Finances

In recent years, demand for glass packaging on the European market has increased continuously, but the coronavirus pandemic changed demand significantly. As around 20 to 30% of glass packaging is sold by restaurants and bars to consumers (“on-premises consumption”) under normal conditions, the lockdowns triggered by the pandemic and the associated closure of catering outlets led to a temporary, yet sharp, drop in demand. This was also indirectly caused by the decline in tourism in some countries, which had a negative impact on unit sales in hospitality. At the same time, people began stockpiling food at home, which had a noticeable positive effect on demand for glass packaging. Overall, this resulted in a reduction in unit sales of 5.9% for the year under review.

The extraordinary developments in the reporting year led to a redistribution of flows of goods and of the production capacity utilisation of individual glassworks. Value chains had to be adapted or reorganised at short notice. However, not only did the crisis have negative economic consequences, it also made the industry more flexible in a positive way, as well-established processes and practices had to be critically examined and adjusted.

Financial figures 2020

1) adjusted; see note No. 29
* operating cash flow before change of net working capital

To increase transparency regarding its shareholders, Vetropack abolished the bearer shares and converted them into a new category of registered shares following a resolution by the Annual General Assembly in the reporting year. A share split of 1:50 was implemented for both categories. Vetropack thus achieved an increase in the number of shares and the move also enables smaller shareholders to participate in the company’s success.

Cash flow, profitability and sustainable return on capital

Vetropack’s long-term growth is largely financed from its own resources. The main performance indicator used by Vetropack for reviewing business development is the return on operating capital employed (ROOCE). Optimising the resources used and their impact on profitability is therefore given a higher weighting by Vetropack than pure profit or cash flow. The focus on sustainably boosting the return on operating capital employed means that Vetropack increasingly operates as a Group and prioritises investments with great potential for synergy – very much in keeping with the “Group first” mindset.

This can also have a positive effect on resource consumption. For example, from a Group perspective, it makes more sense to invest in a recycling system that efficiently supplies used glass to multiple glassworks than to operate a separate system at each location. Investments in digitalisation also tend to be prioritised to make work processes more efficient and thereby increase return on capital. By doing this, Vetropack is positioning itself as a progressive and attractive employer for young talent.

In 2020, operating cash flow fell by 7.9% to CHF 141.2 million (2019: CHF 153.3 million) due to the pandemic. Vetropack also invested CHF 73.7 million in further expanding its production facilities. The highlight was the investment in renovating and expanding a furnace in Croatia, which further increased the Group’s production capacity. As the improved furnace is not being put into operation until early 2021, this investment will not affect cash flow and profitability until later in the year.

All other, non-essential, investment projects were, however, put on hold. Vetropack’s production facilities are of a high technical standard overall, which is why investment in existing capacity will be much lower in the next few years than it has been in the past. This is expected to increase the return on capital.

Sustainable growth and market position

Customer satisfaction is crucial to Vetropack’s continuous economic success. To understand the needs of customers and their perception of the company more accurately, the Group carried out a large-scale Voice-of-Customer survey back in 2019. In 2020, Vetropack further expanded its market intelligence function at Group level to improve market knowledge in the Group as a whole. This enables Vetropack to predict customers’ needs more reliably, develop suitable solutions and strengthen its market position.

Fostering good customer relationships was even more important in 2020 in view of the market disruption caused by the global pandemic. Vetropack worked hard to maintain operations and respond flexibly to customers’ requests for shorter supply chains and faster product availability. Despite the total drop in sales of 7.3% compared to the previous year, Vetropack was able to keep and consolidate its leading position in its core markets. This was because Vetropack focused on markets in the vicinity of its production sites and made the most of the Group’s capacity to offer a wider range of products and flexibility in all markets.

The Group aims to further reinforce its market position in future and has therefore improved product quality and traceability as part of the “Leader in quality” quality management programme. Production capacity was expanded thanks to the modernisation of a furnace at the Croatian production plant in Straža. Vetropack also increased its capacity for clear glass in 2020, as the trend towards glass packaging for food is growing. The strong focus on innovation, boosted by the drive to become the green pioneer of the industry, will help the Group to meet its growth targets.

Compliance

Fair behaviour that forbids bribery, corruption and discrimination, amongst other things, as well as obeying the law, is one of Vetropack’s basic principles. It is essential for gaining and retaining the trust of customers, suppliers and authorities. For Vetropack, complying with all applicable laws, regulations and industry standards and responding immediately if any deviations are identified is a matter of course. The relevant guidelines are laid down in the Code of Conduct and in the Business Ethics Policy. The Supplier Code also regulates compliance with human rights in the value chain and is checked regularly during audits. This ensures that an awareness of how to behave in compliance with the rules is firmly established in the company. On this basis, Vetropack has been able to achieve a consistent and very high level of compliance over the past few years.

In the reporting year, Vetropack found in an internal inspection at the Austrian Kremsmünster glassworks that the relevant authorities had been sent incorrect figures for the plant’s quantity of industrial effluents and air emissions for 2010 to 2019. In those years, the annual reports to the relevant authorities had been falsified, some of them considerably so. Vetropack informed the authorities in question immediately after identifying the deviations and submitted a voluntary disclosure. The company is expecting payments of arrears on sewerage fees to amount to around EUR 4 million.

Vetropack would like to stress that all threshold values for both substances contained in effluents and air emissions were observed at all times, and for the most part clearly undercut. At no time was there any danger to the health of local residents or to the environment. Comprehensive documents and expert reports that demonstrate this were handed over to the municipality of Kremsmünster and the district governor’s office of Kirchdorf. Following this incident, Vetropack worked at full speed to ensure the facility’s compliance with all regulations. Measures were also taken to recycle necessary cooling water in production to considerably reduce effluent volumes.