Earnings Call: H1 2021

Aug 18, 2021

Ladies and gentlemen, welcome to the Half Year Results 2021 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants are in listen only mode and the conference The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Urs Riedener, CEO. Please go ahead, sir. Good morning, everybody, and welcome to this half year 'twenty one call. It's a pleasure at least then later on to hear you all. And we are sorry for the delay, but we had some technical issues on our side, but we hope they're resolved and you hear us. So first of all, we are very pleased with the results we were posting this morning. We have seen a growth organic growth rate of 3.7 percent after the 2% we already have been posting last year. And of course, our strategy is bearing fruits even and despite of all changes we see in the environment and still ongoing pandemic in different parts of the world. But we profited a lot from a consistent development of the company and product portfolio we're having. And also, we were profiting from the strong branded concepts we are having across the world. If you look into the figures, you see we are especially pleased with the international business, a bit less so with Switzerland. But that's what we have been seeing already before, that Switzerland will settle very, very soon at the pre level classes. And that's what we are observing in our half year results. We are also happy that at the right time, we were pushing our initiatives towards more sustainability. And there, we're making progress, and I will come back later to this. And we think this topic is gaining further importance, and we are on top of it. For the full year, we think that we are on a good way to achieving our annual targets. So with those remarks, we go into the details. And the speakers of today will be myself and then, of course, Riccarda. She will go a bit deeper into the financials of the half year. And also, she will be answering your questions then in the Q and A session later on. So if we am now on Page 5 for those who have in front of them, what we see is a good growth driven performance. So the growth was very crucial to achieve this good performance. And of course, overall, we have a reliable ME business model. And we were also profiting from our decentralized approach with decentralized organizations. And we invested a lot in empowering those teams locally in the past. And we are happy that this was paying out during the pandemic. And then, of course, the diversified country portfolio and category portfolio, but we were also able to open up new channels during the pandemic. And some of those channels did stick now even a bit after or partly after the pandemic. So we have a broad mix of channels now in different countries. And of course, we also have a good setup with the supply chain because we have normally regional supply chains. So we have seen maybe less disruptions than other industries. So the growth trajectory, you have already seen, 3.7%. EBIT margin increased. And the mix above all did also improve. And this mainly due to branded concepts, some nice growth in some niches, but also the good development in all emerging markets we are in helped a lot. And as I said earlier, we have expected the setback in Switzerland after the record first half year in 2020. And we are somehow back to reality in different dimensions, and I will come back to that. Overall, we are sticking to the strategic growth path. So despite some challenges in the environment, we are happy that we are able to keep our long term trajectory. And of course, as I said, we are also strengthening our efforts in sustainability, which gives us a confident outlook. Now to the figures. I will go fast because you have seen them probably with the media release we have been sending out this morning. So the net sales increased quite a lot, 6.2% overall organic growth, 3.7%. And I think it's noteworthy here that already last year and a half year, we had a growth of 2.0%. We see a lot of companies that have seen a decline last year, not us. Therefore, it's good to even grow more this half year. Then the EBIT is good, increased quite nicely because the sales mix mainly shifted back to where we are strong at, a bit more convenience, a bit more branded, a bit more fresh. And financial strength is still a given, which gives us also room for future investments. And we also can observe here that we were able to bring down the EBIT to the net profit line, so agreed to the bottom line. There we see also a nice increase in the net profit margin. Looking at the short term results is nice, but that's not our style. We want to develop the company long term. And you see that we were able to come back to an organic growth rate between 1.6% and now 3.7% since 2018, which is good and on target. EBITA is improving. It was a bit under pressure last year because we have always been state that the pandemic was more hurting us than helping us. And this is the proof now that we can do better. And the EBIT also is at the record high, half year. We never had this high EBIT. And then the net profit is also developing nicely. There we have to mention that mainly in emerging markets, we have more minorities. So we have to pay out dividends and also to the minorities, mainly, as I said, in the emerging markets. So the growth path then looks quite different from region to region. The group is balanced. But under the surface, we see quite some ups and downs. And normally, we believe that we can it grow in Switzerland. Organic growth should be made every year at the low level. And we have seen acceleration of business during the half year twenty twenty. And now we have seen the setback come to that. Americas dependence on foodservice. So there is a lot of foodservice business in there, which hindered better figures in the last year. And foodservice is partly recovering, not yet full recovering. But there are some other impacts we are seeing. I will come to those 2 that give us quite a nice growth rate of almost 12% organically. And in Europe, we see a constant acceleration. Also this on the surface, this looks good. But we see here that we have different parts of our assortment that is growing in different directions. So last year, we have seen overall, for example, good growth in organic products, also in goat products. This year, we have seen a great push in Italian desserts. Going on. So now I'm on Page 9. If we look at Switzerland, we see that we still have an increased pressure from dairy imports. This, on one hand side, of course, in relation to the pandemic. And of course, you see like, for example, a lot of fresh cheese coming in. We have seen that last year. Also, pizza consumption was on the high end, what do you find on pizzas in Portuguese? But this goes on. We see good exports on cheeses from Switzerland, but we also see still increasing imports, which means in figures now I'm talking about first half year of 2021, cheese imports grow by 7.7% still, and the exports are increasing by 8.1%, which, of course, then is something that lacks in Switzerland. We are happy to sell abroad if the prices are correct. But you don't see those sales in Switzerland, for example. Then a few highlights. Great growth rate in Brazil. So there, we have been investing into a new milk powder factory. And this is now up and running. And probably you ask yourself why milk powder is a generic product, and right, you are. But it helps us to balance the milk intake and also to balance sales. For example, if the milk price for UHD milk is too low and the milk is still coming in, we produce powder. And once the price is correct again for UHD, we produce against UHD and hopefully sell then the powder at the right time. So because this is quite a fluctuating market, we have to do some hedging in there. And then sustainability model, we implemented and communicated in February. I will come back to this. Then we had the belief almost launched but relaunched because we went into Swiss Oats, Swiss Ingredients. And also, we're doing a step up in communication. And this adds a lot because we believe that at least the big part of the vegan market is also becoming local in the future. Of course, there is space for global brands, but we think it's even more space for some