Notes to the 2018 consolidated financial statements of the HOCHDORF Group

Principles of consolidation

General information

The HOCHDORF Group prepares its consolidated financial statements in compliance with all existing guidelines of Swiss GAAP FER (Swiss accounting and reporting recommendations) and the provisions of Swiss law. The consolidated annual financial statements reflect the actual status of the Group's asset, financial and revenue position. The consolidated annual financial statements are based on the principle of historical purchase costs or production cost or current values and are based on the annual financial statements for the Group companies as at 31 December 2018, prepared according to uniform principles. The consolidated financial statements are prepared in Swiss francs (CHF).

Consolidation principles

Scope of consolidation/consolidation method

The consolidated annual financial statements of the HOCHDORF Group comprise the annual financial statements of the HOCHDORF Holding Ltd parent company as well as all subsidiaries in which there is a capital- and vote-relevant majority or where control over the financial and business policy is exercised through contractual agreement. Shareholdings with 20% to 50% of the voting rights are accounted for using the equity method. Financial statements or reconciliations with Swiss GAAP FER are used to determine the proportionate equity. 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 financial statement and all inter-company 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. Companies sold during the year are excluded from the consolidated financial statements from the date of sale. If shares in fully consolidated companies or companies accounted for using the equity method are sold, the difference between the disposal proceeds and the proportionate carrying amount, including goodwill/badwill, is recognized as a gain or loss on the income statement.

The consolidated cash flow statement is generated on the basis of the consolidated balance sheet and income statement.

Foreign currency translation

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 resulting exchange rate differences are shown in the income statement.

The accumulated translation differences from the translation of the annual financial statements and intercompany loans recorded in equity for a foreign company are derecognised when the company is sold and recognised in the income statement as part of the gain or loss on disposal.

 Income statement average exchange ratesBalance sheet; end-of-year exchange rates
2018201731.12.201831.12.2017
EUR 11.15221.11191.12691.1702
USD 10.97680.98320.98580.9745
TND 10.36990.40820.32940.3902
UYU 10.03190.03430.03040.0339
ZAR 10.07400.07380.06850.0787

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 thousands
31.12.2018
Capital share
31.12.2018
Capital share
31.12.2017
HOCHDORF Holding Ltd  Hochdorf CH Holding CHF 14,348 100% 100%
HOCHDORF Swiss Nutrition Ltd Hochdorf CH Production CHF 30,000 100% 100%
HOCHDORF Baltic Milk UAB 1 Medeikiai LT Production and trade EUR n. a. n. a. 100%
Switzerland. Milch-Gesellschaft Ltd Hochdorf CH Shell company CHF 100 100% 100%
Marbacher Ölmühle GmbH  Marbach DE Production and trade EUR 2,000 100% 100%
Uckermärker Milch GmbH  Prenzlau DE Production EUR 10,000 60% 60%
HOCHDORF Americas Ltd Montevideo UY Trade UYU 3,283 60% 60%
HOCHDORF South Africa Ltd  Cape Town ZA Production ZAR 500 90% 90%
Pharmalys Africa S.à.r.l. Tunis TU Marketing TND 120 51% 51%
Pharmalys Laboratories SA, Hochdorf Hochdorf CH Trade CHF 100 51% 51%
Pharmalys Tunisie S.à.r.l.  Sousse TU Production TND 3,300 51% 51%
Snapz Foods AG  Hochdorf CH Trade CHF 100 65% 65%
Zifru Trockenprodukte GmbH  Zittau DE Production EUR 200 100% 100%
Bimbosan AG 2 Welschenrohr CH Production and trade CHF 350 100% n. a.
Snapz Foods USA Inc. 3 Delaware USA Trade USD 50 65% n. a.
  1. Sale as at 19.06.2018
  2. Acquisition as at 30.04.2018
  3. Foundation as at 29.05.2018 as 100% subsidiary of Snapz Foods AG

Associated companies

Location

Function

Currency
 Capital in thousands
31.12.2018
Capital share
31.12.2018
Capital share
31.12.2017
Ostmilch Handels GmbH Bad Homburg DE Trade EUR 1,000 26% 26%
Ostmilch Handels GmbH & Co. Frischdienst Oberlausitz KG Schlegel DE Logistics EUR 51 26% 26%
Ostmilch Frischdienst Magdeburg GmbH  Meitzendorf DE Trade EUR 25 26% 26%

Valuation methods

General information

The accounting is carried out based on the assumption of the continuation of the operational activities. 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 periodically.

