Financial Report

After 2019 and a year of initiating restructuring and adjustments, HOCHDORF demonstrated a better financial position operationally in 2020 with EBIT at break-even after adjustment for one-off special effects. We consistently implemented restructuring measures across most areas and carried out value adjustments on the production facil­ities at the Sulgen site in this context. HOCHDORF achieved the sales and earnings targets published for the 2020 financial year despite the negative impact of the COVID-19 pandemic. However, HOCHDORF still faces major challenges to its financial situation.

Net sales from goods and services fell in line with expectations from CHF 456.8 million to CHF 306.2 million, with both business divisions developing differently. Net sales in the Dairy Ingredients division (now: Food Solutions) fell from CHF 360.0 million to CHF 206.7 million. This is mainly explained by the sale of the subsidiary Uckermärker Milch GmbH. This division also saw a decline in demand from the export-oriented Swiss premium chocolate industry, as travel retail sales and domestic sales decreased sharply due to the Covid-19 pandemic and the resulting significant travel reduction travel and tourism slump.

The Baby Care business, on the other hand, increased its net sales from CHF 72.8 million to CHF 99.5 million. After eliminating the bad debt provisions made in 2019 and the market turnover from the sale of Pharmalys Laboratories SA, we were able to increase net sales by 4% despite the loss of a major customer and the challenges posed by the Covid-19 pandemic. The largest share of net sales came from sales to Pharmalys.

Although the share of net sales realised in Switzerland rose to over 50% in relative terms, it fell by about CHF 35 million in absolute terms. This is due on the one hand to the lower demand from the chocolate industry described above and on the other hand to the discontinuation of the Cereals & Ingredients division. The percentage of European sales fell from 44% to 23% due to the sale of Uckermärker Milch GmbH. While sales in Asia remained stable, the share of net sales to the Middle East/Africa increased to 20% (CHF 60.5 million). We were also able to increase net sales in Latin America slightly from CHF 4.4 million to CHF 7.1 million.

Lower net sales, but better gross margin

Despite this significantly lower net sales, the gross profit increased from CHF 61.8 million to CHF 94.3 million; the gross profit margin was 30.9% (previous year: 14.1%). On the one hand, this was due to the extraordinary burden on the gross result in 2019 caused by special effects (value adjustments on receivables, damage claims). On the other hand, the positive effect of the portfolio streamlining is evident (elimination of low-margin areas such as Uckermärker Milch GmbH and discontinuation of the Cereals & Ingredients division).

Personnel expenses decreased significantly from CHF 50.8 million to CHF 39.7 million due to the sale of the subsidiaries Uckermärker GmbH and Marbacher Ölmühle. At the end of the year under review, HOCHDORF still employed 391 people (previous year: 618). Other operating expenses also fell sharply from CHF 85.8 million to CHF 40.7 million: in 2019, this was burdened by the high extraordinary costs incurred by the Pharmalys Group and by some special effects such as forming provisions.

The EBITDA was clearly positive at CHF 13.9 million (2019: CHF –74.7 million). We thus fully met our aim of a positive EBITDA.

Depreciation includes an impairment of CHF 65.8 million on the buildings and property, plant and equipment of the relatively new spray tower plant 9 and the associated canning line. We have taken this as a measure to reflect the low utilisation of these facilities as well as the high risk in the Baby Care business with regard to its customer portfolio. Furthermore, depreciation and amortisation includes a gain from the sale of subsidiaries (CHF 1.1 million) on the one hand; on the other hand, depreciation and amortisation were increased by CHF 1.1 million due to the adjustment of the useful lives of property, plant and equipment in accordance with the rules.

Strongly negative EBIT, but adjusted operating EBIT of core business reaches break-even point

After adjusting the negative EBIT of CHF –67.9 million (previous year: CHF –265.3 million) for one-off special effects, the adjusted operating EBIT of the core business was positive at CHF 2.3 million (Impairment of fixed assets: CHF –65.8 million and additional special effects totalling CHF –4.4 million).

In 2020, we benefited from the disposal or liquidation of the loss-generating companies, such as Pharmalys Laboratories, Uckermärker Milch GmbH and the other companies from the Cereals & Ingredients division. This shows that the agreed and consistently implemented path of restructuring was the right way to go. The OPTIMA cost efficiency programme also had a positive impact on the result. Measures to make savings in the areas of purchasing and a reduction in operating costs, especially in the plants, have already been successfully implemented. For 2021, we expect further substantial savings from the OPTIMA projects, reaching into the single-digit million range.

Financial result significantly improved but still heavily burdened; negative net profit

The net profit increased from CHF –8.7 million to CHF –5.1 million. This is due to lower indebtedness to syndicate banks after a partial redemption. It should be taken into account that the interest for the hybrid bond and for the mandatory convertible bond are not posted through the income statement in Swiss GAAP FER. The Group's net profit was CHF –70.3 million (2019: CHF –271.4 million).

Negative cash flow from operating activities, positive free cash flow

The earned capital increased from CHF –34.8 million to CHF 11.1 million, indicating that the operating business is cash positive. However, the change in net current assets is CHF –22.4 million, so that the cash flow from operating activities is negative (CHF –11.3 million). The main reason for this is the high accrued receivables from Pharmalys, both from the supply business and from the outstanding payments in connection with the resale of Pharmalys Laboratories AG. Due to the low investments and payment of the first outstanding purchase price payments from Pharmalys, the free cash flow was positive at CHF 17.3 million. The cash flow from financing activities was clearly negative at CHF –24.9 million, driven by high interest payments, but also redemption payments to the syndicate banks and to third-party banks in connection with the sale of Uckermärker Milch GmbH.

Net debt fell further compared to 31.12.2019 from CHF 104.7 million to CHF 87.6 million. The hybrid bond and the mandatory convertible bond are classed as equity and do not affect net debt.

Strong equity ratio and positive development

Despite the strongly negative company result, the equity ratio remains stable at 56% (previous year: 57%), as the negative impact on earnings was compensated by the sale of subsidiaries and the repayment of bank debts. In summary, we can say that the operational financial figures reflect the positive development of HOCHDORF after the implementation of the restructuring measures. Although the company result is clearly negative, it is the result of one-time special effects; an adjusted EBIT shows a break-even. In 2020, the foundation was laid for further growth in the coming years. However, the balance sheet and the liquidity situation must be further stabilised in order to support sustainable corporate growth (see also the Risk report and Notes to the consolidated financial statements of the HOCHDORF Group, note 33). For this reason, the Board of Directors is currently focusing on developing financial strategy options, which may include capital measures.