Chr Hansen A/S : Q4 Results announcement 2020/21

Chr. Hansen Holding A/S full-year report

Statement of results 2020/21

October 14, 2021 - announcement no. 10

A year of transition

Statement by CEO Mauricio Graber: "Our performance of 7% organic growth and our EBIT margin b.s.i. of 27.7% both ended at the upper end of our initial outlook range for the full year. Free cash flow before acquisitions and special items ended at EUR 196 million and was higher than the full-year outlook, in part due to a positive impact from timing of payables.

It was a year of transition for Chr. Hansen as we executed on the changes we've made to our portfolio, i.e. the divestment of Natural Colors and the acquisitions of HSO Health Care, UAS Labs and Jennewein. The transactions have been successfully completed but not without challenges, especially relating to Jennewein, which fell short of expectations for the year in part due to the HMO market developing more slowly than anticipated.

The prolonged impact from the COVID-19 pandemic increased the complexity of transitioning Chr. Hansen to a fully-focused bioscience company. Limited customer access, delayed registration times, and general macroeconomic uncertainty restrained growth opportunities, and our Human Health business disappointed in the second half of the year due to the part of the business serving the traditional sales channels.

In light of the above it was positive to see the all-time-high product launch activity in Dairy, Animal Health, Bioprotection, and Fermented Plant Bases, as well as the new partnership with UPL in Plant Health, which will support growth in the coming years. In 2021/22, we will be focused on commercial execution and anchoring the new businesses, while making progress on our 2025 Strategy priorities. While 2021/22 will be a year with high macroeconomic uncertainty and continued COVID-19 related disruptions we expect organic growth of 5-8%, EBIT margin b.s.i. of 27-28%, and a free cash flow b.s.i. of EUR 140-170 million."

2020/21 in brief (continuing operations)

Organic growth was 7%, while revenue increased by 11% to EUR 1,077 million. Revenue was impacted positively by 11% from acquisitions and negatively by 7% due to currency effects. Revenue from acquisitions amounted to EUR 105 million.

Q4 2020/21 in brief (continuing operations)

Organic growth was 6%, while revenue increased by 15% to EUR 293 million. Revenue was impacted positively by 12% from acquisitions and negatively by 3% due to currency effects. Revenue from acquisitions amounted to EUR 32 million.

⋅	Food Cultures & Enzymes: 8% organic growth	⋅	Food Cultures & Enzymes: 10% organic growth
⋅	Health & Nutrition: 5% organic growth	⋅	Health & Nutrition: -4% organic growth

EBIT before special items decreased by 9% to EUR 298 million. The EBIT margin before special items was 27.7%, compared to 33.7% in 2019/20. The decline was partly due to positive one-off effects last year and the recognition of the acquired businesses. Free cash flow before acquisitions and special items was EUR 196 million, compared to EUR 225 million in 2019/20. EBITDA from acquisitions amounted to EUR 17 million.

EBIT before special items decreased by 14% to EUR 84 million. The EBIT margin before special items was 28.8%, compared to 38.4% in Q4 2019/20. The decline was partly due to positive one-off effects last year and recognition of the acquired businesses. Free cash flow before acquisitions and special items was EUR 76 million, compared to EUR 81 million in Q4 2019/20. EBITDA from acquisitions amounted to EUR 5 million.

Dividend

The successful divestment of Natural Colors reduced leverage from an elevated level of 3.1x to 2.3x net debt to EBITDA before special items during 2020/21. The Board of Directors proposes an ordinary dividend for 2020/21 of EUR 0.87 (DKK 6.54) per share, for a total of EUR 116 million. The proposed ordinary dividend is equivalent to the dividend paid out in 2021 and represents 58% of the profit for the year, and will keep Chr. Hansen at a financial leverage consistent with a solid investment-grade credit profile.

Outlook for 2021/22

Organic revenue growth of 5-8%

EBIT margin before special items of 27-28%

Free cash flow before special items of EUR 140- 170 million

Long-term financial ambitions until 2024/25

The ambitions have been updated to reflect the divestment of Natural Colors and the acquisition of Jennewein.