Cash and cash equivalents as well as securities without shareholding character

Cash and cash equivalents include cash and deposits on postal and bank accounts, as well as short-term time deposits with a remaining term of less than three months. They are recognised at their nominal value. 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. Indications for possible impairment are given if payment is delayed, the customer is experiencing financial difficulties or recapitalisation or bankruptcy is likely. The value adjustments for doubtful accounts receivable are established based upon the difference between the nominal value of accounts receivable and the estimated net collectible amount. The amount of the respective estimated loss is recognized in the income statement within the item "Specific valuation adjustment on accounts receivable". As soon as a receivable becomes uncollectible, it is written off and charged against the item "Accounts receivable losses" under derecognition/adjustment of the item "Specific valuation adjustment on accounts receivables". General value adjustments are made for items which have not already been subject to specific value adjustments. The general value adjustment is based on the assumption that the default risk rises as the receivable becomes increasingly overdue. For this purpose, the following value adjustment approaches are applied, which can be deviated from in justified cases:

ReceivablesSpecific value adjustment
Overdue for 1–30 days 2% of the receivable amount
Overdue for 31–90 days 5% of the receivable amount
Overdue for 91–180 days 10% of the receivable amount
Overdue for more than 180 days 20% of the receivable amount
Ongoing collections 100% of the receivable amount

Inventories

Raw materials, operational materials and auxiliary materials are measured at the lower of cost or market. Semi-finished and finished products are measured at production cost, including the direct material and production unit costs as well as material costs and production overheads. Appropriate value adjustments are undertaken for goods with a low rate of inventory turnover.

The rates used in determining value adjustments are as follows for raw, auxiliary and operating materials:

Inventory turnover rate Value adjustment
Under 0.5 times 25.0% of the purchase or manufacturing costs (PMC)
0.5 – 1 times 12.5% 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.

For semi-finished and finished products:

Inventory turnover rate Value adjustment
Under 0.5 times 100% of the purchase or manufacturing costs
0.5 – 1 times 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 purchase or manufacturing cost (PMC) are 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 and the reimbursements of customs calculated.

The consumption is measured in accordance with the first-expiry-date-first-out principle, meaning products with the shortest first-expiry date are sold first.

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.

Prepayments and accrued income as well as accrued liabilities and deferred income

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 or indicators that show that an overvaluation of the book value may be 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. Permanent impairments are taken into account. Depreciation is calculated on a straight line basis from the purchase value. 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. Fixed assets are written down over the following useful lives.

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 financial 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. Securities are measured at purchase value less the economically necessary value adjustments.

Intangible assets

Intangible assets include software, patents, licences and brand values. These are recognised at the lower of purchase cost or utility value. They are depreciated over their economic service life on a straight line basis.

Equity/own shares

Own shares are recognised as a deduction from equity at cost. Profits and losses from transactions with own shares are recognised in capital reserves without affecting net income.

Equity/hybrid bond

The hybrid bond is a perpetual subordinated bond. The hybrid bond has its first call date after five-and-a-half years. This is the first possible call date in the case of the bond for HOCHDORF. If this is not exercised, the amount of interest payable increases (step-up of 2.5%). The hybrid bond is classified for the most part as equity. The issuing costs were deducted from the issue price. The obligations for the interest payable are discounted for the first five-and-a-half years (first call date) from the issue date. The conditions for the syndicated loan provide a basis of comparison for the interest rate. The discounted interest obligations are shown under short-term and long-term financial liabilities in accordance with their maturities. The interest payable is offset against the corresponding financial liabilities. Only the accrued interest of the relevant business year is recognised in interest expenses.

Equity/mandatory convertible bond

The mandatory convertible bond is a bond that does not give the bondholder any voting rights. The bond is converted into shares of HOCHDORF Holding Ltd at the latest at the end of its term as a mandatory requirement. The mandatory convertible bond is classified for the most part as equity. The issuing costs are recognised in equity via the capital reserves. The obligations for the interest payable are discounted from the issue date. The conditions for the syndicated loan provide a basis of comparison for the interest rate. The discounted interest obligations are shown under short-term and long-term financial liabilities in accordance with their maturities. The interest payable is offset against the corresponding financial liabilities. Only the accrued interest of the relevant business year is recognised in interest expenses.

Short-term/long-term external capital

Liabilities are measured 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

The calculation of the provisions requires assumptions on the probability, amount and time of an outflow of cash. If an outflow of cash is likely and a reliable estimate is possible, a provision is reported.

Income 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.

Derivative financial instruments

Derivative financial instruments are used to hedge risks in currencies, interest rates and commodities. The booking of derivative financial instruments depends on the hedged underlying transaction. Derivatives to hedge the changes in the value of an already reported underlying transaction are reported in accordance with the same valuation principles that are used for the hedged underlying transaction. Instruments for hedging future cash flows are not reported on the balance sheet, but rather disclosed in the Notes to the financial statements until the recognition of the future cash flow. When the future transaction or sale of the derivative occurs, the current value of the derivative financial instrument is reported and simultaneously recognised with the recognition of the hedged cash flow on the income statement. The derivative financial instruments that were unsettled on the balance sheet date are disclosed in the notes to the consolidated financial statements under "Further notes – Unsettled derivative financial instruments".

Employee pension plan

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 of foreign companies receive different employee pension payments or old-age pensions corresponding to the legal requirements applicable in the countries where they are paid out.

