hochdorf holding ltd...niche player in global premium food markets by 2020.» ... and the...

HOCHDORF Holding LtdExtraordinary General Meeting

29 November 2016

• Exit tickets for the Braui parking garage are available at the

HOCHDORF Group information desk. Please hand in your

entrance ticket here.

• Do not park in the Migros car park as it closes at 8.30 pm.

• Electronic voting devices have been distributed.

• Please switch off mobile phones during the General Meeting.

Thank you.

A Warm Welcome

Organizational details

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1. Word from the Chairman

2. HOCHDORF Strategy

3. Forward Integration

4. Evaluation Procedures

5. Pharmalys

6. Synergies & Risks

7. Integration

8. Transaction Structure

9. Capital Increase & Adjustment of Voting Restrictions

10. Dr Amir Mechria

11. Extraordinary General Meeting

ContentOverview

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• Important and historic step for HOCHDORF Group

• Essential decisions to implement the strategy

• Swissness and the investment in Sulgen

• Necessity for investments in markets and brands as it was with

HOCHDORF formerly

Welcome

Word from the Chairman

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5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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HOCHDORF’s vision 2020HOCHDORF Strategy

«It is our goal to transform this company into a profitable niche player in global premium

food markets by 2020.»

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HOCHDORF’s vision is based on its future business model. The transformation has already started.

Value proposition policy HOCHDORF Strategy

1. Focus on premium markets• Wherever we are active, we concentrate on the premium business area

2. Focus on “unsaturated” countries with high growth rates• MENA countries, Asia and LATAM are still the countries we focus on• China still limited to 25% market share in Baby Care• Exceptions only in special cases

3. Development of higher margin products• Chocolate• Kid’s Food• Base powders & instant products

4. Enhance margins in existing businesses• Forward integration• Elimination of intermediaries where possible• Development of branded business

5. Professional focus on cost• Cost efficiency is ALWAYS Key

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HOCHDORF’s aim is to significantly increase the added value of its products.

Dominance of Asia & AfricaHOCHDORF Strategy

1. High population growth• In the near future, 57 out of 100 children will be born in Asia and 22 in Africa (Tages-Anzeiger).• In 2050, 6.4 of 9.2 billion people are expected to live in cities ̵ twice as many as today.

2. Wealth• Worldwide redistribution of wealth: according to one study, the Asia-Pacific region (w/o Japan)

will overtake Western Europe as the second richest region this year; by 2018 it will even be above the US

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Asia and Africa will overtake Western Europe and North America in various ways.

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Image Qualität

High dynamics in Baby Food

We regard the APAC and MEA regions as the most attractive markets.

HOCHDORF Strategy

Ø Growth2014-2019 %

Source: TechNavio Insight/own estimation

0 5 10

14

16

1413

16

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Europe

Americas

MEAAPAC

Bill. USD 2014

Bill. USD 2019

Accessibility





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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HOCHDORF today: still fragileForward Integration

1. Volatile international commodity markets• Today, HOCHDORF is not able to absorb the risks of the volatile international commodity

markets

2. Uncertain and erosive conditions in Switzerland• Future political environment in Switzerland is quite unclear• Even if a similar framework exists for commodity business, erosive tendencies will

continue

3. Outdated business model in Baby Care

• The Baby Care business model was right in the ramp-up phase• Our partners who invested in the brand and markets in this phase have far outperformed

HOCHDORF• Continuous investments in capacity increases lead to negative free cash flows and long

return on investments

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HOCHDORF has improved a lot in the last two years but still runs a much too fragile business model.

HOCHDORF tomorrow: closer to the customerForward Integration

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HOCHDORF’s two dimensions of forward integration.

1. Product-driven forward integration• Product-driven forward integration means basically to diversify into products of industries

that we supply today• In this case product development, production and marketing is developed within the

existing HOCHDORF organisation

2. Business model driven forward integration• Business model driven forward integration means to integrate an existing company into

HOCHDORF which already runs a business with our products on the next level(s) of the value chain

Product driven: AfrikoaForward Integration

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Development of Afrikoa is promising. The pipeline already exceeds production capacity threefold.

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Forward Integration

Business model driven forward integration

Forward integration in Baby Care is not just acquiring the next level’s business; it means to taking control of the whole value chain.

DistributorRetailer/Pharmacy

Customer(Physician)

Push MarketingMake the product available

Pull MarketingCreate demand





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Cost-utility analysisEvaluation Procedures

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In a weighted cost-utility analysis, Pharmalys emerged as the clear winner.

