Notes to the consolidated half-year financial
statements as at 30 June 2020

These consolidated financial statements comprise the non-audited half-yearly statements for HOCHDORF Holding Ltd and its subsidiaries for the reporting period ending on 30 June 2020. The consolidated interim financial statements were prepared in conformity with existing guidelines based on the accounting recommendations of Swiss GAAP FER 31 (complementary recommendation for listed companies), and with the consolidation and measurement principles described in the consolidated annual financial statements for 2019. These interim financial statements do not include all the information and disclosures required in the annual consolidated financial statements. They should be read in conjunction with the consolidated financial statements of 31 December 2019.

The following currency translation rates were used for the consolidated interim financial statements and for the separate financial statements.

In the reporting period, the scope of consolidation underwent the following changes:

On 28.02.2020, HOCHDORF Holding Ltd sold its majority holding of 60% in Uckermärker Milch GmbH to Ostmilch Handels GmbH. The company generated net sales revenue of TCHF 25,615 up to 28.02.2020 with an EBIT of TCHF –208 and a net result of TCHF –320. The composition of the net assets sold was as follows (in TCHF):

The sale resulted in a positive adjustment of CHF 3.305 million, with CHF 3.733 million posted through EBIT and CHF –0.428 million posted through exchange rate losses. As a result of the sale, badwill in the amount of CHF 5,054 million, which was offset against equity at the time of acquisition, had to be revived. The purchase price amounted to 1 EURO.

The liquidation of Snapz Foods USA Inc. was initiated after the discontinuation of the Cereals & Ingredients­ division at the end of 2019. This was completed by 30.06.2020 allowing deconsolidation of the legal entity. As of 30.06.2020 Snapz Foods USA Inc. had net assets of CHF 0.

In the first six months of the 2020 financial year, the HOCHDORF Group generated net sales revenue of CHF 158 million compared with CHF 243 million in the same period of 2019. The net revenue decline is mainly due to the sale of Uckermärker Milch GmbH from the Dairy Ingredients division on 28 February 2020. This sale was implemented as a logical consequence of the decision to focus strategically on the Baby Care and Dairy Ingredients divisions and the Swiss production sites.

The Dairy Ingredients division achieved net sales revenue of CHF 120.7 million in the first half of the year (previous year: CHF 202.0 million). In addition to the sale of Uckermärker Milch GmbH, reduced demand from cream producers (shortage of fresh milk during the coronavirus lockdown) and chocolate producers (slump in duty-free sales due to coronavirus travel restrictions) were responsible for the decline in sales. The Cereals & Ingredients division discontinued at the end of 2019 was integrated into the Dairy Ingredients division.

The Baby Care division achieved net sales revenue of CHF 37.6 million in the first half of the year compared to CHF 30.3 million in the first half of 2019. The net sales revenues were impacted by two major customers, where net revenues declined sharply. However, this decline was stabilised and even slightly increased with other customers. The first delivery to a new customer for our BIMBOSAN products in Vietnam should be highlighted. The net sales revenue in the first half of 2019 was strongly influenced by negative non-recurring effects (debtor value adjustment), which means a comparison is only possible to a limited extent. The BIMBOSAN brand shows a slight decline in net sales, which was mainly caused by a recall in the baby food product category.

Despite significantly lower net sales revenues, there were significant increases in the operating result before interest, taxes, depreciation and amortization to CHF 4.985 million (2.8% of production revenues; 2019 first half year: CHF –39.4 million) and the operating result before taxes and interest to CHF 1.16 million (0.7% production revenues; 2019 first half year: CHF –52.39 million). The HOCHDORF Group is now showing positive operating results again, following the restructuring and streamlining initiated in 2019. The results in the first half of 2019 were strongly influenced by non-recurring effects in the context of this restructuring (including a value adjustment on accounts receivable of CHF 35.2 million, depreciation of assets of CHF 2.9 million and value adjustments for planned liquidations of CHF 2.3 million). Added to this is the sale of units that generated an operating loss in 2019, such as the Pharmalys Group and Uckermärker Milch GmbH.

At CHF –4.01 million, the Group's net profit was slightly negative due to high interest payments (2019 first half year: CHF –63.63 million). The result after minority interests was CHF –3.91 million compared to CHF –43.39 million in the same period last year. Due to the sale of the 60% share of Uckermärker Milch, minority interests have decreased significantly.

