2019

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Hochland SE at a glance

(thousand e) 2019 2018 2017 2016 2015

Revenues

Total 1,597,859 1,490,128 1,445,909 1,194,121 1,191,741

Sales (in tonnes) Total 377,961 362,900 348,619 309,498 294,651

Profit situation

Earnings before interest, taxes,depreciation (EBITDA) 125,974 99,876 103,672 132,878 127,446

Earnings before taxes (EBT) 81,651 65,479 63,355 107,857 93,418

Cash flow

Net inflow of cash assets from operational activities 110,284 82,500 69,149 84,996 118,909

Net outflow of cash assets for investment activity in fixed assets (82,766) (69,075) (136,722) (23,536) (28,935)

Advertising expenses

ATL/BTL 42,283 38,766 37,280 35,593 34,574

Assets and liabilities structure

Balance sheet total 1,049,429 896,390 880,212 852,398 784,635

Non-current assets 584,352 456,743 394,034 325,988 260,150

Current assets 465,077 439,647 486,178 526,410 524,48

Financial liabilities 69,107 8,025 15,852 17,620 19,373

Ratio of equity to assets 112.7 % 132.5 % 145.5 % 172.6 % 195.5 %

Capital structure (without minorities)

Equity 658,343 604,976 573,381 562,531 508,515

Equity ratio 62.7 % 67.5 % 65.1 % 66.0 % 64.8 %

Profitability

EBITDA margin 7.9 % 6.7 % 7.2 % 11.1 % 10.7 %

EBT margin 5.1 % 4.4 % 4.4 % 9.0 % 7.8 %

Return on equity (after tax) 9.5 % 8.7 % 7.9 % 14.1 % 13.4 %

Employees (as at end of year)

Total 5238 4853 4521 4204 4118

– Germany 1977 1845 1780 1672 1612

– Other countries 3261 3008 2741 2532 2506

Page

Introduction by the Chairmanof the Supervisory Board 2

The management bodies of Hochland SE 3

Status report

Commercial environment 5

Profit situation and financial position 6

Marketing and sales 8

Production and technology 15

Sustainability at Hochland 16

People at Hochland 18

Forecast 20

Financial figures (short form)

Statement of profit or loss 22

Statement of financial position 23

Statement of cash flows 24

Table of contents

The Supervisory Board | Introduction by the Chairman of the Supervisory Board

Heimenkirch, March 2020 Hansjörg Zelger

Processed cheese on the rise

Hochland looks back on a satisfactory year. Cheese sales rose for the seventh time in succession. 378,000 tonnes were sold group-wide, which is 15,000 tonnes or 4 % more than in the previous year. Processed cheese accounted for almost half of the increase.  

Once again the Food Service played a decisive role here, with strong growth especially in Russia and in exports to third countries.  

The Brand business segment closed with a plus of almost 5 percent group-wide. The main contributors were Hochland Russia, with the highest sales in its history, Hochland Germany and Hochland România, which has been achieving above-average growth for several years.  

In percentage terms, Patros and Gervais performed best in Germany. Almette was stable throughout the group. The brand was unable to fully benefit from the rising demand for cream cheese, especially in Russia, due to capacity bottlenecks. With the expansion of the production facility in Prokhorovka, the conditions are now in place for further growth in this category. 

The development of the Hochland brand was very pleasing: It grew by 7 % group-wide, and in Germany by a clear double-digit percentage. This was mainly due to the Hochland Sandwich Slices. Processed cheese, with which Hochland’s success story once began, is now on the upswing again in its home mar-ket. New impetus was also provided by “Hofkäse” farm cheese made from 100 % Allgäu milk, with which the Hochland brand came back extremely successfully in the hard and semi-hard cheese segment. 

Finally, the rapid growth of the Simply V brand shows that Hochland has recognised the signs of the times. Plant-based products will become increasingly impor-tant in the future, not only in the German business. Other Hochland subsidiaries also see potential here. The 7 % increase in group sales shows that price increases were implemented in almost all countries.  

With the commissioning of the semi-hard cheese plant in Belinsky and the expansion in Prokhorovka, Hoch-land has successfully completed two major construction projects. This will release forces for the “Lighthouse” project in France: With a high double-digit investment in the millions, Fromagerie Henri Hutin will be trans-formed over the next few years into a modern produc-tion facility that will play a pioneering role in the group in terms of sustainability.  

“How will we live in 2030?” More than 100 Hochlän-der have been dealing with this question for over a year. Their answers were used as the basis for the Hochland Vision 2025, which was adopted at the end of 2019. I want to express my appreciation to everyone who was involved: Employees, managers and the Manag-ing Board, for their intensive work on a common vision with ambitious goals, which will serve Hochland and all Hochländer as a compass in the coming years. 

I would like to thank the Hochland shareholders and the Managing Board for the courage and vision they have shown in making the challenging entrepreneurial decisions of the past year. Thank you for the good and trusting cooperation. 

6 | 72 | 3The management bodies of Hochland SE

The Managing Board of the Hochland SE

The Supervisory Board of the Hochland SE

Hansjörg Zelger has been Chairman of the Super-visory Board since 1 May 2013. An auditor and tax consultant, he is a partner in the audit company Dr. Zitzelsberger in Munich.