localized products. Then we were merging the 2 companies, Caius and Solat, doing great progress there also during the pandemic, also looking for synergies. This was working well, and we are establishing ourselves as number 4 in the Chilean market. Then Pasticeria Qualifoglio, this is a company we acquired in October 2019. And we acquired it to strengthen our foodservice arm, and that's exactly what we are doing. So we were shifting over the retail business into Mediertalia, so into the organization, which is concentrating on sales to retail. And we are building up now, even building a new factory, to be sure that we can deliver on the demand in the service in the future with our Baseljet portfolio. And then we were also starting the construction of a new plant, producing mainly Lucerne cream cheese. And we think we have to be really at the edge of new technology there and also be ready to innovate for those kinds of products. So these are some highlights. I do not need to mention the strategy because this is unchanged. So strong domestic market, international growth, that's mainly what we achieved in the first half year And also some progress on the cost management also there, we have seen progress. Great to see how the desserts are progressing. We've earned last year how good the figures are. We were still in the positive with desserts, but we thought there should be more potential out there now we see it. So we see in all markets double digit growth, which is great. Then goat milk products came down because we have seen mainly in the U. S. Powder and in the milk business, the demand last year. This corrected itself. And we still have some issues with the availability of containers to ship some goat milk powder to China. On the other hand side, we see the fresh cheese going into food is strongly coming back. And organic was also more or less stable. We have seen a huge upswing a year ago, and now we are stable. So the success story here is really desserts. That's where we are growing very, very fast. And the others, they were a bit more impacted of the swing back to normal out of this in this whatever phase, second phase, third phase, 4th phase of the pandemic. Then strategically, of course, we still are working on differentiation, and we are always bringing out new products. We just launched, for example, in the past week. The super key fear on the new functional in the UK. Casual food is coming back. Of course, this was under pressure a year ago because people were not out in the streets, not muting that much. Now there is more use of such kind of products again. By the way, we also see this with Cafe Lape. Then plant based, we gave a push in different areas. Here you see the belief brand, but even bigger success story is Austria. And also Spain is doing well here. Coffee picking up again, double digit growth with Cafe. Latte in all markets or almost all markets. Then food as it should be, a clean ingredient sheet, so doing very well, also growing double digit this year. We were a bit in trouble a year ago, did a relaunch, and pushed also innovations there. And now we are seeing a great trajectory. Again, the search, I was mentioning. Industrialization, we are sometimes using our online shops and also doing e mail campaigns, gaining expertise in that field. And then, of course, green power mainly has to do with milk being sourced in the region. Here, we have a Spanish example. So 8 hours after the milk is coming out of the cow, it's here in the bottle, which is great and also experiment a bit with a more sustainable packaging here. So that's our fields where we want to grow, where we want to deliver innovation, and that's what we have been doing also in the first half year of twenty twenty one. Then the net sales by division, I go fast here. You see, of course, quite shift towards our international businesses, Switzerland being at now 42.5 percent and Americas growing, of course, quite fast from 33.8% to 37.7%, also due to acquisitions, global trade being stable and Europe also increasing in importance, but not that much as we do not have acquisition effects and also organic growth rate was a bit lower. I think what is important for you to understand is what is the recovery path of foodservice, and that's where I would love to spend a minute or so. What you see here is Switzerland organic growth. We have been mentioning it before. You see that the foodservice share is at 8 percent, organically minus 9% versus previous year, so coming down from 9% to 8%. For me, more important is the figure in 2019. '19, we had a 14% foodservice share in Switzerland, which means from 'nineteen to 'twenty one, we went down by 6%, and that's one of the issues we are having. We are not recovering those 6 percentage points of sales elsewhere. And this explains a bit the low organic growth we're seeing in Switzerland. Then foodservice in Americas, telling the same story. Yes, recovering, coming back. So we had minus 37% plus 36%. But here, it's not the foodservice as a whole that is recovering at this pace. We have been opening up new channels during the pandemic, and now we see the old channels coming back. So and the old channels are not yet back at 100%. But also here, we are coming down in a 2 years comparison from 22% to 19%. Europe, we are not that strong. In foodservice, yes, it comes down 1% over 2 years, but we don't that much. This is mainly due to Pastelcheria Paca Refolio here. Global trade, plusminus stable. Of course, in global trade, we sell quite some yogurts, for example, to Singapore or also to Hong Kong. And they're mainly into airlines and hotels. And of course, this was down too. And then on the group, we still see a bit of a negative effect of the foodservice business, which means that we hope there is still room to recover, but it's not so easy to tell when this is going to happen. If you look at the retail at the tourism figures and their outlooks, some of them are saying maybe in 5 years, we are at the same level again. So the question mark is how long does it take. So then net sales by product group, I will go quick here. Basically, what you see is from dairy products to fresh products. And this is exactly what has been happening last year. We have seen a shift into dairy products because people were stockpiling some of those products at home. Now those stocks are depleted. And we haven't seen an upswing of that importance last year with the fresh products, but we see a constant demand there. And that's what you're seeing then in the figures. Just to explain a bit how our picture is presenting itself. As I mentioned before, we see a total growth rate of 6.2%. Acquisition effect is 3.2%. Currency effect, that probably helped us because historically, we have always seen higher currency effects. But this is a very stable situation for once at least and then the organic growth. And just referring to the currency effect, yes, we see that stable, but we are not sure whether this is remaining this stable because with the inflation starting every month, of course, you are paying the inflation and also with some differences in the strength of local currencies. The highlights I mentioned, I think I don't need to go into details. I think the branded business, I didn't mention that much so far. We see a nice growth with Emica Felate, really great double digit, as I said, in almost all markets. Also, Karlbach growing double digit, which is a bit more of a surprise because already last year, cheese was very much asked for. And then what really helped us and regardless coming back to this is any dessert U. S. A. So we were buying this more foodservice oriented company last year because we have seen that it was holding up quite well. Even during the pandemic, it was slightly negative trajectory but never as negative as the whole foodservice market and because they were able to open up new channels. And now they have those channels and foodservice is coming back. So we see very, very nice growth rates there. Then we see our emerging markets growing very nicely, all between 10% and 20%. Some of them are a comeback like Mexico, where we need to come back. We are foodservice oriented. And the others already have been growing a year ago. And Europe really pushed by desserts, by Aga Filate and