Emmi defies inflation and becomes more profitable
Published: Thursday, Feb 29th 2024, 16:32
Updated At: Thursday, Feb 29th 2024, 16:32
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Rampant inflation hit Emmi hard last year. Costs rose by almost 400 million for the Central Swiss milk processor - and Caffè Latte and co. became correspondingly more expensive. In 2024, Emmi intends to continue tightening the price screw - even at the risk of selling less.
"We have seen an enormous wave of input costs in the last two years," said Emmi CEO Ricarda Demarmels at the company's annual media conference in Lucerne on Thursday. And like its competitors, Emmi passed on these higher input costs to its customers in the form of higher prices, which in turn were passed on to consumers. Emmi also expects challenging conditions and high input costs in the current year, for example for coffee and freight, due to the problems in the Red Sea.
But not every consumer is willing to suddenly pay more money for their favorite cheese or coffee on the go. And Emmi is feeling the effects: "We deliberately accepted a few volume losses last year," said the boss. But this was necessary in order to remain profitable. In other words, it is better to sell slightly fewer products, but at higher prices.
Cost pass-through easier in countries accustomed to inflation
According to Demarmels, it is easier to push through price increases in countries where an inflationary environment has prevailed for some time. "In Brazil, for example, prices sometimes change on a daily basis. In countries where there has been hardly any inflation for years, on the other hand, price adjustments are more difficult to implement." In some countries, higher inflation also immediately translates into a loss of purchasing power.
In general, there is a "massive polarization" towards products with prices at the lower end of the spectrum and also towards expensive products, said Demarmels. The golden mean is less in demand in the current environment.
Emmi is also strengthening its strategic niches, i.e. the products in which the company is a leader. These include Caffè Latte shake coffees, chilled Italian desserts, specialty cheeses and plant-based milk and yoghurt alternatives.
Domestic and international cheese market weak
However, this focus on higher-margin products does not work equally well in all categories. Despite polarization, people are saving on expensive cheese, for example. "In particular, the development in the most important foreign market, the USA, in the cheese segment inhibited sales growth in this division," the annual report states.
"Less cheese is being bought at the counter because people want to know the price when they shop," explained Demarmels. This is why the new factory that Emmi opened last year in Wisconsin, where cheese is made and packaged for the US market, is proving its worth.
However, the export of Swiss cheese has also been very difficult in other countries, particularly in Germany, where people are saving. And finally, Swiss cheese has also lost market share domestically, with more cheese being imported than exported for the first time in 2023.
Overall, Emmi generated 29.3 percent of its total sales of CHF 4.242 billion with cheese, compared with 30.3 percent in the previous year. On the other hand, fresh products, which include Caffè Latte and Energy Milk, increased by 0.7 percentage points to 27.0 percent. These two categories are therefore converging more and more in terms of sales.
More profit
Emmi made more profit last year than in the previous year, both operationally and at the bottom line. The portfolio transformation - including the sale of the unprofitable Gläserne Molkerei - and the "focus on profitable growth", i.e. concentrating on products that generate more profit and passing on costs, paid off.
Adjusted for a one-off effect from the sale of Gläserne Molkerei, operating profit (EBIT) amounted to CHF 295.4 million (+11%). The corresponding margin as a measure of profitability rose to 7.0% after 6.3% in 2022. The bottom line was an (unadjusted) net profit of CHF 186.3 million.
Shareholders will therefore receive a dividend of CHF 15.50, which is CHF 1.00 higher. The figures presented on Thursday were extremely well received on the stock market. Emmi shares rose by 5.2 percent to 895 francs in the afternoon. In the meantime, they climbed back above the CHF 900 mark, above which they had last traded at the beginning of February.
©Keystone/SDA
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