Emmi International Performance Below Expectations

Gross profit for Switzerland was in line with objectives, although it increased by just 4.9 % to CHF 759.4 million (prior year CHF 723.9 million) due to negative developments in the European markets.

16/04/08 In the financial year 2007, Emmi reported net sales of CHF 2,501 million, amounting to growth of 7.1 %. Net profit stands at CHF 39.8 million, which corresponds to a net profit margin of 1.6 %. To ensure long-term profitability, Emmi introduced cost-saving measures amounting to a total of CHF 20 million. Emmi expects its net profit margin to exceed 2.0 % again in 2008.

For the Shareholders' Meeting on 21 May 2008, the Board of Directors proposes, as in the previous year, the distribution of a gross dividend of CHF 2.60 per registered share.

In 2007, Emmi reported net sales of CHF 2,501 million, amounting to growth of 7.1 %. In Switzerland, net sales rose by 4.8 %, while in international markets sales grew by 15.3 %. The growth in Switzerland is predominantly due to the integration of Mittelland Molkerei. In international markets, the main contributors to growth came from the integration of the Italian yoghurt producer Trentinalatte and positive development of the brand concepts.

Adjusted for acquisition and consolidation effects, Emmi posted good organic growth of 3.4 % in 2007, 1.8 % of which in Switzerland and 9.3 % abroad. The growth drivers in the fresh products segment were Emmi Caffè Latte, Benecol and the newly launched Swiss concept. The main contributors to growth of cheese sales were the Kaltbach line and brand concepts such as Winzer, Luzerner and SwissAlp, as well as the traditional cheese varieties. Classic milk products such as butter and cream also performed very well.

Gross profit for Switzerland was in line with objectives, although it increased by just 4.9 % to CHF 759.4 million (prior year CHF 723.9 million) due to negative developments in the European markets. The gross margin decreased by 0.6 percentage points to 30.4 %.

The unsatisfactory earnings growth was influenced by three main reasons: Firstly, performance estimates for the international fresh products business were generally too optimistic, and Emmi invested in structures and marketing on this basis. However, the cold, wet summer in Europe in 2007 meant that sales and earnings were significantly below expectations. Secondly, increases in the price of raw materials could only be passed on in international markets after a delay, especially in Italy, where our subsidiary Trentinalatte could only do so towards the end of 2007. Thirdly, because of the large volumes of Emmentaler available on the export markets, sales prices for Emmentaler cheese have fallen significantly at international level, and in Italy in particular. Italy is the largest market for Emmentaler cheese worldwide.

Operating expenses increased by 6.5 % to CHF 624.4 million in the financial year 2007 (prior year CHF 586.4 million). Personnel expenses rose by 7.9 % to CHF 310.5 million (prior year CHF 287.8 million) due to acquisitions and international expansion and other operating expenses increased by 5.2 % to CHF 313.9 million (prior year CHF 298.5 million). The initial cost-saving measures had an impact on investments in marketing, which at CHF 99.5 million increased by just CHF 4.7 million or 4.9 % year-on-year. At CHF 140.1 million, earnings before interest, taxes, depreciation and amortization (EBITDA) were on a par with those of the previous year (CHF 140.7 million), whilst the EBITDA margin fell by 0.4 % to 5.6 % due to higher sales.

Depreciation and amortization increased by 17.5 % to CHF 87.9 million (prior year CHF 74.8 million) in 2007. The rise is largely due to the higher normal amortization as a result of ongoing investment in IT and acquisitions. Earnings before interest and taxes (EBIT) amounted to CHF 62.3 million in the year under review, which corresponds to a decline of CHF 11.7 million or 15.8 %. The EBIT margin stands at 2.5 % (prior year 3.2 %).

