[Emmi] Emmi increases Group sales thanks to strong second half of the year

Emmi Group sales in financial year 2017

* Acquisition effects are accounted for by the following factors:

• 60 % stake in Bettinehoeve (Netherlands, 2 February 2016)
• Increased stake in SDA Chile (Chile, 19 May 2016)
• Acquisition of Cowgirl Creamery (USA, 31 May 2016)
• Acquisition of Jackson Mitchell (USA, 4 January 2017)
• 80 % stake in Lácteos Caprinos (Spain, 12 January 2017)
• Acquisition of Italian Fresh Foods (Italy, 1 March 2017)
• Disposal of shares in Venchiaredo (Italy, 31 July 2017)
• Increased stake in Mexideli (Mexico, 8 October 2017)

Emmi generated Group sales of CHF 3,364.3 million in 2017, an increase of 3.2 % compared with the previous year (CHF 3,258.8 million). In organic terms, i.e. adjusted for currency and acquisition effects, sales grew by 0.5 %. The forecasted range published in August of -1 % to 0 % was therefore exceeded. The same was true for the business division Europe, while the business divisions Switzerland and Americas were in line with expectations.

Success factors included the cheese business in the US (cow's milk and goat's milk), Emmi Caffè Latte (particularly in Switzerland, the UK and Spain), Rachelli desserts, organic milk from Gläserne Molkerei and the Tunisian market.

Emmi's CEO Urs Riedener commented: "Emmi recorded an impressive performance in the second half of 2017. The sales growth in the cheese business of the business division Americas and the progress made in the dessert business helped to counteract the import and price pressure in Switzerland. The investments in niche markets such as organic and goat's milk products as well as the reinforcement of key brands are bearing fruit. The recent acquisitions will provide a further boost to sales."

Business division Switzerland: recovery despite high import and price pressure

Sales in the business division Switzerland fell by 0.6 % from CHF 1,741.3 million to CHF 1,730.7 million. The price effect was -0.7 % and the volume effect was +0.1 %. Emmi had forecasted a sales decline of -2 % to 0 %, so sales in the domestic Swiss market were in line with expectations despite price pressure remaining at a high level.

The good second half of the year largely offset the declines in the first six months of 2017. This was due in part to the stronger Swiss retail trade, which posted stable sales for the year as a whole after being at around -1 % in the middle of the year (source: Nielsen). Import and price pressure remained high, impacting in particular the cheese and fresh cheese segments. 4.2 % more cheese was imported from abroad in 2017 than in the previous year (source: TSM Treuhand).

Sales of dairy products (milk, cream, butter) remained relatively stable overall. In the cheese segment, Luzerner Rahmkäse made gains while AOP cheese posted a decline, reflecting the higher volume of cheese imports mentioned above. In fresh products, Emmi Caffè Latte, Jogurtpur and Energy Milk saw sales increase, while Yoqua and private labels were down.

The business division Switzerland accounted for 51 % of Group sales (previous year 53 %).

Business division Americas: good sales in Tunisia and the US, progress in Chile

The business division Americas includes the US, Canada, Chile, Tunisia, Spain (excluding Lácteos Caprinos), France and now also Mexico.

Sales rose by 9.7 % from CHF 865.6 million to CHF 949.8 million. In organic terms, i.e. adjusted for currency and acquisition effects, this resulted in an increase of 4.1 %, which is line with the forecasted range of 3 % to 5 %.

The positive acquisition effect is attributable to the increased stakes in SDA Chile and Mexideli as well as the acquisitions of Cowgirl Creamery and Jackson Mitchell ("Meyenberg").

The main reasons for the positive organic growth are the pleasing sales performances in Tunisia and the US. In Tunisia, the yogurts, desserts and milk marketed under the Vitalait brand reported significantly higher sales, which had a positive effect on the dairy and fresh products segments. The good development in Chile provided a further boost. Emmi is satisfied that the core business in Chile has stabilised. In the US, locally produced cow's and goat's milk cheeses performed well, while Spain saw an increase in sales of Emmi Caffè Latte.

The price war on private label yogurts in Spain and in the cheese segment in France had an inhibiting effect on sales.

The business division Americas accounted for 28 % of Group sales (previous year 27 %).

Business division Europe: cheese business under pressure, good performance by organic milk

In the business division Europe, sales rose by 8.7 % from CHF 519.0 million to CHF 564.1 million. In organic terms, i.e. adjusted for currency and acquisition effects, this resulted in growth of 0.8 %, thereby exceeding Emmi's expectations. Based on the modest first half of the year, the company had anticipated a decline of -3 % to -1 %. The key drivers behind the positive trend reversal were the sales growth at Gläserne Molkerei and AVH dairy (mainly goat's milk powder) and the stabilisation in the dessert business.

The acquisition effect, which was significantly positive overall, was attributable to the purchase of the stakes in Bettinehoeve and Lácteos Caprinos, the acquisition of Italian Fresh Foods and the sale of the stake in Venchiaredo.

In fresh products, Emmi Caffè Latte in the UK and the Italian speciality desserts from Rachelli performed very well, while in the cheese segment the Kaltbach specialities made gains in Germany, Austria and the UK. By contrast, AOP cheese and Onken yogurts remained under heavy pressure.

Dairy products reflect the sales growth of organic milk specialist Gläserne Molkerei.

The fresh cheese segment was impacted positively by the acquisition-based growth through Bettinehoeve and negatively by falling volumes and prices in Italy. The good performance in the powder/concentrates segment is attributable to higher sales of goat's milk powder (AVH dairy).

The business division Europe accounted for 17 % of Group sales (previous year 16 %).

Business division Global Trade: economic slowdown in emerging markets

The business division Global Trade primarily comprises direct sales 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.

Sales amounted to CHF 119.7 million, compared with CHF 132.9 million in the previous year, resulting in an organic decline of 9.7 %. The slightly negative acquisition effect is due to the loss of export sales to Mexideli from the fourth quarter of 2017, as the company is now fully consolidated in the business division Americas.

The negative performance can be attributed above all to declining exports of butter and milk powder (i.e. less excess milk) as well as lower sales of non-dairy products, which are not part of Emmi's core business. Other inhibiting factors were the modest performance of milk sales in China and lower cheese sales in Russia. By contrast, fresh product sales in Hong Kong and Singapore and cheese sales in Brazil all recorded a pleasing performance.

Global Trade accounted for 4 % of Group sales (previous year: 4 %).

Outlook

Emmi confirms the earnings forecast issued in August for 2017.

Emmi will issue its forecast for sales and net profit in 2018 when the figures for financial year 2017 are published. The analysts' and media conferences will take place on 5 March 2018 in Lucerne.