Challenging year for Hochdorf
In its financial report for 2019, Hochdorf generated a net sales revenue of CHF 456.8m ($468.2m) in 2019, down 18.6% compared to the previous year. As a result of the lower sales and the value adjustments made, gross profit fell significantly year-on-year from CHF 171.8m ($176.1m) to CHF 61.8m ($63.3m).
Due to additional capital allowances, value adjustments and provisions, EBIT was CHF -265.3m (-$271.9m), with a loss attributable to shareholders of CHF -239.2m (-$245.1m). Due to the negative result, the board of directors said it is proposing to shareholders that no dividend be paid.
In 2019, Hochdorf processed 677,845 tonnes of milk, whey, cream and buttermilk (previous year: 661,017 tonnes; +2.5%). A lower quantity of liquid was processed at the Swiss plants and a higher quantity at Uckermärker Milch GmbH. In terms of infant formula in particular, plant utilization did not meet expectations.
Operating costs increased slightly compared to the previous year. This was due to the higher costs of Pharmalys Laboratories SA, particularly in the area of distribution costs, which are included until deconsolidation at the end of November 2019.
Amortisations on tangible and intangible assets amounted to CHF 51.6m ($52.9m). This was mainly due to impairments on fixed assets of CHF 28.5m ($29.2m) on shareholdings. The loss on shareholdings amounts to CHF 139.1m ($142.6m), which resulted from the sale of the Pharmalys shareholdings and Hochdorf South Africa Ltd.
Positive free cash flow from Pharamlys sale
Earned capital was reduced from CHF 30.4m ($31.2m) to CHF -34.8m (-$35.7m). Compared to the previous year, cash flow from operating activities showed an improvement from CHF -81.3m (-$83.3m) to CHF -15.4m (-$15.8m), mainly due to the deconsolidation of the Pharmalys companies and the reduction of receivables and inventories.
As announced last year, the investment total was significantly reduced to CHF 8.6m ($8.8m). Free cash flow was positive again at CHF 16.5m ($16.9m). This was mainly due to the net cash flow from the sale of the Pharmalys companies. For 2020, the Group expects positive free cash flow again. Net debt fell from CHF 141.3m ($144.8m) to CHF 113.3m ($116.1m) compared to December 2018.
The company said its financing will improve significantly in the current business year once it receives the remaining purchase price from the sale of the Pharmalys companies.
Despite challenging procurement and liquidity circumstances, Hochdorf Swiss Nutrition Ltd maintained supply defended its market share. The integration of parts of the Cereals & Ingredients division and divestment of unprofitable business activities were largely completed by the end of the year.
Uckermärker Milch GmbH processed a significantly higher liquid volume than in the previous year. The milk quantity increased significantly as a result of new contracts with several regional direct suppliers. As part of the restructuring of the Hochdorf Group, the shareholding in Uckermärker Milch GmbH was sold at the end of February 2020.
Baby Care division
The Baby Care division achieved a net sales revenue of CHF 72.8m ($74.6m) in 2019, a drop of 58.6% on the previous year. The decrease can be mainly explained by a significant fall in sales to some large customers and sluggish sales for the former subsidiary Pharmalys Laboratories SA.
A collapse in sales, necessary value adjustments on outstanding receivables and the technical challenges that arose in the second half of the year in connection with the launch of the spray tower line 9 at the Sulgen plant all put pressure on operating results.
Lower sales, coupled with these technical challenges, led to a relatively low utilization of the new production and filling line for Hochdorf Swiss Nutrition Ltd in Sulgen. The planned technical renovation of spray tower line 8 was largely completed. This enables the plant to produce new, high-quality formulations that meet the highest quality requirements. The development of the new EU formulations was also successfully concluded at the same time. A new product also achieved market readiness in the FSMP segment (food for special medical purposes).
Bimbosan AG reported positive results in 2019 and slightly exceeded expectations. Bimbosan expanded its position in the domestic market further and continued to increase its share of the Swiss specialist market. The first results were achieved in the internationalization of the Bimbosan brand.
Outlook for 2020
In 2020, the new board of directors will work with group management to develop a strategy for the Hochdorf Group. The company launched its "OPTIMA" efficiency enhancement program at the beginning of the year to achieve a sustained reduction in operating costs.
Hochdorf said a key focus will be ensuring sustainable business development in the Baby Care division in a highly competitive international environment. Sales and service structures have to be strengthened and market oriented to achieve the required growth and improve utilization of the plants in Sulgen.
It also said it is vital to secure sustained growth with Pharmalys in 2020 and promote the internationalization of the Bimbosan brand.
The company said the wholesale market will remain highly competitive for dairy ingredients in 2020, and it expects the situation in milk procurement and the sales market to remain challenging.
The customer and product portfolio established in recent years will be further developed, Hochdorf said.
It added that while the impact of the coronavirus epidemic is difficult to assess, the board of directors and group management have agreed a sales and revenue range for the 2020 business year, with expected net sales revenue in the region of CHF 280-320m ($287-$328m) and positive results at the EBITDA level.