Notes to the 2019 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 cost or production cost or current values and based on the annual financial statements for the Group companies as at 31 December 2019, 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 holding company as well as all subsidiaries in which there is a capital-relevant 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 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 recognised 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 statements.

 

 

The accumulated translation differences for 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 rates Balance sheet; end-of-year exchange rates
2019 2018 31.12.2019 31.12.2018
1 EUR 1.1120 1.1522 1.0870 1.1269
1 USD 0.9927 0.9768 0.9684 0.9858
1 TND n. a. 0.3699 n. a. 0.3294
1 UYU 0.0282 0.0319 0.0259 0.0304
1 ZAR n. a. 0.0740 n. a. 0.0685

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
31.12.2019
Capital share
31.12.2019
Capital share
31.12.2018
HOCHDORF Holding Ltd Hochdorf, Switzerland Holding CHF 14,348 100% 100%
HOCHDORF Swiss Nutrition Ltd Hochdorf, Switzerland Production CHF 30,000 100% 100%
Schweiz. Milch-Gesellschaft AG Hochdorf, Switzerland Shell company CHF 100 100% 100%
Marbacher Ölmühle GmbH Marbach, Germany Production and trade EUR 2,000 100% 100%
Uckermärker Milch GmbH Prenzlau, Germany Production EUR 10,000 60% 60%
HOCHDORF Americas Ltd Montevideo, Uruguay Trade UYU 3,283 60% 60%
HOCHDORF South Africa Ltd 1) Cape Town, South Africa Production ZAR n. a. n. a. 90%
Pharmalys Africa S.à.r.l. 3) Tunis, Tunisia Marketing TND n. a. n. a. 51%
Pharmalys Laboratories SA 3) Hochdorf, Switzerland Trade CHF n. a. n. a. 51%
Pharmalys Tunisie S.à.r.l. 3) Sousse, Tunisia Production TND n. a. n. a. 51%
Snapz Foods AG Hochdorf, Switzerland Trade CHF 100 65 % 65%
Zifru Trockenprodukte GmbH Zittau, Germany Production EUR 200 100% 100%
Bimbosan AG Welschenrohr, Switzerland Production and trade CHF 350 100% 100%
Snapz Foods USA Inc. Delaware USA Trade USD 50 65% 65%
Thur Milch Ring AG 2) Ermatingen, Switzerland Trade CHF 170 56.47% n. a.
  1. Sold as of 30.06.2019
  2. Purchase as of 01.01.2019
  3. Sold as of 06.12.2019, closing 13.12.2019

Associated companies

Location

Function

Currency
  Capital in thousands
31.12.2019
Capital share
31.12.2019
Capital share
31.12.2018
Ostmilch Handels GmbHBad Homburg, GermanyTradeEUR1,00026%26%
Ostmilch Handels GmbH & Co. Frischdienst Oberlausitz KGSchlegel, GermanyLogisticsEUR5126%26%
Ostmilch Frischdienst Magdeburg GmbH Meitzendorf, GermanyTradeEUR2526%26%

Valuation methods

General information

The accounting is carried out based on the assumption of the continuation of 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 time 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 recognised in the income statement within the item «Specific valuation adjustment on accounts receivables». As soon as a receivable becomes uncollectable it is written off and charged against the item «Accounts receivable losses». For this purpose, the following value adjustment approaches are applied, which can be deviated from in justified cases:

 
Receivables
 
Specific 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 rateValue adjustment
Under 0.5 times25.0% of the purchase or manufacturing costs (PMC)
0.5 – 1 times12.5% 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 rateValue adjustment
Under 0.5 times100% 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

he value adjustments calculated in this way are adjusted accordingly for normal saleability or longer shelf life. Apart from this, inventories whose realisable disposal value are 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 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 economically necessary depreciation. If there are indications of impairment, a DCF valuation is performed at the appropriate level of the cash-generating unit. 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 finance leases are capitalised and the relevant leasing liabilities are posted as a liability. With amortisations, the interest is charged directly to the 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 will be converted into shares of HOCHDORF Holding Ltd as a mandatory requirement at the latest at the end of its term on 30 March 2020. 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 in the 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.

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 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 judicial) 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 sale of HOCHDORF South Africa Ltd took place on 30.06.2019. The sale of Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l. took place on 06.12.2019 with closing on 13.12.2019. These sales lead to corresponding changes in the individual balance sheet items. The acquisition of 56.47% of Thur Milch Ring AG took place on 01.01.2019. 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:

TCHF20192018
Cash1715
Post account608725
Bank account19,13229,611
Short-term investments675433
Total20,43230,784

2. Accounts receivable

TCHF20192018
Accounts receivables from third parties44,26470,454
Minus provision for doubtful accounts–12,3340
Short-term receivables from related parties10,13948,686
Accounts receivables from associated companies7,1181,711
Other receivables3,2386,600
Other receivables from related parties64,19178
Total116,616127,529

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). Other receivables from related parties include the majority of payments still outstanding due to the sale of Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l.

