Emmi Half Year Report 2009: Well on Course in a Difficult Environment

Lucerne, 5 September 2009 - Emmi recorded a stable performance in the first half of 2009 in a difficult environment. The company generated sales of CHF 1,281 million (prior year CHF 1,289 million), which represents a slight decline of 0.7%. Net profit rose 23.3% to CHF 32.8 year-on-year, which corresponds to a net profit margin of 2.6%. The company is therefore on track.

Emmi expects sales to fall in the second half of 2009 due to strained consumer sentiment, lower raw material prices and forecast exchange rate trends. The company therefore anticipates a fall of around 5% in sales for financial year 2009 as a whole and a net profit margin of 2-2.5%, in line with the target corridor. Emmi recorded sales slightly below the prior-year level and a good operating result in the first six months of 2009 despite the difficult economic environment. The company is therefore on track. There was a slight decline of 0.7% in sales overall to CHF 1,281 million (prior year CHF 1,289 million). Raw material prices in international markets and subsequently in Switzerland as well came under further pressure in the first half of 2009 due to overproduction, and this also brought about a decline in retail and end-consumer prices.

Good sales performance in Switzerland - international volumes increased
Emmi's sales in the Swiss market fell 3.9% to CHF 958.9 million. The fall was lower than expected and was primarily attributable to a reduction in raw material prices.

Emmi increased its international sales by 10.4% to CHF 322.0 million thanks to the acquisition of USA-based Roth Käse in January 2009. The share of Emmi's sales generated outside Switzerland was thus increased to 25.1% of total sales. Adjusted for acquisitions (organic), international sales were down 5.0%, primarily due to the currency effect. In local currency, sales remained stable (-0.2%).

Dairy products: Market position maintained despite increasing price pressure
Sales of dairy products amounted to CHF 376.1 million (prior year CHF 385.8 million) in the first half of the year, down slightly on the same period in the previous year (-2.5%). The decline is due to falling prices - the segment actually increased its volumes compared with the same period in the previous year.

Fresh products: International volumes increased
Fresh products performed marginally less well in the first six months of the year. Sales in the Swiss market were maintained at the prior-year level, but there was a decline in international business, mainly as a result of consumer sentiment. Sales amounted to CHF 282.5 million (prior year CHF 296.2 million).Volumes in the fresh products segment increased by 4.3%, however, due to lower prices and the negative currency effect, sales were down 4.6% (in local currency: +1.7%). One factor behind this was the strong performance of Swiss Müesli in Germany at the beginning of 2009. Brand concepts continued to perform well, with the relaunch of Emmi Caffè Latte Zero in the second quarter enjoying a good initial response and Toni Jogurts and Emmi Energy Milk, both of which were accompanied by national marketing campaigns, also being well received.

Cheese: Successful brand concepts and high competitive pressure
The cheese business recorded a satisfactory performance overall despite ongoing high price pressure and the general trends in the cheese market. Adjusted for acquisitions, this segment achieved sales of CHF 430.8 million, up 7.2% on the prior-year figure (CHF 401.7 million). Swiss sales were increased by 0.2% in an increasingly tough competitive environment. The export cheese business recorded a significant decline in organic growth of 10.9% (in local currency: -6.4%). This was attributable to three factors: first and foremost the strength of the Swiss franc compared with the currencies of Emmi's key markets, secondly the general weakness of the US dollar, which is the trading currency for the international cheese market, and finally the reduced demand for premium products due to deteriorating consumer sentiment. By contrast, brand concepts such as the Kaltbach line and Luzerner cream cheese continued to perform well.

Fresh cheese: Good position maintained
The proportion of imports rose only marginally in a growing market despite increasing import pressure due to the liberalization of the European market. In this difficult environment, Emmi managed to maintain fresh cheese sales at CHF 68.0 million (prior year CHF 69.9 million), just 2.6% down on the prior-year level.

Powder/concentrates: Decline in Switzerland - growth abroad
The performance of the powder/concentrates segment in the period under review was characterized by overproduction and growing pressure on prices in the international markets. Against this backdrop, Emmi achieved sales of CHF 42.8 million (prior year CHF 45.3 million), a fall of 5.4% compared with the same period in the previous year. Sales in Switzerland fell, while international sales grew significantly. The increase in international business is primarily attributable to the reduction of Emmi's milk powder stocks.

Other products and services down on prior-year level
Sales of other products and services fell by 10.8% to CHF 80.7 million (prior year CHF 90.5 million) in the first six months of the year. The fall was due to the reduction in the fresh products service and the loss of a substantial order.

Good operating result in the first half of the year
Gross profit stabilized at the prior-year level in the first six months of 2009, reaching CHF 401.9 million (prior year CHF 402.1 million). The gross profit margin was up slightly on the prior-year level at 31.4% thanks to continued improvements in the product mix as well as measures to increase efficiency and reduce costs. Operating expenses rose by 0.3% to CHF 318.1 million (prior year CHF 317.2 million) in the period under review as a result of acquisitions. Personnel expenses rose by 2.5% to CHF 162.9 million (prior year CHF 158.9 million) due to the takeover of Roth Käse Ltd., while other operating expenses fell by 2.0% to CHF 155.2 million (prior year CHF 158.3 million). Lower marketing and logistics costs had a particularly positive impact on other operating expenses.

Earnings before interest, taxes, depreciation and amortization (EBITDA) remained stable at CHF 84.6 million (prior year CHF 85.7 million), while the EBITDA margin also remained unchanged at 6.6%. Amortization rose by a marginal CHF 0.9 million to CHF 42.0 million due to the acquisition of Roth Käse USA Ltd. and the ongoing project to concentrate processed cheese production in Langnau. Earnings before interest and taxes (EBIT) were CHF 44.7 million (prior year CHF 47.9 million), while the EBIT margin was down slightly on the comparable figure at 3.5% (prior year 3.7%).

Reduced levels of borrowing, lower interest rates and the currency effect of a comparatively strong Swiss franc all affected the financial result, which improved to CHF -1.0 million (prior year CHF -11.6 million).

Net profit for the first half of 2009 rose to CHF 32.8 million (prior year CHF 26.6 million), corresponding to an increase of 23.3% on the first half of 2008. A net profit margin of 2.6% (prior year 2.1%) puts Emmi's profitability for the first half of 2009 well above the prior-year level, and the company therefore remains on track.

Business performance in the second half of 2009 and outlook for the year as a whole
Emmi continues to focus on the consistent implementation of its defined strategy. As such, it seeks to consolidate its share of the domestic market and concentrate its international efforts on the key markets of Germany, Italy, the UK, Austria and the USA. Substantially strengthening the umbrella Emmi brand and gearing the product portfolio to brand concepts offering significant development potential are also major priorities.

Overall, Emmi expects a slight decline in Swiss sales and a continued slowdown in international business in the second half of the year due to weaker consumer sentiment, the increasingly tough currency situation and falling milk prices.

The company anticipates a fall of around 5% in sales for financial year 2009 as a whole and a net profit margin of 2-2.5%, within the defined target corridor, thanks to ongoing systematic cost management.
 

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