As other external members, Felix Ahlers and Thomas Hinderer have also been in office since May 2013.

Felix Ahlers is the CEO of FRoSTA AG. Based in Bremerhaven, FRoSTA is one of Europe’s biggest producers of frozen foods.

Thomas Hinderer is Chairman of the Management Board of the Eckes Granini Group (Nieder-Olm), one of the leading makers of fruit-based drinks in Europe.

The shareholders continue to be represented on the Board by Claudia Reich, a business administration expert, Angela Wagner-Summer, M. A., and Franz Xaver Fuchs, a farmer and businessman.

Hubert Staub

is 56 years old, and has three children. He has been with Hochland for the past 27 years.

Hubert Staub is in charge of the Financial Department and Quality Management.

Thomas Brunner

is 59 years old, and has two children. He has been a „Hochlander“ for 12 years. Thomas Brunner is responsi-ble for Marketing & Sales and also for Product Deve-lopment.

Peter Stahl

is 53 years old, and has four children. He has been with Hochland for the past 26 years.

Peter Stahl has been Chair- man of the Managing Board since 1 January 2013. He is also responsible for Production & Techno logy and for Purchasing.

Since 2015, Peter Stahl has been Chairman of the German Dairy Industry Association (MIV). The MIV represents around 80 leading privately owned, cooperative and multinational enterprises in the German milk and dairy sector.

Status report | Commercial environment

The Hochland Vision 2025 is a joint effort for which many Hochländer have provided impulses and ideas and in which they have participated in passionate discussions. It will provide everyone at Hochland with orientation in the coming years.  

But how do you present the result of this vision process to the more than 5,000 employees in a clear and concise form? Here too, Hochland has taken unusual paths: A four-minute video serves as an entertaining introduction, which presents the core themes of the vision in a mix of animated film and real scenes: Sustainability, growth, digitalisation, efficiency and attractiveness as an employer. 

The presenters Elena Zloteanu and Karsten Roth take their colleagues on a journey into the future of Hochland.  

What could be more obvious than to design the present annual report with the themes and images from the Visions film?

Entertaining introduction to an exciting topic

6 | 74 | 5

The EU milk supply was stable in 2019 (+ 0,5 %), the fat and protein content of the milk was higher than in the previous year. Outside the EU,

milk production also grew only modestly. The main exporting countries showed a mixed picture: The USA stagnated, New Zealand recorded a slight decline (– 1 %). Russia increased its milk production by approx. 2 % and was thus one of the countries with the highest growth rates.

Due to higher demand on the world market, the high EU milk powder stocks of recent years have been reduced. The surplus protein market recovered, with milk protein prices at the end of 2019 at their highest level for five years.

The price of butter fell below the 4-euro mark for the first time after the high level of recent years. Fat utili-sation was directly reflected in a lower milk payment price. The milk prices developed differently, how-ever: In most EU countries they declined over a period of several months and were below the level

Milk market in equilibrium

of previous years, whereas in the USA and Russia they increased.

Political events influenced the milk market. There was still uncertainty about the effects of Brexit and most market participants looked at this unprecedented event with concern. Even events in a completely different industry had an impact on the milk market: The USA responded to unjustified EU subsidies for aircraft pro-duction with punitive tariffs on dairy products, among other things.

The market for packaging materials developed unevenly. The prices for plastic granules fell slightly. Cardboard packaging suppliers saw a good level of demand which led to rising quotations. The supply situation for glass remained difficult due to the sharp rise in demand. Prices on the aluminium market fell, but a trend reversal became apparent towards the end of the year. Hochland met this challenge with its own packaging policy, which the company will present to its stakeholders next year.

The Hochland processed cheese slices ”Burger & Toast“ took second place of the Polish competition ”Pearls of the Consumer Goods Market 2019“ in the cheese category.

Status report | Profit situation and financial position

Good sales growth

I n the 2019 financial year the Hochland Group was able to increase its revenues by € 108 million to € 1.6 billion and thus achieved revenue growth

of 7.2 %.

Satisfactory earnings situation

The profit on ordinary business activity increased by 24.7 % or € 16.2 million to € 81.7 million.

The EBT margin increased by 0,7 percentage points to 5,1 %.

The gross income of the Hochland Group increased by € 48.6 million or 10.5 % to € 513.1 million. The gross profit margin rose by 0.9 percentage points to 32.1 %.

In the 2019 financial year Hochland invested € 78.9 million in fixed assets. Investments were thus € 32.9 million higher than the depreciations.

Hochland supports the brand business in Germany and abroad with intensive advertising efforts. Market investments (ATL/BTL) amounted to € 42.3 million

6 | 76 | 7

Use: in thousand €

2019 2018

Wages, salaries, tempo- 223,126 203,8988rary workers, benefits

Taxes, levies 16,073 15,935

Interest, 4,162 4,092and other expenses

Non-controlling shareholders 33 (441)

Profit retention, 62,561 52,772dividend

Added value 305,955 276,256

Value added statement

2019 2018

Revenues 1,597,859 1,490,128

+ Other income 16,860 9,759

– Intermediate

(1,308,764) (1,223,631) consumption

Added value 305,955 276,256

Origin: in thousand €

Sound asset and capital structure

The Hochland SE Group continued to enjoy a sound asset and financial position in the 2019 business year.