3. Inventories

TCHF20192018
Raw materials, packaging materials, operating materials9,68514,439
Finished and semi-finished products, trade goods46,37654,435
Heating oil151458
Value adjustments for inventories–14,592–1,959
Total41,62067,373

The value adjustment for inventories primarily includes the depreciation of the warehouse due to the damage in Sulgen and customer-specific value adjustments.

4. Accrued income

TCHF20192018
As at 31 December 4,02727,831

The accrued income is comprised of revenues not yet received as well as costs paid in advance. The reduction compared to the prior year primarily results from the completed «Schoggi Law» payments.

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 01.01.2018 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 4 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 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 4 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 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 as at 31.12.2018 112,657 56,890 109,252 1 787 13,336 301,846
 
Purchase value
As at 01.01.2019 201,976 93,150 206,559 25,348 2,106 13,336 542,475
Change in scope of consolidation 5 –1,242 –264 –1,601 –24 –17 –19 –3,167
Additions 0 21 0 45 44 8,339 8,449
Disposals  –80 –477 –2,093 –215 –166 0 –3,031
Reclassification 3 1,398 5,916 9,138 979 79 –17,510 0
Currency differences –1,708 –353 –1,146 –43 –10 –26 –3,286
As at 31.12.2019 200,344 97,993 210,857 26,090 2,036 4,120 541,440
Accumulated depreciation
As at 01.01.2019 89,319 36,260 97,307 16,424 1,319 0 240,629
Change in scope of consolidation 5 –259 –22 –337 –13 –17 0 –648
Disposals  –41 –407 –2,004 –173 –156 0 –2,781
Depreciation  3,499 5,138 8,038 2,159 164 0 18,998
Currency differences –780 –268 –880 –27 –6 0 –1,961
As at 31.12.2019 91,738 40,701 102,124 18,370 1,304 0 254,237
 
Net accounting value 31.12.2019 108,606 57,292 108,733 7,720 732 4,120 287,203
  1. The Group holds available, undeveloped parcels of land that are part of the developed 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 to the income statement.
  4. In the context of the purchase of Bimbosan AG and the sale of the HOCHDORF Baltic Milk UAB holding.
  5. In the context of the sale of the Thur Milch Ring AG holding and the sale of the holding in HOCHDORF South Africa Pty (Ltd), Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l.
  6. Remaining depreciation and dismantling costs of plants that will be shut down in Hochdorf in 2020 (Niro 2 and 3 as well as wheat germ) and impairment on the fixed assets of Uckermärker Milch GmbH, Zifru Trockenprodukte GmbH and Snapz Foods AG, as these companies will be sold or liquidated.

Of which assets subject to financial leasing

 TCHFTotalOpen instalments
Net accounting value 01.01.20197,8703,136
  
Purchase value
As at 01.01.20199,9273,136
Additions394395
Disposals incl. instalments–748–2,047
Currency differences–19–9
As at 31.12.20199,5541,475
 
Accumulated depreciation
As at 01.01.20192,0570
Depreciation5230
Disposals–401
Currency differences–50
As at 31.12.20192,1720
 
Net accounting value as at 31.12.20197,3821,475

6. Associated companies

Associated companies Location Function Currency  Capital in
 thousands
31.12.2019
Shareholding   31.12.2019
TCHF
Shareholding 31.12.2018
TCHF
Ostmilch Handels GmbHBad Homburg, GermanyTradeEUR1,000 2,351 2,292
Ostmilch Handels GmbH & Co. Frischdienst Oberlausitz KGSchlegel, GermanyLogisticsEUR5100
Ostmilch Frischdienst Magdeburg GmbHMeitzendorf, GermanyTradeEUR25145116
2,496 2,408

7. Financial assets

TCHF20192018
Securities3730
Loans1500
Value adjustments for loans–420
Deferred tax assets2,7634,178
Assets from employer contribution reserves7,0718,259
Total10,02112,467

The deferred tax assets result from existing carried forward losses in the tax balance sheet. For the companies Uckermärker Milch GmbH and Zifru Trockenprodukte GmbH, no tax assets were capitalised on the 2019 losses. In the case of HOCHDORF Holding Ltd and HOCHDORF Swiss Nutrition Ltd, no deferred tax assets were formed on the loss carried forward, as it is not certain that they can be offset against future profits within the statutory period. In addition, the tax assets still available in the previous year at HOCHDORF Swiss Nutrition Ltd and Snapz Foods AG were released. With the adoption of the tax reform, the tax rates have been adjusted accordingly (see explanatory remarks in point 23).

