Chr Hansen A/S : Q1 Interim report 2021/22

Chr. Hansen Holding A/S

Interim Report Q1 2021/22

September 1, 2021 - November 30, 2021

January 13, 2022 - Company announcement no. 1

Solid start to the year

Statement by CEO Mauricio Graber: "The encouraging start to the year with organic growth of 9% and progress across all business areas and strategic initiatives underlines the strength of our 2025 strategy differentiating us as a bioscience company focused on microbial and fermentation technology platforms. Food Cultures & Enzymes continued its strong momentum in the first quarter, while Health & Nutrition delivered a strong rebound following a Q4 that fell short of expectations. EBIT b.s.i. developed favorably at 7% growth, despite the impact from inflation and a general increase in activities as we reconnected with customers. The EBIT margin b.s.i. was down compared to last year due to the full inclusion of the HMO activities. We maintain our outlook for the full year."

Q1 2021/22 highlights

• Revenue amounted to EUR 268 million, up 10% from EUR 243 million in Q1 2020/21.
• Organic growth was 9% driven by volume growth. The Lighthouses (Bioprotection, Fermented Plant Bases, Plant Health and HMO) delivered 35% organic growth combined, while the remaining Core businesses delivered 7% organic growth.
• • Food Cultures & Enzymes organic growth was 7% driven by volume.
  • Health & Nutrition organic growth was 13% driven by volume.
• EBIT b.s.i. amounted to EUR 65 million, up 7% from EUR 61 million in Q1 2020/21. The increase was driven by Food Cultures & Enzymes, while EBIT b.s.i. in Health and Nutrition was at the Q1 2020/21 level due to a negative impact from Jennewein (HMO), which was only partly reflected in Q1 2020/21 (acquisition was closed on October 9, 2020).
• The EBIT margin b.s.i. was 24.4%, down from 25.2% in Q1 2020/21. Production efficiencies and scalability effects from the solid sales performance were offset by higher input costs not yet reflected in the sales prices, a general ramp- up of activities including travel, and the full inclusion of HMO.
• Implementation of price adjustments to reflect the current inflationary pressure is progressing as planned in close collaboration with our customers and is expected to have an effect from Q2 onwards.
• Free cash flow before acquisitions and special items (b.a.s.i.) amounted to EUR 55 million, up EUR 62 million from Q1 2020/21. The increase was due to both an improved cash flow from operating activities and lower operational investing activities.
• Bacthera entered into an agreement with Seres Therapeutics for the commercial manufacturing of SER-109, a potential treatment against recurrent C. difficile infection.
• Chr. Hansen launched its science-based climate targets to reduce its carbon footprint towards 2030.

Outlook

The outlook for 2021/22 remains unchanged from the original guidance provided on October 14, 2021.

• Organic growth is expected in the range of 5-8%.
• EBIT margin before special items is expected to be 27-28%.
• Free cash flow before special items is expected to be around EUR 140-170 million.

Chr. Hansen Holding A/S

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Interim Report Q1 2021/22

Key figures overview

Q1 Q1 2021/22 2020/21

Income statement, EUR million, continuing operations

Revenue		268.2	243.5
Gross profit		147.2	136.0
EBITDA b.s.i.		90.0	87.8
EBITA b.s.i.		76.6	72.1
EBIT b.s.i		65.5	61.4
Special items		0.3	(6.4)
EBIT		65.8	55.0
Net financial expenses		(4.6)	(6.6)
Profit for the period		46.2	36.1
Cash flow and investments, EUR million, continuing
operations
Operating cash flow		72.5	38.8
Cash flow from investing activities		(19.8)	(376.2)
Investments in PPE		(14.1)	(50.1)
Free cash flow b.a.s.i.		54.7	(6.9)
Balance sheet, EUR million, Group¹
Total assets	⁾	3,110.2	3,228.7
Invested capital		2,815.2	2,910.2
Equity		1,569.2	930.7
Net interest-bearing debt		968.1	1,706.1
Key ratios, continuing operations
Gross margin		54.9%	55.9%
EBITDA margin b.s.i.		33.6%	36.1%
EBITA margin b.s.i.		28.6%	29.6%
EBIT margin b.s.i.		24.4%	25.2%
EBIT margin		24.5%	22.6%
Operational expenses		30.5%	30.6%
R&D expenses		8.5%	8.6%
Capital expenditures		6.5%	22.4%
EPS diluted, EUR		0.35	0.27
Net working capital		205.5	194.7
Cash conversion		63.6%	53.2%
ROIC excl. goodwill		20.0%	20.6%
ROIC		9.3%	9.6%
Net debt to EBITDA b.s.i., Group		2.4x	3.8x

