Income statement

Operating section

Emmi generated net sales of CHF 3,494.0 million in 2019. The growth of 1.1 % versus the previous year (CHF 3,457.4 million) is comprised of organic growth of 2.2 %, an acquisition effect of 0.4 % and a negative currency effect of -1.5 %. The pleasing organic growth of 2.2 % was broad-based across all divisions and is in the upper third of the target range of 1.5 % to 2.5 %, after being revised downwards from 2.0 % to 3.0 % when the company reported its half-year results. This means that sales grew much more strongly in organic terms in the second half of the year than they did in the first six months, especially in the Switzerland and Europe business divisions. Growth drivers included the strategic niche markets, for example Italian dessert specialities and goat’s milk products, Emmi Caffè Latte and the growth markets in Latin America and North Africa.

Last year was additionally characterised by intensive work on the company and product portfolio as part of the implementation of the long-term corporate strategy. Accordingly, Emmi’s position in growth markets outside of Europe was further strengthened, and investments were made in specific niches. Emmi was very active on the acquisitions front in 2019 and has tapped into significant development potential for the years ahead. This strategy will lay the groundwork for benefiting from market dynamics in developing markets, raising the profile of brand products and further consolidating the strong position in Italian desserts and goat’s milk products.

In Switzerland, organic growth exceeded expectations at 1.0 %, due not least to the positive performance of Emmi Caffè Latte and the increase in the milk price effective 1 October 2019. The organic growth recorded by Americas was, by contrast, at the lower end of the target range, amounting to 4.1%. The top performers in this business division were cow’s and goat’s milk cheeses, Emmi Caffè Latte in Spain and the Mexico market. The Europe business division posted organic growth of 1.6 %, exceeding the updated target range of -1 % to 1 % after it was adjusted downwards within the scope of the half-year results. Pleasing growth was achieved in Europe in strategically relevant niche markets such as Italian speciality desserts and goat’s milk products. While Emmi Caffè Latte also recorded strong growth in Europe, declining volumes and lower prices at Gläserne Molkerei in Germany hampered performance of the Europe business division overall.

Acquisition effects are accounted for by the following factors:

Positive factors:

• Acquisition of a blue cheese production site (US, 28 February 2019)
• Acquisition of Leeb Biomilch GmbH and Hale GmbH (Austria, 8 October 2019)
• Acquisition of Laticínios Porto Alegre Indústria e Comércio S.A. (Brazil, 24 October 2019)
• Acquisition of Pasticceria Quadrifoglio S.r.l. (Italy, 31 October 2019)

Negative factors:

• Sale of Emmi Frisch-Service AG (Switzerland, 3 April 2019)
• Disposal of part of the trading goods business (Switzerland, 1 January 2018)

Sales development Switzerland

Net sales by product group: Switzerland

Sales in the Switzerland business division were CHF 1,675.0 million, compared with CHF 1,713.2 million in the previous year. This corresponds to a decline of 2.2 %. Adjusted for divestment effects, sales grew by 1.0 % in organic terms, significantly above the 0 % to 0.5 % forecast by Emmi.

The divestment effects are due to the sale of Emmi Frisch-Service AG and the disposal of part of the trading goods business to Coop. Emmi took over a trading goods business from Coop as part of its acquisition of the Kirchberg cheese centre in 1998. The part of the trading goods business through which Coop maintains direct relationships with suppliers was sold back to Coop in 2018, with the related sales being transferred to the buyer on a staggered basis over two years.

The strong growth in dairy products (milk, cream, butter) is attributable to two main factors: the generally higher milk prices since 1 October 2019 and the increase in sales volumes for milk and cream, which was achieved in spite of the ongoing strong pressure on prices. Organic growth was likewise recorded in the fresh cheese segment, where protein-enriched quark products and the launch of the Toni’s brand (cheese spreads and mozzarella) gave a decisive boost to growth.