Kalpach. And as I said, Switzerland, and I will come to that a bit more in trouble. Then we see Switzerland here on the next chart, now on 17. I think here, it's important to note that we also had a positive effect of a milk price increase for the producers of around 1%. So volume wise, we are even a bit weaker. What we have seen is a strong comeback of cross border shopping. And some of the trade channels I'm talking to, they're saying it's back at the same level. And some of them are still saying, there might be even some room for acceleration in the second half of the year. Then what we see in Switzerland, especially, is more production capacity coming online. So we have smaller tariffs coming online, being quite aggressive on prices, and we decided to let go a bit of sales in the generic segments because they can produce negative EBIT. And they will learn it over time that there is no future for them. So we do not need to follow everybody with the low prices. But this will have an impact in the second half year and even an impact into 2022. I will come back to this. So dairy products, I already mentioned. Also, there is also an impact in dairy products with butter. You know that Switzerland needed to import butter during the last year. And some of the industrial clients, and now it's getting complicated, are doing a system that is called Veredelungsvokeo, which means that they take imported butter, they produce whatever, they produce bakery products, and they export it again. And in the past, they have been using Swiss butter, and we were able to sell them our butter. Cheese is going down. It was going up. Now it's going down, but the mix is okay. And fresh products, we love the development here with Emica Fe Latte, also with yogurt pour, so with the added value product here. Private label business is a bit suffering due to the overall trend of this retail. I go a bit faster in North America because there is less to explain. Great organic growth in cheese, dairy product and fresh products. And of course, also the exports out of Switzerland are doing well into this region. So we are really happy. What we are seeing more for the second half of the year is, course, that the prices for different input materials are going up, logistics costs are going up, also salaries are going up. And we also might have some heatwave effects in our coat business in the San Francisco areas. So there is there are quite some things going on. We believe we can manage quite well, but we also believe that you're not going to see this progress any more for the second half. We can come back that a bit later. Then here you see the fresh products doing well overall and pushing the division Europe. And you can read the organic sales rate. I was already referring to desserts and cafe latte. And 3 products, I mentioned, glasinate with a slight setback, so a great growth rate last year. We weren't able to keep that momentum. Also, the market was not able to keep that momentum, and we have a bit more pressure again on the business model of Glasunet. But we are also observing a very nice progress with the branded products. Now I'm coming to a few strategic topics. We are still working on the portfolio transformation. I'm now on Page 21. And here, you see how we develop our portfolio over time, being regional in Switzerland, becoming national in Switzerland, then with the actual work entering the new markets, mainly in the surroundings of Switzerland, then going more into niches and also going more into emerging markets and meanwhile, always developing our mix and our portfolio. And how we do it? You might be familiar with this. Here you see example of Italy. And before I joined the company, the MED acquisition with Pretiallate yogurt in Italy, which was a bad move, but it's always easy to say afterwards. And then we had that business mainly consisting of yogurts and exports out of Switzerland being, of course, far not profitable. And then we said we need to totally shift it, bend into desserts. I made the acquisition of the leading dessert player in Italy with A27, then wanted to diversify the portfolio, already at that time going more into vegan, going more into different formats, also going into there with Raquelin. Then we had to build a new plant because we inherited an old site for 827. We sold then Fantina Lape, sold Venkiaredo where we had a minority stake in fresh cheese producer, then have seen we even need to further expand the portfolio with desserts, small portions and also products in glasses, really premium offerings, close then Pranccio site, integrated it into Cartico, then acquired a service branch with Pasticeria Qualitfolio. And then, of course, out of that formed any Bicert Italia. Now we were complementing last year this Italian branch with the Ami Desert U. S. A. Branch. And you see this then here that, of course, on the next stage, we were able to work very much on the portfolio, have different offerings, can go from small mono to big packs, glasses, for example, organic, we can offer a lot. We have some very nice brands like the Sorpissimo, where we are by far market leader in this specialty in Italy. And we were also still are building up a premium brand with Braceli, which we want to push a bit more next year. And like this, we are establishing more or less a global presence with Italian desserts. Emmy Desserts USA still being focused a bit more on foodservice and Emmy Dessert Italia still being focused more into retail. But we have quite some synergies as, for example, any dessert USA was always using fresh mascarpone from Italy. So of course, we can buy better in Italy, mascarpone that they put, for example, from the U. S. So we can now play a game and can become stronger and can also streamline ourselves a bit more in this area. Then another strategic point is sustainability. As I've mentioned before, I think it was the right timing we had. And we were communicating earlier this year that we want to concentrate on employees, communities and the planet, which means on our stakeholders. We also went into the direction of science based targets. So we have to make sure that we not only talk about it, but we also have some quite measurable objectives we want to achieve. And we also want to go into direction of net 0.50. And on the next page, you see how this all comes together. So I'm now on Page 27. You see stakeholders we are having here. And then we have, of course, 2027 targets with developing employees, pushing sustainable dairy, where what means that we want to have an above average standard of 100% of our any global milk supply. And then we want to continue working on reducing emissions. We already achieved in the past years minus 24 percent of our in our own control. We want to go up to 60%. And then we also are working on scope 3, which means mainly with our milk producers. Reducing waste, of course, is an issue. We want to have recyclable packaging. It's at 100%. And we want to further reduce rubbish and food waste. We always already have quite a good track record, but we still can improve there. And then we see also during the phase and droughts, of course, that we have to work on water. And therefore, we say in most areas, we only reduced by 15%. But in risk areas like Tunisia, for example, like California, we want to reduce this by 50%. You also see the sustainable development goals of the UN, where this pays into. And then, of course, this should be to the benefit of our shareholders but also the stakeholders. Here on the next page, we have just not only talked, we have also a few examples how we work with people. We already have since years a training program in Switzerland where we're taking in young talents, and now we have that in Italy as well. And very good people we hired there, so we love them. And also, it's good to develop the company culture with those young people. Then we have the Vitali Foundation in Tunisia, where we are investing money to promote regional milk production. In the past, we already had a bit not enough milk, and so that was a struggle. Last year, it was a bit better. Also half in the second half, it was better. Also this year, first half, it was a bit better. But learning them how to do better farming and more sustainable practices, we can only