Good morning everybody and welcome to today's conference call on Chr. Hansen's Q1 2019/2020 results.

First of all, our CFO Søren Westh Lonning, the IR team and I would like to wish everybody a Happy New Year and we hope you had a good start into 2020. Before we start, please take notice of the Safe Harbor statement on the next slide.

Thank you. Let's continue to page three.

Chr. Hansen had a mix start of the year, in line with expectations.

Headwinds in emerging markets, normalization of inventory levels in our distribution chain, raw material price declines and order timing negatively impacted our Q1 results, leading to 1% organic growth for the first quarter. Group EBIT margin before special items was 25.7%, down 60 basis points, mainly because of lower sales momentum in health and nutrition, but also because we continue to invest in growth opportunities and innovation across our three business areas.

Free cash flow before acquisitions and special items was minus €6 million, an improvement compared to Q1 last year, driven by a positive cash flow from operations. On segment level, please turn to slide four.

Let me start with food cultures and enzymes that delivered a good organic growth of 4% driven by all product areas except probiotics. These performance needs to be seen in the broader market context where end-market growth has come down noticeably.

Furthermore, the segment was negatively impacted by the normalization of inventory levels in our distribution chain where we saw a buildup in the second half of the year because of lower end-market demand. In health and nutrition, organic growth was as expected, negatively impacted by the order timing in human and plant health, leading to a decline of 4% for the segment.

Also bear in mind that health and nutrition had a tough comparable with 17% organic growth last year in Q1. On a positive note, animal health reported a very strong quarter.

Our business momentum in the U.S. further accelerated on the back of improved cattle farmer economics.

Lastly, natural colors reported minus 1% organic growth due to continued negative raw material prices impact and challenging market condition. Excluding annatto and carmine where we saw the largest price decreases, the division would have posted slight organic growth as FruitMax range again delivered very strong growth.

All-in-all, not a great quarter. Clearly below our ambitions but in line with expectations and also in line with what we have communicated.

Please turn to page five to talk in more detail about external factors that are currently affecting our performance. When we gave the guidance in October, we took a cautious stand for the current financial year, but it has become clear over the last three months that the headwinds are more persistent than what we had initially expected.

Doing business in emerging markets remains challenging for different reasons. As a result, our customers see demand for their products dropping and are increasingly under pressure to save cost instead of bringing new innovations to market.

While to a certain extent in food cultures and enzymes, we can help customers drive efficiencies. For example, with CHY-MAX Supreme, our newly launched cheese enzymes, the lower end-market demands does not leave us unaffected.

Moreover, some of our larger customers are also losing markets to smaller competitors and startups. In China specifically, the yogurt market has slowed beyond our midterm estimate of mid single digit growth.

Most recent market reports indicate that market volume growth is flat or even declining, driven by the steep rise of food prices triggered by the African swine fever and ongoing trade disputes with the U.S. Within the yogurt category, the shift to ambient, away from chilled, our probiotic yogurts, remains a further negative for Chr.

Hansen as it limits our upselling opportunities. In natural colors, not only the adverse economic climate which hampers conversion to more expensive natural solutions poses a headwind but also continued low raw material prices.

Unlike expected, carmine saw another price decline of 10% in Q1 even though the prices were already close to historical lows last quarter and these of course will continue to impact our sales prices throughout the year. Lastly, we are clearly seeing structural slowdown in the dietary supplement market in the U.S.

and Europe and these we believe is because the consumers are confused about which probiotics to take and trying out alternatives to pills such as fermented foods and beverages. But we are taking action to improve momentum even in this more challenging market environment.

Please move to the next slide, slide six. Last quarter, we talked about execution and let me assure you that we have made the necessary organizational adjustments and taken the measures that were needed to address this.

In a market that is more demanding, we have accelerated our efforts to drive sales execution and we have made good progress on key initiatives that were presented to you last quarter. In food cultures and enzymes, the focus is very much on driving commercialization of recent launches, upselling and developing our adjacencies and here we are well on track.

Our recent innovations have been very well received by customers and here I would like to highlight once again CHY-MAX Supreme that has gotten off to a very good start, particularly in Latin America but also NOLA Fit, our lactose enzyme. Furthermore, two of our recent launches were recognized as finalists or winners at one of the industry's most important trade fairs, clearly speaking to the innovation strength of Chr.

Hansen. We are also making good progress on our business with fermented plant bases where we have engaged in more than 150 customer projects over the last 12 months.

We are investing in strengthening our product portfolio and offer our customers a high-performing culture range with tailored solutions to the different plant bases. In bioprotection, we delivered double-digit organic growth in Q1 after a very soft fourth quarter and we have accelerated our R&D efforts to bring the third generation to market which will be a catalyst for our growth in Asia-Pacific.

With regards to China, the slowing yogurt market clearly remains a challenge. Given our success in the past, there are limitations as to how much more we can grow in the established business by increasing our share of wallet.

And let me be clear, I do not expect us to get back to the historical growth rates of high double digits. While we continue to see growth opportunities, particularly in the SME segment and the low tier yogurt space, what's most crucial for us is to defend our existing business also in light of competition.

Beyond that, I believe the key driver for future growth in China will be innovation and you hear us talk about probiotics, but also in the probiotic space, we believe we can innovate and bring new solutions that will help revitalize the market. Turning to health and nutrition.

