Operating Result

Efficiency programmes, the auditing and standardisation of processes, new structures and procedures – i.e. sustainable cost management – all had an influence on the gross margin and the operating result of the Retail and Industry sector. In addition to efficiency programmes, however, procurement management, commodity prices and exchange rates weighed considerably 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.

The Mobile Payment project was successfully completed in the 2015 financial year. Customers are now able to pay using their smartphone and the dedicated Migros App at all points of sale in Migros supermarkets and the specialist markets SportXX, Micasa, Do it & Garden and Melectronics, as well as in Migros restaurants and take-aways. All payments are charged directly to the customer's credit card or debited from their Migros Bank account. More than 100'000 Migros customers are already using their smartphone as a digital wallet and mobile payment sales exceeded CHF 16 million.

In the One HR project, a strategic IT platform is being defined that can be used throughout the group for HR processes. Within the next three years, the HR systems of the Cooperatives, the industry and logistics enterprises, the FMC and a number of other companies will be standardised on a single platform, thereby establishing a stable foundation for innovation and joint strategic projects.

As part of the centralisation of IT services, the M-Datacenters are to be consolidated and the premises that are no longer required will be put to new use.

Avanta: Under the "Avanta" project, the now outdated Visualstore point-of-sale system is being replaced by a "point-of-purchase" solution, which ensures a link to all other sales channels.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 solution will be implemented with a pilot project planned for the start of 2017. From 2018 onwards, Avanta will be in widespread use in all Cooperatives.

Migros Verteilzentrum Suhr AG ensures efficient and cost-effective delivery of food products to Migros stores as well as logistics for migrolino AG. The number of items shipped recorded an impressive 3.3 % increase to 83 million units. Productivity continued to improve in 2015 and logistics service prices were reduced further. Due to the growth of migrolino AG, the nonrefrigerated section of the new, automated order picking facility for small-quantities logistics was successfully commissioned at the end of the year. The refrigerated part of the facility will follow in early 2016. Unfortunately, the addition of a sixth silo to the high-bay racking warehouse has been delayed by an entire year due to delays in the issue of construction permits by the authorities. This will therefore not be implemented until autumn 2016.

Migros-Verteilbetrieb Neuendorf AG inaugurated the newly-constructed Logistics Centre East, Hall 4 (LCO 4) on 4 December 2015 following a construction period of around two years, with the centre able to start operations on schedule. The large-scale project comprises five storeys, has a gross cubic volume of 385'000 m3 and an available floor space of 55'000 m2. As a result, the external storage facilities for near and non-food items in Neuendorf, which sometimes number up to 20, as well as the returns processing and ski hire operations can now be integrated into one building, thereby simplifying logistics processes and saving on costs. Photovoltaic cells were also installed on the newly-constructed Logistics Centre East, Hall 4 (LCO 4), thereby extending the overall size of the photovoltaic system on the roofs of MVN; it now covers 41'000 m2 in total and has an output of 6.8 MWp. It remains the largest facility of its kind in Switzerland.

In order to create capacity for the rapidly growing frozen storage business, the existing infrastructure will be expanded with the newly-constructed frozen storage facility (TKL 4). The extension will comprise a frozen storage warehouse with high-bay racking and a production hall measuring around 300'000 m3 in total. The facility is set to begin operations in the fourth quarter of 2016.

Procurement management as a key corporate function designed to safeguard price and performance management: In terms of procurement, 2015 was marked by the sudden decision of the Swiss National Bank to abolish the minimum euro exchange rate on 15 January 2015. Shortly thereafter, several months of difficult negotiations followed between suppliers and purchasers in order to ensure that the currency gains on products from the euro area were passed on to customers. Thanks to healthy competition in several product categories, the savings made by the procurement cooperation AMS in 2015 were increased slightly compared to the previous year, which in turn benefited customers. Commodity markets were primarily marked by the collapse in the price of crude oil in the second half of the year. The effect on procurement was marginal, however. As far as agricultural commodities are concerned, poor wheat, almond and hazelnut harvests were largely responsible for rising purchase prices. Unfortunately, the price of cocoa also continued to rise in 2015. Vegetable oil prices remained steady for the most part.

Exchange rate developments had a significant impact on the Retail and Industry sector during the reporting year, causing a drop in income of more than CHF 280 million.

The switch in Migros' transport operations to environmentally friendly rail was also continued in 2015. In addition to projects at national level, the FMC Department of Logistics Transport has further expanded intermodal transport (rail and 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. In order to improve logistics processes further, all 8.5 million reusable containers have been equipped with RFID labels under Migros Exchange Equipment Management. In 2016, the Jowa container pool will be integrated into Migros Exchange Equipment Management and also equipped with RFID labels.

Thanks to rigorous procurement management and process optimisation measures, gross profit increased by CHF 194.0 million to CHF 10'877.9 million (+ 1.8 %). In addition to salary rises of between 0.7 % and 1.2 %, the increase in personnel expenses by CHF 150.6 million to CHF 5'437.8 million is mainly due to the change in the scope of consolidation and the expansion of a number of companies. In addition to normal investment activities, the increase of CHF 71.1 million in depreciation and amortisation to CHF 1'301.9 million was also due to the higher level of impairments in comparison to the previous year. The increase in other operating expenses by CHF 119.2 million to CHF 3'440.1 million is due mainly to higher rental expenses as a result of expansion as well as higher advertising costs and higher logistics and IT expenses.

Overall, the operating result for the Retail and Industry sector decreased by CHF 147.0 million to CHF 698.0 million. All of the strategic business units recorded a decline in results, with the exception of the Industry & Wholesaling and Others segments.

The Financial Services sector generated income from financial services business totalling CHF 860.7 million with costs of CHF 272.4 million. Net income from financial services business decreased from CHF 598.5 million to CHF 588.3 million, due to lower interest income (see Note 7 of Migros Group financial statements).

Whereas income from financial services business decreased by CHF 12.1 million, expenses and impairment losses in the financial services business fell by just CHF 1.9 million. The bank benefited in the reporting year from a favourable risk trend in the credit business.

Thanks to improved IT support, personnel expenses fell by CHF 1.8 million to CHF 171.2 million.

As project costs in the reporting year were lower, other operating expenses also fell by CHF 6.2 million. Migros Bank also made significant investments in its IT platform in 2015. This year, depreciation on part of the changeover to a new IT platform in 1999 was no longer shown in the accounts. Depreciation of non-current assets was therefore reduced by CHF 5.5 million to CHF 30.4 million.

Overall, improvements in terms of expenses outweighed the fall in income, with the operating result improving by CHF 1.7 million to CHF 283.5 million.