Explanatory notes to the consolidated financial statements 2015 of the HOCHDORF Group

Principles of consolidation

General information

The HOCHDORF Group prepares its accounts in compliance with all existing guidelines of Swiss GAAP FER (Swiss accounting and reporting recommendations) and the provisions of Swiss law. The consolidated annual accounts reflect the actual status of the Group’s asset, financial and revenue position. The consolidated annual accounts are based on the principle of historical costs and are based on the annual accounts for the affiliated companies as of 31.12.15, prepared according to standard principles.

Consolidation principles

Consolidated companies/consolidation method

The consolidated annual accounts for the HOCHDORF Group comprise the annual accounts for the HOCHDORF Holding Ltd parent company as well as all subsidiaries in which there is a capital and vote-relevant majority. Investments with 20% to 50% of the voting rights are accounted for using the equity method.

The consolidated individual financial statements for the companies are adapted to the standard Group structure and evaluation regulations and entered in accordance with the full consolidation method. 100% of the assets and liabilities as well as expenses and revenues are included in the consolidated annual accounts and all intercompany transactions are eliminated. Significant interim profits within the Group are considered in this elimination. The share of the minority shareholders in the company’s own share capital and of the results is shown separately in the Group balance sheet and income statement.

Capital consolidation

For capital consolidation, assets and liabilities on holdings are evaluated at the time of the takeover according to standard Group principles (purchase method). Any remaining surplus/shortfall (goodwill/badwill) of this revaluation is offset against equity. The consolidated cash flow accounting is generated on the basis of the consolidated balance sheet and income statement.

Translation of foreign currencies

The annual accounts of consolidated companies in foreign currencies are converted as follows: current assets, fixed assets and external capital at end-of-year exchange rates (period end exchange rate); equity at historical exchange rates. The income statement and the cash flow statement are converted at average annual rates. The conversion differences incurred are recognised in equity without affecting net income. The foreign currency items included in the individual financial statements of the consolidated companies are converted as follows: foreign currency transactions at the exchange rate of the transaction day (current exchange rate); at the end of the year, foreign currency balances are converted at the end-of-year exchange rate (period-end exchange rate) and affect net income. The resultant exchange differences are shown in the income statements.

  Income statements average exchange rates Balance sheet end-of-year exchange rates
2015 2014 31.12.2015 31.12.2014
1 EUR 1.0701 1.2127 1.0874 1.2024
1 USD 0.9664 0.9159 1.0010 0.9936
1 LTL 0.3099 0.3512 0.3149 0.3482
1 UYU 0.0356 n.a. 0.0346 n.a.
1 ZAR 0.0755 n.a. 0.0646 n.a.

Cash flow statement

Cash and cash equivalents form the basis for the presentation of the cash flow statement. Cash flow from operating activities is calculated using the indirect method.

Overview of Group companies and associated companies


Consolidated companies

Location

Function

Currency
 Capital in thousand
31.12.2015
Capital share
31.12.15
Capital share
31.12.2014
HOCHDORF Holding Ltd 1Hochdorf CHHoldingCHF14,348100.%100%
HOCHDORF Swiss Nutrition LtdHochdorf CHProductionCHF30,000100%100%
HOCHDORF Swiss Milk Ltd 2Hochdorf CHTradeCHFn.a.n.a.100%
HOCHDORF Nutrifood Ltd 2Hochdorf CHTradeCHFn.a.n.a.100%
HOCHDORF Nutricare LtdHochdorf CHTradeCHF1,200100%100%
HOCHDORF Baltic Milk UAB 3Medeikiai LTProduction and tradeEUR5,792100%100%
HOCHDORF Swiss Whey LtdHochdorf CHShell companyCHF100100%100%
Schweiz. Milch-Gesellschaft AGHochdorf CHShell companyCHF100100%100%
HOCHDORF Deutschland GmbH 4Siegburg DETradeEUR200100%100%
Marbacher Ölmühle GmbH 5Marbach DEProduction and tradeEUR2,000100%100%
Uckermärker Milch GmbH 6Prenzlau DEProductionEUR10,00060%60%
HOCHDORF Americas Ltd 7Montevideo UYTradeUYU7260%n.a.
HOCHDORF South Africa Ltd 8Cape Town SAProductionZAR50090%n.a.
  1. Capital increase from conversion of convertible bond for CHF 44,840,000 corresponding to 363,838 new shares at nominal CHF 10 = CHF 3,638,380.
    Bonds with a nominal value of CHF 280,000 were not converted and were repaid in full on 28.12.2015.
  2. Merged into HOCHDORF Swiss Nutrition Ltd as at 01.01.15.
  3. As at 1.1.2015 conversion of currency from Litas to EUR at fixed conversion rate of 1 EUR = 3,4528 LTL.
  4. Company is in liquidation.
  5. Capital increase as at 07.05.2015 to EUR 2 million.
  6. Capital increase as at 25.03.2015 and 21.10.2015 to total EUR 10 million.
  7. Formation on 02.03.15.
  8. Formation on 18.05.15.