• Mid- to high single-digit organic growth, averaged over the period
• Increase in EBIT margin before special items over the period
• Average growth in free cash flow before special items exceeding the average growth in EBIT before special items

The outlook for 2021/22 assumes constant currencies from the time of this announcement and for the remainder of the financial year. For further details on the outlook for 2021/22 and the long-term financial ambitions until 2024/25, please refer to page 9.

Chr. Hansen Holding A/S
Bøge Allé 10-12
2970 Hørsholm
Denmark
Company reg. no.: 28318677	www.chr-hansen.com	Page 1/30

Chr. Hansen Holding A/S full-year report

Financial highlights and key figures

						Q4	Q4
						2020/21	2019/20	Growth
Income statement, EUR million, cont. operations
Revenue						293.3	254.3	15%
Gross profit					169.4	156.7	8%
EBITDA before special items	111.8	121.0	(8%)
EBIT before special items	84.2	97.7	(14%)
Special items				(0.1)	(8.8)	-
EBIT						84.1	88.9	(5%)
Net financial expenses	(6.4)	(4.3)	49%
Profit from continuing operations	67.0	67.6	(1%)
Profit from discontinued operations	2.2	(1.4)	-
Profit for the period, Group	69.2	66.2
Cash flow, EUR million, Group
Cash flow from operating activities	135.0	142.1	(5%)
Cash flow from investing activities	(58.6)	(597.3)	-
Free cash flow			76.4	(455.2)	-
Free cash flow before acquisitions and special items	76.5	97.1	(21%)
Free cash flow before acquisitions and special items,
cont. operations			76.5	81.4	(6%)
Balance sheet, EUR million, Group
Total assets ¹
Invested	capital ¹
		⁾
Net working	capital ¹
		⁾	⁾
Equity
Net interest-bearing debt
Key ratios
Continuing operations
Organic growth ²		6%	9%
Gross margin		⁾		57.8%	61.6%
EBITDA margin before special items	38.1%	47.6%
EBIT margin before special items	28.8%	38.4%
EBIT margin					28.7%	35.0%
ROIC excl. goodwill		25.8%	38.1%
ROIC						12.0%	18.8%
R&D						8.6%	6.7%
Capital expenditures		20.0%	20.2%
Earnings per share diluted, EUR	0.51	0.52	(2%)
Group
Earnings per share diluted, EUR	0.53	0.51
Net debt to EBITDA before special items

YTD	YTD
2020/21	2019/20	Growth
1,077.4	970.0	11%
613.4	584.0	5%
399.3	400.6	(0%)
298.1	326.9	(9%)
(21.9)	(13.9)	-
276.2	313.0	(12%)
(22.5)	(13.5)	67%
198.7	231.6	(14%)
646.5	13.4	-
845.2	245.0	-
310.8	364.6	(15%)
284.5	(807.5)	-
595.3	(442.9)	-
183.9	244.5	(25%)
196.4	224.9	(13%)

3,114.2 2,853.6

2,793.1 2,487.6

190.1 208.1

1,626.1 893.0

898.2 1,345.0

7%	6%
56.9%	60.2%
37.1%	41.3%
27.7%	33.7%
25.6%	32.3%
24.8%	33.6%
11.6%	16.5%
8.5%	8.0%
14.5%	12.2%
1.51	1.76	(14%)

6.41 1.86

2.3x 3.1x

1. The Natural Colors business was sold March 31, 2021. In 2019/20, total assets, invested capital and net working capital include assets and liabilities related to the Natural Colors business.
2. Organic growth: Increase in revenue adjusted for sales reduction, acquisitions and divestments, and measured in local currency.

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Chr. Hansen Holding A/S full-year report

2020/21 full-year results

Market developments

According to the Company's own estimates, the end markets for fermented milk declined globally by 2-3% in 2020/21 due to reduced production output and weaker demand in China and Latin America, compared to the same period last year.

The global production of cheese is estimated to have grown by around 1-2% in 2020/21, driven by North America and Europe which both benefited from the reopening of the food service channel in the second half of the year.