I am pleased to report that we brought to market the new products in Q1 as announced at our last conference call. In human health, we launched a new probiotic strain blend for infant which have shown to reduce the risk of necrotising enterocolitis, the leading cause for mortality in preterm babies by up to 50%.

Furthermore, our probiotic strain BB-12, which has been described in more than 300 scientific publications, is now available for organic formulations and can be sold into the superpremium infant segment. Additionally, at our human health sales meeting, we introduced some interesting new concepts that we are currently presenting to customers.

At the same time, the team is working to further expanding our customer base and geographical reach in emerging markets. In animal health, we recently launched a new dairy probiotic, BOVAMINE Dairy Plus, which has seen very good take-up in the U.S.

and we continue to roll out GalliPro Fit, our poultry probiotic. Furthermore, we are strengthening our route to market via direct selling where it makes sense and through closer cooperation with our distributor network.

Moving on to plant health. The quarter was once again impacted by the order timing from our partner FMC but we are on track to deliver on our strategic roadmap.

To-date, the team is running more and more projects in crops other than sugarcane and we are also expanding our geographical reach with entry into the U.S. market.

Trials with growers are in progress and we expect first sales contribution this year, though at a very low level. Furthermore, our bionematicides were recognized as the best new biological product at the Agribusiness Intelligence Crop Science Forum, clearly showing that the innovation that Chr.

Hansen has delivered in the crop protection space is important and something we can build on further. Lastly, with regard to the human microbiome lighthouse.

I am pleased to report that BacThera, our joint venture with Lonza, has appointed Lukas Schüpbach as its new CEO and is having advance dialogue with different microbiome companies that are highly interested in working with BacThera in the rapidly evolving live biotherapeutic space. For natural colors, the strategy is focused on the segments with the most attractive growth prospects and I am pleased about the progress in our coloring fruits foods range, FRUITMAX, where we continue to gain market share.

Furthermore, the team is working on driving conversion in the U.S. and expanding our business into pet food and the food service channel.

Raw material prices are expected to remain low for the rest of the year. And instead of competing on price with low-cost players, the division continues to focus on driving profitability.

And with this update on our key initiatives, let me move on to the regional performance on the next slide please. Group growth in the first quarter was driven by the Americas, whilst EMEA and APAC reported negative growth in light of low end market demands and customer order timing.

Organic growth in our largest region, EMEA, was down 4% driven by declines in health and nutrition and natural colors. In health and nutrition, order timing in human health, in dietary supplements more specifically, was responsible for the weak performance.

Whilst in natural colors, we continue to see a negative impact from lower raw material prices but also from lower volumes in selected pigments. Food cultures and enzymes delivered decent growth despite the continued weakness in the Middle East.

The region was also impacted by the normalization of inventories at our distributors. North America delivered 7% organic growth with a very strong performance in health and nutrition, which was driven by animal health and good growth in natural colors, stemming above all from the coloring foods business.

Food cultures and enzymes was on par with last year as cheese production volumes were only growing slightly and sales in probiotics and wine declined. Latin America reported 9% organic growth with very strong growth in food cultures and enzymes despite the inventory normalization as we saw really good update of CHY-MAX Supreme cheese enzymes.

Health and nutrition declined because of the order timing in plant health and natural colors delivered solid growth driven by new customer wins despite continued raw material price headwinds. In Asia-Pacific, organic growth was minus 2% with a decline in health and nutrition, which was mainly due to order timing and very high comparables in human health.

Food cultures and enzymes delivered slight growth for the region whilst China grew solidly with strong growth in fermented milk, which was offset by the continued decline in probiotics. As already said, the overall market dynamics though are unchanged with continued high food price inflation and end consumer preferring ambient over chilled and probiotic yogurts, a trend that is negatively impacting our mix.

Lastly, natural color performance was on par with last year. With this, I would like to hand over to Søren for the segment reviews and the group financials.

Thank you Mauricio and welcome also from my side. Please move to slide number eight for the segment review.

In food cultures and enzymes, momentum improved slightly in Q1 compared to the last quarter. Organic growth was 4% with a 3% contribution from volume and 1% from price.

And this despite a continued decline in probiotics and the already mentioned normalization of inventory levels in our distribution chain which had a negative impact of around two percentage points. There were no material contribution from Euro pricing.

I would further like to emphasize that as Mauricio already alluded to, end-market growth is currently tracking at a very low level with fermented milk growing only 1% to 2% and cheese only growing around 1% globally, adding up to between 1% to 1.5% growth. This is clearly below the base assumptions in our growth model which assumes around 3% fundamental market growth.

If we look at the performance by product area, fermented milk, enzymes, meat and wine grew solidly in Q1 whilst cheese delivered good growth and bioprotection reported approximately 10% organic growth driven by fermented milk and meat. The decline in probiotics continue to be related to China, where our probiotic yogurt consumption is currently declining.

At the same time. in the U.S.

and Europe large legacy brand owners continue to lose shares to smaller players which was a net negative for Chr. Hansen.

Looking at profitability, the EBIT margin for food cultures and enzymes increased by 40 basis points to 32.1% as we continue to see scalability benefits from our Copenhagen site expansion come through. In health and nutrition, please move to slide number nine.

