End-of-year review

Management report

“We shall maintain our strategic focus.”

The 2023 fiscal year started out with a successful first half, but a significant market downturn emerged as the dominant feature in the second half. The new year of 2024 is also overshadowed by a tense situation in Vetropack’s core markets. We talked with CEO Johann Reiter about the issues that will play an important part going forward, and the priorities he is setting for the Group.

Johann Reiter, CEO Vetropack Group

Mr Reiter: 2023 is behind us, and the business figures are now available. Vetropack made a good showing in a difficult environment, but the company hardly achieved any growth. What’s your assessment of the results?

2023 is a fiscal year that I look back on with very mixed feelings. In overall terms, like the two preceding years, it was largely dominated by external crises that we – as a company – are unable to influence, but which nevertheless directly impact our business. These are, first and foremost, the war in Ukraine and the sustained energy crisis – but also the tense global economic situation, with high inflation rates affecting our European core markets in particular. This led to restrained consumer sentiment which impacted us severely, especially in the second half of the year. For this reason, we had to implement massive capacity scalebacks in several plants.

Conversely, 2023 also saw a series of very positive events that I shall look back on with fond memories. I’d like to mention two specific examples here: the opening of our new plant in Italy, and the resumption of production at our Ukrainian site in Gostomel. Both these events pointed the way ahead for our Group. And even though 2023 was a difficult year, we shouldn’t forget that we closed it with a stable result at the same level as the prior year’s figure. This testifies to our Group’s energy and capacity to perform, and it should stand us in good stead for the new fiscal year.

Although, according to the latest data, 2024 is unlikely to be any less difficult than the previous year ...

True. In actual fact, we’re expecting the difficult situation in our markets to persist in the new year as well. We do see a slight decrease in inflation, but that is definitely not going to bring about a fundamental change in consumer behaviour. And meanwhile, it’s precisely this shortfall in consumption that continues to be a critical factor for us, as it is for the entire packaging industry.

For us, this ongoing trend means that we have to take action, and we have to do so right now. We can only respond to this sharp downturn in consumption by adjusting our capacities accordingly. We in the Vetropack Group can’t cope with a market slump on this scale by temporary shutdowns and closures alone. We have to ramp down production rates, at least for the time being, or close down some production lines entirely.

You’ve now opened a consultation process for your site at St-Prex in Switzerland, and this could ultimately lead to the closure of the plant. How does that fit in?

Believe me: this was no easy decision for us. For years, the St-Prex plant has been struggling with difficulties relating to its location, modernisation and profitability – and we simply cannot see any possible way of continuing to operate the site competitively. This is very tough, because St-Prex is our only glass production facility in Switzerland and we are well aware of the impact that a closure would have – especially for our employees at the site. After all, this is where our history began.

Even so, we cannot close our eyes to the difficult situation that has now prevailed at the site for some considerable time. We are an international group of companies, and we have to be fair when we assess our various locations. We constantly evaluate our plants and keep them under scrutiny so we can make well-founded decisions on issues such as investments in existing or new locations. For months now, we’ve been experiencing a persistent situation where massive downturns in demand have forced us to cut costs, halt investments and ramp down capacities. We can’t afford to make exceptions for any of our sites, no matter which country they are located in. In past years, we’ve undertaken comprehensive analyses at St-Prex to examine whether continued operation of the plant makes sense and is economically viable. These have shown that the site’s competitiveness and opportunities for development are negative, because of the noticeable deterioration in the market situation. This situation was ultimately the reason for opening the consultation process.

So will the plant in St-Prex be closed?

That hasn’t been decided yet. The consultation process is ongoing, and we’re now awaiting the results. In the first place, the employees and their representatives now have the opportunity to comment on the situation and possibly submit alternative proposals. The Board of Directors will then analyse this input in depth and arrive at a final decision. For the time being, we just need to wait for this decision – and otherwise, concentrate on our ongoing business. As I’ve said, this year is certainly not going to be an easy one for us.

What do you think will be the key issues in 2024?

We’re currently assuming that we can achieve a stable result as a group of companies in 2024, but without significant growth. It goes without saying that this picture could still change as the year goes on. But as long as consumer sentiment stays as it is, there will be little change to the current economic situation.