Associated companies

Location

Function

Currency
 Capital in thousand
31.12.2015
Capital share
31.12.15
Capital share
31.12.2014
Ostmilch Handels GmbHBad Homburg DETradeEUR1,00026%26%
Ostmilch Handels GmbH & Co. Frischdienst Oberlausitz KGSchlegel DELogisticsEUR5126%26%
Ostmilch Frischdienst Magdeburg GmbH 9Meitzendorf DETradeEUR2526%26%
  1. Change of legal form from KG to GmbH with simultaneous name change and capital adjustment

Valuation methods

General information

Accounting takes place on the assumption that the company will continue as a going concern. Assets are measured at cost, taking into account the necessary value adjustments. Liabilities are recognised at nominal value. All identifiable loss risks and depreciations are offset by value adjustments or deferrals. Expense and income items are accrued by period.

Cash and cash equivalents

Cash and cash equivalents include cash, balances in postal giro and bank accounts. They are valued at their nominal value.

Securities without participation features

Standard commercial securities are measured at the market value on the balance sheet date. The remaining securities are balanced at acquisition value or at a lower market value.

Accounts receivable

Receivables are measured at nominal value less value adjustments. Identifiable individual risks are taken into account with appropriate value adjustments.

Inventories

The valuation of raw materials, operational materials and auxiliary materials is defined by the acquisition price or at a lower market value. The semi-finished and finished products are valued at manufacturing cost, including the direct material and production costs per item, as well as material and production overhead costs. Appropriate value adjustments are undertaken for goods with a low rate of inventory turnover.

The value adjustment rates applied for raw materials, auxiliary materials and operational materials are:

Inventory turnover rateValue adjustment
Under 0.5 times25.0% of the purchase or manufacturing costs
0.5 – 1 time12.5% of the purchase or manufacturing costs
over 1 – 1,5 times 5.0% of the purchase or manufacturing costs
over 1.5 – 3 times 2.5% of the purchase or manufacturing costs
over 3 times 0% of the purchase or manufacturing costs

There are no calculated value adjustments if additional acquisitions of the same raw material are made in the reporting period.

Semi-finished and finished products:

Inventory turnover rateValue adjustment
Under 0.5 times100% of the purchase or manufacturing costs
0.5 – 1 time 50% of the purchase or manufacturing costs
over 1 – 1,5 times 20% of the purchase or manufacturing costs
over 1.5 – 3 times 10% of the purchase or manufacturing costs
over 3 times 0% of the purchase or manufacturing costs

The value adjustments calculated in this way are adjusted accordingly for normal saleability or longer shelf life. Apart from this, inventories whose realisable disposal value is lower than the acquisition or production cost (SPC) should be adjusted in value according to the «lower of cost or market» principle. The current market price on the sales market is assumed when defining the realisable disposal value. The typical sales deductions, sales expenses and any administrative expenses still to be incurred have to be deducted from this.

Consumption is measured in accordance with the first-expiry-date-first-out principle.

Interim profits on internal Group inventories are eliminated, if significant.

Discounts (in the sense of markdowns) granted by suppliers are entered as acquisition price reductions.

Accruals and deferrals

Accruals and deferrals are recognised at their nominal value.

Impairment of assets

A check is made on each balance sheet date to see if assets are impaired in value. The check is based on events and indicators that show that an overvaluation of the book value seems possible. A loss from value impairment is posted with an effect on net income if the book value of an asset exceeds the recoverable amount. A recoverable amount is the higher of the net market value and the utility value.

Tangible assets

Tangible assets are measured at the acquisition cost less the economically necessary depreciation. Long-term depreciation is taken into account. Depreciation is calculated on a straight line basis over the useful life of the fixed asset. All acquisitions over a value of CHF 5,000 are deemed investments. Projects in progress are capitalised as current investment projects and are not depreciated. Interests on assets under construction are not capitalised.

Asset groupService life
Property, plant15-65 years
Devices, equipment 5-25 years
Machines, appliances 5-25 years
IT systems, communication 5-10 years
Vehicles 5-10 years
Intangible assets 5-10 years

Leasing

Assets from financing leasing are capitalised and the relevant leasing liabilities are posted as a liability. With amortisations, the interest is charged directly to financial expenditure. Expenses for operating leasing are charged directly to the income statement.

