| 2015 Vetropack Holding Ltd Annual Report and Remuneration Report Neat, mixed, unchilled or over ice – amaretto brings the spirit of Italy to your tongue and your heart. The Italian glassworks in Trezzano sul Naviglio has been part of Vetropack Group since 23 July 2015. This plant also produces glass bottles for amaretto. In celebration of this new addition to the family, which was given the name Vetropack Italia S.r.l., these bottles have already adorned the front page of the Semi-annual Report (top) and the Christmas card (centre). Further on, they can be found in this edition of the Annual Report (bottom), which also contains photos profiling employees at the new Vetropack subsidiary. Content At a Glance Key Figures 2015 05 Board of Directors' Report 06 Interview «2015 – a turbulent year» 10 Impressions 2015 12 Report on Group Companies Vetropack Ltd 17 Vetropack Austria GmbH 17 Vetropack Moravia Glass a.s. 18 Vetropack Nemšová s.r.o. 18 Vetropack Straža d.d. 21 JSC Vetropack Gostomel 21 Vetropack Italia S.r.l. 22 Müller + Krempel Ltd 22 Vetroconsult Ltd 23 Vetropack Group 24 Financial Reporting – Consolidated Balance Sheet 26 Vetropack Group Consolidated Income Statement 27 Consolidated Cash Flow Statement 28 Changes in Consolidated Shareholders' Equity 29 Consolidation Principles 31 Valuation Principles 32 Notes 36 Additional Information 47 Ownership Structure 52 Company Participations 53 Auditor's Report 55 Five Year Overview 56 Financial Reporting – Balance Sheet 58 Vetropack Holding Ltd Income Statement 59 Notes 60 Auditor's Report 63 Five Year Overview 64 Corporate Governance 66 Remuneration Report 75 Organisation and Glassworks Organisation 80 Vetropack Glassworks 85 “We are rising to our challenge with passion.” In the middle of 2015, the glassworks in Trezzano became Vetropack Italia S.r.l. The new name was just the start of some big changes along the way to becoming an autonomous business unit. Sergio Antoci, who is in charge of the new subsidiary, and his em- ployees are delighted to be able to share expe- riences with their sister plants. Skills and know- ledge are exchanged and people learn from and with one another. At a Glance Key Figures 2015 +/– 2014 2015 Net Sales CHF millions – 7.1% 599.3 557.0 EBIT CHF millions 2.4% 49.1 50.3 Consolidated Profit CHF millions – 14.4% 49.2 42.1 Cash Flow* CHF millions – 3.3% 107.2 103.7 Investments CHF millions – 12.5% 74.3 65.0 Production 1 000 metric tons 7.6% 1 236 1 330 Unit Sales billions 2.0% 4.55 4.64 Exports (in unit terms) % – 43.5 44.3 Employees number 8.1% 2 985 3 228 * operating cash flow before change of net working capital Agenda 2016 Annual General Assembly (Bülach) 11 May 2016, 11:15 Semi-Annual Report 30 August 2016 2017 Press Conference (Bülach) 21 March 2017, 10:15 Annual General Assembly (St-Prex) 10 May 2017, 11:15 Vetropack Group 5 Board of Directors’ Report Dear shareholders, In the 2015 fiscal year, Vetropack Group increased both its unit sales and its consolidated net sales from deliveries and services (adjusted for currency effects). Operating performance was also improved in comparison with the previous year. The Group used its own funds to finance the acquisition of a glassworks in Italy, thereby strengthening its position in the domestic markets. Although exchange rate losses caused by the strong Swiss franc led to lower profits, cash flow nevertheless remained at the previous year’s level. Acquisition boosts unit and net sales in local net sales after adjustment for currency effects came currencies. In the 2015 fiscal year, Vetropack Group to CHF 622.8 million (2014, excluding Vetropack Italia increased its unit sales of container glass for the S.r.l.: CHF 599.3 million). food and beverage industry by 2% to 4.64 billion units of glass packaging. 