Growth was negatively impacted by timing of orders in our human and plant health businesses whilst animal health recorded a very strong quarter supported by improved cattle farmer economics in the U.S., a positive impact from the late silage season and the rollout of our new probiotic offering for dairy cattle called BOVAMINE Dairy Plus. Organic growth for health and nutrition overall though was minus 4%, as human and plant health both declined as expected.

Whilst in plant health order patterns should be back to normal as for Q2, we take a more cautious stance for human health. Our dietary supplements customers continue to face a challenging market with increasing competition from players without scientific documentation and end consumers still struggling to choose the right product.

As a result of this, our customers are delaying projects and taking down expectations. In infant formula on the other hand, the tailwind that we have seen from new brand registration rules in China over the past 24 months is fading.

Whilst overall, the outlook for probiotics fro infant formula is still positive with double digit market growth. FY 2020 will be a challenging year, given the high comparable that we face.

Looking at profitability for the segment, the lower sales momentum had a negative impact on the EBIT margin which came in at 19.6%, 5.8 percentage points lower than last year. Another reason for the decline in profitability was slightly high R&D spending for plant health.

Moving on to natural colors on the next slide, slide 10. The division reported minus 1% organic growth as our traditional natural color business continued to be challenged by declining raw material prices for carmine and annatto as well as a generally more challenging economic climate in emerging markets.

On a positive note, our coloring foods business reported very strong growth, particularly in EMEA and we delivered solid growth in LatAm due to recent project wins. Looking at profitability, the division was able to increase its EBIT margin, thanks to the lower raw material prices by 1.1 percentage points to 12.0% and increase the absolute EBIT by a full 10%.

Let's now look at the group financials and the cash flow on the next page, page 11. Group organic growth was 1%, all driven by volume.

Currencies had an immaterial impact. If we look at profitability drivers, the gross margin improved by 0.4 percentage point year-on-year, driven by scalability benefits in food cultures and enzymes and lower raw material prices in natural colors, partly offset by negative scalability in health and nutrition due to the lower sales.

As Mauricio already alluded to, we continue to reinvest in future growth and our strategic priorities resulting in a one percentage point increase in operation expenses in Q1. High investments in R&D were mainly related to food cultures and enzymes in plant health whilst the increase in sales and marketing was mostly attributable to food cultures and enzymes in natural colors.

Overall, this led to an EBIT margin before special items of 25.7% for the year, down 60 basis points. Special items amounted to €1 million, primarily related to cost associated with our BacThera joint venture leading to an EBIT margin for the group of 25.4%.

Please remember that our investments in BacThera is listed on the net financial items in the P&L where we reported a small loss this quarter as expected and as an investment in associates in a separate line in the cash flow statement. Turning to the right side of the slide.

Free cash flow before acquisitions and special items was an outflow of €6 million compared to an outflow of €33 million in Q1 last year. The improvement was driven by the positive cash flow from operating activities which was due to a favorable change in net working capital and lower taxes paid.

Cash flow used for operational investing activity was 10.6% of revenue compared to 11.1% last year. For the full year, we expect CapEx to end above the prior year level of €139 million driven by our expanded investment program.

And with this, I would now like to move on to the guidance slide on page 12. Even though Q1 was very much in line with our expectation, we do narrow our organic growth guidance range for 2019/2020 in light of lower end-market growth to now 4% to 6% compared to 4% to 8% before with an expected neutral impact from Euro pricing.

In the remaining nine months the year, food cultures and enzymes and health and nutrition, in combination, are expected to grow around 7% compared to 7% to 10% before. Food cultures and enzymes is now expected to grow 5% to 6%, which is significantly above the current low momentum in the dairy end-market.

This is around one percentage point lower than what we previously assumed. The growth expectation for human health have also been lowered because of delays of customer projects in dietary supplements whilst expectations for animal and plant health remain largely unchanged as both are expected to deliver strong growth.

Lastly, natural colors is still expected to grow low to mid single digit in the remaining nine months, driven priming by continued growth in coloring foods, but partly offset by lower raw material prices. The other two guiding metrics are unchanged.

EBIT margin before special items is still expected to be around 29.5%. Increased utilization of production capacity in food cultures and enzymes will have a positive impact on the margin which is expected to be offset by selected investments into the lighthouse projects and other strategic priorities.

Free cash flow before acquisition and special items is still expected to be around €190 million with CapEx above the €139 million that we realized last year. And with this, I would now like to hand back to Mauricio to talk about our long term ambitions.

Thank you Søren. Whilst at this point in time, our strategic review process is still ongoing, preliminary results indicate that the headwinds we are facing at the moment are not all of short term nature which is why we not only narrowed the guidance range for our current financial year, but also have to revisit our long term growth ambition.

As part of the strategy process that we are conducting, a thorough review of the growth opportunities in our different end-markets are R&D pipeline and current customer initiatives. The preliminary conclusion does not support Chr.

Hansen maintaining the current long term growth ambition of 8% to 10% until 2021/2022 with food cultures and enzymes delivering 7% to 8%. There are three main reasons for this.

First, fundamental market growth in food cultures and enzymes is approximately 1% lower than the previously anticipated 3% and this is because of the expected lower growth rates in emerging markets as well as the decline in fresh dairy consumption per capita in the U.S. and Europe because of consumer preference shifts.

