Switzerland: Emmi is Well on Track

Lucerne, 17 September 2008 - Emmi grew by 7.5% in the first half-year and achieved sales of CHF 1.3 billion. The Swiss market and the international business contributed equally to this increase in sales. Net profit rose 17.2% to CHF 26.6 million compared with the first half of the previous year, which corresponds to a net profit margin of 2.1%. Following the unsatisfactory performance in 2007, this has put the company back on track.

Emmi anticipates substantial growth for the second half of 2008, although a slowdown in international business is foreseeable. Emmi forecasts sales growth of 6 - 8%, which would exceed its objectives, and a net profit margin of over 2% for 2008.

Thanks to strong growth and a significantly better operating result, Emmi got back on track in the first half of 2008. A systematic market focus and strict cost management were major contributing factors in this regard.

Good growth in Switzerland and abroad
In the first half of 2008, Emmi posted sales growth of 7.5% to CHF 1.3 billion. All product groups and key markets played their part in this positive trend versus the previous year. Organic growth amounted to 6.5%, around half of which is inflation-related.

Whilst sales growth in Switzerland significantly exceeded expectations at 7.7%, the 7.1% growth abroad was slightly below expectations due not least to negative currency effects and declining consumer sentiment. International growth was also slowed slightly by price increases abroad. The strategically important product groups of fresh products and cheese posted good international growth at 9.0% and 8.0% respectively.

Emmi received targeted reinforcement with the acquisition of the Appenzeller cheese specialist Walter Schmitt AG and Haerten & Interimex S.A., Emmi's existing distributor for Belgium and Luxembourg.

Back on track with targeted measures
Gross profit rose 7.4% to CHF 402.1 million on the first half of 2007 (prior year CHF 374.3 million). The gross profit margin was thus maintained at the prior-year level of 31.2%. Thanks to strict cost management, operating expenses showed a disproportionately low increase of 2.8% to CHF 317.2 million (prior year CHF 308.4 million) in the period under review. Personnel expenses rose by 3.6% to CHF 158.9 million due to the growth in production volume, and other operating expenses rose by 2.1% to CHF 158.3 million. Lower marketing and occupancy costs had a particularly positive impact on other operating expenses. Earnings before interest and taxes (EBIT) increased by 49.7% to CHF 47.9 million, with the EBIT margin rising significantly to 3.7% (prior year 2.7%).

Higher interest expenses and the currency effect from the weak US dollar and falling euro had a negative impact on the financial result amounting to CHF 11.6 million.

Net profit for the first half of 2008 rose to CHF 26.6 million (prior year CHF 22.7 million), corresponding to an increase of 17.2% on the first half of 2007. A net profit margin of 2.1% (prior year 1.9%) puts Emmi's profitability for the first half of 2008 above the prior-year level, which means it is back on track.

Despite the growth, the headcount was up a marginal 0.4% to 3,351 employees (prior year 3,337) by the end of June 2008.

Growth with all product groups
Sales of dairy products rose by 3.9% to CHF 376.8 million (prior year CHF 362.8 million) in the first half of the year. This growth can be attributed to higher volumes and to the fact that the price increases were passed on to the market with no impact on margins.

Sales of fresh products were up 5.4% to CHF 290.3 million (prior year CHF 275.3 million). The growth of Emmi Caffè Latte continues undiminished.

In October last year, Emmi began producing Emmi Caffè Latte in the US for test sales in cooperation with a local partner. The market test will produce the first firm indicators of the concept's potential in the US by the end of 2008. Premium yoghurts, which are also produced locally in the US, are ahead of budget and the distribution thereof in various US retail chains has expanded markedly.

Despite the ongoing pressure on prices, Emmi managed to increase its cheese sales by 6.9% to CHF 395.5 million (prior year CHF 370.0 million). Growth was particularly high in the first quarter but levelled off in the second quarter after the price rises. Brand concepts such as the Kaltbach line, Emmi Fondue and traditional Swiss cheese continued to perform extremely well. The weak US dollar had a negative impact on the international cheese business overall.

As a consequence of the liberalization of the European market for cheese, the proportion of fresh cheese imports increased in a growing market and prices came under pressure. Having acquired a new production order, Emmi recorded sales growth of 7.6% to CHF 69.4 million (prior year CHF 64.5 million).

Sales of powder/concentrates increased by 13.2% to CHF 45.3 million over the reporting period, due primarily to buoyant demand in Switzerland. Sales of other products and services increased by 29.6% to CHF 112.1 million (prior year CHF 86.5 million) in the first half of the year. The trading business posted encouraging growth in gastronomy and industrial catering.

Unstable trend in raw materials and increased import pressure
The price of the raw material milk increased substantially in Switzerland at the end of 2007. These price increases were passed on to the market and thus had no impact on margins in Switzerland and little impact on margins in international business. A further price increase in milk on 1 July 2008 was also passed on to the retail trade in Switzerland.

The high milk production in the first half of the year in Switzerland (up 5.1% on prior year) led to a rapid stockpiling of powder and butter and, to a slightly lesser extent, of cheese. This necessitated drastic cuts in the production of Emmentaler.

Due to Switzerland being at an increasing disadvantage versus the rest of Europe with respect to raw materials, the competitiveness of Swiss milk products trended downwards.  Consequently, milk volumes and the milk price are coming under noticeably increased pressure.

Business performance in the second half-year and outlook for 2008 as a whole
Emmi anticipates substantial growth for the second half of the year, which tends to be seasonally stronger, although a slowdown is foreseeable in international business due to the decline in consumer sentiment. In order to reinforce the market position for Swiss cheese in the US, a review will be undertaken in the next few weeks into whether the current minority stake in the US cheese specialist Roth Käse Ltd. should be substantially expanded.

Emmi forecasts overall growth of 6 - 8% for 2008, which would exceed its objectives, and thanks to ongoing systematic cost management, a net profit margin of over 2%.

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