Breakdown of the half-year results

Strong increase in organic sales thanks to pleasing and broad-based growth in international business

Emmi generated sales of CHF 1,883.6 million in the first half of financial year 2021, compared with CHF 1,773.5 million in the prior-year period. This corresponds to growth of 6.2 %. Adjusted for overall positive acquisition effects of 3.2 % and net negative foreign currency effects of 0.7 %, organic growth was 3.7 %. This is above our own forecast for the full year (1 % to 2 %) and can be considered a strong performance in the international business despite the negative impact of the pandemic on the prior-year period.

The first half of the year was dominated in part by a broad recovery in sales in the international business divisions, some of which had to absorb considerable losses in the same period of the previous year due to the pandemic. Another key development was the expected normalisation in sales in the Swiss business compared with the exceptionally strong prior-year period (organic growth of 3.8 %) due to the coronavirus, resulting in an organic decline in sales of 3.3 % at the business division Switzerland. The impact of the decline on the retail trade was exacerbated by further losses in the food service business due to greater restrictions in the restaurant and catering industry compared with the same period of the previous year. The international business divisions experienced the opposite trend. The business division Americas achieved high organic growth of 11.9 % (previous year: -1.0 %). Alongside the growth markets of Brazil, Tunisia, Chile and Mexico, one of the main reasons for this positive development was the recovery of the companies in the USA. The business division Europe also recorded high organic growth of 4.9 % (previous year: 2.1 %). In addition to pleasing growth of key brands such as Emmi Caffè Latte and Kaltbach cheese, this was driven in particular by the dessert companies in Italy, whose sales were also adversely affected by the pandemic in the previous year.

The strategic brand concepts also posted a very pleasing performance in the first half of the year. Emmi Caffè Latte was able to make further unwavering progress along the growth path commenced in previous years, recording a significant expansion in all markets. Kaltbach cheese and Italian speciality desserts also performed well in all markets.

Acquisition effects are accounted for by the following factors:

Positive impact:

• Acquisition of Chäs Hütte Zollikon GmbH (Switzerland, 29 July 2020)
• Acquisition of Emmi Dessert USA (formerly Indulge Desserts Group, USA, 6 October 2020)

Negative impact:

• Sale of Lácteos Caprinos S.A. (Spain, 18 December 2020)

Internal shifts in the distribution channels of individual customers also led to acquisition or divestment effects in the business divisions Americas and Europe. 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 below.

Sales development Switzerland

The business division Switzerland generated sales of CHF 801.8 million (previous year: CHF 828.8 million), which corresponds to an organic decline of 3.3 %. This drop was primarily due to the exceptionally high organic growth in the prior-year period (3.8 %) and, as expected, fell short of our forecast of -1 % to -2 % for the full year. The main reason for the decline was the retail business, which, as anticipated, contracted sharply compared with the extraordinary previous year, which saw pantry loading and border closures as well as partial closures across the food service sector. The negative effects were particularly visible in the dairy products and cheese segments, which account for the lion’s share of sales. This was offset by positive effects resulting from the general increase in the milk price in the current year and the performance of brand and speciality concepts, in particular the continued growth of Emmi Caffè Latte. The business division Switzerland accounted for 42.5 % of Group sales (previous year: 46.7 %).

Sales of dairy products (milk, cream, butter) fell in the first half of 2021 from CHF 343.1 million to CHF 330.2 million. Compared with the same period of the previous year, this constitutes a substantial organic decline of 3.8 %. Significantly lower sales volumes in the retail trade with milk, cream and butter compared with record high sales in the previous year, combined with the negative impact from the closure of the food service sector for several months, were the main contributors to this sharp decline.

The cheese segment also recorded a significant organic decline of 5.2 %, with sales falling from CHF 199.7 million to CHF 189.2 million. This drop primarily related to traditional cheese varieties in the retail business, which had posted exceptionally high growth in the previous year. The further increase in cheese imports also hampered sales growth in this segment. Despite the overall negative trend in the cheese segment, it is pleasing that Emmi speciality cheeses such as Kaltbach, Luzerner Rahmkäse and Le Petit Chevrier were able to continue to grow even under difficult conditions.

Running against the general trend, fresh products even achieved slight organic growth of 0.2 %, rising from CHF 172.0 million to CHF 172.4 million. Although there was a decline in sales of yogurts (mainly private label products), Emmi Caffè Latte in particular again recorded strong growth.

Sales of fresh cheese were down from CHF 55.3 million to CHF 53.0 million. This corresponds to an organic decline of 4.1 %, which in turn was due to the contraction in sales in the retail trade, especially affecting quark and mozzarella.

The powder/concentrates segment posted sales of CHF 26.8 million, compared with CHF 31.6 million in the prior-year period. This is equivalent to a decline of 15.2 %, reflecting the lower sales volumes of milk powder to industrial customers.