Second, the structural changes in the dietary supplement market mean that we expect human health market to grow at a slower pace than previously expected. And third, natural colors.

For natural colors, if we leave the raw material prices impact aside, conversion is progressing slower than what we had anticipated and we don't see any key indications that this will change absent of regulatory incentives. Taking all of these factors into consideration, as a management team we don't think that the 8% to 10% group organic growth until 2021/2022 is longer feasible which is why we decided to issue a new preliminary long term growth ambition of mid to high single digit growth for the group until 2024/2025.

The group long term ambition on EBIT margin and free cash flow until 2021/2022 remain unchanged for the time being, but of course we will review together with the preliminary growth ambition as we are completing our work on the strategy. A new set of long term financial ambitions for the period until 2024/2025 will be finally confirmed and announced at the Capital Markets Day in high in April.

To wrap up, please turn to the next page. Q1 2019/2020 was in line with expectations.

The current end market challenges are proving to be more persistent than we have anticipated three months ago. As CEO, I clearly dislike delivering negative news in the form of a downward correction to our growth outlooks but as management, we are committed to providing our shareholders with full transparency and our best assessment of the current situation.

Overall markets have turned less positive, but that doesn't mean that we are standing still. We have made good progress on our key initiatives, strengthened self execution across the organization, further advanced our commercialization pipeline and seeing really good early uptake of our recently launched product.

I continue to believe very strongly in Chr. Hansen's mid to long term growth opportunities and our unique technology platform.

And whilst we have lowered our long term growth ambition, Chr. Hansen still has the ambition to continue to significantly outperform its end-markets.

I am convinced the current challenges will strengthen our organization and make us more resourceful in winning with our customers. There remains many attractive growth opportunities in the microbial and natural solution space.

It is amazing all the things that we can do with the power of good bacteria in solving some of the society's largest challenges and I am looking forward to sharing the results once we have completed our strategy process in April at the Capital Markets Day for which you can now sign up in our IR website. Chr.

Hansen is an ambitious company and we are doing everything we can to accelerate momentum and create value for shareholders in the current market conditions. With this, I would like to open up the call for Q&A.

Thank you very much.

Yes. A couple of questions on my side.

Happy New Year, first, of course. So on the new long term growth targets, do you expect this mid to high single digit range to be narrowed in at the Capital Markets Day on April 22?

And specifically for food cultures and enzymes, where you have lowered underlying market growth by 100 bips, do you see any change in the potential additional growth you can deliver on top of the underlying market growth? Or sort of that discrepancy the same as before?

Second question is, you mentioned that you have accelerated 3G bioprotection, can you comment in a little bit more on what that means relating to timing of when this is launched and what it means in terms of reaching growth? I still think you need to grow close to 30% CAGR to reach your lighthouse ambition for bioprotections.

Is that realistic? And then a third question, which is more technical.

So with BacThera, your human biome investments and expenses are clearly going into a company which is booked as financial expenses. Does this mean that you are de facto moving expenses out of health and nutrition, which will now be reported below the EBIT line?

Thanks.

Thank you Lars. I will take a couple of the questions and then pass it on to Søren for completion.

So on your question about guidance, the whole purpose of issuing the interim guidance was to be transparent and obviously we cannot comment more on this until we have the time to complete our full strategy assessment and come back in April with what we believe is the guide, the right long term ambition for our business based on the five-year strategic priorities. So appreciate timing on that.

And in food cultures and enzymes, as we have indicated in the text, our ambition is to continue to significantly outgrow the underlying market with our innovation, expansion market share, customer engagement. So you can expect that model of food cultures and enzymes to continue to play on a multiple outperformance of the market.

Mauricio, sorry if I can just can comment on that. So does that mean for food cultures and enzymes isolated, it seems the moving party is really the underlying market growth and not anything else.

That is the major moving part of the change in food cultures and enzymes. I think what you also have to look and take into consideration, Lars, as we look five years ahead is we will continue to have a larger conversion level in our DBS.

But the most material change for sure is the underlying market.

Makes perfect sense.

The second question on the third generation bio-p, I wouldn't say anything different for what we say in the last call. We think that would be 18 to 24 months away that we can really introduce that to customers, but there is a lot of priority being placed on that.

And obviously, any incremental improvements that we find between the second and a full-blown third generation, we will sequentially bring that into the market. I would say, I have a high level of confidence on the relevance and the potential of bioprotection for Chr.

Hansen, but we will come back in April in the Capital Markets Day because we will visit when the €200 million can be achieved. I think you are right that a 30% CAGR is probably not realistic.

Søren, I will pass it on to you for the BacThera question.

Yes. And regarding BacThera, you can say that there has been a small transfer of both cost and also a little bit of business, you can say, from Chr.

Hansen to BacThera as part of this change but is quite small numbers overall and the net impact on EBIT is immaterial in the larger scheme of Chr. Hansen.

The key, you can say, impact in BacThera relates to new hirings in the company, new establishment in the company and investments made after we have closed and created, closed the transaction and created the joint venture formally.

I think I would just add to that that the investments that we are doing in BacThera really to have the lab capabilities to be able to supply on their pharma conditions to the customers according to the CDMO model of BacThera.

Yes, I understand. I was just asking because theoretically one could argue for higher margins in health and nutrition if expenses are transferred to below up, but I wasn't that lucky.

