Hochdorf nets China approval, predicts 'difficult earnings and cost situation'

By Teodora Lyubomirova contact

- Last updated on GMT

GettyImages/Cass-iss
GettyImages/Cass-iss

Related tags: financial results, Dairy, China, Infant formula

The Swiss nutrition specialist has received approval to manufacture products for the Chinese infant nutrition market but EBIT is down year-on-year.

Hochdorf Group has reported its 2022 half-yearly financial results, unveiling an unchanged gross margin but a reduction of more than 85% in its year-on-year earnings (CHF -15.9m vs CHF -8.6m).

Net sales were up 3.86% at CHF 145.7m, largely driven by a the Food Solutions division which generated 81.2% of the whole, or CHF 118.3m - a 5.2% increase on H1 2021. Milk powder purchases have returned to ‘pleasing’ pre-pandemic levels according to the company, with lactose-free milk and whey powders in demand. But rising milk prices have had a ‘significant’ impact on costs in the division.

“For some time now, the company's own lactose has been the main ingredient in its infant formula products. Since this year, we have also used our own whey protein concentrate for infant formula from our own and white-label brands,”​ the company revealed.

A key milestone in product terms was the launch of the first goat milk powder by manufacturer Blüemlisberg AG, which utilized Hochdorf’s powder drying expertise.

“[W]e are continuing to transform from a volume-oriented milk processor to a high-margin milk refiner,”​ the company commented. “Alongside interdepartmental Baby Care initiatives, we are concentrating specifically on the development and marketing of special milk and whey products with added benefits, such as lactose-free milk powder, milk or whey powder concentrate, and the market opportunities for products based on alternative proteins, such as vegan milk powder substitutes. We aim to prioritise the scarce raw material of milk for sustainable high-margin products. Internally, we are strengthening the cooperation between our departments to expand our Smart Nutrition competence across all products with a market-oriented approach.”

Baby Care

In the Baby Care division, a slight decline in year-on-year net sales (-1.6%) was recorded in the first half of 2022; these stand at CHF 27.4m. compared to CHF 27.8m in 2021.

Bimbosan products performed strongly in Switzerland, increasing the brand’s market share to 41.6% and prompting the company to launch a price review of around half of all Bimbosan products. In the second half, the company will also aim to strengthen the brand’s plant-based alternatives.

Abroad, Hochdorf is reviewing its contracts and is in ‘intensive discussions’ over the short-notice increases in the cost of raw materials and ingredients and the rising exchange rate with private-label customers, with further price adjustments set to be put in place by the Swiss company.

China nod & registration underway in the US

Hochdorf has made inroads into the lucrative Chinese infant formula market by gaining authorization to manufacture products on behalf of Biostime, a H&H Group brand. But the first sales not until mid-2024 due to a local food law review set to be carried out in China in early 2023.

In the US, which has been hit by an infant formula shortage, the company has applied to obtain marketing authorization from the Food and Drug Administration. “Discussions with local trading partners are ongoing to clarify the level of demand and time frames. In the best case scenario, deliveries could begin in the final quarter of 2022,” said the company.

'Difficult earnings and cost situation' set to continue

Reflecting on the H1 2022 results and sharing its outlook for the remainder of the year, the company explained: “After the balance sheet adjustment and further debt reduction in 2021, the result and the liquidity in the first half of 2022 were strongly negatively impacted by increased costs on the purchasing side (milk, raw materials, energy, logistics).

"However, the first positive effects of passing on these costs can be seen in the unchanged gross margin. This should impact all customers in the second half of 2022 and the first half of 2023, as in some cases, the price increases could not be passed on in full or only with a time delay due to the contractual situation. Contract cancellations are being examined for customers who do not wish to support price increases and who thus generate negative margins for Hochdorf.

“For the second half of the year, we continue to expect a difficult earnings and cost situation, which could be exacerbated by the current raw material and energy bottlenecks. We will persist in our intensive efforts to transform the company and expect these to have a delayed impact that will only take effect in the first half of 2023."

On its plans for alternative energy supply if gas deliveries cannot be guaranteed, the company responded: "In the event of bottlenecks in the gas supply, the company has the option of switching to oil at the Hochdorf site. For the Sulgen site, we are currently examining options in terms of the extent and speed of any switch to oil or liquid gas.”

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