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December 19, 2019

Hochdorf is counting on China for its recovery

Hochdorf believes its decision to sell its Pharmalys stake offers the best hope for its financial recovery and future financial wellbeing.

By GlobalData Consumer

Back in July 2019 the board of the Swiss-based dairy and infant formula manufacturer Hochdorf, with the support of its senior management, announced it had completed a strategic review of the business and had made a number of major decisions affecting the company’s future. 

One resolution – to sell the 51% majority stake in companies of the Pharmalys Group it acquired as recently as 2016 – would clearly affect the company’s baby care business.

The rationale seems clear in the light of results for the first half of 2019 which showed a slump in sales and – more importantly for the company – profits at Pharmalys. The pressure on profits came as a result of Pharmalys reducing its distributors’ inventories that led to significantly lower overall sales for both Pharmalys and the baby-care division, while costs at Pharmalys increased massively in the first half of 2019.

Hochdorf believes the decision to sell the stake offers the best hope for its financial recovery and future financial wellbeing. The company noted that the sale will allow it to regain its strategic flexibility, an area it felt had been compromised by its association with Pharmalys. 

While the company is confident it is now on the road to recovery, some existing areas of concern may yet see Hochdorf post negative financial result for the current fiscal year.

Back in the day

The company’s outlook looked so much brighter as recently as 2016 when Hochdorf announced the acquisition of the stake in Pharmalys. Although the company had been producing infant formula since 1908, primarily for the Swiss market, it had not been active on the en-consumer market. The two companies already had an established relationship and marriage seemed to make perfect sense.

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Active on the international front since 2006, Hochdorf felt its expansion plans would be enhanced by Pharmalys’ experience in that regard. At the time of the acquisition, Pharmalys’ products were available in 42 countries across Europe, Asia, Africa and the Middle East. 

Even in 2018, the idea of closer cooperation with companies for which it had produced baby care products was still attractive to Hochdorf as evidenced by the acquisition in May 2018 of Bimbosan AG. The two companies had been working together since the 1970s producing a variety of infant food products. 

Among its joint projects, it developed the first infant formula in the world without palm oil, which was launched in Switzerland by Bimbosan in 2010.

Pharmalys markets infant nutrition under the Primalac brand, it also markets infant nutrition and cereals under the Swisslac brand. Even after the sale, it intends to continue the production association with Hochdorf.

For its part, Hochdorf has made it clear that it still has ambitious plans for its baby care business. In 2008, in its domestic market, the company launched various new children’s food products on its private-label category, such as healthy crisps for children from six months, a porridge made from Swiss whole-milk and dried fruits and vegetables for children over three. 

China market holds keys

However, the real key to recovery lies abroad and the company’s international woes in 2019 were exacerbated by the lack of access to the all-important Chinese sector after its registration was cancelled by the Chinese government in January. 

According to new regulations, the production plant must be audited again by the responsible authorities before its trademarks can be registered. Hochdorf is hopeful that an upcoming audit will allow the manufacturer to deliver infant formula to China again from 2020. The company must have its fingers firmly crossed that it pans out that way.