1.Segment reporting

Emmi does not publish segment results since this would cause significant competitive disadvantages in Switzerland and abroad vis-a-vis customers, unlisted and larger listed competitors.

The divisions are not defined strictly according to geographical considerations. The division Americas includes the Emmi Group companies in the USA, Brazil, Spain, Chile, Tunisia, Mexico and Canada. The division Europe comprises those in Italy, Germany, the Netherlands, France, the UK and Austria. The 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.

2.Other operating income

3.Other operating expenses

The increase in the other operating expenses is primarily due to the loss incurred in the reporting year from the sale of Gläserne Molkerei.

4.Depreciation and amortisation

Of the impairment on property, plant and equipment in the previous year, CHF 13.0 million relates to Gläserne Molkerei.

5.Financial result

6.Income taxes

Net accruals for current income taxes decreased from CHF 19.5 million in 2022 to CHF 18.1 million in 2023. Deferred income taxes are calculated for every company using the effective applicable tax rate. As at 31 December 2023, the resulting weighted average tax rate was 16.7% (previous year: 18.8%). Adjusted for the non-recurring effects related to the sale of Gläserne Molkerei and Ambrosi S.p.A., the weighted average tax rate was 18.2% (previous year adjusted: 18.4%). Deferred income taxes include recognised tax claims from tax loss carryforwards amounting to CHF 5.4 million (previous year: CHF 2.6 million).

The effective average tax rate adjusted for the tax effects on the sale of Gläserne Molkerei and Ambrosi S.p.A. amounted to 14.9% in the reporting year. The effective average tax rate adjusted for the tax effect on the impairment of non-current assets at Gläserne Molkerei amounted to 16.6% in the previous year.

The net change of recognised tax claims from tax loss carryforwards decreased the income tax expenses in the reporting year by CHF 2.8 million (previous year: decrease of CHF 1.5 million).

7.Earnings per share

Earnings per share is calculated by dividing the net profit attributable to the shareholders of Emmi AG by the average number of shares outstanding. There are no treasury shares that need to be considered in the calculation of the average number of shares outstanding.

Earnings per share of CHF 34.82 include the loss from the sale of Gläserne Molkerei and the gain from the sale of Ambrosi S.p.A. Excluding this non-recurring effect, earnings per share amounted to CHF 39.70.

In the previous year, earnings per share of CHF 34.12 include the impairment of non-current assets at Gläserne Molkerei. Excluding this non-recurring effect, earnings per share amounted to CHF 36.31. As a result, adjusted net profit rose by 9.3% in the reporting year.

8.Trade receivables

9.Other receivables

10.Inventories

11.Prepayments and accrued income

Other prepayments and accrued income in the reporting year and the previous year consist mainly of prepayments, various refunds and accrued income for advertising costs and milk invoices.

12.Loans and other receivables

The carrying amount of loans and other receivables from third parties includes impaired loans in the amount of CHF 1.4 million (previous year: CHF 1.5 million).

13.Property, plant and equipment

Of the impairment on property, plant and equipment in the previous year, CHF 13.0 million is related to Gläserne Molkerei.

14.Intangible assets

All intangible assets were acquired.

Goodwill from the acquisition

The goodwill from the acquisition of companies and businesses or the purchase of interests in associates or joint ventures is offset against retained earnings at the date of acquisition. The theoretical capitalisation of goodwill and its amortisation over the expected useful life of usually 20 years would have the following effects on the consolidated financial statements as at 31 December 2023:

Theoretical movement schedule for goodwill

The impairment in the previous year relates to Gläserne Molkerei.

Theoretical impact on shareholders’ equity incl. minority interests

Theoretical impact on earnings before interest and taxes (EBIT)

Theoretical impact on net profit

15.Trade payables

16.Other payables

17.Accrued liabilities and deferred income

Other accrued liabilities and deferred income in the reporting year and the previous year comprise in particular contributions to brand organisations, expected earn-out payments for acquisitions, energy costs, advertising costs, HGV road tax and various services.

18.Financial liabilities

18.1Bonds

The CHF 2.1 million expenses incurred in connection with the issuance of the bond were capitalised under prepayments and accrued income on 12 July 2013. This accrual was released over the term of the bond. The actual interest rate on the bond is thereby increased from 1.625% to 1.72% per year. The bond was repaid in full on 12 July 2023.

