Emmi delivers growth during crisis

By Jim Cornall

- Last updated on GMT

Emmi delivers growth during crisis

Related tags Emmi coronavirus COVID-19

Swiss dairy company Emmi increased sales by 6.6% to CHF1,773.5m ($1.95bn) in the first six months of the financial year, a period dominated by the coronavirus crisis.

The organic growth of 2% achieved by the company was driven in particular by a strong retail performance in the Swiss domestic market, key brand concepts such as Emmi Caffè Latte and sales in strategic niches. The slump in the food service sector triggered by the pandemic affected sales in the business division Americas in particular. EBIT improved by 6.4% to CHF112m ($123m), while net profit was down by 6.5% at CHF81.3m ($89.5m).

Gross profit margin was down from 36.4% to 36.1%, which the company attributed to covid-19.

EBIT of CHF112m ($123.3m) was an increase of 6.4% on the previous period, although net profit dropped 6.5% to CHF81.3m ($89.5m), due mainly to an expected higher tax rate, financial expenses and minority interests.

The overall positive acquisition effect of 9.5% was due to the positive acquisitions of a blue cheese production facility (US, February 2019), of Leeb Biomilch GmbH and Hale GmbH (Austria, October 2019), Laticínios Porto Alegre Indústria e Comércio S.A. (Brazil, October 2019), and of Pasticceria Quadrifoglio S.r.l. (Italy, October 2019). Also positive was the merger with Quillayes in Chile, in January 2020.

There was a negative impact the sale of Emmi Frisch-Service AG (Switzerland, April 2019).

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

The business division Switzerland generated net sales of CHF828.8m ($912.1m), an increase of 2.2%. Adjusted for the adverse impact on sales from the disposal of Emmi Frisch-Service AG, organic growth was 3.8%, above Emmi’s forecast of 0% to 1% for the full-year.

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

Sales in this business division Americas rose from CHF518.4m ($570.5m) to CHF598.6m ($658.7m) in the first half of 2020. The year-on-year growth of 15.5% was mainly due to the acquisitions in Brazil and Chile. Adjusted for the strongly negative currency and major acquisition effects, organic sales declined by 1%, below the company’s full-year forecast of 4% to 6% growth.

The main driver of this negative development was the ongoing coronavirus crisis, which had by far the greatest adverse effect on the business division Americas due to its substantial share of sales in the food service sector – the highest in the group.

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

In the first half of 2020, sales in the business division Europe were CHF291.9m ($321.2m), compared with CHF279.9m ($308m) in the same period last year.

On sustainability, Emmi said it has been focusing on waste, greenhouse gas reduction, employees and sustainable milk, which have been subject to specific and binding targets since 2016. Further progress was made in the first half of 2020.

In Switzerland, Emmi now processes 87% of its milk produced according to the Swissmilk Green sustainability standard, meeting growing demand from consumers and customers. With a reduction of 23% compared to the base year 2014, it is also on track to deliver on its group-wide greenhouse gas emission target. However, it said, more efforts are needed in waste reduction to build on the 18% decrease achieved in reducing food waste.

Outlook for full-year 2020

Emmi said the outlook for the second half of the year remains uncertain.  It added there are currently no signs of recovery in those markets that have been severely affected by the pandemic and are important for Emmi, such as the US, Brazil, Mexico and Chile. Worldwide, consumer confidence is languishing at a low level and recessionary economic trends are already a fact in most countries. Added to this, the positive non-recurring effects in the first half of the year will no longer apply in the second half, and it will likely take several years for certain sales channels to stage a sustained recovery.

Emmi is preparing for a continued volatile and highly competitive environment in the second half of 2020, but remains cautiously optimistic about the result for the full-year.

It said its EBIT forecast of CHF255m ($280.6m) to CHF265m ($291.6m) for full-year 2020 to be ambitious, but within reach if the recovery remains intact, and is reiterating the original forecast for net profit margin of 4.8% to 5.3%.

Urs Riedener, CEO of the Emmi Group, said, “Our business model has proven itself even under difficult conditions, backed by a diversified product and country portfolio, strong brands and an agile organisation. I am particularly pleased that we maintained supply at all times, not least thanks to the tireless commitment of our employees, and were thus able to deliver growth despite the extremely difficult environment​.”