Emmi AG (EMMN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the half year results 2020 conference call and live webcast. I am Sandra, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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 conference call of the first half year 2020 results. With me are some people, like Ricarda Demarmels. She will mainly cover financial topics and also help with Q&As; and also, Markus Abt, who is Head of Corporate Communications, help with Q&A. Looking at the agenda, we have 4 points on the agenda. First, how we delivered on our strategy. Then, of course, we go a bit into the figures. Outlook is very important in this volatile environment. And then we have some time for Q&A in the fourth point. Welcoming, you means, of course, also looking a bit back, having a look at the strategy. So we are grateful that we were able to build a resilient company during the past years. So we have this done, mainly by being active in different geographical areas. Of course, we are active in different sectors like retail, food service, also a bit in business to business. And we have a broad portfolio of branded products, of course, also some private label. And we have global brands and local brands. Of course, it's easy to talk about strategy if the figures are correct. But I think even more important is -- and what counts in a crisis are the people. And I'm really grateful how the people worked during this crisis. And you build the culture and the values, you build during good times, and we could profit from that, that we are a very coherent company and collaborative company, and this has to be very resilient on one hand side, and also responding to this challenging out there. If you will go into the figures here, you will see a bit that I talked about the resilient business model that, of course, it's -- the portfolio having helped resist that stress test. I'm coming back to the agile organization. And figures means that we have seen an organic sales growth of 2%. You probably remember previous year where we had 1.6%. And the overall growth of company, of course, mainly via acquisitions was at plus 6.6%. We were able to maintain percentage-wise, the EBIT, which led then to an EBIT of CHF 112 million. And of course, we profited from our goods development in the domestic market with 3.8% organic growth rate. Also, some brands that did hold up very well during the crisis, such as Caffè Latte, also Kaltbach, but also some niches like organic with a plus of 13% holding up very well and being in the right spot during this crisis. So the strategy works also in times of a crisis. And the good thing is we're also making progress when it comes to sustainability that we already had in Switzerland, 87% of the volume of the milk processed according to the Swissmilk Green standard. Animal welfare is already high in Switzerland, but we want to promote that further to talk about the benefits of Swissmilk. And we also want to expand that to our global subsidiaries. You will then hear a bit about the cautious optimistic outlook for the second half of the year. So the figures at a glance. Net sales, you have seen. I already mentioned the growth of -- total growth of 6.6%, organic 2%, a growth from acquisition, plus 9.5%. Above all here, Brazil paid in. And then not here on this chart, but we will come later back to that is the foreign exchange rate with a minus of 4.9%. So we have not only seen a volatile demand, we also have seen volatile currencies during the first half of the year. EBIT, I already mentioned, financial strength is still given, which means that we were also able to convert, really, sales into cash flow. And net profit is a slight decline. As expected, we already said during the full year conference of 2019 that we have a higher tax rate, also probably financing activities are going up. And also what we have in there, more minorities. So of course, with -- transactions with it, mainly in Brazil and also in Chile, we have a higher share of minorities. And you see that in -- of course, positively, in the EBIT and the net profit is slightly impacted by that. If you go on to the Chart 7, we thought it's very interesting for you to see. Normally, we do not disclose this, how the sales went during the months. You see that we started the year quite well on track with an organic growth rate, so this is all organic, of 3.2%. And then, of course, we had a huge March and part of it or biggest part of it, of this positive effect was the pantry loading at that time. And then we were falling down. And April, we said, "Wow, what is going to happen here?" And with a minus 7.5% because we have seen mainly food service sales, partly being during certain weeks at 0 and then recovering slightly. You see that slight recovery in May. And then in June, we had a bombastic June with a growth of almost 9%. So a lot of businesses were coming back, but we also think that probably June was a bit too strong, also onetime effect, which means compensations from earlier months. You see the supply chain slowing down. And then you see the supply chain accelerating again because everybody thinks "Oh, now it starts," have reordered again. So that's positive -- that's probably an effect that is too positive. If we would take into account the normal June, we would probably have an organic growth of 1% year-to-date. So still positive, but it's still there. Before you ask that in the Q&A, we can say that in July, we were able to uphold that organic growth rate we have seen year-to-date. So it seems to continue, but not, of course, like June was. So that's all for this. Then if we go a bit more into same -- into the divisions to see Switzerland, pantry loading, of course. Then some effect also from food service, more in May because we had a bit of a delay here in Switzerland, but also great June and then to a growth rate of 3.8%. Americas, you see a huge impact, and I'm coming to the percentages later. You see a huge impact from food service. So started very well. So 6% is a nice growth rate. March, not that much of a pantry loading because the crisis in the Americas was a bit later. And then April, May full hit mainly in food service, recoveries in June and recoveries still going on, on the positive side. Europe, also a great start into the year. Then March, already pantry loading because we have seen hits in many European countries. The crisis in Europe mainly started in Italy, as you might know. And then, of course, also here, also a bit muted sales in premium niches in April, May. Food service sales falling away late June, which means then in the end, plus 2.1%. Very important is that we were having a very effective crisis management. So we were training people on this topic already for years. And of course, we profited from this structure, which means that we just could implement the structure and everything was already in place. And early on, we said, we care about people. So priorities to protect the health of the employees. And we wanted to make sure that they feel safe at work. So they feel safe to come to work and that they don't stay at home, but initially feared that in some countries, they don't even come to work because they will fear to be infected. What we have seen is very low absenteeism, which means that we're good. And the other thing we did there is that we said we want to be the most trusted source of information. So don't -- you can, of course, watch TV, listen to the radio, do whatever you want. But the most accurate information you will get from Emmi, more or less on a daily basis with the CEOs, whatever. So that you know what is going on and what is really relevant for you. And it's not relevant for you, as an employee, to talk about China, whatever, what is relevant is what is happening inside Emmi. Then of course, the next thing was continuity. Maintain operations and supply. So we were able to keep all the production sites open. Of course, we had to close mainly one in the U.S. because of lack of demand. But that's not in operations again. But we were able, from a supply side and also from the employee side to maintain operations. Then it's always good look at cash. We do that very well, as you see. And then I think this is also a point, which is especially good. Also if I talk with my colleagues, we said, crisis is crisis, and everybody gets depressed in a crisis, normally. So we have to give it a positive twist and then we started to do opportunity calls. So the division had 2 weeks after the crisis started, and we were putting this crisis in place, started doing opportunity costs, just talking about what kind of opportunities do we see out there with the MDs of the local companies. And this gave a positive boost and a lot of energy because even if there's a crisis, it can do a lot. And this was very well done, very early in this crisis and was also good to boost morale in the end. What you're going to see next is a movie on the next page. And if you're web-based, you can click here on this virus. Hopefully, it disappears in the movie. It's showing up. And for all the others, please watch this. It gives an impression on what we have done in a lot of production sites and in communication. [Presentation]