Sales and revenue recognition

Net sales include the receipt of economic benefits from the sale of goods and services within the scope of ordinary business activity during the reporting period. Reductions in revenue such as discounts, rebates and other price reductions as well as duties paid to third parties such as commissions, fees and any value-added taxes must be deducted from reported net sales. All inter-group turnover is eliminated in the consolidation process.

Turnover is booked when a Group company has transferred the definitive benefits and risks that are associated with ownership of the sold products and the power of disposal to the customer, and the ability to collect the receivables resulting from such is adequately secured. Turnover from the provision of services is reported in the accounting period in which the service was provided. The consideration of reductions in revenue for customers takes place in the same period as the turnover that caused these reductions in revenue in accordance with the terms and conditions of the order. The HOCHDORF Group does not have any brokerage transactions or business events with multiple, separate components.

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 organisations. Organisations that are controlled directly or indirectly by related parties are also considered to be related.

Notes to the consolidated financial statements

The acquisition of Bimbosan AG as at 30 April 2018, the sale of HOCHDORF Baltic Milk UAB as at 19 June 2018 and the formation of Snapz Foods USA Inc. lead to corresponding changes in the individual balance sheet items. The values are therefore only somewhat comparable with the previous year overall.

1. Cash and cash equivalents

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

TCHF20182017
Cash1519
Post account7259,129
Bank account29,61154,282
Short-term investments433430
Total30,78463,860

2. Accounts receivable

TCHF20182017
Accounts receivables from third parties70,45481,862
Minus provision for doubtful accounts0–378
Short-term receivables from related parties48,68644,100
Accounts receivables from associated companies1,7111,556
Other receivables6,60010,681
Other receivables from related parties780
Total127,529137,821

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

3. Inventories

TCHF20182017
Raw materials, packaging materials, operating materials14,43912,375
Finished and semi-finished products, trade goods54,43544,343
Heating oil458434
Value adjustments for inventories–1,959–1,707
Total67,37355,445

4. Accrued income

TCHF20182017
As at 31 December 27,83121,555

The accrued income is 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. Tangible assets

TCHF Property, plant 1 Equipment, warehouse equipment, fixed equipment Machines, production appliances, furnishings Office equipment,
IT systems, communication, fittings
Vehicles Current
investment
projects 2
Total
Net accounting value 01.01.2017 72,439 27,773 56,765 6,914 1,002 38,084 202,977
 
Purchase value
As at 01.01.2017 151,474 59,574 144,679 20,060 2,606 38,084 416,477
Change in scope of consolidation 4 3,543 148 3,766 7 1 0 7,465
Additions 0 10 0 0 44 83,914 83,968
Disposals –205 -166 -444 -97 -145 0 -1,057
Reclassification 3 14,695 12,719 8,261 3,117 126 -38,918 0
Currency translation differences 4,045 1,100 2,646 112 100 205 8,208
As at 31.12.2017 173,552 73,385 158,908 23,199 2,732 83,285 515,061
 
Accumulated depreciation
As at 01.01.2017 79,035 31,801 87,914 13,146 1,604 0 213,500
Change in scope of consolidation 4 31 57 1,126 7 1 0 1,222
Disposals –178 -132 -422 -87 -83 0 –902
Depreciation 2,376 2,575 4,614 1,680 271 0 11,516
Currency translation differences 1,820 742 2,068 36 65 0 4,731
As at 31.12.2017 83,084 35,043 95,300 14,782 1,858 0 230,067
 
Net accounting value as at 31.12.2017 90,468 38,342 63,608 8,417 874 83,285 284,994
 
Purchase value
As at 01.01.2018 173,552 73,385 158,908 23,199 2,732 83,285 515,061
Change in scope of consolidation 5 5,267–3,846 –3,447 –150 –343 0 –2,519
Additions 0 165 426 8 44 34,289 34,932
Disposals  0 –17 –72 –28 –525 0 –642
Reclassification 3 25,319 23,923 52,323 2,369 224 –104,158 0
Currency translation differences -2,162 –460 –1,579 –50 –26 –80 –4,357
As at 31.12.2018 201,976 93,150 206,559 25,348 2,106 13,336 542,475
 
Accumulated depreciation
As at 01.01.2018 83,084 35,043 95,300 14,782 1,858 0 230,067
Change in scope of consolidation 5 4,188 –1,637 –1,899 –98 –297 0 257
Disposals  0 0 –64 –28 –415 0 –507
Depreciation  2,923 3,166 4,962 1,793 193 0 13,037
Currency translation differences –876 –312 –992 –25 –20 0 –2,225
As at 31.12.2018 89,319 36,260 97,307 16,424 1,319 0 240,629
 
Net accounting value 31.12.2018 112,657 56,890 109,252 8,924 787 13,336 301,846
  1. The Group holds available, undeveloped parcels of land.
  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 the context of the purchase of Zifru Trockenprodukte GmbH.
  5. In the context of the purchase of Bimbosan AG and the sale of HOCHDORF Baltic Milk UAB.

