The operating result (EBIT before pension plan effect) of Migros Group for 2009 was CHF 1,153.1 million, 3.6 per cent or CHF 39.8 million higher than the previous year’s result of CHF 1,113.3 million. Within the Retail and Industry sector, in particular, all strategic business segments benefited from increased productivity. Advances in productivity are attributable on the one hand to profit improvement programmes which were launched in good time in the autumn of 2008 in response to the financial market crisis, and on the other hand to the steady optimisation of processes and structures at the Migros companies. The operating result (EBIT before pension plan effect) of the Financial Services sector improved by 4.4 per cent to CHF 216.9 million thanks to the significant recovery in the financial markets compared with the previous year. The cost/income ratio, which expresses the relationship between business expenditure and income rose due to one-time exceptional costs related to the new IT platform, to 55.6 per cent (previous year 54.6 per cent).

Operating result of Retail and Industry sector

Operating profit in Retail and Industry sector

Optimisation of the value chain and structures is an ongoing process. Various measures to optimise processes and structures were initiated, continued or completed during the past financial year.

The activities of the centrally managed assortments Food, Non Food and Specialist Markets are grouped in the two national distribution centres. This bundling also laid the foundations for comprehensive automation of internal processes. The realisation of fully automated order picking systems in the areas of Food and Deep Frozen assortments was launched in the 2009 financial year with the aim of improving efficiency and eliminating very heavy work. The test systems are operational in both sub-projects, which are scheduled to go into operation in the year 2011. Cooperative Eastern Switzerland also realised fully automated order picking systems for both Fruit and Vegetables and Chilled Articles at its operations centre last year. A similar step was taken at Bischofszell Nahrungsmittel AG with the “Convenience Gate” project by bundling the chilled Convenience assortments. The service to the stores can be immensely improved thanks to these steps. By tailoring delivery volumes more exactly to requirements, products are fresher and there is less waste. Bundling also leads to fewer, but better filled containers in logistics. Here, too, volume bundling makes it possible to use a highly automated, ergonomic order picking system.

A number of Cooperatives are working steadily on systematic programmes that will lead to a further increase in the efficiency of service delivery to the customer. For example, Cooperative Lucerne completed the “Lean” project in the 2009 financial year. It was possible to absorb salary increases by optimising processes without reducing service and product quality. Contribution margins per hour worked were significantly increased whilst personnel costs per square metre were decreased.

In the “Store data flow” project, the interfaces between the points of sale (POS) at the regional Cooperatives and the central Migros stock management systems (Food/Near Food and Non Food, Freshness systems, systems of Migros partners) were overhauled and replaced. With this project, the technological basis was laid for the data flow of the next 15 years; it proved possible to reduce operating costs and complexity. Marketing requirements can be implemented faster and more cost-effectively. In the “Supplier Collaboration House” project, important elements are being added to the existing electronic links from suppliers to the Migros stock management systems. Even now, tens of thousands of business documents (orders, delivery notes, invoices, stocks and sales data etc.) are exchanged in electronic form between Migros IT systems and those of the suppliers (EDI – Electronic Data Interchange). With the new “Supplier Net”, we are providing our business partners with a modern Internet-based platform through which they obtain direct access to Migros information and applications. This increases the transparency of the business processes and facilitates collaboration with Migros in a major way. In addition, new systems for comprehensive, central management of all relevant information are being introduced in the form of the “Supplier Management”, “Contract Management” and “Product Information Management” modules. These will also be available to our business partners as a source of information.

To mitigate the impact of the financial crisis, most retail companies have carried out profit improvement programmes. The most extensive programmes were executed at Globus and Hotelplan. Thanks to this programme, Globus compensated for the decline in gross income resulting from slightly lower sales and higher fixed costs due to additional sales areas. Hotelplan managed to reduce its total costs by 7.9 per cent. Not only the profit improvement programme, but also the holding structure introduced in 2008 and foreign exchange effects contributed to this positive result.