Thank you very much for very good answers.

Thank you Lars.

Yes. Hello gentlemen.

So just in regards to both your this year's guidance and the coming year's guidance, I mean I don't think I have heard you use the market growth as a primary explanation for your own growth. So I was just wondering why, if something has changed that makes sure you more dependent on market growth than we have seen in the past and what that could be?

And then secondly regarding the inventory adjustments up 2% in food cultures and enzymes. First of all, if you could just elaborate a little bit what regions and what clients are we talking about here?

What's the reason for the inventory adjustments and where are they? And also secondly, if you can quantify if there will be an inventory effect in Q2 and Q3 as well?

Thank you.

So on the overall guidance, I think, Soeren, you are right, which is we operate as innovation company that outgrows the underlying markets by a multiple. But when there are significant changes to several of the underlying markets, I don't think we are immune to that.

So what we are trying to flag to you in clear and transparent way today are basically three things. The underlying market growth in dairy has probably moved down by one percentage point from 3% to 2%.

And while we still expect to significantly outperform that, it's definitely more challenging. And that's why we sort of narrow our range as well from 4% to 6%, but you can see from our guidance on Q2 to Q4 that we still expect the microbial platform to have a strong performance and we got our food cultures and enzymes as well as a multiple of that underlying market.

The second one is health and nutrition, really dietary supplements is a bit challenged and while we are committed as the leading company to the future of probiotics and microbial solutions in gut health and the while opportunity that this represents, we will need to find a way to innovate more in this segment and to make consumers readjust to grow in the dietary supplements category specifically. And the third one is natural colors where you see that the conversions of large brands are slow and far apart.

We do see, on the positive side, new product introduction mostly being launched with natural colors. I hope this provides you some color to the question.

Søren, I will pass it to you for the remaining.

Sorry, if I could just follow-up, okay, so that's fair, but then I don't hear you say that anything has changed in your, you can say, the competitive advantage in the pricing situation or in the competitive situation. Nothing has changed there, that's what I hear you say.

That's correct. I think we feel quite strongly on our -- if you look at the fundamentals of our business of saying, it's a business with high barriers to entry, high switching cost for customers and where we hold a lot of innovation and strong pricing power.

I think that is reflected in the strength of our EBIT performance and in our performance overall. We are going through a moment of a more challenging growth period that I have the confidence as a team we will be able to address, but we need to confront the facts that the growth has been more challenging.

Soeren, regarding your question on the inventory adjustments, if you look at the regional drivers, this has been primarily been in the emerging markets and with Middle East and Asia outside China as the key areas. And we are seeing that relating to a gradually slowing demand seeing during the second half of FY 2019 that translated into this high inventory position.

As we have written in the announcement, we believe we are roughly 75% completed in food cultures and enzymes. So we obtain by far the majority of the hit in Q1.

There was still be a small impact that we expect that will hit us over the coming quarter, but it will be of a smaller nature than what you have seen here in Q1 for sure. So we are around 75% done and that means that up to a percentage point that we still have to go in a measured in a single quarter that we have but the majority is done.

Okay. Thank you.

Very clear.

Yes. Good morning and thank you for taking my questions.

First, if I can go back to dietary supplements. Could you just repeat and also elaborate on what it is that is fundamentally changing your outlook longer term?

And also in that perspective, is there anything you can do? Elaborate on what you just said you can do to kind of get you out of this lower growth prospects?

Then secondly, this was your fifth quarter with organic growth below 20% in bioprotection. Is it right to assume that the challenges you experienced from the beginning of last year has now annualized and that from Q2 we should see higher organic growth, significantly higher organic growth for bioprotection?

And then my last question is on natural colors. Now you lowering your longer term outlook for natural color growth.

So it's clearly not supporting your overall group organic growth expectations. Does that change your view on your ownership of this business?

Thank you.

Thank you Jonas. I think on dietary supplements, I would say we have seen a weak dietary supplement market across the key markets.

Mainly I would highlight the U.S. where there has been really what we call pill fatigue in a lot of offering of undocumented strains creating a lot of confusion with the end consumer.

And I think the whole category and the shift that we have seen also to online has made the whole dietary supplement category in the U.S. go down to very low levels of growth.

We have also seen in Europe some of the largest dietary supplement markets like Italy soften. And even in China, the dietary supplement markets have also been slower.

So I think you are seeing a bit of a more systemic slowdown in a category. And by the way, I want to differentiate that from infant formula where we continue to see a higher penetration of probiotics in infant formula and we are excited about the growth opportunities that that represents.

What we have to do in the dietary supplements category as a leader in that category is to innovate together with our customers to continue to drive science so the consumer make the right choices and I think in the call today I gave you some really good examples on how we are leading we BB-12 and LGG to bring specific products that resonate with the key consumer needs and we will continue to invest in building strength in the dietary supplements category. Bioprotection, I think we delivered 10% growth in Q1.

What I stated is that bioprotection represents a large opportunity across the fermented categories and also in the future to expand to some other categories as we had mentioned. But the technical challenges are higher to overcome and therefore, I think we need to come back to how fast will bioprotection grow.

Probably, if you have to take a best estimate, I would take Q1 as the best estimate of saying, we expect bioprotection to continue to deliver double digit growth. But I won't projected it to the higher end of 20%.

And so Søren, you want to comment?