The consolidated balance sheet total grew by € 153.0 million or 17.1 % to € 1,049.4 million. The share of fixed assets in the balance sheet total was 53.1 %, the share of inventories and trade receiv-ables was 27.4 %.

Liquid funds accounted for 7.2 % of total capital.

The financial liabilities of the Hochland Group increased by € 61.1 million to € 69.1 million. This corresponds to a share of the balance sheet total of 6.6 %.

At the end of the year the Hochland SE Group had equity – excluding non-controlling interests – of € 658.3 million. The equity ratio fell by 4.8 percent-age points to 62.7 %.

in the past fiscal year and were thus € 3.5 million higher than in the previous year.

The return on equity before income taxes was 12.4 %, after 10,8 % in the previous year.

Increased cash flow The net cash inflow from operational activities in-creased by € 27.8 million to € 110.3 million. In ad-dition to the operating result, this is also due to non-cash transactions such as the increase in depreciation and amortisation.

The cash outflow for tangible and intangible assets was spread across all plants. Investments were made both in the expansion of production capacities for new products and in replacement and rationalisation measures.

After allowance for dividend payments, exchange rate related and other value changes in the area of the financial assets, the freely available liquid funds in the Hochland Group increased by € 48.4 million to € 221.2 million in the 2019 financial year.

Status report | Marketing and sales

Despite economic uncertainties, including Brexit, the consumer climate in Germany was positive in 2019. Quality and freshness are important

factors when consumers purchase food. Full-range retailers benefited from this, while discounters came under somewhat greater pressure.

The total cheese market including counter sales grew slightly (+0.7 % value), the counter business was weak at – 3 % and only reached a market share of 12 %. The core business in the self-service shelves was slightly positive with an increase of about 1 % at moderate price increases (+2 %). The brands stabilized the mar-ket with a growth of 4 % and were able to compen-sate for the slight losses of the private label brands (– 0,6 %).

Hochland increased its market share to 4 % and strengthened its position as the No. 2 branded com-pany in the German cheese market. The retail sector values Hochland as a pioneer when it comes to sustain- ability. For this reason, the company was increasingly sought as a contact for joint measures in this regard.

Digital media are playing an increasingly important role in consumers‘ everyday lives and are complement-ing traditional channels. Therefore Hochland has de-fined digital marketing strategies for all brands for the coming years.

Family cheesemaker since 1927

Hochland brand: The Hochland brand increased its sales by 30 %. With the successful launch of “Hofkäse“ (farm cheese) in the hard and semi-hard cheese mar-ket, new buyers were introduced to the brand. Com-pared to the same period last year, the buyer reach increased by 6 percentage points to 15 %.

Hochland processed cheese also developed pleas-ingly well with +8 %. In a processed cheese market, which was declining overall (– 6 %), the brand was able to increase its market share. In autumn, the “Ponyhof“ (pony farm) slices for children expanded the product range and, in addition to the successful “Bauernhof“ sandwich slices, gave new impetus to the product group.

Brand business in this segment declined slightly overall (–2 %), private labels recorded a decline in value of 8 %.

Grünländer: Sales in the hard and semi-hard cheese market were stable. While private labels declined slightly (– 3 %), brand business grew by a good 7 %. This was driven by the promotional business with a plus of 15 % (value) at falling prices per kilo (– 2 %).

Brands stabilize the market

Our Hochland ”Hofkäse“ was voted ”Product of the Year“ in a survey by the magazine Milch-Marketing.

6 | 78 | 9

”Patros Ofen Genuss“ (oven pleasue) with crispy topping achieves best results in the oven.

Patros: With a plus of 7 %, Patros performed signifi-cantly better than the market (+2 %) and than the main competitor (+3 %). The market leader was thus able to expand its market share by almost 1 percentage point. Improved distribution and the introduction of “Ofen Genuss” (oven pleasure) helped in this respect. A price increase above the EUR 2 threshold does not appear to be having a negative impact in the medium term.

The uses for white cheese have become more varied. Patros supports this with new recipe ideas, which will be shown from 2020 onwards both on the packaging and digitally. In 2020, the range will be expanded to include Patros goat‘s white cheese.

Gervais: The cottage cheese segment again developed positively in 2019, with a plus of nearly 6 %. In particu-lar it was the brands that grew (+17 % value), which amount to 31 % of the total segment.

Gervais “Hüttenkäse” (cottage cheese) also developed very positively, with 13 % sales growth with the basic article and the revised 400 g advantage pack. Gervais maintained its market leadership with a stable market share of 14 % and about 7 percentage points away from its main competitor, which in turn was declining.

The seasoned quark segment lost 3 %, the market leader increased its market share to around 47 % (+2.4 %). Gervais herb quark declined slightly (–7 %), but largely maintained its market share (7 %).

The Grünländer turnover developed positively with +3 %, which was also due to a strong increase in pro-motion sales (+6 %). Sales volumes rose significantly (+8 %) to 75 million packages. It was possible to fully compensate for the delisting from a major retail com-pany in March, among other things through special offer marketing in the hard discount segment.