Of which assets subject to financial leasing

 TCHFTotalOpen instalments
Net accounting value 01.01.20188,4545,094
  
Purchase value
As at 01.01.20189,9565,094
Additions00
Disposals – of instalments0–1,952
Currency translation difference–29–6
As at 31.12.20189,9273,136
 
Accumulated depreciation
As at 01.01.20181,5020
Depreciation5690
Currency translation difference–140
As at 31.12.20182,0570
 
Net accounting value as at 31.12.20187,8703,136

6. Associated companies

Associated companies Location Function Currency  Capital in
thousands
31.12.2018
Shareholdings
31.12.2018
CHF thousands
Shareholdings 31.12.2017
CHF thousands
Ostmilch Handels GmbHBad Homburg DETradeEUR1,0002,2922,560
Ostmilch Handels GmbH & Co Frischdienst Oberlausitz KGSchlegel DELogisticsEUR5100
Ostmilch Frischdienst Magdeburg GmbHMeitzendorf DETradeEUR2511679
2,4082,639

7. Financial assets

TCHF 2018 2017
Securities 30 30
Deferred tax assets 4,178 2,085
Assets from employer contribution reserves 8,259 8,077
Total 12,467 10,192

The deferred tax assets result from existing carried forward losses in the tax balance sheet. The increase comes primarily from the negative results of various subsidiaries.

Taxable losses carried forward after expiration

TCHF 2018 2017
2023 and later 20,188 7,999
Total 20,188 7,999

Pension plans

CHF thousands
Employer contribution reserve
Nominal value
31.12.2018
Renounced use
31.12.2018
Balance sheet
31.12.2018
Creation per
2018
balance sheet
31.12.2017
Result of the committee of works and staff councils in personnel expenses
2018 2017
HGR pension fund 8,259 0 8,259 182 8,077 0 0

The posting of interest from employer contribution reserves through pension plans appears as a credit in the financial revenues. Interest of 2.25% (prev. year: 2.25%) was calculated on the employer contribution reserves in 2018.

TCHF
Economic benefit/economic liability
and pension expenditure
 Credit/debit balance  Economic share of the organisation Change from the previous year Contributions accrued for the period Pension expenditure in personnel expenses
31.12.2018 31.12.2018 31.12.2017     2018 2017
HGR pension fund 9,018 0 0 146 2,288 2,288 2,142

8. Intangible assets 1)

TCHF Software Brands Others intangible assets Current projects Total
Net accounting value as at 01.01.2017 1,612 684 88 2,384
           
Purchase value
As at 01.01.2017 2,791 0 0 88 3,579
Additions 3 3,520 700 614 4,137
Disposals 0 0 0 0 0
Reclassifications 517 0 0 –517 0
Currency translation difference 59 0 0 0 –59
As at 31.12.2017 3,370 3,520 700 185 7,775
 
Accumulated depreciation
As at 01.01.2017 1,179 0 16 0 1,195
Disposals 4 0 0 0 4
Depreciation 510 117 140 0 767
Currency translation differences 45 0 0 0 45
As at 31.12.2017 1,738 117 156 0 2,011
           
Net accounting value as at 31.12.2017 1,632 3,403 544 185 5,764
 
Purchase value
As at 01.01.2018 3,370 3,520 700 185 7,775
Additions 113 0 0 479 592
Disposals –3 0 0 0 –3
Reclassifications 445 0 0 –445 0
Currency translation difference –29 0 0 0 –29
As at 31.12.2018 3,896 3,520 700 219 8,335
 
Accumulated depreciation
As at 01.01.2018 1,738 117 156 0 2,011
Disposals –3 0 0 0 –3
Depreciation 513 704 140 0 1,357
Currency translation difference –22 0 0 0 –22
As at 31.12.2018 2,226 821 296 0 3,343
 
Net accounting value as at 31.12.2018 1,670 2,699 404 219 4,992
  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

TCHF20182017
To third parties54,41372,506
To related parties4,4842,170
To associated companies452155
Total59,34974,831

10. Short-term financial liabilities

TCHF20182017
Other financial liabilities 112,4799,571
Leasing liabilities1,8971,981
Bank loans 398
Total14,37911,650
  1. Including discounted interest amounts from the convertible bond and the hybrid bond for 2019; see additional explanations in point 15.

11. Other short-term liabilities

TCHF20182017
To related parties9,53796,829
Other short-term liabilities11,5376,229
Employee overtime345311
Employee holiday credits676658
Salary accounts (salary payments, profit-sharing, AHV, SUVA, health insurance, etc.)1,2114,035
Government bodies (taxes, source taxes, value added taxes)1,2385,804
Total24,544113,866

The other short-term liabilities include the so-called "Schoggigesetz" (chocolate 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 carried over to the new year.