Yes. I think we are in the middle of a strategy process and as part of that we are obviously always reviewing both the growth outlooks within our businesses but we are also considering the entirety of the portfolio.

But we have no work ongoing to change at this point. But it is a natural thing that is embedded in that strategy process and that's the only thing really to say about that at this point in time.

Thank you very much.

So the first question. I think in your speech, you said that you are needing to defend your position in light of competition in China.

Could you elaborate on what you meant? Thank you.

That's my first question.

Yes. We see a more competitive market in China.

I think as I mentioned several times, Heidi, we have a very high market share in China, higher than our average food cultures and enzymes market share and therefore you can expect that when the market slows down like it happened in China, there is more competitive pressure. And therefore, we need to make sure we do two things in China.

One is that we protect and develop our established base with the large Chinese customers. And second, that we continue to build the SME market and the innovation in the areas where we are now playing.

And that sort of summarizes our game plan in China.

So when you say competitive pressure, is it new entrants or is it existing entrants being a little bit more aggressive? So does that mean there is price pressure in the market, just to clarify?

I don't think we have seen any large new entrants into the Chinese market. So it's the established customers fighting for market share in large customers that have all of the sudden seen a deceleration of growth.

And as I mentioned in my speech as well, there is more focus on cost management as they are trying to manage through these more subdued market. I do believe our interactions with the Chinese customers is they all know they have to innovate their way and to continue to expand the dairy market share in the Chinese market.

Thank you. And then the second question.

I think you had said in your speech that in the U.S., large legacy customers are losing share to smaller companies. I think this was an FC&E comment.

I thought I had understood that you have quite a fragmented customer base and that no individual multinational company matters. Had I understood that incorrectly?

Or is there a new development, just to clarify? Thank you.

The comment was global, Heidi. It was not only related to the U.S.

And you are right, we have a very high granularity across FC&E serving very small customers. But when you look at some of the larger brands that had probiotics in their offering, I think when the volumes there decline we definitely see an impact in our total probiotics business.

Thank you. And then the last question.

Do you have any initial comments on the IFF DuPont situation, as I am just wondering if these integrated solutions that they are talking about works because the concept does seem to make sense, right, so it's just making life easier for customers. Isn't it a risk for you as a focus player?

I think we have seen DuPont be a strong competitor that we respect a lot. We have no major comments really on the IFF acquisition.

It will be a long closing period of over a year. Probably a lot of distraction in such a large merger.

I think as Chr. Hansen, we need to focus and double down in our products, in our customers and compete to win in the marketplace.

Thank you.

Hi. Good morning everyone.

Two questions. Firstly, coming back on dietary supplements.

So am I understanding that the reason for the lower, maybe the lower growth expectations going forward is really coming from outside North America? So a further declining market in now Europe and Asia?

Because I think in your report, you called out strong growth in human health in North America in Q1. I don't know whether that's more of a formula driven, but that implies dietary supplements were stronger in North America so the incremental decline is coming from other countries.

So I wonder if you could clarify that. And if it's just about softer market or whether you are talking about you are losing share within the market as well?

And then secondly on China, I just wanted to sort of, I guess just clarify the momentum in Q1 really. You mentioned solid growth in China in food culture and enzymes in Q1.

I think you were declining though in the second half of last year. And you said there's been no sort of change in the market backdrop.

So just wondered if you could talk about Q1 in the context of the second half of last year in China? Thanks.

So on the dietary supplements, James, I can say that for sure North America is not where we see the change as the largest one. That's where we have seen a continued challenging situation.

We are seeing Europe becoming more challenging, first and foremost. And then secondly also the growth rates in Asia-Pacific has also, even though they are still attractive, they have come down.

So those are the two key drivers behind the change that we are articulating now. And that when you refer to the specifics of the Q1, yes, we did have good growth in dietary supplements in North America.

But you have to bear in mind, it's not just the performance of the human health or health and nutrition, particularly on a quarter, given that it's rather large customers where order timing means a lot and overall, it was negative for the quarter but North America actually had a bit of tailwind within dietary supplements in terms of order timings. So don't over-interpret that.

North America remains challenging and Asia and Europe are the ones that are moving into more challenging territory. That being said, we are coming from a quite high level and we still project global growth going forward in dietary supplements containing probiotics.

So it's still a very attractive market to cater to, but it's just at a different level than what we have seen in the past. And then on China, for sure we have good growth in Q1.

I think we benefited from some one-offs on customer locations and volumes based on our quality and our service. But my expectations for the full year are definitely not as high as we performed in Q1.

And anything you would complement to that, Søren?

No. And then you can say the dynamics of probiotics being extra challenging in China is also remaining.

So the growth that we delivered in Q1 in addition to, you can say, what Mauricio also built on also reflects that probiotics remains challenging whereas we were more successful in the traditional fermented milk cultures in this quarter.

Yes.

Great. Thanks.

From my side, firstly, could you quantify the destocking affecting human health as you do for food cultures and enzymes as well as the timing effect in plant health? And then secondly, what's the risk of animal health ultimately ending up in a similar situation as human health appears to be in now?

I think we will risk not provide specifics as to the effects but what I can say is that when it comes to human health, as an example, we did deliver high single digit growth last year and we are also expecting beyond this quarter, which was very challenging, that we will deliver a solid growth component in the remaining part of the year in human health. So timing of orders with customers and their launch plans and their order pattern has a huge effect in Q1.