In the fourth quarter, the unfavourable exchange rates for the euro and US dollar had a negative impact on the financial result of CHF -13.5 million (prior year CHF -5.5 million). At the same time, interest expense increased due to a rise in interest rates and a higher net debt due to acquisitions. Taxes are significantly down on the previous year at CHF 3.2 million (prior year CHF 10.8 million). This is attributable to lower deferred taxes and the associated release of corresponding provisions, and a general fall in tax rates in Switzerland. Net profit for the financial year 2007 stands at CHF 39.8 million (prior year CHF 54.0 million), which corresponds to a net profit margin of 1.6 % (prior year 2.3 %).

Emmi is working continuously at boosting its own competitiveness, not least in view of increasingly deregulated markets and the resultant increase in pressure from imports. The concentration of the production facilities of Mittelland Molkerei in Suhr was completed at the end of 2007 according to plan. Suhr provides Emmi with an efficient competence centre for classic dairy products which will enable it to compete in the international arena.

The expansion of the Fromco S.A. Moudon cheese ageing facility was completed in autumn 2007, increasing storage capacity to 160,000 cheeses and thus making it the largest ageing facility for Le Gruyère AOC. In August 2007, work commenced on the expansion of facilities in Langnau i.E., where processed cheese production will be concentrated by the start of 2010. On 1 January 2008, Emmi also acquired the company Walter Schmitt AG in Märwil (canton of Thurgau), which specializes in the ageing and marketing of Appenzeller cheese, thereby strengthening its market position in this segment.

Emmi continued to invest in its international market profile in 2007. On 1 July 2007, Emmi acquired a 25 % stake in Italian cheese specialist Ambrosi S.p.A. Emmi and Ambrosi offer their customers a comprehensive range of traditional Swiss and Italian cheeses. In France, Emmi and Ambrosi merged their subsidiaries to form Ambrosi Emmi France S.A. on 1 January 2008, so as to strengthen their market position.

On 1 January 2008, Emmi acquired its longstanding partner, the Belgian company Haerten & Interimex S.A in Brussels. The trading company will in future take care of Emmi's fresh products and cheese business in Belgium and Luxembourg.

With a view to establishing its fresh products business in North America, Emmi also acquired a minority stake in the US firm CASP LLC as a production partner and specialist in aseptic dairy products. In October 2007, the production of Emmi Caffè Latte commenced for the US market.

Raw material and energy prices increased substantially worldwide in 2007. Due to higher demand, milk prices on the international spot markets rose significantly for a while, starting in early summer. At the end of the year, the situation on the milk market recovered again and prices fell to a lower level. In Switzerland too, the milk price had increased by 6 centimes per kilo by the end of the year in the wake of global market developments. This reduced the overall price difference between Swiss producers and European competitors, which had a fundamentally positive impact on our competitiveness. At the same time, the higher volatility on the milk market requires all market participants to pass on higher prices. Emmi was essentially able to pass the increased raw material prices on to customers, albeit with a certain delay abroad.

Despite the unsatisfactory earnings growth in 2007, the Board of Directors and Group Management firmly believe that Emmi's defined strategy is correct and they intend to adhere to it. This means strengthening Emmi's strong market position in Switzerland and targeted expansion of its international business in Europe and North America. Emmi will continue to invest in increasing its competitiveness and international expansion. In its international business, the company will in future consistently focus on the markets and the products which have the greatest potential. Emmi is aiming for further growth in North America with its marketing of Emmi Caffè Latte in the USA. Emmi has also pledged to make further efficiency gains by concentrating processed cheese production in Langnau i.E.

To ensure long-term profitability, cost-saving measures amounting to CHF 20 million have also been introduced of which around CHF 15 million are already having an impact on the current financial year.

The beginning of 2008 has seen promising sales growth both in Switzerland and abroad. Emmi seeks to maintain its strong position in Switzerland in 2008 and expand its activities abroad in a targeted and systematic manner with a clear focus on profitability. Thanks to the cost-saving measures introduced, Emmi expects to achieve a net profit margin of over 2.0 % again in the current financial year. Emmi anticipates that pressure on prices and from imports will remain high in Switzerland. What this means for the Swiss business is a tendency towards lower sales for generic products and good growth opportunities for the brand concepts and specialities. Emmi aims to invest strategically and boost growth in its international business.

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