Breakdown of the half-year results

Strong organic growth in sales

Emmi generated sales of CHF 1,773.5 million in the first six months of the 2020 financial year, compared with CHF 1,663.3 million in the prior year period. This corresponds to growth of 6.6 %. Adjusted for overall positive acquisition effects of 9.5 % and negative foreign currency effects of 4.9 %, this resulted in organic growth of 2.0 %. While this is at the lower end of our forecast range for the full-year (2 % to 3 %), it should be considered a positive result in view of the negative impact of the coronavirus crisis on significant parts of our business.

Business in food service (especially gastronomy) and out-of-home consumption as well as at smaller-scale or stand-alone sales outlets and open cheese counters temporarily ground practically to a halt. From a Group perspective, the impact of this development was most pronounced on the international divisions, especially the business division Americas, which saw organic sales dip by 1.0 %. The business division Europe, by contrast, recorded pleasing organic growth of 2.1 %, with lower sales due to coronavirus in the fresh products and fresh cheese segments offset by gains in the dairy products and cheese segments. Last but not least, Switzerland generated exceptionally strong organic growth of 3.8 %. This uptick was broad-based across all segments and driven in particular by strong demand for basic products and rising at-home consumption. Additional positive contributors included the increase in demand fuelled by the temporary downturn in shopping tourism and a higher milk price in a prior year comparison.

Emmi Caffè Latte was able to continue its growth trajectory in the first half of 2020 in spite of the challenging environment, positing promising growth. This is especially noteworthy given the marked slump in sales of convenience products across all business divisions due to the coronavirus lockdown and the resulting restrictions on mobility. Other strategic concepts such as Italian speciality desserts or goat’s milk products were consistently pursued, although performances varied from one sales channel to the next owing to the coronavirus crisis.

Acquisition effects are accounted for by the following factors:

Positive impact:

• Acquisition of a blue cheese production facility (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)
• Business combination with Quillayes (Chile, 15 January 2020)

Negative impact:

• Sale of Emmi Frisch-Service AG (Switzerland, 3 April 2019)

Internal shifting of distribution channels for individual customers additionally led to acquisition or divestment effects in the business divisions Americas, Europe and Global Trade. However, these shifts between the individual business divisions did not have any impact on the Group.

Developments in the business divisions Switzerland, Americas, Europe and Global Trade are explained in the following.

Sales development Switzerland

The business division Switzerland generated net sales of CHF 828.8 million, corresponding to a total increase of 2.2 % on the prior year figure of CHF 810.5 million. Adjusted for the divestment effect (Emmi Frisch-Service AG), this resulted in extraordinarily high organic growth of 3.8 %. This is significantly higher than the full-year forecast of 0 % to 1 % published by Emmi, and is attributable largely to brisk retail business resulting from increased at-home consumption as well as the temporary drop-off in shopping tourism. Organic growth was additionally propped up by developments in the milk price. These three effects combined had a particular impact on the sales achieved by the dairy products, cheese, fresh products and fresh cheese segments. The business division Switzerland accounted for 46.7 % (previous year: 48.7 %) of Group sales.

Sales of dairy products (milk, cream, butter) improved in the first half of 2020 from CHF 335.4 million to CHF 343.1 million. This translates into year-on-year growth of 2.3 %, or 3.1 % after taking into account the divestment effect. The main reasons for this strong growth were the sharp uptick in milk and butter sales volumes resulting from higher at-home consumption, closed borders in the second quarter and the milk price development.

In the cheese segment, sales climbed from CHF 193.8 million to CHF 199.7 million, up 3.0 % or 4.6 % in organic terms. This growth was driven on the one hand by traditional cheese varieties, and on the other by Emmi speciality cheeses such as Kaltbach, Luzerner Rahmkäse, Der Scharfe Maxx, Le Petit Chevrier and Gerber.

Fresh products posted gains from CHF 167.0 million to CHF 172.0 million, corresponding to growth of 3.0 % or 3.7 % in organic terms. Emmi Caffè Latte and Energy Milk made a pleasing contribution to this result, as did yogurt sales (especially private label products), which improved markedly in the first half of the year.