162.2 million of these units Vetropack Italia S.r.l. – new to Vetropack Group. were produced at the new Italian Vetropack plant, On 23 July 2015, Vetropack acquired a glassworks in Vetropack Italia S.r.l., which has been included in the Trezzano sul Naviglio, ten kilometres west of Milan city consolidated figures since August. Excluding the con- centre. Since then, the plant has operated under the tribution from this glassworks, unit sales totalled 4.48 name Vetropack Italia S.r.l. Even in the years prior to billion units, compared to 4.55 billion in 2014. The the acquisition, over 20% of Group exports were deliv- Vetropack subsidiaries in Switzerland and Ukraine ered to Italian customers. This move has transformed fell short of the previous year’s sales figures. With the major export market of Italy into a domestic market, more and more food and beverages being imported significantly boosting Vetropack’s market share. already packaged in glass, Switzerland has expe- rienced a drop in demand for glass packaging. In Steady market development. Demand for glass Ukraine, meanwhile, the economic conditions have packaging increased slightly over the course of the been driving down consumer activity. reporting year. As the existing production capacity was able to readily absorb this increase, competition did On the whole, the domestic markets accounted for not ease off significantly. 55.7% of unit sales (2014, excluding Vetropack Italia S.r.l.: 56.5%), and the export markets accounted for The countries where Vetropack operates are no 44.3% (2014, excluding Vetropack Italia S.r.l.: 43.5%). exception, with the result that the necessary price With these unit sales figures, Vetropack Group gene- adjustments could only be made to a limited extent. rated consolidated net sales from goods and services This situation was intensified by an economic climate of CHF 557.0 million, which equates to a nominal characterised by deflation across the board. decrease of 7.1%. The main reasons for this were the Swiss franc being unpegged from the euro and the The political and economic crisis in Ukraine, and the sharp fall in the Ukrainian hryvnia. Adjustment for subsequent high level of inflation and sharp drop in the currency effects resulted in an increase in net sales to local currency, caused demand to decline drastically CHF 653.3 million. Excluding the acquisition in Italy, in all areas. After periods of negative or stagnant 6 Board of Directors' Report economic development of varying lengths in the other Eastern European countries, the first signs of positive trends began to appear. In contrast, Western Europe was characterised by intensified consumption. In Switzerland, the strong Swiss franc meant that most of the in- crease in demand was satisfied by imports from EU countries. Performance of the Vetropack companies. The new Italian subsidiary produces flint glass and a very dark green glass that was not previously available in the Vetropack range. Other new additions include a whole host of exclusive glass packaging designs for prestigious customers, as well as a wide range of standard shapes. This opens up opportunities for the Claude R. Cornaz, CEO (left), Hans R. Rüegg, Chairman of the Board of Directors (right) Group not just on the Italian domes- tic market but also further afield. With its glassworks in Pöchlarn and in Kremsmünster, The Ukrainian plant JSC Gostomel reported a strong the Austrian subsidiary Vetropack Austria GmbH ce- operating performance in the 2015 fiscal year. mented its position as an important pillar of Vetropack However, the sharp depreciation of the Ukrainian Group thanks to its consistently high market perfor- hryvnia to less than two-thirds of its previous value mance. The two glassworks in the Czech Republic and meant that this achievement was not fully felt in Slovakia further strengthened their partnerships with the consolidated figures. their co-subsidiaries while continuing to supply their traditional markets. After years of turmoil, the Croatian The strengthening of the Swiss franc fed the already economy started to show tentative signs of stabilisation. fierce competition for the Swiss Vetropack company, This enabled Vetropack Straža d.d. to increase its unit leading to a drop in net sales. sales and net sales. Board of Directors' Report 7 Production capacity fully utilised. Scheduled The fiscal stimulus programmes for investments that repairs to the two furnaces at the Austrian glassworks ran in the previous year were not available in the in Kremsmünster and the Croatian plant Vetropack reporting year. Straža led to brief interruptions in production. At the glassworks in Gostomel, Ukraine, production was High liquidity finances acquisition. The previous scaled back slightly in response to the drop in con- year’s high net liquidity of CHF 54.5 million enabled sumer demand. All remaining production capacity the Group to finance the acquisition of the Italian was fully utilised. 