The CHF 0.5 million expenses incurred in connection with the issuance of the bond were capitalised under prepayments and accrued income on 22 September 2023. This accrual will be released over the term of the bond. The issue price at 100.13% led to premium income of CHF 0.3 million. The actual interest rate on the bond is thereby increased from 2.0% to 2.04% per year.

The CHF 0.4 million expenses incurred in connection with the issuance of the bond were capitalised under prepayments and accrued income on 21 June 2017. This accrual will be released over the term of the bond. The issue price at 100.4% led to premium income of CHF 0.4 million. The actual interest rate on the bond is thereby increased from 0.50% to 0.51% per year.

In 2020, securities with a nominal value of CHF 0.5 million were repurchased from the stock exchange for investment purposes.

The CHF 0.7 million expenses incurred in connection with the issuance of the bond were capitalised under prepayments and accrued income on 1 December 2021. This accrual will be released over the term of the bond. The issue price at 100.54% led to premium income of CHF 1.1 million. The actual interest rate on the bond was thereby reduced from 0.375% to 0.37% per year.

The proceeds from the bond were used to fund the acquisition of the Athenos business in the USA. Emmi has entered into a cross-currency swap to hedge currency and interest rate risks over the long term. Taking this hedge into account, the net interest rate on the USD nominal value of USD 215.6 million is 2.30% instead of 0.375% on the CHF nominal value of CHF 200.0 million.

18.2Maturing structure of financial liabilities

All bonds and the vast majority of bank loans are set at fixed interest rates. For the bond issued in December 2021, the interest rate was applied after including cash flows from the cross currency swap. There are no financing arrangements in place linked to financial covenants.

In the reporting year, financial liabilities decreased by CHF 11.6 million. The maturing 1.625% CHF 200 million bond 2013–2023 was repaid on 12 July 2023. The refinancing took place on 22 September 2023 by means of a CHF 200 million bond 2023–2028 with an interest rate of 2.0%. In addition, local financing in Brazilian real was increased and partially amortised in Chilean peso and Tunisian dinar. At the end of the reporting year, the share of financing in Swiss francs was 73.4% (previous year: 72.3%), mainly relating to the three bond issues. 19.1% (previous year: 20.1 %) of the financial liabilities are denominated in euros. CHF 51.7 million (previous year: CHF 52.8 million) or 7.5% (previous year: 7.6%) of the financing is denominated locally in emerging market currencies, such as the Brazilian real, Tunisian dinar, or Chilean and Mexican peso.

19.Provisions

The restructuring provisions relate to anticipated costs in connection with the decision to reorganise business activities.

Other provisions include, inter alia, liabilities for staff expenses in foreign countries as required by law (reporting year: CHF 5.7 million, previous year: CHF 6.2 million) and provisions for pending legal matters and business disputes (reporting year: CHF 1.5 million, previous year: CHF 1.6 million). In all cases, the likelihood of occurrence of such events has been assessed at above 50%.

20.Employee benefit schemes

21.Disposal of companies

Gläserne Molkerei, which was sold in the reporting year, reported the following main balance sheet items at the time of disposal:

On 14 August 2023, Emmi sold Gläserne Molkerei (consisting of the companies Gläserne Molkerei GmbH, Gläserne Molkerei Münchehofe GmbH and Hofmolkerei Münchehofe GmbH) to Munich-based Mutares, which specialises in turnaround situations. Gläserne Molkerei generated annual sales of around EUR 100 million with over 120 employees. The loss from this transaction amounts to CHF 37.2 million (before tax) and CHF 28.9 million (after tax) and is recognised in the income statement in "Other operating expenses" and tax expenses.

22.Unsettled derivative financial instruments

Similar to the underlying transactions, currency forwards, interest rate swaps and other forward transactions used to hedge future cash flows are not recognised in the balance sheet. The result of these derivative instruments is recognised in the income statement on occurrence of the transaction hedged. Derivative financial instruments used to hedge balance sheet positions in foreign currencies are recognised as securities in the current assets or other payables in the current liabilities, respectively. Corresponding changes in value are recognised in the financial result.

