Viscofan : Interim Report 1H16

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(Free translation from the original in Spanish, in event of discrepancy, the Spanish-language version prevails)‌

Management report

Main highlights of the April-June 2016 results

• €32.6 million in net profit from continuing operations, up 8.6% compared with the second quarter of 2015.

• Quarterly EBITDA1 of €51.5 million, down 4.6% year on year and 0.1% in like-for-like2 terms stripping out the impact of currencies.

• The like-for-like EBITDA margin advanced by 0.1 p.p. to 28.4%.

• Revenue amounted to €182.4 million, down 4.4% year-on-year and down 0.6% in like-for-like terms.

• Net bank debt3 of €13.0 million compared with a net cash position of €3.2 million in December 2015 as a result of the payment of a final gross dividend of €0.82 per share in June 2016.

• According to José Domingo de Ampuero y Osma, chairman of the Viscofan Group "Global presence and better production footprint help us to achieve again organic growth in main casings markets with the exception of Latin America. In an environment of weak performance in Latin America and forex headwinds, we reiterate our initial guidance on Net profit growth, but we lower our outlook for Revenue and EBITDA growth. In operating terms, investment plans are progressing well, in line the growth prospects for the midterm set out in our strategic plan 'MORE TO BE 2016-2020' ".

1 EBITDA = Operating profit (EBIT) + depreciation of property, plant and equipment.

2 Like-for-like: For the purposes of comparison, like-for-like growth excludes the impact of exchange rate fluctuations and the non-recurring result in 2015 from the outsourcing of pensions in the US.

3 Net bank debt = Non-current bank borrowings + Current bank borrowings - Cash and equivalents.

Consolidated results January-June 2016

Viscofan Group 1H16 income statement ('000 €)

Change

Like -for -

like

Jan-Jun' 16 Jan-Jun' 15

Revenue	356,876	370,818
Recurring EBITDA *	100,650	105,521
Recurring EBITDA Margin*	28.2%	28.5%
Non recurring result *	0	2,412
EBITDA	100,650	107,933
EBITDA Margin	28.2%	29.1%
EBIT	76,375	81,442
Net profit from continuing operations	59,894	60,060

-3.8%

-4.6%

-0.3 p.p.

n.s

-6.7%

-0.9 p.p.

-6.2%

-0.3%

-0.5%

0.6%

0.3 p.p.

Viscofan Group 2Q16 income statement ('000 €)

Change

Like -for -

like

Apr-Jun' 16 Apr-Jun' 15

Revenue	182,448	190,772
Recurring EBITDA *	51,525	54,010
Recurring EBITDA Margin*	28.2%	28.3%
Non recurring result *	0	0
EBITDA	51,525	54,010
EBITDA Margin	28.2%	28.3%
EBIT	39,379	40,653
Net profit from continuing operations	32,609	30,025

-4.4%

-4.6%

-0.1 p.p.

n.s

-4.6%

-0.1 p.p.

-3.1%

8.6%

-0.6%

-0.1%

0.1 p.p.

* The recurring figure in 2015 excludes the non-recurring impact of €2.4 million on operating profit and €1.5 million on net profit from the outsourcing of the "Hourly Employees" and "Salaried Employees" pensions in the US.

Revenue

Revenue amounted to €356.9 million, down 3.8% year on year due to the weakness of the market in Latin America, the decline in co-generation revenue due to the lower energy price and an unfavourable currency backdrop, contrasting with the volume growth achieved in North America, Europe and Asia.

Casing sales amounted to €336.5 million (-3.5% vs. 1H15) and co-generation sales to €20.4 million (-8.4% vs. 1H15).

Stripping out the impact of currencies, which reduced net revenue by 3.3 p.p., like-for-like2revenues in the first half fell by 0.5% vs. 1H15.

