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01 Thank you for standing by and welcome to the presentation of Chr. Hansen's Annual Report and Conference Call Twenty Twenty to Twenty Twenty One. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. 00

27 I would now like to hand the conference over to your speaker today, Chr. Hansen's CEO, Mauricio Graber. Please go ahead.

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37 Good morning, before we begin please take note this is Safe Harbor Statement on the next slide, slide two. Thank you. Let’s turn to slide three, please. Twenty twenty, twenty one was a year of transition for Chr. Hansen with increased complexity for the combination of our recent portfolio changes and the global COVID-19 pandemic. In light of these extraordinary circumstances, I am pleased with financial results that we delivered. Organic growth came up seven percent and at the upper end of our initial outlook. This was achieved despite during the satisfactory results from Human Health in the second part of the year where the business faced the drop in demand from customers servicing the traditional sales channel, combined with certain supply issues. Food Cultures & Enzymes on the other hand was able to offset part of that with a strong year-end finish and eight percent volume growth in Q4. 01

45 Our EBIT margin before special items ended at twenty seven point seven percent down from thirty three point seven percent the year before. The decrease was in line with our expectations and largely driven by the acquisitions and currency headwinds, but we also saw decline in the underlying business and Lise will elaborate further on that. 02

08 Free cash flow before acquisitions, special items and divestment ended up at hundred and ninety six million euro compared to two hundred and twenty five million euro last year and was higher than our outlook mainly due to timing of payables. 02

25 Twenty twenty, twenty one also marked the first year of our twenty twenty five strategy and we have reached important milestones in our transition towards a dedicated bioscience company. We focus our microbial and fermentation technology platforms. Let me provide a few highlights on each of our strategic pillars in next slide. Slide four please. 02

52 Organic growth remains our number one priority, and we continue to re-invest in our core platforms of Dairy, Animal Health and Human Health. Our investments are focused on bringing new innovations to market faster expanding our route-to-market and strengthening our applications and marketing capabilities. 03

14 In Dairy, we have seen all-time high launch activity in twenty twenty, twenty one, however, travel restrictions lower try and activity at customers focusing more on their existing business and cost savings made it more difficult to bring our new launches to customers and drive new business. This was particularly the case for fermented milk markets such as Latin America and China, where cost – where consumer price sensitivity is higher. 03

44 In Animal Health, we further expand a route-to-market by strengthening our local sales partner network, regionalizing our marketing capabilities and rolling out our product offering globally. Overall, we completed more than fifty new registrations globally and launched our first pet probiotic range. We also made good progress in China during the year, but the return of the African swine fever hampered growth in the second half of – in the the second half of the year. 04

15 In Human Health, focus was very much on the integration of UAS labs and HSO Healthcare. And addressing the challenges in the second half of the year, but we also advanced our strength-to-solution strategy and scientific agenda by working globally on more than thirty clinical trials. 04

36 Next to growing our core business, we continue to leverage our lighthouses. Bioprotection and fermented plan basis today account for approximately eight percent of Food Cultures & Enzymes revenue, both businesses delivered double digit growth in twenty twenty, twenty one and made strategically important launches. 04

59 In Plant Health, we continue to increase penetration and reach of our bionematicides. Commodity prices were supported that COVID-19 has delayed the market entering to Canada as well as the launch of our first biofungicide. On the positive side, we entered the Asian market with our new biostimulant ACCUDO in South Korea and today, we have announced a new partnership with UPL, which will further expand our commercial reach due to the typical long registration timelines, we expect meaningful revenue from this partnership by the end of the strategy period. 05

39 Lastly, looking at Bacthera, we received the manufacturing licenses for our clinical trial production and the team which has grown to seventy people today, continue to mature commercial opportunities with leading players in the life-biotherapeutic space. Extending our microbial platform the acquisitions and partnerships is our third strategic priority. Please turn to the next slide, slide five. 06

07 The integration of our three acquisitions, UAS Labs, HSO Healthcare and Jennewein have largely been completed. The three businesses delivered hundred and five million euro in revenue and seventeen million in EBITDA, below our initial expectations were in line with the corrected outlook. While we most recognized that the first year was not without challenges, especially were made related to HMO, all three acquisitions have delivered on our expectations in terms of strategic fit and potential for our twenty twenty five strategic priorities. 06

49 In Human Health during the second half of the year, we have seen that our dependency or large accounts and the traditional sales channel sales channel can be disadvantage for the business. With the acquisition of UAS Labs and HSO Healthcare, we are addressing this imbalance and are building a more resilient business with a more define diversified customer base and a larger presence in the e-commerce space and a broader offering not least in the fast-growing Human Health category. 07