profit also on our side. We are strengthening also the women because normally the women are having the cows in Tunisia. And then we are also experimenting and going towards a particular economy here with Kaffir Late. This is a few strategic things and highlights we're working on. Now I'm handing over to Ricardo. Ricardo, thanks. Thank you, Urs. And women not only have cows, they also have the finances under control. So good morning also from my side. You heard the reported sales were up 6.2%, driven by a strong organic growth of the 3.7% percent and there with proving once again Eni's quality backed by a very disciplined strategy consistently transforming the portfolio and an agile organization willing to learn and adapt continuously backed by a very strong company culture. What we like about the 3.7 is it's broad based and it's of good quality. Growth came from where we want growth to come from. You heard it from Urs, the geographical growth pockets, the emerging markets accounting for a good 15% of sales our strategic niches, mainly the dessert our brands with a double digit performance from both Cafe Latte and Kalpa. The solid, acquisitory growth of 3.2% was mainly driven by Emmy Desert USA, who is performing above expectations. For the full year, we expect to come in around the guided 1% to 1.5%. I remind you closing of the transaction was early October last year. Foreign exchange reduced sales by minus 0.7 percent negative developments mainly of the U. S. Dollar and the Brazilian reais and have been partly compensated for by positive developments of the euro, the Chilean pesos and the British pound. The gross margin stood at a high 37.2 percent, representing a very strong increase of 107 basis points. This is again an exceptional result and it's a testament to our continuous and consistent portfolio transformation. The majority of the increase is driven by the acquisition of Emmy Dessert USA. However, we have seen gross margin increase across all divisions, driven by the good quality of the growth. The operating expenses came in at 27.4 percent of sales or plus 64 basis points, driven again acquisition effects. Emmy Desert USA has a significantly higher percent expense ratio, a return to a more normalized spending level of marketing and sales. However, also, and this is our watch out as we go into the second half and twenty twenty two, increasing pressure on input costs, namely logistics and freight, packaging and with the labor market upside down in the U. S, wage increases and of course also influential trends. EBITDA rose by a strong 10.9%. The margin came in at 9.9% or plus 42 basis points. And finally, EBIT came in at EUR 129,400,000, a very strong 15 point 5% above prior year at an improved margin of 6.9 or plus 55 basis points. Lower May temporary, namely SAP due to end of economic life, gave us some tailwind. This is quite an exceptional result. Strong growth driven by the recovery of the out of home market and very strict cost management coming out of a difficult 2020 help us. H2 will be softer as we will start to let 2 very strong 2020 quarters. Marketing and sales spend will return to a more normalized level, and we will further increase marketing on Emicafe Lata to further drive the very good momentum. Input costs will continue to increase, not only driven by the global supply chain challenges, but an increasingly inflationary environment. And as you know, it will take a few months for pricing to catch up with input cost increases. And as Urs said earlier, last but not least, we expect FX headwinds, which pressure not only Swiss imports, but also our P and Ls for translation effects. Page 31 gives you a deep dive into our cost positions, and I think I've made my comments on why some of those ratios went up and what to expect going forward. Page 32 summarizes the EBIT to net profit ratio. Net profit after minorities was up 21.4 percent or 60 5 basis points. It's important to note that we have some extraordinary effects that drove this substantial margin improvement between EBIT and net profit and that we expect to normalize in H2 2020 2. One of them is income from associates and JVs. Disposition was up EUR 3,500,000 year over year, mainly driven by a stellar 2020 performance of some of those associates. I would expect this number to normalize next year, trending around 0, in line or hopefully slightly better than the historic trend. The other one is financing costs. Financing costs were down EUR 3,500,000 year over year, mainly driven by better FX results, something again I expect to normalize in H2. For the full year, I would expect this number to come in around or somewhat better than last year's figure. Tax rate came in at the guided 16.5%. We confirmed 16.5% for 2020 full year and accept an increase towards 17% next year as we continue to grow internationally and see higher tax rates there. Finally, minorities were up EUR 3,000,000. Drivers are additional minority interests following our acquisition in the U. S. Semi Dessert USA and a strong performance mainly in Chile and Tunisia. As you know, strong local partners are part of our M and A fee. Page 33 summarizes our cash flow profile. As you know, Emmy has a strong and stable operating cash conversion of roughly 80% of EBITDA. H1 is always a bit weaker, and H1 has been particularly weak as last year we had extraordinarily low stock in Switzerland given the strong COVID related top line development. So year over year, the cash flow is driven by substantial stock build up to a more normalized historic level. What's important for the full year, we expect operating cash conversion around 70%, therewith compensating the extraordinarily high 90 percent last year and bringing those numbers over 2 years down to and in line with our organic average of 80%. Moving to Page 4. CapEx was up EUR 3,000,000 year over year and mainly driven by strategic investments, building out our strategic niches, growth markets and differentiation. We retain a high capital discipline, the result of which is also visible in our continuous ROIC progress. H1 came in at 8.5 percent or a good 100 basis points higher than last year, driven by an improved operating margin. For the full year, we expect CapEx to come in as guided earlier this year around EUR 170,000,000 or EUR 180,000,000. And with this, I move on to our strong balance sheet on Page 35. End of June, net debt stood at CHF 196,700,000 or at 0.5 times EBITDA or in other words, we continue to have room to support our growth. And with this, I hand over to you, Urs again. Thank you. Thank you very much, Ricardo, for this very rich presentation. So now we come already to the outlook. And of course, we give you some hints where we see second half of 'twenty two, '21 and also try to look a bit already ahead into 'twenty two. On the outlook, of course, we continue our strategy, which means promoting branded concepts and innovations in Switzerland. And we still want to further optimize the product range and channel mix because also in Switzerland, we have new emerging channels we have better to collaborate with in the future. And then we need, given the pressure we are seeing, to maintain the high cost discipline and also we need to invest in a differentiation because in the end, if you have differentiated product and only a brand, it can also be packaging, then we are able to hold up the price pressure we are seeing. The challenges, of course, is are the fragile recovery of the foodservice business but also the industrial customer sector. And of course, 1 year ago, it was about product availability. And there, we were very good. Now prices are coming back and price pressure are coming back. Of course, this has to do with aggressive discounts in Switzerland, but also with cross border shopping tourism and obviously also rising input costs, so which means on the client side, we are going to see that and we are also going to see that on our side. So this will be a very nice challenge for the remainder of the year. Then internationally, go ahead with strengthening our network and the branding concept. We want to drive organic growth and still see this development and transformation of our portfolio in all subsidiaries but above also in emerging markets. And then we just need to maintain strategic