We will need to continue keeping a very close watch on market developments so we can react swiftly to changes as and when necessary. We are doing so already by implementing the cost savings I’ve just mentioned, and by withdrawing capacities from the market. Further immediate adjustments in response to the changeable market situation are also conceivable – and everyone in our team clearly understands that we have to keep to this course.

That brings me to another point: despite the pressure of current developments that often materialise at short notice, we must never lose sight of our long-term goals. With our Strategy 2030, we have defined an ambitious framework for ourselves that will make Vetropack successful and fit for the future in the long term. This framework remains essential for us, even under present conditions.

So no changes will be made to the Group’s strategic orientation in 2024?

There’s really no reason to do so. The priorities we set ourselves in our strategy are still the right ones, and they are designed to position Vetropack as a strong market player with a key role in shaping the future development of our industry.

The past two years, in particular, have clearly demonstrated this yet again: we came through them so well and so successfully precisely because we set the right priorities and achieved major progress in all five strategic areas. We made great strides in 2022 and 2023, particularly on key issues such as sustainability and innovation. This will help us in 2024 – and especially in the years after that – and these achievements will make our market position even stronger.

Could you give us a specific example to illustrate this?

Well now: a year and a half ago, we launched our Echovai solution on the market. This was one of the most important innovations – if not the most important one – in our industry for at least a decade. It has the potential not only to revolutionise the market for returnable glass bottles, but also to advance the switch from non-returnable to returnable containers in the medium term. We ourselves developed the special manufacturing process in Vetropack’s own Innovation Centre at Pöchlarn, and we made the product ready for its market launch.

Echovai shows how innovation and sustainability go hand in hand – adding up to genuine market opportunities for us. We’re already seeing enormous interest in Echovai. It could well become one of our growth drivers in future years – not only through sales of the containers, but also from licensing the technology to other glass manufacturers. With that in mind, 2024 and 2025 will see us enabling more sites to produce Echovai bottles so we can gradually increase the market share for this solution.

The new site at Boffalora sopra Ticino was officially opened last October. How does that fit into this context?

Our new plant in Italy sets new standards in terms of sustainability as well as innovation. We shouldn’t forget that innovation at Vetropack isn’t just about our products – it also embraces our production processes. This means we can leverage innovations such as digitalisation and smart technologies to streamline and accelerate our processes going forward. At the same time, we save valuable resources and thus protect the environment. At Boffalora, for instance, we systematically re-use the waste heat from the furnaces and drastically reduce emissions with the help of modern filter systems.

The main challenge now is to develop these tremendous technological possibilities to the fullest extent, and exploit them as competitive advantages for our Group. As a Group, we will benefit greatly from the experience gained in Boffalora – all the more so as we set about successively modernising our other production facilities by 2030. These modernisations will be accompanied by an increase in the share of renewable electricity compared to gas as a source of energy. Ultimately, this will contribute to making our glass packaging even more sustainable.

Bearing in mind, of course, that glass containers are already a highly sustainable packaging solution …

That’s certainly true, and it also makes us very optimistic about the future. Consumers have a very high regard for glass as a sustainable and healthy form of packaging. They view glass as synonymous with recycling and reusability. Glass also makes it possible to preserve food and beverages, so it reduces food waste – which, in turn, safeguards the environment. So we have good arguments on our side to show why a significant increase in the share of glass used in packaging would be both sensible and right. However, policymakers are called on to play their part here as well. For example: we could quickly replace a large percentage of single-use bottles by returnable ones without any problems. To do this, the markets need returnable systems that function in the right way – but we see that many countries still have a lot of ground to make up in this regard.

Finally, let's take another look at the current fiscal year. Are there any factors that make you optimistic in spite of the difficult market situation?

Yes, of course there are some. We have already talked at length about our innovative strength, our market potential, and Echovai. Above and beyond those advantages, what makes me most optimistic is our excellent international positioning as a Group, in terms of human resources as well as locations. We have superb employees on board, and we benefit greatly from the experience and expertise of our entire workforce across all our sites. A major venture such as the new construction project in Boffalora sopra Ticino was only ever possible thanks to support from the entire Vetropack Group.