The other two major product groups – cheese and fresh products – saw a slight organic decrease in sales. In the cheese segment, brand concepts such as Luzerner Rahmkäse, Scharfer Maxx and Le Petit Chevrier performed well, yet significantly higher cheese imports and the pressure this exerted on prices had an adverse impact on sales. In the fresh products segment, Emmi Caffè Latte and Emmi Energy Milk posted a positive performance, while sales of yogurt and ice cream fell short of expectations.

The Switzerland business division accounted for 47.9 % of Group sales (previous year: 49.6 %).

Sales development Americas

Net sales by product group: Americas

The Americas business division comprises the following markets: US, Canada, Mexico, Chile, Tunisia, Spain (excluding Lácteos Caprinos), France and – since 24 October 2019 – Brazil.

The Americas business division generated sales of CHF 1,114.7 million in 2019, a rise of 6.7 % compared with the previous year (CHF 1,044.3 million). In organic terms, i.e. adjusted for currency and acquisition effects, growth was 4.1 %. This figure is at the lower end of the forecast range of 4 % to 6 % growth, which can be explained in part by the milk shortage in Tunisia, the social unrest in Chile and lower sales in Spain. The growth drivers in this division were Mexico, the US and – in spite of the factors mentioned above – also Chile and Tunisia, albeit to a lesser extent than last year.

The acquisition effect in the sales development of the Americas business division was due to the purchase of a blue cheese production site in the US and the increased stake in Laticínios Porto Alegre in Brazil, which had an impact on the scope of consolidation.

In the largest segment, cheese, locally produced cow’s milk cheese in the US and Chile and the goat’s cheese business (Cypress Grove) bolstered growth, while in the dairy and fresh products segment performance was dented by social unrest in Chile and the milk shortage experienced in Tunisia. These countries nonetheless remain the growth drivers in these product groups. Sales of dairy products were additionally encumbered by the difficult market situation in Spain, where the lactose-free milk products segment – which is crucial for Kaiku – is under strong pressure. The positive contributors to growth in the fresh products segment were the dessert business in Tunisia (locally produced desserts) and France (Italian speciality desserts) as well as Emmi Caffè Latte, which posted strong growth in Spain.

The high organic growth in fresh cheese is attributable to strong performance in Mexico (imported fresh cheese) and new fresh cheese products in the US (Redwood Hill). In the area of other products/services, Mexico and Chile were the main drivers of growth.

The Americas business division accounted for 31.9 % of Group sales (previous year: 30.2 %).

Sales development Europe

Net sales by product group: Europe

The Europe business division incorporates the markets of Italy, Germany, Austria, Belgium, the Netherlands, the UK and Lácteos Caprinos in Spain.

The Europe business division generated sales of CHF 592.8 million in 2019, down 0.1 % on the previous year’s figure of CHF 593.3 million. Adjusted for currency and acquisition effects, this nevertheless resulted in pleasing organic growth of 1.6 %, exceeding expectations of -1 % to 1 % following the revised forecast presented in the half-year results. The Europe business division achieved especially pleasing growth in strategically relevant niche markets such as Italian speciality desserts and goat’s milk products, as well as with strategic brands like Emmi Caffè Latte. However, low sales at organic milk processor Gläserne Molkerei in Germany proved a major drag on growth.

Acquisition effects are due to the takeover of Leeb Biomilch GmbH and Hale GmbH in Austria as well as the Pasticceria Quadrifoglio Group in Italy. In addition, shifting the distribution channel for a customer from the Global Trade business division to the Europe business division led to a positive acquisition effect in the cheese segment in the Europe business division (opposite effect in the same scope in the Global Trade business division).

The decisive growth factors in the fresh products segment – the most important segment in this business division – were the strategically important Italian speciality desserts and Emmi Caffè Latte. Emmi Caffè Latte grew in all European markets, most strongly in the UK. The cheese segment recorded a negative organic performance overall, primarily due to lower sales of certain cheese varieties (especially Emmentaler). Speciality cheeses, on the other hand, in particular KALTBACH cheese in Germany, performed well. The marked growth in fresh cheese can be explained by the pleasing sales development of fresh goat’s cheese from the Netherlands.