From autumn onwards, the time-limited coloured pepper variant provided new impulses on the hard and semi-hard cheese shelves. The “Grün, grün, grün” (green, green, green) campaign continued to be shown on television and digital channels in 2019. Since autumn, Grünländer has been processing milk from farms with-out tethering only – another consistent step for the brand “with the green soul“.

Almette: The cream cheese market was stable, mainly driven by the brands. After the price increases in the previous year, private labels did not grow in 2019, they even declined (– 3 %).

Almette developed negatively (– 7 %). This was mainly due to the delisting from a large retail company in March. Time-limited promotions for Almette at a hard discounter already began in 2018. This was success-fully continued in 2019 and helped to partially com-pensate for the delisting.

The successful seasonal concept was expanded in spring with Almette lemon-pepper.

6 | 10Status report

| Marketing and sales

Russia: The Russian economy recorded modest growth of just over 1 %. The ruble followed the volatile devel-opment of world crude oil prices. Despite relatively low inflation, real disposable income stagnated at a low level. As a result, the share of retail promotion sales in the entire consumer goods sector reached a new re-cord.

Under these conditions, Hochland succeeded in achieving the highest brand sales in the history of the company on the Russian market with the help of strong promotional business.

According to Nielsen, Hochland Russia was able to maintain its clear market leadership in processed cheese. In a nationwide consumer survey, Hochland was once again voted “People‘s Brand“ in the pro-cessed cheese category.

Capacity at the Prokhorovka plant was temporarily insufficient to fully meet the high demand for cream cheese during the course of the year. Nevertheless, according to Nielsen, Hochland remained the unchal-lenged market leader in cream cheese, with a market share of around 58 % for Hochland and Almette to-gether. In the white cheese segment, the company had a neck-and-neck race for market leadership with its main competitor.

In the production of mozzarella, further fine-tuning of production and technology became necessary. The introduction will therefore not take place until 2020. Sales of semi-hard cheese from Belinsky under the Hochland/Grünlander brand will also start in the first half of 2020.

Sales in the Food Service segment achieved a double-digit increase, both for Cremette cream cheese and processed cheese for fast food restaurants. Here too, an all-time high was reached.

All in all, Hochland as Russia‘s largest cheese pro-ducer achieved record annual sales in 2019.

The tangy Almette garlic cream cheese goes very well with Russian and Georgian cuisine.

However, the development of the raw materials market in Russia had a negative impact on revenue. Raw milk prices rose by about 5 % compared to the previous year. Prices for all other important raw materials, including cream and butter, were also well above the previous year‘s level. To compensate for this, Hochland had to implement two price increases in the course of the year.

Brands and food service at an all-time high in Russia

6 | 710 | 116 | 10

Romania: The positive development of private con-sumption brought the Romanian economy a growth of 4 %. The unemployment rate remained very low at just under 4 %, at times even falling to around 3 %. Inflation at the end of the year amounted to 4 %.

The cheese market in Romania grew by around 7 % (value). With the exception of processed cheese, all categories were positive. The various retail channels developed differently: While traditional trade weak-ened slightly (– 2 %), modern trade gained by opening new stores and taking over traditional shops, but also by higher purchasing figures (+11 %). Private labels grew along with modern trade and reached 23 % mar-ket share (+1,8 percentage points); branded compa-nies lost market share.

Hochland România continued its positive trend (+ 6 %) and remained the clear market leader with a market share of 22 % (source: Nielsen).

Hochland processed cheese remained dominant in slices and wedges and improved its market share by over one percentage point to just under 57 %. With regard to cream cheese, Almette and Hochland Crème also achieved a combined market share of just under 57 %.

In white cheese, Hochland benefited from the trend towards self-service cheese products and increased its market share by one percentage point to 22 %. Cheese from the counter declined. The market share for semi-hard cheese fell slightly to just under 14 %. The loss at Cașcaval was partially offset by the new products “Delicii Calde Mozzarella” for hot dishes as well as Grünländer. In the third largest category, cottage cheese, Hochland Cottage Cheese got off to a very promising start in August thanks to a new offer.

Hochland is the most widely known cheese brand in Romania (96 % supported, 31 % unsupported) and has the highest consumer brand loyalty (29 %). Hochland was present on television all year round and was well

represented with a TV presence of 51 % in the relevant target group, the most visible brand in the cheese product group.

With the commissioning of a new warehouse with 2,200 pallet spaces in Sovata at the end of June, logistics processes and delivery reliability have been optimised further.

Poland: The Polish cheese market grew by around 7 % in 2019 (value). According to Nielsen, the segments developed very differently: Sales of processed cheese stagnated, cream cheese grew by 5 %, hard and semi-hard cheese by 9 %, soft cheese recorded a plus of 15 %.

With a market share of 10 %, Hochland is the market leader for cheese in Poland. Sales rose by almost 1% compared to 2018. Hochland processed cheese had a share of 51% in its segment , Almette achieved over 67 % for cream cheese. Valbon‘s market share in the soft cheese segment was just under 18 %, Hochland semi-hard cheese was around 2 %.

Hochland Polska regularly launches new products, demonstrating that the cheese industry can be creative, bold and innovative and that the market is open to new ideas, flavours and eating occasions. For all fans of hot dishes with cheese, Hochland launched the Hochland “Burger & Toast” slices in 2019. They melt perfectly and give pizza, toast and burgers their typi-cal taste.