Taxable losses carried forward after expiration (cantonal tax)

Taxable losses carried forward after expiration TCHF20192018
2024 and later97,00520,188
Total97,00520,188

Taxable losses carried forward after expiration (federal tax)

Taxable losses carried forward after expiration TCHF20192018
2024 and later304,51720,188
Total304,51720,188

If the deferred tax assets were fully capitalised, including the losses carried forward at HOCHDORF Holding Ltd and HOCHDORF Swiss Nutrition Ltd, there would be a deferred tax asset of TCHF 32,653 for federal tax and a deferred tax asset of TCHF 15,015 for cantonal tax.

Pension plans

TCHF
Employer contribution reserve
Nominalvalue
31.12.2019
Renounced use
31.12.2019
Balance sheet
31.12.2019
Creation per
2019
Balance sheet
31.12.2018
Result of the committee of works and staff councils in personnel expenses
2019 2018
HGR pension fund 7,071 0 7,071 177 8,259 –1,365 0

The posting of interest from employer contribution reserves through pension plans appears as a credit in the financial revenues. Interest of 2.25% (previous year 2.25%) was calculated on the employer contribution reserves in 2019. Since 01.05.2019, employer contributions are no longer paid to the pension fund, but offset against the employer contribution reserves.

TCHF
Economic benefit/economic liability
and pension expenditure
 Credit/debit balance Economic share of the organisationChange from the previous yearContributions accrued for the periodPension expenditure in personnel expenses
31.12.201931.12.2019 31.12.2018 20192018
HGR pension fund15,31400–812,2042,2042,288

8. Intangible assets 1)

TCHFSoftwareBrandsOthers intangible assetsCurrent projectsTotal
Net accounting value as at 01.01.20181,6323,4035441855,764
      
Purchase value
As at 01.01.20183,3703,5207001857,775
Additions11300479592
Disposals–3000–3
Reclassifications44500–4450
Currency differences–29000–29
As at 31.12.20183,8963,5207002198,335
 
Accumulated depreciation
As at 01.01.20181,73811715602,011
Disposals–3000–3
Depreciation51370414001,357
Currency differences–22000–22
As at 31.12.20182,22682129603,343
      
Net accounting value as at 31.12.20181,6702,6994042194,992
 
Purchase value
As at 01.01.20193,8963,5207002198,335
Additions27200–86186
Disposals–30000–30
Reclassifications8800–880
Currency differences–30000–30
As at 31.12.20194,1963,520700458,461
 
Accumulated depreciation
As at 01.01.20192,22682129603,343
Disposals–4000–4
Depreciation60535214001,097
Value impairments 22642,347002,611
Currency differences–28000–28
As at 31.12.20193,0633,52043607,019
 
Net accounting value as at 31.12.20191,1330264451,442
  1. Intangible assets only cover acquired assets. Own brand names and licenses are not evaluated and not balanced on the balance sheet date.
  2. Depreciation of the residual value of the Snapz brand and impairment at Uckermärker Milch GmbH and Zifru Trockenprodukte GmbH due to the planned sale of the companies in 2020.

9. Trade payables

TCHF20192018
To third parties37,11054,413
To related parties3,5994,484
To associated companies672452
Total41,38159,349

10. Short-term financial liabilities

TCHF20192,018
Other financial liabilities 15,10712,479
Leasing liabilities1,2231,897
Bank loans  26,0003
Total12,33014,379
  1. Including discounted interest amounts from the convertible bond and the hybrid bond for 2020; see explanatory remarks in point 15. The discounting amounts for the mandatory convertible bond were adjusted accordingly due to the conversions already effected for a nominal value of CHF 98,595,000.
  2. Tranche B of the syndicated loan is to be amortised by CHF 6 million by 31.12.2020.

11. Other short-term liabilities

TCHF20192018
To related parties 11639,537
Other short-term liabilities 22,61511,537
Employee overtime127345
Employee holiday credits466676
Salary accounts (salary payments, profit-sharing, AHV, SUVA, health insurance, etc.)4691,211
Government bodies (taxes, source taxes, value added taxes)1,4731,238
Total5,31324,544
  1. Decrease due to deconsolidation of the Pharmalys companies and lower commission settlements with Phamena FZE in Dubai.
  2. The largest items under short-term liabilities are advance payments for customers and payments to the Swiss Milk Sector Organisation (BOM) for the fund contributions from milk suppliers collected in December. In contrast to previous years, the new «Schoggi Law» allowed billing at the end of the business year.

12. Accrued liabilities and deferred income

TCHF20192018
As at 31 December 4,52712,976

The deferred income mainly comprises accruals in the context of reimbursements and commissions («Schoggi Law») as well as invoices not yet received for goods receipts and other supplier services (power, water, transport). In contrast to previous years, the new «Schoggi Law» allowed billing at the end of the business year.

13. Long-term financial liabilities

TCHF20192018
Mortgages, loans 1375417
Leasing liabilities2521,152
Bank loans111,870142,311
To related parties06,860
To associated companies8700
Other financial liabilities 28,94113,831
Total122,308164,571
  1. Loan commitment to a former shareholder of Marbacher Ölmühle GmbH.
  2. Including discounted interest amounts from the hybrid bond for 2021 and subsequent years; see explanatory remarks in point 15.