So thank you very much for your attention. I hope you enjoyed it. What you have seen is in the first part, the crisis team being in that crisis room working more or less 24 hours a day. And on the second part, you have seen what kind of -- how we're addressing the opportunities out of this crisis. And that's exactly what I'm going to cover now a bit more in depth. Of course, we had to change a lot of things, mainly the communication mix, but also the product and also the selling mix, which means to whom we sell and what kind of clients we want to reach out to. Of course, Caffè Latte was more kind of a communication. How can we stay relevant in a different daily routine, which means people not commuting anymore, being at home, how can they integrate Caffè Latte. We have seen a growth from Caffè Latte overall, which means that obviously, we could do that quite well because we shouldn't forget Caffè Latte is an impulse product, which means if you see it on the way, you buy it. And if you don't see it, you might lose interest in it, but this was not the case, which also speaks, of course, for the strength of the brand. Then new channels, of course, a lot of people are talking about e-commerce, so did we. So we are -- were selling quite a lot via established platforms like, for example, in the U.S., Instacart or Imperfect Foods or also some others like meal kits, HelloFresh, whatever. Of course, those platforms were booming, but that's not how you win the battle. You win the battle with collaborating with existing clients. Of course, you can add new ones. We also had a bit of own e-commerce, but this is, in our case, still very low because normally, we have quite some kilos for amount of value money, which means that e-commerce is, for us, not so easy to do, but we have some companies with own e-commerce channels. And we also helped that with our truck fleet, some delivery services, mainly to deliver e-commerce orders, so we were able also to collaborate to make sure that they have the good reach. And then new formats, you have to take into account that sales for food service just went from 100 to 0 within days, which means that, for example, in the case of Emmi Roth by U.S., we had quite some stock in place, but we were able to convert that cheese stock into new offerings, mainly into shredded products or cubes or also meal kits, whatever. And also, one of the challenges is in the cheese sector that we sell a lot over-the-counter, which means cash is taken. So that's quite sizable business, and we had to develop one-touch format, so which means for self-service in the stores. That's what we did here. So there was a lot of work, and we have seen some impressions what we did in the movie. Highlights, first half 2020. So we we're able to get an award from the canton of Lucerne. And I think it's great to see that we are working on different fronts here. And what we were awarded for is that we are a best practice company for integrating these people, which means that we early on reintegrate them, give them special workplaces, et cetera, and do that obviously in a very good way. Commercially, we expanded the range of Kaltbach with the Kaltbach up-seller. So this replaced the weaker variety we had. Then we launched Beleaf, so quite some push in the plant-based area. Earlier in Switzerland, later and also in the U.K., there was a bit of a delay in the U.K. because of the COVID crisis is [indiscernible] to talk about new products and product introductions now, but this is going to change again. Then Emmi Dessert Italia, also new occasions with these glass cups. We just have to continually innovate here in this area. Then whey, still on trend, also still showing a positive trend. Even so people didn't go probably as often to gyms, we still see it's a huge market out there. We're going into more specific products like with brands of whey or also doing here co-branding with a sponsor. Then very important to us, sustainability. Of course, we want to engage our staff in sustainability. And do that via Sustainability Day. Coming to the strategy, you are aware, working on the 3 pillars, more or less, just to give you some insight on the niches. So dessert was a bit down against prior year, but was holding up very, very well because initially, we thought with the 4 factories we are having in Italy, wow, we're not sure whether we can maintain supply, but this works well. The business is recovering further. Goat's a different picture, well done, mainly in fresh. That goes into retail, of course. The business was booming. This is going into infant formula, but also the Meinberg business. And of course, the food service business was quite down. You have these big cheese logs going into food service. Also Cypress growth here, going to white tablecloth restaurants, of course, was suffering. So slightly negative, but overall are stable, we can say, but we've had some very positive trends in [indiscernible] and organic, as I mentioned before, plus 13% right product, right spot. Then if you go into divisions, not going into detail, what you see here is, of course, with the acquisitions we made in the Americas region, you see that the weight of Americas is increasing by more or less 2%. The weight of this segment is going down, also more or less by 2%. And the rest is more or less stable. Main countries you see here, this is just an information. Of course, Chile is becoming more important with this joint venture we are doing there. Here, you see some detailed