Dear Shareholders
HOCHDORF is in the midst of a serious crisis. The company performed significantly worse than expected in the reporting period, which was mainly due to the negative performance of its 51% subsidiary Pharmalys, resulting in a massive fall in profits. The reassessment of business risks at Pharmalys also meant that considerable debt provisions had to be made. Combined with the additional value adjustments that had become necessary, this resulted in total a company loss of CHF –63.6 million. The newly formed Board of Directors and the senior management team are working with high intensity to restructure and realign the Group. HOCHDORF's future can be secured if the steps announced on 8 July 2019 are implemented quickly and consistently alongside the debt restructuring measures that have been introduced.

The HOCHDORF Group processed 374.8 million kg of milk, whey, cream and buttermilk (liquid quantity) in the first half of 2019, 2.6% more than in the previous year (365.3 million kg). Uckermärker Milch GmbH is responsible for this increase. There was a corresponding increase of +3.9% in volume sold to 86,661 tonnes (previous year: 83,374 tonnes). The net income achieved fell mainly on account of the massive reduction in turnover at Pharmalys Laboratories SA and the debt provisions required of CHF 35.2 million to CHF 242.9 million (previous year CHF 281.6 million).

As a consequence, the gross operating profit fell significantly to a low of CHF 36.0 million (previous year 82.0 million). Combined with increased operational expenses and greater amortisations, there was a negative EBITDA of CHF –39.4 million (previous year 13.1 million) and a negative EBIT of CHF –52.4 million (previous year 2.9 million). The higher operating expenses are largely due to a sharp rise in costs at Pharmalys Laboratories SA (for more information on Pharmalys, see section 6 in notes "Explanatory remarks about the interim financial statements" and section 13, "Assessement as a going concern".

The new plants in Sulgen (spray tower line 9 and can line 2) led to higher amortisations compared to the previous year. Additional amortisations or provisions were made for the shutdown and the planned dismantling of production plants in Hochdorf – two technically outdated spray towers (in terms of safety requirements) and the VIOGERM^® production plants – as well as intangible assets (Snapz brand). The Group's financial results were debited with provisions of EUR 10 million for the planned sale of Uckermärker Milch GmbH.

Overall company results for the reporting period therefore stood at CHF –63.6 million (after minority interests CHF –43.4 million corresponding to a loss per share of CHF –30.89). Net debt increased by just CHF 20 million to CHF 174.2 million; the equity ratio therefore fell to 38.5% (previous year 48.8%).

Looking ahead, following the reassessment of the risks and opportunities of the company 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 announced on July 8, 2019 also 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. The 90% stake in HOCHDORF South Africa Ltd was successfully sold to African Chocolate Café Ltd at the end of the period with a small profit.

The new Baby Care production line in Sulgen (tower 9 and can line 2) is running satisfactorily in line with expectations. The products produced meet the high quality standards required. Plant performance and output volume are being gradually increased. New products are being introduced into the plant and adjusted until all process and technical product targets are met. The team in Sulgen is working hard on the implementation and on meeting the targets set.

Bimbosan AG recorded a result above expectations in the first half of the year. The integration of the subsidiary acquired last year is progressing according to plan and with positive results.

In the Dairy Ingredients Division the follow-on solution to the “Schoggi Law” was the most important factor. The system change as of 1 January 2019 was completed and the threat of negative effects on results largely offset. External factors including the upturn in milk powder prices in the EU market also had a positive effect here.

When the massive deterioration in business development and the resulting breach of the financial covenants became apparent in the middle of the year, the existing financing was immediately renegotiated with the banks. The syndicated loan of CHF 151 million was extended until 31 October 2019 and at the same time a waiver was signed which temporarily suspends the financial covenants. In order to press ahead with the planned restructuring of the Group, the company is aiming to extend the syndicated loan and conclude an additional credit facility of CHF 40 million.

The measures introduced to realign and restructure the Group will have a heavy impact on the annual result, but the necessary amortisations and provisions are already reflected in the half-year results as far as possible. In addition, 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.

The HOCHDORF Group is facing major challenges. This makes it difficult to set an end-of-year forecast. The second semester 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.

We would like to thank you for your support in a very challenging time for the company. We assure you that the Board of Directors, the senior management team and the employees will all do everything they can to ensure success for the HOCHDORF Group in the future.

Kind regards from your BEST PARTNER
HOCHDORF Holding Ltd.