Dairy Ingredients Division
The Dairy Ingredients Division achieved gross sales revenue of CHF 401.9 m in 2016 (PY: CHF 415.4 m; –3.2 %). In the first half of the year, the prices for milk as a raw material and for milk-based products followed only one direction worldwide: down. In some cases, milk prices recovered very quickly from July 2016, making it necessary to match the product prices to them. The foreign plants were not always successful in dealing with the challenge of optimising the pricing. In Switzerland, the difference compared to international prices decreased again to some extent in the second half of the year but milk production fell significantly in comparison with the previous year.
Switzerland: HOCHDORF Swiss Nutrition Ltd
The volume of liquid purchased and processed rose by 5.2 % on the previous year, to 409,119 tonnes (PY 388,927 tonnes). The need for whey increased with the regular manufacture of lactose for our own infant formula. In 2016 a total of 79,752 tonnes of whey were processed, up +44.9 % year-on-year. The supplied and processed quantity of milk fell sharply, following the very high quantities in the first half of the year. By year-end we had processed 315,553 tonnes of raw milk in Switzerland. This figure was down –2.9 % on the previous year (PY: 324,951 tonnes). In the first half of the year, we still posted a quantity of milk that was up +3.5 % on the same period in the previous year.
Product sales enabled the Dairy Ingredients Switzerland Division to achieve gross sales revenue of CHF 211.8 m (PY CHF 227.6 m; –6.9 %). The fall in revenue is due to low raw material prices, which were passed on to customers. It is important to note, however, that the quantity of roller-dried whole milk powder sold to the chocolate industry rose by almost 9 % year-on-year. There are two reasons for this increase in sales: firstly, we increased our market share slightly, and secondly, the chocolate industry had higher requirements for milk powder compared to the previous year.
There was a lack of the necessary B or C milk volumes in Switzerland in the second half of the year to meet the large demand for milk protein powder and skimmed milk powder for Russia. In order to achieve better utilisation of the equipment in this period, the Swiss Customs and Excise Authority approved the importation of skimmed milk concentrate for export products.
Within the Milk Sector Organisation, we were involved in the working group developing a model to succeed the current export support for processed milk-based products («Schoggi Law» funding), among other working groups. The solution that has been developed appears to be a good compromise and can be implemented in practice. This solution will enable export products using Swiss milk to continue to be exported successfully.
The project to expand capacity at the Hochdorf site was almost completed by year-end. With the aid of a reverse osmosis system and a state-of-the-art high concentrator, we will be able to process a greater volume of milk by the spring of 2017. The modern equipment will also enable us to reduce energy consumption per quantity unit.
The quantity of milk fell sharply towards the end of 2016. The reasons are complex, including the low price of milk, poor quality of feed and easing of the volume restriction on several types of cheese. In the first half of 2017 we expect a volume of milk that is likely to be somewhat below the long-term average. Over the whole business year, we expect gross sales revenue in the range CHF 235 to 245 m.
Our development department is working on several projects to optimise existing and new processes. We are also involved in several development projects being run by customers. The aim is to evaluate the optimum milk powder for a new product or a change in the formula. We also use our development and process knowledge to support our foreign plants in their projects.
We have acquired the condensed milk business of Alicommerce with effect from 1 January 2017. As a result, we now sell condensed milk that has so far been produced at the Hochdorf site and filled into tubes, directly to the Swiss retail trade. It is necessary to integrate this business.
Lithuania: HOCHDORF Baltic Milk UAB
For reasons including the weak market situation and the politically-motivated high price of milk in Lithuania, we manufactured less products in the first half of the year than in the previous year. Under these circumstances, our products were not competitive at an international level. Although the prices of our main products rose in the second half of the year, in some cases they did so less quickly than the price of raw materials.
In total, we processed 60.9 million kg of milk and permeate (–19.4 % compared to PY) and sold 13,261 tonnes of products on the international markets (–25.2 % compared to PY). We achieved gross sales revenues of CHF 19.8 m, which is around –21.7 % lower than the previous year's sales of CHF 25.2 m.