figures and this is important to share because you see here what is the food service percentage. You see in Switzerland, we have also quite some percentage of food service, 24%. That's what we had -- sorry, minus 24%, we have seen, and we have had a share of 14%. And here, you see also Americas being very much exposed. The share coming down 22% to 12%. Sorry, I missed that one on Switzerland. Switzerland was 14% to 9% in '20. And Americas it's down from 22% to 12% of total sales, which means a minus of 37%. And if you take Europe, just a very small food service share of 5%, being stable because of the acquisition of Quadrifoglio, but organically, also here, minus 26%, which means, on the other hand, seeing those percentage shares going down by more or less 5% up to 10% that we had to compensate for that on the retail side. So that means that we were growing on the retail side, more or less in all divisions by 8%. And this was really great to see how we were able grow in all those divisions and to compensate for the negative effects. Here, you see the product categories, just a few comments. It's -- the rate is very similar to prior year. You see a slight shift from fresh products into fresh cheese, dairy and powder because demand, obviously, with pantry loading, people being more at home being less out, schools being closed, for example, for yogurt drinks in some countries and milk drinks in some countries. So it's a bit of a shift here. But not that much overall. On the line shift, of course, has been much bigger in some companies. Then here, you see, again, the sales growth, I think I commented on that. The organic growth, 2%. Currency effect, very important to note because there, of course, is also a translation effect connected to that. Not only making us a smaller company in terms of sales, but also EBIT we transfer from foreign subsidiaries into Switzerland are a bit less. And then the acquisition effect and the total change I mentioned. Going on. I'm now on Page 18. We're looking at sales here in Switzerland. I already commented a very happy timing with the negative acquisition effect. We just sold a food service business, more or less 1 year ago, and this was perfect timing. Of course, we still suffer of it because we still deliver into that channel. But 50% of that company was traded. And of course, we don't see the 50% negative impact of that traded part of the business. You see here organically, everything went well. So we have, everywhere, quite balanced organic growth, of course, with some quite high ups and downs than when it comes to different products within the categories here. Then we go to Americas. In Americas, of course, cheese was doing -- was growing quite well, mainly through Brazil and also the Seymour acquisition. That's why we have a growth of 8.2%. But on the other hand, we have seen quite some impact mainly for premium cheeses sold over-the-counter, premium cheeses going into restaurants. We have also in here quite some impact in Mexico because in Mexico, we are also present in, normally, shopping malls with huge supermarkets and sell over-the-counter, which means that people didn't go to shopping malls and not into big supermarkets and not buying over counter. So there we have seen, of course, some effects. The good thing is that imported cheese. So exports from Switzerland, sealed, managed quite well. Then very, of course, huge increase, mainly the Brazil acquisition here also with a great organic growth, mainly in Chile and in Tunisia. So our emerging markets, overall, were holding up very, very well. And then the fresh products at first sight, you say, looks disappointing, but as I said, you have different consumer behavior with schools closed, not buying milk, people not commuting, less impulse buying. Therefore, we are happy. And above all happy to see a positive growth rate of Caffè Latte overall. And it's not only in Switzerland, also in other countries, we were able to grow with Caffè Latte sales. So which means that in Europe, we also were really happy with the total development we have. Of course, we don't like the currency effect, but we cannot influence it. On the fresh product side, also here, a bit of an impact, not that much. Emmi Caffè Latte had a lot and also Onken was growing quite nicely in the U.K. being well positioned here with the big pots, consumption at home, et cetera. Then you see, of course, the positive effect of Pasticceria Quadrifoglio of late, and therefore, we have 8.6% achieved organically plus. So nice. Also the sales growth of Kaltbach overall and dairy products, of course, clearly profiting from the boom for organic products. Just a word to Gläserne Molkerei. We are still on the path of recovery. But of course, this sales boost helped a lot. And we are very well positioned, positive growth rate. And also financially, we're doing much better. Not yet okay, still recovering, but better than expected. And that needs to continue there. We're still working on the portfolio. Just -- it's no big things. The most of the things you know, the acquisitions' just to remind you of that in 2019, I'm not going to repeat them, divestments we have done. Then we have done some very minor corrections in the portfolio, like we expand in Switzerland, our specialty cheese footprint. We have Chäsbueb and some other cheese stores, and we are adding this to [ Zollikofen ] very small, not that important, but you see where we go. And then also some divestments, 50-50, 50% stake we