Emmi Reports Broad-Based Growth, Stable Earnings

26 Mar 2014 --- Net sales at Emmi were up 10.6 % to CHF 3,298 million in 2013. Adjusted for one-time effects, earnings before interest and taxes (EBIT) rose by 9.4 % to CHF 160 million, while net profit increased by 8.1 % to CHF 98 million, resulting in an EBIT margin of 4.9 % and a net profit margin of 3.0 %, both of which were unchanged year-on-year.

Emmi expects Group sales to grow by 3 % to 4 % and the net profit margin to remain unchanged in 2014. A proposal will be made to the Annual General Meeting on 24 April 2014 for a gross dividend of CHF 3.80 (2012: CHF 3.60) per registered share from the capital reserves.

Emmi posted net sales of CHF 3,298 million in 2013, up 10.6 % on the prior year (CHF 2,981 million). Earnings before interest and taxes (EBIT) at CHF 168 million and net profit at CHF 105 million were positively affected, as in 2012, by the disposal of fixed assets, which contributed CHF 8.5 million to EBIT (2012: CHF 19.4  million) and CHF 7.0 million to net profit (after taxes, 2012: CHF 15.9 million). Adjusted for this effect, EBIT grew by 9.4 % to CHF 160 million and net profit rose by 8.1 % to CHF 98 million. This resulted in an unchanged EBIT margin of 4.9 % and an unchanged net profit margin of 3.0 %.
 
Sales and EBIT were therefore slightly below the advised range of sales growth of 8 % to 10 % and EBIT of between CHF 140 million and CHF 155 million.
Urs Riedener, CEO, explained: “After a subdued first half, Emmi put on a real spurt in the home straight. Thanks to the pleasing performance by established products, support from innovations and the contribution of recently acquired companies, sales and earnings targets were well achieved. Emmi is moving with vigour in the right direction with its strategy.”

As announced in February, sales in Switzerland rose by 1.1 % to CHF 1,863 million (2012: CHF 1,842 million). Adjusted for acquisitions, sales growth was 1.4 %. The overall negative acquisition effect of -0.3 % was attributable to the disposal of the stake in Nutrifrais. It was not possible to fully compensate for this with the acquisition of Käserei Studer. Further declines in sales resulted from the abandonment of the frozen goods logistics business to third parties.
 
The broad-based growth was strongest in the cheese segment (CHF 12 million or 2.3 %) and in powder/concentrates (CHF 12 million or 19.9 %). The Swiss business accounted for 56 % of total Group sales in the 2013 financial year (2012: 62 %).

Emmi achieved a 26.0 % increase in sales in international markets to CHF 1,435 million (2012: CHF 1,139 million). Adjusted for currency effects (1.0 %) and acquisitions (23.0 %), growth amounted to 2.0 %. The acquisition effect is attributable to the increase in the stakes in Kaiku and Diprola, the purchase of a majority holding in AVH dairy trade and the acquisition of Rachelli and Käserei Studer.
 
International sales increased in all segments of the core business. The dairy products (CHF 130 million or 84.3 %) and fresh products (CHF 86 million or 22.1 %) product groups accounted for the biggest rises.
 
Emmi’s international business (export from Switzerland and production abroad) accounted for 44 % of total Group sales (27 % Europe, 12 % North and South America, 4 % Africa and 1 % Asia/Pacific).

Gross profit grew by 5.9 % or CHF 61 million to CHF 1,089 million in the year under review (2012: CHF 1,028 million). The gross profit margin of 33.0 % was thus below the prior-year level (34.5 %). This decline is due, among other factors, to the greater share of  the international business, the margin for which is currently below that of the Group, but increasing. It was not quite possible to maintain the prior-year margin in Switzerland due to pressure on retail prices, import pressure and the current delay in passing on milk price increases, above all in the B milk segment.
 
