Breakdown of the half-year results

Sales 

Emmi generated sales of CHF 2,016.5 million in the first half of financial year 2022, compared with CHF 1,883.6 million in the prior-year period. This corresponds to total growth of 7.1%. Adjusted for overall positive acquisition effects of 2.3% and net negative foreign currency effects of 0.6%, organic growth was a pleasing 5.4%. This is significantly above our own forecast for the full year (2.5% to 3.5%). The international business again stood out with high organic growth momentum in the divisions Americas (11.8%) and Europe (6.5%), while the division Switzerland remained largely stable with organic growth of 0.8%.

Business development in the first half of 2022 was characterised by massive cost increases for raw materials, other materials, logistics and energy as well as ongoing disruptions in global supply chains exacerbated by highly inflationary trends. Organic growth, particularly in the international divisions, was therefore strongly influenced by input cost-related and inflation-induced price effects. In the division Americas, sales growth was primarily attributable to the growth markets of Brazil, Mexico and Tunisia, in addition to the companies in the USA and Spain. Growth in the division Europe was driven mainly by the sustained dynamic and innovative strength of our Italian dessert companies, as well as by the continued positive development of Emmi Caffè Latte in all European markets. The division Switzerland also increased sales slightly. In addition to price effects and a positive development of brand concepts, the recovery of the food service and industrial customer business after the coronavirus-related declines in previous years helped to compensate for the volume decline in the retail business. This expected decline was due to a normalisation of purchasing volumes following the brisk activity seen in the preceding years due to the pandemic, as well as to continuing high import and price pressure, which was additionally fuelled by the weakness of the euro.

The positive acquisition effect was due to the acquisition of the Athenos business in the USA, Emmi’s most important foreign market (1 December 2021).

Internal shifts in the distribution channels of certain customers also resulted in acquisition or divestment effects in the divisions Global Trade and Europe. However, these shifts between individual divisions had no impact on the Group.

The companies in France have been part of division Europe since 1 January 2022 (previously division Americas). For better comparability, the prior-year figures in the following sales tables of the two divisions have been adjusted accordingly.

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

Sales performance Switzerland

The division Switzerland generated net sales of CHF 808.1 million compared with CHF 801.8 million in the same period of the previous year. The resulting organic growth of 0.8% is above our own forecast for the full year (-1% to 0%). In addition to price effects, the recovery of the food service and industrial customer business following the coronavirus-related declines in the preceding years was partly responsible for this growth. Sales of differentiated brand concepts such as Emmi Caffè Latte and Emmi Energy Milk also continued to perform well. These positive effects were offset by the expected volume declines in the retail business, reflecting on the one hand a normalisation of the previous years, which were dominated by the pandemic, and on the other the persistently high import and price pressure exacerbated by the weakness of the euro. The division Switzerland accounted for 40.1% of Group sales (previous year: 42.5%).

Sales of dairy products (milk, cream and butter) decreased in the first half of 2022 from CHF 330.2 million to CHF 323.0 million. The organic decline of 2.2% reflects the significantly lower sales volumes in the retail trade, especially for milk, and was only partially offset by price effects.

The cheese segment recorded a decline of 3.7% to CHF 182.2 million compared with CHF 189.2 million in the same period of the previous year. This decrease mainly relates to traditional cheese varieties in the retail business, which essentially represents a further normalisation of purchasing volumes after the preceding years, which were dominated by the pandemic.

With fresh products, organic growth of 2.7% was achieved with an increase from CHF 172.4 million to CHF 177.0 million. The main drivers of this pleasing growth were in particular the proven brand concepts Emmi Caffè Latte and Emmi Energy Milk.

Sales of fresh cheese were down from CHF 53.0 million to CHF 52.1 million. This corresponds to an organic decline of 1.8%, which in turn was due to the contraction in volumes in the retail trade, especially affecting quark.

The powder/concentrates segment posted sales of CHF 38.3 million, compared with CHF 26.8 million in the prior-year period. The organic growth of 42.9% was based on higher sales volumes of milk powder to industrial customers following pandemic-related losses in previous years.

Other products/services saw organic sales growth of 17.5%, up from CHF 30.2 million to CHF 35.5 million, primarily due to increased sales of vegan products under the beleaf brand.

Sales performance Americas

The division Americas includes the Emmi Group companies in the USA, Brazil, Spain, Tunisia, Chile, Mexico and Canada. The companies in France have been part of division Europe since 1 January 2022 (previously division Americas). For better comparability, the prior-year figures have been restated accordingly.

Sales in the division Americas increased in the first half of 2022 from CHF 668.0 million to CHF 798.6 million. In addition to the acquisition effect related to the Athenos business with feta specialities in the USA, the total growth of 19.6% is chiefly attributable to the high organic growth of 11.8% driven by input cost-related and inflation-induced price effects. This significantly exceeded our own forecast for full-year 2021 (6% to 8%) in the first half of the year. The division Americas accounted for 39.6% of Group sales (previous year: 35.5%) and thus almost corresponds to the figure for the division Switzerland (40.1%).