had in White Hill Cheese, it was a joint venture, mainly producing quite generic products, and we decided to move out of that. And not to run -- we used to run that production facility, but we gave it over to our joint venture partner and exited, which means a bit too generic for us for the future and therefore, exiting. Vermo Tiefkühl, just a small thing. We had a long time participation, 35%. We got rid of that because we need to clean up the portfolio. They're also quite active in the food service, but good to finish and also concentrate on other things. And here is to note that we are still reviewing options for a smaller business unit. You're going to see what we are going to do in the second half or first half of '21. But you might expect some further movements -- smaller movements, it was -- clearly address that in our portfolio in the upcoming months. Sustainability, important to us, as I mentioned earlier, making progress, reducing greenhouse gases. Here, we are comparing to 2014. So we are more or less on track. Sustainable milk, if you're very aware, you have hearing me talking about 87%. So 87% is the volume and 75% are the number of milk suppliers, which means that the smaller milk suppliers normally tend to change later to this new style, but well underway . Not that well underway with waste reduction, and this has mainly to do with waste-to-landfill. We want to eliminate, but this is not so easy in countries like Tunisia because that's the only thing they know. And then we tried to educate them not to do that anymore, so we need some time. And employee development is on track, but the number of employees is growing with every acquisition. So we still are fighting a bit to make sure that every employee has a specific development target. But overall, we are well on our way. Here, we see just some recent examples on the next chart. We still are investing in photovoltaic installations or reducing our CO2 footprint or greenhouse gases footprint with new technology. We also collaborate with our farmers to make sure that we bring down their greenhouse gas emissions also in the Q3. Then, of course, here in the foods to go, TooGoodtoGo, we try to fight or we fight that food waste because we believe that you always have to do a visual control, you have to smell the product, to test the product and then you know whether it's good or not and don't look too much at the imprint and the date printed on the product. And then we work for future leaders. We were able to announce that we would love to hire more apprentices already this year to do a bit of counter move to what is happening in the labor market. Innovation, just a few things that we have been talking about the trends. Here, you see the trends we are following. And our idea is always to make sure that we put trends into concept. And in some areas, we are -- we try to be first movers, mainly where we have leading positions. What are we doing on Caffè Latte, as I said, good development overall. We are going into more sugar-reduced or without sugar varieties. We have the Zero and the Zero was, 1 year ago, very weak, and that's how it's going to be delisted. But now it's really found its consumers. And we are going to expand that range with zero added sugar and also want to have the other hero products with zero added sugar in here, so expanding the range. Sustainability. We reduced the plastic in the packaging of Caffè Latte, another 2 grams, which is quite a lot, which means that, for example, in Switzerland, it's less -- much more than half of the waste of our competitor in the cold coffee drinks. So we are trying to reduce that further without losing premium-ness and stability of the cup. Because in the end, you buy a valuable product, and it also has to reflect that. Plant-based, we are working on that. Of course, we have been launching Beleaf, as I told you, very early to say how successful it was, but we see that it's gaining traction. In Kaiku, we already had initiatives. We also launched almond caffè drink. A very nice launch, doing very well. You see on the right-hand side, there is a second variety coming in with oats, so we are expanding that and the existing brands, but we also have specific brands as Beleaf. And here, just if you have a second then for yourself, look at our supply network. So we have a very, very broad expertise, of course, in Switzerland, but not only, which means that we can do a lot in Austria. But Leeb, Hale is doing great in this acquisition, mainly in the non-dairy products. We can do and did already since years, plant-based desserts in Italia -- in Italy, sorry. Then Kaiku, we have a quite good expertise. Even in Chile, we are importing some products and selling them on the Quillayes brand. And at Redwood in the U.S., we have a good center where we know how to produce plant-based products. We do that in co-production now. But there is -- might be an opportunity to expand that further. Food, as it should be, is another trend. Here, we push more natural recipes. Of course, our hero concept Pur, we're constantly working on that. Then Caffè Latte, we are in the process of patenting a process that we can only use natural ingredients here. Then Gerber is already all natural. That's the reason why it's green. And of course, then organic is growing a lot, which is also new varieties, new products, very nice product from the Gläserne Molkerei. Then I hand -- I'm pleased to hand over to Ricarda to go more in depth with the financial figures.

