Extract from 2010 Jungfraubahn Holding AG Business Report
Important note:
This extract from the official business report was specially prepared for presentation on the Internet. It is a considerably shortened version. Please note that the proposals by the Executive Board and Annual General Meeting for approval / resolution refer to the unabridged printed version in the German language. Only the full version is binding. The full version of the report (in German) may be downloaded using the link below.
The report is in some places associated with a view to medium and long-term prospects. All statements relating to the future hold uncertainties. They are projections that reflect the current views of the decision makers. Actual future events and decisions may turn out differently, particularly in relation to changes in environmental conditions. All future-related statements are based on the facts available at the time the report was compiled in March 2011.
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Dear Shareholders,

Ladies and Gentlemen

Course of business

During the crisis on the financial markets, we turned our full attention to customer relationships, in particular within the growth markets. This led to the hoped-for strengthening of our market position, which is now demonstrated in an impressive return of Asian guests. Our group was able to increase revenue from business dealings with international tour operators by 29% compared to last year. As one example, the number of Korean visitors to the Jungfraujoch increased considerably, reaching the level of 2007. This, together with a generally good course of business, resulted in our achieving a record traffic revenue of CHF 104.2 million and at CHF 22.6 million, we are again able to present the best group result in the history of Jungfraubahn Holding AG.
The economic environment in 2010 was less turbulent than in previous years. Improved consumer confidence was reflected in the desire to travel more frequently again. Nevertheless, there were also a few setbacks. The eruption of the Eyjafjallajökull volcano in distant Iceland brought almost all European air traffic to a standstill. Guests from abroad were either unable to reach us or had to cancel their travel plans. Figures for the month of May suffered as a result, (Jungfraujoch arrivals down 12.2% compared with the previous year). In addition, the strong franc began to make itself noticeable in the business segments of experience mountains and winter sport. However, development in the exchange rates made travelling in Europe less expensive for Asian guests. Once again, the scope of our business segments and offers proved to be a particular strength. Overall, group revenue increased by 3.2% to CHF 138.6 million. It is also pleasing to note that personnel costs were actually lower than the previous year, a result of the economy measures introduced in 2009. In contrast, material costs have risen to the anticipated extent in comparison to the previous year. Finally, at CHF 29.0 million, we also achieved a new record at EBIT level.

Business and investment policy
Jungfrau Railways have committed themselves to a market-orientated price policy. Exclusiveness and high demand allow us to continue to position ourselves in an attractive price segment. Increases will therefore be made at regular intervals; the last being by around 2% in December 2010, whereby on the. Lauterbrunnen – Mürren and Lauterbrunnen – Wengen sections, we were bound by the actions of the Swiss-wide public transport system. On the remaining sections, the group reacts independently, without being bound to an externally prescribed rhythm. This allows us to choose a course of action aligned to the specific environment and tourism.

Attractiveness and quality are the prerequisites for maintaining the price level. We create the basis for this through the maintenance of tangible assets and continual renewal of facilities. The group invests a long-term average of half the accumulated cash flow for this purpose. This is part of a value strategy that also ensures the generation of sufficient free cash flow. The company thus follows a path of sustained economic success. A healthy profitability is not only an obligation towards shareholders but is also in the interest of all stakeholders as it ensures the continuance, independence and thus the reliability of the company. This is of great general importance as the Jungfrau Railways Group also provides a significant public service. The free cash flow is either distributed or invested in business expansion of strategic dimensions (value enhancement of the company).

In recent years, a strategic focus has been placed on the winter sport business segment. The investments made in this respect are proving successful. Considerable gains in market shares have been made through the construction of the six-seater Honegg and Eigergletscher chairlifts. The replacement of the Wixi chairlift on the Lauberhorn shoulder in 2012 will complete this important renewal phase of transport facilities costing around CHF 36 million. Of extreme importance to the development of the winter sport business segment was the accelerated construction of snow-making systems. The group invested a total of CHF 17.7 million in guaranteed snow during the 2007 to 2010 period.
Based on master plans and comprehensive financial planning, during 2010 we have specified our future investment objectives and prioritised them for the next 15 years. In terms of time, the Jungfrau Railway PREMIUM project, which envisages modernizing the Jungfrau Railway, has been placed after WAB PLUS, the project for the urgent renewal of the Wengernalp Railway. WAB PLUS will make a sustainable increase to our productivity while at the same time massively reducing maintenance and repair costs. In November 2010, we began the construction of a round tour subway, which will lead past various historic and near-to-nature sightseeing attractions on the Jungfraujoch. With this tour we are creating a new main attraction to further increase the experience value of the Jungfraujoch–Top of Europe. The opening of the new 16-million-franc attraction will be part of the 2012 Jungfrau Railway centenary programme. We are continuing these efforts with the idea of using the former Swisscom radio relay station for touristic purposes. The conversion of the installation, at 3700 metres above sea level on the exposed east ridge of the Jungfrau, will be technologically difficult and require considerable sensitivity in terms of aesthetics and ecology. Thus as a first step, we have initiated a competition that will ensure the highest possible level of architectural quality and environmental compatibility.

Financial target values
The group’s strategic financial objectives reflect the orientation towards long-term goals and the policy of a world-orientated company. The key values that determine the financial planning of the group are revenue targets and targets geared to free cash flow:

ROS (return on sales) ? 12%

EBIT margin ? 15%

Investments/Cash flow < 50%

Payout ratio 33% to 45%

Free cash flow sum 2004 to 2013 ? CHF 130 million

Degree of own financing > 70%

The group has once again exceeded its objectives. Return on sales was 16.3%, the EBIT margin reached 20.9%. 46.7% of cash flow has been reinvested. With the proposed unaltered dividend of CHF 1.60 per share, payout ratio is 41.2%. After 7 years, the accumulated free cash flow has reached CHF 142.1 million and so already exceeded the long-term objective of CHF 130 million set for 2004–2013. The degree of own financing is 76.4%. All interest-bearing bank debts were repaid during the year under review.

Prospects
The Jungfrau Railway centenary year will have a positive impact on the entire group. The countdown to the Jungfrau Railway’s 100th birthday was officially launched at the Shanghai World Expo in summer 2010. Our activities during the centenary year will contribute to the Jungfraujoch–Top of Europe becoming even better known throughout the world. The programme will be presented at the end of the summer.

Winter business shows that the strong franc has had less influence on demand than was feared, especially as the rate for the GB pound actually improved in comparison to 2009. However, it is more than likely that the exchange rate situation will somewhat dampen demand from EU countries and also spur Swiss to take more holidays abroad. The booking situation suggests that demand from Asian markets will continue to be high. However, the effects of the natural disaster in Japan and the military conflict in Libya cannot as yet be estimated. So far, changes in booking and travelling patterns have remained moderate. Korea shows signs of consolidation at a high level. The Indian market remains very promising and we have now been able to definitely establish ourselves in China.