Dear Shareholders,

In 2019 the HOCHDORF Group experienced what was probably the most challenging business year in its 125 year history. The extension of the syndicated loan and the sale of its 51% holding in Pharmalys Laboratories SA are the two most important transformation measures. In mid-2019, we also announced our realignment to focus on Baby Care and Dairy Ingredients, with the discontinuation of the Cereals & Ingredients division and the strategic review of our foreign subsidiaries. The 2019 financial results are strongly influenced by specific factors. The holding in Pharmalys Laboratories SA was sold at the end of the year. Overall, this results in a loss attributable to shareholders of CHF -239.2 million. In 2020, our anniversary year, we will continue to pursue our chosen path.

In 2019 HOCHDORF processed 677.8 million kg of milk, whey, cream and buttermilk (liquid quantity) (previous year: CHF 661.0 million kg; +2.5%). The liquid quantity processed fell in Switzerland and increased at Uckermärker Milch GmbH. In the infant formula division, in particular, plant utilisation was very low at times.

Product sales enabled HOCHDORF to achieve net revenues of CHF 456.8 million, which was –18.6% below the previous year's value of CHF 561.0 million. Due to additional amortisations, value adjustments and provisions there is a resulting EBIT of CHF –265.3 million and losses attributable to shareholders of CHF –239.2 million. Further details on the financial indicators can be found in the Financial Report and in the consolidated annual financial statements. On the basis of these very negative results, the Board of Directors proposes to the shareholders that no dividend be paid.

High amortisations and value adjustments are key factors in the operating results. The largest single amount is the investment loss of CHF 139.9 million incurred on the sale of the Pharmalys investments. For more details on this divestment, see page 63 of the notes to the 2019 consolidated annual financial statements of the HOCHDORF Group. In addition, debt provisions were set up and additional amortisations were made on the assets of subsidiaries and inventories. Value adjustments and provisions were also undertaken for loans to subsidiaries. Details of provisions, value adjustments and additional amortisations are available under section 14 and under «Further notes» in the notes to the 2019 consolidated annual financial statements of the HOCHDORF Group.

After its election on 12 April 2019, the new Board of Directors began by establishing an overview of the HOCHDORF Group’s general situation. The Group strategy was subsequently subjected to an intensive review. On 8 July 2019 we announced the Group's realignment strategy: HOCHDORF would focus on the Baby Care and Dairy Ingredients business areas in the future. The Cereals & Ingredients division would be discontinued due to a lack of critical size and scalability. Valuable product categories such as non-milk-based special spray products and health supplements would be incorporated into the Dairy Ingredients division, for which, in turn, a new strategy is to be developed by mid-2020. We also decided to undertake a strategic evaluation of all subsidiaries.

We were able to implement this strategic realignment by the end of 2019. The Cereals & Ingredients division was dissolved and the continuing operations integrated into Dairy Ingredients. HOCHDORF South Africa Ltd was sold in mid-2019. The sale of the 51% holding in Pharmalys Laboratories SA was completed in mid-December 2019. On 26 February 2020, we announced the sale of Uckermärker Milch GmbH. We are still looking for solutions for the remaining foreign subsidiaries and expect these to be completed by mid-2020.

In the course of the second quarter of 2019, it became clear that the financial indicators required for the syndicated loan could not be met in time for the half-year results. This was due to higher costs and amortisations, lower sales in Baby Care both for Pharmalys and for HSN with third-party customers, as well as high extraordinary value adjustments. As a result, discussions were opened with the syndicate banks at an early stage, resulting in the announcement of the extension to the syndicated loan on 23 October 2019. This runs until the end of September 2023, with the possibility of an extension for a further two years, thus securing the long-term financing of the HOCHDORF Group. However, the associated higher interest expenses will place an additional burden on the company's earnings in the coming years. For more information on financing, see «Valuation Methods» in the notes to the 2019 consolidated annual financial statements of the HOCHDORF Group and section 13 of the same notes.

As a result of the provisions and value adjustments, the financial statements of HOCHDORF Holding Ltd in line with Swiss commercial law show that no longer half of the share capital and legal reserves (including capital reserves) are covered (OR 725 para. 1). This position will be adjusted with the conversion of the remaining outstanding mandatory convertible bond into share capital in March 2020.

The HOCHDORF Group celebrated its 125 year anniversary on 28 January 2020. The celebrations will be modest given the current situation. A commemorative anniversary publication was produced internally for the special day. This is available online at jubiläum.hochdorf.com. The anniversary publication provides an interesting insight into the HOCHDORF Group's past and present day activities.

In the 2020 anniversary year, we will continue on the strategic path we took in 2019. This will mean completing the restructuring measures and resolutely implementing and developing the strategy in both business areas.

A key focus for the future will be the sustainable business development in the Baby Care division in a highly competitive international environment. Sales and service structures have to be strengthened and market oriented to achieve the required growth and improve utilisation of the Baby Care plants in Sulgen. In 2020 it is vital that we revive the business relationship with Pharmalys and promote the internationalisation of our own «Bimbosan» brand. Business development plays a central role in the future development of the Baby Care division, as the acquisition of new customers involves lengthy and complex approval processes.

The B2B market environment will remain highly competitive for Dairy Ingredients in 2020. We expect the situation in milk procurement and the sales market to remain very challenging as a result of the solution that succeeded the «Schoggi law». The customer and product portfolio established in recent years will be further developed and improved. As key element of this, we will maintain a constant focus on ensuring the best possible plant utilisation to secure the HOCHDORF Group's economic success.

In conjunction with the Group Management, the Board of Directors will develop a future strategy for both divisions during 2020. Ten focus projects have been defined for 2020 and these will form the basis for HOCHDORF's future strategic positioning. The «OPTIMA» efficiency enhancement programme was launched at the beginning of the year to achieve a reduction in operating costs.