Operating Result

Efficiency programmes, the auditing and standardisation of processes, new structures and procedures – i.e. sustainable cost management– had a positive influence on the gross margin and the operating result of the commercial and industrial business. In addition to efficiency programmes, however, procurement management, commodity prices and exchange rates weighed on the gross margin and operating result. Efficiency gains and improvements in the procurement of goods are passed on to customers largely in the form of reduced sales prices.

The optimisation of the value chain and structures is an ongoing process. In the financial year just ended, various optimisation measures were initiated, continued and completed in the strategic business unit Cooperative Retailing.

Do-it + Garden online shop: With the new Do It + Garden online shop, all Migros specialist markets have had an extensive online presence since October 2014. In Switzerland’s DIY and garden market, this is only the second website which allows customers to also have goods delivered to their home. The range of goods available online now extends to more than 11'000 items; one particular feature of this offering is the fact that it includes several thousand chemicals and other hazardous goods.
2015 will see the activation of cross-channel processes, an online range for made-to-measure wood as well as other additions and improvements.

Subito: 163 Migros branches had been fitted out with «subito» at the end of 2014. This amounts to almost a quarter of all branches at which the self-checkout or self-scanning formats are available to customers throughout Switzerland. «subito» will become even more widespread in 2015, with installation planned at a further 40 branches.

WLAN national: The aim of the «WLAN national» project was to offer customers free WiFi in all Migros supermarkets, hypermarkets, specialist markets and restaurants. Around 12 months after being commissioned, implementation of the project had already been completed. Overall, almost 9'000 access points were installed at around 780 points of sale. The rapid implementation was facilitated by the M-Infrastructure initiative («MigrosNet»). As a result, customers enjoy free WLAN in the branches. Following the registration of their mobile numbers, as required by law, the WLAN is available to them for six months at a time and can be renewed once this period has expired. The login is valid nationwide, enabling customers to use Migros WiFi at any branch in Switzerland immediately and without any further action being required.

Rollout of M-Workplace: Following the successful pilot phase at Bischofszell Nahrungsmittel AG, other companies such as the Migros Cooperative Geneva, the Federation of Migros Cooperatives, Globus, Office World and Interio are to be switched over to the M-Workplace in 2015. This is to be done as part of the project to consolidate networks, workplaces and data centres at a national level.

Avanta: Under the «Avanta» project, the now outdated Visualstore point-of-sale system is being replaced by a «point-of-purchase» solution, which ensures a link to all other sales channels. The new solution will enable payments and scanning using mobile devices as well as the redemption of vouchers, for example. The first year of the project was mainly about recording, comparing and examining the requirements for the new «point-of-purchase»solution. Project teams from the Federation of Migros Cooperatives, the Cooperatives themselves, together with the suppliers GK Software and SAP, are drawing up the design framework for the development of the solution. The first year of the project ended with the commissioning of a prototype. During the first half of 2015, the designs will be finalised and approved before entering the development phase.

Migros Verteilzentrum Suhr AG ensures efficient and cost-effective delivery of food products to Migros as well as logistics for migrolino AG. As a result of setting up an independent transport fleet for supplying migrolino shops, quality improvements and cost reductions were recorded in 2014. Due to the growth of migrolino AG, MVS is also working on automating the order-picking in this area. 
In the Food sector, the decision was taken to expand high-bay racking capacity in 2015, in order to cover the demand for storage space, which is increasing each year.

Migros-Verteilbetrieb Neuendorf AG celebrated 40 years in business in 2014. 2014 was a year characterised by major construction activity: in the new Logistics Centre East, Hall 4, the 15 to 20 external storage facilities in the surrounding region will be integrated into separate premises, together with the returns business. The move will take place in stages, starting from mid-2015. In order to enable the eastward expansion of the frozen storage facility, the old technical and infrastructure building was torn down and replaced by a new building in a new position. The new building was completed at the end of 2014 and has been used for operations ever since. Energy-related benefits are being derived thanks to the use of heating pumps in the refrigeration plant, and the waste heat is being used to heat further buildings. This will reduce the requirement for heating oil by some 250'000 litres a year. The newly constructed eastern frozen storage facility should be ready for occupation by mid-2016. In addition to a conventional logistics warehouse, it will also include a high-bay racking warehouse. The excavation work is currently underway.