Financial assets

Financial assets include long-term held securities, deferred tax assets as well as assets from pension funds and employer contribution reserves and long-term receivables from third parties. The securities are valued at acquisition prices, less operationally necessary value adjustments.

Intangible assets

Intangible assets include software, patents and licences. These are balanced at acquisition cost or at a lower utility value. They are depreciated beyond their economic service life on a straight line basis.

Short-term/long-term external capital

Valuation of liabilities is at the nominal amount. Short-term external capital includes liabilities with due dates of less than 12 months and short-term accrual items. Long-term liabilities include financing with a runtime of more than a year.

Provisions

A provision is a probable obligation based on an event before the balance sheet date, the amount of which and/or due date is uncertain, but can be estimated. This obligation warrants a liability. These are calculated according to standard and consistent operating criteria.

Taxes

The revenue taxes payable on taxable profits for the individual companies are accrued. Likewise, the incurred capital taxes are accrued.

Valuation of deferred taxes occurs in line with the tax rates that are actually expected in meeting future tax liability or in the realisation of future receivables (liability method). There are no negative valuation differences that could lead to tax assets. Clearable tax credits from carried forward losses are capitalised if it is likely that they might be realised in the future by sufficient taxable profits. Capital taxes are posted under operating expenses.

Financial derivative instruments

HOCHDORF Group uses derivative financial instruments to hedge its currency and interest rate risks. They are recorded in the balance sheet if they fulfil the definition of an asset or liability. The tools are explained in the notes.

Employee pensions

HOCHDORF Holding Ltd’s pension liabilities and those of its subsidiaries in Switzerland are set out in the completely autonomous HOCHDORF Group pension fund. The pension scheme includes a defined contribution in accordance with Swiss GAAP FER 16. The costs resulting from the employee pension are charged to the income statement for the appropriate period. The actual economic effects of pension plans on the company are calculated on the balance sheet date. An economic benefit is carried as an asset if it is used for the company’s future pension expenses. A financial obligation is shown as a liability if the requirements for the creation of a provision are met.

Employees and former employees receive different employee pension payments or old-age pensions corresponding to the legal requirements applicable in the countries where they are paid out.

Net turnover and income realisation

Net sales revenue includes the invoiced goods sales to third parties. Revenues are deemed to have been realised on delivery or provision of the service.

Research and development

Research and development costs are charged in full to the income statement. These costs are included in the items «Personnel expenses» and «Remaining operating costs».

Contingent liabilities

Contingent liabilities are valued on the balance sheet date. A provision is formed if a cash outflow is likely without a useful cash inflow.

Transactions with related parties

Business relationships with related parties are conducted at arm’s length. Related parties (natural or legal) are defined as any party directly or indirectly able to exercise significant influence over financial or operating decisions of the organisation. Organisations that are controlled directly or indirectly by related parties are also considered to be related.

Notes to the consolidated financial statement

The individual balance sheet positions are comparable with the prior year. Changes in scope of consolidation due to the foundation of HOCHDORF South Africa Ltd and HOCHDORF Americas Ltd are immaterial.

1. Cash and cash equivalents

The valuation of cash and cash equivalents is at nominal value and comprises the following:

CHF 1,00020152014
Cash714
Post account8,477300
Bank account34,36245,743
Short-term investments177323
Total43,02346,380

2. Accounts receivable

CHF 1,00020152014
Trade receivables from third parties49,21359,803
./. provision for doubtful accounts–194–182
Short-term receivables from related parties2,6002,344
Other receivables4,1214,882
Total55,74066,847

Diversification means there is no concentration of credit risk with regard to receivables from deliveries and services. The other receivables mainly result from credit from welfare institutions and from government bodies (VAT, Directorate General of Customs).

3. Inventories

CHF 1,00020152014
Raw materials, packaging materials, operating materials10,2449,048
Finished and semi-finished products, trade goods38,22338,150
Heating oil513690
Total48,98047,888

4. Accrued income

CHF 1,00020152014
As at 31 December 10,3105,999

The prepayments and accrued income are comprised of revenues not yet received as well as costs paid in advance. The increase compared to the prior year primarily results from the still outstanding «Schoggi Law» payments, which were also higher year on year due to larger price differences in the market.

