Notes to the consolidated half-year financial
statements as at 30 June 2018

1. Accounting principles

These consolidated financial statements comprise the unaudited half-year financial statements for HOCHDORF Holding Ltd and its subsidiaries for the reporting period ended 30 June 2018. The consolidated interim financial statements were prepared in conformity with existing guidelines based on the accounting recommendations of Swiss GAAP FER 31 (Complementary recommendation for listed companies) and with the consolidation and measurement principles described in the consolidated annual financial statements for 2017. Income taxes are calculated based on an estimate of the income tax rate expected for 2018 as a whole. The consolidated half-year financial statements are to be read in conjunction with the consolidated financial statements prepared for the business year ended 31 December 2017, as this represents an updated version of the last complete financial statements. The consolidated half-year financial statements were approved by the Board of Directors on 17 August 2018.

On 30 March 2017, HOCHDORF Holding Ltd issued a mandatory convertible bond to finance the acquisition of  Pharmalys Laboratories SA in December 2016. In the half-year financial statements as at 30 June 2017, this mandatory convertible bond was fully presented in the equity. However, according to the requirements of Swiss GAAP FER, this mandatory convertible bond must be divided into an external capital component and an equity component. As a result, the posted interest expense was too high. Due to this mistake, the consolidated earnings reported in the Swiss GAAP FER half-year financial statements for 2017 were too low, and the equity was too high. In connection with this violation of the accounting regulations, SIX Swiss Exchange and HOCHDORF Holding Ltd have come to an agreement. The errors were already taken into consideration in the annual financial statements as at 31 December 2017. The half-year financial statements as at 30 June 2018 present the corrected figures for 2017 (restatement). The effects of the corrections were as follows:

ItemFigure presented
according to Swiss GAAP FER
half-year financial statements 2017
Amount after
Correction effect
Consolidated earnings in TCHF12,82713,985+ 1,158+9%
Consolidated earnings HOCHDORF shareholders in TCHF6,7887,946+ 1,158+17%
Earnings per share in CHF, basic4.835.65+ 0.82+17%
Earnings per share in CHF, diluted4.003.75– 0.25–6.3%
Equity in TCHF268,911250,514–18,397–6.8%

According to Swiss GAAP FER 3/7, the income statement according to the total cost accounting method begins with the item «Net revenue from deliveries and services». Starting with the annual financial statements as at 31 December 2017, the presentation has therefore been changed from gross revenue to net revenue. Starting with the interim financial statements as at 30 June 2018, this method is now also applied for the first time in interim financial statements. The previous-year figures as at 30 June 2017 have been duly adjusted.

2. Changes in the scope of consolidation

In the reporting period, the scope of consolidation underwent the following changes:

Consolidated companiesCurrencyCapital in thousandCapital shares and votes
Bimbosan AG, Welschenrohr, SwitzerlandAcquisition as of 24.05.2018CHF350100%0%
Snapz Foods USA Inc., Delaware, USAFormation as of 29.05.2018USD5065%0%
HOCHDORF Baltic Milk UAB, Medeikiai, LithuaniaSale as of 19.06.2018EUR 5,7920%100%

For further information on the purchase of Bimbosan AG, see section 7. For further information on the sale of HOCHDORF Baltic Milk UAB, see section 8. Snapz Foods USA Inc. was established as a subsidiary of Snapz Foods AG in order to facilitate the import of the products to the USA.

3. Currency translation rates in CHF

 Income statement average exchange ratesRates on the balance-sheet date
January to June 2018January to June 201730.06.201831.12.2017
EUR 11.16591.07731.15861.1702
USD 10.96680.99060.99010.9745
TND 10.39160.41960.37990.3902
UYU 10.03300.03480.03160.0339
ZAR 10.07810.07430.07210.0787

4. Contingent liabilities

HOCHDORF Swiss Nutrition Ltd was required to furnish a guarantee (performance bond) in the amount of EUR 398,000 for its deliveries to Egypt. The customer can lodge a claim under the performance bond only in the event of non-delivery by HOCHDORF.

