Income statement

Operating section

Emmi achieved net sales of CHF 3,364.3 million in 2017, a rise of 3.2 % compared with the previous year. In organic terms, i.e. adjusted for currency and acquisition effects, Group sales grew by 0.5 %.

This performance exceeded expectations. Emmi originally forecasted a sales development of between -1 % and 0 %, but it recorded a strong second half of 2017 that more than made up for weak sales in the first six months of the year. Success factors included the cheese business in the US (cow’s milk and goat’s milk), Emmi Caffè Latte (particularly in Switzerland, the UK and Spain), Rachelli desserts, organic milk from Gläserne Molkerei and the Tunisian market.

Acquisition effects are accounted for by the following factors:

• 60 % stake in Bettinehoeve (Netherlands, 2 February 2016)
• Increased stake in SDA Chile (Chile, 19 May 2016)
• Acquisition of Cowgirl Creamery (US, 31 May 2016)
• Acquisition of Jackson Mitchell (US, 4 January 2017)
• 80 % stake in Lácteos Caprinos (Spain, 12 January 2017)
• Acquisition of Italian Fresh Foods (Italy, 1 March 2017)
• Sale of stake in Venchiaredo (Italy, 31 July 2017)
• Increased stake in Mexideli (Mexico, 8 October 2017)

Sales development Switzerland

The business division Switzerland generated sales of CHF 1,730.7 million, compared with CHF 1,741.3 million in the previous year. This corresponds to a decline of 0.6 % (-0.7 % price effect and +0.1 % volume effect). Emmi had forecasted a sales decline of -2 % up to 0 %, so sales in the domestic Swiss market were in line with expectations despite price pressure remaining at a high level.

The good second half of the year largely offset the declines in the first six months of 2017. This was due in part to the stronger Swiss retail trade, which posted stable sales for the year as a whole after being at around -1 % in the middle of the year (source: Nielsen). Import and price pressure remained high, impacting in particular the cheese and fresh cheese segments. 4.2 % more cheese was imported from abroad in 2017 than in the previous year (source: TSM Treuhand).

Sales of dairy products (milk, cream, butter) remained relatively stable overall. In the cheese segment, Luzerner Rahmkäse made gains while AOP cheese posted a decline, reflecting the higher volume of cheese imports mentioned above. In fresh products, Emmi Caffè Latte, Jogurtpur and Energy Milk saw sales increase, while Yoqua and private labels were down.

The business division Switzerland accounted for 51 % of Group sales (previous year 53 %).

Sales by product group: Switzerland

Sales development Americas

The business division Americas includes the US, Canada, Chile, Tunisia, Spain (excluding Lácteos Caprinos), France and now also Mexico.

It generated sales of CHF 949.8 million, compared with CHF 865.6 million in the previous year. This corresponds to an increase of 9.7 %. In organic terms, i.e. adjusted for currency and acquisition effects, this resulted in an increase of 4.1 %, which is line with the forecasted range of 3 % to 5 %.

The positive acquisition effect is attributable to the increased stakes in SDA Chile and Mexideli as well as the acquisitions of Cowgirl Creamery and Jackson Mitchell. The main reasons for the positive organic growth are the pleasing sales performances in Tunisia and the US. In Tunisia, the yogurts, desserts and milk marketed under the Vitalait brand reported significantly higher sales, which had a positive effect on the dairy and fresh products segments. Emmi is also satisfied that the core business in Chile has stabilised. In fresh products, Emmi Caffè Latte in Spain also made a positive contribution. Locally produced cow’s and goat’s milk cheeses performed very well in the US.

The price war on private label yogurts in Spain and in the cheese segment in France had an inhibiting effect on sales.

The business division Americas accounted for 28 % of Group sales (previous year 27 %).

Sales by product group: Americas

Sales development Europe

In the business division Europe, sales rose by 8.7 % from CHF 519.0 million to CHF 564.1 million. In organic terms, i.e. adjusted for currency and acquisition effects, this resulted in growth of 0.8 %, thereby exceeding Emmi’s expectations. Based on the modest first half of the year, the company had anticipated a decline of -3 % to -1 %.

The acquisition effect, which was significantly positive overall, was attributable to the purchase of the stakes in Bettinehoeve and Lácteos Caprinos, the acquisition of Italian Fresh Foods and the sale of the stake in Venchiaredo.

In fresh products, Emmi Caffè Latte in the UK and the Italian speciality desserts from Rachelli performed very well. Sales at A-27 stabilised in the second half of the year. In the cheese segment, the Kaltbach specialities made gains in Germany, Austria and the UK. By contrast, AOP cheese and Onken yogurts remained under heavy pressure.

Dairy products reflect the sales growth of organic milk specialist Gläserne Molkerei.

The fresh cheese segment was impacted positively by the acquisition-based growth through Bettinehoeve and negatively by falling volumes and prices in Italy. The good performance in the powder/concentrates segment is attributable to higher sales of goat’s milk powder (AVH dairy).

The business division Europe accounted for 17 % of Group sales (previous year: 16 %).

