Extract from the 2011 Jungfraubahn Holding AG Business Report

Important note:
This extract from the official business report was specially prepared for presentation on 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 declarations referring to the future are based on facts current at the time the report was prepared in March 2011.
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Dear Shareholders, Ladies and Gentlemen

We can report on a successful business year. With diversification in the less seasonally oriented Asian market, and with successful special offers with proven partners, we were able to achieve ever better frequencies in periods outside high season. By April we were already able to record an impressive daily average of 1200 guests. On 11 days in summer, we were able to say: «the Jungfraujoch has 5000 guests and is sold out!» Even in the normally quiet month of November, we recorded a daily average of 1150 visitors to the Jungfraujoch: at 765,000, the overall figure for 2011 sets a new record for visitor numbers. This laid the most important cornerstone for the Group’s total traffic income of CHF 110 million. It was possible to maintain the average ticket price for our prime business sector, the Jungfraujoch–Top of Europe, and thus achieve a Group result of CHF 25.4 million, the best since the Jungfraubahn Holding AG was established.
At present we are celebrating the Jungfrau Railway’s centenary year. On 21 February 1912, the tunnel workers used a huge explosive charge to break through to daylight at the end of the 7.2-km-long tunnel: the Jungfraujoch had been reached! Public awareness of our most important excursion destination will be further increased by the centenary special offers and activities. At the same time, here in Switzerland, the Jungfraujoch will be brought to mind as a national landmark that people want to show guests and which they themselves would also like to keep on visiting.
We have the wonderful and important task of fulfilling the expectations of an ever-increasing number of guests. Only with their satisfaction can we ensure further recommendation and only so will our offers remain in travel operators’ catalogues. With the aesthetic updating of the arrivals hall and entire signalisation, with the construction of an easy round tour staged as the Alpine Sensation, we have been able to maintain the experience value of the Jungfraujoch–Top of Europe for the increasing number of visitors. These efforts are continuing with the concept of adapting a former Swisscom radio relay station for touristic purposes. The conversion, at 3700 metres above sea level on the Jungfrau’s exposed east ridge, is technically difficult and requires considerable sensitivity in both an aesthetic and an ecological sense. For this reason we have commissioned five well-known Swiss architectural offices to conduct a study that will ensure the highest possible architectural quality and environmental sustainability.

Business sectors ensure an economic balance and a wide range of offers
In recent years, the interaction and balance of the individual segments within our company have been recognized as one of our strengths and been further developed. The Group is active in three segments:

1. Jungfraujoch – Top of Europe:
The excursion to the Jungfraujoch with the Wengernalp Railway and Jungfrau Railway is our core offer and the «strategic linchpin» of the company.

2. Winter sport:
The winter-sport facilities in the Kleine Scheidegg and Grindelwald-First regions are integrated into the winter tariff network of the JUNGFRAU Ski Region. Together with partner companies, we manage one of Switzerland’s foremost ski regions on behalf of the network and under its supervision.

3. Experience mountains:
Natural and other attractions in the same region as the Jungfraujoch – Top of Europe, namely Grindelwald-First, Harder Kulm and Winteregg-Mürren, are popular excursion destinations that make possible interesting combinations (holiday passes, cross marketing) and enhance experience value in the region.

Whilst the Jungfraujoch–Top of Europe represents our most profitable segment, the two business segments of winter sport and experience mountains are important supplements, ensuring that our business is embedded in the overall tourism offers of the region. The decision to keep all three segments under one roof was made with the intention of taking full advantage of the resulting synergy potential in management and operation. With its significant contribution to revenue, winter sport makes it possible to maintain operation of the Wengernalp Railway and therefore the Jungfraujoch throughout the year. We thus achieve a competitive edge over other service providers, who are subject to seasonal limitations. Details on these three segments are found from page 10 of the printed business report (German only).

