Solid Market Performance and Rigorous Cost Management

All product groups contributed to the 7.7% growth in sales to CHF 2,694 million (prior year CHF 2,501 million), 4.6% of which stemmed from price increases. Overall, organic growth amounted to 6.6%.

09/04/09 Emmi recorded sales of CHF 2,694 million for the 2008 financial year, an increase of 7.7%. Net profit for 2008 amounted to CHF 58.7 million, 42.3% more than in 2007. Earnings before interest and taxes (EBIT) were CHF 102.1 million; the EBIT margin increased from 2.5% to 3.8%. This clear improvement in earnings against the backdrop of a disappointing prior year can be attributed to a solid market performance and rigorous cost management. Emmi expects to maintain sales in the current financial year and that the net profit margin will exceed 2%.

For the General Meeting on 20 May 2009, the Board of Directors proposes, as in the previous year, the distribution of a gross dividend of CHF 2.60 per registered share.

All product groups contributed to the 7.7% growth in sales to CHF 2,694 million (prior year CHF 2,501 million), 4.6% of which stemmed from price increases. Overall, organic growth amounted to 6.6%. Brands such as Emmi Caffè Latte, Emmi Kaltbach and, increasingly, the Emmi Swiss line continued to perform well, as did concepts with added health benefits, such as Benecol and Aktifit.

In Switzerland, net sales rose by 8.1% to CHF 2,068.3 million (prior year CHF 1,914.1 million), with all product groups contributing to the increase, roughly half of which was inflation-related.

In the international markets, Emmi increased sales by 6.5% to CHF 625.3 million (prior year CHF 587.0 million), a figure which equates to a full 7.6% in local currency terms. While positive developments in brand concepts and specialities for fresh products and cheese played a strong role, the greatest contribution to growth came from price increases.

Clear improvement in operating result

Gross operating profit rose by 7.8% to CHF 818.3 million (prior year CHF 759.4 million). At 30.4%, the gross margin remained stable at the prior-year level as a result of value adjustments on milk powder stocks that became necessary following a dramatic slump in prices on the global market and the high milk production in Switzerland. This development was compounded by negative currency effects.

Rigorous cost management in the 2008 financial year led to an increase of only 2.0% in operating expenses to CHF 637.2 million (prior year CHF 624.4 million). Personnel expenses rose 1.3% to CHF 314.4 million (prior year CHF 310.5 million) and other operating expenses went up by 2.8% to CHF 322.8 million (prior year CHF 313.9 million). Investments in marketing and advertising went up in line with the increase in sales, amounting to CHF 108.3 million for full-year 2008 (prior year CHF 99.5 million). As at the end of the year under review, headcount had risen only marginally to 3,373 employees from the prior-year figure of 3,350.

Earnings before interest, taxes, depreciation and amortization (EBITDA) recorded a clear improvement to CHF 184.4 million (prior year CHF 140.1 million), with the EBITDA margin increasing by a pleasing 1.2% to 6.8% as a result.

At CHF 88.9 million, depreciation and amortization were on a par with 2007, whilst write-backs of negative goodwill declined by CHF 3.5 million to CHF 6.6 million as a result of the progress made with the integration of Mittelland Molkerei AG. Earnings before interest and taxes (EBIT) amounted to CHF 102.1 million in the year under review, which corresponds to a pleasing increase of CHF 39.8 million, or 63.8%. This led to a clear improvement in the EBIT margin to 3.8% (prior year 2.5%).

Net profit margin on target

The strong Swiss franc had a negative impact on the financial result of CHF –26.0 million (prior year CHF –12.0 million). At the same time, interest expense increased due to a higher average level of credit drawdowns despite more favourable credit conditions. Taxes were considerably higher than the prior year at CHF 9.0 million (prior year CHF 3.2 million), but this was due to the special one-off effects that had had a positive impact on the tax amount in 2007. Minority interests increased by 61.4% to CHF 10.6 million.

Net profit for the 2008 financial year amounted to CHF 58.7 million (prior year CHF 41.3 million), corresponding to an increase of 42.3% and a net profit margin of 2.2% (prior year 1.6%).

High milk volumes and falling prices at the international level

Following the massive increase in milk prices in 2007, international prices for milk and skimmed milk powder fell sharply in 2008, primarily because of high milk volumes. In Switzerland, the price for the raw material milk registered a substantial increase at the end of 2007. These price increases were largely passed on to the market with little impact on margins. A further price increase in industrial milk on 1 July 2008 was also passed on to the retail trade in Switzerland.

High milk production in Switzerland (up 5.0% versus the prior year) subsequently led to a rapid stockpiling of milk powder and butter. Proceeds from the support funds of the Swiss Milk Producers (SMP) were deployed to utilize butter stocks. In contrast, the costs of processing stocks of milk powder had to be borne by processors and individual producer organizations. As at end-2008, Emmi held stocks of approximately 6,000 tons (prior year 2,000 tons) of milk powder. Substantial value adjustments were made on the stocks.

Investments in increase productivity

Foreign discounters and international competitors have entered the Swiss market, making price competition on the domestic market even more challenging than before. Emmi expects the markets to continue to open up over the medium to long term and made further investments in increase productivity in 2008. Based on our anticipation that the market will continue to liberalise, we are also making investments this year in measures that will increase efficiency and secure our long-term competitiveness. At our Suhr plant, we have seen a significant increase in production after the integration of our Lucerne Butterzentrale. The concentration of processed cheese production in Langnau i. E. will help us to secure our internationally leading position in the fondue segment. Expansion of the caves in Kaltbach began in autumn 2008, where the plan is to double capacity by 2010 so as to meet the rising demand for the Kaltbach specialities. The introduction of the new order processing system for export sales and electronic order processing for major customers marked important milestones in the implementation of the Group-wide IT system.

Focused international expansion

Following our strategy review, the Board of Directors and Group management has decided that Emmi will significantly expand its international business during the next few years, with the ultimate goal of achieving foreign sales equivalent to that of Swiss sales. We are confident that the strategy we have chosen is the right one, given that we expect market liberalization to continue.

Emmi will reinforce its leading position in Switzerland over the next few years while building up its international business in Europe and North America. Beside Switzerland, our investments will be focused on markets and products with the greatest growth and profit potential. Our areas of concentration will be Germany, Italy, Austria, the UK and the USA. The acquisition of Roth Käse USA Ltd. on 1 January 2009 has bolstered the position of Emmi in the US market.

With regard to other markets, we will cultivate business opportunities or work closely with strategic partners such as the cheese specialist Ambrosi S.p.A. in the French market and with Spain's Kaiku Corporación Alimentaria for the Spanish and South American markets. To further bolster the strategic partnership, Emmi increased its stake in Kaiku in early April 2009 from 23% to 43%.

We are also investing in the establishment and reinforcement of the Emmi brand. We want Emmi to be synonymous with genuine Swiss premium taste, thereby setting ourselves apart from the competition by being a high-quality provider. Emmi will also be promoted as a leading umbrella brand, which will be our focus in the next three years.