Viscofan is a company dedicated to the manufacture of artificial packaging for sausages. It manufactures the 4 existing technologies of artificial casings, Cellulose, Collagen, Fibrous and Plastic. It is the only company in the world capable of manufacturing all 4. It has also recently added an edible vegetable casing to its range of products. It also produces machinery to use its casings and sells in more than 100 countries.


The objective of this analysis is to understand how VISCOFAN, S.A.'s business is, to know how it is managed and to decide if it is an option to incorporate it in a Buy&Hold focused portfolio. We usually divide the analysis in 3 sections to be better organized: the balance sheet, the profit and loss account and the final valuation. As always, all the data shown in this analysis has been obtained from the CNMV website and in this page we extract and order many other key figures from the


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1 Balance Sheet Analysis

To begin with, we are going to outline the capital structure of VISCOFAN, S.A., that is, what the money is for (and how much) as well as to whom it is owed (and how much). We will calculate some ratios and see their progression over time. We are going to organize it in the following points:

• 1.1 Asset analysis
• 1.2 Analysis of liabilities and equity
• 1.3 Indebtedness
• 1.4 Safety margin
• 1.5 Liquidity/Treasury
• 1.6 Working capital

1.1 Asset analysis

The structure of the assets will indicate the degree of immobilization of VISCOFAN, S.A.'s resources. That is, how much of its total assets are fixed assets (real estate, investments, goodwill, etc). In this case:



Viscofan's immobilization remains constant throughout the data series. This means that the ratio of fixed to current assets is the same over the years.


We are going to break down the asset by time, so we will make visible which part is current asset and which part is fixed asset. Although we know that the proportion is practically the same, its absolute value can give us information about profound changes in the company:



The chart is apparently very healthy. It shows a constant linear growth of the asset without ups and downs. For a company to grow this way is one of the things we usually look for. However, it is not the only thing, a company can increase its balance sheet but with a very low quality, triggering debts for example.



The asset grows over time. In addition, it is almost entirely made up of tangible fixed assets. That is, factories, machinery, land, etc. The breakdown is as follows:

• Tangible fixed assets (91,05%)
• Deferred tax assets (5,03%)
• Other intangible assets (3,00%)
• Goodwill (0,47%)
• Non-current financial assets (0,44%)

We make the same breakdown for current assets:



For its part, like fixed assets, current assets also grow in a similar way, maintaining the proportion of their items:

• Stocks (53,33%)
• Customers by sales (32,17%)
• Cash (9,88%)
• Other debtors (2,98%)
• Other current financial assets (0,69%)
• Other current assets (0,66%)
• Current tax assets (0,29%)

At first glance there seems to be nothing to worry about, just small variations. However, as a hint for later, watch out for the drop in stocks, we will talk about it later.

1.2 Liability Analysis

In this section we will see the structure of VISCOFAN, S.A.'s liabilities, which gives us information about the origin of the resources available to the company. It tells us where the money comes from and to whom it is owed. To know the proportion of the capital that belongs to the company against the one that belongs to others we have the following formula:



Viscofan's own capital grew strongly until 2016. Since then it has been decreasing gently. This need not be a problem, the important thing is that the company continues to generate value. We will continue to look at the items that make up each part of the liabilities starting with a grouped chart and then broken down:



As we already knew from the equity ratio, net worth represents a significant part of liabilities. Currently, fixed and current liabilities are of a similar size. We continue with equity:



Viscofan's net worth is apparently very healthy. We love these equity charts, where you only see how the reserves are growing year on year in a linear way and there are no major changes in the share premium or the registered capital. What you do see is the item Other, which contains the interim dividend and the conversion differences. As far as the dividend is concerned, we will see that the payout has been growing; for the time being it is sustainable. In relation to the conversion differences, they are negatively affected by 50 million euros.


Las partidas más importantes que lo componen son:

• Reserves (94,08%)
• Profit attributable to the parent company (13,46%)
• Issued capital (4,15%)
• Other equity instruments (0,03%)
• Share premium (0,00%)

By breaking down the current liabilities we can see the following:



The current liability shows some interesting things. On the one hand, in the 2013-2018 tranche there was a substantial decrease in short-term bank debts. On the other hand, in the 2018-2020 tranche there is again a substantial increase, we will have to study whether the liquidity of the company needed this increase in debt, as there were no large investments in the period. Only the purchase of Globus for around 8 million euros.


The most important items that compose it are:

• Suppliers (37,55%)
• Short term debts to credit institutions (24,87%)
• Other creditors (17,58%)
• Other short term financial liabilities (10,71%)
• Current provisions (5,76%)
• Current tax liabilities (3,32%)
• Other current liabilities (0,22%)

As for the fixed liabilities:



The main cause of changes in fixed liabilities are long-term debts to credit institutions. In principle they do not represent a significant amount, although we will check this when we review financial expenses compared to EBIT.


The most important items that compose it are:

• Long-term debt with credit institutions (38,06%)
• Provisions Non-current (23,15%)
• Other long-term financial liabilities (21,41%)
• Deferred tax liabilities (16,31%)
• Grants (1,07%)

1.3 Debt Analysis

Once we have seen the composition of the balance sheet in general terms, we are going to review some key figures. A very important concept in the valuation of a company is the debt, since a company that does not have debts cannot go bankrupt. The progression of the debt ratio tells us how big a company's debts are in relation to its equity:



Viscofan's debt is really low compared to any IBEX company. The average debt in the sectors where it operates is:

• Industrial (398,53%)
• Food (227,91%)
• IBEX35 (880,00%)

We can therefore say that this is an extraordinarily good indication of the soundness of the accounts. However, thinking about the capacity for growth, it can be somewhat impaired by the minimal financial leverage it uses.