5. Fixed assets

CHF 1,000Property, plant 1Equipment, warehouse equipment,
fixed equipment
Machines, production appliances,
furnishings
Office equipment,
IT systems,
communication, fittings
VehiclesCurrent investment projects 2Total
Net accounting value as at 01.01.1433,64422,93641,3016,4321,2511,450107,014
 
Purchase value
As at 01.01.1489,10842,399103,26817,8352,1291,450256,189
Change in scope of consolidation 448,9848,83524,45338231222283,188
Additions0000017,07617,076
Disposals0–41–100–2,385–3760–2,902
Reclassification 35901,9661,545831419–4,863488
Currency translation difference–40–40–78–1–17–1–177
As at 31.12.14138,64253,119129,08816,6622,46713,884353,862
 
Accumulated depreciation
As at 01.01.1455,46419,46361,96711,4038780149,175
Change in scope of consolidation 420,1336,88620,492101114047,726
Disposals0–36–100–1,821–2160–2,173
Depreciation1,2121,7322,4291,11529306,781
Currency translation difference–7–14–25–1–70–54
As at 31.12.1476,80228,03184,76310,7971,0620201,455
 
Net accounting value as at 31.12.1461,84025,08844,3255,8651,40513,884152,407
 
Net accounting value as at 01.01.1561,84025,08844,3255,8651,40513,884152,407
 
Purchase value
As at 01.01.15138,64253,119129,08816,6622,46713,884353,862
Additions0025903131,09131,381
Disposals 0–38–292–27–1300–487
Reclassification 315,5964,65215,1171,334180–36,8790
Currency translation difference–4,881–1,035–2,727–40–12220–8,786
As at 31.12.15149,35756,698141,44517,9292,4268,115375,970
 
Accumulated depreciation
As at 01.01.1576,80228,03184,76310,7971,0620201,455
Disposals 0–19–286–9–560–370
Depreciation 2,0932,2714,1081,19230809,972
Currency translation difference–1,949–720–2,074–12–460–4,801
As at 31.12.1576,94629,56386,51111,9681,2680206,256
 
Net accounting value as at 31.12.1572,41127,13554,9345,9611,1588,115169,714
  1. The Group has free parcels of land at its disposal in Lithuania. The value is equivalent to TCHF 157.
  2. The current investment projects are plants under construction.
  3. New acquisitions are posted with project numbers under «current investment projects» as inward movements. After the start of operations, there is a transfer posting from the «current investment projects» account to the appropriate fixed asset account. A decision is taken about which purchase costs are capitalised or posted via the income statement.
  4. In connection with the purchase of the holdings Marbacher Ölmühle GmbH and Uckermärker Milch GmbH.

Of which assets subject to financial leasing

 CHF 1,000TotalOutstanding instalments
Net accounting value as at 01.01.15523475
  
Purchase value
As at 01.01.15601475
Additions9,3539,353
Disposals of instalments0–866
Currency translation difference–54–44
As at 31.12.159,9008,918
 
Accumulated depreciation
As at 01.01.15780
Depreciation2790
Currency translation difference–50
As at 31.12.153520
 
Net accounting value as at 31.12.159,5488,918

6. Associated companies

Associated companies Location Function Currency   Capital in
thousand
31.12.2015
shareholdings  31.12.2015
CHF 1,000
Capital share 31.12.2014
CHF 1,000
Ostmilch Handels GmbHBad Homburg DETradeEUR1,0002,2912,018

Ostmilch Handels GmbH & Co.

Frischdienst Oberlausitz KG

Schlegel DELogisticsEUR513816
Ostmilch Frischdienst Magdeburg GmbHMeitzendorf DETradeEUR25488
2,3772,042

7. Financial assets

CHF 1,00020152014
Securities 3030
Deferred tax assets544411
Assets from employer contribution reserves7,7267,556
Total8,3007,997

The deferred tax assets result from existing carried forward losses in the tax balance sheet.

Taxable losses carried forward after expiration

CHF 1,00020152014
2019027
20200115
2021042
2022 and later1,4200
Total1,420184

The carried forward losses shown for HOCHDORF Deutschland GmbH of TCHF 184 are no longer offsettable, as the company is in liquidation and no more income will be generated.

Pension plans

CHF 1,000
employer contribution reserve
Nominal value
31.12.2015
Renounced use
31.12.2015
Balance sheet
31.12.15
Formation/usage
per 2015
Balance sheet
31.12.2014
Result of the committee of works and staff councils
in personnel expenses
20152014
HGR pension fund 7,72607,7261707,55600

The posting of interest from employer contribution reserves by the pension facility appears as a credit in the financial revenues. Interest of 2.25% was calculated on the employer contribution reserves in 2015 (previous year 2.25%).

