Business performance

Market

In 2023, the estimated volume size of the casings market has shown a decrease in the region of 4%. The largest decline in the last twenty-four years caused by weak consumption in an environment of slower economic growth, significantly in emerging markets, and by the process of inventory adjustments in the sector.

Development of the Beyond25 strategic plan

In a context of rising energy costs, particularly natural gas in Spain, raw materials and labour costs, the Viscofan Group has implemented a generalised increase in selling prices to partially offset this inflation.

However, after a first few months where the market performed in line with expectations, an unprecedented adjustment process began to take place, which has resulted in a decline in volumes in absolute terms for the industry as a whole.

Viscofan has adjusted quickly to this market environment and, in the face of weak demand, has refocused its priorities on cost containment, production adjustments and inventory control, which has allowed it to improve operating margins and reduce working capital in the last quarter of the year.

This temporary market situation has not prevented the successful completion of major transformation initiatives in the United States with the implementation of new cellulosic casing technology in Danville and collagen in New Jersey. The production results of both projects were even higher than initially expected, although the expected synergies have not yet been achieved due to the lower sales volume as a result of both the market downturn and product adjustment problems during the transition, which have now been resolved.
Other strategic initiatives include the implementation of a new converting plant in Thailand, which is expected to be commissioned before the end of 2024, and sustainability investments, particularly in the area of decarbonisation in Cáseda (Navarra).

All in all, Viscofan closed the 2023 financial year with record highs in the main financial figures. Revenues grew by 2.1% year-on-year, EBITDA by 0.5% and net profit by 1.1%. Net bank debt stood at €138.0 million at year-end, 0.5 times EBITDA.

With the completion of the main organic transformation projects foreseen in the Beyond25 plan, the results have exceeded the achievement of the initially planned operating cash flows. Against this background, and taking into account the financial

strength and the expected expansion of future cash flows, the Board of Directors has approved to submit to the General Shareholders' Meeting a total remuneration of €3.00 per share for the 2023 financial year, an increase of 53.8% in shareholder remuneration compared to the previous year, consisting of an extraordinary remuneration of €1.00 per share, and an ordinary remuneration of €2.00 per share, 2.6% higher than the ordinary remuneration of the previous year, and equivalent to a distribution of 65.6% of the net profit. 

Therefore, in addition to the interim dividend of €1.40 paid in December 2023, there will be an ordinary final dividend of €0.59 and an extraordinary final dividend of €1.00 to be paid in June under the optional dividend system in cash or shares “Viscofan Flexible Remuneration”, which, together with an attendance bonus of €0.01, corresponds to an expected total remuneration for the financial year 2023 of €3.00 per share. 

In turn, the Board of Directors has approved submitting to the General Shareholders' Meeting the possibility of flexible remuneration with which shareholders can decide whether they prefer to obtain new shares in a paid-up capital increase or cash remuneration. Furthermore, in order to avoid dilution of shareholders who do not participate in the capital increase, the Board plans to redeem the treasury shares necessary to keep the number of outstanding shares stable.

Revenue breakdown ('000 €)

By geographical area

*Like-for-like: Like-for-like growth excludes the impact of exchange rate fluctuations in 2023 and the non-recurring operating profit expense of €1.9m due to production stoppages in the US in 3Q23 as a result of power outages caused by the utility company.

Revenue:

In the year to December 2023, net revenues amounted to €1,225.8 million, an increase of 2.1% vs. 2022 and 4.2% excluding the impact of exchange rate changes.

In the Traditional Business, revenues grew by 2.3% to €985.3 million, driven by an increase in the price mix which offset the decline in volumes.

In New Businesses, revenues grew by 4.9% to €151.5 million, with functional solutions and value-added plastic packaging performing particularly well.

Conversely, energy sales, at €89.0 million, are 4.8% lower than in 2022. This decrease is due to lower electricity sales prices in the Spanish market, and limitations on the sale to the grid of electricity from cogeneration engines in specific periods of high electricity production in the Spanish electricity system.