Sales generated by fresh cheese were up from CHF 53.0 million to CHF 55.3 million, corresponding to an increase of 4.2 % overall or 7.9 % in organic terms. This strong growth was driven in particular by significantly higher retail sales of mozzarella.

The powder/concentrates segment posted sales of CHF 31.6 million, compared with CHF 29.4 million in the prior year period. This constitutes growth of 7.6 %, reflecting higher sales volumes of milk powder.

Other products/services saw sales fall from CHF 31.9 million to CHF 27.1 million, down 15.0 %, primarily due to the divestment of Emmi Frisch-Service AG (equating to a decline of 2.9 % in organic terms).

Sales development Americas

The business division Americas includes the Emmi Group companies in the US, Spain (excluding Lácteos Caprinos), Chile, Brazil, Tunisia, France, Mexico and Canada.

Sales in the business division Americas improved in the first half of 2020 from CHF 518.4 million to CHF 598.6 million. The 15.5 % growth versus the prior year period is attributable primarily to the acquisitions made in Brazil and Chile. In organic terms, adjusted for currency and acquisition effects, sales were down 1.0 %, falling far short of our full-year forecast of 4 % to 6 % growth. This downtrend was fuelled in large part by the coronavirus crisis, which had by far the greatest impact on the business division Americas given it has the highest proportion of sales from the food service sector on a Group basis. The business division Americas accounted for 33.8 % (previous year: 31.2 %) of Group sales.

Sales in the cheese segment were CHF 235.1 million, compared with CHF 217.2 million in the prior year period. This 8.2 % overall growth is chiefly attributable to the acquisitions made in Chile and Brazil. In organic terms, however, sales contracted by 4.1 %, with sales of cheese produced locally in the US collapsing temporarily as sales outlets, cheese counters and restaurants were closed. Sales of imported cheese in France and Mexico likewise slid. By contrast, the US posted a pleasing uptick in sales of cheese imported from Switzerland, e.g. Kaltbach.

In the dairy products segment, sales increased from CHF 138.0 million to CHF 175.0 million, again due largely to acquisition effects (Brazil and Chile). Even after taking into account acquisition and currency effects, organic growth was an impressive 7.3 %, driven by good sales growth in Chile (milk, cream) and Tunisia (milk, butter). This development was fuelled by increased at-home consumption and price trends in these markets.

Sales of fresh products fell from CHF 101.2 million to CHF 96.6 million, corresponding to a decline of 4.5 % or 4.0 % in organic terms. This decrease is attributable mainly to Italian speciality desserts in France, yogurts and milk drinks at Redwood Hill in California, and milk and yogurt drinks in Spain, Tunisia and Chile. Major positive contributions were made, on the other hand, by locally produced desserts in Tunisia and, pleasingly, also Emmi Caffè Latte in Spain.

Sales in the fresh cheese and powder/concentrates segments are of secondary importance for the business division, at CHF 30.8 million and CHF 11.0 million, respectively. The growth in sales was mainly due to acquisitions. The high organic growth in the powder/concentrates segment is additionally attributable to stronger sales of goat’s milk powder at Jackson-Mitchell (“Meyenberg”) in California as a result of the coronavirus crisis.

Other products/services generated sales of CHF 50.1 million, down 4.0 % (6.9 % in organic terms). This primarily relates to the trading goods business in Mexico and Spain, which has been sharply impacted by the coronavirus crisis.

Sales development Europe

The business division Europe incorporates the Emmi Group companies in Germany, Italy, the Netherlands, the UK, Austria, Lácteos Caprinos in Spain and Belgium.

Sales in the business division Europe amounted to CHF 291.9 million in the first half of 2020, compared with CHF 279.9 million in the prior year period. This resulted in growth totalling 4.3 %. Excluding acquisition and currency effects, organic growth was 2.1 %, which is in line with our expectations for full-year 2020 (1 % to 3 %). The slight downtrend in fresh products was offset by strong growth in the dairy products, cheese and powder/concentrates segments. The business division Europe accounted for 16.4 % (previous year: 16.8 %) of Group sales.

