Chr. Hansen reports strong organic growth of 14% for Q2 in a challenging environment

Continued solid growth in Food Cultures & Enzymes driven by core segments and accelerated growth in Health & Nutrition; 2021/22 outlook adjusted in response to market volatility and accelerating inflationary pressure

Statement by CEO Mauricio Graber: “In a challenging environment, Chr. Hansen continued its strong growth trajectory, delivering 14% organic growth in the second quarter. Growth in Health & Nutrition further accelerated, supported by Human Health, while Food Cultures & Enzymes showed solid growth, mainly driven by its core segments and developed markets. In the second quarter, the EBIT margin b.s.i. increased to 27.7% thanks to strong volume growth. The performance in the first half of the year provides a robust foundation for delivering on our ambitions for the full year. However, overall market volatility has increased due to the accelerating inflationary pressure and the Russian invasion of Ukraine. We are responding to the higher cost inflation with proactive pricing measures and are adjusting our outlook by upgrading our organic revenue growth target, while also lowering expectations for the near-term EBIT margin b.s.i. The net effect is expected to be largely neutral on EBIT b.s.i., consistent with our prior guidance, and we maintain our expectations for free cash flow b.s.i.”

Q2 2021/22 highlights

• Revenue amounted to EUR 304 million, up 17% from EUR 260 million in Q2 2020/21. Year-to-date revenue amounted to 572 million, up 14% from last year.
• Organic growth was 14% in Q2 2021/22 mainly driven by volume growth. The Lighthouses (Bioprotection, Fermented Plant Bases, Plant Health and HMO) delivered 12% organic growth combined, while the remaining core businesses delivered 14% organic growth. Year-to-date organic growth was 12%.– Food Cultures & Enzymes organic growth was 7% mainly driven by volume. Year-to-date organic growth was 7%.
  – Health & Nutrition organic growth was 26% driven by volume. Year-to-date organic growth was 20%.
• EBIT before special items (b.s.i.) amounted to EUR 84 million, up 20% from EUR 70 million in Q2 2020/21. The increase was driven by the strong sales performance in Health and Nutrition, while EBIT b.s.i. in Food Cultures & Enzymes was on par with the Q2 2020/21 level due to a negative impact from higher input costs. Year-to-date EBIT b.s.i. amounted to EUR 150 million, up 14% from last year.
• The EBIT margin b.s.i. was 27.7%, up from 27.0% in Q2 2020/21. Production efficiencies, scalability effects from the strong sales performance, and a positive impact from currencies were partly offset by higher input costs and a general ramp-up of activities. Year-to-date EBIT margin b.s.i. was 26.2%, compared to 26.1% last year.
• Free cash flow before acquisitions and special items (b.a.s.i.) amounted to EUR 31 million, down EUR 11 million from Q2 2020/21, as improved operating profit was offset by increased investing activities and a change in working capital. Year-to-date free cash flow b.a.s.i. amounted to EUR 86 million, up from EUR 35 million last year. The increase was due to both improved cash flow from operating activities and reduced operational investing activities.
• The Russian invasion of Ukraine and its geopolitical consequences have impacted Chr. Hansen as a global supplier to the food and health industries. We will continue to support our Ukrainian employees and customers and, for now, will fulfill our supply obligations to provide only ingredients for basic food and human health products to Russia servicing the basic needs of civilians in full respect of global sanctions. The situation will have a negative impact on the outlook for the year causing both a lower topline and a reduced EBIT. Profit from continued operations in Chr. Hansen LLC, Russia during the conflict will be donated to
  humanitarian aid in support of Ukraine.
• Implementation of price adjustments to reflect the inflationary pressure is progressing, however, as expected, with modest impact in Q2. Given the accelerated inflationary pressure on raw material, energy and logistics costs, in part driven by the Russian invasion of Ukraine, further price increases will be introduced in the second half. This will come with a certain delay impacting the outlook for the EBIT margin before special items for 2021/22 negatively.

Outlook
Due to the current geopolitical situation and the accelerating inflationary environment, we adjust the 2021/22 outlook for organic revenue growth and EBIT margin b.s.i., while maintaining the outlook for the free cash flow b.s.i. relative to the guidance provided on January 13, 2022.