12. Accrued liabilities and deferred income

TCHF20182017
As at 31 December 12,97615,496

The deferred income essentially includes accruals in the context of reimbursements and commissions ("Schoggigesetz") as well as invoices not yet received for goods receipts and other supplier services (power, water, transport).

13. Long-term financial liabilities

TCHF 2018 2017
Mortgages, loans 1 417 452
Leasing liabilities 1,152 3,117
Bank loans 142,311 11,817
To related parties 6,860 0
Other financial liabilities 2 13,831 24,336
Total 164,571 39,722
  1. Loan commitment to a former shareholder of Marbacher Ölmühle GmbH.
  2. Including discounted interest amounts from the convertible bond and the hybrid bond for 2020 and subsequent years; see additional explanatory remarks in point 15.

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

Position Book value
TCHF
Due date Interest rate
Syndicated loan 131,000 8.11.2023 from 0.70% to 2.60%
Bank loans – short term 3 2019 from 4.80% to 6.80%
Bank loans – long term 11,311 >2021 from 1.50% to 7.11%
Geiger loan 417 >2021 from 1.26% to 2.68%
Leasing – short term 1,897 2019 from 1.85% to 5.34%
Leasing – long term 1,152 2020 from 1.85% to 5.34%
Other short-term financial liabilities 12,479 2019 from 0.00% to 7.97%
To related parties – short term 9,537 2019 No interest
To related parties – long term 6,860 >2020 No interest
Other long-term liabilities 13,831 2020/2023 No interest
Total 188,487

The financial liabilities are recorded and valued at the nominal value.

14. Provisions

TCHF
Development of provisions
Damages claimsVarious provisionsDeferred
tax provisions
Total
As at 31.12.201680013,93414,014
Provisions made (with effect on net income)053,2233,228
Provision used-5100-51
Provision released-290-182-211
Currency translation differences00442442
As at 31.12.20170517,41717,422
Change in scope of consolidation 1003232
Provisions made28601,8342,120
Provisions used0000
Provision released–2860–484–770
Currency translation differences00–240–240
As at 31.12.20180518,55918,564
  1. In the context of the purchase of Bimbosan AG and the sale of HOCHDORF Baltic Milk UAB.

15. Share capital – mandatory convertible bond – hybrid capital – contingent capital

The share capital of HOCHDORF Holding Ltd was unchanged at CHF 14,347,600 as at 31 December 2018. It is divided into 1,434,760 registered shares at a nominal value of CHF 10 each (2017: 1,434,760 registered shares).

The mandatory convertible bond issued in 2017 with a nominal value of CHF 218.49 million was not converted during the financial year. The nominal amount is therefore unchanged; duration from 30.03.2017 – 30.03.2020; interest rate of 3.5% for the entire term; conversion price CHF 304.67; securities number 35,275,641; ISIN CH0352756412; Conversion period: 03.01.2018 to and with 13.03.2020.

The mandatory convertible bond is classified for the most part as equity. It is split into an equity component and a liabilities component. The liabilities component includes all future bond interest payments. These were discounted on the issue date of 30 March 2017 at an interest rate of 1%. This interest rate corresponds to the syndicated loan's margin at the time. Of the whole bond amount of CHF 218.49 million, CHF 133.285 million are effectively interest-bearing from 30 March 2017 until 30 March 2018. From 1 April 2018, interest will be charged on the full bond amount. The effective interest payments will be drawn from the corresponding financial liabilities and will not be charged to income. Only the accrued interest of the relevant business year is recognised in interest costs.

HOCHDORF Holding Ltd has contingent capital of CHF 7,173,800 for the creation of 717,380 registered shares to service the mandatory convertible bond.

Likewise in 2017 (payment 21.12.), HOCHDORF Holding Ltd issued a public hybrid bond with a nominal volume of CHF 125 million, net CHF 124.17 million. It is a perpetual subordinated bond which pays interest with a coupon rate of 2.5%. The hybrid bond has its first call date after five-and-a-half years (21.06.2023). If this is not exercised, the amount of interest payable increases (step-up). Securities number 39,164,798; ISIN CH0391647986.

The hybrid bond is classified for the most part as equity due to its properties. It is split into an equity component and an external capital component. The external capital component includes all future bond interest payments until the first call date. These were discounted on the issue date of 21.12.2017 at an interest rate of 1%. This interest rate corresponds to the syndicated loan's margin at the time. The effective interest payments will be drawn from the corresponding financial liabilities and will not be charged to income. Only the accrued interest of the relevant business year is recognised in interest expenses.

A liabilities component is used on the grounds that the interest payments, which can, in principle, be delayed, have to be paid up to and including 30 March 2020, according to the issue prospectus. This is because the interest payments for the hybrid bond cannot be suspended as long as interest is paid for the mandatory convertible bond (compulsory events), which will be the case until the bond matures on 30.3.2020. In addition, it can be assumed on the basis of the dividend policy of HOCHDORF Holding Ltd that no interest payments will be delayed until the first call date as a result of dividend payments.