CHF 1,000
Economic benefit/economic liability
and pension expenditure
Credit/debit balance Economic share of the
organisation
Change compared to prior year Amounts accrued for the period Pension expenditure in personnel expenses
31.12.2015 31.12.2015 31.12.2014 2015 2014
HGR pension fund 12,3740003051,7711,644

8. Intangible assets 1

CHF 1,000SoftwareTotal
Net accounting value as at 01.01.14732732
 
Purchase value
As at 01.01.145,5855,585
Change in the scope of consolidation501501
Additions1,3381,338
Disposals –5,497–5,497
As at 31.12.141,9271,927
 
Accumulated depreciation
As at 01.01.144,8534,853
Change in the scope of consolidation248248
Disposals–5,122–5,122
Depreciation400400
As at 31.12.14378378
Net accounting value as at 31.12.141,5491,549
 
Net accounting value as at 01.01.151,5491,549
 
Purchase value
As at 01.01.151,9271,927
Additions761761
Currency translation difference–45–45
As at 31.12.152,6432,643
 
Accumulated depreciation
As at 01.01.15378378
Depreciation337337
Currency translation difference–23–23
As at 31.12.15692692
 
Net accounting value as at 31.12.151,9511,951
  1. Intangible assets only cover acquired assets. Own brand names and licenses are not evaluated and not balanced on the balance sheet date.

9. Trade payables

CHF 1,00020152014
To third parties51,46666,712
To related parties 11,406280
Total52,87266,992
  1. Related parties included associated companies and other related parties.

10. Short-term financial liabilities

CHF 1,00020152014
Other financial liabilities 2452
Leasing liabilities1,90199
Bank loans 1047,091
Total1,92547,242
  1. Thereof reclassification of syndicated loan in 2014 over CHF 40 million, with a due date of 30.09.2015, is shown on the balance sheet under short-term financial liabilities. The syndicated loans was renewed in 2015 with a duration of 5 years and an option to extend it by 2 years.

11. Other current liabilities

CHF 1,00020152014
Other current liabilities8,9982,637
Employee overtime219234
Employee holiday credits493501
Salary accounts (salary payments, profit-sharing, AHV, SUVA, health insurance, etc.)3,6852,516
Government bodies (taxes, source taxes)678187
Total14,0736,075

The other short-term liabilities include the «Schoggi Law» fund in particular. This fund is augmented from charges raised per litre of milk delivered. The funds are used to compensate for any gaps in the «Schoggi Law» credit from the state. It is calculated annually. Money that is not used is reimbursed to the milk suppliers.

12. Accrued liabilities and deffered income

CHF 1,00020152014
As at 31 December 5,09510,217

The deferred income essentially includes accruals in the context of reimbursements and commissions («Schoggi Law») as well as invoices not yet received for goods receipts and other supplier services (power, water, transport) as well as the accrual of interest from the convertible bond. Compared to the prior year, fewer accruals and deferrals had to be recognised, particularly in the case of the «Schoggi Law», due to partial payments.

13. Non-current financial liabilities

CHF 1,00020152014
Mortgages, loans 1425471
Leasing liabilities7,017376
Bank loans55,0000
Convertible bond 3% from 30.05.2011 to 30.05.2016 2045,120
Total62,44245,967
  1. Loan commitment to a former shareholder of Marbacher Ölmühle GmbH.
  2. Convertible bond with a nominal value of CHF 50 million; from 30.05.2011 – 30.05.2016; 3% interest rate for the whole duration; Conversion price CHF 123.10; Securities number 12,931,421; ISIN CH0129314214; the bond was terminated prematurely with effect from 28.12.2015. The bond was converted in full up to CHF 280,000, all of which was repaid on 28.12.2015.

Terms and interest rates (long-term and short-term financial liabilities)

PositionCarrying amount
(CHF 1,000)
Due dateInterest rate
Syndicated loan55,00030.06.2020from 0.60% to 2.50%
Geiger loan425>2019from 2.02% to 3.83%
Short-term leasing 1,9012016from 1.85% to 5.34%
Long-term leasing7,0172018/2020from 1.85% to 5.34%
Other current liabilities242016from 6.39% to 7.97%
Total 64,367

The financial liabilities are recorded at nominal value and valued.

14. Provisions

CHF 1,000
Development of provisions
Short-term provisionsDamages claimsDeferred
tax provisions
Total
As at 31.12.1306004,3754,975
Change of scope of consolidation 15331,2045,2016,938
Provisions made (with effect on net income)02,2739233,196
Provisions used0–2,4230–2,423
Provision released0–450–773–1,223
Currency translation differences00–14–14
As at 31.12.145331,2049,71211,449
Provisions made (with effect on net income)0611,9532,014
Provisions used–533–8390–1,372
Provision released0–190–2–192
Currency translation differences0–131–568–699
As at 31.12.15010511,09511,200
  1. Addition of Uckermärker Milch GmbH and Marbacher Ölmühle GmbH holdings.