The balance sheet total of CHF 419 million as at 30.06.2020 fell sharply from the balance sheet total of CHF 564 millions at 30.06.2019, mainly due to the sale of the Pharmalys companies and Uckermärker Milch GmbH. By rescheduling and restructuring the syndicated loan in October 2019, it was possible to reduce external capital. This amounted to CHF 180 million as of 30.06.2020, with CHF 110 million of the syndicated loan drawn down. In the second quarter of 2020, liabilities from the syndicated loan were repaid by the payment of a purchase price tranche from the sale of Pharmalys. The equity ratio was 57% on 30.06.2020. With the result as of 30.06.2020, the HOCHDORF Group has complied with all covenants from the syndicated loan.

In the first half of 2020, the HOCHDORF Group generated a positive free cash flow of CHF 2.9 million, including the purchase price payment detailed above. After deducting the cash flow from financing activities (repayment of syndicated loan tranche and interest payments), cash flow was CHF –10.5 million and cash and cash equivalents were CHF 10.0 million.

The consolidated half-year financial statements were approved by the Board of Directors on 14 August 2020. Up to the publication of this press information, the company was not aware of any material new event that would affect the interim financial statements as of 30 June 2020.

HOCHDORF Holding Ltd was liable as joint and several debtors by way of assuming the debt for the credit line a bank institute awarded to Uckermärker Milch GmbH for EUR 10 million. This credit is removed by the sale. There are therefore no current contingent liabilities.

To determine the net profit per share, the net profit due to the HOCHDORF Group shareholders is divided by the average number of outstanding shares. Own shares held are not included in the calculation of the average outstanding shares. The weighted average number of shares is a result of the total of all transactions in the reporting year and additions due to the creation of new registered shares from the conversion of the convertible bond.

1. Calculation 2019: The dilution is calculated from the mandatory convertible bond of CHF 218.49 million and the conversion price CHF 304.67, from which a maximum of 717,136 new shares are generated. The conversion period ran from 3 January 2018 up to and including 13 March 2020. As of 30.06.2019, the entire mandatory convertible bond was therefore outstanding.
   Calculation 2020: On 30.03.2020 the entire mandatory convertible bond was converted and the corresponding position in equity was zero. A total of 393,388 shares were generated in the period from 01.01.2020 – 30.06.2020.
2. Calculation 2019: In this case only the accrued interest on the liabilities component for the current business year is taken into account in interest costs. The actual interest payments are offset against the liabilities component of the discounted interest payments. Calculation 2020: Item not applicable
3. Due to the negative net income after minority interests, the diluted net income per share is the same as the undiluted net income per share.

The HOCHDORF Group refrains from reporting segment results because this would put it at a significant competitive disadvantage with regard to customers and non-listed and large listed competitors in Switzerland and abroad. The Dairy Ingredients division comprises the development, production and sale of high-quality milk derivatives used in the food processing industry. In organisational terms, this segment includes HOCHDORF Swiss Nutrition Ltd, Thur Milch Ring AG and Marbacher Ölmühle GmbH. The Baby Care division comprises the development, production, sale and marketing of specialty infant formula products, follow-on formula for toddlers and pre-school children and milk drinks for expectant and nursing mothers. This segment also includes HOCHDORF Swiss Nutrition Ltd and Bimbosan AG.

1. Division was discontinued as of 31.12.2019.
   
   

The remaining turnover comprises deliveries to customers who export the goods and where the destination country is not separately recorded.

In the press release dated 08.07.2019, the Board of Directors announced its intention to discontinue the Cereals & Ingredients (CI) division. The companies Snapz Foods AG, Snapz Foods USA Inc. and Zifru Trockenprodukte GmbH belonging to this division have been in liquidation since April 2020 and are being wound up operationally. The liquidation of Snapz Foods USA Inc. has already been completed and the company was therefore deconsolidated as of June 30, 2020. Marbacher Ölmühle GmbH has been fully integrated into the Dairy Ingredients division.

During the reporting period there were no significant events or transactions in connection with the critical estimates, judgements and assumptions made in the consolidated financial statements as at 31 December 2019. The effects of the exceptional global situation triggered by COVID-19 were not yet severe in the first half of 2020: we have taken measures to protect our employees and production; the effects on net sales revenues are explained in Note 3.