Solid first half with strong profit growth
ORIOR AG, a company focused on substance and continuity, has performed well in challenging market conditions and remains on track. Although net revenues of CHF 244.1 million for the first six months were slightly below the year-back figure (CHF 246.7 million), the net profit of CHF 13.6 million for the first half of 2011 is significantly higher than a year previously (CHF 10.3 million). The outlook for the second half of the year is also positive.
As expected, sales in the Swiss food retailing sector only grew modestly in the first half of 2011. Despite lively economic activity, the market felt the effect of Swiss consumers’ stagnating purchasing power. Slightly higher wages meant they had more money, but most of the extra income was absorbed by rising insurance and health insurance premiums and the increase in VAT. These factors, plus uncertainties relating to the possible negative effects of the strong franc on the Swiss economy, resulted in a slight downturn in consumer sentiment. Since the second quarter of the year retailers throughout the country, but especially in Switzerland’s border regions, have felt the negative effects of cross-border shopping.
Confirmation of previous year’s good results and clear improvement in profit for the period
In this challenging environment, the first half-year was stable in terms of revenues and pleasing in terms of earnings. Despite a further increase in price pressure, EBITDA (earnings before interest, tax, depreciation and amortisation) was 1.7% higher at CHF 26.6 million. This gives an EBITDA margin of 10.9%. Revenues were down 1%, or CHF 2.6 million, on the year-back figure at CHF 244.1 million. Despite revenue growth in various product categories, it was not possible to make up for negative inflation, slightly lower volumes in the catering sector and the postponement of certain sales activities. EBIT was the same as a year previously at CHF 19.3 million. The company achieved a very good increase of 31.9% in profit for the period (CHF 13.6 million). This pleasing result can be attributed to the improved operating performance and the much lower level of net debt.
Segments make further efficiency gains
Refinement, still the biggest segment, posted pleasing growth of 4.7% to CHF 152.5 million. ORIOR’s product innovations are meeting the needs of customers and the market. Moreover, the meat consumption is increasing slightly. Despite volatile raw materials prices, intense competition, and slightly negative inflation, this segment increased its EBITDA margin from 9.1%, or CHF 13.2 million, to 9.3% or CHF 14.1 million. The Convenience segment saw a temporary decline in revenues, but increased its profitability. With revenues of CHF 92.1 million (– 7.7%), the EBITDA margin reached 15.5% (previous year 14.9%). The lower level of revenues compared with the record year of 2010 can be partly attributed to the expiration of a wholesale supply contract, which could not be offset completely by new orders in this attractive growth market. The Corporate, Export and Logistics segment’s international activities achieved a pleasing rise in revenues (+27.1%), but the euro exchange rate had a major negative effect on the margin. Substantial investments were made in the modernisation of the logistics company Lineafresca with the aim of making long-term efficiency gains. As expected, EBITDA was slightly negative at CHF – 1.9 million.
Segments strengthened through targeted acquisitions
ORIOR’s growth policy includes augmenting the existing range by rounding out the portfolio with appropriate (small) acquisitions. ORIOR is in a position to integrate such companies quickly and efficiently into the organisation without compromising their brand personality. In January, Rapelli bought the family-run firm Salumeria Keller SA, which is known throughout Switzerland for its authentic hand-made Ticinese specialities. Keller SA’s “Val Mara” brand complements ORIOR’s range perfectly and opens up some new and interesting distribution channels. In April Fredag was able to acquire the family-owned firm Bernatur, which specialises in tofu production and which was looking for a solution to its succession issues. Fredag has already distributed some Bernatur products in the past. The acquisition allows ORIOR to continue the development of its market position in the vegetarian products (meat substitute) sector. It was decided for strategic reasons to integrate manufacturing expertise for tofu, which is important to many of ORIOR's convenience products, into the company itself.
Growth initiatives create further momentum
Organic growth is important to ORIOR. The Swiss food retail trade will not be able to generate much growth, if any, for the next few years. We have to assume, in fact, that the Swiss food sector will continue to experience negative inflation. ORIOR aims to grow slightly faster than the market in its home and main market, and expects to achieve average revenue growth of 1 – 2%. ORIOR’s most important growth drivers come from convenience food innovations, especially in the vegetarian specialities sector, as well as from the systematic roll-out of lunch menu and other services, and from innovative new concepts for the catering industry. This strategy is supported by appropriate augmentations (small acquisitions) in Switzerland. Partnerships and acquisitions within clearly defined parameters abroad are used to strengthen ORIOR’s market position still further.
A stable second six months expected
Barring any unforeseeable developments, the second half of the year should deliver solid revenues and earnings at around the previous year’s level. Despite the likelihood of slightly higher raw materials prices, the competitive situation will probably prevent ORIOR from increasing its sales prices. However, ongoing value creation initiatives and lower financing costs should have a balancing, or even positive, effect on the costs side. Growth-promoting measures, especially the additions ORIOR has made to the portfolio and possible cooperation agreements, will have an influence on business performance from 2012 on.