. O Riorda at 31 December 2016 were exercised i February 2017 ad the market price at the date of exercise was * or at date of appoitmet if later. ** or at date of departure if earlier. The market price of the Compay s shares at 31 December 2017 was ad the rage durig 2017 was to

100 REMUNERATION REPORT (CONTINUED) Directors Remueratio Executive Directors Basic salary 1,700 1,333 Aual cash bous Pesio Beefits Executive Directors remueratio 2,612 2,022 Average umber of executive Directors 2 1 No-executive Directors Fees 1,360 1,265 No-executive Directors remueratio 1,360 1,265 Average umber of o-executive Directors Directors remueratio 3,972 3,287 Idividual Remueratio for the Fiacial Year Eded 31 December 2017 Basic salary ad fees Aual cash bous Pesio 1 Beefits Executive Directors A. Smurfit 1, ,692 1,663 K. Bowles I. Curley , ,612 2,022 No-executive Directors L. O Mahoy F. Beurskes C. Bories T. Brodi J. Buhl Rasmusse I. Fia J. Lawrece G. McGa J. Moloey R. Newell G. Restrepo R. Thore ,360 1,360 1,265 1 Pesio: The Irish Fiace Act 2006 effectively established a cap o pesio provisio by itroducig a pealty tax charge o pesio assets i excess of the higher of 5 millio or the value of idividual prospective pesio etitlemets as at 7 December As a result of these legislative chages, the Compesatio Committee of SKG i 2007 decided that Irish based executive Directors should have the optio oce they reached the cap of cotiuig to accrue pesio beefits as previously, or of choosig a alterative arragemet with a similar overall cost to the Group. Mr Smurfit i 2017 ad 2016 chose the alterative arragemet ad received a supplemetary taxable o-pesioable cash allowace i lieu of cotributios to a pesio fud i the amout of 225,500 (2016: 225,500). Total 2017 The aggregate amout of cotributios paid to defied cotributio schemes ad defied beefit schemes i respect of Directors was 102,000 (2016: 32,097) ad il (2016: 27,500) respectively. 2 Mr Bowles who was appoited Group Chief Fiacial Officer o 1 April 2016 was appoited a Director o 8 December Mr Curley stepped dow as Group Chief Fiacial Officer ad Director o 31 March Mr Beurskes fees iclude a additioal fee of 30,000 (2016: 30,000) for services as a Director of a Group subsidiary. 4 Mr Buhl Rasmusse joied the Board i March Mr Brodi ad Mr McGa retired i May Total Smurfit Kappa Aual Report 2017

101 Overview Strategic Report Goverace Fiacials Share-based Paymet The executive Directors receive Deferred Share Awards ad Matchig Share Awards, details of which are outlied o page 97 of this report. The share-based paymet expese recogised i the Cosolidated Icome Statemet for the executive Directors i the year totalled 1,077,296 (2016: 489,830). No-executive Directors Iterests i Share Capital at 31 December 2017 The iterests of the o-executive Directors ad Secretary i the shares of the Compay as at 31 December 2017 which are beeficial uless otherwise idicated are show below. The Directors ad Secretary have o beeficial iterests i ay of the Group s subsidiary or associated udertakigs. 31 December 2017** 31 December 2016* Ordiary Shares Directors L. O Mahoy 19,830 19,830 F. Beurskes 2,500 2,500 C. Bories 1,800 1,800 T. Brodi** 30,000 30,000 J. Buhl Rasmusse* 2,469 - I. Fia 8,650 8,650 J. Lawrece 335, ,000 G. McGa** 443, ,531 J. Moloey 8,000 8,000 R. Newell 4,965 4,965 G. Restrepo - - R. Thore 10,000 10,000 Secretary M. O Riorda 115, ,018 * Or at date of appoitmet if later. ** Or at date of departure if earlier. Ed of iformatio i the Remueratio Report that forms a itegral part of the audited Cosolidated Fiacial Statemets. 99

102 REMUNERATION REPORT (CONTINUED) The Compesatio Committee The Compesatio Committee chaired by Mr Irial Fia curretly comprises six o-executive Directors. The Directors biographical details o pages 68 to 70 demostrate that the members of the Committee brig to it a wide rage of experiece i the area of seior executive remueratio i comparable compaies. The Committee receives advice from idepedet remueratio cosultats, as appropriate, to supplemet their ow kowledge ad to keep the Committee updated o curret treds ad practices. I 2017, the Committee received idepedet advice from its idepedet advisors Deloitte LLP o the approach to executive remueratio i the Group goig forward, ad received advice from Hay Group o the salaries of the executive Directors ad the seior maagemet team. The Committee cosiders that the advice provided by Deloitte LLP ad Hay Group, who do ot have ay other affiliatio with the Group, is objective ad idepedet. The total fees paid to Deloitte LLP i relatio to Remueratio Committee work durig 2017 were 111,185 (excludig VAT). The role ad resposibilities of the Committee are set out i its Terms of Referece which is available o the Group s website: smurfitkappa.com. The Terms of Referece ad the performace of the Committee was reviewed ad the Committee is cosidered to be operatig effectively ad efficietly. The Terms of Referece are reviewed each year by the Committee. The Committee met five times durig the year. Details of Committee members ad meetigs atteded are provided i the table below. The Group Chief Executive Officer ormally atteds the meetigs ad the Group V.P. Huma Resources atteds whe appropriate. Attedace record Number of meetigs eligible to atted Number of meetigs atteded Appoitmet date I. Fia (Chairma) C. Bories J. Buhl Rasmusse* J. Moloey L. O Mahoy G. Restrepo * Mr Buhl Rasmusse joied the Board i March Statemet o Shareholder Votig The Compay is committed to ogoig shareholder dialogue whe formulatig remueratio policy. If there are substatial umbers of votes agaist resolutios i relatio to directors remueratio, the Compay will seek to uderstad the reasos for ay such vote ad will provide details of ay actios i respose to such a vote. The followig tables show the votig outcome at the 5 May 2017 AGM for the 2016 Directors Remueratio Report ad the Remueratio Policy. Item Votes for ad discretioary % votes cast Votes agaist % votes cast Total votes cast Vote withheld Directors Remueratio Report 124,091, % 18,755, % 142,846, ,748 Directors Remueratio Policy 138,700, % 1,645, % 140,345,808 3,045, Smurfit Kappa Aual Report 2017