1. The Natural Colors business was sold March 31, 2021.
2. Organic growth: Increase in revenue adjusted for sales reduction, acquisitions and divestments, and measured in local currencies.

		Q1	Q1
		2021/22	2020/21
Group revenue growth drivers, %
Organic growth²	9%	10%
Volume/mix	⁾	9%	5%
Price		0%	5%
Currencies		1%	(8%)
M&A		0%	9%
EUR growth		10%	11%
Organic growth by region, %
EMEA		10%	7%
NA		12%	9%
LATAM		8%	40%
APAC		4%	(4%)
Food Cultures & Enzymes, EUR million / %
Revenue		177.7	165.3
Organic growth²	7%	8%
Volume/mix	⁾	7%	2%
Currencies		1%	(8%)
EUR growth		8%	0%
EBITDA b.s.i.		67.1	65.2
EBITDA margin b.s.i.	37.8%	39.4%
EBIT b.s.i.		54.7	50.8
EBIT margin b.s.i.	30.8%	30.7%
ROIC excl. goodwill	33.3%	33.4%
Health & Nutrition, EUR million / %
Revenue		90.5	78.2
Organic growth²	13%	15%
Volume/mix	⁾	14%	13%
Currencies		2%	(8%)
M&A		1%	38%
EUR growth		16%	45%
EBITDA b.s.i.		22.9	22.6
EBITDA margin b.s.i.	25.3%	28.9%
EBIT b.s.i.		10.8	10.6
EBIT margin b.s.i.	11.9%	13.6%
ROIC excl. goodwill	6.6%	7.2%

Chr. Hansen Holding A/S

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Interim Report Q1 2021/22

Strategic and operational highlights

2025 Strategy

Under its 2025 Strategy, Chr. Hansen will continue its journey as a differentiated bioscience company focused on microbial and fermentation technology platforms. The 2025 Strategy is based on three pillars:

REINVEST in the core platforms Food Cultures & Enzymes and Health & Nutrition.

• In Q1 2021/22, a number of new products were launched including the SWEETY® Y-3 culture which adds to Chr. Hansen's portfolio of products for sugar reduction.
• In Human Health a new study was published showing the favorable impact of Bifidobacterium BB-12® on infants with colic symptoms, while the roll-out of The Probiotics Institute continued.

LEVERAGE the technology platform to develop solutions for new applications and end markets.

• In November 2021, Bacthera entered into an agreement with Seres Therapeutics for a collaboration on the commercial manufacturing of SER-109, a potential treatment against recurrent C. difficile infection.
• In Plant Health, Chr. Hansen and UPL announced a long-term collaboration in October 2021 to develop and commercialize microbial solutions for sustainable agriculture.

EXTEND the technology platform through acquisitions and the expansion of the R&D partner network.

• During Q1 2021/22, Chr. Hansen continued to execute on the strain to solution strategy for Human Health reaping the benefits from the acquired probiotics businesses by expanding the customer base in different segments and through different channels. HMO benefited from customer launches of the 5HMO mix in North America.

Science-based targets

In November 2021, Chr. Hansen launched its science-based climate targets to accelerate its decarbonization journey. The targets are (baseline 2019/20):

• 42% reduction of greenhouse gases across scopes 1 and 2 by 2030.
• 20% reduction of greenhouse gases from scope 3 by 2030.

Long-term financial ambitions (until 2024/25)

In October 2021, the long-term financial ambitions for the period to 2024/25 were updated to reflect the divestment of Natural Colors and the acquisition of Jennewein (HMO activities).

