Notes to the consolidated half-year financial statements as at 30 June 2021

Accounting principles

The following consolidated financial statements include the non-audited half-yearly statements for HOCHDORF Holding Ltd and its subsidiaries for the reporting period ending on 30.06.2021. The consolidated half-year financial statements have been prepared in accordance with Swiss GAAP FER 31, the provisions of Swiss law, and with the consolidation and valuation principles described in the consolidated annual financial statements for 2020.

The consolidated half-year financial statements should be read in conjunction with the annual financial statements of the HOCHDORF Group prepared for the financial year ended 31.12.2020, as they represent an update of the last complete set of financial statements and therefore do not include all the information and disclosures required in the annual consolidated financial statements. The consolidated financial statements are prepared in Swiss francs (CHF).

The Board of Directors of HOCHDORF Holding Ltd approved the consolidated half-year financial statements 2021 for publication on 13.08.2021.

There was a change in the accounting principle for the valuation of the hybrid bond in equity as at 31.12.2020, which we explained in detail in the Notes to the 2020 Consolidated Financial Statements of the HOCHDORF Group on page 55 under Principles of consolidation. The amount for the interest obligation for the period from the conversion of the mandatory convertible bond to the first call date in 2023 of TCHF 8,848 was retroactively reclassified to equity as of 01.01.2019 in the financial statements 31.12.2020. As at 30.06.2020, there was no longer a liability from the hybrid bond.

The comparative period for the balance sheet 30.06.2021 is based on the balance sheet as at 31.12.2020 already adjusted in the 2020 annual financial statements and does not require any further adjustment. For the income statement, the effects on the previous year's values are as follows (in TCHF):

The following exchange rates were used for both the consolidated half-year financial statements and the individual financial statements.

The following changes to the scope of consolidation of the HOCHDORF Group have occurred since 30.06.2020, leading to the corresponding changes in the balance sheet items:

1) Registered as of 28.06.2021; no business activity 2) Merger of BIMBOSAN AG and HOCHDORF Swiss Nutrition AG (absorbing entity) as at 01.01.2021; registered as of 24.06.2021 3) Sold at 31.12.2020

For the sake of comparability, it should be noted that the income statement and cash flow statement for the comparative period still include the results and cash flows of the following companies up to the date of sale or liquidation:

• Marbacher Ölmühle GmbH, Germany (sold 31.12.2020)
• Uckermärker GmbH, Germany (sold 28.02.2020)
• Zifru Trockenfrüchte GmbH (in liquidation since 01.05.2020) 
• Snapz-Food companies (in liquidation since 01.05.2020)

These companies were all part of the Food Solutions segment.

1) Including reimbursement to customers

The decrease in financial assets in the 1st half of 2021 results from the fact that both the employer and employee contributions were not paid to the pension fund due to the Covid-19 Ordinance in the 1st half of 2021, but were offset against the employer contributions (status: assets from employer contribution reserves 30.06.2021: TCHF 2,164, 31.12.2020: TCHF 4,056). There were also additional effects such as the correction of securities at TCHF –87.

The following significant events or business transactions have occurred since 31.12.2020:

• Due to the seasonal nature of the dairy business, the Board of Directors, together with the Group Management, started negotiations with the syndicate banks on a suspension of the audit of the required financial indicator "gearing ratio" as of 30.6.2021. The syndicate banks have agreed to this suspension of the audit. The next audit date is 31.12.2021. The financial key figure "debt factor" (ratio of EBITDA to net debt) is considered breached if the debt factor is greater than 4.0x as of 31.12.2021 (see also section 8 of the notes). The covenants regarding an equity ratio of more than 40% are not violated as of 30.6.2021. The approved waiver also provides for the reduction of the credit limit by CHF 12 million by 31.10.2021; this financial liability is therefore reported under short-term financial liabilities. Otherwise, the syndicated loan continues to have a long-term character.

• As at 31.12.2020, HOCHDORF had outstanding receivables from Pharmalys companies of CHF 72.7 million (see also Note 33 to the HOCHDORF Group annual financial statements). As at 30.06.2021, these receivables have been reduced to CHF 57.2 million due to payments received for outstanding delivery invoices. As at 30.06.2021, the outstanding receivables continue to be secured by liens on shares in Pharmalys Laboratories SA and Pharmalys Invest Holding Ltd and on the HOCHDORF Holding Ltd shares privately held by Mr Mechria.