Criteria Weighting A1 A2 A3 A4 A5 A6

Compatible with target markets 5 2 5 4 2 2 5

Dimension of margin improvement 4 1 5 4 2 3 5

Costs/investment vs. profitability 4 2 5 4 2 3 3

Speed of implementation & return 3 5 5 4 3 5 1

Positive influence on free cash flows 3 1 5 4 2 3 5

Minimal commercial default risk 5 5 5 3 3 5 1

No cannibalization risk 4 5 5 5 5 5 1

Protection against backward integration 5 0 5 3 2 2 1

Cultural fit 4 5 4 1 2 4 5

Increase in value for HOCHDORF Group 4 1 5 4 2 2 5

Synergies outside HOCHDORF Group 2 0 4 2 0 1 0

Total 107 198 142 100 134 124

Due diligenceEvaluation Procedures

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Due diligence for decision making

1. Company valuation• This valuation has been based on current and planned data

(2012-2015) and in consideration of different scenarios and methods

2. Financial due diligence• Within the framework of a detailed financial due diligence the financial figures 2013-2015

and the plausibility of the planned data 2016-2020 have been verified

3. Fiscal and legal due diligence• Within the framework of fiscal and legal due diligence, all companies have been checked on their

risk regarding material and intellectual property rights as well as on their taxes

4. Market visits• During several market visits all organizations in Tunisia, Egypt, Morocco, Mauritania, Senegal and

Lebanon were visited. There was also a visit from a Chinese distributor. These market visits gave us an overview of the whole Pharmalys Organization that also covered sub-distributors, paediatricians and customers (pharmacies and supermarkets)

Pharmalys: best benefit-risk ratioEvaluation Procedures

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Pharmalys is the forward integration option with the highest benefit and the lowest risk.

1. High benefit• For several years now, Pharmalys has been very successful in business. Its profitability is very good

2. Successful in markets of strategical importance to us• MEA and Asia are our target markets. Pharmalys is very successful in exactly those markets

3. The right time for development• Pharmalys has grown rapidly and needs better structures, which HOCHDORF can provide• The company valuation is still at an affordable transaction level for HOCHDORF

4. Utmost mutual interest• HOCHDORF needs access to these markets of strategical importance; Pharmalys on the other hand

wants to secure its long-term access to the required raw materials in Switzerland

5. Sustainable proof of achievement and long-term relationship• Pharmalys has been a Baby Care customer from the start. Its development is impressive

6. High data validation• Since a significant proportion of its sales were handled by HOCHDORF, we can validate the data

precisely





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Pharmalys brandsPharmalys

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Pharmalys distributes the brands “Primalac” und “Swisslac” in over 40 countries; primarily in the MEA region and in China.

1. Wide product range• Besides the conventional step 1, 2 and 3 infant formula, Pharmalys offers numerous

specialities such as anti-reflux, anti-allergen or lactose-free baby food • In addition to conventional infant formula, the Pharmalys product line also includes cereals

under the brand name “Swisslac”

2. Further registration• Both brands are registered in numerous other countries where Pharmalys is not yet active

MarketsPharmalys

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Pharmalys is mainly active in the MEA region and China, which are both very attractive markets for HOCHDORF.





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Synergies & risks

Potential for synergies

The synergy potential beyond the consolidation is considerable.

DistributorRetailer/pharmacy

Instantspeciality

milks

Pharma-related

products

Chocolatesuitable for

diabetics

Trade

Kid’s FoodFurtherforward

integration

Risks ISynergies & Risks

1. Country risks• Pharmalys is also active in numerous emerging markets that are not considered stable• These risks can be minimised by ensuring appropriate diversification as well as secure processes

in payment transactions

2. Compliance risks• The many local units are still unfamiliar with HOCHDORF and so constitute a certain

compliance risk• These employees need training and we have to monitor our compliance guidelines by using the

appropriate processes

3. Personnel risks• Pharmalys is a medium-sized company and so its success depends on just a few people• This risk can be minimised by adopting the right kind of motivational strategies and staff

development programmes, while combining the best of both enterprises (HOCHDORF/Pharmalys)

4. Risk of takeover• The increase in voting restrictions reduces protection against takeovers• We take the view that we still have a very balanced and stable shareholder base, enabling

HOCHDORF to act independently

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In general terms, M & A transactions are always risky. The following risks require particular attention.

