Dr Thomas Eisenring, how satisfied are you with the 2017 business year?
All things considered, I am satisfied. As far as consolidated earnings are concerned, we have reached completely new heights, but even after minority interests, 2017 was still a record year. The bad news is that the majority of these positive figures were the result of forward integration, meaning that our traditional business was less profitable. Having said that, these figures also prove that we are on the right track.
What did you especially like or dislike about the 2017 business year?
The performance of Pharmalys was impressive; HOCHDORF took the step of forward integration just in time. The Cereals & Ingredients Division also created the perfect basis for sustained further development. I would have preferred to have avoided the loss of our key markets in Egypt and Libya in the first half of the year and the catastrophic pricing situation for skimmed milk and milk proteins.
What were the specific challenges in the three business divisions?
In the Dairy Ingredients Division, the differing price trends were particularly challenging, with record prices for milk fat and rock bottom prices for milk proteins and skimmed milk powder. Aside from the loss of the key markets in Egypt and Libya, the Baby Care Division focused intensively on the acquisition of new customers so as to quickly fill the existing production capacities from June 2018. In the Cereals & Ingredients Division, the extension of production capacities at Marbacher Ölmühle and the reorganisation of the set-up for the global marketing of healthy kids' food were particularly demanding. All in all, HOCHDORF has done a good job.
What, in your view, are the biggest challenges that HOCHDORF Swiss Nutrition has to face with regard to the growing production capacities in infant formula?
I think the biggest challenge we face is how to develop the organisation at the same rate. Let's take logistics as an example: previously the organisation had to coordinate an external logistics partner now we are managing our own logistics facilities with a total capacity in excess of 13,000 pallet slots and using fully computer-controlled systems. The demands on the organisation in this area have risen many times over.
On top of that, our customer base has also changed. With a 50,000 tonne capacity, we have become a big player on the market, and accordingly high-calibre clients are knocking on the door. Sometimes the demands of these clients far exceed those of our old established client base.
At full capacity HOCHDORF will produce over 50,000 tonnes of infant formula. Is HOCHDORF turning into a pharmaceutical company?
In the Baby Care Division we are very close to pharma business, and from the point of view of production and markets we operate at close quarters with the pharmaceuticals area. Of course, this will lead to sales opportunities in the area of pharmaceutical-related products, such as food supplements.
However, HOCHDORF does not intend to become a pharmaceutical company. As we have set out in our vision, we want to become a global, highly profitable niche provider for healthy food. There is a top segment in every market, and we want to occupy it.
One newspaper article is quoted as saying that the HOCHDORF Group has too many works in progress. What would you say to such criticisms?
Well, it's certainly not boring, that's for sure. I think it's normal that new opportunities open up in the course of a transformation process. Past decisions can turn out to be problematic in the context of a new market environment or a new strategy. Or new possibilities present themselves that have to be exploited. Corporate development always entails risks and opportunities. The main thing is to keep an eye on the big picture. When I compare the added value that our strategy generates with the risks from these works in progress, the latter are really controllable.
The goal of the HOCHDORF Group is to become a global, profitable niche company with premium products by 2020. Which business divisions have progressed the furthest and the least in this transformation process?
We are currently working on implementing our strategy in all three business divisions. The Baby Care area has taken an important step with the majority stake in Pharmalys. The same goes for the Cereals & Ingredients Division with its investment in Marbacher Ölmühle, the acquisition of Zifru and the purchase of the Snapz brand. Implementation in the Dairy Ingredients Division will be more difficult. However, there is still room for progress in the core business division. With the launch of special products we have taken an important step, although these will be produced in Germany. The situation remains difficult in Switzerland.
As a majority shareholder of Pharmalys and thus the Primalac and Swisslac brands, is the HOCHDORF Group well known in the market?
We are well known to insiders but not to consumers. This is not the objective, though, as the focus when adopting a business-to-consumer approach is on the brand. Take our brand «Afrikoa» in South Africa: it is only apparent that HOCHDORF is behind it if you look closely, and that's not a bad thing.
What is the difference between the Pharmalys and Zifru/Snapz acquisitions?
