Operating Results

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 commercial and industrial business. 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 roll-out of an SAP-based standardised national system for commercial real estate management was completed in the 2016 financial year.

As part of the decentralisation process, the first 2'400 systems from the local data centres were integrated into the new national data centre infrastructure. Included among these were those systems for which the requirements in terms of availability are the most demanding.

The roll-out of the M-Workplace as a further measure to standardise and optimise processes was also in full swing in 2016. In addition to the FMC, Globus, Interio, Office World, Ex Libris and BINA (Bischofszell Nahrungsmittel AG), other companies that were successfully integrated into the new workstation environment were Migros Geneva, Midor, Migrolino and Micarna. By the end of 2016, the M-Workplace had more than 7'000 users.

The Forecasting and Material Requirements Planning system that has been used to date will be replaced by the new SAP system "Forecasting & Replenishment" for the fresh product range. Thanks to improved algorithms and factors influencing individual demand, this will allow 700 supermarket outlets to work in future with an order proposal that is of a higher quality. This will optimise the stores' inventories and sharply reduce food waste. The results from the first pilot installations that are in productive operation are promising.

The Avanta project, which was launched in 2014 and is scheduled to be completed by the end of 2019, involves the development of an innovative point-of-purchase solution that is aligned with all sales channels. This will replace the current Visualstore point-of-sale solution in supermarkets /  hypermarkets, in the specialist markets and in the catering activities of the Cooperative Retailing segment. Following a two-year design phase, the project is now in the development and testing phase and will be followed by an initial pilot project in the first quarter of 2017.

Migros Verteilzentrum Suhr AG ensures efficient and cost-effective delivery of food products to Migros stores as well as logistics for migrolino AG. Productivity continued to improve in 2016 and logistics service prices were reduced once more. Due to the growth of migrolino AG, the start-up of the new, automated order-picking facility for small-quantities logistics was completed successfully in spring, thereby marking a further step along the path towards the streamlining of operations. At the end of September, the sixth silo for the high-bay racking warehouse was put into operation, increasing the storage capacity by a further 16'500 pallet spaces to over 100'000 spaces.

At Migros-Verteilbetrieb Neuendorf AG, the current year has seen progress made with the construction of the new frozen store facility 4 (high-bay racking warehouse and production hall). The cooling of the facility to between – 26 and – 28 degrees was carried out in December. Work on the buildings and technical operations is due to be completed over the next few months and final integration tests to examine the facility's networked functions will also be carried out. The facility as a whole will begin operations in mid-2017. The photovoltaic system on the roofs of MVN has been extended further. The area on the newly constructed fourth frozen storage facility was used to increase the size of the system by 6'221m2, or 15%. Switzerland's most powerful solar facility now covers a service area measuring 47'589m2 in total. It consists of 29'743 photovoltaic modules and has an output of 7.80 megawatts-peak. The annual output of approximately 7.25 GWh is equivalent to the annual power consumption of 1'812 average households.

Procurement management as a key corporate function designed to safeguard price and performance management: Following the turbulence of the previous year, which saw the sudden abolishment of the minimum exchange rate for the Swiss franc against the euro, 2016 was marked by natural and political influences in terms of procurement. Commodity markets were extremely mixed. Forecasts of poor harvests from the main areas of production drove the price of cocoa in pound sterling per megatonne to a six-year high by mid-August. The United Kingdom's Brexit decision and the currency fluctuations which followed subsequently resulted once again in a slight reduction in purchase prices in Swiss francs. The Brexit decision had a reverse effect on coffee exchanges, which responded with rising prices. This upward trend was exacerbated by the drought in some regions of Brazil.
The delayed effects of the severe drought in Asia in summer 2015 caused by the weather phenomenon known as "El Nino" led to very poor harvests of the oilseed crops of palm and coconut in 2016, which in turn resulted in higher prices. Whereas vegetable oils from Europe (sunflower, rapeseed) suffered no negative effects, in Italy the olive fruit fly decimated the olive harvest. Adverse effects on the environment also greatly restricted the availability of farmed salmon, which subsequently drove prices up.

Exchange rate developments did not have a significant impact on the Retail and Industry sector during the reporting year.

Logistics and transport: In addition to preparations for the integration of the Jowa container pool in January 2017, another new container was included in the Migros Exchange Equipment Management pool in 2016. Thanks to the Returnable Plastic Bulk Container (RPBC), it was possible to provide a reusable container for transporting bananas from Columbia. Besides saving on cardboard, the container also prevented the bananas from becoming damaged.
In the area of international transport operations, a number of bulk goods consignments were switched from road to rail. For instance, processed tomato products from southern Italy are now transported by rail. Efforts to further reduce CO2 emissions are to be continued in 2017 following the launch of the "Fruit and Vegetable Imports – Intermodal Transport" test pilot at the end of 2016. The switch to transportation by rail can cut CO2 emissions by around 2-3 tonnes per day.

Thanks to rigorous procurement management and process optimisation measures, gross profit increased by CHF 281 million to CHF 11'159 million (+2.6%). In addition to salary rises of between 0% and 0.5%, the increase in personnel expenses by CHF 162 million to CHF 5'600 million (+3.0%) 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 37 million in depreciation and amortisation to CHF 1'339 million (+2.8%) was also due to the higher level of impairments in comparison to the previous year. The increase in other operating expenses by CHF 138 million to CHF 3'578 million (+4.0%) is due mainly to higher advertising costs as well as higher logistics and IT expenses. Savings were made in administrative costs.

Overall, the operating result for the Retail and Industry sector decreased by CHF 55 million to CHF 642 million (-7.9%). Impairments weighed heavily upon the strategic business units Commerce and Industry & Wholesaling in particular.

The Financial Services sector generated income from financial services business totalling CHF 817 million with costs of CHF 246 million. Net income from financial services business decreased from CHF 588 million to CHF 571 million, due to lower interest income (see Note 7 of Migros Group financial statements).

Whereas income from financial services business decreased by CHF 43 million, expenses and impairment losses in the financial services business fell by just CHF 26 million as the possibilities for cutting the rates of interest paid on deposits have been virtually exhausted.

Personnel expenses increased slightly, by CHF 3 million to CHF 174 million. Other operating expenses as well as value adjustments on non-current assets remained on a par with the figures recorded for the previous year.

Overall, improvements in terms of expenses were outweighed by the fall in income, with the operating result decreasing by CHF 14 million to CHF 270 million.