Income statement: Operational section
2016 was the year of constantly falling milk prices in the EU and a large price difference between the price of milk there and in Switzerland. Fluctuations in international commodity prices had a major negative impact on the results of foreign subsidiaries. The Swiss market could not escape from this turbulence. Lower quantities of milk and heavy reliance on the «Schoggi Law» were a consequence of these distortions on the market. This meant that the HOCHDORF Group was not able to meet its expected figures with regard to turnover due to quantity and price effects. Fortunately, however, the Group was able to not just achieve but even outperform in terms of its more important operational targets.
Primarily the Baby Care Division, in which our high-quality products are not as price sensitive, contributed to the good domestic results. The utilisation of capacity increased again thanks to technical improvements. Furthermore, the improvement in the product mix led to very good earnings figures.
In the Dairy Ingredients Division, the situation is increasingly difficult and competitive. This also increasingly applies to domestic sales. Much effort is needed in order to maintain the quantities and margins. Despite the very difficult situation regarding the «Schoggi Law», there was no need for write-downs or additional expenditures.
In the Cereals & Ingredients Division, we were able to achieve additional success by making adjustments and generating profits with new major customers. In Switzerland, the profits from prior years continued and even increased. Abroad, development and expansion is more intensive and is taking longer than expected. This part reported a loss. However, appropriate measures have been introduced so that it will be possible to achieve positive numbers in this division as of 2017.
Thanks to the strong Swiss business, there was a higher percentile gross profit (25.2 %) than in the previous year (23.9 %) despite weak margins in business abroad at Group level. However, the recent nominal increase in the gross profit to CHF 136.8 million is more critical (PY CHF 130.1 million). Gross turnover rose minimally to CHF 551.5 million (PY CHF 551.2 million). We reached a record EBITDA level in the reporting year with CHF 33.4 million (PY CHF 30.5 million). The EBIT result was CHF 22.5 million (PY CHF 20.1 million) with higher amortisations of CHF 10.9 million in 2016 (PY CHF 10.3 million).
In the reporting year, the main plants once again performed at a very high level and ran close to full capacity. In 2017 an attempt will be made to increase overall production again with technical adjustments and the purchase of partial quantities. The new capacities (tower 9) are urgently needed in order to keep up with the sharp growth in our customers. The target values for operating expenses were largely met. Personnel expenses were higher, largely due to the higher staffing levels required. Operating expenses have come in above internal targets. The main reason for this was higher space and logistics costs as well as higher sales commissions.
A still strong, but somewhat more stable Swiss franc, lower interest rates on borrowed capital and one-off interest income from offsetting extended payment terms and income from equity investments led to a slightly negative financial result overall. In comparison to the previous year, there was an improvement of almost CHF 5 million. The syndicated loan was renewed in 2016 and doubled in total.
Tax costs on the operating result were in line with expectations. In the reporting year, deferred taxes on newly incurred tax losses in the foreign companies were capitalised.
Cash flow and financing
In comparison to the previous year, cash flow from operating activities has risen from CHF 19.0 million to CHF 24.2 million. Earned capital increased from CHF 24.9 million to CHF 32.2 million, the main reason being the better operating business and the improvement in the financial result. Despite the expansion of business activities, receivables and inventories remained within a reasonable range.
In the area of investments, more than CHF 43.2 million was spent on plant/buildings/software. The serious investments could be financed from the ongoing cash flow by leaving out the contributions for an expansion of the Sulgen plant. In 2017, investments have continued to be made in more capacities (tower 9/can line/Laglo 2).
As expected, free cash flow was negative in 2016. We also anticipate negative free cash flow in 2017 due to the investments in the expansion of capacity.
Net debt increased from CHF 21.3 million in December 2015 to CHF 213.5 million. The main reason for this is the outstanding purchase price debt for the acquisition of the Pharmalys companies. This amount will fall to a more normal level after the conversion of the mandatory convertible bonds. The heavy investment activity for the expansion of capacity contributed to the increase. The equity ratio fell from 56.6 % at the end of 2015 to 10.8 %. This was because the goodwill from the acquisition of the Pharmalys companies was offset directly against equity. This amount will be rebalanced as of 31 March 2017, since the mandatory convertible bonds can be offset in full as equity. The HOCHDORF Group’s financing continues to provide a solid basis for the company’s continued growth.