Report on the Financial Situation of Migros Group
Income Trend (Sales Trend)

The activities of the regional Migros Cooperatives, the Federation of Migros Cooperatives and the services of the Group’s logistics companies are combined in the strategic segment Cooperative Retailing. The ten regional Cooperatives generated income of CHF 15.2 billion. This represents a decrease of CHF 57.6 million or 0.4 per cent under the previous year. With negative inflation of 3.0 per cent, this corresponds to real growth of 2.6 per cent. The market share is slightly below the previous year at 15.4 per cent (15.8 per cent). The decline in income for the supermarkets was 1.0 per cent. While sales volumes were higher year-on-year, price reductions across the entire product assortment had a negative effect on revenues. Migros offers the best value for money as constantly confirmed by independent sources. Prices in the Fresh Produce segment were 3.6 per cent lower, meat retailing prices were down by an average of 6.5 per cent and Fruit/Vegetables were 3.8 per cent cheaper than in the previous year. According to the BFS, the increase in the cost of living in Switzerland was 0.7 per cent. The specialist markets posted a 2.6 per cent increase in income to CHF 1.4 billion, despite a decline in prices of 3 per cent. As every year, the regional Cooperatives ensured that sales areas remained attractive and customer-oriented by means of substantial investments in new or expanded stores. The weighted sales area increased by 1.9 per cent over the previous year, while weighted area productivity decreased by 2.5 per cent due to the decline in revenue. With sales of CHF 201 million, Migros retailing abroad lost CHF 4 million due to the weak euro. Sales were flat in the local currency. Migros had the same number of stores abroad in 2010.

The strategic segment Commerce mainly includes the retail companies Denner, Migrol, Magazine zum Globus, Interio, Ex Libris, Office World and Le Shop. The rise in income by CHF 223.2 million to CHF 6.0 billion is mainly due to Migrol (rising fossil fuel prices). In 2010 Denner posted income of CHF 2,784.0 million and is showing smooth growth of 0.8 per cent in the fiercely contended discount business. Denner reduced the prices of some 380 products; this, corresponds to more than 20 per cent of the entire range. Excluding negative inflation of 2.1 per cent, real growth of 2.9 per cent was posted. Migrol posted a slight drop in sales volumes of combustibles and fuels in cubic metres of 4.6 per cent. Due to lower prices and the introduction of the carbon tax as of 1 January 2010, customers had filled their tanks already in 2009. Migros held on to its market share. The higher costs of fossil fuels resulted in an increase in sales of 9.1 per cent. The expansion of the convenience shop format Migrolino is making excellent progress. At the end of 2010 financial year, 160 Migrolino shops were in operation, 24 more than in the previous year. At yearend 2010, Migrol had converted more than 70 petrol station shops to the new format and is achieving much higher sales. Shell is already operating 52 Migrolino Convenience Stores at its largest Shell petrol stations. The Magazine zum Globus AG beat the already very good previous year by 2.8 per cent with total operating income of CHF 818.1 million. With the further strengthening of the modern ranges and the expanded brand range in women's fashion, Globus achieved sales growth of 2.0 per cent and expanded its leading position as the premium department store. Herren Globus implemented the new Männerwelt concept (everything a man needs – clothes, accessories, shoes and perfumery) in various, partly new, stores (e.g. Zurich Airport, Glatt, Lucerne) very successfully and sales rose by 8.3 per cent. Ex Libris posted with CHF 191 million income, 1.0 per cent below the previous year. In a very competitive market, market shares were gained, but the low EUR/CHF exchange rate, among other things, resulted in negative inflation on the range of more than 7.0 per cent. The product mix, its close-to-the-customer stores, the revamped e-shop, attractive prices, customer trust and highly committed employees are the building blocks for the success of the largest media provider in Switzerland. As Switzerland's biggest online supermarket, Le Shop again posted record sales. With annual revenues of CHF 151.2 million, the company grew by 15.0 per cent on the previous year. An important growth driver was the option to order by iPhone, which is already being used for every 20th order. A regular customer base helped this continued growth: 50‘000 households ordered at least once a month. An increase was also achieved in average order value: Le Shop customers spent an average of CHF 235 (+3.0 per cent) per order. In a conventional supermarket, the average order value is around CHF 32. In the autumn, the delivery regions and capacities were again significantly expanded in Ticino due to rising demand.