momentum we're seeing in niche business. And in some, we have to regain it like in gold and also a bit in organic. And yes, we still need to compensate because we think the foodservice is not coming back within at the same level as 2019 within the next 12 months. So we need to also find new channels and new opportunities how to reach consumers that might be still a bit more at home also in the future. We see quite some uncertainties in the business. Just looking back without memory and with the experience I have, I see more than usual and even much more than usual because we see the pandemic still going on. We see the inflationary pressure, rising input costs, macroeconomic development that is not clear. The U. S. Economy overheating, how long is it lasting? For example, labor market, we are having lost sales already now in the U. S. Because we don't find the people to produce during all the shifts. We would need to produce some cheeses there. So there are quite some challenges and uncertainties, not to mention FX because we believe with the inflation, FX is coming back on the agenda. And we have been profiting in the first half that this was not the case. You know what we're doing. So I think we just have to continuously work on the culture, on the costs, on the portfolio, on the innovation. And if there are opportunities, let's jump into those opportunities. And of course, we also have to make sure that we are progressing with the EMI sustainability model because we see it that this is a real part of what the consumers and stakeholders are asking for. And it can even be, for some business models, also something we can differentiate with. Of course, you see the assumptions. We do not assume that, for example, the pandemic is coming back with full force, for example. And we still believe that at least the economic performance is going to be more or less stable. As you have probably seen, we are increasing a bit our outlook for 2021. So the group sales, we believe they are revised, and we believe that they are between 2% and 3% by the end of the year. Old estimation has been 1% to 2%. Sales in Switzerland, we took down. And we even also seeing July, we believe it's more towards the 3.5% than the 2.5% because we're still also talking to retail in Switzerland. They believe that second half year is going to be significantly below the second half of 'twenty. And of course, this will also hurt us a bit. Then we were able to increase Americas. Initially, we said 4% to 6 percent. Now we are at 7% to 9%. We were able to increase Europe 1% to 3%, we said. With the figures we are seeing, we see it more at 3% to 5%. And EBIT, we think we are well positioned to reach the midpoint of our guidance as well as with the net profit. I think just to give a glimpse into 'twenty two, we do not change the medium term forecasts. But all I know and looking about looking at the sales development in Switzerland and also the discussion we are having here, I see Switzerland for the next year more at minus 2% than at this regular 1% to at 0% to 1% plus. So important to note, we still see a bit of hit for next year. And then we believe that we can recover later on and come back to these growth rates. Nothing changed for the rest of the regions. So thank you very much so far. And now we would open up for your questions. We will now begin the question and answer The first question comes from Patrick Schwindeman from ZKB. Please go ahead, sir. Yes, thank you. Guten Morgen, Harriett and Ciao, Ricarda. My confidence for the strong results despite the high prior year basis. My first question, after the strong H1 result, your unchanged EBIT guidance seems to be conservative. I mean, you gave some reason for it. One reason why it's higher input costs for H2. In percentage. What increase do we expect overall as rough estimate for the input costs in H2? And when do you think can you absorb this higher input costs, this higher price and lower costs? You're mentioning a few months, but could you be what do you expect here, I mean, also for next year then? What was the organic sales development in July? Was it similar to H1? Can you give us here some hints? And then the contribution from M and A was higher than expected. I guess it was thanks to the strong performance by EMEA Desert in the U. S. Where is EMEA Desert in the U. S. Currently in terms of the EBIT margin? And do you expect here some margin pressure in H2? And last question, the contribution from associates was much higher than expected. You were mentioning that this will fall back to around 0. Can you explain what is really behind these volatile numbers? Thank you. Thank you. Patrick, I will start with the EBIT guidance, and then Riccardo will complement mainly on M and A and the last question. So the EBIT guidance, we believe that we can achieve, as we said, the midpoint of our guidance by the full year because I think we are in an extraordinary environment, mainly input costs wise. And as we say internally, a lot of the younger generation is not used to an inflationary environment. And this is something we also have to discuss with our trade partners because their expectation in their mind is that prices are going down. And this is not going to be the case anymore. So prices need to go up. And we know that normally, it takes us more or less depends a bit on the market. And I do not want to say it officially because otherwise, everybody is postponing the price increase we are asking for. But honestly, there are some months, I would say, of a delay in there. So sorry for not being clearer there. And what we are seeing is actually that and this is a very rough estimation, but just taking some figures I know is that the input cost effect might be a figure like SEK 10,000,000 plus this year and probably at least that's what we are seeing, at least. And therefore, that's something we have then to somehow compensate for, and there is going to be a delay. And given all the other things, FX, for example, translation effects, not being able to deliver, we have an estimation that we are losing quite some sales already in the U. S. Because we do not have the staff to produce the products. So things like that make us a bit cautious but also realistic. So I wouldn't see us on the very cautious side. I think we are on the realistic side. And as I always said, you can always be more optimistic, but don't blame us afterwards. Then organic July is coming down in Switzerland. So we had a weak month in Switzerland in July, but I have to explain that we have one day less in July. So one bidding day less, which means, of course, already minus. I was also able to talk to a few clients last week, and they all have seen a very low July. And this had to do, of course, with Swiss people going abroad, traveling, had their input, whatever. But July was not good. We're still on the trajectory to what we're saying. We have even seen positive growth in Europe and also in the U. S. So in Americas, in line what our objectives are. But there was a bit of a hit in Switzerland and honestly a bit more than we expected. So we have to catch up. And this makes us our makes also the outlook a bit more prudent on our side. And this was the reason why I said I see it more at minus 3.5 than at minus 2.5. Mr. Margher, Patrick. Thanks. Mr. Margher, Patrick. Thanks for Virini Frog. As with regards to the acquisition effect, so the positive acquisition effect is coming from Ethmi Desert USA. And we have no longer a negative dilution from Lacteos Caprinos, who we have divested end of last year. So these are the 2 primary effects of the M and A effect. With regards to the Emmy Dessert, yes, we are better than our internal business plan, and that's good. And that's something we will continue to drive going forward. When it comes to margin, I would expect also those margins to come slightly under pressure going forward. It's a fairly labor intensive business. The labor market in the U. S. Is upside down, as Urs said earlier. Wages are going up. And therefore, also together with input cost increases, those margins will face quite some pressure going forward. Of course, we have our tools and our mindset to work against it, but certainly some headwinds to come there. And with regards to your 4th question, I'm sorry, but