23 We believe that for Human Health, the future lies in what we call the strain to solution strategy, where we can support customers along the entire value chain from strain selection to finish product manufacturing. This is why we have also completed the insourcing of additional packaging capabilities in Q4 to take full control of our supply chain. 07

50 Coming to Jennewein and HMO, we have added one of the pioneers in the HMO space to our portfolio. HMOs and probiotics represent complementary and synergistic ways of modulating the microbiome and such present an attractive synergy opportunity for Chr. Hansen. That said, it's still an industry in its infancy and regulatory approval of delays related to COVID-19 and generally longer customer project timelines have slowed the development of the market. We are however, progressing well in our dialogues with key customers, who will drive the penetration of HMO and infant formula in the years to come and our capacity expansion plans to the outcome of these discussions. 08

41 Before I hand over to Lise for the financial deep dive, I would like to comment on our sustainability activities in the next page. 8

51 At Chr. Hansen more than three thousand seven hundred colleagues go to work every day to grow a better world naturally. Eighty two percent of our revenue today contribute to the UN. Sustainable Development Goals and across the organization, we work on embedding sustainability even further in our commercial strategies to drive more sustainable agriculture better food production and improved health. 09

18 Twenty twenty, twenty one was also a year where we increased our focus on climate action. During the year, we marked all of our scope three emissions to set carbon emission production targets. The targets have been submitted to the Science-based target initiative for validation and we expect to publish them in the coming weeks. We also made good progress on embedding the recommendations from the task – the taskforce for climate related disclosure in our enterprise risk management and we increased our use of renewable energy beyond Denmark through an agreement at our Nienburg site in Germany. 09

58 With regards to our people targets, I am very pleased that we already this year reached our goal of having more than thirty percent woman in key positions and that we kept engagement high, our employee safe during the pandemic year. For the first time, we have also published the result of our gender pay gap analysis reflecting our commitment to fairness and transparency remuneration with a clear goal to reduce the pay gap going forward. 10

29 Lastly, I am also pleased that our Board of Director is increasingly involved and has decided to formalise and strengthen its oversight of ESG topics on Board and Committee level in the coming years. With these remarks, I would like to hand over to Lise for the financial performance review.

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53 Thank you, Mauricio and welcome also from my side, and let's look at slide seven. Twenty twenty, twenty one was indeed an extraordinary year with the global pandemic, and this is also what we can see in the regional performance of our business. The trends that we saw in the third quarter largely continued into Q4. To start with a positive development, growth in our largest region, Europe, Middle East and Africa, accelerated in the fourth quarter and ended at eleven percent organic growth, largely driven by a step-up in Food Cultures & Enzymes but Animal Health also delivered to strong growth. Human Health on the other hand declined due to weaker demand. For the full year, this resulted in six percent organic growth for the region. 11

47 Looking at North America, the region reported four percent organic growth in Q4 with similar dynamics as EMEA, Food Cultures & Enzymes and Animal Health did well. While Human Health declined as customer – customers with large exposure to the traditional sales channels reduce their orders to bring down elevated inventory levels. For the full year, North America reported six percent organic growth, driven by Food Cultures & Enzymes and Animal Health. 12

22 Moving on to Latin America, the region delivered fifteen percent organic growth in Q4 with a lower contribution from euro-based pricing. Slower end-markets impacted our Food Cultures & Enzymes business, while health and nutrition delivered very strong growth. For the full year, growth was twenty six percent with euro-based pricing accounting for approximately half. Lastly, Asia Pacific delivered negative growth of ten percent in Q4 leading to a decline three percent for the full year. The decline in Q4 was driven by Health and Nutrition, which was impacted by a very tough comparable, both in Animal and in Human Health. In addition to this, Human Health was also impacted by adjustment of inventory levels at key customers, including customers for infant formula. 13

19 Food Cultures & Enzymes also saw reported negative growth, but the relative performance has continued to improve during the last quarter, although it was still below our expectations, and the Chinese yogurt market remained under pressure. Let's move to the next slide, slide eight for further explanations on the segments. 13

42 Food Cultures & Enzymes grew ten percent organically in Q4 largely driven by volumes in part due to an easy comparable from last year. Growth was broadly anchored across the different product segments. Our cheese and meat business continued it’s strong growth trajectory that we have seen throughout the year, was in fermented milk and probiotics we saw a step up in Q4. 14

12 Our Bioprotection lighthouse delivered strong growth driven by meat and cheese applications, while fermented plan basis grew solidly. For the full year Food Cultures & Enzymes delivered eight percent organic growth with three percent volume growth outgrowing the underlying market. Cheese production volumes grew an estimated one percent to two percent for the year, with higher growth in the second half where we saw the reopening of food service channels while retail remained strong. Fermented milk market on the other side declined slightly with an estimated minus two percent to minus three percent largely driven by lower output in China and in Latin America. 14