Risks II

Synergies & Risks

1. Long-term collaboration with Pharmalys• Pharmalys has been a Baby Care customer from the start• Over the last 8 years the cooperation has been very successful

2. We are only purchasing a majority shareholding in Pharmalys• The transaction only involves the takeover of the majority shareholding in Pharmalys• The complete management team at Pharmalys remains on board

2. Many years of experience in the MEA markets• The MEA countries are not widely known and/or are viewed as “suspect" by many Europeans• The MEA markets, however, are typical emerging markets and are therefore highly interesting• HOCHDORF and Pharmalys have had experience in these markets for many years now;

neither has ever lost any money

2. Risk-averse transaction planning• Lock-up period of 4 years• Meticulously regulated exit procedure (not possible until seven years after the closing)

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It is important to also consider the following aspects of this transaction.





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Dimensions of integrationIntegration

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The integration process takes place immediately in different dimensions with different priorities.

ExternalOrientation

Innovation

Accounta-bility

Coordination& Control

Direction

Capabilities Motivation

Environment & Values

Leadership

Source: OHI Model Mc Kinsey

High PriorityMedium PriorityOrdinary Priority

Integration planningIntegration

1. Joint operational Board of Directors• The Pharmalys Board of Directors will consist of three HOCHDORF and two Pharmalys

members. The Board will take on a management role

2. Transfer of the administration to HOCHDORF• Transfer of the accounting to HOCHDORF and implementation of CSB (ERP solution)• Implementation of all HOCHDORF standards across all administrative processes

3. Installation of Reporting and Controlling systems• Ensure compliance with our Code of Conduct• Direct access to all important market information• Installation of risk monitoring information systems

4. Learning from each other• Integration of Pharmalys structures and processes in market development projects of

HOCHDORF

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We are focusing on the joint management, installing administration and controlling processes, as well as on fulfilling all responsibilities.





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Purchase priceTransaction Structure

1. Rating under the level of HOCHDORF• The EBIT multiple of 14 is significantly lower than the HOCHDORF rating at the time of the

contract signing

2. Accounting only two years• Only the current year 2016 and the year 2017 will be used in the calculation of the purchase

price• If a DCF method was applied to the figures planned for the next five years, the purchase price

would be much higher

3. Reasonable compared to other transactions • In previous transactions within the Baby Food sector, 20 EBITDA multiples and more have been

paid (e.g. Pfizer Nutrition / Nestlé or Wockhardt / Danone) Source: UBS

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Purchase price: “Optically expensive, fundamentally attractive” (Montega). We share this opinion.

Upside compensationTransaction Structure

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The upside compensation serves as a trade off for the share price development in relation to the number of shares awarded to the seller.

185.00 MoU

210.00 Agreement MoU

274.67 Signing

304.67 Conversion price

414,286 Shares

Why a conditional capital increase?Transaction Structure

1. Debt financing would not be an option• The syndicated loan funds are needed for the Sulgen plant, for the large-scale investment in

the Baby Food capacity expansion

2. Becoming a major HOCHDORF shareholder was a key motivating factor

• The seller is not then interested in an exit strategy or the monetary equivalent• The main motivation for the seller is belief in the increase in value of HOCHDORF

3. Also in the interests of HOCHDORF• In addition to an important anchor shareholder from the Swiss dairy industry, with this

transaction HOCHDORF also has an anchor shareholder from the dynamic baby food industry

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The conditional capital increase is a fundamental element of the entire transaction.





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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1. Conditional capital increase

• Issue of 717,380 new shares, representing 50% of the current total

amount

• Issue of conversion rights and/or warrants

• To purchase 51% of the shares in the three Pharmalys companies• For the financing of T9, canning line 2 and Laglo 2 (warehouse)

2. In connection with the launch of a mandatory convertible

bond

• The bond is compulsorily converted into shares of HOCHDORF

Holding Ltd at the end of the term

3. Increase of the voting restrictions from 5% to 15%• Share exchange as a part of the forward integration• According to their holding, shareholders should receive voting rights,

which are limited to a maximum of 15%

Capital increaseCapital Increase & Adjustment of Voting Restrictions

• Minimum amount CHF 131,008 million (430,000 shares)

• Maximum amount CHF 218,564 million (717,380 shares)

• Issue price: 100%

• Interest rate: 3.50%

• Authorisation: March 30, 2017

• Expiration: March 30, 2020

• Denomination: CHF 5,000

• Conversion price: CHF 304.67

• Conversion: Earliest 9 months after the date of payment by

creditors, latest at maturity

• Interest: Divided into a controllable component

and tax-free part

Conditions

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Mandatory convertible bondCapital Increase & Adjustment of Voting Restrictions

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1. Tranche A (max. 430,000 shares)