Procurement management as a key corporate function designed to safeguard leadership in terms of price and performance: Procurement management failed to benefit significantly from either commodities or currencies in 2014. In the case of online tendering and procurement via our buying alliance AMS, many products have now reached a price floor. This also contributed to the further reduction in procurement savings compared to 2013. The situation in commodity markets varied greatly; what we initially thought was an easing of prices in vegetable oils turned into an unexpected blow for us as a result of the extremely poor olive harvest, especially in Italy where more than 50% of the harvest was destroyed. Additional failed harvests meant that we were also faced with sharply rising purchase prices for a number of other commodities (e.g. wheat, durum wheat, coffee, cocoa/cocoa butter, honey, nuts and dried fruits).

Procurement in the Far East, with our own offices in Hong Kong and Gurgaon (India), remains a key pillar of our procurement management. Irrespective of this, we closed the liaison office in Shanghai at the end of 2014 and integrated its activities into Migros Hong Kong, with the aim of concentrating resources. The free trade agreement with China,the reduction and abolishment of some customs duties, has had virtually no impact on sales prices. Their only effect at present is to ease some of the pressure of the constant increases in production costs in the Middle Kingdom and of the strengthening of the dollar against the Swiss franc, which began in the spring of 2014.

During the reporting year, exchange rate developments had a minor impact on the Retail and Industry sector.

The switch in Migros’ transport operations to environmentally friendly rail was also continued in 2014. In addition to projects at national level, the FMC Department of Logistics Transport has further expanded intermodal transport (rail + road) at international level by establishing a link with the Ligurian ports of Genoa and La Spezia. This provides Migros with an interesting alternative to the northern European ports. It can direct around a quarter of its goods from the Far East via this axis, shortening this particular transportation route by several thousand kilometres. In order to improve logistics processes further, around 75% of the 8.5 million reusable containers have already been equipped with RFID labels under Migros Exchange Equipment Management.

Thanks to rigorous procurement management and process optimisation measures, gross profit increased by CHF 371.5 million to CHF 10.7 billion (+3.6%). In addition to salary rises of between 0.6% and 1.0%, the increase in personnel expenses by CHF 222.4 million to CHF 5.3 billion is mainly due to the change in the scope of consolidation and the expansion of a number of companies. The change to the regulation governing long-service awards was also an additional burden on personnel expenses in the reporting year. The increase in other operating expenses from CHF 104.8 million to CHF 3.3 billion is due mainly to higher rental expenses as a result of expansion as well as greater advertising costs. In addition to normal investment activities, the decrease of CHF 23.4 million in depreciation and amortisation to CHF 1.2 billion was also due to the lower level of impairments in comparison to the previous year.

Overall, the operating result for the Retail and Industry sector increased by CHF 67.7 million to CHF 869.2 million. All of the strategic business units recorded an improvement in results, with the exception of the segment Others.

The Financial Services sector generated income from financial services business totalling  CHF 872.6 million with costs of CHF 274.3 million. Net income from financial services business increased from CHF 559.5 million to CHF 598.3 million, due to higher interest income (see Note 8 of Migros Group financial statements).

Net income from interest margin business remains the most important component in the financial services business. Approximately 81% of income was generated in this sector during 2014. Despite the sustained low level of interest rates, the interest margin increased slightly. As a result, even with a slight fall in interest income, net interest income increased by 2.6%.

Income from the commission business benefited from the higher volumes in safe deposit business, increasing by 2.2% against the previous year’s result.

Income from other financial investments and foreign currency and money transmission business rose from CHF 35.5 million to CHF 39.2 million on account of higher transaction volumes.

Thanks to improved IT support, personnel expenses fell by 0.8% to CHF 174.3 million.

Migros Bank also made investments in its IT platform in 2014. Depreciation and other operating ex-penses were therefore reduced only marginally from CHF 150.7 million to CHF 149.0 million.