58 Turning to profitability, the Q4 EBIT margin before special items for FC&E decreased to thirty three point zero percent compared to thirty eight point four percent last year. The decrease is quite meaningful, and there are several explanations for it. First, last year's margin was positively impacted by a one-time gain from a VAT case in Brazil, which explains around one point five percentage points. 15

32 Secondly, we seen a ramp-up of activities following the COVID-19 lockdowns last year, which was the largest threat on the margin and certainly, we had to book an impairment loss related to development projects, which explains around one percentage points. If we look at the gross margin, it was actually in line with last year, but our production efficiencies were offset by product mix and higher scrap due to a [Technical Difficulty] our common hidden plant. 16

09 For the full year, the margin declined minus two point three percentage points from thirty four point three to thirty two point zero mainly due to product mix, higher freight cost and negative currency impact that offset production efficiencies, but we have also invested quite heavily into our R&D activities and FC&E in line with our strategy of reinvesting in the core. 16

39 Moving to Health and Nutrition on the next slide, slide nine. Organic growth in the fourth quarter and for the full year was heavily impacted by the weakness in Human Health. Organic growth was minus four percent in Q4 leading to five percent for the full year. There were two main drivers for the decline in Human Health in Q4 similar to last quarter. A high comparable from last year and customers reducing excess inventories due to lower demand in the traditional sales channels. Our acquisitions, UAS Labs and HSO Healthcare on the other hand did very well. Though on the fourth quarter, we also saw a lower contribution due to limited access to raw materials that are needed to finish product manufacturing. 17

35 If we look at Animal Health and Plant Health, both businesses did well, in Q4 as well for the full year. In Animal Health, gross was particularly strong in silence that exceeded our expectations for the year, but we also saw good momentum in Poultry, particularly in Middle East and Southeast Asia following the completion of the GALLIPRO FIT roll-out. 18

02 In Plant Health, growth continued to be driven by our bionematicides sales in Latin America. With regards to profitability, the underlying EBIT margin before special items in Q4 were thirty two point one percent compared to thirty seven point five percent last year and largely driven by the cost normalization post-COVID and the negative volume development. 18

29 For the full year, the underlying EBIT margin was thirty point zero percent compared to thirty one point nine percent last year and mainly due to negative currency impact of more than one percentage points. The reported margin was twenty one point six percent in Q4 and nineteen point eight percent for the full year and remained impacted by the recent acquisitions. 18

56 And with this, let's turn to page ten for the group financials. In some, our continuing operations, the Macrobial platform delivered six percent organic growth in Q4 leading to seven percent for the full year. The benefit from euro-based pricing faded in the fourth quarter leading to only two percentage point pricing, while for the full year pricing contributed four percent to the organic growth. 19

28 Acquisitions added twelve percent to absolute revenues in Q4 and adjusting for a negative currency effect of minus three percent this lead to a year growth of fifteen percent for the quarter. For the full year, the FX impact was minus seven percent and MP acquisitions contributed plus eleven percent leading to eleven percent year growth. 19

53 Please turn to next page, page eleven for our of our profitability drivers. Profitability came in largely in line with expectations for the full year, but our margin in the fourth quarter was impacted quite meaningfully by the normalization of cost levels to record COVID-19 that I already mentioned in the segment review. 20

22 EBIT margin before special items was twenty eight point eight percent in Q4 compared to thirty eight point four percent last year, with a decline in the underlying business of minus five point four percent and an evolution from the acquisitions of minus four point zero percent while the negative impact from FX lessened to only minus zero point two percent. If we look at the decline in the underlying business in Q4, then the increase in operating expenses compared to last year was by far the largest driver. But we also have an impact of approximately one percentage points from the VAT dispute case that I earlier mentioned. The gross margin for the underlying business was on par with last year's Q4 as production efficiencies were offset by product mix and higher scrap in FC&E. 21

17 For the full year, our EBIT margin before special items was twenty seven point seven percent compared to thirty three point seven percent last year, very well within our guidance range of twenty seven to twenty eight percent, but the decline in the underlying margin was larger than the one percentage points that we had anticipated due to the impairment losses and higher scrap in FC&E that we didn't factor in. 21

48 A few additional comments on the income statement items below EBIT, if we look to the right. Special items came in at two million euros driven by the Jennewein acquisition and the carve out of Natural Colors and in line with expectations. Net financial items were above last year due to the temporary higher debt levels, this will come down against next year. And taxes were significantly below last year due to a nonrecurring impact from the acquisitions. This will also revert next year. 22

27 If we look at the cash flow then on the next slide, slide twelve, our free cash flow before our precision special items and divestment decreased compared to last year, driven by higher CapEx and lower operating cash flow. Operational cash flow was below last year as the higher noncash adjustment and the acquisition related tax impact were offset by lower operating profit and higher interest paid. The free cash flow came in above the guidance range of hundred forty million to hundred sixty million euros in part due to timing of payables. 23

