Dairy Ingredients Division

The Dairy Ingredients Division had a challenging year caused by considerable price spreads between the milk fat and milk protein valuations on the international markets. While these spreads remain considerable, the trend is decreasing. The activities in Switzerland were mainly affected by the implementation of the follow-on solution to the so-called "Schoggigesetz" (chocolate law). Despite strong competition, we were able to maintain our strong market position in the Swiss market for roller-dried whole milk powder. High stocks and, as a result, high sales of block butter in the EU led to declining market prices in the second half of the year. The EU intervention stocks of skimmed milk powder have been significantly reduced during the year.

In 2018, the Dairy Ingredients Division generated net sales revenue of CHF 354.4 million, which is in line with the net sales revenue forecasts of CHF 350 – 380 million. The processed quantities (liquid quantities) of milk, cream, whey and permeate declined slightly by 1.7% to 661.0 million kg. The liquid quantities processed by HOCHDORF Swiss Nutrition Ltd in Switzerland remained at the previous year's level. However, the processed milk quantities declined in favour of higher whey quantities. The liquid quantities processed by Uckermärker Milch GmbH increased by more than 20% compared to 2017 to 234.3 million kg (PY: 193.8 million kg). The milk supply was switched to direct suppliers.

Companies

Effective from 1 April 2018, the long-time Managing Director of the Dairy Ingredients Division of HOCHDORF Swiss Nutrition Ltd Werner Schweizer was replaced by Dr Peter Pfeilschifter.

On the product side, we have begun the process of optimising our portfolio to eliminate loss makers. In addition, our development team worked on customer-specific new developments, including protein developments with higher added value as well as process and product improvements, which bring both functional and cost advantages. Furthermore, it was possible to agree a distribution licence for non-EU markets and the United Kingdom with a European specialist for roller-dried whole milk powder. Sales partnerships were further expanded in target countries that are important for our business.

The implementation of the follow-on solution to the "Schoggigesetz" and the large number of related, challenging negotiations with customers and suppliers was at the core of activities in the Swiss market. It became clear that the changes will have a strong impact on HOCHDORF due to its large share of milk exports affected by the lower "Schoggigesetz" subsidies. While HOCHDORF was able to reach agreements that facilitated the start of the follow-on solution, their long-term effectiveness is yet to be proven in the long-term.

Uckermärker Milch GmbH focused on the development and marketing of special milk powders with higher margin potential. The company managed to achieve a strong market position for super kosher milk powder in its first year. It found a partner that helped to resume curd production in the regional brand segment. At the same time, the year-round low milk protein prices and the additional drop in fat prices in the second half of the year weighed heavily on earnings. The company was therefore forced to take countermeasures on the cost side resulting in year-end job cuts.

Outlook

The long and dry summer of 2018 points towards a drop in milk production in Europe in 2019. In addition, the EU intervention stocks have been almost completely sold off. Therefore, we expect higher milk prices, which are likely to also affect our selling prices for milk proteins. Due to the substantial uncertainty, we have decided not to publish any turnover forecast for the time being.

In Switzerland, the situation of HOCHDORF Swiss Nutrition Ltd was further exacerbated by the follow-on solution to the "Schoggigesetz". Due to the significantly lower export subsidies, HOCHDORF can barely pay competitive milk prices for a large share of milk volume. The resulting lower milk inflow could lead to supply issues, which is why the company implemented measures to streamline its product range.

To ensure that the Dairy Ingredients Division generates positive results again in the future, the company implemented cost-cutting measures in both Switzerland and Germany. In addition to the difficult implementation of the follow-on solution to the "Schoggigesetz", the most important challenges HOCHDORF Swiss Nutrition Ltd faces in an effort to improve its results involve the segment-specific milk procurement and production, the optimisation of the customer and product portfolio as well as the optimisation and flexibilisation of plant utilisation.

Uckermärker Milch GmbH plans to further increase the sales volume of special milk powder, curd and buttermilk in 2019. A crucial factor underpinning the achievement of positive results is also the temporal harmonisation between commodity contracts or prices and sales contracts in the back-to-back sense.

Strategy in brief

The Dairy Ingredients Division aims to defend its strong domestic market position in Switzerland and at the same time explore international opportunities with selected added-value and high-quality products and services.

Product range

Enriched milk powder, label milk powder (kosher, halal), 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, buttermilk proteins and powder, curd products.

  2018 2017 2016 2015
Net sales revenue (in TCHF) 354,419 405,131 393,099 415,379*
Share of revenue abroad (in %) 51.5 55.4 55.1 55.2
Volumes sold (in tonnes) 128,042 165,846 212,421 216,511

* Gross sales revenue (in TCHF)