you have to repeat it, please. So I mean, the contribution from associates was much higher with plus SEK 3,100,000. You were mentioning that this will come back to around 0 for next year. Can you explain what was really behind this very volatile number? Yes. So this is a bunch of participations we hold. It's about 15 entities. And they're more active in, I would say, sort of like the more daily focused environment. And some of them have had a really good year last year. And therefore, we have a positive contribution year over year. And as we see the environment normalize, we see also those results normalize and trend back to a historic level. Historically, this number has been slightly negative. We're also working that number to turn it positive for next year. I would, as I said, expect hopefully a positive 0. Okay, perfect. And regarding the EMEA, there's a decrease in the U. S, the current EBIT margin was around what level? It was nice, it was nice, she said. But she didn't want to tell you more. But higher than the 6.9% of the group? That's what we expect from a niche. Okay. Thanks a lot. The next question comes from Jorn Ifeld from UBS. Please go ahead, sir. Good morning and many thanks for taking my questions. The first one would be please on the Italian desserts. Can you share with us what was where the growth rates in the first half twenty twenty one? And also looking over the last couple of years where the organic growth tracker clearly improved. To some extent, it was goat cheese being a booster, then it was slowing down. It was organic a booster, slowing down a bit now at Dettai and Desserts. What's in the pipeline for the next 2 to 3 years? And the second question would be, please, as Switzerland is likely your key profit tool, as we also can derive from your tax rate, let's assume it's 70%, 80% of your profits, if I may say. And should we think about the medium term that Switzerland is coming a bit under pressure and you can overcompensate this by international markets? And then the third question, please. The EBIT margin track record between 2015 and 2019 was more muted and this increased significantly recently. Is this more muted time period on EBIT margin development now over and shall we expect continued improvement in 2022, 2023? Many thanks. Yes. So if you talk about the niches like the Italian research market, we have always been growing in the past. But normally, we have been somewhere in the mid single digits. And even during the pandemic, honestly, I was positive surprised that we were able to post positive organic growth. Also, I think it was around 3% or so in the past year, which was good. And I was surprised because I thought that could be also a country. And what we have seen now is mainly through putting all the resources together and establishing a more professional team, having more a kind of a category and portfolio approach, we really can outpace our competitors because the competitors are still selling single products and we are selling more and more concepts and are a well trusted adviser of our retail clients. And this affects with opening up new channels. And here, we are talking about a lot of different markets, even going into South Asia, working very well with global retail chain, for example. So this brought us up to double digit for these Italian desserts. And we believe that we can kind of uphold the momentum, whether it's always going to be double digit. Honestly, I don't know. But that's the idea. So we have a stronger team. We have a better portfolio, and we are well set up there. And we also improved our production footprint and are becoming more diversified, as I explained earlier. And you then were a bit referring Go Cheese. Yes, sorry, but there was a pandemic. And if you forgot about it, I'd have to remind you because we have seen some ups and downs there. And for example, fresh cheese, the big logs go mainly into the restaurants because you find them on salads, for example, and there were no sales. And what we have seen on the other hand side is, of course, then the milk powder and the milk, and this is not going to remain. But we see the gold recovering, and we see it coming back to mid- to high single digit growth as it was in the past. So I have no worries there. It's just a bit of an up and down, and we have to live with it because we know where it's coming from. Then referring, yes, of course, we are constantly working on the pipeline, also trying to innovate in all those niches, and we have a very strong focus on that. So I have no worries overall with the niches. I have a bit of a worry with the organic at the moment, but we also believe that this is due to the pandemic. And then we also have to admit that we still have to do some homework with that. Then the Swiss business, we know that it has always been a bit under pressure EBIT wise, but we also see ourselves in a good position to defend ourselves because we are the most important player in Switzerland. And this has a strategic value. And this strategic value can also be translated into pricing power. And then we are constantly working less only on sales but on the mix. And if we grow double digit with Cafe Lape, that's a good thing and poor. So we have really to work on the branded portfolio. So we do not look at the total sales. Of course, it's nice to uphold them and have a slightly organic growth rate there. But we look more at the quality because the future is the quality of the sales and not the quantity of the sales in Switzerland. And you're a bit in the past with your estimation of the Swiss EBIT. So that, of course, that was once the case, but that's what we are constantly working on. And we always say the progress is coming from outside of Switzerland. That's what we have been seeing in the past. So we do not need to hide ourselves regarding the EBIT coming from some foreign companies. EBIT 2022, maybe Riccardo is saying a word on how we see it with the future. Well, with regards to the future, if I look at how you guys project the future in your consensus numbers, I think you're not so far off. They look quite reasonable to us. Yes. And important to note, yes, it was extraordinary. Yes, it was also a step up we needed to do because we were not showing the step up a year ago. We expected, without a pandemic, a step up already last year. But I know that you love those drawings where you just can draw a line. It's not going to be a line. There are going to be ups and downs, and we have some reasons to believe that there are also some things out there. We have we will see an impact in our P and L in the future. But of course, we want to improve. But don't nail us down when we improve and what rate to improve next year, the year later. But we want to continue the story we have been showing in the past. That's great. No, many thanks for this. But just to follow-up on the margins because the EBIT margins between 2015, 'nineteen were more or less flattish. And this improved quite a lot in the last 2 years. And I just wanted to double check and this is my assumption that this period where we have flattish margins over 3 to 4 years is slightly over. Would this be a fair conclusion? What I would expect is that, yes, this higher level, we should be able to keep and we want to further progress. There were always good reasons why we didn't do this progress in the past, and we have no idea what good reasons there in the future why we are not progressing. But if you take translation risks, for example, if we would see the Swiss francs strengthening again by 5%, this has quite an EBIT impact in the end because we are translating those figures from outside Switzerland into Swiss francs. So there are some things we cannot influence. But basically, the quality of the business has improved, and we are very happy with it. And we thought this should already been should have been earlier the case a bit, but now we showed it, which is good. So I would more flatten the past than draw it into the future. Very good, very helpful. Many thanks to both of you. The next question comes from John Cox from Kepler. Please go ahead, sir. Good morning, Ricardo. Thanks, John. John, we don't hear you. Sorry. Can you hear me now? Sorry. Now it's good. Yeah, now it's good. Okay. Apologies. Good