5. Events after the balance-sheet date


6. Explanatory remarks about the interim financial statements

On account of the initial consolidation of the income statement of Bimbosan AG and deconsolidation of HOCHDORF Baltic Milk UAB, the previous-year figures are not directly comparable.

In terms of the turnover, the performance in the first half of the year is usually inferior to that of the second half. This is mainly due to the seasonal increase in the milk supply from April to June, which results in higher inventories, and the significantly higher sales of infant formula of Pharmalys Laboratories SA in the second half of the year. In terms of the orders and deliveries, the business approach of Pharmalys is more intensively focused on the second half of the year. Accordingly, the first half of the year is weaker. However, variations between the two halves of the year can differ highly when compared over several years.

The result of the first half of 2018 is marked by the ongoing price distortions between fat and protein in the EU, which also affect the Swiss situation and thus the «Schoggi Law» and the contributions under this law. Moreover, we received slightly less milk. Due to these events, the Dairy Ingredients (DI) Division closed the first quarter with a negative result. Thanks to the measures initiated, positive results were achieved in the second quarter. All in all, DI closed the first half of the year with a slight minus. The performance of the Baby Care (BC) Division remained below expectations in the first half of the year. The lower result was caused by Pharmalys. HOCHDORF Swiss Nutrition significantly outperformed the previous year. In 2017, the first half of the year had also been rather weak. This year, too, most of the business – especially that of Pharmalys – is focused on the second half of the year.

Thanks to the acquisition of Bimbosan AG, HOCHDORF now has its own strong brand in Switzerland. The objective is to defend the market position in Switzerland and to further develop the brand in the international arena. The start-up difficulties associated with the takeover of the business of the newly acquired companies were evident in Cereals & Ingredients (CI). Here, the budgeted turnover could not yet be reached. The core business was good at a high level, and we are optimistic about the further development in the kids’ food area.

In view of the initiated measures and the orders on hand, we expect the group to achieve a significant earnings increase in the second half of the year, as in the previous year. The sale of HOCHDORF Baltic Milk UAB has eliminated major risks in the DI Division. The restructuring work for DI is progressing. Work needs to be done, especially in the fields of sales prices, milk prices as well as product expansion and portfolio streamlining. Despite the difficult environment, Uckermärker Milch GmbH (UMP) was able to generate earnings at the expected level. In July 2017, we had announced that due to the loss of a large customer, UMP would discontinue its entire curd production as of 31 October 2017. However, negotiations with a larger new customer have allowed UMP to carry on with a part of the curd production. About 50% of the total capacity can again be used. This reduced the encumbrance of the total earnings of UMP as well as the need for downsizing the workforce. The projects to introduce products that create more value are moving along well. The products have been developed, and the marketing has begun. In this field, we expect significantly higher sales quantities starting from 2019.

Due to the seasonal increase in receivables and inventories and the effect of Pharmalys as well as the purchase price payment for Pharmalys, the cash flow from operating activities amounted to CHF –114.3 million (PY: CHF –37.2 million). At CHF –51.6 million, the cash flow from investing activities was slightly higher than in the previous year (CHF –30.9 million). This was due to the acquisition of Bimbosan AG.

The balance-sheet total increased from CHF 582.3 million as at 31 December 2017 to CHF 586.7 million as at 30 June 2018. This was mainly due to the increase in inventories and the investments. In the same period, the net debt went up from CHF –12.5 million to CHF 156.7 million, especially due to the payments to the owners of Pharmalys and Bimbosan and for the financing of the net working capital. For this reason, the equity ratio dropped from 53.1% as at 31 December 2017 to 45.8% as at 30 June 2018. The syndicated loan covenants have been complied with in full.

7. Acquisition of Bimbosan AG

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 in the Canton of Solothurn, on 24 May 2018, thus gaining control over the company. The company is specialised in the sale of infant formula, especially in Switzerland.