In addition, Hochland surprised the market with an unusual packaging format: the Almette and Hochland Kanapkowy “Minis“ in a practical 4-chamber pack-age.

Hochland cheese in Poland again received a number of awards in 2019, including the titles of “Market Pearl FMCG 2019“, “Leader Forum“, “Hit of the Trade“ and the “Golden Receipt“, which is awarded by the Polish retail sector.

8 | 12Status report

| Marketing and sales

USA: Like many US cheese producers, Franklin Foods faced a variety of geopolitical challenges that slowed exports, especially to Canada and China. Several trade agreements were close to conclusion, but these regions remain unpredictable. By contrast, sustained growth came from Chile, where demand for cream cheese rose rapidly.

The upswing in the US economy continued. The gross domestic product increased by approx. 3 %, the un-employment rate fell to below 4 % and thus to the lowest level in almost 50 years. These two key indi-cators were a challenge with regard to staff recruit-ment and retention at both plants.

To further improve efficiency at both plants, Franklin Foods invested in equipment and processes as well as in staff training. One focus for 2019 was to ana-lyze the customer mix and the product portfolio of all customers in order to adjust minimum order quantities,

prices and freight costs. In the process unprofitable business was terminated.

Competition still remained fierce. The large cream cheese producers were fighting for market shares in a market which is only growing slightly at around 1 – 2 % per year. Franklin Foods continued its efforts to acquire new customers in all segments and to in-crease its market share, which rose to an estimated 7 %. Competitors also intensified their efforts.

Franklin Foods continued its growth with some key customers in the discount sector. However, additional time-limited promotions with import specialities meant more complexity and in some cases additional costs.

Most industrial customers also continued the positive trend, but Franklin Foods lost some orders towards the end of 2019. Turnover was slightly below the level of 2018.

Competing for market share

6 | 712 | 138 | 12

Transformation@PrivateLabelsPrivate labels: The demands on the private label busi-ness have increased once more. In addition to quality requirements on a level with the top brands, sustaina-bility and animal welfare aspects are gaining in im-portance. They are finding their way into the discount retailers’ shelves via new assortments. The speed at which product ranges, specification requirements and other framework conditions of the top discounters in Germany are changing is only exceeded by the speed at which consumer habits are changing.

All this also presents opportunities. These are ex-ploited by many private label suppliers. Smaller pro-ducers in particular are very agile and no longer just offer copies of their A or B brands, but successful new concepts instead. Value added ranges are developed together with the retailers.

In 2019, Bonifaz Kohler launched the first cheese with the label of the German Animal Welfare Associ-ation, thus confirming its role as an innovation leader. For some retailers, the repackaging of processed cheese slices was changed to cardboard boxes, which reduces plastic use. The share of sales of inter-national private label business increased by 12 % and the share of innovations in total sales also rose.

Innovations and internationalisation are thus the main pillars for adapting the product mix.

Bonifaz Kohler is the only company in the cheese segment that specializes in private labels and offers comprehensive category management consulting ser-vices to analyze sales potential and make product range recommendations at article level. An exclusive digital system makes the changes in the private label product range transparent on an almost daily basis.

According to Nielsen, the volume development of private labels in Germany was negative at –1 % and slightly declining. This was mainly due to the discount (– 2 %), which included brands to raise their profile and offered a variety of promotions. Private label sales suffered from this. In traditional food retailing, on the other hand, private labels grew (+2 %).

Sales prices increased by 2 % on average, which nei-ther covered the rise in milk price costs nor the costs related to increasing demands and complexity. Basic private labels in Germany are partially decoupled from the development of raw material and milk prices and often no longer offer an economic basis.

Growth to goFood service: The company grew in all three cus-tomer systems in the food service sector, in some cases it even achieved double-digit growth. Food service is thus the second largest business segment in German business, showing a pleasingly dynamic trend. Sales at quick-service restaurants developed very positively (+8 %). German business contributed +2 %. The main drivers for the sales development were special offers, which accounted for almost 20 % of sales.

By contrast, industrial and HoReCa business grew only slightly (+1%). This is mainly due to a top cus-tomer who lost volumes in the food retail sector. This sales channel is often used by other producers to make use of milk surpluses by producing cream

cheese in bulk. This remains the greatest challenge in the industrial business. Hochland was able to iden-tify the trend towards out-of-home catering also in the HoReCa sector and participate in the growth. Burger slices in particular continued to be in vogue.

In CoPacking, the slight sales growth of 1 % contin-ued to stem primarily from exports to third countries. Although demand from regions such as the Middle East, North Africa and South Asia was volatile, it was very encouraging overall with double-digit growth rates. Customers in these countries above all appreciate the quality and breadth of the pro-cessed cheese range. Gradually, cream cheese is also becoming established and turning into a second mainstay.

10 | 14Status report

| Marketing and sales

Plant-based dietSimply V: The megatrend of purely plant-based nutri-tion continued to prevail in Germany: Currently, five out of six Germans (85 %) know what the term “vegan“ means. Five years ago, only 66 % of the population knew this.

The relevant consumer target group who occasionally and temporarily follow a vegan diet has risen from 16 % to 41 % in 2014. The name recognition of the Simply V brand in this target group has increased to 57 %.