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

PositionBook value
TCHF
Due dateInterest rate
Syndicated loan104,00008.11.2023. from 1.00% to 5.50%
Bank loans – short term3,0002020 from 4.00% to 6.80%
Bank loans – long term10,870>2021 from 1.50% to 7.11%
Geiger loan375>2021 from 0.58% to 1.69%
Leasing – short term 1,2232020 from 1.85% to 5.34%
Leasing – long term2522021 from 1.85% to 5.34%
Other short-term financial liabilities5,1072020 from 0.00% to 7.97%
To associated companies – long term870>2021No interest
Other long-term liabilities8,9412021/2023 No interest
Total 134,638

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

14. Provisions

TCHF
Development of provisions
Short-term provisionsDamages claimsVarious provisionsDeferred
tax provisions
Total
As at 31.12.201700517,41717,422
Change in scope of consolidation 10003232
Provisions made028601,8342,120
Provision used00000
Provision released0–2860–484–770
Currency differences000–240–240
As at 31.12.201800518,55918,564
Change in scope of consolidation 200–30,979–237–31,216
Provisions made 34,903032,9293,65341,485
Provisions used00000
Provision released00–5–7,868–7,873
Currency differences000–201–201
As at 31.12.20194,90301,95013,90620,759
  1. In the context of the purchase of the holding in Bimbosan AG and the sale of the holding in HOCHDORF Baltic Milk UAB.
  2. In the context of the purchase of the holding in Thur Milch Ring AG and the sale of the holding in HOCHDORF South Africa Pty (Ltd), Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l.
  3. Provisions formed in connection with the restructuring and for outstanding legal cases.

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

The share capital of HOCHDORF Holding Ltd of CHF 17,583,690 is higher by a nominal CHF 3,236,090 as of 31 December.2019. The increase results from the conversion of a nominal CHF 98,595,000 of the mandatory convertible bond. It is divided into 1,758,369 registered shares at a nominal value of CHF 10 each (2018: 1,434,760 registered shares).

During the financial year, conversions with a nominal value of CHF 98,595,000 took place for the mandatory convertible bond issued in 2017 with a nominal value of CHF 218.49 million. The outstanding nominal amount therefore reduced to CHF 119,895,000; duration from 30.3.2017 – 30.3.2020; interest rate of 3.5% for the entire term; conversion price CHF 304.67; securities number 35,275,641; ISIN CH0352756412; conversion period: 3 January 2018 up to and including 13 March 2020 (last trading day on the SIX).

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. They 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. As of 31 December 2019, these amounts were adjusted due to the conversion. Of the whole bond amount of CHF 218.49 million, CHF 133,285 million were effectively interest bearing from 30 March 2017 to 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 3,937,710 for the creation of 393,771 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 value 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 June 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 a liabilities component. The liabilities component includes all future bond interest payments up to the first call date. These were discounted on the issue date of 21 December 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 costs.

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 March 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 Thur Milch Ring AG for the first time in 2019 (from 1 January 2019). 2019 includes the values of HOCHDORF South Africa Pty (Ltd) until 31 June 2019 as it was sold at the end of June 2019. The values of Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l. which were sold as of 13 December 2019, are included until 30 November 2019. A direct comparison with the prior year is only therefore of limited value.

16. Net revenue from deliveries and services

By product groups

Net sales include provisions for possible losses of receivables and for claims totalling CHF 48.1 million. The actual net sales of products sold is higher by this amount. In comparison with the previous year, the provisions must be offset accordingly.

TCHF20192018 
Milk products/cream193,11042.27%201,75035.96%
Milk powder174,11138.12%155,09127.64%
Infant formula71,22215.59%178,81631.87%
Specialities13,2932.91%20,5723.67%
Bakery/confectionary goods4,2010.92%4,7070.84%
Other products/services8600.19%950.02%
Total456,797100.00%561,031100.00%

By region

TCHF20192018
Switzerland/Liechtenstein196,19342.95%196,32934.99%
Europe200,52843.90%206,82036.87%
Asia8,9741.97%6,2171.11%
Middle East/Africa46,21510.12%140,33025.01%
USA/Canada4740.10%3350.06%
Americas (others)4,4100.96%10,9641.96%
Other 130.00%360.00%
Total456,797100.00%561,031100.00%

The remaining turnover comprises deliveries to customers who export the goods and where the destination country is not separately recorded.

By division

TCHF20192018
Dairy Ingredients360,00878.81%354,41963.17%
Baby Care72,83615.95%175,96031.37%
Cereals & Ingredients23,9535.24%30,6525.46%
Total456,797100.00%561,031100.00%

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 FER 31/8. The Swiss milk market is small and tightly knit with few key companies and providers. The supplier side (milk producers) is organised within several milk producer organisations. On the processing side, the market is dominated by the cheese dairies 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

TCHF20192018
Various other operating income1,4932,700
Total1,4932,700

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.