Sales in the cheese segment amounted to CHF 307.1 million, compared with CHF 249.1 million in the same period last year, representing an overall increase of 23.3%. Adjusted for the acquisition effect from the purchase of the Athenos business in the USA and negative currency effects, organic growth was 2.4%. A significant positive contribution was made in particular by the companies in the USA, both with locally produced cheese specialities and those imported from Switzerland. The trading business in Mexico also recorded a positive development. However, the decline in sales in Chile due to distribution difficulties hampered performance in this segment.

Sales of dairy products rose by 12.6% overall, from CHF 188.5 million to CHF 212.3 million. After adjusting for negative currency effects, this resulted in significant organic growth of 15.1%. Brazil was the main driver of this development thanks to positive price effects and the start-up of a new factory for UHT milk in the previous year. In addition, Spain made a positive contribution to the dynamic sales growth with milk, as did Tunisia with butter.

Sales of fresh products also posted a significant increase of 13.4% from CHF 140.2 million to CHF 159.0 million. The largest contribution to organic growth of 13.9% was made by the speciality desserts produced in the USA. It is also pleasing to note that Emmi Caffè Latte in Spain was able to translate its momentum into increased sales, likewise providing a significant contribution to organic growth.

Sales in the fresh cheese and powder/concentrates segments, at CHF 47.1 million and CHF 19.0 million respectively, are of less significance for the division, but nevertheless recorded high organic growth of 32.4% and 39.2% respectively, especially in Brazil.

Other products/services generated sales of CHF 54.1 million, which corresponds to 20.4% organic growth. This was primarily due to increased sales of vegan products in Spain and California and to the trading business in Mexico.

Sales performance Europe

The division Europe incorporates the Emmi Group companies in Germany, Italy, the Netherlands, France, the UK and Austria. The companies in France have been part of division Europe since 1 January 2022 (previously division Americas). For better comparability, the prior-year figures have been restated accordingly.

Sales in the division Europe amounted to CHF 348.1 million in the first half of 2022. Compared with CHF 351.9 million in the prior year, this constitutes a decline in sales of 1.1%. Excluding negative acquisition and currency effects, organic growth was 6.5%, above our expectations for the full year (3% to 5%). Input cost-related and inflation-induced price effects also had a strong impact on sales development in the division Europe. The division Europe accounted for 17.3% of Group sales (previous year: 18.7%).

Sales of fresh products were CHF 178.7 million, corresponding to growth of 4.3%. Adjusted for negative currency effects, organic growth was a pleasing 10.0%. This is mainly attributable to business with innovative speciality desserts from Italy and the continued positive momentum of Emmi Caffè Latte in all European markets.

In the cheese segment, sales amounted to CHF 59.5 million versus CHF 78.5 million in the same period of the previous year, representing a decline of 24.3% or 11.4% in organic terms. The decrease mainly affected Germany and the Netherlands with cheese specialities imported from Switzerland. This development was attributable to normalising sales compared with the high volumes of the prior-year period influenced by the pandemic, particularly at cheese counters, reinforced by signs of a slowdown in demand fuelled by prices and exchange rates.

Sales in the dairy products segment rose by 8.7% from CHF 46.4 million in the prior-year period to CHF 50.5 million. Organic growth amounted to 15.3%, mainly attributable to the increase in organic milk from Gläserne Molkerei in Germany.

In the fresh cheese segment, sales amounted to CHF 21.3 million compared with CHF 18.2 million in the same period of the previous year, representing growth of 17.6% or 24.8% in organic terms. This growth reflects the continued recovery of fresh goat’s cheese sales at Bettinehoeve in the Netherlands. During the pandemic, sales had temporarily slumped due to the high proportion of sales in the food service business.

Sales generated with powder/concentrates decreased by 0.9% to CHF 19.6 million, compared with CHF 19.8 million in the same period of the previous year. However, organic sales grew by 5.1% due to the goat’s milk powder business in the Netherlands.

In other products/services, the smallest segment by amounts, the division Europe generated sales of CHF 18.5 million, up from CHF 17.7 million in the prior-year period.

Sales performance Global Trade

The division Global Trade primarily comprises direct sales and exports of surpluses 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. The division Global Trade accounted for 3.0% of Group sales (previous year: 3.3%).

Sales of CHF 61.7 million were reported by the division Global Trade in the first half of 2022, compared with CHF 61.9 million in the same period of the previous year. Adjusted for acquisition effects, the overall decrease of 0.4% corresponded to an organic decline of 11.0%.