1,330,400 tonnes of saleable glass subsidiary entirely with its own funds. Net liquidity packaging were produced in total, including 55,400 dropped to CHF 11.2 million in the reporting year. tonnes from Vetropack Italia S.r.l. Approximately Cash flow remained almost stable at CHF 103.7 million 1,236,300 tonnes were produced in 2014 (excluding (2014: CHF 107.2 million), while the cash flow margin Vetropack Italia S.r.l.). was a pleasing 18.6% of net sales (2014: 17.9%). Inventory increased. The acquisition of the glassworks Balance sheet structure. Consolidated total assets in Italy and the higher amount of high-quality glass remained more or less constant at CHF 784.3 million packaging being stored increased the stock value by (2014: CHF 792.1 million). As the balance sheet value 17.1% to CHF 129.9 million (2015, adjusted for acquisi- of the foreign subsidiaries included in the consolidated tions: CHF 109.6 million; 2014: CHF 110.9 million). figures fell due to the strong Swiss franc, the purchase of the Italian glassworks does not have a visible effect Slight increase in EBIT despite drop in net revenue. on the total assets. Higher accounts payable and Vetropack Group’s consolidated EBIT came to CHF accrued expenses and other short-term loans pushed 50.3 million. The one-off effects of the residual value debt up to CHF 200.6 million (2014: CHF 159.3 write-offs and the adjustments to stocks of finished million). Currency effects caused shareholders’ equity goods and spare parts had an impact on the previ- to fall to CHF 583.7 million (2014: CHF 632.8 million). ous year’s EBIT of CHF 49.1 million. The EBIT margin At 74.4% of total assets (2014: 79.9%), the equity ratio increased to 9.0% of net revenue (2014: 8.2%). remained at a high level. The balance sheet does not contain any goodwill. Consolidated profit. Consolidated profit fell to CHF 42.1 million (2014: CHF 49.2 million). In addition At the end of the reporting year, Vetropack Group to the currency effects already mentioned, unrealised employed a workforce of 3,228 persons (31 December exchange rate losses on euro-denominated credit 2014: 2,985 persons), 255 of whom work in the new balances and considerably lower interest income Italian glassworks. had a negative impact on profit. The sale of a prop- erty in Switzerland which was no longer required for Investing in the future. Vetropack Group invested operations generated a profit before taxes of CHF a total of CHF 65.0 million (2014: CHF 74.3 million) 0.7 million. A property was also sold in the previous during the reporting year. This investment was mainly year, generating a profit before taxes of CHF 3.4 mil- used to overhaul two coloured glass furnaces, one lion. This means that the Group has now largely finished in Kremsmünster, Austria, and one at the Straža glass- selling off sites it does not require for operations. works in Croatia. These upgrades included adding 8 Board of Directors' Report more glass-blowing machines and increasing their As 12 months of results from Vetropack Italia S.r.l. will capacity, as well as making some structural changes. be included in the consolidated figures for the first time A new exhaust gas purifier with two filters for all three in 2016, Vetropack Group is anticipating a significant furnaces was also put into operation at the Croatian increase in unit sales and net sales. Elsewhere, business Vetropack plant. is set to remain at the same levels as the previous year. Hard glass project. With process validation success- The Swiss glassworks faces two major challenges. fully completed and the quality requirements defined, Unplanned furnace repairs in the first quarter of 2016 the project conducted in close cooperation with Bu- will interrupt production. In addition, the pressure from cher Emhart Glass on the thermal tempering of glass foreign competitors will continue. As before, it is not packaging reached a significant milestone. The process possible to predict or influence political and economic validation provided the evidence that tempered glass developments in Ukraine and, consequently, the de- containers can be consistently produced in the desired mand for glass packaging. quality in a stable