Dear Shareholder,

During 2020, we largely completed the restructuring of the HOCHDORF Group that started in summer 2019, with the exception of a few issues. We concluded the integration of Bimbosan with the move to Hochdorf in January 2021. The business relationship with Pharmalys was improved in terms of operational cooperation. To secure the outstanding receivables from the sale of the 51% share in Pharmalys Laboratories SA, a contractual agreement was reached on 30 September 2020 to defer payment by one year with additional, far-reaching collateral. HOCHDORF achieved the sales and earnings targets (EBITDA) published for 2020, despite the negative impact of the COVID-19 pandemic. A revaluation of assets led to additional depreciation and thus to a clearly negative EBIT. However, the adjusted operating EBIT of the core business is positive and has reached break-even. 

We would like to take this opportunity to inform you about our work in the 2020 business year and also present some of the central topics of this annual report in more detail:

• The 2025 Corporate Strategy to further develop the Baby Care and Dairy Ingredients (now Food Solutions) was developed and approved by the Board of Directors and the Group Management
• A reorganisation took place on 1 January 2021 with the aim of increasing our customer orientation in line with the strategy and significantly improving our product and service performance
• The "Future 2030" project is the catalyst for a change in culture under the banner of "ONE HOCHDORF"
• The new "HOCHDORF – Swiss Nutrition Solutions" brand represents the strategic repositioning of our company with its fresh image and market presence
• We were able to demonstrate our innovative strength with a large number of new process and product developments in Baby Care and Dairy Ingredients

In 2020, HOCHDORF Swiss Nutrition Ltd processed a total of 335.8 million kg (previous year: –14.2%) of milk, whey, cream and buttermilk (liquid quantity) and sold 57,488 tonnes of products. Net sales from deliveries and services amounted to CHF 306.2 million. EBITDA was CHF 13.9 million, in line with the communicated forecast. After depreciation and amortisation, EBIT was CHF –67.9 million (previous year: CHF –265.3 million). EBIT includes an impairment of CHF 65.8 million on the buildings and equipment related to the relatively new spray tower plant 9. We have taken this as a measure to reflect the low utilisation of these facilities as well as the high risk in the Baby Care business with regard to its customer portfolio. After adjustment for one-off special effects, adjusted operating EBIT of the core business was positive at CHF 2.3 million (impairment of fixed assets at the Sulgen site: –65.8 million and further special effects totalling CHF –4.4 million). At the Group level, the net loss amounts to CHF –70.3 million. Further details on the key financial figures can be found in the Financial Report and in the consolidated annual financial statements. The Board of Directors is not recommending payment of a dividend.

The result achieved was influenced, among other things, by special restructuring effects (sales and liquidations) and the Covid-19 pandemic. The latter led to higher domestic demand for dairy products due to the discontinuation of shopping tourism, which reduced the quantity of milk available and led to significant under-deliveries in the cream sector. The year-round travel restrictions led to significantly lower product call-offs in the Swiss chocolate industry.

Following the sale of Uckermärker Milch GmbH at the end of February 2020, Marbacher Ölmühle GmbH was also sold to private investors at the end of the year. We expect the liquidations of Zifru Trockenprodukte GmbH and Snapz Foods to be completed by the middle of the current business year.

Nach dem Verkauf der Uckermärker Milch GmbH per Ende Februar 2020 konnte Ende Jahr auch die Marbacher Ölmühle GmbH an private Investoren veräussert werden. Den Abschluss der Liquidationen der Zifru Trockenprodukte GmbH und der Snapz Foods erwarten wir bis Mitte des laufenden Geschäftsjahres.

We worked intensely on the full integration of Bimbosan AG into the HOCHDORF Group in the fourth quarter of 2020 and successfully completed it at the end of January 2021 with the physical relocation of the administration and the start of production in Hochdorf. Land and buildings in Welschenrohr have been sold to a local company. HOCHDORF expects the relocation to generate considerable synergies in cooperation as well as significant cost savings and more efficient processes. This will strengthen the Bimbosan brand strategically and operationally, enabling it to develop further in its home market of Switzerland and to position itself successfully as an international competitor. The product recall for two baby food products in June 2020 brought sales for this product group to an almost complete standstill in the second half of the year. We relaunched this segment and resumed deliveries again in the course of December. Nevertheless, Bimbosan was able to further increase its market share in the specialist market in Switzerland to 39.3%. As previously announced, we were also able to open up two new export markets for Bimbosan and significantly increase our e-commerce business in China.

We have set up joint projects with Pharmalys for product development and opening up new markets, some of which are already being operationally implemented. Pharmalys remains the Baby Care division’s largest single customer. Our goal is to continue to provide Pharmalys with the best service and to expand the business volume with ambitious projects. At the same time, our strategic objective is to grow with existing and new customers in the baby care private label sector and with our own brands Bimbosan and Babina to create a more balanced customer portfolio.

At the end of September, we extended the deadline for payment of the outstanding balance of approximately CHF 34 million from the resale of the 51% share in Pharmalys Laboratories SA to Pharmalys Invest Holding AG until 30 September 2021 at the latest. The remaining amount was secured with additional, far-reaching collateral from Pharmalys Invest Holding AG, Pharmalys Laboratories SA and the owner Amir Mechria. Interest will also be paid on the outstanding balance.

The registration of the brands submitted to the Chinese authorities is still pending. To this end, we are working with the authorities in Switzerland and China, with our Chinese consultant and with our client, who is already very successful in the Chinese market with numerous brands. According to official notification, our technical dossier was forwarded to the "approval office" at the end of October 2020.

The Group Management launched its company-wide "OPTIMA" programme at the beginning of 2020 with five sub-projects in the areas of facilities, buildings, production processes, logistics, administration and purchasing. Two further sub-projects were added later. During the year "OPTIMA" has developed into a central component of the HOCHDORF culture, managing projects for increasing efficiency in a transparent and measurable way. Almost CHF 1.6 million was saved in the reporting year. In the current business year, we expect savings in the mid single-digit million range.

In the second half of the year, the newly composed Board of Directors and Group Management focused on stabilising the company and shaping its future. Detailed strategies were developed in the divisions and departments and then discussed and refined together with the Group Management and the Board of Directors. The strategy and the organisational model were approved by the Board of Directors at the beginning of December 2020.

"ONE HOCHDORF" sharpens our customer, market and brand focus. In line with this, we implemented a new corporate structure at the start of 2021, with the aim of increased impact and efficiency. In short, we want to make HOCHDORF more agile, innovative and service-oriented, ensuring HOCHDORF inspires our customers and employees even more.

The Board of Directors and Group Management attach great importance to employee participation. Our employees are the people who represent the company to the outside world and ensure success for our customers. The focus here goes beyond the sales staff to the entire value chain, from order acceptance to delivery. The logistics employee who loads our product is just as important as the development engineer who creates a new product. All activities along the value chain interlock perfectly like the intricate parts of a clock. In line with this ethos and in parallel with the strategy process, we launched a series of employee workshops under the banner "Future 2030 - What does HOCHDORF stand for?" The results from these workshops have been incorporated into the strategy.

After years of reorganisation and restructuring, we see the 2021 business year as a year of new beginnings. At the same time, it is important to continue on the path of financial recovery. To this end, the Board of Directors is currently focusing on developing financial strategy options, which may include capital measures to further stabilise the balance sheet and support sustainable corporate growth.