SWITZERLAND: Huegli looks to 2013 after disappointing 2012

By Chris Mercer | 29 January 2013

  • FY net sales down 2.2% to CHF324.8m (US$349.6m)
  • Profit margins to miss original guidance
  • Recovery in fourth-quarter to carry into 2013

Switzerland-based food group Huegli reported a 2% drop in sales for 2012, but added that it has recovered from a "slump" in the third-quarter of the year.

Huegli said today (29 January) that net sales for the 12 months to the end of December fell by 2.2% versus 2011, to CHF324.8m (US$349.6m).

Sales fell by 0.6% in local currencies, as growth in the group's private label and brand solutions businesses failed to offset an unexpected third-quarter decline in its food industry, consumer brands and food service divisions.

As previously predicted, profits for 2012 will be lower than originally anticipated. Higher raw materials costs and lower sales mean EBIT margin is likely to drop below the 7% mark, versus a margin of 8.6% in 2011.

However, on a more upbeat note, Huegli said that sales in the final three months of 2012 pulled out of an unexpected drop in the third quarter. "In the fourth quarter, growth rates were again positive, and the slump experienced in the late summer is therefore considered a one-off effect," said the group.

In its outlook, Huegli said that it expects sales and EBIT to rise by 10% in 2013. Results will be bolstered by the acquisition of food service business Vogeley Group at the start of the year, while raw materials costs are believed to have peaked.

Show the press release

Hügli records stable revenues and lower earnings in 2012
? Sales in local currencies due to demanding conditions down by -0.6% when
compared to 2011
? Widely diverging developments of sales divisions
? Gross margin loss caused by increased raw materials prices depresses earnings
? Forecast 2012: EBIT margin slightly below expected target corridor of 7% to 8%
? Forecast 2013: Sales growth of +10.0% (incl. acquisition effect) and EBIT growth
above this value
Sales development broken down by sales divisions and geographical segments:
Change in %
Sales 2012 in million CHF in CHF in local currency
Food Service 133.3 -4.7% -2.8%
Private Label 70.9 +1.9% +4.1%
Brand Solutions 44.2 +7.7% +8.0%
Food Industry 35.8 -8.6% -9.2%
Consumer Brands 40.2 -4.6% -2.0%
Group total 324.8 -2.2% -0.6%
Germany 172.6 -1.3% +1.0%
Switzerland / Rest of Western Europe 117.8 -2.4% -2.8%
Eastern Europe 34.4 -5.6% -1.2%
Group total 324.8 -2.2% -0.6%
Hügli was faced with a slowdown of sales growth already in the first half of 2012. H1 was
followed by an unexpectedly weak third quarter with results that stood massively below those
in the same period in 2011. In the fourth quarter, however, growth rates were again positive,
and the slump experienced in the late summer is therefore considered a one-off effect.
The sales divisions showed widely diverging developments. Sales attained in the food retail
trade within the Private Label division increased in local currencies by +4.1%, a result mainly
carried by the sales organisations in Germany and the UK. The Brand Solutions division
achieved an even better sales development of +8.0% with products for branded companies.
In particular, Health & Nutrition in the UK succeeded in further expanding its market share
and scoring a proper jump in sales. At the same time, the sale of organic products to large
natural food sales companies under their own brands grew favourably.
The Food Industry division was faced with a difficult year, in which several large customers
in the food industry reduced the volume of orders due to their own problems in sales. This
led to a decline of sales of -9.2%. Snack Seasonings was the only segment to show a
promising tendency.
Hügli Holding AG
Media Release 29 January 2013 2 / 3
Sales in the Consumer Brands division were depressed by a shrinking market of health food
stores and fell by -2.0%. Nevertheless, the well-received organic brands “Natur Compagnie”
and “Erntesegen” again continued on their growth paths as in the past years.
The Food Service division operates in eight countries. It suffered sales losses of overall
-2.8% in local currencies. The reorganisation of sales structures in Italy had a particularly
devastating effect on sales. In Italy, sales dropped by approximately one third. In Eastern
Europe, the difficult conditions in the “out of home” market (school and industrial canteens)
slowed down further growth. The three largest sales markets Germany, Switzerland and
Austria mostly achieved slight growth despite the depressed gastronomy and hotel sectors.
Overall, the largest country segment Germany again achieved a little sales growth of +1.0%
(previous year: +1.2%) in local currencies. This development reflects the demanding
economic conditions still prevalent in the food industry as well as a general slowdown in the
markets. These conditions further aggravate the already intensive price competition, and as
a result, the price increases of raw materials can be passed on only to some extent. The
Swiss market is additionally burdened by the strong Swiss Franc, which affects both the
export industry and the tourism regions, and causes sales to decline.
As in the previous year, UK recorded the strongest sales development, confirming that the
expansion of this production site is progressing well.
Eastern Europe, on the other hand, suffered a severe slump in sales in the second half of
the year. It was caused by a drop in large orders in the Private Label division, particularly in
the Czech Republic. Thus, the entire financial year had to cope with a sales decrease of
-1.2%, although sales had grown +5.5% in the first half of the year.
Sales growth in local currencies of -0.6% was depressed by translation losses of -1.6% due
to the further aggravated situation of foreign currency to CHF, mainly caused by the EUR
(-2.2% when compared to the previous year). Recorded sales dropped from CHF 332.0
million in the previous year to CHF 324.8 million in the financial year 2012.
The sales development did not match expectations, and the gross margin – due to increased
raw materials costs – totalled lower in the first half of 2012 than in the same period in 2011.
We anticipate the EBIT margin for the financial year 2012 to stand slightly below the target
corridor of 7% to 8% projected for that year, and therefore below the previous year’s value of
8.6%.
We are confident that in the already begun financial year 2013 we will see a moderate
organic sales growth and increase of earnings. In the context of the take-over of sales
activities of Vogeley Group as per 01.01.2013, which will step up Food Service sales in
Germany by more than CHF 24 million, we anticipate an overall sales growth of
approximately +10%. The raw materials costs stabilised at a high level, causing the gross
margin loss to hit its bottom in the first half of 2012. In addition, the modern production
machinery, process optimisations and cost management form promising prerequisites for the
future. Based on this, we expect EBIT to grow by more than +10%.
Detailed information on the financial year 2012 and the Q1 2013 sales report will be
published at the media and analysts' conference on 17 April 2013.

Original source: http://ir.huegli.com/Portals/InvestorRelations/Content/13%20Media%20Release%2029%2001%202013.pdf

Sectors: Commodities & ingredients, Dried foods, Financials, Fresh produce, Private label

Companies: Huegli

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