Simply V stands for vegan cheese alternatives and holds the “first mover” position in this rapidly growing environment with a market share of more than 70 %.

The product portfolio now includes alternatives to sliced cheese, grated cheese, cream cheese and quark. All products meet the relevant cheese-related consumer needs with very high quality, such as the

Patent applications safeguard successHochland Natec: 2019 was a busy year for the Natec Network and very successful at various levels. Sales stabilized at a high level.

The Natec Network with the companies Hochland Natec and GoldPeg has been reorganized. The clas-sic departmental structure was replaced in 2019 by an agile, product competence-driven and market-oriented form of organisation: In operating business, cross-loca-tion teams are now responsible for specific product groups. Regional groups have been set up for market development activities.

The Natec Network celebrated the introduction of the FreeTherm product range in 2019. The team at the Melbourne site developed and built this flexible twin shaft batch cooker in a very short time. The machine

and plant manufacturer is always looking for new busi-ness fields in order to meet the rapid market changes and to make the Natec Network future-proof. 2019 saw the start of several promising projects with which the company will position itself more strongly and more broadly in the food sector. These can be new technologies, but also new applications for existing plants and technologies used outside the cheese seg-ment: for example, for delicatessen, meat and sausage products or animal feed. Patent applications ensure long-term success.

As digitalisation advances, the Natec Network has reached important milestones, which will enable better connection to and more comprehensive support for customers in aftersales. One example is the introduc-tion of a tool for “predictive maintenance“.

Since October 2019, Simply V ”Frischegenuss“ (fresh enjoyment), a unique vegetable ”quark“ alternative, has been available.

typical taste expierence and consistency and the same uses on bread, for gratinating and seasoning etc.

6 | 714 | 1510 | 14 Production and technology

Construction is followed by more construction

In 2019, two major construction projects in Russia were partially or fully completed. The new plant in Belinsky went into operation after two years of inten-

sive rebuilding work. The new “Hochland/Grünländer“ semi-hard cheese for Russia is produced here. From milk reception to cheese dairy to the maturing process, every division of the plant has been extensively mod-ernised.

The expansion of the Prokhorovka site continued and capacity was adjusted to the rapidly growing cream cheese sales. At the end of the year, Prokhorovka was thus the largest production facility for cream cheese in the group. The project is scheduled for completion in the first quarter of 2020. Prokhorovka was also expanded to include a feta production facility, as demand for white cheese is also growing in Russia.

Meanwhile, planning for further major projects was underway at other plants. The “Lighthouse“ project was launched in Dieue in October. The French plant will be modernised and made fit for the future. It will play a pioneering role in sustainability within the Group.

The plans for Hochland Polska and Hochland România, which were initiated in 2018, have been substantiated and some of the implementation has be-gun. An extension was created in Węgrów, Poland and a new cream cheese line was put into operation there.

The production volume in Sovata remained at the level of 2018, after having increased by a total of more than 50 % in the two previous years. In 2019, invest-ments in infrastructure, equipment and processes in-creased capacity and efficiency thereby contributing to quality assurance.

In Spain, Hochland was able to acquire a neighbour-ing plot of land and now has a long-sought option for expansion. Hochland expects to be able to tackle plant expansion from the end of 2021.

At E.V.A. GmbH, the production and sales company for vegan products under the umbrella of the Hoch-land Group, a partial move to rented production

premises was prepared. This will create space and free capacity at the Oberreute plant.

The approved investments for 2019 amounted to a total of around € 58 million across the Group. Operational excellence is just as important as invest-ment. In all plants, great efforts were made to expand the high standard throughout the group and to bring young Hochland plants up to the high standards. Education and training programmes were offered to emphasize the importance of occupational safety in the plants.

12 | 16Status report

| Sustainability at Hochland

Two important agreements came into force at the beginning of 2019: The milk suppliers for the Schongau plant undertake not to use non-selec-

tive herbicides such as glyphosate on their arable and grassland areas. Farmers also refrain from spreading fermentation substrate as fertiliser, which could contain plastic particles from food waste.

In the second half of the year, suspected cases of ani-mal cruelty in southern Germany shook the industry. Hochland suppliers were not affected, but Hochland reacted immediately: It was the first company to in-clude a new clause in its milk supply contracts. This makes it possible to refuse to accept milk in cases of justified suspicion of serious infringements of animal welfare until the allegations are cleared up. As part of its sustainability strategy, Hochland has developed a clear position on animal welfare and many other criteria and is implementing this step by step, in cooperation with the farmers. In this context, an agreement was reached with the milk suppliers for Schongau to stop tethering all year round. The com-pany is convinced that this type of farming is no

longer in keeping with the times and is accepted less and less by the consumer. Implementation will be completed by the end of 2021.

Since the spring Hochland has been selling hard and semi-hard cheese in several varieties with the animal welfare label of the German Animal Welfare Asso-ciation (entry level) via its subsidiary Bonifaz Kohler. The milk comes from a supply group of about 40 farmers who have been supplying the company since the beginning of 2019.

