Emmi Reports Pleasing Result in the First Half of the Year

Net profit rose to CHF 39.9 million, which corresponds to a profit margin of 3.1 %. Emmi anticipates stable sales for the second half of the year, with the net profit margin stabilizing at around 3 %.

Aug 31 2010 --- Emmi's sales were stable in the first half of 2010 compared with the previous year, with net profit up by 21.5 %. This is a very positive result, given the challenging environment. Sales amounted to CHF 1,275.2 million (prior year CHF 1,280.9 million). The Swiss market declined by 2.8 % to CHF 932.2 million, while international business performed well, rising by 6.5 % to CHF 343.0 million. Net profit rose to CHF 39.9 million, which corresponds to a profit margin of 3.1 %. Emmi anticipates stable sales for the second half of the year, with the net profit margin stabilizing at around 3 %.

Emmi generated sales almost equalling those of the previous year and a pleasing operating result in the first half of the year. The company is therefore on track for 2010, despite a challenging environment due to economic reasons and currency effects. Overall, there was a minimal drop in sales of 0.5 % to CHF 1,275.2 million (prior year CHF 1,280.9 million).

Stable Group sales - significant growth abroad
Net sales in the Swiss market fell by 2.8 % to CHF 932.2 million (prior year CHF 958.9 million). The fall was lower than expected and is primarily attributable to reductions in the price for raw milk. However, volumes in the Swiss market remained at around the same level as the prior year. Increases in sales were achieved in areas with higher margins, for example fresh products such as Emmi Caffè Latte, Aktifit and Benecol, while sales decreased mainly in segments with lower margins. This had a positive overall impact on earnings. The Swiss market accounted for 73.1 % of total Group sales.

Emmi achieved a 6.5 % increase in sales in its international business to CHF 343.0 million (prior year CHF 322.0 million). Adjusted for currencies, the international markets actually posted growth of 9.4 %, while volume growth was 7.2 %. The cheese business in the US developed positively and Roth Käse USA Ltd., acquired by Emmi in 2009, is performing well.

This positive development was achieved despite the only slight improvement in consumer sentiment in the first half of the year and the negative influence of the strong Swiss Franc on the result, especially towards the end of the period under review. Emmi increased international business volumes to 26.9 % of total sales, with the US as the largest foreign market.

Pleasing operating result in the first half of the year
Gross profit was significantly up on the prior-year level (CHF 401.9 million) in the first six months of 2010 at CHF 421.5 million. The gross profit margin was up slightly on the prior-year level of 31.4 % at 33.1 % thanks to continued improvement of the product mix and measures to increase efficiency and improve processes.

Operating expenses were practically unchanged in the period under review at CHF 318.6 million (prior year CHF 318.1 million), while earnings before interest, taxes, depreciation and amortization (EBITDA) increased significantly over the prior-year value to CHF 104.2 million (prior year CHF 84.6 million). The EBITDA margin rose to 8.2 %, from 6.6 % in the previous year, while depreciation and amortization rose by CHF 2.2 million to CHF 44.2 million.

Earnings before interest and taxes (EBIT) were CHF 60.7 million (prior year CHF 44.7 million), while the EBIT margin was clearly above the comparable figure at 4.8 % (prior year 3.5 %).

Net profit for the first half of 2010 rose to CHF 39.9 million (prior year CHF 32.8 million), corresponding to an increase of 21.5 % on the first half of 2009. A net profit margin of 3.1 % (prior year 2.6 %) puts Emmi's profitability for the first half of 2010 well above the prior-year level, and the company therefore remains on track.

Successful strategy
Emmi's strategy is based on three pillars: a strong domestic market, international growth and rigorous cost management. It is a strategy that Emmi intends to pursue unchanged. The acquisition of the Californian cheese specialist Cypress Grove Chèvre, announced on 20 August, and the total acquisition of CASP (Contract Aseptic & Specialty Packaging) LLC in Penn Yan, New York, further strengthens Emmi's position in its largest foreign market. Investments made in the first half of the year, such as the takeover of Fromalp AG in Zollikofen on 1 July, or the acquisition of a minority stake in the Italian fresh cheese specialist Venchiaredo, will also have an impact in the months ahead. Emmi will continue to strategically utilize further growth opportunities in the future.

Repositioning of the Emmi umbrella brand
Emmi invests in its competitiveness on an ongoing basis. As part of the Emmi brand strategy, the company is repositioning some 150 products under the "Emmi" umbrella brand and is presenting them in new, uniform packaging. Typical Swiss symbols and the silhouette of a mountain peak in red and white are the key elements. The uniform appearance from this August onwards will make it easier for consumers to find and select products in the chiller cabinet. The rebranding will only be in Switzerland, Germany and Austria for the time being, but expansion into other key markets is planned.

Performance and outlook for 2010 as a whole
Consumer sentiment is likely to continue its slight recovery in Switzerland and the majority of Emmi's key markets. We anticipate that the currency situation will remain uncertain for the foreseeable future. The increased milk price should have a positive impact on sales. The consequences of Emmi's price increases for exports from Switzerland in the second half of 2010 because of the deteriorating exchange rate remain unclear.

Taking these factors into account, we anticipate stable sales in the Swiss market (including acquisitions) or a slight decline in sales in the region of 2 % (organic). We expect the international business to see sales increase by 8 - 10 % including acquisitions, or 6 - 8 % from organic growth. Thanks to further marketing and cost management efforts, net profit margin will stabilize at 3 %.