The geographical breakdown of ⁽⁷⁾ net turnover in the year to December 2023 was as follows:

• EMEA (43.3% of the total): Reported revenues amounted to €531.3 million, 4.7% higher than in 2022 and 5.2% higher on a like-for-like basis. 

• APAC (12.9% of the total): Reported revenues are €158.5 million, down 6.1% vs 2022 and 0.9% like-for-like, impacted by lower volumes in China and South East Asia.

• North America (30.2% of the total): Revenues amounted to €369.3 million, a decrease of 0.1%, while they grew by 2.8% on a like-for-like basis.

• South America (13.6% of the total): Revenues amounted to €166.7 million, a growth of 7.6% compared to 2022 and 10.1% on a like-for-like basis.

The weakness of the market has been especially significant in the fourth quarter, also impacting the evolution of the Group, whose net turnover in the fourth quarter of the year stood at €299.6 million, 8.6% below 4Q22. In addition to weak consumption in the quarter, particularly in the emerging markets of Brazil and Asia, and inventory reduction initiatives at customers, there were quality problems associated with the assurance plan during the technological migration in the US, which, although they have been resolved, caused the loss of sales in the US.

Excluding the effect of exchange rate movements, comparable revenues fell by 5.5% compared to the same quarter the previous year

Operating expenses

The 2023 financial year was marked by high natural gas prices in Spain, high raw material prices - particularly in the first half of the year - and wage inflation. In this context, operational activity has been focused on cost control in response to lower market demand and high costs.

In the year to December, consumer spending⁽⁸⁾ increased by 8.1% to €421.0 million with a gross margin⁽⁹⁾ of 65.7% (67.6% in 2022). The inflationary trend in raw materials has been reversing throughout the year, with some raw materials such as caustic soda and polyamides generating savings compared to the previous year. However, consumer spending in 4Q23 fell by 5.4% to €105.2 million, leaving the gross margin at 64.9%, down from 66.1% in 4Q22.

On a cumulative basis, personnel expenses for the 2023 financial year increase by 3.0% to €270.1 million, in a period in which the cumulative average headcount rises by 0.6% to 5,346. Personnel expenses in 4Q23 fell by 2.7% to €64.6 million. 

Other operating expenses in the year to December were €280.9 million, a decrease of 3.5% compared to 2022. Of this, energy supply costs fell by 1.7% and transport costs by 25.6%. The better cost evolution is visible in the fourth quarter, where other operating expenses decreased by 17.9% to €60.9 million, supported by lower energy supply costs (-11.8% vs 4Q22) and transportation (-42.2% vs. 4Q22), in addition to short-term cost control measures that were implemented in the quarter.

Operating profit

The reported EBITDA for 4Q23 stands at €75.8 million (-1.0% vs 4Q22) and in 2023 by €268.4 million (+0.5% vs 2022). On a like-for-like basis¹, EBITDA grew 5.5% in the quarter and 7.9% in the year to December.

In the fourth quarter, the reported EBITDA margin improved by +1.9 p.p. to 25.3% and by +2.7 p.p. to 26.1% on a like-for-like basis, reflecting the strength of Viscofan's business model, flexibility and ability to adapt to the adverse environment. In this regard, the improved sales price mix, savings from technological improvements and cost containment plans have offset strong cost inflation, lower operating leverage due to lower volumes and lower revenues from cogeneration energy.

On a cumulative basis, the reported EBITDA margin in 2023 was 21.9%, -0.3 p.p. lower than in 2022, while on a like-for-like basis, it improved by 0.8 p.p. vs the previous year to 23.0%.

Amortisation expense in 2023 increased by 7.1% to €83.7 million, giving rise to an operating result (EBIT) in 2023 of €184.7 million (-2.3% vs. 2022).

Financial position

In the full year 2023, net finance loss was -€15.8 million with negative exchange rate differences of -€9.7 million and with financial expenses increasing to €6.9 million. These figures compare with a net finance loss of -€5.2 million in 2022, a period in which exchange rate differences were negative with -€5.0 million and financial expenses €1.4 million.

