Notes to the consolidated half-year financial statements as at 30 June 2022

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 June 2022. 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 2021.

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 December 2021, 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 2022 for publication on 5 August 2022.

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 June 2021, leading to the corresponding changes in the balance sheet items:

1. Share increased to 100% as of 21.10.2021; no further business activities

The acquisition of HOCHDORF Americas Ltd on 12.10.2021 does not produce a significant increase in the individual balance sheet items. The overall published figures are therefore directly comparable with the previous year.

The accounts receivables from third parties do not contain any concentration of credit risk due to customer diversification. The bad debt item includes the value adjustment made in 2019 for a receivable in the amount of CHF 10.8 million from a customer that will still be carried under accounts receivables from third parties in 2022.

Accounts receivables from related parties include outstanding invoices from deliveries of goods to Pharmalys Laboratories SA. A significant portion of these receivables was classified as non-current as at the end of June 2022 (see also explanation under financial assets). The other accounts receivables mainly include receivables from government agencies (value added tax, Directorate General of Customs) and from social welfare organisations.

Other receivables from related parties as at 31.12.21 include the payments in the amount of CHF 1.2 million still outstanding in the short term from Pharmalys Laboratories SA (formerly Pharmalys Invest Holding AG). These outstanding receivables were classified as non-current at the end of June 2022 (see note on financial assets below).                                                                                 

With regard to the recoverability of the accounts receivables from related parties, please refer to the notes on the assessment as a going concern in section 8.

Inventories increased due to the seasonality caused by the availability of milk on the market. Compared to the previous year (CHF 58.1 million), the inventory value is significantly lower, as considerably less milk was purchased. The value adjustments in the first half of 2022 are mainly due to the sales price devaluations for skimmed milk powder.

As at the end of June 2022, non-current receivables from related parties include non-current receivables from deliveries of goods from HOCHDORF Swiss Nutrition Ltd to Pharmalys Laboratories SA of CHF 24.4 million and the outstanding payments (including repayment of loans and interest) of CHF 11.0 million from Pharmalys Laboratories SA (formerly Pharmalys Invest Holding Ltd) to HOCHDORF Holding Ltd.

The following significant events or business transactions have occurred since 31.12.2020 and until 30.06.2020:

• In the first half of 2022, the HOCHDORF Group was confronted with above-average price increases on the purchasing side for important raw materials as well as for energy and logistics. This is the result of the coronavirus pandemic and partially interrupted supply chains, particularly in China and due to the Ukraine/Russia crisis. In addition, the general situation on the milk market has continued to worsen after the strong price increases in 2021 due to the increasing shortage of milk volume. As a result, the milk price was increased by a further 5 cents per kg as of 16 April 2022. The customer contracts currently in place mean such increased costs can only be passed on to our customers in part and/or with a delay, so that the operating result of the HOCHDORF Group was strongly impacted in the first half of 2022. Where necessary, discussions are taking place with customers to adjust the contracts accordingly.


• The business relationships with Pharmalys Laboratories SA have been adjusted to the effect that the HOCHDORF Group has, for the time being, limited the target markets to those sales markets in which it can be proven that Pharmalys Laboratories SA has contractually regulated payment terms with its respective distributors. In addition, the HOCHDORF Group has currently changed the payment terms with Pharmalys Laboratories SA to cash in advance. The Board of Directors and the Group Management of the HOCHDORF Group have started negotiations with Pharmalys Laboratories SA on a payment plan for the accrued outstanding receivables. These negotiations had not yet been concluded as at 30.6.2022 (see also: section 8).


• The Board of Directors, together with the Group Management, has started negotiations with the syndicate banks on the suspension of the financial covenant debt factor as of 31.12.2022 as well as on a provision of interim financing. There was compliance with the covenants as of 30.6.2022. The negotiations had not yet been concluded as at 30.6.2022 (see also: section 8).

Otherwise, there have been no other significant events or transactions during the reporting period to the critical estimates, judgements and assumptions made in the consolidated financial statements as at 31.12.2021 . For further events after the balance sheet date, see section 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.

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

1. Net revenues with Pharmalys Laboratories SA (Switzerland) are reported under Middle East/Africa
2. The remaining turnover comprises deliveries to customers who export the goods and where the destination country is not separately recorded

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 (as at 30.06.2022: 29,738; 30.06.2021: 29,738).

The Board of Directors and Group Management take the view that, depending on how the situation develops, the material uncertainties highlighted below may raise significant doubts about the Group's ability to continue as a going concern but that, despite these material uncertainties, the ability of the HOCHDORF Group to continue as a going concern is not in question at this time.

The main uncertainties relate to:

• Ability to pass on cost increases on the purchasing side as well as energy and logistics costs to customers
• Recoverability of receivables from Pharmalys Laboratories SA and formerly Pharmalys Invest Holding SA amounting to CHF 52.8 million.
• Ensuring solvency and compliance with the covenants from the credit agreement

Ability to pass on cost increases: As detailed in note 4, the result in the first half of 2022 was heavily impacted by higher costs for the purchase of milk, raw materials, energy and logistics services. A sustainable improvement of the operational situation depends on the ability to pass on these higher costs to the customer. The Group Management immediately initiated all measures required to implement this adjustment and informed all customers about price increases. The initial impact of these measures is starting to take effect. Even if this is only possible partially and/or with delays depending on the contractual situation with individual customers, the Board of Directors and the Group Management are confident that customer prices can be adjusted to cover the higher costs. Contracts will not be extended for customers who do not want to bear price increases due to cost increases and which would result in HOCHDORF generating negative margins.

Recoverability of receivables from Pharmalys Laboratories SA: At present, the Board of Directors and the Group Management assume that the outstanding receivables are recoverable and that no future payment defaults are to be expected. In the course of the first half of 2022, the business model was adjusted to ensure that HOCHDORF only supplies products to countries where Pharmalys Laboratories SA has demonstrably entered into a contractual supply relationship with the respective customer at standard industry conditions. Cash flows in the usual time frame were confirmed from these countries after product deliveries. However, the Board of Directors and the Group Management assume that the repayment of the outstanding receivables will take place over a longer period of time rather than in the short term. After the balance sheet date, an agreement on a long-term repayment plan was reached with Pharmalys.

Ensuring solvency and compliance with the covenants from the credit agreement: The Board of Directors and the Group Management continue to conclude that the solvency of the HOCHDORF Group is assured. Following the reduction of the syndicated loan from CHF 75 million to CHF 67 million and the provision of interim financing of CHF 10 million by LUKB, HOCHDORF has an available credit line of CHF 10 million at its disposal until the end of the term of the current syndicated loan agreement (as at: 05.08.2022). The 12-month liquidity plan shows that this credit line is sufficient if the operating business is realised. However, this credit line would not be able to compensate for a complete default on payments or a massive delay in the long-term Pharmalys Laboratories SA payment plan.

A suspension of the financial covenant debt factor until the expiry of the syndicated loan (30.09.2023) was agreed with the syndicate banks after the balance sheet date. Instead, the loss at EBITDA level for the second half of 2022 and the first half of 2023 may not exceed CHF 7 million. Based on current knowledge, the Board of Directors and Group Management conclude that this can be met.

No other significant events have occurred since the balance sheet date of 30.6.2022 that could affect the informational value of the consolidated half-year financial statements for 2022 or that would have to be disclosed here.