18. Personnel expenses

TCHF20192018
Wages–41,025–42,517
Social contributions–6,455–6,794
Incidental wage costs incl. temporary staff–3,277–3,670
Total–50,757–52,981

19. Other operating expenses

TCHF20192018
Facilities expenditure (incl. warehouse rents)–5,151–5,858
Maintenance, repairs–8,930–10,021
Vehicle and transport costs–8,584–10,803
Insurance, fees, duties–2,103–1,954
Energy and disposal expenditure–18,440–16,890
Administration and IT expenditure–8,601–5,974
Advertising costs incl. commissions to customers–28,064–24,842
Various other operating costs–5,881–6,611
Total–85,754–82,953

20. Financial result

TCHF20192018
Interests from cash and cash equivalents101
Revenues from holdings and financial assets incl. associated companies7360
Value adjustment from financial assets1,2230
Exchange rate gains7,66210,308
Total financial revenue9,63110,309
 
Interest costs–6,968–2,109
Expenses from shareholdings and financial assets incl. associated companies0–2,297
Value adjustment from financial assets–264–4
Deposit fees, fees–1,078–423
Exchange rate losses–9,659–13,614
Total financial costs–17,969–18,447
Total–8,338–8,138

21. Non-operating income

TCHF20192018
Revenue from external properties11–9
Total11–9

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

TCHF20192018
Profit from the disposal of operating fixed assets–343–103
Extraordinary result06
Total–343–97

23. Taxes

TCHF20192018
Current income taxes
Taxes on operating result –437–3,086
 
Deferred income taxes
Net change in deferred tax assets and liabilities–3,0231,337
Total–2,586–1,749

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 12.3% for companies exclusively based in the canton of Lucerne; it is 13.26% for HOCHDORF Swiss Nutrition Ltd with its production in the Thurgau canton. 15% was applied to the subsidiary in Welschenrohr; 25% was also applied to the subsidiaries in Germany and Uruguay. Due to the announced sales of Uckermärker Milch GmbH, Zifru Trockenprodukte GmbH and Snapz Foods AG, an impairment loss was recognised on the assets of these companies as a result of the expected low sales price, whereby the deferred tax provisions for both Uckermärker and Zifru were completely reversed.

For HOCHDORF Holding Ltd and HOCHDORF Swiss Nutrition Ltd, no active tax credit was formed on the loss carried forward, as there is no guarantee they can be offset against future profits within seven years. In connection with the corporate tax reform, HOCHDORF Holding Ltd will lose its holding privilege as of 1 January 2020 and will be taxed like the other Swiss companies. The loss recorded in 2019 can be carried forward for federal tax, but not for cantonal and municipal taxes. If the possible deferred tax assets for HOCHDORF Holding Ltd (at a tax rate of 8.5%) and for HOCHDORF Swiss Nutrition Ltd were offset, and taking into account the maximum possible capitalisation for the other companies, the weighted average tax rate would be 9.77%. (Previous year 16.4%.)

Capital taxes are reported separately in operating costs. 2018 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

20192018
Weighted average shares outstanding1,453,6431,404,931
Net profit after minority interests–239,214,5692,844,707
Earnings per share in CHF, basic–164.562.02

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

20192018
Weighted average shares outstanding, basic1,453,6431,404,931
Dilution effect of convertible bond 1393,524717,136
Weighted average shares outstanding, diluted1,847,1672,121,067
  
Net profit after minority interests–239,214,5692,844,707
Interest on convertible bond 2112,310118,701
12% tax effect (interest on convertible bond*0.12/1.12)–12,033–12,718
Net profit after minority interests, diluted 3–239,114,2922,950,690
Earnings per share in CHF, diluted–164.561.39
  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 up to and including 13 March 2020. As of 31 December 2019 a nominal amount of CHF 119,895,000 is still outstanding after the conversions already amounting to CHF 98,595,000.
  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.
  3. There is no dilution effect due to the negative company result.

25. Own shares

HOCHDORF Group pension fund

 20192018
Registered shares of HOCHDORF Holding Ltd 18,00018,000
Total18,00018,000

Transactions with own shares

 20192018
Balance as at 1 January in units30,95236,133
At the average price per share of CHF237.49237.20
Purchases in units08,110
At the average price per share of CHF0.00140.00
Sales/allocations in units–1,214–13,291
At an average price per share of CHF 115.79264.62
   
Balance as at 31 December in units29,73830,952
At an average price per share of CHF238.93237.49

Share-based remuneration

In 2019, the Board of Directors decided that the Board of Directors’ fees are to be paid in full in cash. In the case of Group Management, 30% of the variable remuneration is 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.

