Hochdorf 2018 sales drop, warns on dairy impact of changes to “Schoggi” law

19 Mar 2019 --- Swiss foodstuffs company Hochdorf generated a net sales revenue of CHF561 million (US$561 million) in 2018 (a decrease of 6.6 percent compared to previous year) and has warned on the company’s exposure amid changes to Switzerland’s “Schoggi” law. Due to the great uncertainty in the Dairy Ingredients division, the Hochdorf Group is currently refraining from issuing a sales and earnings forecast. Hochdorf is one of the leading foodstuffs companies in Switzerland, offering solutions made from natural ingredients such as milk, wheatgerm and oilseed.

Hochdorf reported that earnings before interest and taxes (EBIT) amounted to CHF18.6 million (56.2 percent) with a net profit of CHF8.7 million. Although significantly below the record figures of the previous year, the sales and earnings figures are within those forecast by the company in December 2018. The main reasons for the disappointing results are the significantly lower performance of Pharmalys Laboratories SA, the lack of sales in China, delays in the new spray tower line and a worsening of the problems in the Dairy Ingredients division, as well as the one-off effect from the sale of Hochdorf Baltic Milk UAB, the company reported.

The Dairy Ingredients division achieved a net sales revenue of CHF354.4 million in 2018 (a decrease of 12.5 percent compared to the previous year, or CHF405.1 million) and experienced a challenging year with a still large but declining spread between milk fat and milk protein valuations in the international markets. Activities in Switzerland were mainly shaped by the implementation of the successor to the “Schoggi” law, the company reported.

The so-called “Schoggigesetz” (or Chocolate Law) was introduced in 1974 to compensate Swiss food exporters for the high price of Swiss agricultural goods. Milk and wheat are more expensive to produce in Switzerland while high customs duties curtail cheaper foreign imports. The WTO has ordered changes to the law.

“The follow-on solution to the so-called ‘Schoggigesetz’ in Switzerland means that Hochdorf can barely pay competitive milk prices, which will lead to a significantly lower milk inflow,” Dr. Christoph Hug, Head of Corporate Communications, tells FoodIngredientsFirst. “For this reason, we are currently in the process of implementing measures to ensure that we can maintain our ability to deliver key products. The current situation regarding milk prices and volumes, both in Switzerland and in the EU, suggests increased volatility, which means that, in the best case scenario, the results of the Dairy Ingredients Division will be narrowly in line with expectations.”

Hug explained that the Schoggi law did not have an impact on the result 2018, but will have this year.

He confirmed that contingency measures are in place at Hodhdorf as a whole, including cost reduction measures and a product portfolio assessment. “Historically, an EBIT of this size is reasonably good for the Hochdorf Group, but it is not as high as we expected at the beginning of 2018. Yes, there are cost reduction programs underway and we will think about our product portfolio,” he notes.

Hochdorf is undergoing radical change – with corresponding challenges in all three business divisions. In the Dairy Ingredients division, cost reduction programs were launched in both Switzerland and Germany to ensure that positive results can again be achieved. Also, the current situation regarding milk prices and quantities, both in Switzerland and in the EU, suggests increased volatility and, at the very most, a narrowly positive result in the Dairy Ingredients division.

Also among the company’s results, Hochdorf’s Cereals & Ingredients division achieved a net sales revenue of CHF30.7 million in 2018 (compared to  CHF26.6 million in the previous year, or an increase of 15 percent). 2018 was characterized by the integration of Zifru Trockenprodukte GmbH and Snapz Foods AG as well as the growth of Hochdorf South Africa Ltd and Marbacher Ölmühle GmbH. Across the entire division, several new products were developed and marketed internationally.

Hochdorf Swiss Nutrition launched various new children's food products in the private label category, such as healthy crisps for children from six months, a porridge made from Swiss whole milk and dried fruits and vegetables for children over three.

Marbacher Ölmühle GmbH and Zifru Trockenprodukte GmbH are both well on course and able to gain new customers throughout the year, the company reported. Marbacher Ölmühle increased its net sales revenue from CHF9.9 million to CHF12.1 million (an increase of 22.8 percent). Hochdorf South Africa Ltd. was able to increase sales of Afrikoa chocolate by more than double for another year in succession.

With the investments made in the company’s Sulgen plant, the majority holding in the Pharmalys Group and the acquisition of Bimbosan AG, the Baby Care division is reportedly well on the way to achieving its strategic goals by 2020. It is focusing here on fully utilizing the capacities available and further strengthening the private label business.

Hochdorf said that strategy implementation is most challenging in the traditional core business of Dairy Ingredients. The high level of competition, price sensitivity and the influence of political decisions are the main reasons. In this area, Hochdorf was able to significantly reduce risk in 2018, for example with the sale of Baltic Milk. In terms of the market, it successfully developed and marketed some specialist milk powders. However, the tough market situation further offset these successes. “It is, therefore, necessary to adapt milk prices to the market and to make them accordingly flexible, to carry out internal optimizations and to develop further product innovations with added value,” the company reported.

The Baby Care division achieved a net sales revenue of CHF176 million in 2018 (compared to CHF168.8 million the previous, meaning an increase of 4.3 percent). The sales growth is due to the acquisition of Bimbosan and the organic growth of existing customers. However, it was not possible to achieve the sales target of between CHF200 and CHF215 million forecast in the company’s interim report.

In the Baby Care division, Hochdorf hopes to register the trademarks it has submitted for the Chinese market. According to new regulations, however, the production plant must first be audited again by the responsible authorities. If this audit takes place in the first half of 2019, Hochdorf is hopeful it will be in a position to deliver infant formula to China again from 2020 at the latest.