morning, guys. Yeah, well done on the results. But I don't want to accuse you of sort of grabbing defeat from the jaws of victory, but you tend to be quite cautious on a lot of lines you're about 40% of your business. Your margin has actually gone up. So that should reassure people that Switzerland is just uber profitable when the rest of the business is not so. And looking at your midterm targets, 2% to 3%, obviously, if Switzerland gets smaller, maybe that target should be 2% to 4%. So that's a bit of a preamble before I get into the questions. But just on the foodservice slowdown, which seems to be quite a big contributor to what's happening in Switzerland at least. Talking to other companies with foodservice exposure, they are making adjustments on that, assuming it won't come back for a long time. Wondering what your plans are. Is it really about trying to find new parts of foodservice to expand into to make up for that shortfall you've seen? Or do you think there will be adjustments? To come back to my what my colleague was saying on the profitability generally, are we right in saying that the profitability of international is now much closer to Switzerland than it was? Or is there still a fair way to go? Because then that would give us comfort in terms of the good growth dynamics we see. And then a question on the desserts. You mentioned this is quite an interesting business for you in the U. S. And in Italy. Can you give us a rough idea how much your dessert business is now as a proportion of group? And then just the last question, sort of echoing Patrick when he was talking about the associates. Mine's on the minorities. Minorities looks higher. Obviously, that means that weighs a little bit on the net profit and EPS. Do you assume that we can just double that for the year and assume that sort of more 2016 to 2017 annual minorities outflow going forward? Or would you say it's already a bit of a one off because of what's happening with the COVID unwind? Thank you very much. Thank you. I will at least try to answer some of the questions. I think you're correct when it comes to the growth rate. If you're saying probably we are going to see a bit more volatility. And the more we are in emerging countries, the more we are going to see a bit of volatility. This is one of the challenges we are seeing going forward, not only when it comes to the top line, but also when it comes to the results. And of course, we try to balance that out with being active in different countries. But as a group, normally, we are not used to see that kind of volatile environment, mainly when it comes to input costs, prices, retailers, buying power, political issues out there. And this is not so easy then for us to predict what kind of growth levels we are seeing. And then coming to the foodservice question. Of course, foodservice is important to us, but it's not that big. And I think the best move we made was setting up of our own foodservice delivery organization. Now it's around 3 years ago. That was the smartest move we did because you wouldn't want to look into our figures. We're still owning our own fleet of trucks delivering to foodservice clients. So we have already seen that in the maturing market, this is probably not our thing to do it. There are more specialized, mainly clients from ours. And so we handed over the business to one of them. And now they have the impact, but we still have it, of course, a bit on the sales, which means turnover side. I think our challenge is then, of course, to open up also new segments. We have, for example, launched also a vegan range in foodservice. We are also collaborating very intensely and launched new products with some of those very famous worldwide chains in foodservice, which means in fast food restaurants, for example. So that's ways how we want to promote it. But we are not so unhappy if we sell less of generic milk in our P and L. I can tell you because if differentiation and EBIT is okay, we love to do the business. Otherwise, we don't want to do it. And profitability, I wouldn't bother that much because we have seen, of course, that we are able to uphold Switzerland and to improve outside of Switzerland. And there is no reason, we believe, why this is not going on. Having said that, with a bit more fluctuation maybe in the future because of some emerging markets. Then the research market is a bit over SEK 300,000,000 already, including the U. S. Business. So this is nice, and it is growing. And of course, we have a very good setup, and we still believe there is potential because the U. S, for example, is the biggest dessert market in the world. We have carved out our niche, but we are not in a position where we have very competitive fights. So we still can find our way to invent new niches or also bring to market innovations and be more in a blue ocean there than in a red ocean, if you know what I mean. Associates, once again, Riccarda? Yes. I think, Jon, your question was on the minorities then, no? Because on Asia, that's what I can say. And as for the minorities, well, I hope this is at least going to double for the second half and it's going to continue to grow, because it means that we're making very good progress in some of those very strategic and recent acquisitions. Okay. And one of my biggest follow-up just on the medium term guidance, just given the mix and what's happening with your business and expansion internationally that I'm not talking about next year, but potentially that midterm guidance could actually be raised from 2% to 3% for the group to maybe 2% to 4%? We will talk about it once we are there and we see it. Thanks very much. At the moment, this is our guidance. The next question comes from Pascal Ball from Stifel. Please go ahead. Yes, good morning all. I have a couple of questions. First regarding foodservice. Can you give us some details on how much of this foodservice recovery was driven by new channels and how much was old business? And is there potential that old business recovers that we're going to see there disproportionate growth then? Secondly, on the guidance, you keep the absolute EBIT numbers stable while you keep your guidance in margin terms for the net profit line. How does that work? What's the explanation there? Thirdly, regarding the Swiss business, I think at the beginning of the year, you were more cautious for H1, more towards a decline of around 4%. Now you came in at 3.3%, but you are more cautiously on H2. What's the but you are more cautiously on H2. What's the potential that is this more conservatism or do you see really red flags here? And finally, on M and A, we haven't seen something announced in H1. Is there something closer in H2? Thank you. Yes. The M and A question, we're never answering. We are constantly monitoring the market and also, as always, looking at targets. But whether we bring them in or not, we do not want to explain in public. Then the new channels question on the foodservice. What we have seen is it's difficult to open up new channels if you have a very specific business model, which means like any dessert in Italy, we were, for example, serving the restaurants directly. So it's not easy to find new restaurants if all of them are closed. But we can try to collaborate with some industrial partners, and that's what we are doing. In Switzerland, it's very difficult to find new channels at all because we have so huge channels, mainly Migros and Coop, who are also active in foodservice. Of course, you find here and there a few 100,000, but it's not so easy to compensate. If you then take the U. S, totally different story. We had a kind of a customer we were working with. And of course, that customer then thought it would be great to have a kind of pizza. And as we were already collaborating with the customer, this is probably around, I don't know, on an annual basis, close to 10,000,000 basis we were bringing in. And there, we're expecting the other channels to come back, and they're going to be additional. Emmy Dessert U. S, as I said, during the acquisition, as we have seen the restaurants shutting down, we felt they're going even almost so before the acquisition, we thought we have to monitor closely what they're doing. But they only lost about 5% to 10% of sales. But they had