AllocationAllocation dateAllocated securitiesVolume-weighted
average exchange rate
(CHF)
Recognised expenses (CHF)
Variable remuneration paid to Group Management18.3.20191,214115.79140,571.76

Further notes

Leasing debts

TCHF20192018
Unrecognised leasing debts35954
Total35954

The unrecognised leasing debts are for the leasing contracts for plant, cars and operating equipment.

Liabilities from pension fund

TCHF20192018
HOCHDORF Group pension fund163368
Total163368

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

On 1 January 2019, HOCHDORF Holding Ltd acquired 56.47% of the shares in Thur Milch Ring AG, based in Ermatingen, Canton Thurgau, in connection with the strategic development of the Dairy Ingredients division, thus gaining control over the company. The company is a milk purchasing company for affiliated farmers in the canton of Thurgau.

The acquired net assets are as follows:

 TCHF Total
   
Cash and cash equivalents 406
Accounts receivables 1,981
Other short-term receivables 26
Accrued income 1
Financial assets 186
Trade payables –2,078
Accrued liabilities and deferred income –45
Provisions –375
Identified net assets 102

In accordance with the Group guidelines, goodwill of TCHF 13 was offset against equity. The purchase price was paid in cash.

Divestment

On 30 June 2019 HOCHDORF Holding Ltd sold its 90% share of HOCHDORF South Africa (PTY) Ltd located in Cape Town (South Africa) as part of the streamlining of the Cereals & Ingredients division, and thus relinquished control.

The composition of the net assets sold was as follows:

 TCHF Total
 
Cash and cash equivalents 28
Accounts receivables 60
Other short-term receivables 8
Inventories 232
Other fixed assets 656
Trade payables –2
Other short-term liabilities –6
Long-term financial liabilities –1,418
Provisions –23
Identified net assets –465

When the company was newly founded in May 2015, no goodwill arose which, according to our guidelines, would have had to be recognised in equity. The sale resulted in a positive value adjustment totalling CHF 468 thousand, of which CHF 447 thousand was posted through EBIT and CHF 21 thousand was posted through exchange rate gains. With this sale, the HOCHDORF Group is implementing part of the strategic decision to dissolve the Cereals & Ingredients division.

In 2018, the company generated net sales of CHF 341 thousand, with an EBIT of CHF –243 thousand. In the half-year report as of 30 June 2019, net sales of CHF 188 thousand were generated with an EBIT of CHF –53 thousand and a net profit of CHF 151 thousand, which resulted from a partial waiver of the loan of CHF 389 thousand granted by HOCHDORF Holding Ltd.

On 6 December 2019 HOCHDORF Holding Ltd sold its 51% share of Pharmalys Laboratories SA located in Hochdorf (Switzerland) as part of the restructuring of the Group, and thus relinquished control.

The composition of the net assets sold was as follows:

 TCHF Total
 
Cash and cash equivalents 2,336
Accounts receivables 57,782
Other short-term receivables 13,229
Trade payables –1,624
Intercompany trade payables –9,577
Other short-term liabilities –291
Other short-term liabilities (related parties) –3,835
Accrued liabilities and deferred income –6,722
Long-term financial liabilities –21,009
Provisions –31,152
Identified net assets –863

When the company was acquired in 2016, goodwill totalling CHF 239,089 thousand arose in connection with the purchase price allocation, which was offset against equity in accordance with our guidelines. The sale «revives» this goodwill, resulting in a negative value adjustment totalling CHF 139,899 thousand, which has a full impact on EBIT. With this sale, the HOCHDORF Group has significantly reduced the business risks in the Baby Care division.

In 2018, the company generated net sales of CHF 77.5 million with an EBIT of CHF 20.5 million. As at 30 November 2019, net sales (after provisions of CHF 32.8 million) amounted to CHF 13.2 million with an EBIT of CHF –41.6 million and a net loss of CHF –41.8 million.

On 6 December 2019 HOCHDORF Holding Ltd sold its 51% share of Pharmalys Tunisie S.à.r.l. located in Sousse (Tunisia) as part of the restructuring of the Group, and thus relinquished control.

The composition of the net assets sold was as follows:

 TCHF Total
 
Cash and cash equivalents 361
Other short-term receivables 24
Inventories38
Property, plant983
Other fixed assets 869
Intangible assets 20
Trade payables –110
Short-term financial liabilities –1
Other short-term liabilities –4
Accrued liabilities and deferred income –14
Long-term financial liabilities –44
Provisions –41
Identified net assets 2,081

When the company was acquired in 2016, 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 positive value adjustment totalling CHF 139 thousand, of which CHF 452 thousand was posted through EBIT and CHF –313 thousand was posted through exchange rate losses. With this sale, the HOCHDORF Group has significantly reduced the business risks in the Baby Care division.

In 2018, the company generated net sales of CHF 0 million with an EBIT of CHF –0.3 million. As at 30 November 2019, cumulative net sales of CHF 0 million were generated with an EBIT of CHF –0.2 million and a net loss of CHF –0.3 million.