Notes to the consolidated income statement

The following explanatory remarks are given to supplement the income statement, structured in accordance with the total cost of expenditure method (production income statement). The income statement items include the values of Bimbosan AG for the first time in 2018 (from 1 May 2018). 2018 includes the values of HOCHDORF Baltic Milk UAB until 31 May 2018, as it was sold at the end of May 2018. As of 1 June 2018, the values of the newly founded Snapz Foods USA Inc. are included. Therefore, a direct comparison with the prior year is only of limited value.

16. Net revenue from deliveries and services

By product groups

TCHF 2018   2017  
Milk products/cream 201,750 35.96% 234,459 39.04%
Milk powder 155,091 27.64% 165,057 27.48%
Infant formula 178,816 31.87% 166,094 27.66%
Specialities/wheat germ 20,572 3.67% 17,227 2.87%
Bakery/confectionary goods 4,707 0.84% 4,664 0.78%
Other products/services 95 0.02% 13,026 2.17%
Total 561,031 100.00% 600,527 100.00%

By region

TCHF 2018   2017  
Switzerland/Liechtenstein 196,329 34.99% 200,319 33.36%
Europe 206,820 36.87% 237,106 39.48%
Asia 6,217 1.11% 22,640 3.78%
Middle East/Africa 140,330 25.01% 132,190 22.01%
USA/Canada 335 0.06% 239 0.04%
Americas (others) 10,964 1.96% 4,111 0.68%
Other 1 36 0.00% 3,922 0.65%
Total 561,031 100.00% 600,527 100.00%
  1. The remaining turnover comprises deliveries to customers who export the goods and where the destination country is not separately recorded.

By division

TCHF 2018   2017  
Dairy Ingredients 354,419 63.17% 405,131 67.46%
Baby Care 175,960 31.37% 168,751 28.10%
Cereals & Ingredients 30,652 5.46% 26,645 4.44%
Total 561,031 100.00% 600,527 100.00%

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 supplier side (milk producers) is organized within several milk producer organisations. On the processing side, the market is dominated by the cheeseries and four large dairies. On the customer side, the chocolate industry segment is predominant, likewise with just a few large producers. 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.

17. Other operating income

TCHF 2018 2017
Various other operating income 2,700 419
Total 2,700 419

Various other operating income includes the renting of office and production space as well as private shares from employees for the use of vehicles as larger positions. In 2018, there were also insurance payments of CHF 2.25 million for the fires at the Hochdorf and Sulgen plants. The corresponding offsetting items are recorded under cost of materials and operating costs.

18. Personnel expenses

TCHF 2018 2017
Wages –42,517 –41,201
Social contributions –6,794 –6,643
Incidental wage costs incl. temporary staff –3,670 –3,156
Total –52,981 –51,000

19. Other operating expenses

TCHF20182017
Facilities expenditure (incl. warehouse rents)–5,858–4,934
Maintenance, repairs–10,021–8,503
Vehicle and transport costs–10,803–10,035
Insurance, fees, duties–1,954–1,404
Energy and disposal expenditure–16,890–15,723
Administration and IT expenditure–5,974–4,728
Advertising costs incl. commissions to customers–24,842–14,409
Various other operating costs–6,611–5,646
Total–82,953–65,382

20. Financial result

TCHF20182017
Interests from cash and cash equivalents11
Revenues from holdings and financial assets incl. associated parties0613
Value adjustment from financial assets019
Other financial revenue00
Exchange rate gains10,3087,262
Total financial revenue10,3097,895
 
Interest costs–2,109–1,319
Expenses from shareholdings and financial assets incl. associated parties–2,2970
Value adjustment from financial assets–40
Deposit fees, fees–423–18
Exchange rate losses–13,614–3,274
Total financial costs–18,447–4,611
Total–8,1383,284

21. Non-operating income

TCHF20182017
Revenue from external properties–9–34
Total–9–34

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

TCHF20182017
Profit from the disposal of operating fixed assets–103–48
Extraordinary result  638
Total–97–10

23. Taxes

TCHF20182017
Current income taxes  
Taxes on operating result –3,086–3,793
   
Deferred income taxes  
Net change in deferred tax assets and liabilities1,337–1,217
Total–1,749–5,010

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. 25% was applied to the subsidiary in Welschenrohr; 25% was also applied to the subsidiaries in Germany and Uruguay, and 20% to the subsidiary in South Africa.
The weighted average tax rate relates to the Group’s earnings before taxes (EBT) and amounts to 16.64% (previous year: 10.73%). In the previous year, the subsequent approval of carry-over losses at the foreign subsidiaries reduced the tax rate. In the year under review, the write-down of CHF 2.85 million on investments at the Group level led to lower earnings before taxes and thus to a higher average tax rate. Without this additional write-down, the weighted, average tax rate would be 13.09%.
Capital taxes are reported separately in operating costs. 2016 and years before have been definitively assessed for the Swiss companies. The companies abroad have been provisionally assessed.