The main reason for the sharp contraction in sales of dairy products is Gläserne Molkerei in Germany, where declining processed milk volumes coupled with the lower price level for organic milk products made a sizeable dent in sales.

In the powder/concentrates segment, the trading company AVH dairy in the Netherlands recorded high growth in sales of goat’s milk powder.

The Europe business division accounted for 17.0 % of Group sales (previous year: 17.1 %).

Sales development Global Trade

Net sales by product group: Global Trade

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

Sales in the Global Trade business division amounted to CHF 111.5 million, compared with CHF 106.6 million in 2018. This constitutes an increase in sales of 4.6 %, or 5.8 % in organic terms.

As mentioned earlier, the divestment effect in the cheese segment was a result of shifting the distribution channel for a customer from the Global Trade business division to the Europe business division.

The growth in sales in the Global Trade business division is primarily attributable to the marked rise in milk powder exports (powder/concentrates). The two major product groups fresh products and cheese reported largely stable sales overall. While sales were up slightly in China, Finland and also in Spain, they were down elsewhere, especially in Brazil (fondue). Sales in Spain and Brazil were achieved through export products from Switzerland which were not distributed via the countries’ local subsidiaries.

The Global Trade business division accounted for 3.2 % of Group sales (previous year: 3.1 %).

Gross profit

Gross profit increased by CHF 13.7 million to CHF 1,266.6 million in the year under review, compared with CHF 1,252.9 million in the previous year. This increase is due to strong organic growth and would have been considerably higher were it not for the overall negative currency effect. Acquisition and divestment effects largely cancelled each other out. The gross profit margin also rose from 36.2 % to 36.3 %. This is primarily attributable to the increasing importance of branded products within the product portfolio and the good performance of strategic niche markets. Added to this, the successful implementation of further rationalisation and productivity measures helped to offset the negative effects of the persistently high price pressure.

Non-recurring effects in the consolidated financial statements

No significant non-recurring effects were recorded in the period under review.

The sale of the minority stake in Icelandic Milk and Skyr Corporation “siggi’s” had a significant impact on the income statement in 2018, resulting in a pre-tax gain last year of CHF 79.4 million or CHF 57.8 million after taxes. The gain from this sale is included in the position “Income from associates and joint ventures” in last year’s accounts. Accordingly, earnings before taxes (EBT) in 2018 rose by CHF 79.4 million and net profit by CHF 57.8 million.

Operating result

Operating expenses rose by CHF 15.2 million or 1.7 % in 2019 to CHF 920.6 million, compared with CHF 905.4 million in the previous year. With cost pressure driving up operating expenses more strongly than sales, operating expenses increased slightly in comparison to sales from 26.2 % to 26.4 %, meaning that the margin increase at gross profit level was lost again.

Personnel expenses were CHF 462.4 million in the period under review, compared with CHF 458.5 million in the previous year. While the increase of 0.8 % lagged slightly behind the growth in sales, the ratio of personnel expenses to sales remained at the same level as the previous year at 13.3 %. In organic terms – that is, excluding acquisition effects – personnel expenses rose at a slightly higher rate than the growth in sales.

