HUEGLI HOLDING AG Media Release 31 January 2017, 07.00 a.m.: First Information on the Financial Year 2016
Acquisition-related sales increase in difficult market environment
- Sales up by +1.8% to CHF 385.2 million
- Currency- and acquisition-adjusted sales drop by -2.6%
- Cyclical key account business depressed
- Earnings forecast 2016: EBIT margin of a good 7%
- Outlook 2017: moderate sales growth, increase of EBIT margin
Sales 2016 | in million CHF | Change to previous year | ||
in CHF | organic | |||
Food Service | 151.0 | +1.4% | -0.2% | |
Private Label | 76.8 | -2.1% | -3.2% | |
Brand Solutions | 51.7 | -6.9% | -5.6% | |
Food Industry | 34.1 | +4.1% | +5.0% | |
Consumer Brands | 57.4 | -7.6% | -9.2% | |
Other | 14.2 | n/a | n/a | |
Group total | 385.2 | +1.8% | -2.6% | |
Germany | 224.8 | -3.7% | -5.7% | |
Switzerland/Rest of Western Europe | 130.1 | +11.0% | +1.2% | |
Eastern Europe | 30.3 | +9.3% | +7.3% | |
Group total | 385.2 | +1.8% | -2.6% |
Market changes and macroeconomics put brakes on growth
While Hügli had generated an average annual organic growth of +3.1% in the preceding three financial years, the financial year 2016 was marked by macroeconomic uncertainties, heightened competition and changes to distribution structures. Based on lower sales volumes, organic sales declined by -2.6%. Owing to slightly higher foreign currency rates (+0.8%) and an acquisition, Hügli still achieved a sales growth of +1.8% to CHF 385.2 million. The Group's strategy includes an annual sales increase of 5% in the medium-term which in part rests on growth to be achieved by acquisitions of competitors in the consolidated core market, and by strategic round-off acquisitions. As of 1 January 2016, Hügli acquired a majority stake of 80% in the Dutch Bresc B.V. as part of a succession plan. Bresc has successfully specialised in the production and sale of chilled garlic and herb specialties for the European gastronomy and industry. In 2016, the company contributed CHF 13.7 million or +3.6%, respectively, to Group sales.
German market consolidated, Italy and Eastern Europe expanding
The largest country segment Germany registered an unexpectedly sales slump of -5.7% in local currency. This is even more surprising because Germany had in the past three years been a growth driver with an average annual sales increase of above +6%. There are numerous reasons for this. On the one hand, fewer promotional tenders from key accounts were won due to the heightened competition, and on the other hand, a number of production orders were actively discontinued because of their unsatisfactory margin. The significant slowdown of sales in the German health food market had a depressing effect on this financial year as well. A bright spot nevertheless presented itself in the perceptibly rising volume of production orders from large food companies, who relied on Hügli's manufacturing competences.
The country segment Switzerland/Rest of Western Europe recorded an organic sales growth of +1.2% owed mainly to the positive development of the two Granovita companies acquired in 2015 in Spain and the UK, as well as Italy's significant sales boost, triggered by the strong demand for liquid sauces and soups. At the same time, orders of key account customers slumped in the UK, mainly in the area of health and nutrition, making it impossible to attain the previous year's sales level. Gastronomy sales in Switzerland continued to be affected by the strong Swiss Franc, causing sales to drop further.
The segment Eastern Europe (EAST: Czech Republic, Slovakia, Poland, Hungary) developed very favourably thanks to a sales growth carried by all divisions of +7.3% in local currencies.
Private Label Retail / Consumer Brands declined, Food Industry achieved turnaround
The Private Label Retail division (brands of the retail food trade) lost and actively cut back part of the sizeable sales volume it had built up in the previous two years (+14.5% in 2015 and +10.7% in 2014) in the course of optimizing its product line. The sales decline of -3.2% in local currencies resulted mainly from the lack of promotional sales in the retail market Germany, whereas the regions EAST and UK achieved pleasing growth figures.
Selling Hügli's own organic brands, the Consumer Brands division was affected by the significant reduction of market shares of the health food market and by the steepened pressure from the competition among vegetarian/vegan meat replacement products. The resulting adverse effects could not be compensated by the positive development of our brand "Natur Compagnie". The division registered a drop in sales of -9.2% in 2016.
Measures to stabilise and return to the growth path have been implemented. The Food Industry division recorded a very favourable sales development in the foodstuffs industry in 2016, with a sales increase of +5.0%. Germany was particularly successful in winning new orders in this division, thanks to a well filled innovative project pipeline. In the Food Service division, the performance of all D-A-CH countries declined, especially Switzerland and Austria, whereas the EAST countries developed very well. Overall, the division just maintained the previous year's sales level (-0.2%).
Growth initiatives and organisational adjustment
In view of the unsatisfactory course of business and in order to boost profitability back to the strategically defined level, growth initiatives were introduced and additional potential for cost cutting reviewed.
On 1 January 2017, an organisational adjustment was initiated with the aim to strengthen cross-national cooperation of sales divisions and production companies in the various countries, accelerate Hügli's geographic expansion and exploit the new product lines' market potential more effectively. In the background, this aggregation of know-how also strives to increase process quality and cost efficiency. As a result of this organisational adjustment, the sales divisions are consolidating the key account business (consumer packs) of Private Label Retail, Brand Solutions and Food Industry. The new Customer Solutions division, constituting around 35%-40% of the Hügli Group, is headed by Group Executive Management member Jörg Meyer.The sale of semi-finished products to the foodstuff industry will be split off in the Food Ingredients division, constituting around 5%-10% of the Group, and headed by Group Executive Management member Endrik Dallmann. Endrik Dallmann also assumes the newly created Group function Countries & Processes, which analyses and where appropriate standardises the management and support processes of the production companies in the various countries with the aim to design cost-efficient processes according to the strategic focus. Group Executive Management member Dirk Balzer will additionally take on the new strategic Group function New Technology with the goal to set up a competence centre for product innovations outside the dehydrated products core business. CEO Thomas Bodenmann says: "I am confident that with this further evolution and new focus we are building upon the strengths of our organisational structures and at the same time eliminating weaknesses and optimizing process quality and cost-efficiency."
Profitability 2016 and outlook 2017
Despite stringent cost management, the organic sales decline in 2016 and the resulting loss of gross margin have had a depressing impact on earnings. The Group Executive Management expects EBIT margin 2016 of a good 7%, thus indicating that the previous year's level of 8.1% could not be maintained. For the year 2017, we expect a moderate sales growth and an increase of the EBIT margin.
Detailed information on the financial year 2016 (Annual Report) and the sales figures of Q1 2017 will be published and commented on at the Media and Analysts' conference held on 11 April 2017.
Financial calendar
11 April 2017 | 07.00 a.m. | Media Release: Annual Report 2016 / Sales Q1 2017 |
10.30 a.m. | Media/Analysts' Conference, Widder Hotel, Zurich | |
17 May 2017 | 04.30 p.m. | Annual General Meeting, Seeparksaal, Arbon |
18 August 2017 | 07.00 a.m. | Media Release: Half-Year Report 2017 |
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