Net profit

Profit before tax for the year to December 2023 is €168.9 million and the corporate income tax expense is €27.9 million, bringing the effective tax rate to 16.5%, lower than the 24.1% of the previous year as a result of the special tax deductions associated with the impact of COVID19 in China and the tax change in Brazil, which provides tax benefits for exporting companies.

All in all, the reported Net Profit in the fourth quarter was €40.2 million (+17.0% vs 4Q22) bringing the cumulative Net Profit to December 2023 to €141.0 million (+1.1% vs 2022).

Investment

A total of €77.5 million was invested in 2023, significantly below the €125.6 million in 2022 in response to a slower growth environment. Projects during the year included recurring maintenance investments, progress on the construction of a new cellulosic and collagen converting plant in Thailand, and investments in the converting phase in the Czech Republic.

The breakdown by type of investment in 2023 is as follows:

• 16% of the investment was earmarked for investments in capacity and machinery.
• 3% of the investment was earmarked for process improvements and new technology.
• 26% of the investment was earmarked for improvements in sustainability, including energy equipment and the optimisation of the installations in terms of security, hygiene, and protecting the environment.
• The remaining 55% was spent on ordinary investments. 

At year-end 2023, the investment commitments are €28.9 million compared to €4.2 million at year-end 2022. 

Dividends and shareholder remuneration

The Board of Directors of the Viscofan Group has resolved to propose to the General Shareholders' Meeting a profit distribution equivalent to a remuneration of €3.00 per share. Of which €2.00 per share - equivalent to the distribution of 65.6% of net profit - is of an ordinary nature, and €1.00 per share is of an extraordinary nature after completion of the first half of the Beyond25 strategic plan with higher than expected operating cash flows. Shareholder remuneration consists of:

• An interim dividend of €1.40 per share (paid on 20 December, 2023). 

• The proposed ordinary final dividend of €0.59 per share and extraordinary final dividend of €1.00 per share under the optional dividend system in cash or shares “Viscofan Flexible Remuneration” in a lump sum payment expected in June 2024.

The proposed total and ordinary distribution are 53.8% and 2.6% higher than the previous year's remuneration of €1.95 per share, respectively

Equity

The Group's equity at year-end 2023 amounts to €957.8 million, 5.6% higher than at the end of the previous year, mainly due to the higher net profit for the current year and the increase in reserves due to the distribution of the net profit for the previous year.

Treasury shares

At 31 December 2023, the company had 419,095 treasury shares representing 0.90% of the voting rights valued at €21.7 thousand.

During the 2023, 15,389 treasury shares were delivered to Viscofan staff within the framework of the company's variable remuneration plans. Also in 2023, the Company acquired 112,800 treasury shares under the protection of the authorisation granted by the General Shareholders’ Meeting on 27 April 2023.

At 31 December 2022, Viscofan, S.A. held a total of 321,684 treasury shares representing 0.69% of its voting rights, for a value of €16.2 million.

Financial liabilities

The net bank debt⁽¹⁰⁾ at year-end 2023 was €138.0 million, higher than the €101.3 million at year-end 2022 after payment of the interim dividend of €64.6 million in December 2023, and with a cash outflow in the year of €76.9 million for investments in tangible and intangible assets, €90.6 million for working capital and €5.5 million for treasury shares.

In addition, based on IFRS 16, which requires most non-cancellable operating leases to be recorded on the balance sheet as an asset for the right of use and a liability for the future amounts payable, the breakdown of Net Financial Debt is as follows:

^{* Net bank debt = Non-current bank debt + Current bank debt - Cash and cash equivalents.}

^{** Other net financial liabilities consisting mainly of loans with an interest rate subsidised by entities like the CDTI and the Ministry of Economy, as well as debt with netted fixed asset providers for other current financial assets.}

The net financial debt is the equivalent of 18.9% of the equity, with a leverage level that is sufficient to be able to attend to all Viscofan's liquidity needs.

Outlook for 2024

Viscofan expects to continue to achieve record results with growth in the main financial figures of revenues, EBITDA and net income. 

In this context, Viscofan expects to grow revenues by 3% to 5%, EBITDA by 8% to 12% and Net Profit by 10% to 15% in 2024 with an investment volume of around 65.