Thank you, Urs. Good morning also from my side, I start with Page 31. You heard reported sales were up 6.6%, driven by a good organic growth of 2% there with [ proves ] again, Emmi's robustness backed by a solid strategy, a very diversified portfolio, a strong financial profile as well as an agile and resilient organization. We saw strong acquisitory growth of 9.5%, following our significant portfolio activity, along with geographical growth profits and our strategic niches in 2019. For the full year 2020, we expect to come in at around 6% acquisitory growth. That's somewhat below the guided 7% from earlier this year. Pasticceria Quadrifoglio, whom we bought because of its strong food service [ process ] is significantly impacted by the COVID situation. We had negative FX of minus 4.9%, mainly driven by the emerging market currencies of Brazil, Chile and Mexico as well as the euro, and to a smaller extent, the U.S. dollar. Gross margin stood at 36.1%. This represents a slight decrease of minus 29 basis points. This is a notable result and a testament portfolio strategy in light of: one, the COVID situation, which brought a shift towards more genetic products, which is more basic products, less premium and less convenience; and two, the FX headwinds we have seen in H1. Operating expense came in at 26.7% of sales or minus 16 basis points. Thanks to rigorous cost management. As Urs mentioned earlier, we have acted very quickly, multiplying learnings from early affected countries like Italy, across the entire portfolio. And we have been able to partly offset the pressure we have seen on sales and gross margins. EBITDA rose by 5.4%. The margin came in at 9.5% or minus 11 basis points, with OpEx having partly offset the pressure on gross margins. And finally, EBIT came in at CHF 112 million, a strong 6.4% above prior year. Stable margin of 6.3% or minus 1 basis point, lower amortization of intangibles, mainly SAP here in Switzerland gave us some tailwind. While this is, without a doubt, a strong H1, it's important to keep it in perspective and recognize that H1 was also bolstered by nonrecurring tailwinds from pantry loading, closed Swiss borders and a very strong June performance, as you saw earlier. I move on to Page 32. If you deep dive into our cost positions, and you'll be quick to see that we've been able to largely keep, and on some ends, improved the margins, thanks to our strict cost management, including the Emmi Operational Excellence program as well as our procurement efforts. I perhaps would like to add that the lower marketing and sales expense are driven by both the shift in marketing mix towards more digital and in-store and more focus in light of COVID-19. As well as the shift into the second half of the year as we continue to be very committed to developing our branded portfolio, which, as you've heard from Urs, has carried us well through the crisis so far above all, also Caffè Latte. I move on to Page 34, which summarizes the EBIT to net profit bridge with the publication of the full year results earlier this year, we guided for structurally higher financing costs exits as well as minority. These came in as expected, venting into net profit, which came in at CHF 81.3 million, minus 5.7% or minus 63 basis points. Income from associates and JV was down minus CHF 2.6 million, mainly driven by the state of acquisition in Brazil, which we now fully consolidate, as you know. However no laurels on the remainder of the result, hence, also the exit at White Hill, Urs mentioned earlier. Higher financing costs of CHF 4.7 million are driven equally by higher interest expenses, currency losses and the other financial results. Increased net interest expense is attributable to additional local financing for recently acquired companies in Brazil and Chile, and the foreign currency result was down on the back of a volatile currency and interest rate environment resulted in higher hedging costs. Our tax rate came in at 16.5% as we're no longer benefiting from positive nonrecurring effects. We expect 16.5% for the full year 2020. And an increase towards 17% next year as we continue to grow internationally and see higher rates there. And finally, minorities were up EUR 2.4 million. Drivers are additional minority interests in recently acquired companies, which is namely Brazil, Chile and Austria. As you know, part of our acquisition philosophy, our strong local partners with a very strong alignment of interest. I move on to Page 35. Summarizes our cash flow and reminds of our very strong liquidity position of roughly CHF 370 million. As you know, the Emmi business model exhibits a high and stable cash flow capacity. Over the last 4 years, Emmi has had an operating cash conversion of roughly 80%, taking into account that H1 is always slightly weaker. H1 2020 came in at a strong 75% and is yet another testament to Emmi's robust performance. Thanks to our strong balance sheet and our cash flow profile, we have continued to invest through the crisis. CapEx were up CHF 14 million and are mainly driven by strategic investments, building out our growth franchise. One of our strategic niches, a new cheese plant here in Switzerland, a new powder plant in Brazil, giving us the critical ability to steer milk flows on a more diversified portfolio. For the full year 2020, as cited earlier this year, we expect the operating cash conversion somewhat below the historic average, somewhere between 70% and 75%. And CapEx at around CHF 150 million. With this, I move to Page 36. End of June, net debt stood at EUR 109 million or a 0.3x EBITDA. Keeping in mind that we see our maximum leverage at 3x. Emmi has some room on the back of its strong balance sheet to further support its growth. Let me make one last comment regarding our balance sheet. With reference to the shadow accounting disclosed in the notes of the half year report, I would like to clarify. Urs mentioned earlier that we are reviewing options for one of our smaller business units as recent dynamics have hampered the outlook of the business. We have, therefore, impaired the assets by CHF 2 million in our P&L. We impaired the goodwill by CHF 7.3 million in our schedule accounting. As you know, at the point of exit, we will have to recycle the goodwill over the P&L. And will, therefore, see a one-off hit of somewhere between CHF 10 million to CHF 15 million, depending, obviously, on the outcome of the strategic review as well as the evaluation of the business. Keep in mind, it does not have any relevant cash impact. Whilst this is obviously not satisfying. We fervently believe that exiting this loss-making business is the right move. We wanted to be very transparent with you as this is an ongoing strategic process, however, we appreciate -- we're respecting that we cannot answer any further questions on this. And with this, I hand over back to you, Urs. Thank you.