In 2015, particularly the damage claim provisions made by Uckermärker Milch GmbH in 2014 for impending losses on sales of goods were used by realising sales in 2015.

Notes to the consolidated income statement

The following explanatory remarks are given to supplement the income statement, structured in accordance with the overall cost procedure (production income statement).

The increase in the individual income statement positions mainly results from the first-time inclusion of the figures of Marbacher Ölmühle GmbH and Uckermärker Milch GmbH, which were consolidated in the balance sheet as at 31.12.2014. Therefore, comparability with the prior year is only possible to a limited extent.

15. Sales of products

By product groups

CHF 1,0002015 2014 
Milk products/cream225,29040.91%90,01221.00%
Milk powder190,06234.52%211,33449.33%
Infant formula110,21720.01%109,84625.64%
Specialities/wheat germ12,0612.19%5,5651.30%
Bakery-/confectionary goods6,2601.14%6,9621.63%
Remaining products/services 6,7651.23%4,7201.10%
Total550,655100.00%428,439100.00%

By region

CHF 1,0002015 2014 
Switzerland/Liechtenstein210,30238.19%245,67457.34%
Europe243,25544.18%87,17020.35%
Asia23,6114.29%27,0016.30%
Middle East/Africa62,43811.34%61,62814.38%
USA/Canada00.00%10.00%
Americas (others)1,5600.28%7090.17%
Rest9,4891.72%6,2561.46%
Total550,655100.00%428,439100.00%

The remaining turnover comprises deliveries to customers who export the goods and where the destination country is not separately recorded.

As a result of possible competitive disadvantages compared to non-listed and large listed competitors, customers and suppliers, presentation of the segment results was waived, pursuant to Swiss GAAP ARR 31/8. The Swiss milk market is small and tightly knit with few key companies and providers. The providers (milk producers) are limited to the individual milk producer organisations. On the processing side, the market is shaped by four large dairies, along with cheesemakers. On the customer side, the chocolate industry segment is predominant, likewise with just a few large processors. In the area of infant formula (based on milk), only one other firm produces infant formula for the Swiss and international market, apart from the HOCHDORF Group.

16. Other revenue

CHF 1,00020152014
Various remaining revenue553250
Total553250

Larger items in the various remaining revenues include employee private shares for the use of vehicles and office and production space rental.

17. Reductions in revenue

CHF 1,00020152014
Discounts, provision for doubtful accounts, accounts receivable losses 1–294–108
Reimbursements («Schoggi Law»), rebates –6,719–7,841
Various reductions in proceeds 246–137
Total–6,967–8,086
  1. There were no significant losses from accounts receivables in the current year.
  2. Various reductions in proceeds include individual damage claims from deliveries and services. The balance is shown net since cancellations of the provisions made in previous years also occur via the damages claims account.

18. Personnel expenses

CHF 1,00020152014
Wages–37,561–28,897
Social contributions–5,845–4,372
Incidental wage costs incl. temporary staff –2,821–1,533
Total–46,227–34,802

19. Other operating costs

CHF 1,00020152014
Facilities expenditure (incl. warehouse rents)–4,754–3,326
Maintenance, repairs–7,895–6,164
Vehicle and transport costs–7,226–7,801
Insurance, fees, duties–1,308–1,121
Energy and disposal expenditure–18,066–13,722
Administration and IT expenditure–4,722–3,127
Advertising expenses incl. commissions to customers–4,687–4,161
Various other operating costs–4,800–3,778
Total–53,458–43,200

20. Financial result

CHF 1,00020152014
Interests from cash and cash equivalents117
Revenues from holdings and financial assets incl. associated parties7232,169
Value adjustment from financial assets1911
Total financial revenue7432,197
 
Interest costs–1,834–2,334
Deposit fees, bond fees–29–51
Exchange rate losses–3,776–65
Total financial expenditure–5,639–2,450
Total–4,896–253

In 2014, income from financial assets includes profit from the assumption of debt amounting to CHF 1.99 million.

21. Non-operating income

CHF 1,00020152014
Revenue from external properties–40–26
Total–40–26

The external properties refer to a building lease at Rothenburg fuel depot as well as an owner’s association parking level at Hochdorf station.

22. Extraordinary income

CHF 1,00020152014
Profit from the disposal of operational fixed assets–6–68
Exceptional expenditure–66–1,819
Total–72–1,887

Exceptional expenditure 2014 includes the net payment from a lost claim with a customer from China.