08 Our CapEx to sales ratio was fourteen point five percent in FY twenty one elevated due to the acquisition of the Kalundborg site in Denmark for our new HMO Production. And also investments into the microbial platform and insourcing of the packaging capacity for Human Health in North America. Excluding HMO, our CapEx to sales ratio would have been eleven percent. Following the receipt of the proceeds from the Natural Colors divestment, leverage came down to two point three times EBITDA. 23

45 In light of the performance of the financial year, the Board of Directors proposes a dividend of six point five four DKK per share, which corresponds to a total of hundred and sixteen million euros. The proposed dividend is in line with the pay out in May in euros but represents an increase in payout ratio from fifty percent to fifty eight percent of less profit from continuing operations. 24

13 And with this, let's turn to page thirteen for the outlook. Considering the high microeconomic uncertainty and continued COVID-19 related disruptions we expect organic growth for twenty twenty one, twenty two in the range of five percent to eight percent. FC&E is expected to deliver solid mid-single digit organic growth throughout the year. Despite an insignificant contribution from euro-based pricing so largely volume driven. 24

49 Organic growth in Health and Nutrition is expected to be supported by the businesses acquired in twenty twenty. That said, growth is expected to be volatile across the quarters with Human Health impacted by the current challenges including limited access to specific raw materials in first parts of the year. EBIT margin before special items is expected to be around at the same level as last year between twenty seven percent and twenty eight percent as cost synergies from the probiotics acquisitions and production efficiencies will be offset by continued ramp-up of activities post COVID-19 investments into the HMO business and inflationary pressure and certain input cost. 25

39 Inflationary pressure is normally covered by a regular price increases. However, as all others, we also faced a much more volatile environment now with regards to energy cost, key raw materials and transportation costs. We will work with customers to reflect higher cost through price adjustments or other optimizations, but there maybe be a timing delay. 26

07 Moving on to our free cash flow guidance, free cash flow before special items is expected to be around hundred forty million to hundred seventy million euros as improved operating profit is expected to be more than offset by a significant increase in taxes paid as twenty twenty, twenty one was positively impacted by the acquisitions. The free cash flow outlook assumes CapEx in line with FY twenty one. 26

36 Please move to slide fourteen. With the first year of our strategy cycle and the portfolio changes completed, we finally adjust our long-term financial ambitions to reflect the divestment of Natural Colors and the acquisition of Jennewein but confirming the original ambition of industry leading organic growth, margin progression and strong cash flow generation during the strategy period. 27

09 Until the end of our financial year twenty twenty four, twenty five and taking twenty twenty, twenty one as our new baseline, we aim to deliver mid-to-high single digit organic growth averaged over the period an increase in our EBIT margin before special items over the period with production efficiencies, scalability benefits and acquisition synergies that will be partly reinvested into the business. Average growth in free cash flow before special items we expect to exceed average growth in EBIT before special. Please note that the baseline for cash flow is adjusted for the acquisition related tech impact of approximately forty-five million euros in twenty twenty, twenty one. 28

02 Also note that we will face the HMO investments in line with the development of the business and giving the slower ramp-up of the market, this means that the investments will come later than originally expected and more spread across the period. 28

18 And with this, I would like to hand back to Mauricio wrap up our presentation for today.

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24 Thank you, Lise. I will keep the wrap up very short. Twenty twenty, twenty one was a year of transition for Chr. Hansen as we executed on the portfolio changes and unveiled with the prolonged impacts of COVID-19. In light of this, I am pleased with our financial performance and the progress we have made on our journey of becoming a dedicated bioscience company, with focus on our fermentation and microbial technology platforms. 28

52 Twenty one, twenty two will be another year with high-microeconomic uncertainty and continued COVID-19 related disruptions. Commercial execution and creating value for our acquisitions will be key. While actively managing our cost base and advancing our twenty twenty five strategic priorities to reach our goal for the next financial year and deliver on our long term financial ambitions of industry leading organic growth, improving profitability and strong cash flow generations. 29

26 Thank you for listening, and pleased to open the line for Q&A.

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32 Thank you. [Operator Instructions] Our first question comes from the line of Søren Samsøe from SEB. Please go ahead.

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48 Yes. Good morning. I'm Sam from SEB. First question regarding the gross margin for Lisa. Maybe already said it, but think you talked about an underlying gross margin development in Q4 that was flat. Maybe I heard you wrong, but reported, of course it's down almost four hundred bps. Could you just bring that gap, please?

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23 Sorry Søren. Yes, it's the acquisitions, the underlying – the underlying gross margin was flat year-over-year…

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29 Okay.