Management estimates the overall market for Human Health to have grown by 3-5% during 2020/21. While online sales channels showed strong growth, the traditional sales channels continued to be impacted mainly by elevated inventory positions.

The market for microbial-based solutions for animals and plants developed favorably in 2020/21, supported by favorable commodity prices and an increased focus among farmers on reducing antibiotic usage in livestock production and finding alternatives to chemical pesticides.

Revenue (cont. operations)

Organic growth was 7%, while revenue increased by 11% to EUR 1,077 million. Revenue was impacted positively by 11% from acquisitions and negatively by 7% due to currency effects. The contribution from acquisitions was EUR 105 million.

Organic growth was primarily driven by price increases in local currencies incl. the use of EUR-based pricing in certain countries, while volume/mix growth was below historical levels in part due to COVID-19.

Revenue (cont. operations)	2020/21
Organic growth (vol/mix)	3%
Organic growth (price)	4%
Organic growth	7%
Currencies	(7)%
Acquisitions	11%
EUR growth	11%

developments in underlying production volumes and market penetration by previous product launches such as CHY-MAX® Supreme. NOLA® Fit for lactose-free dairy products also supported organic growth.

Cultures for fermented milk incl. probiotics was impacted negatively by the decline in end markets in China and LATAM, and reduced upselling activity due to COVID-19.

Bioprotection and Fermented Plant Bases delivered double-digit growth in 2020/21 and launched new products including the third generation of FRESHQ for fermented milk and white cheeses and a new range of texturizing cultures for different plant protein bases. The lighthouses accounted for around 8% of Food Cultures & Enzymes revenue in 2020/21.

Health & Nutrition

Organic growth was 5%, while revenue increased by 36% to EUR 377 million. Revenue was impacted positively by 37% from acquisitions and negatively by 6% due to currency effects. Health & Nutrition accounted for around 35% of Group revenue in 2020/21 compared to 29% last year.

Organic growth was driven by Animal Health and Plant Health, whereas Human Health declined.

Human Health experienced a significant drop in demand in the second half of 2020/21 from customers serving the traditional sales channels as end market growth for the segment did not pick up as expected. The decline was partly offset by very strong momentum in the acquired businesses (not included in organic growth) which benefitted from strong growth in the online markets.

Organic growth in Animal Health was driven by Cattle, Poultry & Swine supported by good uptake of GalliPro® FIT and the global roll-out of our silage product offering.

Organic growth in Plant Health was driven by sales of Quartzo® and Presence® in Latin America.

HMO revenue was lower than originally expected, but with good momentum in securing customer contracts and the business resolved outstanding patent litigation cases with favorable results.

Revenue by business area (cont. operations) Food Cultures & Enzymes

Organic growth was 8%, while revenue increased by 1% to EUR 701 million. Revenue was impacted negatively by 7% due to currency effects. Organic growth comprised 3% from volume/mix and 5% from price increases in local currencies.

Organic growth was driven by cultures and enzymes for the cheese segment, which was supported by positive

Revenue by region (cont. operations) EMEA (Europe, the Middle East and Africa)

Organic growth was 6%, while revenue increased by 5%. Revenue was impacted positively by 2% from acquisitions and negatively by 3% due to currency effects. Organic growth was driven by Food Cultures & Enzymes which delivered solid growth. Health & Nutrition declined due to weak consumer demand in the traditional sales channels of Human Health.

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Chr. Hansen Holding A/S full-year report

2020/21 full-year results

North America

Organic growth was 6%, while revenue increased by 16%. Revenue was impacted positively by 19% from acquisitions and negatively by 8% due to currency effects. Organic growth was driven by Food Cultures & Enzymes and Animal Health, while Human Health declined. This was partly offset by the acquired businesses (not included in organic growth).

APAC (Asia-Pacific)

Organic growth was negative by 3%, while revenue increased by 19%. Revenue was impacted positively by 22% from acquisitions. The decline was driven by lower production and weaker demand for yogurt in China, while Health & Nutrition delivered solid growth.

LATAM (Latin America)

Organic growth was 26%, while revenue increased by 8%. Revenue was impacted positively by 1% from acquisitions and negatively by 19% due to currency effects. Organic growth was driven by Food Cultures & Enzymes and Health & Nutrition. EUR-based pricing accounted for approximately half of the organic growth.

