HOCHDORF Group press release: 2017 half-year results

Higher earnings thanks to Pharmalys' participation

Hochdorf, 17 August 2017 - In the first half of 2017, the HOCHDORF Group generated gross sales revenue of CHF 312.1 million (previous year: CHF 278.4 million; +12.1%). Group-wide EBITDA rose by 17.6% to CHF 21.7 million (previous year: CHF 18.4 million) with the corresponding EBIT increasing by 20.4% to CHF 15.8 million (previous year: CHF 13.1 million). Pharmalys Laboratories SA is primarily responsible for these higher earnings. The sales target for the entire 2017 business year is being adjusted.

At 377.6 million kg, the HOCHDORF Group processed significantly less milk, whey, cream and permeate (liquid volume) than in the previous year (415.9 million kg; -9.2%). Foreign milk factories are the main reason for this sharp decline. In Switzerland, the assumed liquid volume remained the same as the previous year, although less milk was produced. The difficult situation on the Swiss milk market also put a strain on results from the traditional milk business. The product volume sold also declined from the previous year's level by 10.9% to 111,948 tons (previous year: 125,604 tons).

Higher earnings thanks to Pharmalys' participation
Despite lower sales volumes, gross sales revenue amounted to CHF 312.1 million and is 12.1% higher than the comparable figure for 2016 (CHF 278.4 million). Gross profit increased to CHF 79.3 million (previous year: CHF 70.7 million; +12.1%). The group-wide EBITDA increased to CHF 21.7 million (previous year: CHF 18.4 million; +17.6%) with the corresponding EBIT increasing to CHF 15.8 million (previous year: 13.1 million; +20.4%).

Pharmalys Laboratories SA is primarily responsible for these higher earnings. The earnings of HOCHDORF Swiss Nutrition Ltd suffered from lower export subsidies compared to the previous year, lower production volumes for infant formula and margin losses, above all in the Dairy Ingredients Division. The lower production volume of infant formula resulted among other things from the reduction of delivery periods from six to just three months and the temporary discontinuation of volumes in Egypt and Libya. However, the order books for the second half of the year are now once again well filled and we anticipate high capacity utilisation. Additional measures for improving results have been taken.

Dairy Ingredients Division
Thanks to higher prices in the first half of 2017, the Dairy Ingredients Division generated a gross sales revenue of CHF 216.1 million (previous year: CHF 204.3 million; +5.8%). The amount of processed liquid volume was reduced by roughly 9% to 377.6 million kg (previous year: 415.9 million kg). While reductions occurred in Prenzlau/Germany and in Medeikiai/Lithuania, the liquid volume in Switzerland was maintained at the previous year's level.

At HOCHDORF Swiss Nutrition Ltd, the first six months of the year were characterised by low milk production. Thanks to the significantly increased processing of whey, capacity utilisation remained at a very high level. Reduced "Schoggi Law" contributions, margin losses and too little B milk for export products influenced earnings. For this reason, a project was launched for improving profitability: price increases, portfolio adjustments and cost savings will be used to significantly improve results.

The record high butter prices were an advantage for Uckermärker Milch GmbH to the extent that the butter was produced from milk from direct suppliers. The purchase of milk fat at competitive prices was very challenging. The reorganisation with Dr Peter Pfeilschifter as on-site managing director showed rapid success. Some bad news came in the form of the closing of the curd production plant as of 31 October 2017 as announced on July.

HOCHDORF Baltic Milk UAB is being negatively impacted by high milk prices, which cannot be transferred to the market, and a weak protein market. Under these conditions, the processed milk quantities were reduced as much as possible and production processes were optimised.

Baby Care Division
The integration of the Pharmalys Group increased the consolidated gross sales revenue in the Baby Care Division by 36.5% to CHF 82.2 million (previous year: CHF 60.2 million). As expected, the Pharmalys Group was able to increase its turnover and earnings figures in the first half of the year. By contrast, due to temporarily lower quantities in Egypt and Libya as well as significantly shorter delivery periods, the volumes produced and sold in the Swiss Baby Care business have declined.

Cereals & Ingredients Division
With new and existing products, the Cereals & Ingredients Division generated gross sales revenue of CHF 13.6 million, which corresponds to the previous year's figure. One highlight was the profitable growth of Marbacher Ölmühle GmbH. This growth allowed for additional production capacities, which were put into operation in the spring.

Outlook
"In the second half of the year, we anticipate slightly higher milk prices compared to the previous year, with correspondingly high product prices", explains Thomas Eisenring, CEO of the HOCHDORF Group. HOCHDORF does not anticipate being able to make up for the shortfall in sales from the first half of the year and expects a demanding market for milk mass products. For this reason, the company is lowering its projected annual gross sales revenue from between CHF 635 and 670 million to CHF 610 and 650 million.

At the middle of the year, the percentage of EBIT relative to production revenue is 5.0% and thus under the communicated annual target range of 6.1 to 6.6%. Due to well filled order books in the Baby Care Division and measures taken to improve earning figures, the percentage EBIT forecast is not being changed.

Key figures of the HOCHDORF Group (consolidated and unaudited)

The detailed shareholder report can be found online at report.hochdorf.com.