The two transactions are fundamentally different in every respect. Pharmalys is a highly profitable company in an existing core HOCHDORF business. We have suddenly become a business-to-consumer player with the majority takeover and have massively improved our margins to boot; this also places us on a much more stable footing. Such companies are real gems and are not exactly cheap.
Snapz and Zifru are smaller investments aimed at economically obtaining an adequate technology portfolio (Zifru) at a low-cost location (Zittau). The focus here is on diversification into healthy kids' foods at globally competitive costs. The aim with Snapz was to buy an established brand in the US and in the UK to at least partly pursue a business-to-consumer approach here too.
Both Snapz and Zifru have done a lot of the groundwork. Owing to a lack of capital, however, they have never managed to achieve what they would have been able to achieve with the necessary financial resources. Both transactions were therefore relatively inexpensive and can be channelled into completely different dimensions with the corresponding investment.
What steps do you intend to take next with the Zifru/Snapz transaction?
Zifru is purely a production facility that ultimately depends on capacity utilisation. Therefore, the focus is on marketing. We should have all the necessary technologies united under one roof from the middle of the year, enabling us to produce and package the corresponding products.
Distribution is also a focus at Snapz, and it is a case of providing the appropriate resources. In the medium term, we will have to develop Snapz into a premium brand and review the sales concept. For me, the issue of «direct to the consumer» is very important here. Healthy products often have a hard time in supermarkets, because only turnover per shelf space counts. My vision is that in future a mother will be able to order snacks for her child for a whole week directly online.
What are the three biggest strengths of the HOCHDORF Group, in your opinion, and how do you want to expand on them?
One of our biggest strengths is undoubtedly our employees. We have very competent and highly committed employees in core positions who bear a large amount of responsibility. Stars are relatively few and far between in our industry, and so we often use the network of our employees when recruiting and leave the HR textbook on the shelf.
The second strength, as I see it, is our high-profile presence in the MEA region, which we have cemented even further with our majority shareholding in Pharmalys. The MEA markets are non-uniform and complex; many companies are in over their heads there, and so these markets are an ideal playing field for us. We intend to further consolidate our position in these markets.
As a third strength, I would cite the specific risk propensity of the HOCHDORF Group. HOCHDORF takes calculable risks as a medium-sized company. This is, for example, illustrated by our «Afrikoa» project or our investments in expanding capacity for infant formula in Sulgen. The corresponding risks must, however, be tailored to the respective business division.
What, in your view, are the biggest risks of the HOCHDORF Group and what measures are taken to minimise them?
Infant formula is the only source of food for babies who are not breast-fed. Product quality is therefore key. HOCHDORF infant formula is checked umpteen times up to shipping to our customers and tested for all manner of substances. Regular storage tests are also carried out after delivery. By expanding infant formula production, we have also invested in the quality assurance and quality analysis department. Quality control at the plant is regularly modernised too.
I see the diverging behaviour of market players in the Swiss milk industry as a significant risk. For example, officials talk about value strategies, whereas many market participants are doing precisely the opposite. It seems to be the trend for producer organisations to invest in cheese dairies, «dispose» of their milk via the export of cheap cheese and then pocket the cheese subsidy. Organisations with close ties to producers are also known to be the biggest price-cutters; this cannot work.
We will ensure our own milk supply for premium products. In the industrial sector we will probably have to go along with the prices of our competitors, with the corresponding influence on the milk price that we can afford.
What will the HOCHDORF Group look like in five years?
Hopefully HOCHDORF will produce a total of 50,000 tonnes of infant formula in 2023. This would mean that the existing factories are producing more or less at full capacity. At the same time, we will sell more than half of this quantity under our own brands.
Cereals & Ingredients will have established itself with its own products in the niche sector for healthy snacks for children and adults. We will also sell products under our own brand in this business division – in selected markets as well as through e-commerce.
The share of «commodity» products in the Dairy Ingredients Division will certainly have fallen markedly by 2023. By then, HOCHDORF will have made a name for itself in the market with its specialist powders. In Switzerland, therefore, the production capacities of the HOCHDORF Group will only be available to a limited extent for the milk regulation in spring.
Dr Thomas Eisenring, thank you for the in-depth interview.