Hochdorf reports huge losses but maintains stability amid unfruitful acquisitions

19 Mar 2020 --- Swiss-based Hochdorf Group has reported it had a “transformative” 2019 amid past acquisitions that did not result in profit. The extension of a syndicated loan and the sale of the Pharmalys companies – acquired in 2016 – were two of the most important measures implemented to stabilize the company. Despite its efforts, the Group reports significant losses as it generated a net sales revenue of CHF 456.8 million (US$465 million) in 2019, which is almost 19 percent down from 2018. Due to the highly negative results, the Board of Directors has proposed to shareholders that no dividend be paid this year and also implement a financially sustainable modus operandi.

The company’s CEO Dr. Peter Pfeilschifter, tells NutritionInsight that Hochdorf decided not to continue with its Cereals & Ingredients division due to a lack of critical size and scalability. Some minor parts of this business have now been integrated into the Dairy Ingredients division. “We decided to focus on the business divisions Baby Care and Dairy Ingredients in the future,” Pfeilschifter adds. These divisions performed well amid the difficult year the company had.

Late last year, Hochdorf sold its majority stake (51 percent) in companies of the Pharmalys Group to Pharmalys Invest Holding, controlled by Amir Mechria. According to Hochdorf the selling price reached approximately CHF 100 million (US$101 million). The decision was a major step toward the company’s financial recovery and a bid to increase strategic flexibility. However, the cooperation between the company and the Pharmalys Group was maintained, while Pharmalys Invest Holding remained the largest shareholder of the Hochdorf Group.

The payment will be made in several installments until September 2020. Further financial details of the transaction were not disclosed. “Hochdorf regains its strategic flexibility and takes an important step toward financial recovery,” Dr. Christoph Hug, Head of Corporate Communications Hochdorf Group, told NutritionInsight at the time.

Hochdorf's CEO Dr. Peter Pfeilschifter.“The most challenging part was the financing of the Group and the situation with its subsidiaries. Beyond the sale of the Pharmalys companies, this past February, Hochdorf sold its shareholdings in the Uckermärker Milch GmbH in Prenzlau, Germany,” Pfeilschifter notes.

Going forward the company is looking to further implement a sustainable financial business model. “There are no acquisitions planned. Hochdorf will focus on the Baby Care and Dairy Ingredients divisions. We have launched an efficiency program to achieve a sustained reduction in operating costs. In the Baby Care division, Hochdorf will strengthen its sales and service structures. The main goal is to achieve the required growth and improve the utilization of the plants in Sulgen. The Dairy Ingredients division will further develop its customer and product portfolio and organize the best possible plant utilization,” Pfeilschifter further explains.

A financial dive?
The company also reports that due to additional capital allowances, value adjustments and provisions, EBIT was CHF -265.3 million, with a loss attributable to shareholders of CHF -239.2 million. In 2019, Hochdorf processed 677,845 metric tons of milk, whey, cream and buttermilk. In terms of infant formula in particular, plant utilization did not meet expectations, the Group notes.

As a result of the lower sales and the value adjustments made, gross profit fell significantly year-on-year down CHF 110 million (US$118 million) compared to 2018. 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.

Losses and adjustments resulted in negative developments in the Baby Care segment and shareholdings. 

Dairy Ingredients segment performs well
Despite the challenging procurement and liquidity circumstances, Hochdorf Swiss Nutrition managed to maintain supply and so defend its market share. The integration of parts of the Cereals & Ingredients division and the divestment of unprofitable business activities were largely completed by the end of the 2019.

Baby Care division
The Group adds that the Baby Care division achieved a net sales revenue of CHF 72.8 million (US$73 million) in 2019. The decrease can be mainly explained by a significant fall in sales to some large customers and the sluggish sales for the former subsidiary Pharmalys Laboratories. A collapse in sales, necessary value adjustments on outstanding receivables and the technical challenges that arose in the second half of 2019 in connection with the launch of the spray tower line nine at the Sulgen plant all put pressure on operating results.

The company’s subsidiary Bimbosan AG reported positive results in 2019 and slightly exceeded expectations. Bimbosan expanded its strong 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.

Future plans
In 2020, the new Board of Directors will work together with Group Management to develop a future strategy for Hochdorf. “In preparation for this we have defined various focus projects that form the basis of our future strategic planning. In addition, we launched our OPTIMA efficiency enhancement programme at the beginning of the year to achieve a sustained reduction in operating costs,” the company outlines.

A key focus for the future will be ensuring sustainable business development in the Baby Care division in a highly competitive international environment, the company says.

Moreover, the market situation remains very challenging, Hochdorf adds. With the impact of the COVID-19 epidemic difficult to assess at the current time, the Board of Directors and Group Management have agreed a sales and revenue range for the 2020 business year.

By Kristiana Lalou