24. Earnings per share

Earnings per share, basic

20182017
Weighted average shares outstanding1,404,9311,404,639
Net profit after minority interests2,844,70725,894,285
Earnings per share in CHF, basic2.0218.43

To determine the net profit per share, the net profit 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.

Earnings per share, diluted

2018 2017
Weighted average shares outstanding, basic 1,404,931 1,404,639
Dilution effect of convertible bond 1 717,136 717,136
Weighted average shares outstanding, diluted 2,121,067 2,121,775
     
Net profit after minority interests 2,844,707 25,894,285
Interest on convertible bond 2 118,701 26,045
12% tax effect (interest on convertible bond*0.12/1.12) –12,718 –2,791
Net profit after minority interests, diluted 2,950,690 25,917,539
Earnings per share in CHF, diluted 1.39 12.22
  1. The dilution is calculated from the mandatory convertible loan of CHF 218.49 million and the conversion price CHF 304.67, from which a maximum of 717,136 new shares are generated. The conversion period runs from 3 January 2018 to 13 March 2020. As of 31 December 2018, the entire mandatory bond was therefore outstanding.
  2. In this case only the accrued interest on the liabilities component for the current business year is taken into account in interest costs. The actual interest payments are offset against the liabilities component of the discounted interest payments, as described in point 15.

25. Own shares

HOCHDORF Group pension fund

 2018
Number
2017
Number
Registered shares of HOCHDORF Holding Ltd 18,00018,000
Total18,00018,000

Transactions with own shares

 20182017
Balance as at 1 January in units36,13324,372
At the average price per share of CHF237.20211.14
Purchases in units8,11013,004
At the average price per share of CHF140.00279.91
Sales/allocations in units–13,291–1,243
At an average price per share of CHF 264.62303.22
   
Balance as at 31 December in units30,95236,133
At an average price per share of CHF237.49237.20

Share-based remuneration

As described in the remuneration report, 20% of the Board of Directors’ remuneration, excluding expenses, is paid out in the form of HOCHDORF Holding Ltd shares. In the case of Group Management, 30% of the variable remuneration is also paid out in the form of HOCHDORF Holding Ltd shares. They are allocated at the volume-weighted average price of all transactions on the SIX on the day before allocation.

Allocation Allocation date Allocated securities Volume-weighted
average exchange rate
(CHF)
Recognised expenses (CHF)
Variable remuneration paid to Group Management 13.03.2018 1,118 300.99 336,506.08
Fee for Board of Directors 07.12.2018 1,173 96.43 113,116.76

Further notes

Unsettled derivative financial instruments

Exchange rate instruments Value changes 2018
Asset values
2018
Liability values
 Purpose Value change 2017
Asset values
2017
Liability values
 Purpose
Interest rate swaps 0 0 0 Hedging 0 0 0 Hedging
Forward exchange contracts 229 0 0 Hedging –229 0 229 Hedging
Total assets and liability values 229 0 0 -229 0 229

The market values of forward exchange contracts to hedge future cash flows are not reported on the balance sheet, similar to the underlying transaction. The corresponding profit from the derivative is reported on the income statement at the time the hedged transaction occurs.

Leasing debts

TCHF20182017
Unrecognised leasing debts5474
Total5474

The unrecognised leasing debts are for the full operational leasing of a car, which includes variable costs, such as maintenance, servicing and fuel.

Liabilities from pension fund

TCHF20182017
HOCHDORF Group pension fund368360
Total368360

The liabilities from the pension fund relate to the premiums invoice for the month of December, which had not yet been paid as at the balance sheet date.

Acquisitions

For the purpose of the strategic further development of the Baby Care Division, HOCHDORF Holding Ltd acquired 100% of the shares in Bimbosan AG, headquartered in Welschenrohr (Switzerland), on 30 April 2018, thus gaining control over the company. The company is specialized in the distribution of food, especially baby food.

The acquired net assets are as follows:

 TEUR Total
   
Cash and cash equivalents 681
Accounts receivables 1,106
Other short-term receivables 515
Inventories 2,428
Accrued income 152
Property and plant 2,733
Other fixed assets 406
Trade payables –1,536
Other short-term liabilities –755
Accrued liabilities and deferred income –339
Long-term liabilities –1,000
Provisions –395
Identified net assets 3,996

In accordance with the Group guidelines, goodwill of CHF 28.8 million was offset against equity. The purchase price was largely paid in cash. About 10% of the purchase price was paid with shares of HOCHDORF Holding Ltd.

Divestment

On 31 May 2018, HOCHDORF Holding Ltd sold 100% of the shares in HOCHDORF Baltic Milk UAB, headquartered in Medeikiai, Lithuania, in connection with the streamlining of the Dairy Ingredients Division, and thus relinquished control.

