Hochdorf to face huge losses in first half of 2019
Hochdorf in Switzerland is facing a crisis, as the 51% subsidiary Pharmalys is resulting in a massive fall in profits. The reassessment of business risks at Pharmalys has meant that considerable debt had to be made. Combined with additional value adjustments it has resulted in a total loss of CHF 63.6 million in the first half of this year.
The Hochdorf Group has done well in the dairy sector and processed 374.8 million kg of milk, whey, cream and buttermilk in the first half of 2019, which is 2.6% more than in the previous year (365.3 million kg). The subsidiary Uckermärker Milch GmbH is responsible for this increase. At the German plant there was a corresponding increase of + 3.9% in volume to 86,661 tons (previous year 83,374 tons).
But the achieved net income fell mainly on account of the massive reduction in turnover at Pharmalys Laboratories SA. As a consequence the problems the gross operating profit fell significantly to a low of CHF 36.0 million (previous year 82.0 million).
Looking ahead, following the reassessment of the company risks and opportunities undertaken by the newly constituted board of directors in the first half of the year, the Hochdorf Group will concentrate on the further development of the high-growth Baby Care business, while at the same time examining all strategic options for Pharmalys, and on the further optimisation of the Dairy Ingredients Division.
The measures and timelines for the realignment of the Hochdorf Group relate to the prompt sale of Uckermärker Milch GmbH, the strategy review of the Dairy Ingredients Division and the discontinuation of the Cereals & Ingredients Division with the evaluation of the strategic alternatives for the individual subsidiaries.
In particular the major shareholding in Pharmalys Laboratories SA presents the Hochdorf Group with major challenges. The business model does not provide the Hochdorf bodies with any transparency or influence on relevant parts of the value chain in the subsidiary. Financing current assets is also extremely capital intensive, which presents an additional challenge. These are some of the reasons, why the board of directors is reviewing all the options for Pharmalys as a matter of urgency.
The measures introduced to realign and restructure the group will have a heavy impact on the annual result. Further operational corrective measures were initiated, such as an investment freeze on all non-operational processes, a comprehensive cost reduction programme and a programme to safeguard liquidity.
In September a new strategy and budgeting will be finalized. Following this, Michiel de Ruiter and Ulrike Sailer will resign from the board of directors to reduce the size of the board to five members.
As the Hochdorf Group is facing major challenges, it is difficult to set an end-of-year forecast at the moment. The second half of the year is usually stronger for seasonal reasons. In the current financial year, the degree and pace of implementation of the measures taken, in particular those relating to the future of Pharmalys, will have a significant impact on sales revenues, the operating result and the net result.