The Board said the company will focus on its fast-growing Baby Care division and closely examine all strategic options for the future of its 51% subsidiary Pharmalys.
The Dairy Ingredients division will divest its production plant in Germany and develop a new strategy. The company's Cereals & Ingredients division is to be discontinued due to a lack of critical size and scalability; some of its business activities will be integrated into Dairy Ingredients or divested. The measures will allow existing resources to be targeted more effectively. The necessary financing is currently being agreed with the company’s credit and financial partners.
Focus on baby care
Hochdorf said it will focus on its fast-growing baby care division, which will be further strengthened and internationalized. However, the Pharmalys business model in its current form cannot be successfully managed within the Hochdorf Group on a sustainable basis, it said. The Board has therefore agreed to examine all options for the future of Pharmalys as a matter of high priority.
Developing a sustainable strategy for Dairy Ingredients
The intention to produce infant formula exclusively in Switzerland means the company's production plant in Germany is no longer strategically relevant. Hochdorf is currently involved in negotiations on the sale of Uckermärker Milch GmbH. The company will develop a new strategy for the Dairy Ingredients division over the coming 12 months.
Cereals & Ingredients division
The Cereals & Ingredients division, originally established as a milk-independent source of income, is to be discontinued due to its lack of critical mass and scalability. Valuable product categories such as non-milk-based special spray products and health supplements will be integrated and further developed within Dairy Ingredients. The evaluation of strategic alternatives for the subsidiaries Marbacher Ölmühle GmbH, Snapz Foods AG and Zifru Trockenprodukte GmbH is expected to be completed by the end of the year. The 90% stake in Hochdorf South Africa Ltd is to be sold soon to African Chocolate Café Ltd.
Significant drop in profits expected
As announced in May, the board expects the half-year results to be considerably worse than the previous year due to significantly higher costs and depreciation. In addition, the necessary strategic realignment will result in value adjustments.
Alain Oberhuber, CEO of MainFirst Schweiz AG, Consumer Goods Analyst, said the radical but straightforward strategic change could help Hochdorf to survive.
“As stated last May, the company expects another difficult year operationally with another cash drain. Furthermore, the company has not yet assigned a new CEO. This is obviously not a favorable situation, which could result in a capital increase to solve the high debt level and the restructuring,” Oberhuber said.
On Pharmalys, Oberhuber said the most important point of the strategic change is that all options are open for the 51% Pharmalys participation.
“We assume that its stake could be divested back to the founder, Amir Mechria. Hochdorf was not able to manage this business with a reasonable investment, as working capital was far too high in recent years. We know that Amir Mechria has a pre-emptive right to buy back the 51%. However, the question remains at what price or valuation multiple this would occur, and if there is a penalty involved.”