Assets, financing and cash flow
Total assets increased by CHF 94.0 million, or 3.6 %, year-on-year as a consequence of operating activities and the acquisitions made, with major changes recorded on the assets side in cash and cash equivalents and intangible assets in particular. The CHF 200.6 million increase in intangible assets is attributable to the flurry of acquisition activity, which is also the main reason for the CHF 194.3 million decline in cash and cash equivalents. The rise in investments in associates and joint ventures is also related to acquisitions and primarily attributable to the new stake in Brazil. By contrast, the goodwill paid in this transaction is recognised under intangible assets. As higher investments and higher depreciations were largely balanced with regard to tangible assets, the CHF 10.4 million rise in the carrying amount was largely due to acquisitions.
Operating net working capital (comprising inventories as well as trade receivables and payables) amounted to CHF 506.2 million, up CHF 62.1 million compared with 31 December 2016. In organic terms, the increase as at the reporting date was approximately CHF 45 million, which is attributable to higher trade receivables and lower trade payables. The instructed reduction in trade payables was to avoid negative interest rates. The substantial fall in prepayments and accrued income was due to an advance payment in the previous year related to acquisition activities.
With regard to financing, there were significant adjustments between current and non-current liabilities due in particular to the refinancing which took place in the summer. Firstly, a bond worth CHF 250 million was repaid on 30 June 2017. Secondly, two new bonds worth a total of CHF 200 million were issued on 21 June 2017 to refinance this repayment and for general corporate financing purposes, and finally, bonds totalling EUR 100 million were paid up on 21 July 2017.
The equity ratio fell to 56.4 %, from 57.9 % as at 31 December 2016. The main reason for the reduction is the acquisition of the minority interests in Mittelland Molkerei AG, which decreased the minority interests and therefore also equity. Net debt increased from CHF 71.4 million as at 31 December 2016 to CHF 338.4 million as at the end of 2017. Despite this acquisition-related rise, the ratio of net debt to EBITDA remained low at 0.99 (previous year 0.22).
Cash flow from operating activities amounted to CHF 251.7 million in the period under review, and was therefore CHF 20.2 million below the previous year’s level (CHF 271.9 million). Cash flow before changes in net working capital, interest and taxes increased by CHF 6.5 million versus the previous year, essentially reflecting the operational improvement achieved at EBITDA level. This year-on-year rise was more than offset by the increase in net working capital versus the previous year. The instructed reduction in trade payables to avoid negative interest rates contributed to this. While taxes paid remained at a similar level to the previous year, interest paid decreased slightly as a result of the refinancing.
Cash outflow from investing activities amounted to CHF 474.3 million in the period under review, a rise of CHF 284.0 million year-on-year (previous year CHF 190.3 million), as a result of acquisitions. A total of CHF 400.2 million was used for the acquisition of new companies and the purchase of minority interests and stakes in associates in the year under review. After taking into account the cash inflow from the sale of the stake in an associate, net cash outflow resulting from acquisition activities amounted to CHF 398.1 million, compared with CHF 93.2 million in the previous year. CHF 96.3 million was also invested in property, plant and equipment in financial year 2017, which represents a slight increase on the previous year’s figure of CHF 92.4 million. Investments in intangible assets were significantly lower than in the previous year at CHF 2.9 million (previous year CHF 12.1 million) due to completion of the SAP project in Switzerland.
Not including the net outflow of funds resulting from acquisition activities, the level of free cash flow generated in 2017 amounted to CHF 175.5 million, compared with CHF 174.7 million in 2016.
Cash inflow from financing activities amounted to CHF 26.6 million in the period under review, compared with an outflow of CHF 63.2 million in the previous year. This inflow resulted primarily from the financing activities described, less CHF 33.6 million in dividend payments, of which CHF 31.6 million to the shareholders of Emmi AG.
As a consequence of these cash flows, cash and cash equivalents fell from CHF 406.9 million to CHF 212.6 million in financial year 2017, a decline of CHF 194.3 million.
The global economy is currently growing more strongly than two or three years ago. The eurozone, which has been sluggish for a long time, posted a rise of around 2 % in gross domestic product (GDP). The Swiss export industry is also confident. However, conditions in Switzerland remain very challenging for Emmi, with the environment continuing to be highly competitive. This is also reflected in the outlook for Swiss retailers, which ranges from stable to at best slightly increasing sales in the food sector. Milk prices should remain stable. Emmi expects stable to slightly higher prices for the most important non-milk raw materials (e.g. coffee and sugar).
Massive import pressure will persist in Switzerland. Consumer tourism has likely plateaued, but is not expected to decrease substantially. Sales in the business division Switzerland will consequently remain under pressure. However, as there was an increase in milk prices in Switzerland effective 1 October 2017, sales in the business division Switzerland will benefit slightly compared with the previous year if milk prices remain at this level. Emmi therefore considers slight organic growth to be achievable based on this and thanks to the support of strong brand concepts.
The strong competition will also affect the business division Europe. The further consequences of Brexit and future performance of the British pound also continue to be difficult to predict, inhibiting the performance of our company in the UK (exports from Switzerland, Onken yogurts from Germany) and the sales of our Italian dessert companies. By contrast, the recent strengthening of the euro should positively impact the performance of the business division Europe, and the overall economic outlook in the eurozone is the most promising it has been for a long time. Exports of speciality cheeses and Emmi Caffè Latte from Switzerland should also have a favourable effect. Overall, we therefore expect a positive performance by the business division Europe in 2018, taking into account all markets and companies.
In the business division Americas, we expect further growth in demand in Tunisia (milk, fresh products) and in the US (cheese, goat’s milk specialities) in 2018. The Chilean market should be able to confirm the signs of recovery. Foreign currency effects in countries such as Chile, Mexico and Tunisia will continue to be an issue. In addition, the European markets in the business division Americas – Spain and France – will again inhibit growth in the division this year.
Sales and profit development
The company expects organic sales growth in 2018 roughly in line with the medium-term forecast. It believes growth will be driven by proven brand concepts, growth in the niches of organic products and goat’s milk specialities, and positive overall economic prospects in many markets relevant to Emmi.
To support earnings, Emmi will continue to pursue its efficiency programme and step this up above all in international markets. The company therefore expects an improvement in earnings in the business divisions Europe and Americas, which should have a positive impact on the Group as a whole. Emmi therefore anticipates a corresponding rise in operating profit at Group level in 2018.
Emmi confirms the medium-term sales growth forecast for the Group and the individual business divisions:
- Group 2 % to 3 %
- Switzerland 0 % to 1 %
- Americas 4 % to 6 %
- Europe 1 % to 3 %