Course of business
In 2011, the business environment was affected by a sharp rise in the exchange rate for the Swiss franc. The National Bank was able to counteract this to a certain extent; however, it stabilized the Euro exchange rate at a very challenging level for our company. For our Asian guests travelling in Europe, the exchange rate between their national currency and the Euro was of prime importance. Travel in Europe was generally cheaper for them. In the Jungfraujoch business segment, the demand from Asia could compensate for the reduction in the European markets. The effect of the exchange rate was felt in the other two business segments, experience mountains and winter sport, and will have an even greater effect on revenue here in the coming year. Taken overall however, the breadth of our business sectors and offers proves a strength and allows fluctuations as a result of external influences to be offset.
As ancillary businesses were also able to benefit from good transport business, in particular to the Jungfraujoch, and our own power station, with its new production plant could go onto the grid with an efficiency increase of 40%, the Group ultimately achieved a hitherto unattained revenue of CHF 148 million. On the other hand, operating expenditure also increased by 5.4% in comparison to the previous year. The continuing good course of business demanded more personnel. Capacity in information technology was increased, primarily for direct sales via Internet. Higher energy costs were also incurred; however, these were more than compensated for on the income side by a new possibility based on a programme for selling the power station’s entire electricity production to the grid at a cost-covering fixed price
Ultimately, in comparison to the previous year we recorded an improved EBIT margin of 21.0%, cash flow of CHF 51.5 million and, as already mentioned, the best result in the history of our company. The annual profit of CHF 25.4 million gave a return on sales of 17.2%.
2011 was a year of above-average investments. A total of 45 million francs was invested in the modernisation of our facilities and expansion of our offers. With the renewal of the energy production plant in our Lütschental power station and the double track installation for the Wengernalp Railway above Wengen, two major projects with an investment sum of around CHF 10 million each, were successfully completed and put into operation. Around CHF 7 million was invested in the winter-sport segment, primarily in the takeover of the Lauberhorn chairlift and extending snowmaking facilities. We expanded our range of experience offers with the Jungfrau-Eiger-Walk theme trail from Eigergletscher to Kleine Scheidegg and the Two Lakes Bridge vantage platform on the Harder Kulm. These contribute to the independent positioning of our excursion destinations. The Group balance of 31.12.2011 shows a company with rock-solid finances, which succeeds without interest-bearing liabilities. Tangible assets comprise 90% of total assets.

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

Return on sales >= 12%
EBIT margin >= 15%
Investments/Cash flow < 50%
Payout ratio 33% to 45%
Amount of free cash flow 2004 to 2013 ≥ CHF 130 million.
Degree of own financing > 70%

The Group has once again exceeded its revenue targets. The return on sales was 17.2%, the EBIT margin reached 21.0%. Within the framework of the planned stages, investments made in 2011 and 2012 will not exceed the long-term guidelines. In 2011, investments amounted to 79.5% of cash flow. The targeted strategic average of 50% will however be maintained during the plan period up to 2016. With the proposed dividend of CHF 1.80 per share, the payout ratio amounts to 41.3%. After 8 years, the accumulated free cash flow has reached CHF 152.7 million and thus already exceeds the long-term objective of CHF 130 million set for 2004 – 2013. The degree of own financing is 77.7%.

Prospects in our 2012 centenary year
Booking figures show that demand from Asian markets continues to be high. In Japan and especially Korea, there are signs of consolidation at a high level. Development in the Indian and Chinese markets is very promising. We are making efforts to gain a foothold in many other countries, especially in Asia. The latter is particularly promising in terms of increasing capacity in the early and late seasons. With the investments specifically targeted at the Jungfraujoch centenary year, we have once again been able to make a marked increase in the quality of our premium product. Our customers benefit directly from this added value.
The winter-sport business already behind us posed a challenge because of the strong Swiss franc. Far fewer guests from European countries came to the JUNGFRAU Ski Region than in previous years. An increasing number of Swiss took their winter holidays abroad. This trend is also likely to be seen in summer and will have a corresponding effect on income from the sale of passes for holiday guests and revenue from day-excursion traffic.
Confidence is generated however by the fact that the Jungfrau Railway celebrates its centenary in 2012. Over 80 special offers and events are already in progress or planned for the centenary year. We are certain that this will attract widespread attention and that we will thus be able to welcome more guests. We are correspondingly optimistic that with the Jungfrau–Top of Europe, we will be able to compensate for the expected reduction in the experience mountains business segment caused by exchange rates.

Prepared: 29.03.2010
Published: 18.04.2010