Other products/services saw organic sales growth of 10.3 %, up from CHF 27.1 million to CHF 30.2 million, primarily due to increased sales of vegan products such as Emmi Caffè Drink and brands such as Beleaf.

Sales development Americas

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

Sales in the business division Americas improved in the first half of 2021 from CHF 598.6 million to CHF 709.5 million. The overall growth of 18.5 % compared with the same period of the previous year was due to the acquisition of Emmi Dessert USA and to the high organic growth of 11.9 %. This significantly exceeded our own forecast for full-year 2021 of 4 % to 6 %. Alongside the growth markets of Brazil, Tunisia, Chile and Mexico, the main reason for the high organic growth was the recovery of the companies based in the USA, which took a major hit in the previous year due to the coronavirus-related measures implemented in the food service sector. The business division Americas accounted for 37.7 % of Group sales (previous year: 33.8 %).

Sales in the cheese segment amounted to CHF 269.9 million, compared with CHF 235.1 million in the same period last year, representing an overall increase of 14.8 %. Adjusted for the negative currency effects, organic growth was high at 18.9 %. This increase was mainly due to locally produced cheese in the USA, where sales had temporarily collapsed in the previous year due to the closure of sales outlets, cheese counters and restaurants. Growth was likewise recorded with locally produced cheese in Chile and Brazil. Sales of imported cheese in France and Mexico recovered as well following the coronavirus-related setbacks in the previous year. Encouragingly, sales of cheese imported from Switzerland also increased in the USA and Canada.

Sales of dairy products rose by 7.7 % overall, from CHF 175.0 million to CHF 188.5 million. After adjusting for negative currency effects, this resulted in significant organic growth of 9.8 %. The main driver here was the positive price trend and the easing milk shortage in Tunisia, which had been a limiting factor for growth in the past.

Sales of fresh products rose significantly by 66.4 % from CHF 96.6 million to CHF 160.8 million, primarily due to the acquisition effect of Emmi Dessert USA. Adjusted for acquisition and currency effects, this resulted in organic growth of 5.5 %. A substantial, positive contribution came in particular from yogurts and yogurt drinks in Brazil, Italian speciality desserts in France and Emmi Caffè Latte in Spain.

Sales in the fresh cheese and powder/concentrates segments, at CHF 32.9 million and CHF 12.5 million respectively, are of less significance for the business division, but nevertheless recorded high organic growth of 21.4 % and 31.0 %. The sales growth in both segments was mainly driven by positive developments in Brazil.

Other products/services generated sales of CHF 44.9 million, down 10.4 % (10.6 % in organic terms). This primarily relates to the business with import licences in the USA.

Sales development Europe

The business division Europe includes the Emmi Group companies in Germany, Italy, the Netherlands, the UK, Austria and Lácteos Caprinos in Spain (sold on 18 December 2020).

Sales in the business division Europe amounted to CHF 310.4 million in the first half of 2021, compared with CHF 291.9 million in the prior-year period. This resulted in growth of 6.3 % overall. Excluding acquisition and currency effects, organic growth was 4.9 %, which by the half-way point was above our expectations for the full year (1 % to 3 %). The strong growth in fresh products and vegan products (other products/services) was weakened by the negative performance of the dairy products and powder/concentrates segments. The business division Europe accounted for 16.5 % of Group sales (previous year: 16.4 %).

Sales of fresh products were CHF 150.7 million, corresponding to growth of 12.9 %. Adjusted for acquisition and currency effects, this resulted in strong organic growth of 11.1 %. Most of the growth came from the dessert companies in Italy, which were able to post significant gains in all markets following the coronavirus-related losses in the previous year. Emmi Caffè Latte also made a major positive contribution to organic growth in the UK, German, Austrian and Belgian markets.

Sales in the cheese segment were CHF 57.7 million, compared with CHF 54.2 million in the prior-year period. Excluding positive currency effects, organic growth was 3.5 %. This growth was primarily due to the good performance of Kaltbach cheese, which is enjoying increasing popularity in all European markets.

Sales in the dairy products segment fell by 5.3 % from CHF 49.1 million in the previous year to CHF 46.4 million. In organic terms, the decline in sales amounted to 6.5 %. While organic dairy products from Gläserne Molkerei in Germany posted strong growth in the previous year due to the pandemic, their sales settled back to pre-crisis levels in the first half of 2021.

In the powder/concentrates segment, sales contracted sharply from CHF 23.9 million to CHF 19.8 million. The decline of 17.4 %, or 19.7 % in organic terms, was mainly due to lower sales of goat’s milk powder in the Netherlands, where challenges in overseas logistics had a negative impact on sales trends.