In the second quarter the Viscofan Group maintained the trend noted since the start of the year, with a solid volume performance driving revenue growth in North America, Europe and Asia, offsetting the impact of the weak Latin American market, especially Brazil, with a double-digit decline in revenue. Against this backdrop, revenue in the quarter amounted to €182.4 million (-4.4% vs. 2Q15).

Like-for-like growth in casing sales was insufficient to offset the weakening of trading currencies in the quarter, with casing revenue amounting to €172.3 million (-3.5% vs. 2Q15), while co-generation revenue totalled €10.1MM (down 16.8% vs. 2Q15).

The geographical breakdown of revenue4 in 1H16 is as follows:

4 Revenue per origin of sales.

• In Europe and Asia revenue totalled €200.7 million, up 1.1% in like-for-like terms and 0.2% in reported terms.

• In North America the improvement achieved in the first quarter was consolidated and revenue totalled €109.1 million, up 3.0% in like-for-like terms compared with the 1.2% decline in consolidated revenue as a result of the depreciation of the CAD/€ (7.8%) and the MXP/€ (19.4%) against the Euro.

• In Latin America revenue totalled €47.0 million, down 12.5% in like-for-like terms, which coupled with the depreciation of currencies, in particular the decline of the Brazilian real against the Euro (25.0%), left the segment's revenue 21.6% lower than in the same period a year earlier, and eroded the growth obtained in other regions.

Operating expenses

The lower costs of the main raw materials in constant currency, along with operating efficiencies, reduced the cost of consumption5 in 2Q16 by 7.5% vs. 2Q15 to €49.3 million, in the first half this figure was down 4.7% vs. 1H15 to €93.2 million. Commercial discipline and the lower cost of consumption were behind a quarterly improvement of 1.0 p.p. vs. 2Q15 in the gross margin6 to 73.0% resulting in a cumulative gross margin of 73.9% (+0.3 p.p. vs. 1H15).

The average headcount at the end of June 2016 was 4,309 persons, up 2.8% year on year. This reflects the strengthening of the workforce including, among others, the recruitment of personnel for the start-up of plastics production in Mexico, and the work to initiate production of fibrous and plastic casings in Spain. As a result, personnel expenses in 1H16 grew by 2.6% vs. 1H15 in recurring terms.

In reported terms, i.e. including the accounting savings from the outsourcing of pension plans in the United States in 1Q15, personnel expenses advanced by 5.8% vs. 1H15 to €82.2 million, of which €41.1 million corresponds to 2Q16, 2.2% more than in 2Q15.

Other operating expenses fell 6.5% in 1H16 vs. 1H15 to €83.8 million and 3.9% in 2Q16 vs. 2Q15 to €42.5 million thanks to lower energy supply costs, which fell by 17.0% and 17.3% respectively.

Operating profit

The Viscofan Group continues to combine cost control with plans for operational improvement and future growth, in line with the goals for consolidating leadership set out in the "MORE TO BE 2016-2020" strategic plan.

Accordingly, the organic EBITDA margin continued to improve in the quarter (+0.1 p.p. vs. 2Q15) and in the first half (+0.3 p.p. vs. 1H15).

In turn, the marked weakening of the Group's main trading currencies left the consolidated recurring EBITDA margin at 28.2% vs. 28.5% in the first half of 2015, while in the quarter this margin stood at 28.2% compared with 28.3% in 2Q15.

Consolidated EBITDA in the period amounted to €100.7 million, down 6.7% year on year, of which €51.5 million correspond to 2Q16 (-4.6% vs. 2Q15).

Depreciation costs in the first half of 2016 amounted to €24.3 million (-8.4% vs. 1H15) and to €12.1 million in 2Q16 (-9.1% vs. 2Q15).

EBIT amounted to €76.4 million in the first half, down 6.2% year on year, and to €39.4 million in the second quarter, a decline of 3.1% compared with 2Q15.

5 Cost of consumption = Supplies +/- Change in inventories of finished and unfinished products.

6 Gross margin = (Revenue - cost of consumption) / Revenue.