Sales of fresh products in the first half of 2020 were CHF 140.2 million, corresponding to growth of 8.6 %. Adjusted for currency and acquisition effects, however, this translated into a slight organic decline of 0.1 %, exacerbated by the ongoing coronavirus crisis as this had an adverse impact on sales in the Netherlands, in Germany and at the dessert companies in Italy. The UK, by contrast, recorded growth both with Onken yogurts and Emmi Caffè Latte.

Sales in the cheese segment were CHF 54.2, compared with CHF 54.7 million in the prior year period. Adjusted for acquisition and currency effects, this resulted in organic growth of 2.5 %. This is chiefly due to higher sales in the Netherlands and Italy from natural and processed cheese. Viewed across the business division as a whole, fondue and Kaltbach from Switzerland posted gains.

Dairy products generated sales of CHF 49.6 million, up from CHF 46.8 million in the previous year. In organic terms, growth was strong at 7.6 %, resulting primarily from higher sales at Gläserne Molkerei in Germany, with organic dairy products experiencing higher demand during the crisis.

In the powder/concentrates segment, sales increased sharply from CHF 21.2 million to CHF 23.9 million. This growth of 12.5 % – which translates into as much as 19.3 % in organic terms – is mainly attributable to higher sales of goat’s milk powder in the Netherlands.

Fresh cheese, meanwhile, contracted by 25.7 % (or 22.0 % in organic terms) from CHF 25.7 million to CHF 19.1 million. Lower sales of fresh goat’s cheese at Bettinehoeve in the Netherlands and at Lácteos Caprinos in Spain owing to coronavirus (due to the high share of food service in total sales) were the chief culprit for the marked organic decline in sales in this segment.

In other products/services, the proportionally smallest product group, the business division Europe generated sales of CHF 4.9 million, up from CHF 2.3 million the previous year.

Sales development Global Trade

The business division Global Trade 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. The business division Global Trade accounted for 3.1 % (previous year: 3.3 %) of Group sales.

Sales in the business division Global Trade were CHF 54.2 million in the first half of 2020, a decrease of 0.6 % from CHF 54.5 million in the previous year. Adjusted for the negative acquisition effect in the cheese segment, this translates into organic growth of 2.1 %.

The organic growth in the cheese segment of 0.6 % is primarily due to higher sales of natural cheese (including Kaltbach), partially offset by a decline in fondue. The 3.4 % decline in the fresh products segment is chiefly explained by a slight downtrend in yogurts and yogurt drinks in the Asian region coupled with restrictions imposed on the food service sector due to the coronavirus pandemic. The uptick in the powder/concentrates segment of 27.2 % reflects the marked rise in skimmed milk powder exports.

Gross profit

Gross profit amounted to CHF 639.9 million in the period under review, an increase of CHF 35.0 million on the previous year (CHF 604.9 million), with the overall positive acquisition effects partly offset by negative currency effects. The smaller rise at the operational level is due to the lower gross profit margin compared with the prior year period, which fell from 36.4 % to 36.1 %. This negative development can be explained by the changed mix in the wake of coronavirus coupled with negative currency effects. During the reporting period, strong sales were recorded by basic products in particular, which have a lower gross profit margin. The consistent implementation of rationalisation and productivity measures as well as strong brand concepts such as Emmi Caffè Latte had a positive and stabilising effect.

Operating result

Operating expenses rose by CHF 26.8 million year-on-year to CHF 473.8 million (previous year: CHF 447.0 million). Compared with net sales, however, they contracted from 26.9 % to 26.7 %.

In the first half of 2020, personnel expenses increased by CHF 15.0 million to CHF 246.4 million, up from CHF 231.4 million the year before. This increase followed the trend in sales, meaning that the ratio of personnel expenses to sales remained constant at 13.9 %.