Sales by product group: Europe

Sales development Global Trade

The business division Global Trade primarily comprises direct sales from Switzerland to customers in countries where Emmi has no subsidiaries. These include the Asian and eastern European markets, most South American countries and the Arabian Peninsula.

Sales amounted to CHF 119.7 million, compared with CHF 132.9 million in the previous year, resulting in an organic decline of 9.7 %. The slightly negative acquisition effect is due to the loss of export sales to Mexideli from the fourth quarter of 2017, as the company is now fully consolidated in the business division Americas.

The negative performance can be attributed above all to declining exports of butter and milk powder as well as lower sales of non-dairy products, which are not part of Emmi’s core business. Other inhibiting factors were the modest performance of milk sales in China and lower cheese sales in Russia. By contrast, fresh product sales in Hong Kong and Singapore and cheese sales in Brazil all recorded a pleasing performance.

Global Trade accounted for 4 % of total Group sales (previous year: 4 %).

Sales by product group: Global Trade

Gross profit

Gross profit increased by CHF 21.4 million to CHF 1,200.9 million in the year under review, compared with CHF 1,179.5 million in the previous year. This was due to acquisitions. The gross profit margin decreased slightly from 36.2 % to 35.7 %. This development is primarily attributable to price pressure in Switzerland, while the business divisions Europe and Americas posted a slight improvement in their gross profit margins. The performance in Chile was pleasing, with successfully implemented rationalisation and productivity-raising measures leading to a significant increase in gross profit margin. By contrast, the UK posted considerably lower margins due to Brexit.

Non-recurring effects in the consolidated financial statements

No non-recurring effects were recorded in either the year under review or the previous year.

Operating result

Operating expenses rose by CHF 9.8 million or 1.1 % in 2017 to CHF 865.9 million, compared with CHF 856.1 million in the previous year. As operating expenses grew far less strongly than sales, they decreased in comparison to sales from 26.2 % to 25.8 %. The drop in margin at gross profit level was therefore compensated.

Personnel expenses in the period under review amounted to CHF 443.2 million, compared with CHF 424.5 million in 2016. Since the increase of 4.4 % is disproportionately high in comparison with the development in sales, the ratio of personnel expenses to sales rose from 13.0 % to 13.2 % in the period under review. This was largely due to higher personnel expenses in the business division Americas.

By contrast, other operating expenses fell by CHF 9.0 million or 2.1 % in the period under review to CHF 422.6 million, compared with CHF 431.6 million in the previous year, in spite of the flurry of acquisition activity. Accumulated marketing and sales-related expenses amounted to CHF 126.0 million, compared with CHF 129.3 million in 2016, which corresponds to a decrease of 2.5 %. Other cost savings were achieved in maintenance and repair as well as in administrative expenses, where IT expenditure in particular was reduced as expected following completion of the SAP rollout in Switzerland. The considerable fall in other operating expenses was attributable, among other factors, to a lower need for provisions for ongoing legal disputes. By contrast, energy and logistics expenses increased as a result of acquisitions.

Other operating income registered a year-on-year increase of CHF 1.0 million to CHF 5.7 million.

As a consequence of this development, earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by CHF 12.5 million to CHF 340.7 million, from CHF 328.2 million in the previous year. At 10.1 %, the EBITDA margin was exactly the same as in 2016.

Depreciation and amortisation rose significantly by CHF 9.4 million in the period under review, from CHF 125.8 million to CHF 135.2 million. Depreciation of property, plant and equipment increased by CHF 1.6 million, while amortisation on intangible assets went up by CHF 7.8 million due primarily to higher amortisation of goodwill as a result of acquisitions. Unlike the majority of listed firms using Swiss GAAP FER, Emmi continues to amortise goodwill via the income statement.

Earnings before interest and taxes (EBIT) amounted to CHF 205.8 million in the period under review, which was CHF 3.1 million higher than the previous year’s EBIT of CHF 202.7 million. The EBIT margin of 6.1 % remained virtually unchanged compared with the previous year (6.2 %).

Financial result

Net financial expenses decreased significantly by CHF 4.2 million versus the previous year to CHF 10.4 million, mainly due to the substantially lower interest expenses following the refinancing in 2017. The currency result also improved slightly.

Income taxes

In the period under review, income taxes decreased by CHF 3.4 million to CHF 30.3 million. The tax rate decreased from 17.6 % to 15.2 %. Expected taxable profits in countries with historic tax loss carryforwards rose markedly, leading to an increase in recognised deferred tax loss carryforwards. Reductions in tax rates in a number of countries relevant to Emmi also contributed to this positive development.

Net profit

Net profit including minority interests amounted to CHF 168.7 million, up CHF 10.4 million from the previous year’s level of CHF 158.3 million. Minority interests were significantly down on the previous year by CHF 10.8 million. This is largely due to the acquisition of the minority interests in Mittelland Molkerei AG. After deduction of minority interests to CHF 7.2 million, net profit amounted to CHF 161.6 million. This represents an increase of CHF 21.3 million on the previous year. Accordingly, the net profit margin improved significantly to 4.8 % in the year under review (previous year: 4.3 %).