Gross profit (cont. operations)

Gross profit was EUR 613 million, up 5% on 2019/20. The gross margin decreased by 3.3 percentage points to 56.9%, due to a more than 3 percentage point negative impact from acquisitions. Production efficiencies were offset by a negative impact from currency, product mix and higher freight costs.

Operating expenses (% of revenue, cont. operations) Operating expenses totaled EUR 315 million (29.3%), compared to EUR 257 million (26.5%) in 2019/20.

	YTD		YTD
EUR million	2020/21	2019/20
R&D expenses (P&L)	90.1	76.2
- Amortization	7.6	6.9
- Impairment	2.0	3.1
+ Capitalization	10.8	11.8
R&D expenditures incurred	91.3	78.0

Total R&D expenditures amounted to EUR 91 million (8.5%), compared to EUR 78 million (8.0%) in 2019/20.

Sales & marketing expenses amounted to EUR 155 million (14.4%), compared to EUR 135 million (13.9%) in 2019/20. The increase in cost level from the acquisitions was partly offset by reduced travel expenses due to COVID-19 travel restrictions.

Administrative expenses amounted to EUR 73 million (6.8%), compared to EUR 53 million (5.5%) in 2019/20. The increase in cost level was primarily driven by acquisitions.

Net other operating income/expenses was an income of EUR 3 million, compared to EUR 8 million last year, as 2019/20 was impacted by the single-line consolidation of UAS Labs and a favorable ruling in a VAT dispute case.

EBITDA before special items (cont. operations) EBITDA before special items amounted to EUR 399 million, compared to EUR 401 million in 2019/20. The impact from acquisitions was EUR 17 million, compared to EUR 4 million in 2019/20. The EBITDA margin before special items (incl. acquisitions) was 37.1%, down 4.2 percentage point from 2019/20.

The underlying EBITDA margin before special items and excluding acquisitions would have been 39.3%, compared to 41.0% in 2019/20. The decrease was mainly driven by investments into R&D activities and a negative currency impact.

Operating profit (EBIT) before special items (cont. operations)

EBIT before special items amounted to EUR 298 million, compared to EUR 327 million in 2019/20, a decrease of 9%. The EBIT margin before special items was 27.7%, down from 33.7% in 2019/20.

The underlying EBIT margin before special items (excl. acquisitions) would have been 31.4%, compared to 33.6% in 2019/20. The decrease was due to the lower EBITDA margin, and an increase in depreciation and amortization.

In Food Cultures & Enzymes, EBIT before special items amounted to EUR 224 million, compared to EUR 238 million in 2019/20. The EBIT margin before special items was 32.0%, down 2.3 percentage points from 34.3% last year, primarily due to product mix and a negative currency impact that offset production efficiencies.

In Health & Nutrition, EBIT before special items amounted to EUR 75 million, compared to EUR 89 million in 2019/20. The EBIT margin before special items was 19.8%, down 12.4 percentage points on 2019/20 mainly due to the acquisitions. Excluding the acquisitions, the underlying EBIT margin before special items for Health & Nutrition was 30.0% compared to 31.9%, mainly driven by a negative currency impact.

Special items (cont. operations)

Special items were an expense of EUR 22 million compared to an expense of EUR 14 million in 2019/20, and the increase in expenses was primarily driven by costs in relation to the carve-out process of Natural Colors and the acquisition of Jennewein.

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Chr. Hansen Holding A/S full-year report

Operating profit (EBIT, cont. operations)

EBIT amounted to EUR 276 million, compared to EUR 313 million in 2019/20. The EBIT margin was 25.6%, compared to 32.3% in 2019/20. Adjusted for acquisitions, the EBIT margin would have been 29.1%.

Net financials, share of JV and tax (cont. operations) Net financial items amounted to EUR 23 million, compared to EUR 14 million in 2019/20. Net interest expenses were EUR 22 million (incl. EUR 3 million due to IFRS 16 Leases), up from EUR 13 million in 2019/20.

