The Dairy Ingredients Division achieved gross sales revenue of CHF 415.4 m in 2015 (PY: CHF 298.6; +39.1%). The reason for this massive increase in revenue lies in the acquisition of Uckermärker Milch GmbH. Gross sales revenue fell by comparison with the previous year in Switzerland and Lithuania due to lower prices for milk, which led to lower product prices.
The volume of liquid purchased and processed fell (as expected) by -5.4% compared to the previous year to 388.9 m kg (PY: 410.9 m kg). Altogether, however, we processed 314.1 m kg of our own milk in the Hochdorf and Sulgen facilities, which was slightly more than in the previous year (312.9 m kg). Due to lower milk volumes in the spring, we dried significantly less milk in Switzerland on commissioned orders. We increased the volume of whey processed by 10.3% by comparison with the previous year, reaching 55.0 m kg.
It is important for the Dairy Ingredients Division that plants operate at as close to full capacity as possible over the course of the year. We were able to achieve this in 2015, on the one hand by increasing the volume of whey processed. And on the other, the Swiss Customs and Excise Authority approved the importation of 780 tonnes of skimmed milk concentrate for export projects (inward processing arrangements) by the end of January at the latest. This ruling helped us to keep plants running near to full capacity during the period of low milk.
In fact, we did without importing the full volume approved, as Swiss milk volumes picked up again in December. Overall, the Dairy Ingredients Division posted revenue of CHF 227.6 m (-11.8% vs. PY). The reasons for the fall in revenue lie in lower raw material prices, which were passed on to customers, lower commissioned orders, and exchange rate fluctuations for export products. The decline in volumes in the area of roller-dried whole milk powder turned out to be lower than we had expected at the beginning of the year. Against that, we were able to sell record volumes of milk and whey protein products.
The solution negotiated with our milk suppliers in spring to compensate for the gap created by the «Schoggi Act» worked well. The milk producers' reserve was regularly modified to meet current needs. The increase in «Schoggi Act» support decreed by parliament relieved the fund significantly. On 19 December 2015, the WTO Conference of Ministers in Nairobi decided that export subsidies such as the Swiss «Schoggi Act» would be banned with a transitional period of five years.
In product development, we collaborated mainly on the IonEx project as well as working on customer-specific items. The system for producing lactose and whey protein products was completed in the first half of the year. The first lactose trial production runs were carried out in the second half of the year. The products are of high quality and can be used in infant formula. Further experience will be gained on the line at the beginning of this year. The intention is to hand over the system for regular production from mid-2016.
We also pushed ahead with refinements to the modified milk proteins. We are expecting to launch in the first half of 2016.
Milk prices will probably not significantly recover throughout the whole year. Due to the relatively high volumes of milk – in Switzerland and abroad – we are assuming that the price of milk in 2016 will remain at a very low level. We expect to have a relatively high volume of milk to process in the first half of the year in spite of the low prices, due to good feed and volume restrictions on several types of cheese. We will also export cream this year on behalf of Lactofama, thereby taking some of the pressure off the Swiss market.
One important project for us in the second half of the year will be the expansion of capacity at the Hochdorf facility. With the aid of a reverse osmosis system and a high concentrator, by 2017 we will be able to process significantly more milk in Hochdorf.
HOCHDORF Baltic Milk UAB posted gross sales revenue in 2015 of CHF 26.0 m (PY: CHF 43.6 m; (-40.3%). The enormously high growth in revenue in 2014 was largely due to a milk exchange deal with a Lithuanian dairy. This milk exchange deal was no longer in operation in 2015. Further reasons for the lower revenue were the appreciation of the Swiss Franc and significantly lower prices for milk by comparison with the previous year. The latter had to be passed on to our customers in the form of lower product prices in order to remain competitive.
In total, we sold 17,736 tonnes of products in Lithuania. This figure is almost eight percent higher than the previous year (not counting the quantities involved in the milk exchange deal). The optimisation measures implemented in 2014 constituted one of the reasons for this increase.
We also invested in a new ultrafiltration system. This went into trial operation in November 2015.
The continuing import ban on EU milk products to Russia and the lifting of the quota system will also lead to high milk volumes in 2016. However, the prices for milk products are still very low, and we are not currently assuming that they will soon recover.
In terms of development, we will concentrate on producing micellar casein in the new ultrafiltration system. The first trial production runs went well, and marketing of this special product has begun. Micellar casein is a high value-added product that fits with the strategy, and from which we are expecting a positive contribution in the current financial year.
As far as our main product, milk protein powder, is concerned, we were no longer able to conclude the new contracts at the old price level. These prices, too, have come under severe pressure since November 2015. We therefore expect the 2016 financial year to be a somewhat difficult one with the current price environment.
Uckermärker Milch GmbH posted gross sales revenue of CHF 163.1 m in 2015. This revenue is somewhat below expectations due to the very low milk prices and the strength of the Swiss Franc. We also reduced the production of skimmed milk powder due to the tight market situation in Germany. And we did so although we purchase most of our milk on the spot market. Milk on the spot market generally traded at a cheaper price than contract milk from milk producers.
Altogether we processed 296.7 m kg of liquid (milk, cream, buttermilk and milk permeate) in the Prenzlau facility and sold 135,407 tonnes of product. The buttermilk project with Arla mentioned in the six-month report was implemented, and since December we have now been producing buttermilk as well as butter, curd and milk powder. The buttermilk business is growing as planned and volumes have been increased. If this trend continues, we will be able to increase the filling capacity for buttermilk production in the current financial year, as planned.
In the current low price environment, it is particularly important to keep our own costs under regular review. Appropriate processes were defined and put in place in January 2016. This is all the more important as we do not expect any sudden recovery in the domestic or international milk market. Accordingly, we will continue to procure most of our milk through the spot market.
It is important for the success of the powder milk plant that we are able to produce higher-margin powder as soon as possible. For that reason, the project to produce instant milk and base powder enjoys high priority. We plan to be in a position to produce such powder, at least in trial quantities, by the first half of the year.
The aim is for the Dairy Ingredients business to develop on a sustainably global level from a strong Swiss base. Cooperation between the four milk plants will be optimised and the product portfolio combined. In Switzerland, we want to defend our market position and reap the global rewards of our knowledge in the area of rollerdried whole milk powder. We want to develop, produce and market new products with higher added value across all plants. We will position new products as premium alternatives with corresponding services in the markets. With all our activities, the rule is to pay attention to the various underlying conditions and build them into our operational implementation.
Cream, milk concentrate, skimmed milk powder, whole milk powder, cream powder, fat powder, milk protein powder, whey powder, whey protein powder, permeate powder, butter, curd.