• The preferential subscription rights of the shareholders are excluded in favour of the holders of the mandatory convertible bond

• The shareholders' subscription rights shall be excluded in favor of Amir Mechria

• A maximum of 430,000 shares represent CHF 131,008 million.• Restriction of voting rights in line with article 6 of the statutes

2. Tranche B (max. 287,380 shares)

• The preferential subscription rights of the shareholders are excluded in favour of the holders of the mandatory convertible bond

• Subscription rights of the shareholders is granted• Subscription right: 81.93 of the previous shares entitle a subscription for

new shares to the nominal amount of CHF 5,000 • CHF 5,000 result in 16.41 new shares. Fractions will be compensated in

cash• A maximum of 287,380 shares represent CHF 87.556 million• Restriction of voting rights in line with article 6 of the statutes

Mandatory convertible bondCapital Increase & Adjustment of Voting Restrictions





5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Founder and CEO of Pharmalys Laboratories SA

Dr Amir Mechria

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5. Pharmalys


7. Integration



10. Dr Amir Mechria


ContentOverview

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Extraordinary General Meeting

Statutory terms

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a) Invitation Issued on November 4, 2016 in due form and

on time

Publication in the SOGC November 4, 2016

b) Agenda items Agenda items and requests from the Board of

Directors were delivered with the invitation

c) Requests Written submission until 23 November 2016 to

the BoD Secretariat. No proposals were

received on agenda items

d) Voting procedure Voting is undertaken electronically. Information

sheets are available at the information desk

Colour code: Green = Approval

Yellow = Abstention

Red = Rejection

Statutory termsExtraordinary General Meeting

• Presence / number of votes

• In accordance with Article 11 of the Articles of Incorporation,

the absolute majority of the represented share votes applies

to votes and elections unless the legal provisions stipulate

otherwise

• According to the legal requirements, the acceptance of the

agenda item 1 “Conditional Capital Increase” requires a

majority of 2/3 of the represented shares

• Votes and elections are held openly

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Electronic voting

Voting procedure

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1. Voting manuals are available at

the information desk

2. Test question:

a. Have you ever visited the HOCHDORF

Group website (www.hochdorf.com)?

1. Conditional capital increaseExtraordinary General Meeting

Request of the Board of Directors:

• The Board of Directors requests a conditional share capital

increase to a maximum amount of CHF 7,173,800 by issuing a

total of 717,380 fully paid-in registered shares with a nominal

value of CHF 10.00 per share, in order to issue conversion and/or

option rights granted in connection with convertible or option

bonds of the company

• This involves a change to the Articles of Association by inserting a

new Article 3b. The legal regulations require a 2/3 majority of

represented shares for the relevant provision to be accepted

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2. Increases in the registering and voting restrictions from 5% to 15%


Requests of the Board of Directors:

• The Board of Directors requests an increase of the registering and

voting restrictions from 5% to 15% in accordance with Article 6a of

the Articles of Association and that the Article 6a of the Articles of

Association be appropriately amended

• In this context the Board of Directors is also requesting the

modification of Article 12, paragraph 3

• In accordance with legal provisions, a simple majority is required for

these changes

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3. Election of Michiel de Ruiter as additional Board Member


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• Born 1962

• Master of Science in Business Administration and

Marketing (Agricultural University of Wageningen

(Holland)

• Dutch citizen; residing in Amstelveen

• CEO of the international Zeelandia Group

headquartered in the Netherlands

• Previous activities, including:– 2006 – 2014: Managing Director Baby Care

HOCHDORF Group– 1995 – 2006: Friesland Campina, inter alia as

Managing Director Infant Nutrition – 1987 – 1995: Working for McKinsey in

Amsterdam, Sao Paolo and Brussels

3. Election of Michiel de Ruiter as additional Board Member


Request of the Board of Directors:

The Board of Directors requests the election of Michiel de

Ruiter as a new member of the Board of Directors up to and

including the Annual General Meeting 2017.

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CommentsExtraordinary General Meeting

• Comments?

• Dates

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• 26 January 2017 Initial information about the 2016

business year

• 13 March 2017 Results for the 2016 business year

• 5 May 2017 Annual General Meeting

• 17 August 2017 Half-year results for 2017


Financial calendar

Upcoming HOCHDORF Group events.

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• Please place your voting device on your chair before you leave

the room. Thank you

• The aperitif reception will now take place in the foyer and in

the small hall

• Thank you for your interest and your visit


At the end of the General Meeting

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hochdorf holding ltd...niche player in global premium food markets by 2020.» ... and the...

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