The net impact from exchange rate adjustments was negative at EUR 1 million, in line with 2019/20.

The Bacthera JV produced a EUR 7 million loss to Chr. Hansen, compared to a loss of EUR 4 million in 2019/20.

Income taxes amounted to EUR 48 million, equivalent to an effective tax rate of 19.6%, compared to EUR 64 million and 21.7%, respectively, in 2019/20. The lower tax rate was due to a non-recurring impact from acquisitions.

Profit for the year from continuing operations

Profit from continuing operations for the year decreased to EUR 199 million from EUR 232 million in 2019/20.

Profit from discontinued operations

Profit from the divested business of Natural Colors amounted to EUR 647 million, compared to EUR 13 million in 2019/20. The increase was due to the EUR 638 million gain on the divestment of Natural Colors.

Profit for the year

Profit for the year amounted to EUR 845 million compared to EUR 245 million in 2019/20.

Assets (Group)

At August 31, 2021, total assets amounted to EUR 3,114 million, compared to EUR 2,854 million a year earlier. The increase was mainly due to the acquisitions of HSO Health Care, UAS Labs and Jennewein, and investments in the microbial production platform, partly offset by the divestment of the Natural Colors business.

Total non-current assets amounted to EUR 2,685 million, compared to EUR 2,247 million at August 31, 2020. Goodwill and intangible assets increased by EUR 299 million, while property, plant and equipment increased by EUR 127 million.

Total current assets amounted to EUR 429 million, compared to EUR 405 million at August 31, 2020. Inventories increased by EUR 12 million, or 9%, and trade receivables increased by EUR 43 million, or 30%. Cash decreased by EUR 41 million to EUR 55 million.

For more information, see note 2.1 in the Annual Report.

Net working capital (Group)

Net working capital was EUR 190 million, compared to EUR 208 million in 2019/20 (of which EUR 166 million was from continuing operations). Net working capital amounted to 17.6% of revenue compared to 17.1% in 2019/20 for continuing operations. The change in net working capital for continuing operations was mainly driven by a EUR 43 million, or 30% increase in trade receivables, part of which was due to the acquisitions of UAS Labs and Jennewein. This was partly offset by higher trade payables, which were up by EUR 31 million, or 31%, while inventories increased by EUR 12 million, or 9%.

Equity (Group)

Total equity amounted to EUR 1,626 million at August 31, 2021, compared to EUR 893 million a year earlier. Following the divestment of Natural Colors, Chr. Hansen paid out an extraordinary dividend of EUR 116 million, equal to a normalized ordinary dividend for 2019/20.

Net debt (Group)

Net interest-bearing debt amounted to EUR 898 million, or 2.3x EBITDA before special items, compared to EUR 1,345 million, or 3.1x EBITDA before special items, at August 31, 2020.

Return on invested capital (ROIC, cont. operations)

The return on invested capital excluding goodwill was 24.8%, compared to 33.6% in 2019/20. The decrease was driven by the acquisitions of UAS Labs and Jennewein. Invested capital excluding goodwill from continuing operations increased to EUR 1,303 million, compared to EUR 1,098 million at August 31, 2020.

The return on invested capital including goodwill was 11.6%, compared to 16.5% in 2019/20. Invested capital including goodwill from continuing operations increased to EUR 2,793 million, compared to EUR 2,347 million at August 31, 2020. For more information, see note 2.1 in the Annual Report.

Cash flow (Group)

Cash flow from operating activities was EUR 311 million compared to EUR 365 million in 2019/20. The operating cash flow from continuing operations was EUR 328 million, which was in line with 2019/20 (EUR 330 million), as a lower contribution from the operating profit adjusted for non-cash items, higher interest paid and a negative impact from working capital was offset by lower taxes paid partly due to to a non-recurring impact from acquisitions. Cash flow from discontinued operations was an outflow of EUR 17 million, compared to a positive contribution of EUR 35 million last year.

Cash flow used for operational investing activities was EUR 159 million (of which EUR 154 million, or 14% of revenue, was from continuing operations), compared to EUR 140 million in 2019/20 (of which EUR 119 million, or 12% of revenue, was from continuing operations). The

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