On 6 December 2019 HOCHDORF Holding Ltd sold its 51% share of Pharmalys Africa S.à.r.l. located in Tunis (Tunisia) as part of the restructuring of the Group, and thus relinquished control.

The composition of the net assets sold was as follows:

 TCHF Total
 
Cash and cash equivalents 64
Accounts receivables 17
Other short-term receivables 13
Accrued income 325
Other fixed assets 11
Financial assets 52
Intangible assets 6
Trade payables –217
Other short-term liabilities –5
Accrued liabilities and deferred income –145
Identified net assets 121

When the company was newly founded in November 2016, no goodwill arose which, according to our guidelines, would have had to be recognised in equity. The sale resulted in a negative value adjustment totalling CHF 12 thousand, of which CHF 2 thousand was posted through EBIT and CHF 10 thousand was posted through exchange rate losses. With this sale, the HOCHDORF Group has significantly reduced the business risks in the Baby Care division.

In 2018, the company generated net sales of CHF 1.8 million with an EBIT of CHF 0.05 million. As at 30 November 2019, cumulative net sales of CHF 1.4 million were generated with an EBIT of CHF 0.03 million and a net loss of CHF –9 thousand.

Discontinued divisions

In the second half of 2019, the Board of Directors reviewed the strategic orientation of the HOCHDORF Group and decided to discontinue the Cereals & Ingredients division, which includes the companies Marbacher Ölmühle GmbH, Zifru Trockenprodukte GmbH, Snapz Foods AG and Snapz Foods USA Inc, and to divest the companies and the wheat germ processing business. It was also decided to streamline the Dairy Ingredients division, including the sale of Uckermärker Milch GmbH. The figures for discontinued operations are as follows:

Dairy Ingredients Division

TCHF20192018
Uckermärker Milch GmbH
Net revenue from deliveries and services158,911145,358
Operating costs–18,668–17,900
EBIT (Earnings before Interest and Taxes)–32,154–4,545

Uckermärker Milch GmbH was fully allocated to the Dairy Ingredients division. The main sales market was the EU and Germany in particular. Due to the forthcoming sale, an impairment loss was recognised on the fixed assets.

Cereals & Ingredients Division:

TCHF20192018
Marbacher Ölmühle GmbH
Net revenue from deliveries and services6,96712,197
Operating costs–1,561–2,234
EBIT (Earnings before Interest and Taxes)–339–345
Zifru Trockenprodukte GmbH
Net revenue from deliveries and services1,7251,412
Operating costs–1,733–1,529
EBIT (Earnings before Interest and Taxes)–6,357–1,123
Snapz Foods AG
Net revenue from deliveries and services111246
Operating costs–403–507
EBIT (Earnings before Interest and Taxes)–3,373–1,241
Snapz Foods USA Inc.
Net revenue from deliveries and services32948
Operating costs–85–29
EBIT (Earnings before Interest and Taxes)–349–48
Cereals & Ingredients innerhalb der HSN
Net revenue from deliveries and services15,61317,317
Operating costs–4,805–5,759
EBIT (Earnings before Interest and Taxes)–366662

The listed subsidiaries were fully allocated to the Cereals & Ingredients division. Main sales markets were Switzerland and the EU, particularly Germany. There were also some sales in the US. Due to the pending sale, an impairment was made on the fixed assets of Zifru Trockenprodukte GmbH and Snapz Foods AG.

Goodwill offset against equity

Purchase costs

TCHF20192018
As at 1 January270,953245,178
Adjustment of goodwill Pharmalys0–3,001
Sale of Pharmalys (revival of goodwill)–239,0890
Addition – Bimbosan028,776
Addition – Thur Milch Ring AG130
As at 31 December31,877270,953

Accumulated amortisation

TCHF20192018
As at 1 January–87,708–35,436
Additions–5,994–52,272
Sale of Pharmalys81,0200
As at 31 December–12,682–87,708
Theoretical price as at 31 December19,195183,245

This is shown based on a linear depreciation over 5 years (pro rata). The statement of changes in shareholders’ equity shows goodwill as a net position.

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

TCHF 2019 2018
Net profit –271,393 8,656
Depreciation of goodwill –5,994 –52,272
Depreciation of goodwill correction from the sale of Pharmalys 81,020 0
Theoretical net profit –196,367 –43,616
TCHF 2019 2018
Equity 248,953 280,847
Theoretical goodwill 19,195 183,245
Theoretical equity 268,148 464,092 

Transactions with related parties 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 2019 and 2018. These cover deliveries of goods and raw materials as well as services to and from related companies.