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30 For Q4.

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31 And then since you have quite strong volume growth, I was just wondering why is it not up? Is that the higher raw material cost, why is the gross not up with, as I guess you have the usual scalability?

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45 We did in Q4 had an anticipated scrap due to a contamination in our carbonating plant. And then of course, also, I have to say the product mix, which is also impacting and upsetting some of the volume effect, you should see expect production efficiencies from.

31

13 Okay. Okay. And then just if you could say a little bit about, I mean you have quite strong growth in Food Cultures & Enzymes in Q4. How should we see the year developed in twenty one, twenty two in terms of growth? This is more from that loaded though or do you see as being more back and loaded in terms of the growth?

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35 For Food Cultures & Enzymes, we expect a pretty balanced view for our FY22. So it would be in this mid-range, mid-single digits throughout the year.

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50 But is it fair to given that you are now, of course, starting to meet clients, I guess you're not up to sort of index hundred in terms of meeting activity and so on yet. So is that it wouldn't be fair to assume that it's more back loaded or may have not?

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03 It's not what we are expecting Søren. We are expecting a flat – a pretty flat development by quarter. If we look at Food Cultures & Enzymes, you are right that, of course, we will be able to visit customers to a large extent throughout the year and with a certain delay that is also supporting our business, but we do expect, also a tougher comparable if you look into second half.

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38 Okay. Thank you.

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42 And the next question comes from the line of Charles Eden from UBS. Please go ahead.

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48 Hi, good morning. Thanks for taking my questions. My first one is just on the revised medium-term guidance. Where you now expecting expansion versus a twenty twenty to twenty one basis of twenty seven point seven percent, consensus for the end of the current strategy cycle for twenty five is obviously someway ahead of this at thirty one point six percent is today that an indication that you see those expectations by the sell side is a stretch and then if I can just add a second question, the China decline in Q4, were you able to kind of give a confiscation of that within SG&A and maybe comment on your growth assumptions for this market for twenty two, which is baked into your five percent to eight percent organic growth guidance? And then just very quick follow-up. You mentioned the scrap impact on the gross margin, can you give us the value that scrap impact? Thank you very much.

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51 Yes. Thank you. If you look at the margin expansion towards end of our strategy period. It's very important to highlight that the HMO business will continue to be a drag beyond our strategy period. So while we see, we expect our acquired probiotics business UAS Labs and HSO Healthcare to improve and become comparable to quick enhancement traditional level, HMO will track beyond the period. 34

28 The scrap in Q4 was if you look at Food Cultures & Enzymes specifically, around one point five percentage points impact and one percent for the group.

34

40 I will take the, the one on China, Charles, I think when you look at China, you split a little bit to treat the three businesses. So, at least I mentioned in Food Cultures & Enzymes, the development in Q4 was still negative, but we see continuous improvement momentum. So, I think fiscal year twenty two, we expect a positive development for the Chinese market although not back to the full growth that we have seen before. But it will turn positive after seeing a couple of years of decline in the Chinese fermented dairy market. 35

21 In Q4 we have negative development for Human Health both in infant formula and dietary supplements and we expect those to normalize over the year as you will see customers in China, certainly through their higher levels of inventory in dietary supplements and the infant formula business normalizing where we have said that the penetration of probiotics into infant formula is our main growth and we have always assumed a low-single digit growth for the infant formula volume so it’s all about penetration of our solutions – probiotics solutions into infant formula.

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08 Thank you very much.

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12 And the next question comes from the line of Alex Sloane from Barclays. Please go ahead.

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18 Yeah. Hi morning all. Two questions from me, please. Firstly, just going back to Food Cultures & Enzymes volumes in quarter four, obviously an impressive performance given China was still a drag albeit a lesser one. Can you maybe give some color on the drivers of the eight percent growth in terms of end-market growth? Innovation upselling and structural conversion and perhaps your expectations on the relative contribution of those factors behind the guidance for FY22? 36

54 And secondly, I mean just contrasting the performance of UAS Labs and the sort of legacy Chr. Hansen probiotics supplements business in FY twenty-one, quite a marked difference despite obviously broadly the same end consumer demand. So, I'd just be interested in your view is that just divergence is just temporary? Or is there something more structural going on? And is there a margin implication to this trend in terms of, I would assume you have higher prices and gross margins on your well-documented single strains versus the multi-strain offering? Thanks.