Total debt represents only 200% of EBIT. It confirms the solidity of Viscofan.

1.4 Safety Margin

In order to operate properly, companies normally need their fixed assets to be covered by their own capital plus long-term debts. This is known as the safety margin. Otherwise it would mean that part of the company's fixed assets (offices, land, machinery, financial assets...) have to be paid for with short-term debt, which can be quite dangerous. This is not something that has to be complied with yes or no, but it is a sign of good health.



As expected after looking at the numbers and graphs above, Viscofan is passing by with the safety margin. Not that it's above 100%, but it's also above 160%.

1.5 Liquidity/Treasury

Liquidity should always be close to 100% and better above, otherwise there may be problems in paying debt maturities or short term payments. In the case of VISCOFAN, S.A., has a very high liquidity, can perfectly cope with short-term debts.

1.6 Fondo de Maniobra

The working capital indicates the amount of current assets that are financed with permanent resources. The higher it is, the fewer financing problems there will be if there are quarters with less turnover. To evaluate working capital we relate it to current assets and sales:



Viscofan's working capital is positive throughout the historical series and with plenty of room for manoeuvre.

2 Analysis of the Income Statement

When studying the income statement, we will calculate the following ratios and their progression over time:

• 2.1 Analysis of income, expenses and profit.
• 2.2 Return on Equity (ROE) y Return on assets (ROA)
• 2.3 Margin on sales

2.1 Analysis of income, expenses and profit.

In Fundamental Analysis we like to show the FGO together with the net profit, which is the money the company has managed to earn. In order to calculate it, we add the amortizations to the net profit and thus avoid possible adjustments by decreasing this concept. Some companies may be forced to make up the profit in this way if they have not done particularly well.



So far Viscofan seemed the perfect company, but now the less good numbers are coming in. Profit has been stagnating for a few years, apparently hampered by depreciation. Let's try to clarify where the problem comes from, starting with the revenue.


Inevitably, for a company to make money it needs revenue, so let's see how it looks:



Sales have remained stagnant from 2013 to 2018. Since then they have grown again and are already at record highs in revenue. It seems to be another factor that stagnates profit, but not the one that is to blame for last year's fall.


Another piece of information that usually provides information is the breakdown of expenses. There we can see if there are any expense items that have shot up or if it applies to all of them equally:



The depreciation item has increased slightly, but as we said, it does not seem to be the cause. The rest of the items maintain approximately the same proportion.


In addition to the operating costs, we have to take into account the financial costs. A company may have a very large debt, but if the expenses it generates are bearable with the EBIT there is no problem. Therefore, we will represent both data:



From what we are seeing, neither financial nor operating expenses explain such an abrupt drop in profit. The only thing we have left is the stock variation item:



We finally found the culprit. The variation in stock was very large and represented a third of the net profit. This is the important thing, Viscofan maintains stocks worth 277 million euros, a very large amount compared to the EBIT (130 million). This means that relatively small variations in the value of the stock, such as the one we saw in the graph of the breakdown of current assets, greatly affect the EBIT and therefore the final profit. Viscofan cannot do much to avoid this type of thing, its business and added value is that, having thousands of references available to be delivered or manufactured in the shortest time possible. We can say that this is the weak point of Viscofan.

2.2 Return on equity (ROE) y Return on assets (ROA)

The ROE, or Return on equity, measures the benefits of VISCOFAN, S.A. compared to its own funds. It is a way to measure the profitability and quality of the business management. It only makes sense to see it that way when it is a sustained ROE over time. A high ROE in an isolated year can be caused by an increase in debt, which gives a greater capacity to buy assets and therefore an increase in profit. The problem comes later, when that debt has to be paid and expenses skyrocket:



Among other things, Viscofan's ROE has been declining year by year since 2012. Some years we blame it on the fact that the sector is very competitive and margins are falling, others on the fact that depreciations are rising, revenues are flattening out or changes in stock are having a major impact. In short, Viscofan's business is losing quality. The average ROE in the sectors where it operates is:

• Industrial (11,65%)
• Food (-16,81%)
• IBEX35 (7,68%)

Therefore, it continues to be above average, but getting worse year after year.






The ROA on the other hand holds up better because the assets are growing steadily.

2.3 Margin on Sales

We are going to calculate the margin on sales of VISCOFAN, S.A., that is to say, what proportion of the sales ends up being a constant and significant profit:



The margin on sales is weighed down by the fall in profit compared to the growth in sales.


We can also see how the margins of VISCOFAN, S.A. behave. On the one hand, we have the operating margin, which tells us what proportion of sales ends up being EBIT. On the other hand, the operating margin tells us what proportion of sales ends up being profit before tax.



As for the other ratios and parameters in the income statement, the Viscofan numbers are still acceptable but have been deteriorating in recent years.

3 Dividend and general valuation

Currently, VISCOFAN, S.A. has 46,500,000 shares in circulation, with a treasury stock of 0%. It has a EPS of 2.27 and is currently paying a dividend of 1.61 per share per year, i.e. a payout of 70.91% increasing in recent years:



At current prices (58.95) it gives a dividend yield of 2.73%, the book value is 16.87 per share and the PER is 25.96. In conclusion, Viscofan is quoted at the price of a growing company and presents a very strong balance sheet. However, analysing the income statement, we have doubts that it will continue to do so. Our opinion is that it will become a company with a slower pace of value generation. Therefore, we would see it more normal that it would trade at a much lower PER, around 15 (34 euros).


Do you have Viscofan in your wallet? Don't worry, at the moment it has a very solid financial position, one of the best we have seen around here and it will continue to generate money. Are you thinking of increasing positions or entering the shareholder base? In that case perhaps we would wait to confirm that the company will no longer grow at the rate it was growing before paying a PER 26.