Emmi Reports Solid Result Despite Turbulent Environment

The expected sales growth of 2 to 3% and EBIT of CHF 120 to 130 million for 2011 remain realistic. The target range for net profit margin has been expanded to between 2.5 and 3.0%.

Sep 6 2011 --- Emmi posted a 2.7% increase in net sales in the first half of 2011. Sales amounted to CHF 1,310.1 million (prior year CHF 1,275.2 million) and rose in line with forecasts both in Switzerland and abroad. Earnings before interest and taxes (EBIT) fell by 6.0% to CHF 57.0 million, while net profits declined by 11.6% to CHF 35.2 million, resulting in an EBIT margin of 4.4% (prior year 4.8%) and a net profit margin of 2.7% (prior year 3.1%). This is the second best result in Emmi's history - and a good result in light of the currency environment. The expected sales growth of 2 to 3% and EBIT of CHF 120 to 130 million for 2011 remain realistic. The target range for net profit margin has been expanded to between 2.5 and 3.0%.

Fluctuations on the currency markets have posed a major challenge for companies exporting from Switzerland in recent months. The ongoing strength of the Swiss franc against the euro and the US dollar in particular made exports of Swiss products difficult, also in the food industry, and increased import pressure. Emmi was not immune from these developments, but nevertheless closed the first half of 2011 with a good result.

Emmi increased its net sales by 2.7%, from CHF 1,275.2 million to CHF 1,310.1 million. Swiss business grew by 1.2% to CHF 943.7 million (prior year CHF 932.2 million), while international business improved by 6.8% to CHF 366.4 million (prior year CHF 343.0 million). In organic terms, i.e. adjusted for acquisition and currency effects, growth amounted to 0.7% (Group level), or -0.3% (Switzerland) and 3.4% (international). Net sales are in line with the targets set by the company at the start of the year.

Urs Riedener, CEO of Emmi, says: "Emmi remains in a strong position in its domestic market. At the same time, acquisitions in recent years have had a positive effect on our international business. Both of these factors contributed to our achievement of a pleasing result, in spite of currency turbulence."

Various factors had a positive impact on net sales. In Switzerland, Emmi Caffè Latte, the new Milk Shake and Mozzarella Mini Marinati, which were launched under the Emmi umbrella brand, and Fromalp, acquired in 2010, all contributed to the good result. The performance of acquisitions from outside Switzerland was also pleasing: sales and income of the Onken yogurt brand were above budget in its most important market, the United Kingdom. Californian goat's cheese producer Cypress Grove Chèvre and products distributed under the Trentina brand (formerly Trentinalatte) in Italy also reported sound growth. We are also satisfied with the performance of Emmi Roth USA's domestic cheeses, while cheeses exported from Switzerland came under pressure, with the exception of Kaltbach.

Despite considerable import pressure, Emmi was able to successfully maintain its position in Switzerland. Net sales rose by 1.2% to CHF 943.7 million. The individual product groups - with the exception of Powder/Concentrates - posted stable or increasing sales. Decreases in sales were seen in generic products in the lower price segment in particular, where the strong Swiss franc benefited importers. Swiss business accounted for 72% of sales.

The international business posted pleasing growth of 6.8% to CHF 366.4 million. If the exchange rates had remained stable, sales growth would have amounted to almost 20%. Emmi's earnings abroad came under pressure as the currency depreciation took place very quickly and it was only possible to adjust retail prices after a delay. Price elasticity of demand was also stretched to its limits in the first half of 2011, with the result that Emmi chose to forgo sales in certain markets and with certain clients in order not to endanger the quality of its earnings.

Emmi's international business accounted for 28% of total sales, with products exported from Switzerland and locally produced products each making up half of this figure. The latter helped to attenuate the negative currency impact considerably.

Gross operating profit rose by 3.6% in the first half of 2011 to CHF 436.7 million (prior year CHF 421.5 million). This improvement reflects the optimization of Emmi's range towards products which create more added value and the elimination of products with low sales potential. It highlights Emmi's strategy of not targeting sales at any price, or at the cost of profitability. Gross profit margin increased to 33.3% (prior year 33.1%).

Operating expenses rose by 5.6% to CHF 336.4 million (prior year CHF 318.6 million) due to acquisitions and higher procurement costs (e.g. for energy). The largest item was personnel expenses, which increased by 6.7% to CHF 172.5 million (prior year CHF 161.7 million). Marketing expenses fell to CHF 51.5 million (prior year CHF 55.6 million), whereas other operating expenses increased by 4.5% to CHF 163.8 million (prior year CHF 156.9 million) as a result of structural developments at recently acquired companies.

Earnings before interest, taxes, depreciation and amortization (EBITDA) declined by 3.1% to CHF 101.0 million (prior year CHF 104.2 million) and earnings before interest and taxes (EBIT) by 6.0% to CHF 57.0 million (prior year CHF 60.7 million).

The strong weakening of the euro and US dollar led to a financial result of CHF -8.6 million, which was in line with the prior year's figure. The first half of 2011 saw Emmi generate a net profit of CHF 35.2 million (prior year CHF 39.9 million), down 11.6% year-on-year, but nonetheless the second best result in the Group's history. The net profit margin came to 2.7% (prior year 3.1%).

Emmi expects the Swiss franc to remain strong against the euro, US dollar and pound sterling. Import pressure will therefore continue to rise, making exports of Swiss products more difficult. However, Emmi anticipates that its sales will be towards the lower end of the target scale published in the first quarter of 2011. If the euro and US dollar remain at the levels of the second half of August, net sales at Group level are forecast to increase by 2 to 3%, assuming growth of between 0 and 2% in Switzerland and between 8 and 12% in the international business. These figures include known acquisitions. Emmi also expects - based on further cost management efforts - an EBIT of CHF 120 to 130 million. The target range for the net profit margin has been expanded somewhat: it is expected to be between 2.5 and 3.0%.