Other operating expenses in the period under review amounted to CHF 227.4 million (previous year: 215.6 million), a rise of CHF 11.8 million year-on-year in absolute terms. Compared with sales, however, they decreased to 12.8 % (previous year: 13.0 %). Marketing and sales-related expenses came to CHF 59.8 million, compared with CHF 63.3 million in the previous year. This decline of CHF 3.5 million is due not only to a more focused approach, but also to a shift in the timing of marketing activities. By contrast, expenses for logistics, maintenance and repairs, and energy, operating materials and supplies all rose. However, these increases were slightly below average in relation to the sales trend.

Other operating income amounted to CHF 2.0 million, versus CHF 1.6 million in the prior year period.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased in the period under review by CHF 8.5 million to CHF 168.1 million (previous year: CHF 159.6 million). The EBITDA margin was 9.5 %, compared with 9.6 % in the prior year period, with the deficit at the level of the gross profit margin largely offset by the disproportionately lower rise in operating expenses.

Depreciation on property, plant and equipment increased from CHF 47.1 million in the prior year to CHF 50.4 million in the period under review, primarily on the back of acquisition activities. Amortisation on intangible assets, by contrast, fell from CHF 7.3 million in the previous year to CHF 5.6 million, corresponding to a decline from 0.5 % last year to 0.3 % in relation to sales. The prior year values for amortisation on intangible assets have been restated due to a change in the consolidation and valuation principles with respect to goodwill.

Earnings before interest and taxes (EBIT) were CHF 112.0 million in the period under review, CHF 6.7 million or 6.4 % higher than the previous year’s EBIT of CHF 105.3 million. The EBIT margin remained stable year-on-year at 6.3 %.

Non-recurring effects in the half-year results 2020

No significant non-recurring effects were recorded in the period under review or in the prior year period. For this reason, Emmi has opted not to disclose adjusted results.

Income from associates, financial result and income taxes

Income from associates and joint ventures recorded a loss of CHF 0.4 million in the period under review, compared with a gain of CHF 2.2 million the year before. One of the main reasons for this development was the step acquisition in Brazil in October 2019, which had an impact on the scope of consolidation.

The financial result (net financial expenses) rose by CHF 4.7 million year-on-year to CHF 7.7 million, affected by net interest expenses, currency losses and the other financial result in practically equal measure. While the increased net interest expense is attributable to additional local financing for recently acquired companies, the foreign currency result was down on the back of the volatile currency and interest rate environment (especially for USD) and consequently resulted in higher currency hedging costs.

Income taxes amounted to CHF 17.2 million, versus CHF 14.5 million in the prior year period. The expected tax rate for full-year 2020 is 16.5 % (previous year: 13.9 %). The higher tax rate is mainly due to positive non-recurring effects in the previous year.

Net profit

Net profit including minority interests was CHF 86.8 million, compared with CHF 90.0 million in the previous year.

Minority interests amounted to CHF 5.5 million, a rise of CHF 2.5 million on the prior year period. Additional minority interests in the result of recently acquired companies in Brazil, Chile and Austria were the main reason for this increase.

After deducting these minority interests, net profit was CHF 81.3 million (previous year: CHF 87.0 million), equating to a fall of CHF 5.7 million or 6.5 %. The net profit margin was 4.6 % (previous year: 5.2 %). Accordingly, earnings per share likewise dipped slightly to CHF 15.20 as at the end of the first half (previous year: CHF 16.25).

Assets, financing and cash flow

Total assets as at 30 June 2020 were down 1.6 % or CHF 38.6 million compared with 31 December 2019 to CHF 2,343.7 million. Operating net working capital was CHF 531.5 million, an increase of CHF 13.1 million versus 31 December 2019. By contrast, fixed assets declined by CHF 25.4 million, due exclusively to currency effects. There were likewise only very small changes versus 31 December 2019 on the funding side. As a result, the equity ratio remained practically constant at 54.5 %, compared with 54.6 % as at 31 December 2019. Given the slight rise in financial liabilities due to acquisition activities and the slight decline in cash and cash equivalents, net debt swelled from CHF 89.0 million as at 31 December 2019 to CHF 108.9 million as at 30 June 2020.

