Notes to the half-year results

Principles of consolidation

Accounting principles

These consolidated interim financial statements comprise the unaudited half-year results of Emmi AG and its subsidiaries for the period ending 30 June 2020. The consolidated interim financial statements for 2020 have been prepared in compliance with Swiss GAAP FER 31 “Additional accounting and reporting recommendations for listed companies” and the consolidation and accounting principles described in the 2019 consolidated financial statements, with the exception of the change described below.

Income taxes are calculated based on an estimate of the expected income tax rate for the full-year 2020. The consolidated half-year results should be read in conjunction with the consolidated financial statements compiled for the financial year ended 31 December 2019, as they represent an update of the last complete financial statements and therefore do not contain all information and disclosures required in the year-end consolidated financial statements. The consolidated half-year results are presented in Swiss francs (CHF). Except where stated otherwise, all amounts are presented in thousands of Swiss francs.

The consolidated interim financial statements were approved by the Board of Directors of Emmi AG on 25 August 2020.

Change to the consolidation and valuation principles

In past years, it had become standard practice under Swiss GAAP FER to offset goodwill against shareholders’ equity. Therefore, and in order to simplify comparison with other companies, the Board of Directors of Emmi AG has decided that, beginning 1 January 2020, goodwill from acquisitions will be offset directly against shareholders’ equity at the date of acquisition, making use of the accounting policy choice provided in Swiss GAAP FER 30 “Consolidated financial statements”. The impact of theoretical capitalisation and amortisation including any impairments from assessing recoverability are disclosed in the notes. Until now, goodwill has been capitalised and amortised over the expected useful life of mostly 20 years. Since this is a change to the accounting principles, the prior period has been restated accordingly. The revised consolidation and valuation principles are described below.

Consolidation method

Capital is consolidated using the purchase method. Assets and liabilities as well as expenses and income of the fully consolidated companies are included in their entirety. Minority interests in consolidated shareholders’ equity and in net profit are shown separately. All intercompany transactions and relations between the consolidated companies are offset against each other and eliminated. Profits on such intercompany transactions are eliminated. Companies and businesses acquired during the course of the year are consolidated as from the date of acquisition. Net assets acquired are revalued on the acquisition date at fair value. Non-current assets acquired are recognised on a gross basis. As part of the purchase price allocation, intangible assets are only recognised and revalued at fair value if they were already recognised in the balance sheet at the acquisition date.

Goodwill from the acquisition of companies and businesses is equivalent to the difference between the purchase price and the interest in revalued net assets of the acquired company. This is offset against retained earnings at the date of acquisition. The impact of theoretical capitalisation and amortisation of goodwill are disclosed in the notes to the consolidated financial statements. Any negative goodwill is released in the income statement over a five-year period. In a business acquisition achieved in stages (step acquisition), the goodwill of each separate transaction is determined.

Companies and businesses sold during the year are excluded from the consolidated financial statements from the date of sale. Minority interests acquired are likewise measured using the purchase method. As a consequence, the difference between purchase price and proportionate equity is offset as goodwill against retained earnings or recognised as negative goodwill in accordance with Swiss GAAP FER.

When acquiring investments in associates and joint ventures, no purchase price allocation is performed. As a consequence, the difference between purchase price and proportionate equity is offset as goodwill against retained earnings or recognised as negative goodwill in accordance with Swiss GAAP FER.

Where interests in fully consolidated companies or companies accounted for using the equity method are sold, goodwill acquired at an earlier date and offset against retained earnings is recognised in the income statement at original cost for the purpose of calculating the gain or loss resulting from the sale.

Intangible assets

This item includes mainly EDP software and trademarks. Intangible assets are recognised if they are clearly identifiable and the costs reliably determinable, and they bring a measurable benefit to the company over the course of several years. Intangible assets are valued at purchase cost less amortisation and any necessary impairment. Amortisation is calculated on a straight-line basis over the useful life and recognised in the income statement. The useful life of EDP software is 2 to 5 years. Trademarks are amortised over useful lives of 5 to 20 years. The expected useful life of other intangible assets is determined on a case-by-case basis. The useful life is usually 5 years and in justified cases up to 20 years. Goodwill is not capitalised, but offset against retained earnings at the date of acquisition.