Sales in the fresh cheese segment amounted to CHF 18.2 million versus CHF 19.1 million in the previous year, a decrease of 5.0 %. Adjusted for acquisition and currency effects, this resulted in organic growth of 2.3 %. Following the slump in the previous year (due to the high share of food service in total sales), this constituted a partial recovery in sales of fresh goat’s cheese at Bettinehoeve in the Netherlands.

In the other products/services segment, the business division Europe generated sales of CHF 17.6 million, compared with CHF 12.1 million in the previous year. The organic growth of 41.5 % was primarily due to rising sales of vegan products from Austria.

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 3.3 % of Group sales (previous year: 3.1 %).

Sales in the business division Global Trade amounted to CHF 61.9 million in the first half of 2021, compared with CHF 54.2 million in the previous year, corresponding to organic growth of 14.3 %.

The organic growth of 18.2 % in the cheese segment was mainly due to higher sales of natural cheese (especially Kaltbach cheese). The 6.3 % decline in sales in the fresh products segment can be explained by the continuing negative performance of the yogurt business in Asia due to diminished consumption at hotels. The 36.4 % increase in the powder/concentrates segment reflects the significant increase in exports of skimmed milk powder, which became necessary due to low domestic sales.

Gross profit

Gross profit amounted to CHF 699.8 million in the first half of the year, representing an overall increase of CHF 59.9 million or 9.4 %, propped up by organic growth and the acquisition of Emmi Dessert USA. The gross profit margin also widened, jumping from 36.1 % in the same period of the previous year to 37.2 %. This positive development is not only due to a low comparison basis in the previous year as a result of the pandemic, but also reflects the consistent progress made with the company and product portfolio. Measures to increase productivity and streamline procurement were likewise stepped up in the first six months.

Operating result

Year-on-year operating expenses climbed by CHF 41.5 million to CHF 515.3 million (previous year: CHF 473.8 million). In relation to net sales, this represents an increase from 26.7 % to 27.4 %.

Personnel expenses rose by CHF 22.3 million to CHF 268.8 million in the first half of 2021 (previous year: CHF 246.4 million), which translates into a disproportionately high increase in relation to sales from 13.9 % to 14.3 %. A major reason for the absolute and relative increase was the aforementioned acquisition effect in the USA.

Other operating expenses amounted to CHF 246.5 million in the period under review (previous year: CHF 227.4 million) and thus increased by CHF 19.1 million compared to the prior-year period. As a percentage of sales, this figure was up 13.1 % (previous year: 12.8 %). The largest increase was in marketing and sales expenses, which rose from CHF 59.8 million to CHF 67.7 million due to below-average expenses in the previous year as a result of the pandemic. Expenses for logistics, maintenance and repairs, and energy, operating materials and supplies rose across the board as well. However, these increases were slightly above average in relation to the sales trend.

Other operating income in the first half of the year amounted to CHF 1.9 million, versus CHF 2.0 million in the prior-year period.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose in the period under review by CHF 18.3 million to CHF 186.4 million (previous year: CHF 168.1 million). The EBITDA margin consequently amounted to 9.9 %, compared with 9.5 % in the same period last year. Thanks to the pleasing increase in the gross profit margin, the EBITDA margin therefore increased significantly despite a disproportionate rise in operating expenses.

Depreciation on property, plant and equipment increased slightly by CHF 1.8 million from CHF 50.4 million in the previous year to CHF 52.2 million in the period under review, although this represents a below-average increase in relation to sales. Amortisation on intangible assets even fell in absolute terms from CHF 5.6 million in the previous year to CHF 4.8 million.

Earnings before interest and taxes (EBIT) were CHF 129.4 million in the period under review, up CHF 17.4 million or 15.5 % on prior-year EBIT (CHF 112.0 million). As a result of the margin trend described above, the EBIT margin also improved significantly, from 6.3 % in the previous year to 6.9 % in the reporting period.

Non-recurring effects in the half-year results 2021

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 gain of CHF 3.1 million in the period under review, compared with a loss of CHF 0.4 million in the prior-year period.

The financial result (net financial expenses) fell by CHF 3.5 million year on year to CHF 4.2 million (previous year: CHF 7.7 million). This improvement mainly related to the foreign currency result, which had weighed heavily on the financial result in the previous year and has now returned to normal. Net interest expense and the other financial result also improved compared with the previous year.

Income taxes amounted to CHF 21.2 million, versus CHF 17.2 million in the prior-year period. The expected tax rate for full-year 2021 remains unchanged from the estimate in the first half of the previous year at 16.5 %.

Net profit

Net profit including minority interests was CHF 107.1 million, compared with CHF 86.8 million in the previous year.

The share of minority interests in net profit was CHF 8.4 million, versus CHF 5.5 million the prior-year period. This increase of CHF 2.9 million is due to the additional share of minority interests in the net profit of Emmi Dessert USA, acquired in the previous year, and to the generally better results of companies with minority interests.

