Risk management provides important support in protecting and securing the future potential of the HOCHDORF Group. The Board of Directors of the HOCHDORF Group bears ultimate responsibility, with implementation delegated to the Group Management.

The HOCHDORF Group has implemented a risk management process for all Group companies. Using workshops and individual interviews, risks are identified and assessed in terms of their potential financial impact on the HOCHDORF Group's results and their probability of occurrence. Risks are categorised according to strategic, operational, financial and other risks. Based on this, risk minimisation measures (measure, person responsible, time, required resources) are defined and risk reporting is carried out.

The Board of Directors of HOCHDORF Holding Ltd approved the risk assessment in the reporting year and monitors the implementation of the defined measures by the Group Management. The process is generally repeated once a year. The Group Management also reviews and assesses risks and their implementation every six months and informs the Board of Directors immediately in the event of deviations.

The following risks, among others, have been identified as significant risks for the HOCHDORF Group:

• Cluster risk in the Baby Care division and outstanding/delayed payments by the customer Pharmalys (see explanations on risk minimisation in item 31 in the Notes to the financial statements of the HOCHDORF Group on the subject of assessment as a going concern).
• Milk procurement model: The milk procurement strategy and access to the raw material milk continue to be essential for the positive development of the HOCHDORF Group. To ensure that this remains the case in the future, HOCHDORF is increasingly focusing on product innovation, the development and expansion of its own brands and high value-added markets, and the continuous improvement of cost efficiency in order to be able to offer sustainably attractive milk prices. On the other hand, HOCHDORF is striving for strategic partnerships with milk supplier organisations.
• Restructuring: The HOCHDORF Group announced in September 2021 that production at the Hochdorf site will be closed and transferred to the Sulgen site by the end of 2023. This is expected to result in significant savings in terms of costs. Relocating a production site is always a challenge, especially with the additional approval procedures required in the food industry. HOCHDORF is aware of this risk and ensuring professional project management, controlling and audit measures to counteract the risk.

In principle, the HOCHDORF Group is dependent on a wide range of regulatory and political aspects. Changes could have a negative impact on the HOCHDORF Group's business activities, financial position and/or profitability (e.g. legal and regulatory changes in export markets, customs agreements, food requirements, etc.). They could result in high price and volume volatility on the procurement and sales markets. HOCHDORF monitors economic and political developments in the individual countries to keep the procurement and sales risks to a minimum.

The HOCHDORF Group is exposed to various financial risks in the course of its international activities. These include exchange rate and interest rate risks as well as credit, liquidity and capital risks. Liquidity risks are managed through central cash management by ensuring that planned liquidity needs are covered by appropriate financing arrangements.

Ultimately the risk policy of the HOCHDORF Group includes hedging risks by means of comprehensive and efficient insurance cover. An international insurance programme that includes the areas of liability, product protection, property insurance and transport serves to achieve this.

The HOCHDORF Group has an internal control system (ICS) in place with the aim of ensuring the effectiveness and efficiency of operations, the reliability of accounting and compliance with legal requirements. It represents an essential part of the risk management system. The ICS was subject to a fundamental review in 2021 in order to further increase its effectiveness.

Since 1 March 2021, the internal audit department of the HOCHDORF Group has been staffed by an organisationally independent "Senior Internal Auditor" who reports directly to the Chair of the Audit Committee.

The internal audit supports the Board of Directors in the handling of its monitoring and controlling tasks. It provides an independent and objective audit and advisory service aimed at reviewing, evaluating and continuously improving the effectiveness of risk management, controls, and management and monitoring processes using a systematic and targeted approach.

In 2021, audits were carried out in the areas of purchasing, milk procurement, fixed assets, receivables management and IT security. The results were recorded in written audit reports which, in addition to the findings and recommendations of the internal audit, contain the opinion of the management with planned measures and times for implementation. The report is distributed to the members of the Board of Directors and the Group Management. The reports and the defined measures are presented and discussed within the framework of the Audit Committee meetings. Group Management checks the implementation of the defined measures and keeps the Audit Committee continually informed.