The gross margin and operating result of the Retail and Industry sector were positively influenced by new structures and procedures, monitoring and standardisation of processes and efficiency programs – in short, sustained cost management.

The change in the gross margin results from shifts in the individual companies’ shares of income. The Industry & Wholesaling segment has a higher gross margin as a result of internal production. The Cooperative Retailing, Commerce and Travel segments have smaller gross margins because they do not have their own production facilities, but their operating costs are correspondingly lower. Any increases in efficiency and improvements in the purchasing for goods are passed on to the customers in form of reduced sales prices. Passing on the increases in efficiency to customers has the effect of reducing the gross margin. Annual changes in the income mix result in further smaller shifts in margin.

Operating profit before pension plan effect increased by CHF 34.2 million. The Retail and Industry sector managed to compensate for the ongoing price pressure in goods trading and the influence of adverse exchange rates. The profit improvement programmes launched at the end of 2008 in anticipation of the fallout from the economic crisis, made a prominent contribution here. Part of the savings was achieved through better supplier management. The increased use of invitations to tender, international auctions, the inclusion of procurement cooperation and bundling of the procurement volume also led to reductions in purchase prices. The partial easing in the raw materials markets led to a decline in raw materials prices. The vast majority of the advantages from more efficient procurement and lower raw materials prices were passed on to customers in the form of price reductions. The decline in prices in Cooperative Retailing amounts to more than 2 per cent. Operating costs rose less than income. Personnel expenses, which in addition to wages and salaries also include employer pension fund contributions and other social security benefits, account for 19.9 per cent (previous year 20.8%) of costs shown in the income statement and are together with expenditure on goods and materials by far the largest cost factor. Personnel expenses increased by only CHF 15.5 million, despite salary increases of 2.8 to 3.3 per cent, which were above the sector average. This was due to careful and improved planning and the optimised use of available staff. Investment activities with total investments in the current financial year of CHF 1.4 billion (previous year CHF 1.6 billion) remain at a very high level. Depreciation has risen in line with the growth in investment volume over the years. Most of these investments are made by the Cooperatives and commercial companies for new, expanded and modernised sales outlets and by Migros Industry for the modernisation and expansion of capacity at production facilities.

Operating result of Financial Services sector

The Financial Services sector generated income from financial services business totalling CHF 989.4 million with costs of CHF 427.9 million. Net income from financial services business improved from CHF 504.1 million to CHF 561.5 million thanks to the marked recovery in the financial markets.

Net income from interest margin business remains the most important result component in the Financial Services sector, producing approximately 87 per cent of the income in this sector during 2009. Due to a good refinancing structure, the interest margin showed only a slight change. As a result, net income from interest margin business saw a rise of 2.6 per cent over the previous year.

Income from commission business suffered from customers’ cautious approach to investments, so that the result fell short of the previous year’s by CHF 5.8 million.

The recovery in the equity and bond markets meant that Migros Bank was able to post valuation gains on its own securities held mainly as cash reserves. Together with foreign currency translation differences, financial assets generated a gain of CHF 39.3 million, whereas a loss of CHF 1 million was recognised in the previous year.

Due to the continuous expansion of customer advisory capacities and the branch network, staffing levels increased by 28 from the previous year to 1,290 employees. Rising requirements in the consulting and support areas, however, resulted in a steady trend towards more qualified staff. Salary adjustments as well as project-related personnel costs produced a total increase in personnel costs of 13.0 per cent to CHF 174.8 million.

On 3 November 2009, Migros Bank put the Finnova IT platform into operation smoothly and on time. The platform is used to process all banking transactions and Migros Bank expects significant savings in IT expenses of well into double-digit millions per annum as a result. The total investments for the project, which was launched in September 2007, were around CHF 100 million. The project team was made up of more than 300 in-house and external staff. The introduction of the Finnova total bank solution will enable Migros Bank to make further efficiency improvements and focus its service range even more effectively on customer needs.

The one-time exceptional costs were reflected in an increase in non-current assets and in Other operating expenses of 21.2 per cent to CHF 156.6 million.