Thanks a lot, Ricarda. So we are coming to the outlook 2020. And if you look at the summary of the outlook, what are we seeing out there is, of course, every day increasing cases of COVID-19, which means that there is a high uncertainty still out there. And what we also see that we have only seen the first phase, immediate impact of this COVID-19 crisis. But we haven't seen yet in many countries is the economic impact, which means the recession and maybe also the changing consumer behavior, buying patterns for the years to come. But coming back to what we see till year-end, of course, in Switzerland, we believe that we will remain very stable because we offer full assortment, and we can mitigate that shift in consumption. We are a bit everywhere, and that obviously helps. But nevertheless, differentiation, and we have to build up those positions that will remain key, and we see mainly 2 polarizing effects. People are going to [indiscernible] they know, offerings they know. So they are less open for innovation and obviously, less for convenience. So big brand profit on one hand side. On the other hand side, also some value and basic products because the mind shift changed quite a lot, mainly during May, yes, mainly during April, then people were buying the categories and then the brands instead of the brands and then the products. Then, of course, we have to remind ourselves that this closed-border effect is at least partly gone, the estimate that this has gone by 70%. So there is something remaining still, but the big effect is gone. We see a slow recovery of food service. So it went down very quick. But it's coming up quite slowly. And of course, we have seen also in the cheese imports that the strong Swiss franc is favoring imports a lot. But nevertheless, we are confident we know what we can do and collaboration with the clients has been great. So that helps. Internationally, we have to adapt the marketing and sales mix further. We want to push the growth of the niches, but what we also see is that we are having a lot of countries with political instability. I don't need to mention now even in the U.S., we see some political instability, but of course, we are in those environments where it comes a bit less in Tunisia, but in Chile and those in Brazil. And nevertheless, we see continued growth of these value brands and those of the brands in emerging markets. Full service -- food service recovery is delayed, probably longer than 2022. And the strong Swiss franc, of course, also has an effect on exports out of Switzerland, which means that we are constantly doing price increases. And the question then is when is demand too low or going down. So quite some effects, but I think at the moment, nobody can really predict what is going to happen until the end of the year. What we believe when it comes to the figures is -- and here, you see that we slightly adjusted these expectations. We see that we have, of course, benefited from short-term positive effects in the first half of 2020, mainly with the stores closed and pantry loading, and we see the recovery going a bit slower, which means the positive effects might go away and negative effects probably are here to stay. And that -- this led us then to a revised group growth forecast. We took it down from 2% to 3% to 0.5% to 1.5%. Switzerland is still higher than earlier predicted. So of course, this increase, we should be partly able to maintain. We had 0% to 1% before. We see still Americas being impacted also seeing the recovery not being that fast in that area, still having big problem with the COVID-19. Europe, we are able to maintain. And when it comes to EBIT, we think that we can reach the lower end of our predictions, which means that we are probably closer to CHF 255 million to CHF 265 million. And we are able, on the other hand side, reiterate our range for the net profit margin from 4.8% to 5.3% because we were already figuring in here those adoptions in tax rates, et cetera. I think it's also important not to look also into 2020, but also into '21. And we believe that as we haven't seen a step down in our results in '20, we are not going to see a huge step up in '21. So we think that we should be able to maintain the EBIT margins and grow, but we do not see a significant step up in '21. And as you know, '21 is far away, and we have no idea what kind of environment we are in, but that's what we know at the moment. And as Ricarda also said, we continue to do investments to build our future base. So we do not want to cut that back. So we continue investing because we have been proving that our strategy is very solid and with positive thinking we move ahead, and we can now build the ground for even a better Emmi future. So thanks a lot for your attention. You see here, of course, still the midterm guidance, that's unchanged. Therefore, I finish here with the presentation. Thank you. I hand over to the question-and-answer session.