The organic decline in sales of 6.5% in the cheese segment was primarily due to the discontinuation of deliveries to Russia. Organic growth of 2.8% was achieved in the fresh products segment. This positive development was primarily driven by growing sales of yogurt in the Asian region. The decline of 29.1% in the powder/concentrates segment reflects lower exports of surpluses of skimmed milk powder, which were necessary in the prior-year period due to lower domestic sales.

Gross profit

Gross profit amounted to CHF 707.4 million in the first half of the year (previous year: CHF 699.8 million), an increase of CHF 7.6 million. While organic growth and the acquisition of the Athenos business in the USA in the previous year had a positive impact on gross profit, overall negative foreign exchange effects and in particular the significantly lower gross profit margin of 35.1% (compared with high 37.2% in the prior-year period) had a negative impact. Massively higher input costs and the delayed effect of sales price increases led to this development. Despite extensive measures, in particular sales price increases to contain the strongly negative effects, some of which were further aggravated by the war in Ukraine, and due to continuing bottlenecks in global supply chains and on the labour market, it has so far only been possible to offset part of the additional costs. These negative effects were mitigated by further strategic progress in the transformation of the company and product portfolio, and by the further intensification of measures to increase productivity and in procurement.

Operating result

Year-on-year operating expenses rose by CHF 30.5 million to CHF 545.8 million (previous year: CHF 515.3 million). Massive cost increases were also reflected here. These primarily related to logistics and energy costs, although they were more than offset by lower personnel, marketing and sales expenses in relation to sales. Overall, operating expenses as a percentage of sales therefore decreased marginally from 27.4% in the prior-year period to 27.1%. However, this only slightly reduced the decline in the gross profit margin, which ultimately impacted profitability.

Personnel expenses increased to CHF 281.6 million from CHF 268.8 million in the prior-year period. The increase of CHF 12.8 million was lower than the growth in sales, falling from 14.3% in the same period of the previous year to 14.0% in the first half of 2022. Although this relationship was more or less stable from an organic perspective, the main reason for the relative decline was the effect from the acquisition of the Athenos business in the USA.

Other operating expenses amounted to CHF 264.3 million in the period under review (previous year: CHF 246.5 million) and increased by CHF 17.8 million year on year. As a result of the war in Ukraine and the ongoing disruptions to global supply chains, energy and logistics costs in particular spiked once again. These cost increases were offset by savings in marketing and sales expenses, which decreased to CHF 60.6 million from CHF 67.7 million in the same period last year. Other operating expenses as a percentage of total sales thus remained constant at 13.1%.

Other operating income in the first half amounted to CHF 2.1 million, versus CHF 1.9 million in the prior-year period.

As a result of this development, earnings before interest, taxes, depreciation and amortization (EBITDA) fell by CHF 22.7 million to CHF 163.7 million in the first half of 2022 (previous year: CHF 186.4 million). The EBITDA margin consequently amounted to 8.1%, compared with 9.9% in the same period last year.

Depreciation on property, plant and equipment decreased by CHF 3.3 million from CHF 52.2 million to CHF 48.9 million in the reporting period. On the other hand, amortisation on intangible assets increased slightly from CHF 4.8 million to CHF 6.2 million.

Earnings before interest and taxes (EBIT) came in at CHF 108.6 million and were thus CHF 20.8 million below the EBIT of the prior-year period (CHF 129.4 million). As a result of the input cost-driven margin development described above, the EBIT margin also fell, dropping to 5.4% in the first half of 2022 (previous year: 6.9%). The margin shortfall at gross profit level was thus only partially reduced by lower operating expenses and depreciation on property, plant and equipment compared with sales.

Non-recurring effects in the half-year results 2022

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 0.1 million in the first half of 2022 compared with CHF 3.1 million in the same period of the previous year.

The financial result (net financial expenses) rose by CHF 6.3 million year on year to CHF 10.5 million (previous year: CHF 4.2 million). This increase reflects a poorer foreign currency result due to higher hedging costs and a higher net interest expense. This was the outcome of the bond issued at the end of the previous year to finance the acquisition of the Athenos business in the USA coupled with the general increase in financing costs.

Income taxes amounted to CHF 17.2 million in the reporting period versus CHF 21.2 million in the prior-year period. The expected tax rate for full-year 2022 was 17.5% (previous year: 16.5%).

Net profit

Net profit including minority interests was CHF 81.0 million, compared with CHF 107.1 million in the prior-year period.

The share of minority interests in net profit was CHF 2.9 million, down from CHF 8.4 million in the prior-year period. The decrease of CHF 5.5 million is due to lower results from companies with minority interests as well as acquisitions of minority interests in the first half of the year.