And similar for plant health, we delivered very strong double digit growth in FY 2019. We also expect a strong growth, double digit growth in 2020 for plant health.

So again, the timing effect that we are considering is quite significant in Q1. In terms of the animal health business, I would say that here we are seeing some generally a better cyclical situation in some key markets, most importantly North America and the cattle situations where the economies of, especially, dairy cattle farmers has improved.

So that is, you can say, building some strength into it. We have also seen the silage season which was poor towards the end of FY 2019 actually was coming back with a strong season, late season in Q1.

And then we have launched some new interesting products which have seen really good uptake among our customers, primarily the dairy, BOVAMINE Dairy Plus product that we have out there. So, all in all, I would say that here on this part, we are relatively positive in the outlook for animal health for the coming year, both in terms of the market and our ability to also capitalize on the great products that we are launching.

Yes. Probably just want to animal health is, in addition to BOVAMINE Plus that has had a very good takeoff with some of the larger cattle farming segments, we also continue to see a very good performance of our GalliPro Fit, our probiotic for the poultry segment where large accounts represent a large opportunity for us to continue to build volume.

So we don't see that, I would just say, on human and plant. Remember that there will be more variations quarter-to-quarter and the best thing is to look at those businesses on the annual growth performance.

And maybe just one word of caution in terms of the animal health, Q1 was very high, so very high double digit growth in that part of the business and that was partly helped by the is pattern in the silage season. So you cannot just to extrapolate that development in the coming quarters although we expect a strong year in animal health this year.

Okay. Thank you very much.

That was very helpful.

Hi guys. Good morning.

I also have three questions. Firstly, just more of a thematic/midterm question.

In a number of categories, one of the themes I have picked up is that large customers are losing share to smaller customers/startups. We see that in FC&E.

We see that in dietary supplements. We have seen that in dietary supplements for some time.

But it seems like we are beginning to see that in Europe as well. And we have seen that a bit in China as well.

What I recognize from that is that Chr. Hansen doesn't have the same relationships with smaller customers as it does with larger customers.

And if I look out to the next, let's say, one to two years, are you looking to build relationships with the smaller customers to where the growth is? And if so, how long do you think that evolving might take?

Is there any impact on the P&L relationships with the smaller customers versus the larger customers? That's sort of my first question.

The second question is with regards to the midterm ambitions, mid single digit to high single digit growth. Appreciating that the market growth has slowed by 100 basis points which I guess at the group level, if we take into account the dietary supplements and natural colors comments is probably also around 100 basis points given the size of the businesses relative to the FC&E.

So I am just trying to understand what deviates the bottom end of the range from 8% to mid single digit, call it 4% when the market growth rate only has 100 basis points impact? That is my second question.

My third question, for FY 2020, now if I take into account some of the one-offs in Q1 and your underlying market growth is, say you are growing 3% after taking into account the one-offs, what could potentially accelerate you to the midpoint of your full year guidance of 4% to 6% when you are suggesting that China, you cannot extrapolate growth there, in animal health don't extrapolate growth there, bioprotection is already at double digits? Could just help us with the some of the building blocks because as you suggest, the market growth won't be improving in the second half of the year?

Yes. Maybe we will start with your last question, Søren and I will double back on that.

So basically, if you look at the one-offs in Q1 that we have communicated, the two largest one were really in relation to the destocking and to the order facing of human and plant. So if you do the math of those, then you clearly get well into the range.

But Søren, you may complement that.

Yes. I think building from Q1 is tricky because we have had quite a few temporary headwinds with order timing and destocking.

So I would say there will be some relief here. Also there will be a baseline in the coming quarters that will be more favorable in some business areas like natural colors and also animal health.

And then I would say, otherwise it comes down a lot also to our ability to execute on our project pipeline with customers. That is really good because if we are to outgrow the market in food cultures and enzymes by two to three times, it requires that strong execution of that.

That is no different from any other year that we have had. So you can say there are some baseline things.

There are some timing things. And then really executing on the pipeline that is key.

When it comes to maybe to your second question in terms of the mid to high single and how that translates. First and foremost, I mean with the mid to high single digit when we look beyond the year that we are in where we have a guidance from 4% to 6%, the mid to high single digit is a 5% to 9% that we are thinking of.

And it's true that it's one percentage point lower in food cultures and enzymes than previously expected in the market. However, when we look to some of the other segments like dietary supplements, it is a larger impact than a 1%.

So across all the business area actually the impact from market, we see as larger than just the one that we spoke about in food cultures and enzymes. So I think that's the other point to add to that.

And I think we also see overall a more volatile environment, right. So there is a lot of trade tensions right now in the world.

We talk about the developing markets that have been a high growth market for us. So I think as we issue interim guidance, it' logical that that interim guidance provides a wide range of mid to high single digits.

Talking about the customers and large customers' shift to more, let's say, local customers, startups, more entrepreneurial customers, I think your conclusion on food cultures and enzymes is not correct. We actually have a very large share of serving smaller customers.

We service, we have said in the past, over 4,000 dairies across the world. And we have very deep technical and commercial relationship with smaller customers.