Three plants are climate-neutral

As one of the first companies in the food industry, Hochland Deutschland has been operating its three production sites since July 2019 100 % climate neu-trally. The first priority is to reduce and avoid CO2 emissions. The unavoidable direct CO2 emissions (Scopes 1 and 2 according to the Greenhouse Gas Protocol) are fully compensated for by Hochland. The company works closely together with Plant-for-the-Planet for this purpose. For the “ZNU goes Zero“

A strong stance

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By 2025, all packaging material at Hochland is to be recyclable. The Grünländer packaging already consists of 30 % recycled plastic.

Efforts are being made at all sites of the Hochland Group to make the company more sustainable step by step. Here are just two highlights from 2019: Poland: Hochland Polska was awarded the title of “Eco-investor in the food industry 2019” for the modernisation of the drying and evaporation plant in Węgrów.

Romania: Strengthening generational cohesion – that is the aim Hochland România set itself. To this end, it has been working with the “Royal Foundation Margareta of Romania“ since mid-2019. With the support of Hochland, the foundation trains women and men of retirement age to become voluntary carers. They then look after children and young people before or after school in existing day centres.

Both sides benefit from this: The seniors find a new, meaningful activity and the young people have expe-rienced contact persons at their side, under whose guidance they can learn about sports, artistic and handicraft activities or who can help them with their homework.

campaign, the initiative is planting trees on the Yu-catan Peninsula in Mexico and promoting renewable energies via certificates. Compensation thus makes a real, immediate contribution to climate protection. The contract with Plant-for-the-Planet will run for ten years. In the first year 2019 Hochland invested 140,000 euros to offset emissions from 2018.

Together with Plant-for-the-Planet, Hochland also trains children to become climate ambassadors. In autumn 2019, two climate academies for children between 8 and 12 years were held. At the same time, the company is enabling another academy for children in Botswana through cross-subsidization.

Hochland has set itself ambitious goals with its packaging policy, which was adopted in 2019: By 2025, all packaging materials are to be recycl-able, and the packaging of branded products are to contain at least 30 % renewable resources. By 2030, all packaging should then be made of renewable raw materials, which are recyclable and biodegradable.

14 | 18Status report

| People at Hochland

The “Hochländer” have been working internation-ally without an annual budget since 2017. It has now become a habit to look at future de-

velopments every four months. This “New Performance Management“ approach serves to evaluate goals and measures at short intervals and to take changes in the environment into account more quickly.

Hochland accompanied this new way of working with a comprehensive training programme, which involved over 150 managers by the end of 2019. They function as multipliers in the entire group.

In November, the international HR network designed a new edition of the international training courses for 2020 to further support the organisation on its way to “Performance Management 2.0“. The “New“ can be dispensed with by now.

Competence transfer in production & technology

At the end of 2019, 17 participants in the internal training programme “Competence Transfer in Produc-tion & Technology“ proudly received their final certifi-cates. Over a period of two years, Russian, Polish,

Romanian and Spanish colleagues had the opportunity to benefit from the expertise and practical experience of German colleagues in the fields of mechatronics and milk technology.

The training courses based on the dual training system were held at the Heimenkirch and Schongau plants. A seminar on the Insights Discovery behav-ioural preference model and getting to know the guidelines and the Code of Conduct rounded off the programme.

The presenter duo Elena Zloteanu and Karsten Roth during the recordings for the Vision 2025 video.

(New) Performance Management

Hochland ”Margele“ (cheese pearls) – this is the poetic name of the new Hochland cottage cheese in Romania.

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Great Place to Work

2019 was dominated by the Great Place to Work employee surveys on employer attractiveness. It took place in almost all companies and locations. The survey period covered the whole year and ended in November with Hochland Polska. The results will be presented during the first quarter of 2020.

Since 2018, transformation training courses on the “Human Interaction Operating System” (HIOS) have been offered in the German companies. By the end of 2019, 16 HIOS trainings with 256 participants have taken place. Various organisational develop-ment measures were carried out in parallel.

All companies in the Hochland Group continued to aim at further strengthening their attractiveness as em-ployers in 2019. Since 2018, Hochland employees in Germany have been shown smiling in job adver-tisements, brochures and the career website –

with great success: Hardly any interview goes by without the candidate talking about the authentic campaign.

In 2019 the focus was on strengthening the employer brand further. Since the middle of the year Hochland has been present on Facebook, the professional net-works LinkedIn and Xing/Kununu with the campaign motto “… and now cheese“ and has been providing insights into the world of Hochland.

Four “Hochländer” from IT, marketing, engineering and dairy technology also star in individual videos published on the German-language company website, www.hochland-group.com/de/karriere/einblicke.

The visitor numbers show how successful the meas-ures are: While in July there were still around 7,300 website visitors, the number in October, after the launch of social media and the videos, was already at around 9,000 (+23 %).