Other operating expenses were up CHF 11.4 million or 2.5 % in the period under review to CHF 458.3 million, compared with CHF 446.9 million in the previous year. This means that other operating expenses outpaced sales in the period under review. Currency and acquisition effects offset each other, so the increase was mainly organic in nature. At CHF 5.7 million or 8.6 %, the most significant increase in expenses was recorded by energy, operating material and supplies. This can chiefly be explained by the effect of acquisitions, higher energy procurement volumes on the back of higher production volumes, and increased energy prices in various relevant countries. Added to this, expenditure for operating material was up in the period under review, as were logistic expenses, which rose by CHF 4.8 million, fuelled by higher volumes and the continued rise in transport costs in individual countries (for example in the US). Accumulated marketing and sales-related expenses amounted to CHF 129.9 million, compared with CHF 127.9 million in the previous year, which corresponds to an increase of 1.5 %. While administrative expenses were up by CHF 2.3 million or 6.2 % due to higher IT expenses, occupancy expense, maintenance and repair fell by CHF 1.3 million or 1.9 %. Other operating expenses were also reduced, specifically by CHF 2.4 million to CHF 18.3 million.

Other operating income rose by CHF 1.6 million year on year to CHF 6.9 million.

As a consequence of this development, earnings before interest, taxes, depreciation and amortisation (EBITDA) remained stable versus the previous year at CHF 352.9 million (previous year: CHF 352.8 million). The EBITDA margin contracted slightly as a result from 10.2 % last year to 10.1 % in the period under review.

Depreciation and amortisation decreased by CHF 1.0 million in the period under review, from CHF 136.4 million to CHF 135.4 million. This decline is primarily attributable to lower software amortisations, more than offsetting the increased goodwill amortisations due to acquisition activities. Unlike the majority of listed firms applying Swiss GAAP FER, Emmi amortises goodwill via the income statement. Depreciation on property, plant and equipment was largely unchanged compared with the previous year.

Earnings before interest and taxes (EBIT) amounted to CHF 217.8 million in the period under review, exceeding prior-year EBIT by CHF 1.1 million or 0.5 % (previous year: CHF 216.7 million). Consequently, the EBIT margin fell slightly from 6.3 % in the previous year to 6.2 % in 2019.

Income from associates, financial result and income taxes

With a loss of CHF 1.1 million, income from associates and joint ventures remained at the level of the prior year after adjustments for non-recurring effects, when the result of CHF 78.3 million included the pre-tax gain made on the sale of the minority stake in “siggi’s” of CHF 79.4 million. This means that in the reporting period the share of profits was again insufficient to offset the goodwill amortisations made in connection with these investments.

The financial result (net financial expenses) was CHF 6.8 million, compared with CHF 6.5 million in the previous year. This slight increase in expenses is due to currency losses, which were higher than the year before.

Income taxes amounted to CHF 34.8 million in the period under review. CHF 21.6 million of the prior-year figure of CHF 50.2 million was attributable to the sale of the minority stake in “siggi’s”. Accordingly, income taxes adjusted for this non-recurring effect amounted to CHF 28.6 million in 2018, which increased the income tax expense in the period under review by CHF 6.2 million. The tax rate was thus 16.6 % (previous year, adjusted: 13.7 %). The higher tax rate is due on the one hand to the increase in recognised deferred tax assets at companies with historical tax loss carryforwards in 2018; while on the other taxable income arose in the US due to a government grant which under Swiss GAAP FER was recorded not as income, but as a reduction in property, plant and equipment, with a corresponding negative impact on the tax rate.

Net profit

Profit including minority interests was CHF 175.2 million, compared with CHF 238.3 million in the previous year. This 2018 figure was, however, significantly impacted by the sale of the minority stake in “siggi’s”; the prior-year adjusted profit including minority interests amounted to CHF 180.5 million, putting it CHF 5.3 million above the profit including minority interests in the period under review.

The marked increase in minority interests from CHF 5.1 million in the previous year to CHF 9.0 million in the period under review is attributable not only to the increased stakes acquired in companies with minority interests in 2018, but also to the profitability improvements made in 2019.

Accordingly, net profit of CHF 166.2 million was reported for the period under review, versus CHF 175.5 million the year before (adjusted). The main reasons for the fall in net profit were the very low tax rate in the previous year and the higher share of minority interests included in profit. The net profit margin therefore fell from (adjusted) 5.1 % in 2018 to 4.8 % in the reporting period.