I think though as I said, when there is a large decline in one of the large customers, you need to capture volume and growth with many small customers. This equation is different in human health where our business has historically been very concentrated with large customers and where we need to expand our geographic reach and our customer reach with more probiotic solutions to have a broader market coverage across online and retail to balance our growth profile from a customer point of view.

Thanks.

Good morning. Just one question from me, thanks.

And it's about the medium term growth outlook. You talk about the market slowing from 3% to 2%.

But what actually is going to make the market improve from where it is now? You are talking there about 1% to 1.5% at present.

And all the indications that I see for future global milk supply, not demand but milk supply, are pretty much flat. So what is the thinking behind your 2% market growth forecast in your midterm guidance, please?

Yes. Of course, this is a careful assessment and a preliminary assessment based on where we are now in the strategy process.

But we believe that the momentum that we are seeing in the market now both reflect something that is cyclical but also something which is temporary or cyclical. So as an example, the cheese production of around 1% right now which is at zero in Europe and around 1% in North America, cheese production is something that moves with a certain cyclicality and here the intel that we have from market, data market reports, customer discussions about expansion plans, et cetera, means that we believe that that number will normalize to a higher level than what we see right now.

Similarly, when it comes to fresh dairy, the absolutely largest changes in emerging markets that we see right now with China actually being flat just to slightly declining and also some other emerging markets like the Middle East suffering right now. And we also believe that although these markets are coming down relative to what we said at the Capital Markets Day two years ago, right now we are also at a special point in time due to some external reasons and we believe that we will see some recovery in these markets when we look in a five year horizon.

So that's the logic that is said behind this number here, but of course, we continue to monitor the development in dairy very carefully and that is exactly also why how our plan for addressing plant-based protein is one of the key topics that we have in our strategy plan because that is also important for us to tap into this market and this trend when we look forward.

And then if I could just have one follow-up, given I didn't start with three, how big a plant based, what percentage of your sales is currently plant-based, please?

It's a relatively small proportion of our sales. Bear in mind that based on our knowledge, it's still within yogurt, plant-based is still at around 1% of global yogurt that is plant-based and cheese is less.

But we do see an acceleration and we also expect as that market develops further that they will be looking for even better solutions from what they have today. And this is where our cultures can really play a role.

So it is a not large for us today, but we believe that it will be a vehicle going forward when we look out to a 25 and especially a 30 horizon.

And specifically even though overall it's one percent or less than 1% of dairy, obviously if you look at some specific markets or population segments, affluent metropolitan cities with millennial consumers, the market share is higher and that's where we are really working with customers to understand how to deliver the best products to those consumers. And as I mentioned during the call, we are engaged in hundreds of projects on a very successful way with the leading customers in plant-based.

Thanks very much.

Yes. Thanks for taking my questions.

The first one will be on your lighthouse projects in light of the new mid to long term guidance. You have already talked about bioprotection but can you also talk about your other lighthouse projects and how they are impacted by reduced midterm growth outlook?

The second question will be on cash flow and particularly free cash flow where you improved year-on-year quite significantly, thanks to a lower working capital. Was that already built into your original around €190 million guidance for the year?

Or was this a positive surprise versus your budgeting for the quarter? And then the last question is just on natural colors.

You mentioned given the, let's say, subdued growth outlook here, focus will be on margins and improving profitability. Can you provide a bit more color on what exactly you intend to do here in natural colors?

Thank you.

Thank you Patrick. I will take the first one and Søren, pass it to you.

I would say, on the lighthouses, if you remember we had mentioned three lighthouses. I think bio-p, we have commented extensively during the call today.

Plant health, we continue to be very excited on the momentum what we see in plant health with very high growth. I think we are tracking towards a successful execution of our plant health and the key steps in our plant health journey will be to continue to gain acreage in Brazil sugarcane, expanding to soy and then expanding to geography in the U.S.

We will also consider other potential expansions that will give our products the best growth. But we are confident on our plant health lighthouse.

And we have not quantified the human microbiome lighthouse, but I think BacThera provides us the first entry into the exciting live biotherapeutics market and we are quite confident that that will play out as a future success for Chr. Hansen and Lonza on having BacThera be the leading supplier of life biotherapeutics CDMO solutions.

Søren, you want to take on the free cash flow?

Yes. As the cash flows also is always a volatile metric in a given quarter, but I can say overall it was a quiet in line with what we expected and that's also why we have maintained the free cash flow for the year.

So no big surprises here. And one of the reasons why we came out strong related to a strong cash collection in this month from our customers and that was also a focus area.

So it was built into our plans. When it comes to your question regarding natural color margins, I would say that you can say I will put it in three pillars in terms of the margin management.

First one, of course, being managing the raw material fluctuations in a very diligent way, up or down whether that's the case then we will monitor that carefully and manage the pricing in the right way. Secondly, I would say efficiencies, especially in our production is a key focus area.

And we are continuing to investing in how we can work more efficiently. And finally when it comes to what you can call sourcing and breeding of the raw material components which is a large part of the cost base in natural colors, that is also really an area where we continue to work to improve our margin position and cost and use offering with customers.

So across those three, I would say that those our key priorities in terms of managing natural colors margin in a positive development.

Thanks. Very useful.

Thank you.

With that, we would like then to thank everybody for their participation in the call and the good questions. Please do not hesitate to reach out to IR in case there are any further questions.

Thank you.