After deducting minority interests, net profit was thus CHF 78.1 million (previous year: CHF 98.7 million). Accordingly, net profit fell by CHF 20.6 million or 20.8%. The net profit margin amounted to 3.9% (previous year: 5.2%) and earnings per share stood at CHF 14.61 at the end of the first half-year (previous year: CHF 18.45).

Assets, financing and cash flow

Total assets as at 30 June 2022 increased by CHF 68.0 million or 2.8% to CHF 2,539.4 million compared with 31 December 2021. Operating net working capital amounted to CHF 644.5 million, an increase of CHF 55.1 million versus 31 December 2021. At 9.4%, this increase was steeper than the growth in sales and resulted primarily from higher inventories, also to ensure the ability to deliver. Non-current assets recorded a total increase of CHF 38.0 million, mainly due to higher investments in property, plant and equipment compared with depreciation. On the financing side, short-term bank debt increased by CHF 49.2 million, while long-term bank debt decreased by CHF 12.8 million. The slightly higher financial debt combined with the lower cash and cash equivalents resulted in a net debt of CHF 509.3 million as at 30 June 2022, versus CHF 389.4 million as at 31 December 2021. The equity ratio was 46.5% as at 30 June 2022, compared with a slightly higher 47.8% as at 31 December 2021.

Cash inflow from operating activities amounted to CHF 53.4 million, down CHF 46.7 million on the previous-year figure of CHF 100.1 million. This negative deviation was driven by declines in profitability at EBITDA level and by the development of net working capital. The increase in net working capital impacted cash flow from operating activities by a total of CHF 71.9 million in the period under review. In the same period of the previous year, this figure was lower at CHF 41.3 million. In addition to sales growth, the year-on-year net increase in investments in operating net working capital was mainly due to the integration of the Athenos business in the USA. In the case of other receivables and prepayments and accrued income, the higher increase compared with the previous year resulted primarily from a margin call paid to hedge interest rate and currency risks for the long term. By contrast, lower tax payments had a positive impact on cash flow from operating activities. Cash outflow from investing activities was CHF 107.2 million, CHF 41.9 million above the previous year’s figure of CHF 65.3 million. Investments in property, plant and equipment increased by CHF 18.1 million year on year, driven by major strategic projects, and amounted to CHF 79.4 million in the first half of the year. Cash outflow from acquisition activities also posted an increase to CHF 23.5 million from the low level of CHF 0.7 million in the same period of the previous year. Excluding the cash flow from acquisition activities, free cash flow was negative in the amount of CHF 30.3 million compared to a positive free cash flow of CHF 35.5 million in the same period of the previous year. Cash outflow from financing activities amounted to CHF 28.6 million and resulted mainly from dividend payments to shareholders and minority shareholders totalling CHF 75.9 million and cash inflow from additional financial liabilities. In the previous year, cash outflow from financing activities amounted to CHF 82.8 million, with a net cash outflow resulting from the change in financial liabilities. As a consequence of the cash flows described, cash and cash equivalents decreased by CHF 81.6 million versus 31 December 2021, from CHF 247.3 million to CHF 165.7 million.

Outlook for full-year 2022

There is no foreseeable brightening in the generally gloomy economic and geopolitical conditions, characterised by inflation, massively higher input, logistics and energy costs, as well as the war in Ukraine and the resulting pressure on margins. Added to this are rising risks of a wage-price spiral and potentially unfavourable developments in interest rates, exchange rates and the further course of the pandemic. The greatest uncertainty factor is the supply of gas and electricity.

The sales price increases will continue to have an impact in the second half of 2022, but will not fully compensate for the losses incurred in the first half of 2022, also due to the uncertain consumer demand in the overall economic context. Thanks to the consistent and disciplined implementation of its strategic priorities with a focus on differentiated brand concepts, the development of profitable niches and the acceleration of its ongoing excellence and efficiency programmes, Emmi believes it is on course to counteract these strongly negative effects, which will continue to persist in the second half of 2022.

Emmi remains well positioned strategically and is sticking to its medium-term forecast. For the full year 2022, Emmi expects organic growth at Group level of 5% to 6% (previously 2.5% to 3.5%), driven by higher input costs and inflation. In a market for dairy products that remains extremely competitive and is subject to high import and price pressure, including consumer tourism – exacerbated, in turn, by the weak euro – Emmi forecasts stable to slightly positive organic sales growth of between 0.5% and 1.5% (previously -1% and 0%) for the division Switzerland. In the international business, dynamic growth is expected to continue, with organic growth in the division Americas of 10% to 12% (previously 6% to 8%) and in the division Europe of 6% to 8% (previously 3% to 5%).

At EBIT level, Emmi expects a slightly lower result of CHF 265 million to 280 million (previously CHF 290 million to 305 million) and a net profit margin of 4.5% to 5.0% (previously 5.0% to 5.5%) due to the prevailing adverse conditions and persistently high input costs, some of which will continue to rise.