The composition of the net assets sold was as follows:

 TCHF Total
 
Cash and cash equivalents 1,449
Accounts receivables 1,224
Other short-term receivables 271
Inventories 500
Accrued income 19
Property and plant 1,654
Other fixed assets 4,261
Trade payables –1,086
Other short-term liabilities –181
Accrued liabilities and deferred income –3
Provisions –363
Identified net assets 7,745

When the company was acquired in 2010, no goodwill arose in connection with the purchase price allocation, which, according to our guidelines, would have had to be recognised in equity. The sale resulted in a total value correction of CHF 5,867 thousand, CHF 2,850 thousand of which were posted through EBIT and CHF 3,017 thousand were posted through exchange rate losses. With this sale, the HOCHDORF Group has significantly reduced the business risks in the Dairy Ingredients Division.

In 2017, the company generated net sales of CHF 18.8 million, with EBIT of CHF –1.7 million. In the half-year report as at 30 June 2017, net sales of CHF 9.4 million were generated with an EBIT of CHF –0.4 million. As at 31 May 2018, the accumulated net sales amounted to CHF 8.0 million, with an EBIT of CHF –0.8 million and a net loss of CHF –1.2 million.

Purchase price calculation for Pharmalys

On 19 December 2016, in connection with the strategic development of the Baby Care division, HOCHDORF Holding Ltd acquired 51% of the shares in Pharmalys Laboratories SA., with its registered office in Baar (now Hochdorf), and 49% of the shares in Pharmalys Tunisie S.à.r.l., with its registered office in Kondar, Tunesia. As at 14 March 2017, HOCHDORF Holding Ltd additionally acquired 2% of the shares in Pharmalys Tunisie S.à.r.l., with the result that it now holds 51% of the shares.

The purchase price is calculated on the basis of the average EBIT in 2016 and 2017 for Pharmalys Laboratories SA and Pharmalys Tunisie S.à.r.l. multiplied by a factor of 14. In addition to this, there is a one-off upside compensation for an increase in the value of the shares of HOCHDORF Holding Ltd from the signing of the Memorandum of Understanding through 24 October 2016. The purchase price is thus variable. The purchase price of CHF 248.213 million was calculated and recorded in the financial statements as at 31 December 2017. The parties decided by mutual consent, contrary to the arrangements in the share purchase agreement, to create an additional side letter, listing items that have an impact on the calculation of the purchase price, but can only be definitively determined in 2018. On 1 November 2018, the parties agreed on the final purchase price of CHF 245.212 million, resulting in a reduction of CHF 3.0 million in the purchase price. 

Goodwill offset against equity

Purchase costs

TCHF20182017
As at 1 January245,178169,096
Adjustment – Pharmalys–3,00176,082
Addition – Bimbosan28,7760
As at 31 December270,953245,178

Accumulated amortisation

TCHF20182017
As at 1 January–35,436–1,617
Additions–52,272–33,819
As at 31 December–87,708–35,436
   
Theoretical price as at 31 December183,245209,742

A goodwill of CHF 73,082 thousand resulted from the determined purchase price for Pharmalys. This is shown based on a linear amortisation over 5 years (pro rata). Badwill generated is not taken into account in these explanatory remarks. The statement of changes in shareholders' equity shows goodwill as a net position.

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

TCHF20182017
Net profit8,65640,846
Depreciation of goodwill–52,272–33,819
Theoretical net profit–43,6167,027
   
TCHF2018 2017
Equity280,847309,282
Theoretical goodwill 183,245209,742
Theoretical equity464,092519,024

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 reported in the consolidated annual financial statements for 2018 and 2017. These cover deliveries of goods and raw materials as well as services to and from related companies.

Transactions with associated companies

TCHF20182017
Net sales116,39079,070
Cost of goods–48,564–10,755
Service revenue024
Service costs–667–383
Operating expenses0–72
Financial revenue1613
Financial expenditure–15–10

Transactions with related companies

TCHF20182017
Net sales48,20857,154
Cost of goods00
Service revenue138119
Service costs 1–2,216–2,136
Operating expenses–9,311–1,772
Financial revenue4,8092,833
Financial expenditure–5,615–971
  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.

Events after the balance sheet date

After the balance sheet date and until the adoption of the consolidated financial statements by the Board of Directors, no significant events have occurred that could affect the informational value of the 2018 annual financial statements or which must be disclosed here.

The consolidated financial statements were approved in the form presented here by the Board of Directors at its meeting on 8 March 2019.

On 15 January 2019, HOCHDORF Holding Ltd acquired a majority stake in Thur Milch Ring AG according to the press release of 21 November 2018. The Group holds a total of 56.47% of the shares. The purchase price totals CHF 124 thousand, of which CHF 30 thousand already comes from previous ownership. With this investment, HOCHDORF aims to secure reliable and regular milk deliveries for the Sulgen plant. This is necessary due to the significantly higher production volume of baby food in the future.