103 Overview Strategic Report Goverace Fiacials NOMINATION COMMITTEE REPORT Roberto Newell Chairma of the Nomiatio Committee As Chairma of the Nomiatio Committee I am pleased to preset the report of the Committee i relatio to the fiacial year eded 31 December Role of the Nomiatio Committee The role of the Nomiatio Committee ( the Committee ) is to: lead the process for appoitmets to the Board ad makig recommedatios to the Board evaluate the balace of skills, kowledge, experiece ad diversity, both geder ad geographical, o the Board to esure the Board cotiues to operate effectively prepare descriptios of the role ad requiremets for ew appoitees give full cosideratio to successio plaig for Directors. Where ecessary, the Committee uses the services of exteral advisors i order to assist i the search for ew appoitmets to the Board. They are provided with a brief which takes ito cosideratio the skills, experiece ad diversity, both geder ad geographical, required at the time to give balace to the Board. Whe suitable cadidates have bee idetified some Committee members will meet with them ad if a cadidate is agreed upo, the Committee will the recommed the cadidate to the Board. All appoitmets to the Board are approved by the Board as a whole. No-executive Directors are expected to serve two three-year terms although they may be ivited to serve for a further period. All ewly appoited Directors are subject to electio by shareholders at the AGM followig their appoitmet ad i compliace with the Code, all Directors are required to retire at each AGM ad offer themselves for re-electio. The terms ad coditios of appoitmet of o-executive Directors are available for ispectio at the Compay s registered office durig ormal busiess hours ad at the AGM of the Compay. The role ad resposibilities of the Committee are set out i its Terms of Referece which is available o the Group s website: smurfitkappa.com. The Terms of Referece are reviewed each year by the Committee. Membership of the Committee The Committee is curretly comprised of five o-executive Directors. The Committee met three times durig the year uder review. Details of Committee members ad meetigs atteded are provided i the table below. The Group Chief Executive Officer ormally atteds meetigs of the Committee. Attedace record A* B* Appoitmet date R. Newell - Chairma** T. Brodi** F. Beurskes J. Lawrece G. McGa** L. O Mahoy R. Thore * Colum A idicates the umber of meetigs held durig the period the Director was a member of the Committee ad was eligible to atted ad Colum B idicates the umber of meetigs atteded. ** Mr Newell joied the Committee i May 2017 as Chairma. Mr Brodi ad Mr McGa retired from the Board i May Mai Activities durig the Year Durig the year the Committee evaluated the compositio of the Board with respect to the balace of skills, kowledge, experiece ad diversity, icludig geographical ad geder diversity o the Board ad updated a policy documet o Board successio. The Committee istigated a search for a ew o-executive Director i 2017 as part of the ogoig Board reewal process, usig the services of a exteral advisor, KORN/FERRY Whitehead Ma, who do ot have ay other affiliatio with the Group. Ms Fairweather was idetified through a rigorous search ad selectio process. Followig iterviews with KORN/FERRY Whitehead Ma ad a umber of the Committee members, the Committee recommeded Ms Fairweather for co-optio to the Board. The appoitmet of Ms Fairweather, with effect from 1 Jauary 2018, was cofirmed by the Board i December Ms Fairweather has sigificat expertise i the global retail sector ad this, together with her experiece as Chief Fiacial Officer of a FTSE 100 compay, will add to the Board s skill base. Her biography is set out o page 69. The Terms of Referece ad the performace of the Committee was reviewed ad the Committee is cosidered to be operatig effectively ad efficietly. Roberto Newell Chairma of the Nomiatio Committee 22 March

104 AN INTEGRATED MODEL BAG-IN-BOX Our global bag-i-box operatios produce iovative packagig solutios desiged to exted the shelf life of liquid or semi-liquid food products. I 2014, we opeed the ultra-moder ad highly automated bag-i-box facility i Ibi Spai (pictured) which produces millios of taps ad bags every moth to meet growig demad. 102 Smurfit Kappa Aual Report 2017

105 Overview Strategic Report Goverace Fiacials Fiacials Fiacial Statemets Statemet of Directors Resposibilities 104 Idepedet Auditors Report 105 Cosolidated Icome Statemet 112 Cosolidated Statemet of Comprehesive Icome 113 Cosolidated Balace Sheet 114 Compay Balace Sheet 115 Cosolidated Statemet of Chages i Equity 116 Compay Statemet of Chages i Equity 117 Cosolidated Statemet of Cash Flows 118 Compay Statemet of Cash Flows 119 Notes to the Cosolidated Fiacial Statemets 120 Shareholder Iformatio

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