Notes in accordance with article 959c et seqq. CO

HOCHDORF Holding Ltd, Siedereistrasse 9, 6280 Hochdorf LU
The holding does not have any staff.

These financial statements have been prepared in accordance with the provisions on commercial accounting from the Swiss Code of Obligations (articles 957-964 b CO).

The additional requirements for large companies under Article 961 d (1) of the Swiss Code of Obligations (CO) (additional information in the notes, cash flow statement and management report) are waived, because the company prepares its consolidated financial statements in accordance with Swiss GAAP FER.

Cash and cash equivalents include cash and deposits on postal and bank accounts. They are recognised at their nominal value. Short-term securities are measured at the market price on the balance sheet date.

Accounts receivables are measured at nominal value less value adjustments. Recognisable individual risks are taken into account by means of corresponding value adjustments.

Loans to group companies are measured at no more than acquisition cost less possible value adjustments.

Treasury shares are entered in the balance sheet as a deduction from equity at cost at the time of acquisition. At subsequent resale, the gain or loss is recorded in the income statement as financial income or expense.

Other receivables to related parties mainly include the outstanding payments of Pharmalys Invest Holding AG due to the sale of Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. Pharmalys Africa S.à.r.l. Payment dates are 15 May 2021 (CHF 10 million) and 30 September 2021 (CHF 24.2 million). See also note 33 to the consolidated financial statements of the HOCHDORF Group.

1. Sale of shareholding as at 31.12.2020
2. Sale of shareholding as at 28.02.2020 to Ostmilch Handels GmbH, Bad Homburg, which thus owns 100% of the shares. Thereby still held as an indirect interest
3. In liquidation: due to the non-payment of the pro rata capital by the minority shareholder, the shares reverted to HOCHDORF Holding Ltd
4. In liquidation: deconsolidated as at 30.06.2020

The following changes took place in the reporting period:

The short-term interest-bearing liability (syndicated loan) recognised in the previous year was repaid in 2020. No repayments are planned for 2021. The provision formed in the previous year for the risk of the assumption of the loan from Commerzbank AG to Uckermärker Milch GmbH utilised through the sale of Uckermärker Milch GmbH on 28.02.20 in the amount of EUR 6 million; the remainder was released through profit and loss under financial expenses.

The mandatory convertible bond has been converted into equity as of 31.03.2020. This item thus contains only the hybrid bond, which can be repaid in June 2023 at the earliest. For further details, refer to the notes to the consolidated financial statements of the HOCHDORF Group, note 15.

Income from equity investments includes dividends from Ostmilch Handels GmbH, Ostmilch Handels GmbH Frischdienst Oberlausitz and Ostmilch Frischdienst Magdeburg.
Financial income mainly includes interest from loans to subsidiaries (CHF 3.0 million), as well as interest from the outstanding Pharmalys payment (CHF 1.2 million) and exchange rate gains of CHF 1.1 million.
Other operating income includes a bonus in connection with the deferral of the outstanding purchase price payment from the Pharmalys sale and the current supply business.

2020: Reclassification of Board of Director fees from personnel expenses to administrative and IT expenses (TCHF 59).

The sale of the Marbacher Ölmühle resulted in a total loss of CHF 4.1 million, of which CHF 4.1 million was attributable to the value adjustment on shareholdings and loans; the remaining investment book value/loan amount was covered by the sales proceeds of EUR 2.4 million.
Other financial expenses include proceeds of CHF 4.3 million from the sale of Uckermärker Milch GmbH. The proceeds come exclusively from the partial reversal of a provision for the utilisation of a loan to Commerzbank. In addition, other financial expenses mainly include exchange rate losses of CHF 0.4 million as well as loan procurement costs and custodian fees of CHF 0.4 million.

1. The reporting date as at 31 December 2019 did not or does not include the purchase positions due to the mandatory convertible bond in the amount of 2.18% (conversion on 30 March 2020).

In 2020, the conditional capital from previous years, of nom. CHF 3,937,710, corresponding to 393,771 registered shares at nom. CHF 10 was used to increase the share capital.

The accumulated net loss of the previous year and the associated half capital loss were counteracted by withdrawing CHF 130 million from the capital reserves and transferring it to net loss carry-foward. The remaining loss of CHF 35.4 million was carried forward (AGM resolution 2020). As of 26 March 2020, the mandatory convertible bond was converted into equity. The gross amount of CHF 119.9 million was reduced by the issuance stamp tax of CHF 1.2 million and the share increase of CHF 3.9 million. 