Operating expenses increased in the 2013 financial year by 5.4 %, to CHF 819 million (2012: CHF 777 million) due to acquisitions. The rise in operating expenses was therefore disproportionately much lower in comparison to sales, which had a positive impact on the EBIT margin and offset the effect of the lower gross profit margin. Personnel expenses also saw a disproportionately low increase compared to sales, but rose by 6.2 % to CHF 398 million, also due to acquisitions (2012: CHF 375 million). Other operating expenses were clearly reduced compared to sales, amounting to 12.7 % in the year under review compared to 13.5 % in 2012. In absolute terms, other operating expenses grew by 4.6 % to CHF 420 million (2012: CHF 402 million). Due to the gains from the disposal of fixed assets year-on-year, other operating income was only around half the level of that in the prior year at just under CHF 10 million (2012: approx. CHF 20 million).
 
As a result, earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by 3.2 % to CHF 280 million (2012: CHF 271 million). By contrast, the EBITDA margin fell from 9.1 % to 8.5 %.
 
Depreciation and amortisation rose by 5.5 % in the year under review to a total of CHF 112 million (2012: CHF 107 million). This increase is attributable to the acquisition-related higher depreciation of property, plant and equipment.
 
Earnings before interest and taxes (EBIT) stood at CHF 168 million in the year under review, exceeding the prior-year level of CHF 166 million by 1.7 %. One-time effects included gains from the disposal of fixed assets, for example a commercial property in Langenthal and the frozen goods logistics in Kriens. Adjusted for this one-time effect, EBIT grew by 9.4 % to CHF 160 million (2012: CHF 146 million). The adjusted EBIT margin was unchanged at 4.9 %.
 
The financial result improved from CHF -16.4 million to CHF -15.7 million. The acquisition-related higher interest expense was more than offset by a neutral currency result for the year under review (2012: currency loss of CHF 3.6 million). Income taxes increased to CHF 30 million (2012: CHF 28 million). The tax rate rose from 18.5 % to 19.7 %. This was due firstly to tax increases in Switzerland, and secondly to the growing share of the international business.
 
This results in a net profit (after deduction of minority interests of CHF 19 million) for the 2013 financial year of CHF 105 million (2012: CHF 106 million). Adjusted for the effects of the disposal of fixed assets, net profit was CHF 98 million, which represents an increase of 8.1 % year-on-year (2012: CHF 90 million). The  relating net profit margin is unchanged at 3.0 %.
 
Urs Riedener, CEO, commented:“Emmi was able to maintain its profit margin, despite high pressure on prices. This is pleasing and is the result of the focus on core competences, the success of our brand, setting clear priorities and rigorous cost management.”

In the first half of 2014, Emmi expects raw material prices to be stable, or slightly higher in certain cases, For example, the recommended milk price was increased in Switzerland at the start of the year. It is likely to remain at this level until at least mid-year.
 
In Switzerland, retail tourism will stagnate at a high level and import pressure will persist. Somewhat more positive consumer behaviour is realistic in the US. Significant growth is expected again in the emerging markets of Chile and Tunisia, although this will be in volatile local currencies. Consumer sentiment will remain muted in southern Europe, with Spain showing clear signs of a recovery. Emmi does not anticipate any significant changes in the central European markets and expects a stable currency situation overall.
 
Emmi’s strategy is to strengthen its position in Switzerland and continue to grow abroad. It expects Group-wide sales growth of 3 % to 4 % in 2014. In Switzerland, Emmi expects slight growth of up to 1 %, while in international markets it anticipates growth of 6 % to 8 %. These figures include the influence of relatively small acquisitions completed in 2013. Emmi expects an EBIT of between CHF 155 million and CHF 170 million and a stable net profit margin of around 3 %.
 
In the medium to long term, Emmi aims to achieve organic growth (i.e. excluding acquisitions) of 6 % to 8 % per year abroad and of up to 1 % in Switzerland. The company anticipates organic growth of 2 % to 3 % at Group level. In this way and through acquisitions, Emmi’s goal is to increase the share of international sales to around 50 % in approximately two years. A target range of 2.5 % to 3.5 % has been set for the net profit margin.