about 70% of sales in foodservice. So it's a totally different picture. But overall, and it's very difficult to say it overall, probably from our foodservice part, we are seeing 80% overall. And there is still another 20% to go. And then we hope that some of the new channels will seek. But the question is over what kind of time this is going to be. Then Swiss, the red flags, yes, you're correct. That was a bit more positive on the second half. But as I mentioned, seeing new competitors or new capacity coming into the Swiss market, mainly for FluidMIP, and they're already active. We lost some packages at bigger clients, and this will have a negative effect into also going into 2022. And why did we lose them? Answer is very easy because of pricing, because we do not want to bring down the whole market under pressure. And then we have one customer doing some insourcing also, So strategic decision on their side. On the other hand side, we can also, as you might have seen, with that customer, if you know what I mean, you also see as a compensation that we have launched BELIEVE in the biggest retail channel in Switzerland just a few weeks ago. We have a push with Aktivit. So we more work than with our strong products. And you see it sales wise, but it doesn't mean that you see it profit wise. Then your EBIT questions, again, I hand over to Riccardo. Yes. Thank you, Pascal, for your questions. I mean, as for the guidance, this is our most realistic assessment of both the bottom line as well as how this translates into the margin picture. And I would just like to add again, because I've now heard it so many times, this guidance was not conservative at the beginning of the year, and it's not conservative as we see things now. As I said earlier, we have 2 very strong quarters ahead of us, and we have a retail momentum that's coming back. And we have rising imposed costs plus on top an inflationary environment and a difficult labor market situation in the U. S. Just to give you an example, the Dessert business is seeing 10% of the EBITDA melting away from higher logistic costs year to date July. Just to give you an idea for the impact of those higher input cost prices. Okay. Thank you. Thank you. I think we have time for one last question, and then we have to stop it. The last question for today's call is from Andreas Von Aerts from Baader. Please go ahead, sir. Hey, good morning. Just also four quick questions for Marcellus. First one is on the cash flow statement. I didn't get that change or the reasoning on that significant inventory impact on the cash flow statement. And to what extent that is seasonal or structural, if you could repeat that one? Then I have a double two questions on Latin America. I haven't heard a lot about Brazil. If you could provide here an update, big level, what's going on, maybe also big CapEx projects? And on Chile, I mean, are you really happy with the number 4 position in the market? Or is this just a number 4 general position and you have more like a leadership position in niches? I mean, as I know, you, Mr. Tiernan, I'm not sure a number 4 position is what you really would like to have long term. And then lastly, coming back on that Switzerland topic. I mean, if we go a bit higher level, I mean, you, a couple of years back, promised an acceleration in organic growth in Switzerland. And now we are experiencing a declining phase in Switzerland that will last at least for 2 years. I mean, could you give some high level indication on what the profitability is doing in Switzerland? I mean, is that rather stable absolute or the margin and not specific here, but just general over time? Because I mean, the question here is, is there is that pressure that you're seeing really impacting profitability or not? I mean, if it is impacting profitability, what are you then doing? Is there a cost saving program? And is that impacting your midterm margin outlook? Or is that something that is not really having that much an effect? So here, your insights will be very helpful. Thank you. Thank you. I will Ricardo will start with the cash flow statement. Yes. So as for the cash flow statement, that's Andreas, is a seasonal effect. And it's very much driven by a very, very low inventory last year. If we look at so H1 net working capital in percentage of sales came in at 15.5 percent, and that compares to H1 2019 of 15.2 percent. So yes, we're slightly on the higher side, but we are on a more normal level. Last year, we were at a very low 14.7%. Then Latin America. So we are overall very happy with our Brazil operations, of course, and that's something we still have to learn, but we knew it before. We have ups and downs, quite a fluctuating market, mainly when it comes to pricing, profitability and also sales. So we see wonderful months and then we see what's happening again, then we see wonderful month again. So that's a bit of a challenge. That's also the reason why we invested into this milk powder tower to better somehow have a more stable result there. So that's an investment we did. Then we are just ramping up in Espirito Santo, a new UHT plant. We have been active selling into Espirito Santo before out of Minas Gerais. And as there are, as you know, duties between the states, we decided to go into that state and becoming the leader in that state. It's a small state, of course, compared to Minas Gerais, but also we believe that there is quite a nice profit potential there. And then we are still working on the portfolio, pushing the yogurts. They are developing well, but it still needs time to further improve that. So overall, happy. Chile, you're absolutely right. Of course, we are in stating this also in the presentation, you're correct, number 4 overall. But we are more looking at the segments in the end. And as you know, in the past, we haven't been that happy that we are a leader in the UHT milk, and we are still leader in the UHT milk, but that's not the part of the business we are most happy with because we see also some fluctuations there. But then with the acquisition or collaboration joint venture with Gias, we are also market leader, for example, in the fresh cheese. We are also market leader, even if it's very small niche in some of the functional products. Also in vegan, we are progressing. Even we have a bit of cold. So we're even building up those niches. They're very small, but at least you're a leader in those. But I would say the most prominent and the most important position is the fresh cheese position because there, we have a wide array of products. And also with Gias, we have more premium brands. This was also always a bit an issue because Surlatt means milk from the South. So it doesn't position it very well. There are other milks from the South, obviously. And Switzerland profitability, if you look at our internal figures, we see it stable. We have been in till a few years ago, we have been improving it further. Now we see it stable. And the game is very easy. We have pressure from the sales. And it's not like other companies, big consumer goods, who think companies who think now we have to do a big restructuring. We are always doing our homework and not only if a new CEO joins. And therefore, we are also working on a lot of EOE projects. And of course, we have to keep up the profitability, and we care a bit less about the sales because the sales, we can do better and cheaper with better profitability elsewhere, the additional sales. Thank you very much. Good. Thank you. Then last slide from my side is just to remind you that we will have an investor update on sustainability. So we'll have a webcast where we can go a bit more in-depth in what we already have been doing, what we want to achieve till 2027 and what does it mean to have that net 0,250 vision. Thank you very much. So I thank you for your interest in Emmy. Thank you also for the compliments we got on the half year result. I think it's always good if we have good results also to walk through the world with open eyes. That's what we are doing, seeing a lot of opportunities but also seeing quite some challenges out there. And we will do our best to balance both to be able to have a great 2021 results. Thank you very much, and have a nice day. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.