After deducting minority interests, net profit was thus CHF 98.7 million (previous year: CHF 81.3 million). This translates into a substantial rise in net profit of CHF 17.4 million or 21.4 %. The net profit margin came in at 5.2 % (previous year: 4.6 %). Accordingly, earnings per share likewise ticked up to CHF 18.45 as at the end of the first half of the year (previous year: CHF 15.20).

Assets, financing and cash flow

Total assets as at 30 June 2021 were up 2.4 % or CHF 56.2 million compared with 31 December 2020 to CHF 2,393.3 million. Operating net working capital was CHF 589.9 million, an increase of CHF 47.9 million compared with 31 December 2020. Higher inventories were the main driver of this. Non-current assets increased by CHF 25.2 million in total. Alongside higher investments in property, plant and equipment compared with depreciation, this was mainly due to positive currency effects. On the financing side, conditions were mostly stable, with the equity ratio increasing slightly to 53.5 % compared with 52.8 % as at 31 December 2020, on the back of net profit exceeding distribution. The lower level of cash and cash equivalents combined with mostly stable financial debt resulted in net debt of CHF 196.7 million as at 30 June 2021, compared with CHF 163.1 million as at 31 December 2020.

Cash inflow from operating activities amounted to CHF 100.1 million, down CHF 25.9 million on the previous year (CHF 126.0 million). This negative difference was primarily driven by the change in net working capital, which reduced cash flow from operating activities by a total of CHF 41.3 million compared with a charge of just CHF 18.8 million in the same period the year before. Within net current assets, the increase in inventories had a greater negative impact on cash flow from operating activities of CHF 48.0 million than in the previous year. The main reason for this was the exceptionally low level of inventory as at 30 June of the previous year brought about by the pandemic, particularly in Switzerland (including butter). This negative impact was offset by trade payables, which reduced the cash flow from operating activities by CHF 19.2 million year on year. Cash outflow from investing activities was also negatively impacted by CHF 8.4 million higher taxes paid compared with the previous year. At CHF 65.3 million, the cash outflow from investing activities was virtually unchanged on the previous year (CHF 65.4 million). As in the previous year, investments in property, plant and equipment accounted for the lion’s share, amounting to CHF 61.3 million in the first six months, an increase of CHF 3.2 million on the previous year. Excluding cash flow from acquisition activities, the free cash flow generated amounted to CHF 35.5 million, compared with CHF 59.0 million the prior-year period. Cash outflow from financing activities amounted to CHF 82.8 million and resulted mainly from dividend payments to shareholders and minority shareholders totalling CHF 72.7 million and the repayment of financial liabilities. In the previous year, the cash outflow from financing activities amounted to CHF 63.5 million due to lower dividend payments and the net cash inflow from the change in financial liabilities. As a consequence of the cash flows described, cash and cash equivalents decreased by CHF 44.7 million versus 31 December 2020, from CHF 294.7 million to CHF 249.9 million.

Outlook for full-year 2021

Emmi once again proved to be rock solid and reliable in the first half of 2021. On the basis of its proven strategy, its broadly diversified company and product portfolio and its differentiated brand concepts, the company has managed to successfully navigate the coronavirus crisis so far and to transfer the positive growth momentum into a good overall performance. In the international business, a faster recovery was observed in the food service business, which was especially hard hit by the coronavirus crisis. In our domestic market of Switzerland, normality in this sector as well as in our business with industrial customers is still a long way off. Despite these initial positive developments, uncertainty about the future remains, particularly with regard to the pandemic, where infection figures are currently on the rise again.

Emmi is therefore preparing itself for an unchanged uncertain and volatile environment in the second half of 2021. In addition to persistent interest rate and currency risks, rising costs for packaging materials and in particular for logistics will put pressure on earnings in the second half of the year. The resulting non-absorbable additional costs will also have an impact on pricing.

Emmi still considers the EBIT forecast of CHF 275 million to CHF 290 million for financial year 2021 to be realistic, despite the uncertainties and risks described in the second half of the year. Emmi is also confirming its forecast for the net profit margin (5.2 % to 5.7 %). As a result of the positive trend in international business in the first half of the year, Emmi is expecting slightly higher organic sales growth at Group level of 2 % to 3 % for the full year (previously 1 % to 2 %). The ranges for expected organic growth have therefore been increased to 7 % to 9 % (previously 4 % to 6 %) for the business division Americas and to 3 % to 5 % (previously 1 % to 3 %) for the business division Europe. For the business division Switzerland, Emmi is expecting lower organic growth of -2.5 % to -3.5 % (previously -1 % to -2 %), primarily due to the ongoing restrictions in the food service business, the continued subdued growth of business with industrial customers and the resurgence of shopping tourism.