Impairment

The value of non-current assets is assessed on the reporting date for indicators of impairment. If there is evidence of any lasting reduction in value, the recoverable amount is calculated (impairment test). If the book value exceeds the recoverable amount, the difference is recognised in the income statement as an impairment charge. Major goodwill items are tested for impairment annually, based on a value-in-use calculation. The value-in-use calculation is based on cash flows for usually the next five years and the extrapolated values thereafter. Since the goodwill is already offset against retained earnings at the date of acquisition, any impairment to goodwill does not lead to a charge to the income statement, but only to disclosure in the notes.

Financial effects of the change to the consolidation and valuation principles

The financial effects of the described change to the consolidation and valuation principles are set out below:

Goodwill from acquisitions (shadow accounting)

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 interim financial statements as at 30 June 2020.

Theoretical movement schedule for goodwill

The impairment charge in the period under review relates to a company of the business division Europe.

Theoretical impact on shareholders’ equity incl. minority interests

Theoretical impact on earnings before interest and taxes (EBIT)

Theoretical impact on net profit

Changes to the scope of consolidation

Quillayes Surlat S.p.A.

The business combination of the Chilean Emmi group Surlat with competitor Quillayes announced on 30 August 2019 was closed on 15 January 2020. As part of the transaction, both parties combined their existing Chilean companies to form Quillayes Surlat S.p.A., in which Emmi subsidiary Kaiku holds a 51.5 % stake. Emmi in turn holds a 73 % stake in Kaiku and, following the transaction, has an indirect participation of approximately 38 % in the profits of the Chilean companies. The transaction saw the two Chilean companies Quillayes Peteroa S.p.A. and Chevrita S.p.A. join the scope of consolidation of the Emmi Group. Quillayes produces cheese, yogurt, butter and cream and has also established itself in the distribution of imported branded products. Surlat’s key segments include UHT milk and other dairy products, especially in the lactose-free segment. Quillayes has around 550 employees and generated sales of CLP 55,000 million (approx. CHF 77 million) in 2019. The purchase price allocation used in these interim consolidated financial statements is provisional. 

Rachelli International B.V.

Rachelli International B.V. was liquidated on 28 February 2020.

Emmi Platteville, Inc.

Emmi Platteville, Inc. was merged with Emmi Roth USA, Inc. on 31 May 2020.

Changes in the 2019 financial year

We refer to the consolidated financial statements 2019 for the changes to the scope of consolidation in the 2019 financial year.

Contingent liabilities

Emmi is involved in legal disputes in connection with ordinary operating activities. Although the outcome of the lawsuits currently cannot be predicted with certainty, Emmi believes that none of the disputes will have any significant negative impact on the operating activities or on the Group’s financial situation. Suitable provisions for expected outgoing payments have therefore been made.

Subsequent events

Chäs Hütte Zollikon GmbH

Emmi acquired 100 % of the shares of Chäs Hütte Zollikon GmbH on 29 July 2020. The company is active in trading and selling dairy products and other food items.

White Hill Cheese Company LLC

Emmi sold its 50 % stake in US-based White Hill Cheese Company LLC on 3 August 2020. The transaction has no significant impact on Emmi’s consolidated financial statements.

Vermo Tiefkühl Pool AG

Emmi sold its 35 % stake in Vermo Tiefkühl Pool AG, headquartered in Lucerne, on 19 August 2020. The transaction has no significant impact on Emmi’s consolidated financial statements.

From the balance sheet date until the consolidated financial statements were approved by the Board of Directors of Emmi AG on 25 August 2020, no other major events occurred which could adversely affect the validity of the interim financial statements for 2020.

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