Otherwise, there have been no other significant events or transactions during the reporting period related to the critical estimates, judgements and assumptions made in the consolidated financial statements as at 31.12.2020. The impact of the exceptional circumstances caused by Covid-19 continued to have a significant impact on operations in the first half of 2021; we have continued to take measures to protect our people and products. For further events after the balance sheet date, see note 8.

There are currently no contingent liabilities.

As a result of possible competitive disadvantages compared to non-listed and large listed competitors, customers and suppliers, presentation of the segment results was waived, pursuant to Swiss GAAP FER 31/12. The Swiss milk market is small and tightly knit with few key companies and providers. The supplier side (milk producers) is organised within several milk producer organisations. On the processing side, the market is dominated by the cheese dairies and four large dairies. In terms of customers, the chocolate industry is dominated by a few large manufacturers. In the area of infant formula (based on milk), only one other firm produces infant formula for the Swiss and international market, apart from the HOCHDORF Group.

1) The Food Solutions business segment was still reported under the title Dairy Ingredients in the 2020 interim report

The Baby Care segment includes the product group infant formula and products from other product groups

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

1) Previous year’s figures adjusted due to the change in the valuation principles for the hybrid bond (see also the notes to the consolidated half-year financial statements of the HOCHDORF Group as per 30.06.2021)

To determine the net profit per share, the earnings attributable to the shareholders of the HOCHDORF Group for the current year are divided by the average number of outstanding shares. The treasury shares held are not included in the calculation (status: 30.06.2021: 29,738; 30.06.2020: 29,738).

In Note 33 of the HOCHDORF consolidated financial statements 31.12.2020, the Board of Directors explained that, depending on how the situation develops, the uncertainties highlighted may raise significant doubts about the Group's ability to continue as a going concern, but that despite these uncertainties, HOCHDORF's ability to continue as a going concern was not in question at that time.

As of 30.06.2021, the Board of Directors and the Group Management assumed that the receivables from Pharmalys companies, which have been reduced from CHF 72.7 million (31.12.2020) to CHF 57.2 million (30.06.2021) as a result of incoming payments, continue to be recoverable. There is also no indication that the proceeds of a possible realisation of the liens will not cover these existing receivables. Based on the payments received from Pharmalys Laboratories SA in the first half of 2021, the Board of Directors of HOCHDORF continues to assume that there will be no default in payment or any associated value adjustment of the receivables.

After the balance sheet date and up to the approval for publication of the consolidated half-year financial statements by the Board of Directors of HOCHDORF Holding on 13.08.2021, the following events also occurred:

• Payment of the outstanding CHF 30 million purchase price payment by Pharmalys Invest Holding and return of the liens on the Pharmalys companies and trademark rights of Pharmalys Laboratories SA (status of outstanding receivables 06.08.2021: CHF 29.5 million.)
• Adjustment of the agreement with the Pharmalys companies:
  • Agreement on a supply contract with fixed sales volumes until 2026
  • Fixed payment plan for the outstanding receivables

The agreement reached with the Pharmalys companies supports the achievement of the targets for 2021 and the medium-term planning until 2025. Furthermore, HOCHDORF was able to implement additional measures for the realisation of these plans in the first half of 2021: these included acquisition of 6 new customers in the Baby Care division, strengthening of the Baby Care sales team, expansion of the OPTIMA cost reduction programme.

In combination with a further reduction in net debt at the date of approval of the interim financial statements, an expected stronger business development in the second half of 2021 and further expected incoming payments from other projects, the Board of Directors and the Group Management conclude that compliance with the financial covenants as of 31.12.2021 can be considered realistic.

After payment of the purchase price for Pharmalys Laboratories AG of CHF 30 million, the reduction of the credit limit by CHF 12 million, as set out in section 4 and required under the waiver application, was paid on 13.08.2021; the obligation was thus fulfilled.

In summary, the material uncertainties mentioned in the 2020 Annual Report continue to exist, but these have been reduced compared to 31.12.2020 due to the receipt of payments from the Pharmalys companies and the new regulation of the repayment in connection with a long-term sales commitment.

No other significant events have occurred since the balance sheet date of 30.06.2021 that could affect the informational value of the consolidated half-year financial statements for 2021 or that would have to be disclosed here. The consolidated half-year financial statements as at 30.06.2021 were approved for publication by the Board of Directors at its meeting on 13.08.2021.