23. Taxes

CHF 1,00020152014
Current income taxes  
Taxes on operating result –679–942
   
Deferred income taxes  
Net change in deferred tax assets and liabilities–1,434–769
Total–2,113–1,711

Valuation of deferred taxes occurs in line with the tax rates that are actually expected in meeting future tax liability or in the realisation of future receivables (liability method). The tax rate is 12% for companies exclusively based in the canton of Lucerne; it is 15% for HOCHDORF Swiss Nutrition Ltd, with its production in the Thurgau canton. 15% was applied for the subsidiary in Lithuania and 25% for the subsidiaries in Germany, Uruguay and South Africa.
The weighted average tax rate relates to the Group’s earnings before taxes (EBT) and amounts to 13.96% (previous year: 9.58%). Including the positive tax effect of CHF 756,000 in 2014 due to the offset of unrecognised loss carry forwards, this gives a weighted average Group tax rate of 13.82% for 2014.
Capital taxes are posted separately in operating costs. 2014 and years before have been definitively assessed for the Swiss Companies. The companies in Germany and Lithuania have been provisionally assessed.

24. Earnings per share

Company results per share, basic

20152014
Weighted average shares outstanding1,152,439924,700
Company result before minority interests13,521,50716,138,523
Company earnings per share in CHF,  basic11.7317.45

To determine the company result per share, the company results due to the HOCHDORF Group shareholders is divided by the average number of outstanding shares. Own shares held are not included in the calculation of the average outstanding shares. The weighted average number of shares is a result of the total of all transactions in the reporting year and additions due to the creation of new registered shares from the conversion of the convertible bond.

Company earnings per share, diluted

20152014
Weighted average shares outstanding, basic1,152,439924,700
Dilution effect of convertible bond 10364,459
Weighted average shares outstanding, basic1,152,4391,289,159
 
Company result before minority interests 13,521,50716,138,523
Convertible bond interest 3% of CHF 45.12 million01,353,600
12% tax effect (interest on convertible bond*0.12/1.12)0–145,029
Company result before minority interests, diluted13,521,50717,347,094
Company earnings per share in CHF, diluted11.7313.46
  1. The dilution is calculated from the convertible bond of CHF 50 million and the original conversion price CHF 124.00, from which a maximum of 403,226 new shares are generated. As a result of the increase in the dividend in 2014 from CHF 3.00 to CHF 3.20, the exercise price of the convertible bond was reduced to CHF 123.80. As a result of the increase in the dividend in 2015, the exercise price was reduced to CHF 123.10. The convertible bond was terminated prematurely with effect from 28.12.2015. The bond was converted in full up to CHF 280,000. The balance was repaid in full on 28.12.2015.

25. Own shares

HOCHDORF Group pension fund

 2015
Number
2014
Number
Registered shares of HOCHDORF Holding Ltd25,00025,000
Total25,00025,000

Transactions with own shares

 20152014
Balance 1.1. in units5,143307
At the average price per share of CHF136.7596.68
Purchases in units44,70853,753
At the average price per share of CHF148.04125.00
Sales in units–25,851–48,917
At the average price per share of CHF 140.54126.92
   
Balance 31.12. in units24,0005,143
At the average price per share of CHF157.51136.75

Further notes

Unsettled derivative financial instruments

Exchange rate instrumentsValue changes2015
assets value
2015
liabilities value
 PurposeValue change2014
assets value
2014
liabilities value
 Purpose
Interest rate swaps3100Hedging00–31Hedging
Forward exchange contracts –1200–120Hedging
Total assets and liability values–890–12000–31

Derivative financial instruments, which do not meet the definition of assets or liabilities, are not included in the balance sheet. As of the balance sheet date, forward exchange contracts existed, which in terms of due date all pertain to 2016.

Pledged assets

CHF 1,00020152014
Property, plant/mortgage liens 05,338
Total05,338

Leasing debts

CHF 1,00020152014
Unrecognised leasing debts54154
Total54154

Liabilities from pension fund

CHF 1,00020152014
HOCHDORF Group pension fund 305280
Total305280

Goodwill offset against equity

Purchase costs

CHF 1,00020152014
As at 1 January3,0880
Additions03,088
As at 31 December3,0883,088

Accumulated depreciation

CHF 1,00020152014
As at 1 January–3820
Additions–617–382
As at 31 December–999–382
   
Theoretical price as at 31 December2,0892,706

In the reporting year a goodwill of CHF 3,088,000 resulted from the various shareholding acquisitions. This is shown based on a linear amortisation over 5 years (pro rata).