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37 Thank you, Alex. Let’s first about FC&E Volume. So it's extremely proud of the FC&E team and the resiliency of that business. And I think what we saw is that as euro-based pricing declined the volume strength and it's something that we have mentioned several times. And when you look at the drivers of that growth is a lot of the execution across the different elements of the quadrant. So if you look at pricing and share gains. That is always quite sticky because the nature of the industry, but we continue, I would say to work very close with customers and our service levels and quality levels, always guarantee us opportunities to continue to drive some level of share gains. 38

37 Conversions, we did not see a high level of large conversion projects in twenty twenty one, but we see some of those ahead as opportunity for us to continue to convert some of the remaining opportunities in Food Cultures & Enzymes. In innovation and upselling, I think we had a record high level of product launches. As I mentioned in my comments, there's a time lag now because of the ability to basic customers to monetize those. But we continue to see good progress on some of them Kynoch (supreme) [ph] continue to be a very good success, only very good signs of our Bioprotection new generation as well as growth in our big in line for a plant basis. New areas basically, we saw a little bit of fewer launches improving fermented beverages that were affected by COVID restrictions, but overall, the volume growth in Food Cultures & Enzymes, you can see that the execution of projects in the core business, in our core culture ranges, has been what is driving, what is driving the growth and I'm particularly proud to see that despite the weakness in developing markets, you saw very strong growth in the core regions of Europe and North America. 40

12 So I hope that brings some color to the Food Cultures & Enzymes that by the way, also had some lower comparables in the quarters where you saw higher growth. Now onto Human Health, so strain to solution and being able to have a wider portfolio of probiotics, I think our diversification really helps, we are now more balanced in our channel versus – traditional channel versus the online channel. And really if you see the acquisition of UAS Labs and HSO separately, they deliver double-digit growth rate. So e-commerce continue to grow and to be area where more consumers look for their probiotics solutions. We expect the combination of those two, to provide a more balanced growth picture for Human Health in twenty twenty two. 41

17 Even though, we will see some lag of the inventory customer conditions into the beginning of the year, as far as product mix, it's true that the finish product have slightly, let's say, lower margin than our [Indiscernible] probiotics, but it also provides more customer stickiness and more customer loyalty because you're working with them through the end solution. So I think the way I view that business is whether it's finished products or probiotics, we are getting the full margin on the bulk business and then you get incremental – cash incremental revenue on the consumer banks and as I mentioned, higher consumer customer loyalty.

42

10 Thanks.

42

14 The next question comes from the line of Lars Topholm from Carnegie. Please go ahead.

42

21 Thank you very much. A couple of questions on my side. So if I look at your revenue and earnings contribution from acquisitions. And to talk Jennewein, it would seem that combined UAS Labs and HSO Healthcare has gone from a forty percent margin in the first half of the year to a twenty four percent margin in the second half of the year. So just wonder if you can put some words on why that is and how that looks going forward. And then a second question goes to you twenty twenty five ambitions of lifting margins. And I would say, we'd like to understand if PPA amortizations, in the last year, the five year period is assumed to be the same as this is now i.e. around nineteen million a year or if you get any sort of margin benefit from PPA amortizations coming down within the five-year period and then a third question is just a household question. So you mentioned the two lighthouses in Food Cultures & Enzymes eight percent of sales according to my math, that would imply plant base is less than one percent, is that correct this assumption? Thank you.

43

50 Lars, I can't really recognize the numbers that you're talking to on the acquired businesses. So we will have to come back to you, specifically on that. With regards to your question on PPA that will only come down once we reach our FY30 level. Yes and I think that's also what we have shared until now and then, I would say on fermented plan basis, it's probably not to completely off, but maybe Mauricio, you can put more…

44

27 Yes, Lise, I think on Plant basis, that's what we have said is an emerging market. I think directionally that would be about one percent and we obviously grow very fast on that from a very small base into the fermented plant base market.

44

50 And then I have a slightly broader question because you mentioned, Mauricio new presentation that your estimate is the global yogurt market declined with a couple of percent last year. So, I just like to know you views on why that is and what will make this change and within what time horizon do you see changing? And of course, I know it's probably difficult to answer, but you also have an insight into your product pipeline, and you have previously mentioned that COVID could mean less new product development activity for your customers. I wonder if it's something of that we are seeing now and how you see that changing going forward? Thanks.

45

42 Yeah. Thank you. Thank you, Lars. Obviously, you recognized difficulty of providing some prediction on that, but I can give you some share with you some of our thoughts. So you're right the fermented market contracted when we look at fiscal year twenty two, we expect overall dairy to be about one percent growth, and this will be like one percent to one point five percent in cheese and sort of a flattish development for fermented milk. What will make fermented milk come back to growth is really largely driven by China and Latin America, little bit the Middle East, sort of developing markets that are high on fermented milk or the yogurt market. Obviously, we also see some of our large western customers are focusing on renewed innovation for fermented milk and that is another source and opportunity for growth in that area.

46

46 Okay. Thank you very much, Mauricio. Thanks for taking my questions. And please get back to me on the margin in UAS and HSO? Thank you.