As at 31 December, the members of the Board of Directors and the Group Management (including related persons) held the following number of shares in the company:

According to the 2020 remuneration regulations, the remuneration for the Board of Directors and the Group Management is paid in cash. There is therefore no allocation of shares.

HOCHDORF Holding Ltd issued a letter of comfort to Zifru Trockenproudkte GmbH, Herwigdorfer Str. 10c, 02763 Zittau, Germany on 30 April 2020. The company is in liquidation; the letter of comfort secures liquidity up to an amount of EUR 500,000. There were no contingent liabilities in the previous year.

There are material uncertainties (listed below) which, depending on how the situation develops, may cast significant doubt about the Group's ability to continue as a going concern. The Board of Directors and the Group Management are of the opinion that, despite these uncertainties, HOCHDORF's ability to continue as a going concern is not currently in question.

1. Recoverability of receivables from Pharmalys Invest Holding AG of CHF 40.6 million of outstanding payments due to the sale of Pharmalys Laboratories SA, Pharmalys Tunisie S.à.r.l. and Pharmalys Africa S.à.r.l.
2. Recoverability of receivables from Pharmalys Laboratories SA (as at 31.12.2020: CHF 32.1 million) to HOCHDORF Swiss Nutrition Ltd
3. Securing solvency due to (partial) payment defaults and postponements by Pharmalys companies, especially in respect to HOCHDORF Swiss Nutrition Ltd.
4. Compliance with the financial covenants from the credit agreement (see also notes to the consolidated financial statements of the HOCHDORF Group, note 13)

The Board of Directors is currently focusing on developing financial strategy options, which may include capital measures to further stabilise the balance sheet and the liquidity position and to support sustainable corporate growth.

Risk (1) and (4) would affect HOCHDORF Holding Ltd as a direct creditor or debtor of the syndicated loan; risk (2) and (3) affect HOCHDORF Swiss Nutrition Ltd. HOCHDORF Holding Ltd would be indirectly affected in that the value of the investment and the outstanding loans towards HOCHDORF Swiss Nutrition Ltd would have to be questioned. The Board of Directors sees realistic opportunities for the implementation of the 2021 budget for the entire HOCHDORF Group approved by the Board of Directors as well as the 2025 medium-term plan with projected increases in sales and turnover in the Baby Care and Food Solutions (formerly Dairy Ingredients) divisions, as strategic and operational measures were already introduced in 2020 to create the basis for sustainable growth. In 2020, these included project development with new customers, including initial deliveries to Vietnam and new projects in Southeast Asia, the development of new products (including goat milk, vegan bisoja, pre-term formula), integration of Bimbosan, strengthening of the Baby Care sales team and expansion of the "OPTIMA" cost reduction programme. Based on this, the Board of Directors also sees no increased risk of impairment of the investment values or the loans to the Group companies at HOCHDORF Holding Ltd.

1. Recoverability of receivables from Pharmalys Invest Holding AG: As part of an agreement concluded on 30 September 2020 between Pharmalys Invest Holding AG, Pharmalys Laboratories SA and Amir Mechria, the HOCHDORF Group was able to significantly expand its collaterals with regard to receivables due from the outstanding purchase price payments and also from the supply business. In addition to the rights to the existing and future trademark rights of Pharmalys Laboratories AG, liens have been established on 100% of the shares of Pharmalys Invest Holding AG and Pharmalys Laboratories AG as well as on the shares of HOCHDORF Holding Ltd held by Mr Mechria (second ranking). The Board of Directors has commissioned a consulting firm to carry out a valuation of the liens and to work out strategic options for a possible realisation.
2. Securing solvency: The HOCHDORF Group has a free credit line of CHF 13 million (as at: 07/04/2021), which can be used to finance business operations (see also notes to the consolidated financial statements of the HOCHDORF Group, note 13). The 12-month liquidity plan shows that this credit line would be sufficient in case of realisation of the approved budget and in case of assumed massive payment delays by the Pharmalys companies. However, this credit line would not be able to compensate for a complete default of the Pharmalys Group's outstanding payments. At present, the Board of Directors does not assume a complete default of payment, but a significant postponement of payments. 

With regard to the risks detailed above, the following events occurred after the balance sheet date and until the approval of the consolidated financial statements by the Board of Directors:

• As of 31/12/2020, Pharmalys Laboratories SA defaulted on payments. As a consequence, all outstanding payments of the Pharmalys companies became due
• Since 31/12/2020 there has been a cumulative payment receipt from the Pharmalys companies of CHF 9 million (as at: 07/04/2021)
• An indicative valuation of the valuation of the Pharmalys Group has shown that all outstanding receivables of the HOCHDORF Group are covered. The valuation is therefore substantiated