Status report | Forecast

The year 2020 started promisingly for the EU milk market. However, trade conflicts and increasing protectionist tendencies are affecting

the opportunities for everyone involved within the EU and globally

Following Brexit, dairy products from Ireland will push into the other EU countries to an increasing extent, which will increase the pressure on prices. Last year’s extensive forest fires will affect milk pro-duction in Australia. Politicians and entrepreneurs worldwide are looking with concern at the develop-ment of the corona pandemic, whose effects on the economy will be serious. The dairy industry in Germany has presented its Milk Sector Strategy 2030. For the first time in post-war history, the various representatives of the industry jointly drew up a paper, identified the challenges of the future and provided possible answers. The focus is on three aspects: First of all the Quality standard QM milk is to be rolled out further and will also include the food retail trade. Secondly, in order to improve the communication regarding the topic of milk, the industry wants to create a central platform and finance it jointly. And thirdly and with good rea-son the dairy industry maintains that it is up to the contracting parties and not the state to decide how

the supply relationship between the milk producer and the dairy should be organised. At Hochland we are not simply waiting to see what the future holds for – we want to shape it. “How will we live in 2030?” – Many people at Hochland have been working on this question for over a year and have recorded the answers in a picture of the future 2030. This is the basis for the Vision 2025, which will serve Hochland as a compass in the coming years.  Two topics are now firmly on the agenda, both for Hochland and for the industry as a whole: In view of a growing social need for a more sustainable dairy industry, Hochland has the courage to identify and address deficits. The commitment to sustainability has been well received at all levels of the company, in the workforce, the management, among shareholders and the Supervisory Board.

The second topic is digitalisation. It will significantly change the way we live and work. It can be a bless-ing, an enormous support for our work and in every-day life, and at the same time there are reservations and fears about new technologies in the population. 

The great willingness at Hochland to change and the open mindset for trying out new things is the best prerequisite for accepting these challenges and for mastering them.

Shaping the future

Growth in our core countries and with export out of Europe is one of the Vision 2025 goals, for which this incisive image was found in the video.

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Financial figures (short form) as per 31st December 2019

Statement of cash flows

Statement of financial position

Statement of profit or loss

Financial figures (short form)

Statement of profit or loss

(thousand €) 2019 2018

Revenues 1,597,859 1,490,128

Change in inventories and own work capitalised 5,154 624

Gross performance 1,603,013 1,490,752

Material expenses (1,089,883) (1,026,265)

Personnel expenses (223,126) (203,898)

Depreciation (45,943) (36,147)

Other operating income 16,860 9,759

Other operating expenses (180,892) (170,472)

Earnings before interest and taxes 80,029 63,729

Investment result 1,372 1,209

Financial income 4,412 4,633

Financial expenses (4,162) (4,092)

Financial result 1,622 1,750

Earnings before taxes 81,651 65,479

Income tax (19,057) (13,148)

Net income 62,594 52,331

Non-controlling shareholders‘ share of profit 33 (441)

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Statement of financial position

Assets

(thousand €) 31. 12. 2019 31. 12. 2018

Property, plant and equipment/intangible assets 476,390 381,594

Financial assets and other non-current financial assets 80,587 56,663

Deferred tax assets 27,375 18,486

Non-current assets 584,352 456,743

Inventories 127,421 119,821

Receivables and current financial assets 262,393 240,515

Liquid assets 75,263 79,311

Current assets 465,077 439,647

Total assets 1,049,429 896,390

Equity and liabilities

(thousand €) 31. 12. 2019 31. 12. 2018

Nominal capital and reserves 658,343 604,976

Non-controlling interests 3,809 3,896

Equity 662,152 608,872

Non-current provisions 114,605 96,261

Non-current liabilities 54,868 9,551

Deferred tax liabilities 5,551 6,148

Non-current liabilities 175,024 111,960

Current provisions 34,713 28,276

Current liabilities 177,540 147,282

Current liabilities 212,253 175,558

Total liabilities 1,049,429 896,390

Financial figures (short form)

Statement of cash flows

(thousand €) 2019 2018

Earnings before interests and taxes 80,029 63,729

Depreciation of fixed assets 45,943 36,147

Paid income tax (18,467) (19,987)

Increase (decrease) provisions 1,825 (6,633)

Loss from fixed assets disposals 541 768

Abnahme (increase) working capital (9,019) 12,873

Changes of other balance sheet items 9,432 (4,397)

= Net inflow of cash assets from operational activities 110,284 82,500

Incoming payments from disposal of fixed assets 970 510

Payments for investments in fixed assets (83,879) (69,585)

Cash inflow from changes in the scope of consolidation 142 0

Other changes (56,220) 30,566 = Net outflow of cash assets for investment activities (138,987) (38,509)

Payments to shareholders (dividend) (13,000) (11,400)

Payments to non-controlling shareholders (120) (240)

Proceeds from borrowings (payments for repayment) of financial liabilities 31,369 (6,149)

Interest payments (1,228) (839)

= Net inflow (outflow) of cash assets for financing activities 17,021 (18,628) Changes due to exchange rates and other changes in values 7,634 (6,162)

= Net increase (decrease) of cash and cash equivalents (4,048) 19,201

Cash and cash equivalents at the beginning of the period 79,311 60,110

= Cash and cash equivalents at the end of the period 75,263 79,311

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Publisher:

Hochland SEKemptener Strasse 17D-88178 Heimenkirch/Allgäu

Phone +49 (0) 83 81/ 5 02- 0E-mail info@hochland.comInternet www.hochland-group.com

Editor:

inallermunde GmbH, LeutkirchPhone +49 (0) 7561/ 90 99-0 Notice:

This annual report is available in German. This is a translation of the German version. In case of doubt, the German version shall apply.Status as of 23.03.2020

The latest information about Hoch land is also available on the Internet.

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