[Operator Instructions] The first question comes from Patrik Schwendimann from ZKB.

Congrats for this outstanding 1H results. First, I have a question regarding the guidance for Switzerland. You're expecting organic growth of 1% to 2%, which seems rather prudent after this result in H1. At the same time, you have mentioned that for the group, the July development was at the same pace as H1. So it seems that this good development in July was not the case for Switzerland or could you elaborate on this one? Then second question, could you please touch the situation in Brazil? What are your expectations for your new Brazilian subsidiary for the second half of the year and maybe for next year compared with the situation in H1? And thirdly, could you also please touch the situation in the U.S. market. What are your short and midterm expectations there, specifically, for the U.S. market? And last question, you still have a lot of firepower, as you have already mentioned. What shall we expect? Further dividend increases? Or acquisitions? Or both of them?

Thank you very much. So thanks also for the compliment. Yes, the guidance with 1% to 2% might seem prudent, but we think it's realistic because as we said, we probably did a lot from pantry loading on one hand side, and on the other hand side, from closed borders. And we think there -- we might see also some more prudent development in Switzerland. If it comes to July, as you said correctly and as I mentioned, we are in line with the organic growth of the first half. But we have seen a bit slower growth in Switzerland, that is the higher growth in Americas and an okay growth in Europe. So Switzerland already came down a bit in July being around 0 growth. But sometimes you have some delivery for promotions in June and then you pay for in July. So it's too early to say. This is a new sign, but we just have to remain cautious here. And if there is more, we take it, and we will publish it. So we are not going to hide it. So it's okay. Then Brazil, we had a very strong first half and really pleasing business in Brazil. Sales were okay, not growing that much because it was a bit lack of milk, and we were taking in a bit less of milk just to make sure that the pricing is correct. And because there was a lack of milk in the whole market, we profited from a good pricing situation. And the question is now, how is this milk going to flow in the second half? And of course, we think we cannot probably maintain. This high profitability, might go down, but it should be still above plan by the end of the year. And the difficulty in Brazil is, sometimes you make a call and you think, "Not very positive." Next month, you make a call and say, "Wow, this was great." So it's very difficult in this fluctuating environment to predict the results. But we are doing very well. Management is good. Investments help us to further balance out the portfolio. And we are positive, of course, when it comes to Brazil. But we also know that the business might be fluctuating. Therefore, we remain cautious for the second half. U.S., what we see is Emmi Roth has been doing tremendously well. So I was pretty positively surprised because they have [ 75% ] of their business is in food service. And they were always able to maintain their sales almost because there was also a minor position with Seymour. With that, they were able to maintain the sales, which means they were able, really, to shift lots of products and could react to the new situation. Very difficult to say what expects us in the second half. But all what I know is that we're very close to our customers there with Emmi Roth, and we should be able to adapt to whatever happens. So we are positive, and we -- I would even expect, against prior year, a bit of a growth from Emmi Roth, organically, in the second half. Less so when it comes to the California collections that we have the picture, Redwood holding up quite well. And Jackson Mitchell, Meyenberg doing very well because they have powder and content milk, goat milk very well. And then, of course, obviously, we have Cowgirl and also Cypress being hit because they serve high-end food service restaurants. And they have been really been hit hard. And they're looking into recovery. And of course, we see a recovery, but I don't know, maybe we are at 80% of prior year for those 2 companies by the end of the year. But I wouldn't expect the full recovery in total from the U.S. till year-end. So that's the takeaway. Firepower, I leave this to Ricarda, and also what are we doing with the money.

So we will continue to work on our portfolio with a view to grow it. And as for the dividend, Emmi has just made a significant step up in its payout ratio earlier this year.

But in absolute terms, means, I would -- I mean, as a best guess, further dividend increase? Not the payout ratio, just the absolute number.

It's too early to decide on the distribution of money. First, we have to earn it. We do that then once we have seen the year.

The next question comes from Jörn Iffert from UBS.

The first one would be, hopefully, a simple one. And can you tell us what was the EBIT contribution, absolute terms from the acquisitions, which were falling into 2020 in the first half? And also how you can, I mean, further boost profitability here? What are your strategic and roadmaps behind it? The second question is, please, on the margin mix going in the second half. I mean, you gave us the absolute EBIT level. We can roughly try and calculate the margin here, but what do you see in terms of the gross profit margin SG&A? Will it be a similar pattern like in the first half? And the last question is, and you have trimmed down the organic sales growth guidance only slightly. You're saying you can still reach the lower end of your previous EBIT guidance. Has anything changed in terms of budgeting for marketing and selling? Or was the previous EBIT guidance just more conservative? Just a bit to understand the dynamics behind it.

Yes, I will hand over to Ricarda just when it comes to the EBIT guidance in the end. No, we have delivered points, which means that what we have foreseen -- as a team we can say, when we started the year, we were confident, and we have seen our confidence [indiscernible] away. And now our confidence has come back, of course, with the June results we have seen and with all the measures we have taken. So I wouldn't say that we did then do a cautious forecast. It was just what we knew and what we know now is that we can still reach it.

No, sorry. I'm sorry, when I was not clear. I just want to understand the dynamic. You lowered your sales growth guidance for the full year, but you maintained the lower end of your absolute EBIT guidance. I was just wondering in terms of your original budget if you have, for example, now also [indiscernible] your marketing and selling expenses and for the full year's the budget.

Ricarda is coming to the mix. But overall, just going a bit down with the sales. It doesn't have that huge EBIT [indiscernible]. There are other factors that impact the EBIT more than sales, in that small percentage we are changing. Ricarda, please?

So for the margin, we see H2 in absolute terms, slightly above the previous year. And that translates into a very similar margin picture as we saw last year. And then for the EBIT contribution of the acquisitions, we kindly ask you to respect that we do not disclose EBIT on a company level. However, you can count on the fact that overall EBIT distributions from the acquisitions had a positive sign.

But is it fair to assume that the EBIT contribution from acquisitions and is still much dilutive? Or is it already in line with the group performance?

You know what, I didn't even calculate it because we're not looking into it that much. It's half a year and then the question is, how do we develop, over the long term, but we were happy with the development of the acquisitions. And then we have some being excellent and some being lower as Quadrifoglio. We mentioned that earlier. So we're happy with the mix we acquired so far. But we are not looking into half year results, whether everything is okay or not. We just are happy, and then we continue to build the business.