On the development side we have been working on optimising processes and products to manufacture new products, such as micellar casein. After a decision to forgo marketing in 2016 due to the challenging market situation, we have now started selling micellar casein in 2017.
With regard to the general conditions, it is also essential to observe the price level of milk, milk protein and milk fat this year. The prices for milk protein and milk fat have risen in recent months – and raw milk prices, too. We are cautiously optimistic that the ratio of purchasing and selling prices will settle down at a normal level. The political influence on the price of milk remains a factor of uncertainty. In this respect too, however, we expect that the situation will return to normal, due to rising prices.
Under current conditions, we expect gross sales revenue in the range of CHF 25 to 30 m in 2017.
Germany: Uckermärker Milch GmbH
Uckermärker Milch GmbH achieved gross sales revenues of CHF 170.3 m in 2016, which is around +4.7 % higher than the previous year (CHF 162.7 m). The higher turnover is due to the sharp rise in the price of butter in the second half of the year, and the more attractive selling of buttermilk in terms of price.
At 271,700 tonnes of milk, milk permeate, buttermilk and cream, we processed –8.4 % less liquids in our facilities than in the previous year (296,696 tonnes). The creamery and the filling plant for buttermilk were well utilised throughout the year. By mid-year, as scheduled, we were able to put the more powerful filling plant for buttermilk into service. A mixed picture was observed over the year for the dried milk plant and for curd production. In the first half of the year, the facilities were running at full utilisation, while in the second half, it was no longer quite possible to fill the available capacity.
2016 was a year with large price fluctuations, making it very difficult to coordinate raw material purchasing and product sales. Starting from May, for example, cream prices rose sharply. The prices for butter limped along behind this price trend. As a consequence, the relationship between cream costs and the sales price of butter was no longer optimal. It was nevertheless necessary to fulfil existing contracts.
In the powder area, we benefited from the state intervention programme for skimmed milk powder in the first half of the year. Given the market situation at that time, we selected the most worthwhile usage of the milk drying plant as a result.
Right throughout the year, we successfully implemented various cost-cutting measures in production. In addition to these technical measures, it was essential to develop the product portfolio, especially in the powder area. The first higher-quality powders, such as base powders for infant formula or instantised milk powder, were developed and manufactured in test production runs.
At the end of October the Prenzlau plant passed the VLOG audit (food with no genetic engineering) and is now certified to process and produce GMO-free milk products. As a result, we can now also manufacture products for this growth market.
The milk market in the European Union calmed down somewhat towards the end of 2016, although it does remain challenging. While milk quantities for 2017 are difficult to estimate, they should tend to settle slightly below or at the previous year's level in the first half of the year. The price trend for skimmed milk powder is also difficult to estimate at present, due to the high quantities being stored by the state. We reckon on gross sales revenue of CHF 180 to 190 m in the current business year.
In development, we are continuing to focus on dry products with higher added value. This includes instantised full milk powder, for example.
The Prenzlau plant is to become more independent in future. This means that the plant is to be managed locally by an experienced CEO and its own purchasing and sales department extended. It is also our goal one day to conclude more contracts for our own milk and to buy in less milk from the spot market. In order that we can pay competitive milk prices, however, it is essential to adapt the product range in the direction of higher-quality products. We aim to manage price fluctuations more effectively in the future by employing all these measures.
Strategy in brief
The aim is for the Dairy Ingredients business to develop at a sustainable 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 roller-dried whole milk powder. We want to develop, produce and market new products with higher added value across all plants. We will position new products in the markets as premium alternatives with the corresponding service. Across all our activities, it is important to consider 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, buttermilk, curd.
|Gross sales revenue (in KCHF)||401,880||415,379||298,563||264,701|
|Share of revenue abroad (in %)||55.1||55.2||26.1||24.1|
|Volumes sold (in tonnes)||212,421||216,511||80,737||73,201|