Board of Directors’
Report

Dear shareholders,

Despite an extremely challenging environment, the Vetropack Group was able to increase its net sales from goods and services by 9.0% (14% after adjusting for currency effects) to reach CHF 435.0 million in the first half of 2022 (prior year: CHF 399.2 million). Consolidated EBIT rose to CHF 48.3 million (prior year: CHF 46.6 million). War damage to the Ukraine plant necessitated a value adjustment of CHF 46.5 million, resulting in a reported loss of CHF -9.7 million for the Group.

graphic
Claude R. Cornaz, Chairman of the Board of Directors (left) and Johann Reiter, CEO (right)

Three major developments were dominant during the first half of 2022: the ongoing Ukraine conflict, increases in energy and production costs, and sustained high demand for packaging glass. Rapidly escalating events in Ukraine had already led to the shutdown of our production at the Gostomel plant near Kyiv in February. Shortly afterwards, the production facility was severely damaged by military action. Fortunately, no employees were injured during these events. Since access to the site of our plant has only recently been restored, we were still unable to make a final assessment of the precise extent of the destruction – and the possibility of resuming production – by the end of the first half of 2022.

Sharp increases in energy and production costs led to major market price adjustments in the packaging glass industry. Vetropack managed to compensate for the majority of these additional costs with an energy surcharge that is transparent for customers. Nevertheless, unabated high demand for glass packaging and capacity reductions caused by the shutdown of the Ukrainian glass industry have already led to a number of bottlenecks in meeting customer demand throughout Europe.

In the first half of 2022, the Vetropack Group employed a workforce totalling 3,570 people (prior year: 3,914 people). The decreased headcount is a consequence of the stoppage of production in Ukraine. Given that the overall situation in the region is beset by major uncertainties, it is not possible to resume operations for the time being.

Development of key figures

The Vetropack Group sold 2.69 billion units of packaging glass in the first half of 2022. Due to the absence of capacity at our plant in Ukraine, sales volume was 6.9% below the prior year's figure of 2.89 billion units. Consolidated net sales from goods and services rose by 9.0% to reach CHF 435.0 million (prior year: 399.2 million). After adjustments for currency effects, the increase was as much as 14.0%: given that the sales volume actually decreased, this is explained by the high energy surcharges.

Production in the first half of 2022 fell by 3.3% to 761,000 tonnes (prior year: 787,000 tonnes). On account of high demand for glass packaging coupled with the shutdown at the Ukrainian production company, the Vetropack Group's inventory levels decreased by almost 16% in the first six months.

Increase in added value

Despite reduced capacity and increasing production costs, Vetropack was able to post consolidated EBIT of CHF 48.3 million for the first half of 2022 (prior year: CHF 46.6 million). High production costs also led to an adjustment of the inventory value by CHF 16.2 million (prior year: CHF -10.1 million), triggering a one-off positive impact on EBIT. The EBIT margin was 11.1% (prior year: 11.7%).

During the first six months of this year, cash flow reached CHF 81.4 million (prior year: CHF 83.7 million). The cash flow margin was 18.7% of net sales (prior year: 21.0%). Because of war damage in the Ukraine plant, a value adjustment of CHF 46.5 million had to be debited to the half year, so the Vetropack Group is posting a loss of CHF -9.7 million (prior year: 40.4 million).

Strong balance sheet

Although the first half of 2022 was difficult, the Vetropack Group is presenting a strong balance sheet. Total assets were CHF 1,161.0 million as at 30 June 2022 (figure as at 31 December 2021: CHF 1,047.8 million). The first six months saw short-term assets rising to CHF 580.3 million (31 December 2021: CHF 432.3 million). This growth resulted from increases in liquid funds and accounts receivable. Value adjustments on long-term assets in Ukraine caused a slight decrease in overall long-term assets, which amounted to CHF 580.7 million (31 December 2021: 615.5 million). Liabilities increased to CHF 442.9 million (31 December 2021: CHF 273.3 million) because financing of EUR 150 million was taken up for planned investments in Italy. As at the reporting date, shareholders' equity stood at CHF 718.1 million (31 December 2021: 774.5 million), corresponding to a gearing ratio of 61.8% (31 December 2021: 73.9%).

Investments

The Vetropack Group invested CHF 52.7 million in the first half of 2022 (prior year: CHF 45.2 million). Top priority is accorded to the greenfield project in Boffalora, Italy. This is the largest investment ever made in the company's history. The planned volume of investment in the new plant will peak at over CHF 200 million in the second half of 2022. As matters stand today, commissioning of the plant is scheduled in the second quarter of 2023. The conversion of the recycling plant at Nemšová (Slovakia) was also completed during the first half. This means that the plant has now increased its processing capacity by 50%.

Outlook for the second half of 2022

The packaging glass market is positive and demand for glass packaging remains high. However, the market is subject to increasingly negative effects due to inflation, the general cost trend and the related decrease in purchasing power. Growing uncertainties regarding energy supplies (gas and electricity) are impacting the entire glass industry, making it difficult to foresee how sales will develop going forward. Assuming constant exchange rates and overall conditions, we expect our group of companies to achieve slightly higher net sales than in the 2021 financial year, and an EBIT margin in the upper single-digit range. The consolidated result will end up well below the previous year's figure on account of the value adjustment.

Claude R. Cornaz

Chairman of the Board of Directors

Johann Reiter

CEO

    

Bülach, 23 August 2022

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