«HOCHDORF is on the right track for the future.»

Dr Thomas Eisenring, how satisfied are you with the 2018 business year?

The past year was challenging and brought some surprises. Regrettably, our results were below expectations. This is despite the fact that we considered 2018 to be a transition year, and we had not, therefore, set our targets for the year too high. We have clearly missed our forecasts issued at the beginning of the year. We cannot say that we are satisfied at a time like this.

2018 was a turbulent year for the HOCHDORF Group. What are you happy about? What could you have done without?

The acquisition of Bimbosan AG was definitely an important step in the implementation of our strategy. We enjoy working with the people at Bimbosan. With the Bimbosan brand, we now have a strong brand in our domestic market. This is an important piece of the puzzle when working with new and existing customers. Another highlight was the completion of construction and installation work in Sulgen.
We could have done without the aggravation of the problems faced by the Dairy Ingredients Division in Switzerland and Germany. The significantly weaker turnover at Pharmalys was another disappointment. We were also looking forward to the registration of our trademarks for the Chinese market, which was not forthcoming in 2018.

With the acquisition of Bimbosan AG, HOCHDORF has taken another step towards becoming a player in the business-to-consumer market. What are your near-future plans for the Bimbosan brand?

In the domestic market in Switzerland, we want to continue expanding our market position. To accomplish this, we will invest in marketing over the next few years. This step is important in our effort to advance the international marketing of this well-established Swiss brand. We have already had initial discussions in this regard. We are making good progress with the internationalisation of the brand and we have already signed interesting contracts for Vietnam. We are also eyeing Indonesia as another potential target market.

Tower 9 has been in commercial operation since August 2018. How satisfied are you with your new plant?

The Sulgen investment project teams have done a great job in recent years. In addition to the production line for infant formula, the associated infrastructure also had to be put in place. For example, the electricity, water and gas pipelines had to be adapted to new requirements. Naturally, the new buildings with the spray tower, the high-bay warehouse and the filling line are more visible. I am proud that we could provide the Baby Care Division with such a state-of-the-art facility to advance its business. As is typical with such a complex facility, the spray tower line is not yet operating at full capacity. This will happen gradually. We were able to tap into the experience we gained when we put the first large infant formula line into service in Sulgen. I am very satisfied with the products made at the new plant.

The goal of the HOCHDORF Group is to become a global, profitable niche company with premium products by 2020. Is this goal still within reach?

Of course this goal is still within reach, even if there is still a lot to do. Although we described 2018 as a transitional year, we already generated a higher EBIT margin than a few years ago. If one ignores for a moment the challenges and problems in the Dairy Ingredients Division, we have already taken many important steps towards achieving our goal in the other divisions. To achieve our goal, smaller companies such as HOCHDORF South Africa Ltd, Zifru Trockenprodukte GmbH or Snapz Foods AG must also grow and become profitable.

The 2018 financial year was rather difficult for the shareholders of HOCHDORF, and the falling share price caused uncertainty. What are you doing to boost investor confidence?

HOCHDORF is on the right track for the future. The Baby Care Division, in particular, offers potential for future growth. We are also well positioned in the area of healthy infant formula. The situation is more challenging in the Dairy Ingredients Division, which also finds it more difficult to tap into the potential to market higher-quality products.
More generally, we are also now more conservative with our forecasts. We learned our lessons in 2017 and 2018 as we moved closer to the end consumer. HOCHDORF will grow steadily over the next few years in the high value-added areas, while operating in a dynamic environment. This is why it is important to pursue our strategic objectives consistently and always anticipate that there will be fluctuations.

Which important projects were completed in 2018?

The major investment in Sulgen was completed when the spray tower was put into commercial operation in August 2018. The objective now is to utilise the capacity of the plants more fully. In 2019, we expect the capacity utilisation of the new plants to be at a low to medium level, as some preparatory work will be necessary for market projects in the infant formula area.
In market terms, we were also able to complete some attractive customer projects, and the integration of Pharmalys, Bimbosan, Zifru and Snapz is progressing well.

What challenges is the HOCHDORF Group facing in 2019?

In the current business year, we will concentrate on three major challenges: In the Dairy Ingredients Division, we need to get the situation with the new Schoggi law and our plant in Prenzlau under control. Moreover, we will focus on the further integration of our new subsidiaries and endeavour to secure new orders to utilise the capacity of our facilities in Sulgen.

Let's move on to the "Dairy Ingredients" challenge: given the complexity of the issues, how do you want to keep track of things and make the area successful again?

The Dairy Ingredients Division is not profitable at the moment, which needs to change as quickly as possible. With the sale of HOCHDORF Baltic Milk, HOCHDORF has freed itself from some risks and reduced internal complexity. We are mainly focusing on three issues in an effort to make the division more profitable again: flexible milk pricing, internal optimisations and product innovations offering high added value; i.e. reduction in mass-produced goods.
In Switzerland, the new "Schoggigesetz" makes the situation even more difficult because, in our view, the creation of the new "fat subsidy" has diverted part of the available funds. As regards the production of milk-based export products, this makes it difficult to pay competitive prices for raw milk, and the milk thus flows into other processing channels. We will therefore analyse our product range to ensure that we can maintain our ability to deliver key products. At the same time, we have to think about our processing capacity.

Where exactly are the challenges in the integration of the acquired companies?

In 2018, we largely completed the integration from an organisational and technical perspective. In the case of smaller acquisitions, these tasks usually proceeded without major problems.
This was not entirely the case at Pharmalys. Almost overnight, we evolved from a business-to-business player to a business-to-consumer provider. The main challenge I see here is the integration of Pharmalys without jeopardising market expansion. This gives rise to complex questions that can ultimately only be decided together with Pharmalys.

The investment projects in Sulgen were completed last year. What is the expected capacity utilisation of these plants in 2019?

Overall, HOCHDORF has invested more than CHF 100 million in Sulgen over the past few years. To ensure that these investments pay off as quickly as possible, we are now dependent on additional volumes from the Baby Care Division. This year, however, thanks to the growth generated by our existing customers and new customers, we anticipate only low to medium capacity utilisation. We expect the new spray tower line to run at 80 % capacity from 2022. We are looking forward to the pending trademark registrations for China. If it goes according to plan, this would allow us to increase capacity utilisation considerably. Our Chinese customers have long been waiting for us to be able to supply them again.

Where do the relatively small subsidiaries Snapz, Afrikoa and Zifru stand in this process? How do you see their future?

Afrikoa and Zifru have two things in common: they produce and market great products but still have a volume problem. Afrikoa’s turnover developed very well compared with the previous year. In addition, we plan to market the premier chocolate outside South Africa in 2019. At Zifru, we do not have the turnover comparison with the previous year, but we are reasonably satisfied with the course of business.
At Snapz, things are a little different. Snapz is a snack brand known in a limited number of markets for their dried fruits and vegetables. In 2018, we mainly did preparatory work and talked to potential distributors. In the current financial year, we expect turnover and earnings to grow. As Snapz has the products manufactured by Zifru, this will also have a positive effect on the turnover of Zifru Trockenprodukte GmbH. 

Dr Thomas Eisenring, thank you for the in-depth interview.