Chr. Hansen remains committed to delivering industry-leading profitable growth and strong cash flows with the focus on cost discipline and capital efficiency.

• Mid- to high-single-digit organic growth, averaged over the period.
• An increase of the EBIT margin before special items over the period to above 30% driven by efficiency gains, scalability benefits and acquisition synergies that will be partly reinvested in the business.
• Average growth in free cash flow before special items exceeding the average growth in EBIT before special items.

Chr. Hansen Holding A/S

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Interim Report Q1 2021/22

Business review

Market developments

Food Cultures & Enzymes

According to the Company's own estimates, the global production of cheese grew by around 2% in Q1 2021/22, driven by North America and Europe which benefited from the re-opening of the food service channel, while the end markets for fermented milk remained negatively impacted in Q1 2021/22 by weakened demand in China and Latin America compared to the same period last year.

Health & Nutrition

The global probiotic supplements market benefitted from a rebound in the traditional sales channels in North America and Europe, while growth in the online sales channels remained strong. Markets are expected to remain volatile, however.

The market for infant formula remained negatively impacted by reduced production volumes and lower birth rates, especially in China. The market for HMOs in infant formula developed favorably driven by launches in North America.

The market for microbial-based solutions for animal feed and plant protection developed favorably supported by strong commodity prices.

Sales performance

Q1 2021/22 revenue amounted to EUR 268 million, up 10% from EUR 243 million in Q1 2020/21. Revenue was positively impacted by 1% from currency effects and a small impact from acquisitions as the Jennewein acquisition was closed on October 9, 2020.

Organic growth was 9% supported by strong growth from Health & Nutrition and solid growth from Food Cultures & Enzymes. The improvement was driven by volume growth with no contribution from pricing. Implementation of price adjustments to reflect the current inflationary pressure is progressing as planned in close collaboration with our customers with an expected effect from Q2 onwards.

The Lighthouses (Bioprotection, Fermented Plant Bases, Plant Health and HMO) accounted for approx. 10% of revenue and delivered 35% organic growth combined, while the remaining Core business delivered 7% organic growth.

Revenue growth, Group

					15%
11%	10%		10%	10%		10%
	9%		9%
					4%	6%
Q1			Q2	Q3	Q4	Q1
20/21			20/21	20/21	20/21	21/22

	EUR growth		Organic growth

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Interim Report Q1 2021/22

Sales performance by segment

Food Cultures & Enzymes

Q1 2021/22 revenue amounted to EUR 178 million, up 8% from EUR 165 million in Q1 2020/21. Revenue was positively impacted by 1% from currency effects. Organic growth was 7% and largely driven by volume.

Dairy delivered solid growth supported by strong project execution, continued good momentum in cheese in North America, and growth in China on a relatively low comparable from Q1 2020/21.

Food & Beverages delivered very strong growth driven by meat applications.

Revenue growth, Food Cultures & Enzymes

8%	8%			10%	8%
	5%	7%	7%
0%		0%
	-2%
Q1	Q2	Q3		Q4		Q1
20/21	20/21	20/21		20/21		21/22

	EUR growth		Organic growth

Health & Nutrition

Q1 2021/22 revenue amounted to EUR 90 million, up 16% from EUR 78 million in Q1 2020/21. Revenue was positively impacted by 3% from currency effects and acquisitions (Jennewein acquisition was closed on October 9, 2020). Q1 organic growth was 13% driven by volume.

Human Health and HMO delivered very strong growth. In Human Health, growth was supported by increased activity in the traditional sales channels in Europe, positive timing of orders delayed from Q4 2020/21, new customer wins and easing supply constraints. HMO was driven by customer launches in North America.

Animal Health and Plant Health delivered solid growth supported by very strong momentum in Plant Health, partly due to a positive impact from the timing of orders. Animal Health was impacted by a high comparable in APAC from Q1 2020/21 and delivered modest growth.

Revenue growth, Health & Nutrition

45%
	36%	34%	33%
15%	14%			16%
				13%
			0%
			-4%
Q1	Q2	Q3	Q4	Q1
20/21	20/21	20/21	20/21	21/22

EUR growth		Organic growth

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