The strategic segment Industry & Wholesaling includes 14 industrial companies in Switzerland, three foreign enterprises and two wholesalers, Scana Lebensmittel AG and Mérat AG. Segment income was increased by a good 2.1 per cent in total. Sales with Migros Group rose by 0.7 per cent, despite substantial price reductions. Sales with Denner, Le Shop and Migrolino performed above average. 7.0 per cent growth was posted by business with Swiss third-party customers, achieved, in particular, by further development of value-added concepts. International business is still greatly affected by the consequences of the economic crisis and the unfavourable exchange rates, but performed very positively with growth of 13.5 per cent. The currency performances of the pound, the euro and the dollar compared to the Swiss franc had a substantial effect on the result. The growth of international business is partly organic and partly due to acquisitions (Hallam Beauty, UK; Gastina, Austria).

The industry segment of meat, fish and poultry was the domestic growth driver with sales growth of 5.7 per cent. This growth resulted from the expansion of the catering business, the integration of fish production of the Cooperatives and the takeover of Favorit Geflügel AG as of 1 October 2010. The industry segment of near food achieved high sales growth of 12.2 per cent. This is not only due to the acquisition of Hallam Beauty in the UK, but also a result of the segment's high innovative power. The very successful skin care concept Zoé Effect PhytoCellTec was also multiplied internationally.

By the middle of the 2010 financial year, the situation in the commodities markets had predominantly relaxed; commodity prices have been rising again since June last year. Price increases were slightly dampened by the currency developments. Falling raw materials prices were passed on to customers in the form of lower selling prices, which led overall to a price decline of just over 2.5 per cent for the Industry companies overall.

The economic contraction, which differed in severity by country, and subsequent recovery had a major impact on consumer sentiment. Depending on the country, this was also reflected in increased, stagnating or falling demand for travel. The closure of airspace due to the volcanic ash and the associated uncertainty also resulted in cancellations and a temporary drop in demand. The strategic segment Travel registered 1'262'538 passengers, a decrease compared to the previous year of 4.2 per cent. Sales were down 7.7 per cent from CHF 1.6 billion to CHF 1.5 billion. Negative currency developments, in particular of the euro and British pound, accounted for more than a third (37 per cent) of the drop in the Swiss franc. Hotelplan Suisse partly accepted a drop in business volumes in favour of greater earning power. The online travel agent Travelwindow again grew sales strongly. Interhome, the leading agent for quality holiday homes, posted a currency-related drop in sales. Hotelplan achieved sales growth in Italy, mainly due to strong demand in the summer season. For the winter sports specialist Inghams in the UK, which traditionally has a high rate of early bookings, the turnaround came too late, resulting in falling sales for a second year. Enigma Travel, the ski travel specialist acquired in May 2010, did not contribute to the sales in the financial year ended. Ascent, the business unit in Russia, posted a similar business development as Hotelplan Italy and posted sales growth.

Income trend in the Financial Services sector

Income from financial services business amounted to CHF 960.2 million in the financial year, with interest revenue totalling CHF 827.1 million or 86 per cent, constituting the main share of total income. Commission income amounted to CHF 90.6 million and financial assets and foreign exchange dealings generated a net profit of CHF 42.5 million. In the fiercely contended mortgage market, Migros Bank achieved a growth in mortgage loans of CHF 1'297 million or 4.7 per cent, due to the company’s advantageous rates. On the liabilities side, Migros Bank achieved a net increase in customer deposits and liabilities of CHF 1'140 million or 4.8 per cent.