Transactions with associated companies

TCHF20192018
Net sales123,976116,390
Cost of goods–54,601–48,564
Service revenue–543–667
Service costs–10
Financial revenue76116
Financial expenditure–1,098–15

Transactions with related companies

TCHF20192018
Net revenue130,06948,208
Cost of goods445138
Service costs 1–2,127–2,216
Operating expenses–15,769–9,311
Financial revenue3,5224,809
Financial expenditure–3,814–5,615
  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.

Syndicated loan

On 23 October 2019, the banking consortium extended and adjusted the syndicated loan for HOCHDORF Holding Ltd. The loan has a term until the end of September 2023 and now amounts to a maximum of CHF 178 million. With the sale of Pharmalys Laboratories SA in December 2019 and the associated partial repayment, the limit is reduced to a maximum of CHF 129 million. The interest rate is between 1.0% and 5.5%, depending on the debt factor. As before, key financial indicators are the equity ratio and the debt factor. The financial ratio debt factor is deemed to have been violated as of 30 June 2020 if the adjusted EBITDA for the period from 1 January 2020 to 30 June 2020 is ≤ 0. A debt factor of 6.5x applies as of 31 December 2020, a debt factor of 5.0x as of 30 June and a debt factor of 4.0x as of 31 December. The equity ratio is 30% as of 31 December 2019 and 30 June 2020 and 40% as of 1 July 2020.

Assessment as a going concern

Development since 30.6.2019

The remarks of the Board of Directors on 30.6.2019 stated that at that time there were various uncertainties regarding the continuation of Pharmalys Laboratories SA and the refinancing of the Group. Since then, solutions have been found for both issues.

  1. The existing syndicated loan agreement was extended on 23.10.2019. The credit line was supplemented with a new tranche D of CHF 30 million against a reduction of the previous tranche C from CHF 40 million to CHF 10 million. With the sale of Pharmalys Laboratories SA, the credit line was reduced by the elimination of tranche C (CHF 10 million) and the amortisation of tranche B (CHF 39 million) to CHF 129 million.

  2. The shares of Pharmalys Laboratories SA were sold with effect from 13.12.2019 to the co-owner Pharmalys Invest Holding Ltd.

Existing uncertainties at 31.12.2019 and for the financial year 2020

The Board of Directors sees the following uncertainties, which require a special focus in the current financial year:

  1. Receivables from Pharmalys Invest Holding AG: payment of the outstanding purchase price instalments from the sale of the shareholdings in the Pharmalys companies in the amount of CHF 60 million in accordance with the contractually agreed payment terms. Additional payment of the outstanding loan in the amount of CHF 4.1 million. 

  2. Compliance with the financial covenants from the credit agreement.

Assessment by the Board of Directors

The Board of Directors is of the opinion that sufficient security has been provided by the buyer to secure payment of the purchase price. Hochdorf Holding Ltd has established a directly enforceable guarantee from the owner of Pharmalys Invest Holding AG, Mr Amir Mechria, the rights to the existing and future trademark rights of Pharmalys Laboratories SA, and a lien on 51% of the shares in the same. Should there be a delay in the due payments of the purchase price instalments, the liquidity of the HOCHDORF Group would still be secured. Within the syndicated loan agreement, the Group also has access to more than CHF 25 million (as at: 14.2.2020), which can be used to finance business operations. If the receivable is not paid and the existing collateral cannot be realised, the corresponding write-down would have a negative impact on the equity situation and on HOCHDORF Holding Ltd's compliance with the financial ratios vis-à-vis the banks.

The budget approved by the Board of Directors for the 2020 financial year and the medium-term plan of the HOCHDORF Group show that based on this plan data, compliance with the financial covenants should be ensured throughout the entire planning period (until 2022). The EBITDA covenant of CHF >0 as of 30.6.2020 is not considered a risk, also due to the distribution of profits (HY-1/HY-2) in previous years. The EBITDA covenant of 31.12.2020 depends largely on the achievement of the budget for 2020 and is therefore subject to uncertainties.

The Board of Directors and Group Management believe that a continuation of the HOCHDORF Group can currently be assumed.

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 2019 annual financial statements or which must be disclosed here.

On February 18, 2020, Board members Bernhard Merki, Jörg Riboni, Markus Kalberer and Dr Walter Locher declared that they would not be standing for re-election at the Annual General Meeting 2020.

On 26 February 2020, HOCHDORF Holding Ltd sold its 60% share in Uckermärker Milch GmbH. The closing took place on 28 February 2020. The sale resulted in a profit on the disposal of investments of around CHF 3.0 million.

In January 2020, the coronavirus began to spread from China at an increasing rate worldwide. The coronavirus epidemic may affect the business activities of the HOCHDORF Group, whereby the actual impact will depend on the further development and duration of the epidemic and cannot yet be estimated. The Group has introduced appropriate measures to protect its employees, production and products. To this end, a crisis team has been set up to closely monitor developments and decide on appropriate and necessary measures in a timely manner.

The consolidated financial statements were approved in their present form by the Board of Directors at its meeting on 18 March 2020.