Orior provided a trading update in which the Swiss fresh meats and pasta business said it is relatively insulated from the outbreak of African swine fever in China and expects to see “healthy growth” in first-half profits.
The Zurich-listed firm predicts a similar picture for gross margins, as well as EBITDA, for the first six months of the fiscal year with “a slight improvement compared to the same period in the previous year, and further potential for the second half of 2019”, according to a statement today (21 June).
Last summer saw the emergence of African swine fever in China, the world’s biggest producer and consumer or pork, which has led to the deaths of millions of hogs and pushed up global prices. Europe has not escaped the impact as pork exports to the Asian country increased, culminating in a drop in supply in the region and in turn higher costs.
While Orior said today the impact on the firm from the outbreak “is currently very low”, its local peer Bell Food Group earlier this week issued a profit warning linked to an increase in procurement costs in the European Union, partly associated with African swine fever. And further afield, US-based Hormel Foods has said it is also facing higher input costs due to the disease.
For its part, Orior added it sources pork exclusively from Switzerland for products such as salami, raw ham and salsiz, a local speciality of salami-style sausage.
“The price of pork in Switzerland continues to be considerably higher than in other European countries, which makes export to China of the meat cuts that are of significance to Orior highly unlikely,” the statement read. “Accordingly, the impact of swine fever on Orior is currently very low.”
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It added in terms of the profit assurances: “This outlook is supported on the one hand by our strategically direction-setting positioning with broad diversification, including new business models and product categories, and on the other by our consistent focus on sustainable margins.”
However, on a negative note, the company said “business dealings” in its home market that have become unprofitable will be discontinued as Orior pursues a sustainable margins agenda. In such an event, it suggested organic growth could drop by 1-2%.
“Revenues will increase in absolute terms, whereby due to our commitment to sustainable margins, business dealings in Switzerland that have become unprofitable will be discontinued and a marginal decline in organic growth of 1–2% will be taken into account,” it said.
Meanwhile, MainFirst Schweiz stated it had already downgraded its full-year organic growth outlook before Orior’s announcement today, and predicts growth of 0.5%, compared to an earlier forecast for a 1.7% increase.
Gian Marco Werro, a consumer-goods analysts at the firm, said in a research note: “We appreciate the company’s open discussion about the current headwinds and the confidence it gives in relation to margin stability. We remain confident for our mid-term investment case, including an improvement in organic growth from FY-20E onwards (consolidation of Casualfood) and an ongoing positive product mix toward more high quality convenience food versus refinement products coming with a positive mix effect on the company’s gross and EBITDA margins.”
He was referring to Orior’s purchase last year of a 35% stake in Casualfood, a Germany-based business in the foodservice to-go category, and in which it said it would take control in several stages over the “next few years”.