process. A risk analysis and extensive tests also showed that there are no higher Despite an increase in net sales, Vetropack Group is risks when compared with traditional glass bottles. anticipating slightly lower earnings figures in 2016. A limited number of tempered multi-trip bottles are set Thank you. On behalf of the Board of Directors, we to be launched in 2016. would like to thank our employees for their outstanding commitment and hard work during 2015. We would Vetropack share. The Vetropack share price was also like to thank our customers, shareholders and CHF 1,560 at the end of 2015. The share decreased business partners for their support and the confidence in value by 1.6%. that they have shown in us. Dividend. The Board of Directors will propose to the Annual General Assembly on 11 May 2016 that the dividend for the previous year be set at 77.0% of the nominal value. This equates to a gross dividend Hans R. Rüegg Claude R. Cornaz of CHF 38.50 per bearer share (2015: CHF 38.50) Chairman of the Board of Directors CEO and a gross dividend of CHF 7.70 per registered share (2015: CHF 7.70). Bülach, 16 March 2016 Outlook for the 2016 fiscal year. We expect the demand for glass packaging to remain at the previous year’s level. While pressure from competitors continues, customers are increasingly expecting lower prices due to the fall in energy and raw material costs. Board of Directors' Report 9 “2015 – a turbulent year” – interview with Claude Cornaz, CEO Vetropack As the CEO of Vetropack Group, what issues have What is so special about Vetropack Italia S.r.l.? occupied your time the most over the past year? Our new company in Italy has enabled us to turn an Our efforts were focused on four areas in particular important export market into a domestic market. Even where we faced significant challenges. These were the before the acquisition, some 20% of all our exports were abolition of the Swiss franc’s peg to the euro, our Swiss to Italy. This demand was met primarily by the plants subsidiary, and the developments in Ukraine and their in Austria, Croatia and Slovakia. With our own local implications for JSC Vetropack Gostomel. These are all production facilities, we now have a foothold in a major familiar issues, but the fourth is a completely new one for market where consumption figures are consistently high. us. I am, of course, talking about our latest acquisition We are driving forward our development in a region in Northern Italy, Vetropack Italia S.r.l. This was also that we know inside out. The plant has an excellent cus- challenging for us on many levels, but as I said earlier, it tomer structure, which includes several leading food and was an entirely new experience. beverage manufacturers that are known well beyond Italy’s borders. In addition, the plant’s various signature Staying with Vetropack Italia S.r.l. for a moment. products bring a touch of Italian flair to the Vetropack This acquisition was a surprise... range. These include special bottle and glass designs, as Why? well as a new colour: a slightly darker green than we’re used to from the “cuvée” shade. And as for that touch of Because the assumption was that the Group would Italian flair – just look at the picture on the cover of this purchase a site in Central or Eastern Europe. Annual Report (laughs)... We’ve always said that we like to keep an open mind. It’s not just about growth pure and simple – a new You also mentioned the abolition of the Swiss subsidiary has to be right for us. In other words, we franc peg and the Swiss company. were looking for acquisitions that complement us too. Yes – the strong Swiss franc is a major issue for Swiss Vetropack Italia S.r.l. fits in with this philosophy, and industry as a whole, especially when it’s also used as the this venture is in line with our long-term corporate consolidation currency. This affects the results and leads strategy. We want to strengthen our market position to unrealised book losses on the euro-denominated hold- in the surrounding economic areas and our position ings of Vetropack Holding Ltd. It also deals us a blow by means that expansion into Central and Eastern Europe diminishing the ability of our Swiss business to compete is always a possibility. against foreign rivals. There are no signs that 2016 will 10 Interview