Swiss food manufacturer Huegli has blamed higher commodity costs for a plunge in half-year profits.
The firm, which makes organic consumer brands and supplies other food manufacturers, as well as retailers and foodservice operators, booked a 24% drop in net profits for the six months to the end of June, to CHF8.5m (US$8.75m).
Operating profits dropped by almost 26% on the same period of last year, to CHF12.3m.
Net sales, meanwhile, fell by 3.4%, to CHF164.4m, despite growth in the firm's private label division and its health and nutrition unit in the UK. On an organic basis, exlcuding currency swings, group net sales rose by 1%.
"Earnings are depressed by the altogether higher raw materials prices for agricultural commodities, and additionally by the great drought ravaging certain areas in the USA in this summer," said the group today (17 August).
For the full-year, the company said it expects organic sales to rise by 2%, although net sales could be flat to currency pressure.
Half-Year Report as at 30 June 2012
Moderate organic sales growth of +1.0% below expectations
Negative currency effect of -4.4% lowers revenues to CHF 164.4 million
Gross margin drops due to higher raw materials prices in H1 2012 by 2.2% points and clearly depresses earnings
Process optimisation and cost management show positive impact and lower personnel and operating costs in H1 2012
EBIT falls by -26% to CHF 12.3 million in H1 2012 but still stands slightly above H2 2011
Strategic targets confirmed
Outlook 2012: organic sales growth of +2.0%, EBIT margin in the area of 7% to 8% In the first half of 2012, Hügli faced a number of differing conditions. The revenues with food retailers grew pleasingly in the Private Label division with +8.1% in local currencies. Some countries such as the UK, the Czech Republic and Poland even registered double-digit growth rates. The unit Health & Nutrition in the UK also saw a favourable development and made an essential contribution to the good increase in organic sales of +11.1% achieved by the Brand Solutions division. The Food Industry division, on the other hand, faced a difficult semester, in which several large customers in the food industry reduced the volume oforders due to sales problems. This led to a decline of revenues of -6.9%. The development in the seven Food Service countries, not counting Italy and the export business, was still depressed with +1.9% by stagnant sales in the gastronomy sector.
Revenues in Italy dropped further due to the restructuring of sales structures, which lowered the entire Food Service division's income by -2.3%. In the brand business of the Consumer Brands division, the positive growth dynamic of the natural food trade could not fully compensate for the shrinking health food market, and thus revenues slowed down slightly by -0.7%. As for the Group’s geographical segments, Eastern Europe attained the best organic sales development with +5.5%. Germany did not meet expectations with an increase of +2.9% in local currencies. The segment Switzerland / Rest of Western Europe saw an unsatisfactory development with -2.9%. Italy, in particular, but also Switzerland registered sales decreases.
The solid development attained in Austria and the good growth in the UK could not offset these negative values. Sales growth in local currencies of +1.0% overall was depressed by translation losses of CHF -7.5 million or -4.4%, respectively, due to the further aggravated foreign currency
situation. The recorded revenues fell from CHF 170.1 million in the previous year to CHF 164.4 million in the first half of 2012.
To safeguard the Group’s long-term competitiveness and to increase productivity, Hügli has invested high amounts in the past two years in state-of-the-art automated production machinery. Moreover, cost management was further improved and processes were optimised. This helped to cut both personnel and other operating costs further in the first half of 2012. The headcount was reduced from 1'298 to 1'262 full time positions in this financial year.