46

56 We will, Lars.

46

59 The next question comes from the line of Heidi Vesterinen from Exane BNP Paribas. Please go ahead.

47

06 Good morning. So one bright spot today with Animal Health, but we do increasingly hear that meat consumption is slowing or declining in places. And we've seen some stats on animal production being challenged in areas. Does this concern you at all for twenty twenty two and on the words over the mid-term? And then the second question, you talked about volatility in Human Health, could you please help us with the phasing of this? Are you basically saying H1 will be down and H2 back to growth? Given that the raw material issue you talked about, sounds Chr. Hansen specific, is there any risk that you lose customers due to this? And then lastly, you have talked about cost sensitive customers and consumers in the emerging markets. Is there any chance that you could reduce prices to drive volumes, given your very high margins? Thank you.

48

02 Thank you, Heidi. Good morning. So, Animal Health, Animal Health, we continue to drive with our probiotics solutions, the reduce of the replacement of antibiotics. And for sure, when you look at the pressure on mid consumption, animal farming, sustainability, etcetera. There will be in our world new opportunities like plant basis. We view those as incremental opportunities because Heidi, to be honest, the demand for animal protein in the key areas where we work what a cattle, swine and poultry, we will continue to remain strong as the emerging economy is demand access to some of those animal proteins. So definitely not an impact in fiscal year twenty two, you can as well as I, sort of project what will happen long term, but more a short-term concern. 49

05 As it relates to volatility and Human Health, The only thing I would say is, I would expect a gradual improvement in our Human Health business throughout the year. The key factor that you should consider is that as of the beginning of this financial year, our acquisitions of UAS Labs and HSO will be incorporated in organic growth. So we will provide them bring that balance and I already stated that both of those acquisitions had a strong growth in fiscal year twenty one that ignore account into organic growth. 49

41 The raw material situation is not specialty Chr. Hansen. There is a global shortage of some of those materials. I have mentioned that they did not impact our – the orders that we have committed, but it impacted our ability to go after new business and we have worked very hard to normalize that situation as we get into the fiscal year twenty two. 50

11 On your question of lowering prices to accelerate growth. I mean, we will really do a sort of value based approach to the market, I don't think we gain new businesses by pricing. We gained new businesses by innovation and our customer intimacy and that sort of remains our strong belief on access to market. And then just to wrap up on Animal Health, there are biggest opportunities to continue to drive penetration and global rollout of our solutions, and that's what we continue to drive the growth.

50

52 Thank you.

50

56 And the next question comes from the line of Christian Ryom from Nordea Markets. Please go ahead.

51

02 Hi, good morning, and thank you for taking my questions. I have two so, starting with the margin, if I try to factor out the higher scrap rates and the R&D impairment you had in the last year. Your guidance for next year, at the midpoint implies a fifty basis points contraction in the EBIT margin. Could you quantify how that a lower margin guidance splits between, say, higher investments into your OpEx space and then assumptions for general cost inflation. That's my first question. And the second question is to Bacthera whether you can provide us an update on your joint venture and more specifically sort of rough indications for what to expect in terms of financial contribution for the coming year? Thank you.

51

57 So with regards to the margin question, it's very important to say that when we talk about scrap and impairment, it was a very Q4 related item. If you look at the full year, EBIT margin for Food Cultures & Enzymes, which was the one that was impacted. The margin difference into this year was driven by investments into the business into R&D and of course, again, that we go back to more normalised cost levels post COVID-19. So that's specific with regards to the scrap and the impairment. It was really mainly visible in Q4.

52

45 It just to be clear. My question, sorry, my question was to the guidance for next year. So the reason, why you expect…

52

54 Exactly, yes, but again, as you compare full year twenty one to full year twenty two, the difference is caused by COVID-19 that we will normalize the cost level. It's explained by HMO continuing to be a drag to our margins and then higher inflationary levels and that's why we go with a more cautious number of twenty seven percent to twenty eight percent.

53

28 And to your question about Bacthera. So, the highlight on Bacthera was but we received the manufacturing licenses for clinical production. We continue to work with several customers in the different regions and the pipeline looks very good. We will find in fiscal year twenty two a good moment to provide an update on Bacthera, where you see in our results in fiscal year twenty one, the share of loss of the JV was about seven million and that has been sort of the burn rate for Bacthera, but we're excited to see the momentum on the clinical Phase I, Phase II trial, our engagement with customers and maybe the other thing I would mention on Bacthera is, we have seen acceleration of some of the Phase III trials and maybe FDA approval and commercial approval of the first life biotherapeutic products may come earlier than we had originally expected.