Cash inflow from operating activities amounted to CHF 126.0 million, up CHF 22.8 million on the prior year (CHF 103.2 million). While the change in operating net working capital was down slightly year-on-year, the improved operating result and lower level of taxes paid boosted operating cash flow. Indeed, the increase in inventories versus 31 December 2019 was much smaller than in the prior year period. Whereas trade receivables were reduced on a par with the previous year, the decrease in trade payables was slightly more pronounced. In addition, cash inflow from operating activities was impaired overall by the change in other receivables, prepayments and accrued income, together with the change in other payables, accrued liabilities and deferred income during the reporting period. In the prior year period, by contrast, these positions boosted cash flow from operating activities overall. A conscious effort was made to force this development in specific areas in order to reduce the negative interest burden. Cash outflow from investing activities amounted to CHF 65.4 million, an increase of CHF 17.7 million on the prior year figure of CHF 47.7 million. Cash outflow was CHF 14.0 million higher on the back of investments in property, plant and equipment. Excluding cash flow from acquisition activities, the free cash flow generated in the first half of 2020 amounted to CHF 59.0 million, compared with CHF 61.7 million in the prior year period. The higher operating cash flow was thus slightly offset by higher investments in fixed assets. Cash outflow from financing activities amounted to CHF 63.5 million in the first half of the year, attributable primarily to dividend payments to shareholders and minority interests totalling CHF 65.0 million. In the previous year, cash outflow from financing activities was higher, at CHF 146.9 million, owing to the repayment of a bond in the amount of CHF 100.0 million and a lower distribution rate to Emmi AG shareholders. As a consequence of the cash flows described, cash and cash equivalents decreased by CHF 9.3 million versus 31 December 2019, from CHF 378.1 million to CHF 368.8 million.

Outlook for full-year 2020

Emmi proved once again in the first half of 2020 that it is on a very solid ground. Backed by its broadly diversified portfolio and its varied mix of countries, categories and sales channels, so far it has managed to hold its own in the face of the coronavirus crisis. Given the persistent uncertainty surrounding the future course of the coronavirus pandemic and how this will affect economic performance, however, the outlook for the second half of the year remains uncertain. In those markets that have been hard hit by the pandemic and are important for Emmi, such as the US, Brazil, Mexico or Chile, there is currently still no recovery in sight. Consumer confidence is languishing at a low level worldwide and most national economies are exhibiting tendencies of recession. What is more, the second half of the year will no longer include the positive non-recurring effects seen in the first six months, and it may take several years before some sales channels are able to muster a sustainable recovery.

With that in mind, Emmi is positioning itself for a continued volatile and fiercely competitive environment in the second half of 2020. In Switzerland, price pressure in retail will remain high and the food service industry will remain below potential. Shopping tourism is likely to settle back to the level seen prior to the lockdown. As a result, the boost this provided to sales in the first half of the year will not materialise in the second half. At the international level, Emmi will continue to have to deal with uncertainty concerning the future course of the pandemic and will also be exposed to considerable currency risks. Emmi will meet these challenges head-on according to its defined strategic pillars.

The unpredictability of the current environment makes it difficult to provide any forecast for the months ahead. Working on the assumption that the pandemic abates over the coming months in the markets that are important for Emmi and there are no new waves of infection, Emmi expects slightly lower organic sales growth for the full year of 0.5 % to 1.5 % (previously 2 % to 3 %). In Switzerland, organic sales growth is forecast at 1 % to 2 %, up from 0 % to 1 %, on the back of the good first half. In the business division Americas, which has borne the brunt of the blow from the pandemic, organic sales growth of -2 % to 0 % (previously 4 % to 6 %) would seem realistic. The previous forecast for the business division Europe remains in effect (1 % to 3%).

Emmi still thinks that the EBIT forecast of CHF 255 million to CHF 265 million for full-year 2020 is within its grasp provided the recovery remains on track. Given the current situation, however, this target is extremely ambitious, as a result of which we expect EBIT to be at the lower end of this range. Emmi reiterates its original forecast for the net profit margin (4.8 % to 5.3 %).