Whey Finance

Hochdorf wins China approval, predicts ‘difficult profit and cost situation’

The Hochdorf Group has published its 2022 half-year financial results, revealing an unchanged gross margin but a reduction of more than 85% in its profits year-on-year (CHF -15.9 million against CHF -8.6 million).

Net sales increased by 3.86% to CHF 145.7m, largely driven by the Food Solutions division which generated 81.2% of the whole, or CHF 118.3m – an increase of 5.2% compared to the first half of 2021. -pandemic levels according to the company, with lactose-free milk and whey powders in demand. But rising milk prices had a “significant” impact on the division’s costs.

“For some time now, the company’s lactose has been the main ingredient in its infant formula. Since this year, we have also been using our own whey protein concentrate for our own and white label infant formulas,”the company revealed.

A key product milestone was the launch of the first goat’s milk powder by manufacturer Blüemlisberg AG, which utilized Hochdorf’s expertise in powder drying.

“[W]We are continuing our transformation from a volume-driven milk processor to a high-margin milk refiner,”commented the company. “Alongside cross-departmental Baby Care initiatives, we specifically focus on the development and marketing of specialty milk and whey products with added benefits, such as lactose-free milk powder, milk or whey powder concentrate , and market opportunities for alternative protein products, such as vegan milk powder substitutes. Our goal is to prioritize the scarce raw material that is milk for high-margin sustainable products. Internally, we are strengthening cooperation between our departments to extend our Smart Nutrition competence to all products with a market-oriented approach.

Baby care

In the Childcare division, a slight drop in turnover over one year (-1.6%) was recorded in the first half of 2022; these amount to CHF 27.4 million. compared to CHF 27.8 million in 2021.

Bimbosan products performed well in Switzerland, increasing the brand’s market share to 41.6% and prompting the company to launch a price revision of approximately half of all Bimbosan products. In the second half, the company will also aim to strengthen the brand’s plant-based alternatives.

Overseas, Hochdorf is reviewing its contracts and is in “intensive discussions” about short-term increases in the cost of raw materials and ingredients and the rise in the exchange rate with private label customers, with further price adjustments. prices that must be set up by the Swiss company.

China approval and US registration pending

Hochdorf has made inroads into China’s lucrative infant formula market by obtaining approval to manufacture products on behalf of Biostime, an H&H Group brand. But the first sales didn’t happen until mid-2024 due to a review of local food laws expected in China in early 2023.

In the United States, affected by a shortage of infant formula, the company has applied for marketing authorization with the Food and Drug Administration. “Discussions with local business partners are underway to clarify the level of demand and timelines. In the best-case scenario, deliveries could begin in the last quarter of 2022,” the company said.

The “difficult revenue and cost situation” is expected to continue

Reflecting on the results for the first half of 2022 and sharing its outlook for the rest of the year, the company explained: “After the balance sheet adjustment and further debt reduction in 2021, the results and 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 certain delay due to the contractual situation. Terminations of contracts are under study for customers who do not wish to bear price increases and which thus generate negative margins for Hochdorf.

“For the second half of the year, we continue to expect a challenging 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 business and we expect these to have a delayed impact that will not take effect until the first half of 2023.”

Regarding its alternative energy supply plans if gas deliveries cannot be guaranteed, the company responded: “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 exploring the options in terms of scale and speed of a possible switch to oil or liquid gas.”