The composition of the net assets sold was as follows:

PositionTotal in TCHF
Cash and cash equivalents681
Accounts receivables1,106
Other receivables including deferred assets325
Property and plant2,733
Other fixed assets712
Accounts payables–1,504
Other short-term liabilities including deferred liabilities–784
Long-term liabilities–1,000
Provisions for deferred taxes–456
Identified net assets4,241

This transaction resulted in goodwill amounting to CHF 28,776 thousand, which were recognized directly in equity. The purchase price was largely paid in cash. About 10% of the purchase price was paid with shares of HOCHDORF Holding Ltd.

8. Sale of HOCHDORF Baltic Milk UAB

On 19 June 2018, HOCHDORF Holding Ltd sold 100% of the shares in HOCHDORF Baltic Milk UAB, headquartered in Medeikiai, Lithuania, in connection with the reorganisation of the Dairy Ingredients Division. The company was active exclusively in the field of milk processing, its main products being milk proteins and cream.

The composition of the net assets sold was as follows:

PositionTotal in TCHF
Cash and cash equivalents1,449
Accounts receivables1,224
Other receivables including deferred assets290
Property and plant1,654
Other fixed assets4,261
Accounts payables–1,086
Other short-term liabilities including deferred liabilities–184
Provisions for deferred taxes–363
Identified net assets7,745

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 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 first half as at 30.06.2017 resulted net sales of CHF 9.4 milion, with EBIT of CHF –0.4 milion. As at 31 May 2018, the accumulated net sales amounted to CHF 8.0 million, with EBIT of CHF –0.8 million and a net loss of CHF –1.2 million.

Die Gesellschaft erzielte im 2017 einen Nettoumsatz von CHF 18.8 Mio. mit einem EBIT von CHF –1.7 Mio. Im Halbjahr per 30.06.2017 resultierte ein Nettoumsatz von CHF 9.4 Mio. mit einem EBIT von CHF –0.4 Mio. Per 31.05.2018 wurde ein Nettoumsatz von kumuliert CHF 8.0 Mio. erzielt mit einem EBIT von CHF –0.8 Mio. und einem Reinverlust von CHF –1.2 Mio.

9. Earnings per share

Earnings per share, basic

Weighted average shares outstanding1’405,8821,406,284
Net profit after minority interests–2,231,7587,946,120
Earnings per share in CHF, basic–1.595.65

To determine the earnings per share, the earnings due to the HOCHDORF Group shareholders are divided by the average number of outstanding shares. Treasury shares are not included in the calculation of the average outstanding shares. The weighted average number of shares is based on 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

Weighted average shares outstanding, basic1,405,8821,406,284
Dilution effect of convertible bond 1717,137717,137
Weighted average shares outstanding, diluted2,123,0192,123,421
Net profit after minority interests–2,231,7587,946,120
Interest paid on convertible bond 284,7868,682
12% tax effect (interest on convertible bond*0.12/1.12)–9,084–930
Net profit after minority interests, diluted–2,156,0567,953,872
Earnings per share in CHF, diluted3–1.593.75
  1. The dilution is calculated from the mandatory convertible bond of CHF 218.49 million and the conversion price of 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 30 June 2018, the entire mandatory bond was therefore outstanding.
  2. In this case, only the accrued interest on the external capital component for the current business year is taken into account in the interest costs. The actual interest payments are offset against the external capital component of the discounted interest payments.
  3. Due to the negative earnings after minority interests, the diluted earnings per share correspond to the basic earnings per share.

10. Breakdown of net sales by product groups, regions and divisions

By product groups

TCHFFirst half of 2018First half of 2017
Milk products/cream114,51840.67%128,86842.62%
Milk powder75,54226.83%84,36527.90%
Infant formula74,97526.62%73,54424.32%
Bakery/confectionery goods2,3680.84%2,3280.77%
Other products/services3,6121.28%5,2421.73%

By region

TCHFFirst half of 2018First half of 2017
Middle East/Africa54,03419.19%54,33917.97%
America, others7,3032.60%7980.27%

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

By division

TCHFFirst half of 2018First half of 2017
Dairy Ingredients188,16466.82%216,61571.64%
Baby Care77,08327.37%74,07224.49%
Cereals & Ingredients16,3475.81%11,6963.87%

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 company apart from the HOCHDORF Group produces infant formula for the Swiss and international market.