In connection with the CHF 200 million bond issued in December 2021 to fund the USD acquisition of the Athenos business in the USA, Emmi entered into a cross-currency swap. This hedges currency and interest rate risks in USD over the entire term of the bond. While the fair value of the currency portion serves as a hedge of balance sheet items and is therefore accounted for in the same way as the hedged item, the fair value of the interest portion is a hedge of future cash flows. Accordingly, the fair value of the interest portion is not recognised.

Emmi also has options to acquire additional shares in a number of Group companies with minority interests. At the same time, put options have been granted in general to the counterparties. These options are not recognised in the balance sheet as they represent derivatives on equity instruments of the own organisation, which are explicitly excluded from the scope of Swiss GAAP FER 27. The strike price of these options is generally based on the corresponding enterprise value at the exercise date and cannot currently be reliably measured. The exercise date varies depending on the agreement. The maturities range from short term to unlimited options.

23.Contingent assets and liabilities

Emmi is involved in legal disputes as part of normal business activities. Although the outcome of the lawsuits currently cannot be predicted with certainty, Emmi assumes that none of the disputes will have any significant negative impact on operating activities or on the Group’s financial situation. Expected outgoing payments are provided for accordingly. As at the date of the financial statements, the Group had no major contingent assets.

24.Pledged assets and off-balance sheet leasing/rental obligations

25.Investment obligations and other off-balance sheet liabilities

Furthermore, there are milk purchase agreements that can not be quantified.

The long-term commodity contracts are purchase agreements for coffee that will be settled at the market price valid in the period of delivery.

26.Transactions with related parties

Business transactions with related parties are based on arm’s length conditions. All transactions are reported in the consolidated financial statements for 2023 and 2022, and consist of deliveries of products and raw materials, loans, and services to and from related parties. The corresponding receivable and payable balances are reported separately in these financial statements (see notes 8, 9, 11, 12, 15, 16 and 17).

Milk purchases from the main shareholder are included in cost of materials under transactions with shareholders. These are made at arm’s length conditions. Emmi Group is jointly and severally liable within the scope of VAT group taxation for the associated liabilities of Genossenschaft Zentralschweizer Milchproduzenten ZMP and ZMP Invest AG.

Other transactions

The compensation paid to members of the Board of Directors and Group Management is disclosed in the Compensation Report of Emmi AG.

27.Shareholders

As at 7 June 2016, Capital Group Companies Inc., Los Angeles, USA, informed us that it owned 268,500 registered shares of Emmi AG (5.019%). No further disclosure notifications have been made since.

As at 31 December 2023, Emmi Wohlfahrtsfonds (welfare fund) owned a total of 6,000 shares of Emmi AG (unchanged from previous year).

28.Risk management and internal controls

The Board of Directors of Emmi AG has the ultimate responsibility for risk management, while implementation is delegated to Group Management. Irrespective of the type of risk, there is a generally applicable risk management process. As part of a formal process, significant business risks are assessed in a first process step in workshops and individual interviews, and then analysed and evaluated according to the extent of the potential damage and their likelihood of occurrence. The second process step involves risk management and the creation of a list of measures per risk and risk reporting.

The Board of Directors of Emmi AG discussed and approved the risk assessment in the year under review. It monitors the implementation of the defined measures by Group Management. No exceptional risks that went beyond normal limits were identified during the assessment. The process is repeated annually. The following risks were identified as significant risks to the Emmi Group:

• Milk price difference internationally: The milk price difference between Switzerland and other countries continues to have a negative impact on the sales of domestically produced products both in Switzerland, as the volume of imported milk products increases, and abroad. Although full liberalisation of the Swiss milk market remains a long-term risk, this is absorbed through targeted and sustainable growth abroad. Any risks related to the international growth of the Emmi Group are minimised by a strict focus on the strategy and its implementation.
• Skills and labour shortage: The skills and labour shortage is intensifying in some of the relevant markets for the Emmi Group. This can lead to vacancies remaining unfilled for longer and increase pressure on personnel costs. Rigorous improvement of our processes, raised automation levels, targeted adjustments to the hiring process and promotion of a unique corporate culture help to mitigate this risk.
• Inflation: Inflation rose in all markets relevant to the Emmi Group in 2022; in some particularly important markets, such as the US and many European countries, it rose to historically very high levels. Although inflation has eased since then, it remains high in many important markets. Inflationary trends have made a major portion of Emmi’s input costs significantly more expensive. This applies not only to various raw materials, but also to energy costs, for example. In addition, we had to acknowledge that wage costs have risen significantly in many countries on the back of high inflation. If in future Emmi is unable to pass on the continuing rise in costs to customers via higher prices, or can only do so with a time lag, this could lead to a loss of margin.
• Energy risk: Energy price increases, the rationing of energy supplies and interrupted energy supplies of electricity, natural gas and oil pose a significant risk for some production sites. The risk of price increases for electricity, natural gas and crude oil has already materialised in part, significantly increasing energy costs. The risk of rationing of electricity, gas and oil eased considerably compared with the previous year. The risk of a short-term interruption of energy supplies of electricity and gas is also currently significantly lower. This risk continues to be mitigated through strategic purchasing of energy sources, efficiency improvements, business continuity management and price increases.
• Currency risk: Currency movements represent a significant risk for the Emmi Group, and has a tendency to increase based on the continuing internationalisation of business activities. We aim to achieve natural hedges with purchases in foreign currencies. Furthermore, in line with the Emmi strategy, expenditure and production volumes in foreign currency zones are being increased through capital expenditures and acquisitions.
• Price pressure: National and international product tenders, as well as a potentially successful market launch of products made from milk alternatives, threaten in the medium term to result in price erosion, which could lead to a loss of margin mainly for generic products. If the prices of Emmi products remain stable in foreign currency, this may lead to a margin loss. If prices increase, market shares might be lost. However, the successfully established Emmi brands, including those in the milk alternatives segment, offer long-term value creation potential.
• Trade agreements: The drafting of trade agreements with countries in which Emmi operates presents both opportunities and risks for the company. Switzerland is currently engaged in various talks aimed at negotiating new trade agreements and renegotiating existing ones, but progress is slow. As a result, the Swiss dairy industry is increasingly falling behind its competitors – especially those from the European Union – on the international market in terms of market access conditions. Negotiations that are unfavourable for Emmi could potentially also lead to heavy import pressure in Switzerland. A suspension of the bilateral agreements with the European Union would make it harder for Swiss export products to gain access to the market (e.g. due to the reintroduction of customs duties on cheese), posing a considerable risk. With the growth and local anchoring of our foreign subsidiaries, this risk is becoming smaller in its effect.
• IT outages: With the growing continuity of processes and increasing penetration and standardisation of IT systems, the extent of damage caused by a potential outage increases. Shutdowns of entire plants can very quickly lead to high losses. With increasing investments in IT security, this risk is continuously analysed and mitigated; however, a residual risk remains.

The Emmi Group is exposed to various financial risks through its business activities, including credit, liquidity and other market risks. Credit risks are managed by means of continual monitoring of day-to-day business and appropriate risk assessment when closing a transaction. Liquidity risk is managed by means of central cash management, which ensures that the planned liquidity requirement is covered by corresponding financing agreements. Other market risks, such as currency and interest rate risks, are partially hedged using derivative instruments. The non-hedged portion is consciously borne as a risk. The currencies of particular relevance to the Emmi Group are the euro, the US dollar and the British pound.

To ensure that the consolidated financial statements comply with the applicable accounting standards and are reported accurately, the Emmi Group has set up effective internal control and management systems, which are reviewed regularly. Accounting and valuation include estimates and assumptions regarding the future. These are based on the knowledge possessed by the respective employees and are regularly examined with a critical eye. Where a financial position includes a major valuation uncertainty that could lead to a significant change in the carrying amount, this uncertainty is disclosed accordingly in the Notes. However, no risks that could lead to a significant correction to the company’s assets, financial position or results of operations as reported in the annual accounts were identified as at the balance sheet date.

29.Subsequent events

From the balance sheet date until the consolidated financial statements were approved by the Board of Directors on 28 February 2024, no other major events occurred that could have adversely affected the validity of the consolidated financial statements for 2023 or which would have to be disclosed.

30.Summary of consolidated companies, associates and joint ventures