HOCHDORF Holding Ltd: Creating a solid foundation for a successful future

[ Report ]

Hochdorf (pta006/16.08.2021/07:00) - A sense of optimism could be felt in the HOCHDORF Group in the first half of 2021. The company was reorganised in line with the strategic foundations created the previous year and Bimbosan AG was successfully integrated into HOCHDORF Swiss Nutrition Ltd. Despite the restrictions caused by the coronavirus pandemic, new customers and markets were acquired and new products were successfully launched in Switzerland and abroad. Nevertheless, further measures are necessary to master the HOCHDORF Group's tight financial situation and to strengthen the balance sheet. The purchase price repayment from Pharmalys, which enables an immediate partial repayment of liabilities, is positive.

Organic growth in first six months
The HOCHDORF Group processed 218.9 million kg of milk, whey and cream (liquid volume) in Switzerland in the first half of 2021 (PY: 187.9 million kg; +16.5%) and sold 32,356 tonnes of products (-30.2% compared to the previous year). This resulted in a net sales revenue of CHF 140.3 million (PY: CHF 158.3 million). The decrease was a result of the divestments made and liquidations initiated in 2020. On a comparable basis, the result therefore corresponds to solid organic growth of 8%.

The gross profit fell by around CHF 12 million due to lower volumes, a higher milk price, a deliberate build-up of inventories and a temporary shift in the sales mix (higher share in the Food Solutions division), resulting in an EBIT of CHF -8.6 million (PY CHF 1.2 million). The net result at Group level is CHF -9.0 million (PY: CHF -4.0 million).

As a consequence of the net result, equity decreased slightly to CHF 171.4 million, but still corresponds to a stable equity ratio of 51%. The cash flow from working capital was slightly positive at CHF 0.7 million. Due to the decline in current assets of CHF -8.6 million, the cash flow from operating activities remained negative at CHF -7.9 million. However, this showed a significant improvement compared to the same period last year (CHF -15.1 million).

Pharmalys - purchase price repayment and strategic cooperation agreed
Pharmalys Invest AG paid the outstanding purchase amount for the shares in companies of the Phar-malys Group in the amount of CHF 30 million on 6 August 2021. For the HOCHDORF Group, Pharmalys Laboratories SA remains the largest customer in its Baby Care segment. The two companies have established their future strategic cooperation by signing a long-term supply agreement. These are important steps for the further financial recovery of the company and for securing the utilisation of the production facilities in Sulgen.

New corporate structure increases performance and efficiency
The corporate structure introduced at the beginning of the year has further improved performance and efficiency within the company. HOCHDORF is therefore considerably closer to achieving the goal of an agile, innovative and service-oriented HOCHDORF. As part of the structural change, Bimbosan AG relocated from Welschenrohr to Hochdorf, with the subsequent merger of Bimbosan AG into HOCHDORF Swiss Nutrition Ltd. Both projects were completed in the first half of the year.

HOCHDORF's fresh agility is also reflected in its numerous product innovations and new markets, such as the Bimbosan launch of an infant formula based on goat milk in Switzerland. This alternative to products based on cow's milk started well above expectations and has already been integrated into our export business. Preparations are also in full swing for the launch of HOCHDORF own brands Bimbosan and Babina in three new export markets in Asia with the first deliveries expected in the second half of 2021.

Baby Care segment
The Baby Care segment achieved net sales revenue of CHF 27.9 million (PY: CHF 37.6 million; -25.8%). The lower sales are largely due to the private label business although Bimbosan also achieved slightly lower sales compared to the same period last year.

In addition to the goat milk launch and new export markets, the private label business also gained three new customers. The products will be delivered and available in the markets in the second half of the year. In the first half of the year, HOCHDORF also strengthened its sales teams in targeted areas for further business development and strategy implementation.

Food Solutions segment
In the first half of the year, HOCHDORF processed a liquid volume of 218.9 million kg (+16.5%). The Food Solutions segment achieved net sales revenue of CHF 112.4 million in the first half of 2021 (PY: CHF 120.7 million, -6.9%). However, the previous year's net sales revenue included CHF 25.4 million in sales from Uckermärker Milch GmbH, which was sold at the end of March. On a comparable basis, this resulted in solid organic growth.

Demand for milk powder from the chocolate industry is slightly increasing again after the Covid-19 slump. The projects related to vegan products and those based on alternatives to cow's milk are on track. The development of functional semi-finished products is also taking shape, particularly in the area of high-protein applications.

Covid-19 slows positive operational development
The Covid-19 pandemic continues to hamper our fundamentally positive business development with new customers and new products. The effects of Covid-19 were also palpable in the Swiss dairy market in the first half of the year, with a continued shortage of milk due to high domestic demand reflected in increasing milk and raw material prices.

OPTIMA raises cost awareness and further increases efficiency
The OPTIMA programme to increase efficiency continued to achieve positive results. The six ongoing projects in the areas of facilities, buildings, production processes, logistics, administration and purchasing are pursuing the goal of saving a mid-single-digit million amount this year. In purchasing, however, the market situation has changed significantly and HOCHDORF is currently facing Covid-19 related price increases for raw materials and transport services.

Measures for financial recovery under way
As detailed in the Annual Report 2020, the Board of Directors and the Group Management are working intensively on various financial strategy options to stabilise the balance sheet and to support sustainable corporate growth and implement the new strategy. The first results have been achieved with the final payment from Pharmalys and the suspension of the review of the syndicated loan covenants. The Board and Group Management are continuing to examine further options as the present operating performance is not sufficient to put the balance sheet on a sustainably healthy footing.

Outlook
Ongoing delays and postponements of projects as a result of the Covid-19 impact make it impossible to estimate precise production volumes. Nevertheless, HOCHDORF expects a stronger second six month, benefiting from higher order intake and better capacity utilisation in the Baby Care segment, as well as a seasonal reduction in inventories. Accordingly, EBIT should improve significantly in the second half of the year and result in a balanced EBIT level for the 2021 business year, as previously forecast. The forecast for net sales revenue remains unchanged at CHF 260 to 300 million.

Key figures for the HOCHDORF Group (consolidated)

The complete letter to the shareholders is available at report.hochdorf.com.

(Ende)