Dear Shareholders,

In 2018, we missed our original financial targets for a variety of reasons. Notwithstanding the earnings performance, we believe that our strategy will be successful. This is why we continue to concentrate on our work and minimise existing risks in a targeted manner.

First, let us discuss briefly the figures for the 2018 financial year: HOCHDORF processed 661.0 million kg of milk, whey, cream and buttermilk (liquid quantity) in its plants (PY: 650.0 million kg, +1.7%). As a result, our plants were well utilised.

In 2018, HOCHDORF generated net sales revenue of CHF 561.0 million, in line with the forecasts published in December. Due to higher costs, EBIT amounted to CHF 18.6 million. At 3.3%, EBIT as a percentage of production revenue was slightly below the December forecast (3.5 – 4.0%). The net profit came in at CHF 8.7 million; of which CHF 2.8 million was attributable to parent company shareholders. Further details regarding financial indicators can be found in the Financial Report and in the consolidated annual financial statements.

Despite adverse market conditions in the Dairy Ingredients Division, HOCHDORF Holding Ltd pursues a continuous dividend policy. In contrast to the business performance in 2018, we therefore propose to maintain the dividend at the level of CHF 4.00. The Board of Directors also reaffirms its confidence in the established strategy and its successful implementation.

Historically, an EBIT of this size is reasonably good for the HOCHDORF Group, especially as it was negatively affected by the one-time effect of the sale of HOCHDORF Baltic Milk in the amount of around CHF 2.9 million. On the net profit level, the sale represented a burden totalling around CHF 5.9 million. However, with the investments made in facilities and in the market, a significantly higher annual result was justifiably expected. The main reasons for the failure to meet expectations are the significantly lower earnings of Pharmalys Laboratories SA, the lack of sales in China, delays in the new spray tower line and the exacerbation of problems in the Dairy Ingredients Division.

Following the strong growth in 2017, the first half of 2018, in particular, was very weak for Pharmalys. In addition, we have partially changed our business model to ensure the Group's liquidity. As a result, some orders were cancelled or postponed.

In 2016, we defined the current strategy, which aims to transform the HOCHDORF Group into a globally active, profitable niche company with premium products by 2020. The forward integration, our effort to move closer to end consumers, is an important part of our strategy – alongside the development of products with higher added value. We continued to work intensively on this strategy in 2018 and have made varying degrees of progress depending on the division.

With the investments made in capacity expansion at the Sulgen plant, the majority stake in the Pharmalys Group and the acquisition of Bimbosan AG, the Baby Care Division is well on its way to achieving its strategic goals by 2020. It is now important to utilise the existing capacities and, at the same time, to continue strengthening the private label business.

The Cereals & Ingredients Division is also well positioned with a broad range of premium products in niche markets. To achieve our strategic goals, our key products have to continue generating strong growth in turnover and earnings. This means that we have to press ahead with the development of Kids' Food products, including Snapz (branded products) and Zifru (private label) as well as Afrikoa chocolate.

The most demanding challenge is turning out to be the implementation of the strategy in the core Dairy Ingredients Division. This is mainly due to strong competition, price sensitivity and the impact of political decisions. In this area, for example, we were able to reduce the risk considerably in 2018 by selling HOCHDORF Baltic Milk. In market terms, we successfully developed and marketed some special milk powders. However, the worsening market situation reversed some of these successes. In the Dairy Ingredients Division, it is therefore important to adapt milk prices to the market and make them more flexible, to carry out internal optimisations, and to develop further product innovations that add value.

Prof Holger Till and Dr Anton von Weissenfluh, Vice Chairman, will be stepping down from the Board of Directors at the forthcoming Annual General Meeting. The Board of Directors recommends Hans-Peter Hess and Jörg Riboni to be elected as successors.

A total of four election proposals have been submitted by ZMP Invest AG and the shareholder group Weiss/Maurer. Apart from Jörg Riboni, these proposals concern Bernhard Merki, Markus Bühlmann and Markus Kalberer. To maintain its independence, the Board of Directors recommends not to elect these candidates.

The shareholder ZMP Invest AG requests that Dr Daniel Suter (Chairman) and Niklaus Sauter not be re-elected. For further details concerning the election of the Board of Directors, please refer to the invitation to the Annual General Meeting.

The company is still going through a period of profound change. We are confident that we will receive the registration for the two production plants in Sulgen as well as the brands for the Chinese market during the year. The follow-on solution to the so-called "Schoggigesetz" ("chocolate law") in Switzerland means that HOCHDORF can barely pay competitive milk prices, which will lead to a significantly lower milk inflow. For this reason, we are currently in the process of implementing measures to ensure that we can maintain our ability to deliver key products. In addition, the current situation regarding milk prices and volumes, both in Switzerland and in the EU, suggests increased volatility, which means that, in the best case scenario, the results of the Dairy Ingredients Division will be narrowly in line with expectations. For further details on the projects in 2019, please refer to the reports by the individual business divisions.

Due to the major uncertainties in the Dairy Ingredients area, the HOCHDORF Group has decided not to publish any turnover and income forecast for the time being.

We would like to take this opportunity to thank our shareholders for their trust and loyalty to the HOCHDORF Group. In particular, we would like to thank our employees for their commitment to implementing the HOCHDORF strategy and thus for their work towards a successful future for our company.