Dear Shareholders

All in all, we have successfully achieved the targets that were set. The results show that the move closer to consumers has turned out to be the right strategic decision, and the HOCHDORF Group is stronger than it was a few years ago. Above all, the Baby Care Division has developed tremendously well with Pharmalys. The 2017 business year was a mixed one for the HOCHDORF Group: On the one hand, the development of HOCHDORF’s traditional business was somewhat subdued in the first half of the year, although it subsequently improved considerably, as expected. On the other hand, the margins of the core Dairy Ingredients Division remained weak.

With regard to this annual report, the main focus of the income statement is net sales revenue.

In the 2017 business year, HOCHDORF achieved maximum values for turnover, EBITDA, EBIT and net profit, thanks to the majority shareholdings in companies belonging to the Pharmalys Group. The HOCHDORF Group generated net sales revenue of CHF 600.5 million in 2017 (PY: CHF 541.6 million; +10.9%). Gross sales revenue was also within the range predicted in the interim report of CHF 610 to 650 million. We increased EBIT by 89.7% year on year to CHF 42.6 million(PY: CHF 22.5 million). In relation to production revenue, EBIT was 7.1 and was therefore higher than the forecasted target band of between 6.1 and 6.6%. Net profit, at CHF 40.8 million, more than doubled compared with the previous year (PY: CHF 19.4 million; +110.5%). Further details regarding financial indicators can be found in the Financial Report and in the consolidated annual financial statements.

On account of these positive earnings figures and taking into account the large-scale investment, we propose to the Annual General Meeting a slight increase of twenty centimes in the dividend payout to CHF 4.00. This will let us continue a cautious dividend policy aimed at sustainability.

Integration of the successful Pharmalys companies is being carried out gradually. The IT systems and the administration were successfully integrated in 2017. The cooperation will be further intensified at the level of sales and marketing. For example, HOCHDORF Swiss Nutrition Ltd and Pharmalys Laboratories SA will appear jointly at ESPGHAN (European Society for Paediatric Gastroenterology Hepatology and Nutrition) in Geneva. This is the largest European association of paediatricians.

At the beginning of November 2017, HOCHDORF announced the acquisition of Zifru Trockenprodukte GmbH and the Snapz brand. This will enable us to sustainably strengthen the Cereals & Ingredients Division in the area of healthy Kids' Food and snacks. Zifru’s production facilities will now provide an optimum basis for producing and marketing healthy (children's) snacks. With the acquisition of the Snapz brand, we shall continue to rigorously pursue our strategy of forward integration.

As you know, the HOCHDORF Group is in the throes of a restructuring programme. The implementation of our forward integration strategy and the development and marketing of high value-added products to increase the EBIT margin involve hard work.

The acquisition of Pharmalys in 2016 was a key initial step for the Baby Care Division. The subsequent acquisition of Zifru Trockenprodukte GmbH and the Snapz brand in 2017 were an equally important step for the Cereals & Ingredients Division. The strategic targets set for 2020 ultimately apply to all three HOCHDORF divisions.

It is undoubtedly a challenging time for all employees in the HOCHDORF Group. Everyone is focused intently on strategy implementation – in all three business divisions. At this juncture, we would like to thank all our employees for the work they have done.

Pharmalys Laboratories SA continued its strong growth in 2017. The purchase price for the majority stake in Pharmalys Laboratories SA currently amounts accordingly to a maximum of CHF 248.2 million. In connection with the strategic further development of the Baby Care Division and the desired forward integration, this is however an important market investment for the HOCHDORF Group.

In Sulgen, work on the second production line for infant formula continued with spray tower 9, can line 2 and the high rack storage area. The high rack storage area was put into operation in December 2017. Work on the spray tower lagged slightly behind the original schedule at the end of the year. Extensive plant tests will be carried out in April and May. The intention is to hand over the system for commercial production in June 2018.

We have had to increase the credit line for investments to CHF 112 million. There are two reasons for this: the amount we budgeted for was too small and new requirements and/or possibilities have been identified that will simplify the operational running of the system.

With the new facility, the HOCHDORF Group will be able to produce and market over 50,000 tonnes of infant formula in total in the future. Hence, the HOCHDORF Group is developing from a dairy into a pharmaceutical business. The subject of product quality is therefore a bigger priority than was the case in previous years. Consequently, the HOCHDORF Group invests annually in maintaining and improving quality. In addition to infrastructure projects, we also promote the basic and advanced training of our staff. The subject of quality will be a focal point in 2018.

Implementing the HOCHDORF strategy requires the commitment of all employees. 2018 represents a transitional year and will be challenging due to the ongoing projects for achieving our strategic goals. For example, we need to market the additional potential capacities in the Baby Care Division, bring our business of healthy Kids' Food and snacks to market and distribute the high value-added new products developed in the Dairy Ingredients Division as quickly as possible. For further details on the projects in 2018, see the reports by the individual business divisions.

In the current business year, we are expecting net sales revenue in the range of CHF 600 – 630 million (PY: CHF 600.5 million). The basis for turnover growth will be the additional capacities in the infant formula segment and (to a smaller extent) the acquisition effect in the Cereals & Ingredients Division. On the earnings front, we are expecting the proportional EBIT in relation to production revenue to be 7.0 – 7.5% (PY: 7.1%).

The HOCHDORF Group is in the throes of a restructuring programme. We would like to thank all those who have helped to bring this strategy to fruition. As well as employees, this includes investors and our customers. Thank you very much for the trust you have placed in us!