The next question comes from Jon Cox from Kepler.

Yes, let me add a great set of H1 figures there, probably the best I've seen in the food space so far during this reporting season. A couple of questions for you. Just coming back to what Patrik was saying about the guidance on organic sales for the -- effectively implying weakness in the U.S. continues all the way or the Americas continues all the way through H2, and obviously a decline in organic sales in Switzerland. I wonder if you can just give us a rough idea of where food service is actually trending now in terms of those different divisions. Because I presume sequentially that food service weakness is actually improving. So that's the first question. Second question, I'm just wondering -- well, my own feeling is that there's been a structural shift increase in terms of dairy consumption during this COVID, just given the association with potentially immunity, et cetera, with dairy products, and that shift towards more people staying at home, potentially having, as you say, a dairy-based breakfast for the first time in a couple of years. Would you agree with that assumption? Or could you give us some granularity in what maybe you're seeing? Your fresh dairy was pretty weak, I thought, overall. I was surprised at that, given the fact you're talking about Caffè Latte quite strong, even though being offset by desserts. Just tell me what's happening in the chilled yogurt space. And is that just being impacted by the fact that you have a lot of sales in sort of maybe sort of impulse-type stores rather than traditional grocery? Because I would think that chilled dairy is one of those products that would do quite well, given, say, its association with immunity and gut health and that sort of stuff. And then the last question, just on the Molkerei question. You said it's improving. It's not where it should be. I wonder if you could just elaborate a little bit on that. It looks like organics had a good, again, shot in the arm as a result of COVID in concerns about health, et cetera, et cetera. Just wonder -- because you were saying it would take you a couple of years to sort that out. Just wondering where you think that is now?

Yes. Thank you. I'm not sure whether you're on the webcast, but we prepared in the annex and I will try to explain it. Exemplary sales performance for one of our smaller U.S. units. And this is, of course, a unit, and I can tell you what unit it is that you can understand what it is, but we didn't want to write it here. So this is Cypress growth. And what you have seen here, and I'm not sure, Jon, whether you're seeing the chart or not. Do you see it?

No, I don't.

Okay. I'll just continue. We have seen -- the chart goes from week 10 to 35. And what you see is sales, of course, being on track initially and then coming down till week 16, down to minus 70%, which shows, of course, not all food service, but also some premium lines that retailers were not asking for because they were selling basic products. So they didn't even order because some of the retailers even restricted the assortment. Then we were trending there for a few weeks, about minus 50%. And then we went up mainly into June. And there, we have seen quite a nice recovery in different channels, on average, probably by minus 5%, minus 10%, maybe in some others, minus 20% if there were more food service exposed. In July, we have seen a coming down, already weak again. So we have weeks of minus 37%, trending more down to minus 20%, 25%. And in August, we have seen that they are even further trending down, which means that we are not so optimistic when it comes to the full recovery of food service. What we see is -- and obviously, you have covered that, the click-serve restaurants with the curbside pickup stations, they are doing quite well. But the bit the more premium where you take more time restaurants, they are not doing that well. So I'm very cautious on that thing. We are going to see some -- quite some exceptions on the recovery rate of food service and the rates we have seen in July and -- mainly June and July, probably are not sustainable from my point of view. And that's what we tried to factor in. When it comes to the structural shift, yes, more at home. And basically, this has been an excellent news for milk because we have seen and we have some statistics that the penetration of milk at home increased during that time. People have been drinking more milk and more families went back into milk because you were looking for quite some good nutritious food. And of course, milk is part of that diet. When it comes to the product mix, we have seen, if you go into big formats, like Onken, there, we have seen an increase of 6%. Still doing very, very well. Also when it comes to private label and some other products you really take home, we are doing well. So I would say, more or less, on average of our resale growth. But on the other hand side, don't forget, you take yogurts -- or kids are taking yogurts to school, eating them during the break. In the morning, even people commuting are buying the yogurts on the way. So we have less occasions to consume some of the fresh products. Also when it comes, for example, to yogurt drinks, very much impacted -- milk drinks impacted, and that's why we have seen a minus number. And I agree overall, it's not that strong. But given the fact that we have some impulse products doing very well, we are still happy. So whey is still doing well and Caffè Latte is doing well. We are still happy there. And gradually, as I said, we are on the way to recover. We always said we build up, first of all, a new team. That's what we have done. They just recently, I think yesterday, the day before, we announced there is a new Managing Director also, but we already were staffing up the team. We need more expertise. We need innovation. We need more branded and you cannot force branded in 1 year. You have to build that up. We see great progress in building up the brand of Gläserne Molkerei. But if you take here, and we think organic is the right work to be. We know how to do it. And therefore, we're confident. And we also think we should give it the time it needs. Of course, we are pushing, but all what I can say and I said it before, we are ahead of plan. We are doing better than we expected, and this helps and gives confidence that we are going through that. But I would say, more or less in 2022 probably should have a stable result and then contributing again afterwards. So that's the plan we have, but it's worth fighting for.

Sorry, just -- you mentioned this slides, I can see the slides, I can't see an appendix with this, but maybe I'll take the conversation online with you.