Dairy Ingredients business area
The product portfolio was further adjusted in the Dairy Ingredients Division and production was optimised. Segment-specific milk procurement and processing is essential for Dairy Ingredients – in the first half of 2019 we were successful in making good progress in overall process management. The system change to the follow-on solution to the "Schoggi Law" on 1 January 2019 was executed and the threat of negative effects on results largely offset. There was nonetheless growing pressure on market prices, not least as a result of this follow-on solution. HOCHDORF's domestic market share remained constant. At the beginning of the year the portfolio was also supplemented by the takeover of Thur Milch Ring AG.
The amount of milk, cream, whey and permeate (liquid quantity) processed in the first half of the year showed an increase at Division level of around 2.6% to 374.8 million kg (previous year 365.3 million kg). This led to a net sales revenue of CHF 201.9 million (previous year 188.2 million; +7.3%). The increase in sales was due to higher sales volumes, including destocking, and in part to higher international selling prices for skimmed milk powder.
Follow-on solution to "Schoggi Law"
On the customer and milk supplier side, the HOCHDORF Group succeeded in absorbing the change to the follow-on solution to the "Schoggi Law" on 1 January 2019 and largely offset the threat of negative effects on earnings. External factors including the upturn in milk powder prices in the EU also had a positive effect here. In addition, we are facing considerable price pressure in the Swiss domestic market, which is not least a direct consequence of the follow-on solution.
The Dairy Ingredients Division of HOCHDORF Swiss Nutrition Ltd (HSN) continued the seasonal price reductions introduced last year in the high milk season. HSN was only just able to pay competitive milk prices, which was also a result of the follow-on solution to the "Schoggi Law". Combined with the low milk volume in the initial months, this led to lower milk receipts (150.3 million kg in the first half of 2019, previous year: 166.3 million kg). Nevertheless, delivery was always guaranteed. The overall processed liquid quantity fell by 3.6% to 221.6 million kg (previous year 229.7 million kg), with the capacity utilisation still at a very good level.
As part of the ongoing cost-cutting programme, it was decided to discontinue production at two older production facilities in Hochdorf (Niro 2 and 3 spray towers) at the end of the year due to high pending investments in safety technology. Numerous projects are currently in the implementation phase to make plant utilisation more flexible and to further optimise the production portfolio.
Uckermärker Milch GmbH processed 153.2 million kg of liquid (previous year: 117.8 million kg; +30.0%). Milk volumes in particular rose sharply by 40% (136.9 million kg compared to 97.8 million kg in the previous year), favoured by the acquisition of several regional direct suppliers. This will increase the quantities of own milk, while reducing dependence on the spot market. Protein prices recovered appreciably in the first half of the year, while butter prices fell gradually and appreciably over this period.
As announced on 8 July 2019, negotiations are underway on the sale of Uckermärker Milch GmbH. In addition, a new strategy for the Dairy Ingredients Division of HOCHDORF Swiss Nutrition Ltd will be developed over the next 12 months. As a result of this, we are not making a sales forecast for the 2019 financial year.
The market in the dairy industry is and will continue to be challenging. The HOCHDORF Group welcomes the "swissmilk green" initiative for sustainable Swiss milk to ensure better marketing of Swiss milk nationally and internationally. The coming weeks and months will show how the target price adjustment can be implemented as of September 1.