54

38 Okay. And would that imply that we should see the burn rate coming down over the next quarters?

54

45 No, I would assume the same level of burn rate at least for fiscal year twenty two.

54

51 Okay. Thank you very much.

54

55 And the next question comes from the line of Mirco Badocco from Bank of America. Please go ahead.

55

01 Yeah. Hi. Thanks for the questions. I'd like to get back to infant formula. So the market has been weak, especially in China. So can you give us a bit more color on current trends you are seeing in infant formula for HMO specifically and also your expectation for the infant milk formula market in twenty twenty two in China and other key markets. So do you expect the underlying market to improve at all to be back into growth? And related to this, how should we think about HMO in this context? And then the other question is on Human Health, you mentioned a customer destocking, limited access to raw materials. So is it something that we'll continue in the coming quarters and final one is on tax rate, you said you expect higher tax rate in twenty twenty two, is it just going back to twenty twenty levels? That's how we should think about it. Thank you.

55

59 Lise, you want to take the tax question first and then I would…

56

00 Maybe I can just start with the tax question. Yes, we do expect to go back to normalized levels. We had a one time and non-recurring impact of around forty five million in the FY twenty twenty one that will not be repeated in the future. Yes. And that's impacting both the P&L and cash, of course.

56

30 So now to your – on your questions on infant formula HMO. So the infant formula market indeed basically, our projections had been for flattish to one percent growth development of the infant formula market and around sort of two percent over the period, but the key aspect for all fees, if you take probiotics in infant formula, we see a large opportunity to continue to drive penetration of probiotics and that is the most important driver. 57

12 Obviously, HMO provides a Nation's opportunity to add a front final ingredient into being infant formula the first HMO market launches will be in the U. S. We expect that infant formulas with our HMOs will hit the market at some point before the end of the calendar year. And that will continue to grow. So, I have said previously, and I can maintain that we expect HMOs to grow north of twenty percent next year and HMO would be a front panel ingredient on the proposition that it brings the missing ingredient from orders milk into infant formula. 58

01 On the question of human sales destocking, what we saw is we saw some quarters of very high Human Health dietary supplements growth during the pandemic that drove customers to higher levels of inventories of finished products that normalized during the second half of the year. There may be some tail of that into the beginning of the year, but we see that the situation has, let's say, largely normalized. And operating into normal safety stocks as we go into the future.

58

45 Thanks. Can I just clarify one thing Mauricio, you said on infant formula in China? So, yes, you said you expect one percent if I haven't misunderstood over the period for the underlying market group, is it the same thing…

59

00 That was global, I think more difficult to make any prediction around the Chinese infant formula market. The Chinese infant formula market really was affected by several factors. One of them COVID lockdowns more mothers at home, but I think the expectations or the views from the market is that the infant formula in China will continue to have two things a strong preference for premiumization and even though you have seen a low-birth rate, there's questions on the softening of the Chinese regulations about one child then what the impact will be still remember, I would say that whether infant formula is flat, slightly declining slightly increasing. The penetration of HMOs and the penetration of probiotics will be what drives our growth infant formula.

60

03 Yes. And very, very last Mauricio. So related to that when you expect HMOs to hit the Chinese market?

60

11 That's good question. As we have said that the Chinese Government has opened the registrations for HMO. It still a very early on what the process will be, but we expect that to take a couple of years for the HMOs to be approved in the market. Yes.

60

31 Thank you very much.

60

32 I think we have time for one more question before we wrap up the call.

60

40 And the last question then comes from the line of Rune Dahl from DNB Markets. Please go ahead.

60

47 Yes morning. Just a clarification question left from me. Can you just confirm that you still believe that HSO and UAS can reach thirty percent margin by twenty twenty five? And maybe also on the facing cost on Jennewein investments, how we are to think about those now with the delay? Thank you.

61

10 If I start with the margin question, of course, we don't guide that specific on it, but it's not completely off. It is that HSO and UAS Labs will be at a comparable level that's our ambition by the end of our strategy period. So that is correct. On the HMO investments, the benefit of a little bit of the delay in the pickup and the development of the market is that we can be very planned about how we build our Kalunborg site. We don't know at this point in time, how it will and when it will, which quarters will be hit by, by which CapEx amount, but we are planning this very strongly and have now the benefit of tracking very well in parallel with the development of the market.

62

07 Okay. Thank you. Just to be specific Q4 last year, you said very specifically, you got to reach thirty percent margin by twenty five in the acquired businesses. So, I just wondering if that had changed, but that [Indiscernible] right?

62

21 That's the range we are targeting. Exactly.

62

31 Thank you.

62

32 Thank you very much for listening to Q&A. This concludes today's conference call and Q&A session. Thank you for joining and we look forward to continuing our dialogue during the upcoming virtual roadshows. Thank you, all.

62

44 This concludes our conference call. Thank you all for attending. You may now disconnect your lines.