Net sales revenue
In the first half of 2022, the HOCHDORF Group achieved a net sales revenue of CHF 145.7 million (previous year: CHF 140.3 million; +4%). This is due to the increased sales revenue of CHF 118.3 million (previous year: CHF 112.4 million; +5%) in the Food Solutions division. The increase in net sales revenue of approximately 27% with milk powder more than compensated for the decline in lower-margin milk and cream products (–18%). This pleasing development is due to the strong increase in demand from the chocolate industry, which has returned to pre-pandemic levels. Net sales in the Baby Care division remained stable at CHF 27.4 million (previous year: CHF 27.9 million). Lower sales realised through the customer Pharmalys Laboratories SA (see also notes 4 and 8) were offset by higher net sales of Bimbosan brand products in Switzerland and other private label customers.
Gross operating profit, EBITDA, EBIT, net profit
Based on net sales revenue of CHF 145.7 million, the HOCHDORF Group was able to achieve a gross operating profit of CHF 34.1 million (previous year: CHF 36.4 million, including CHF 0.8 million from units in liquidation), which corresponds to a margin of 21.3 per cent of operating income (previous year: 21.4%). Although the gross profit margin is at a low level, it should be noted that this was achieved despite significantly higher milk prices (on average CHF 0.05 per kg) and higher prices for raw materials such as packaging materials. This demonstrates the HOCHDORF Group’s intensive efforts and capability to pass on higher costs to customers. Negotiations are still being conducted to optimise the different contractual terms, which in some cases make it impossible or delays the direct passing on of prices. The improved product mix, with a greater proportion of higher-margin milk powder products and a lower share of lower-margin products such as cream in the Food Solutions segment, has also had a positive impact. With 369 employees, personnel costs were CHF 20.3 million as at 30.06.2022 and thus above the comparative figure for 2021 of CHF 19.5 million with 390 employees as at 30.06.2020. This was due in particular to special effects such as the retention payments made necessary in part by the announced relocation of Hochdorf production, the temporary double occupation of the CEO position and additional expenditure for recruitment for key positions.
Other operating expenses amounted to CHF 24.4 million in the first half of the reporting period (previous year: CHF 19.7). This increase of almost 24 per cent is mainly due to higher energy and waste disposal expenses, which were CHF 3.9 million higher than in the comparable period despite similar production volumes. This clearly shows the higher energy prices for gas and electricity, which are necessary for the energy-intensive production in this sector. Furthermore, occupancy costs rose to CHF 3.4 million, partly due to the rent that now has to be paid at the Hochdorf site. All other costs and depreciation were below the comparable period last year.
The HOCHDORF Group achieved an EBITDA of CHF –10.7 million (previous year: CHF –2.8 million) and an EBIT of CHF –15.9 million (previous year: CHF –8.6 million). The significant deterioration compared to the previous year is mainly due to the strong price increases on the raw materials side as well as for energy and logistics costs, which could only be partially passed on in the first half of 2022.
The financial result of CHF –2.2 million deteriorated sharply compared to the first half of 2021 (CHF 0.9 million). While interest decreased due to the partial repayment of the syndicated loan as of 31.12.2021, currency losses were recorded on outstanding receivables in EUR. The net result at Group level is therefore CHF –18.3 million (previous year: CHF –9.0 million).
Assets, financing, cash flow
Current assets have decreased by CHF 134.9 to CHF 115.6 million since 31.12.2021. This is mainly due to the fact that receivables from the customer Pharmalys Laboratories SA amounting to CHF 25.5 million were revalued and classified as non-current. Accordingly, non-current assets increased from CHF 158.4 million to CHF 179.8 million due to the increase in financial assets from CHF 9.9 million on 31.12.2021 to CHF 35.5 million. All receivables from Pharmalys Laboratories amounted to CHF 52.8 million as at 30.06.2022 (31.12.2021: CHF 56 million). New accounts receivables from Pharmalys Laboratories SA were not formed in the first half of 2022 due to the delivery against advance payment. Borrowings increased from CHF 110 million (31.12.2021) to CHF 130.1 million due to an increase in financial liabilities of CHF 10 million (further utilisation of the available credit line) and higher deferred income as of the balance sheet date.
The net debt as at 30.06.2022 was CHF 46.8 million. The criteria for the financial key figures “debt factor” and “equity ratio” (as at 30.06.2022: 55.9%) have been complied with as of 30.06.2022.
The cash flow from working capital was also strongly negative at CHF –9.7 million due to the negative net result. The seasonally high change in current assets in the first half of the year was significantly lower this year at CHF 2.7 million (previous year: 8.6 million), as the inventory value of CHF 45.3 million was lower than the previous year (CHF 58 million). This shows the effect of focusing on high-margin products instead of volume-driven sales. This also had a positive effect on the available liquidity.
The operating cash flow remained clearly negative at CHF –12.4 million (previous year: CHF –7.9 million). After low payments from investment activities of CHF –0.8 million, the free cash flow was negative at CHF –13.2 million (previous year: CHF –9.9 million). Cash flow from financing activities was CHF 8.9 million. Overall, this resulted in a cash outflow of CHF 4.1 million in the first half of the year (previous year: CHF 3.7 million).
Events after the balance sheet date
After the balance sheet date, the HOCHDORF Group was able to reach an agreement with the syndicate banks that the review of the financial covenant “debt factor” will be suspended until the expiry of the syndicated loan (30.09.2022). Instead, the loss at EBITDA level for the second half of 2022 and the first half of 2023 may not exceed CHF 7 million. Following the reduction of the syndicated loan from CHF 75 million to CHF 67 million and the provision of interim financing of CHF 10 million by LUKB, HOCHDORF has an available credit line of CHF 10 million at its disposal until the end of the term of the current syndicated loan agreement.
Negotiations are taking place with the customer Pharmalys regarding an adjusted long-term payment plan for the outstanding receivables.
After the balance sheet adjustment and further debt reduction in 2021, the result and the liquidity in the first half of 2022 were strongly negatively impacted by increased costs on the purchasing side (milk, raw materials, energy, logistics). However, the first positive effects of passing on these costs can be seen in the unchanged gross margin. This should impact all customers in the second half of 2022 and the first half of 2023, as in some cases the price increases could not be passed on in full or only with a time delay due to the contractual situation. Contract cancellations are being examined for customers who do not wish to support price increases and who thus generate negative margins for HOCHDORF.
For the second half of the year, we continue to expect a difficult earnings and cost situation, which could be exacerbated by the current raw material and energy bottlenecks. We will persist in our intensive efforts to transform the company and expect these to have a delayed impact that will only take effect in the first half of 2023. In the event of bottlenecks in the gas supply, the company has the option of switching to oil at the Hochdorf site. For the Sulgen site, we are currently examining options in terms of the extent and speed of any switch to oil or liquid gas.