The effects of a theoretical capitalisation on the income statement and balance sheet are shown in the following table.

CHF 1,00020152014
Group result13,02416,139
Goodwill amortisations–617–382
Theoretical company results12,40715,757
   
CHF 1,00020152014
Equity192,788143,168
Theoretical goodwill 2,0892,706
Theoretical equity194,877145,874

Transactions with related persons and companies

The business transactions with related persons and companies are based on standard commercial contracts and conditions. All transactions are contained in the consolidated annual accounts 2015 and 2014. These cover deliveries of goods and raw materials as well as services to and from related companies.

Transactions with associated companies

CHF 1,00020152014
Net sales81,9880
Cost of goods–53,7990
Service revenue230
Service costs –5440
Financial revenue50
Financial expenses–330

transactions with related companies

CHF 1,00020152014
Net sales11,06413,777
Cost of goods–576–594
Service revenue3223
Service costs 1–1,771–1,644
Financial revenue326
Financial expenses–12–3
  1. Service costs include the employer contributions for employees, which are settled in the related HOCHDORF Group pension fund.

Contingent liabilities

There are no contingent liabilities.

Risk report

Risk management and risk policy

Enterprise automatically involves opportunities and threats. The HOCHDORF Group has been an increasingly successful company in Europe and worldwide for more than 120 years. Management and planning systems have to be improved on an ongoing basis to ensure competitiveness and future potential but also to identify and manage exis­ting risks at an early stage. It was for this reason that we began looking at risk management in a systematic and structured way at the end of the 1990s. A professional risk management system was introduced in 2007.

We now have a specifically designated risk management centre reporting directly to the management team. The risk management area has the relevant practical skills and maintains all the organisational provisions, such as risk policy and risk strategy as well as all the process descriptions. For higher-level issues, risk committees can be de­ployed to bring their expertise and decision-making skills to resolve particular problems. Risk management provides important support in protecting and securing future potential. The general risk awareness of the management team and employees is increased by annual risk assessments. The risk assessment includes all business processes.

The reporting includes the following areas:

  • Strategic risks (risk from development and the situation in society)
  • Market risks (sales market risks)
  • Financial market risks (investment and financing risks)
  • Political/legal risks; organisation and management
  • Service risks (risks from production and procurement as well as research and development)

Risk assessment

Our strategy is to generate sustainable profitable growth. The strategic risks are closely related to the main area of business; the milk market and milk as a raw material. Analysis has shown that the defined competence profile shows a healthy basis for gaining competitive advantages as well as internal strengths. This provides us with endless opportunities to meet strategic objectives and prepare ourselves for any challenges we may face in the foreseeable future. This positioning is underpinned by strategic partnerships. We defined alternative courses of action as part of our risk strategy and adopted targeted measures to identify risks.

In our markets for products with milk components, refinement into functional powders, children’s food, products for bakeries and gentle pressed wheat germ, the main market risks emanate from «sales fluctuations» and «fluctuations in the cost of materials». The basis for our study included e.g. market trend analysis, identification of market appeal and the competitive environment. The main focus of the analysis was on sales and procurement markets.

The analysis of the financial outlook is based on comparative data from rating agencies. From a financial point of view, we can be described as a healthy group. As with other companies of a similar structure, we have to explicitly mention «value fluctuations in holdings», «investment risks» and «accounts receivable losses», as well as «currency fluctuations».

The analysis also reveals mixed results in terms of the political/legal and organisational risks facing the company. There are opportunities and threats arising from political change and from the political circumstances (CH, EU, WTO) and the opening up of the milk market. We are addressing the risks from product liability with quality assurance and organisational measures, as well as appropriate product liability insurance. Risks from contractual agreements are minimised by employing appropriate legal expertise.

We have a clear understanding of how to deal with the risks involved in providing goods and services and we monitor them appropriately by observing basic commercial principles. We produce regular reports on the risks caused by business interruption. Emergency plans are in place and are regularly updated. These include estimates of internal and external interactions, such as capacity distribution and supplier evaluations.

Overall risk status

The risks are evaluated quantitatively and statistical procedures show their interconnectivity. This enables us to derive equity share, liquidity and credit requirements and to compare these with existing funds and the actual substance of the company. Based on traditional rating analysis and on modern procedures for the 2016 planning year, the results are positive and compare favourably with the high credit level achieved by other similar companies.

Events after the balance sheet date

After the balance sheet date and until the adoption of the Group accounts by the Board of Directors, no significant events have occurred that could affect the informational value of the 2015 annual accounts or which must be disclosed here.

The consolidated annual accounts were approved in the form presented here by the Board of Directors at its meeting on 18 March 2016.