Chr Hansen Holding A/S

CSE:CHR

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by, and welcome to the presentation of Chr. Hansen's Q2 conference call. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to your speaker today, Chr. Hansen's CEO, Mauricio Graber.

[Mauricio Graber, CEO, President & Member of Executive Board]

Good morning, and welcome to today's conference call on Chr. Hansen's Q2 '20/'21 results. Together with our CFO, Lise Mortensen, we will do a short presentation on the developments of the last quarter before opening for questions and answers. Before we start, please take notice of the safe harbor statement on the next slide, Slide 2, please. Thank you. Let's turn to Slide 3. Despite the ongoing global pandemic, Chr. Hansen continued its strong growth trajectory in the second quarter, supported by both Food Cultures & Enzymes and Health & Nutrition. This resulted in organic growth of 10% for the microbial platform in Q2 and year-to-date, with equal contribution from volume and euro pricing. Our underlying EBIT margin before special items, meaning our EBIT margin excluding the recent acquisitions, was 30.9% in Q2 and 29.8% year-to-date. The key drivers for the margin decline in the underlying business compared to last year were FX, higher freight cost and a negative product mix that outweighed the production efficiencies and lower travel expenses. The reported EBIT margin before special items was 27% in Q2 and 26.1% year-to-date, in line with our expectations. Free cash flow before acquisitions, divestments and special items at EUR 42 million in Q2, on par with last year. Year-to-date, the free cash flow was below last year due to the acquisition of the Kalundborg site for our HMO business. In terms of strategic progress, please turn to Slide 4. I am very pleased about the successful divestment of the Natural Colors that we announced on March 31. The team has worked full steam over the past 6 months to prepare the division for its new start as an independent company, and I would like to thank everybody involved in this complex process for the great teamwork to complete the carve-out, and wish the Natural Colors team all the best under the new leadership of EQT. Consistent with the transaction agreement, Chr. Hansen will provide various transition services for a period of up to 2 years. And as already communicated in September, we will use the proceeds from the divestment to bring down debt, and we have also initiated the process to pay out an extraordinary dividend in May of around EUR 116 million. Selling of Natural Colors is not just a defining moment for the division itself but also for the rest of Chr. Hansen. After more than 145 years, we are opening a new chapter in our history as a microbial pure-play with a truly unique business model and market positioning. On the 2025 strategy, we will continue to reinvest in our core businesses of dairy, animal and human health, whilst leveraging our technology platform to build our lighthouses and expand into new areas to grow a better world naturally and enable more sustainable development from farm to fork. In this context, I am very excited to share that we will launch the third generation of our bioprotection range, FreshQ, later this month, which will offer dairies even more powerful solutions to extend shelf life of fresh dairy products, use food waste in an all-natural way. First trials have shown very good results, and we have started dialogue with key customers. But also, we need to be mindful that the pandemic is making it more difficult to engage with customers around new concepts, particularly in emerging markets for which this product was developed but where the demand for dairy products remains weak at the moment. Extending our technology platforms via M&A is the third pillar of our strategy, and we are on target to complete the integration of UAS Labs, HSO Health Care into our existing human health business by the end of the financial year. In January, we officially launched our new combined strength-to-solution trademark product offering. Commercial activities have been aligned, and the new organization is transitioning into normal day-to-day business. At Jennewein, we continue to advance our dialogue with customers that are very keen to add HMO to their product portfolio. And we are on track, resolving the capacity bottleneck in Germany. We are also making progress on the new production site in Denmark and on establishing the new organization. At the same time, we continue to see pandemic-related product registrations and customer launch delays which decelerates the pace of the HMO market development, and this is a concern if we look ahead. However, I want to make absolutely clear that we still have a high conviction in the long-term opportunity of the HMO market. Overall, we continue to expect the acquisitions to contribute around EUR 100 million revenue and around EUR 10 million EBITDA for the group in this financial year, consistent with what we communicated in Q1. Let's turn to the next page, Page 5, for the regional performance review. Overall, the trends we saw in the first quarter continued into Q2. Our largest region, Europe, Middle East and Africa, delivered 4% growth in Q2 and 6% year-to-date, with Food Cultures & Enzymes growing solidly, while Health & Nutrition declined due to another soft quarter in dietary supplements where the market continues to be impacted by its dependency on the traditional pharmacy channel. North America, on the other side, reported 7% organic growth in Q2 and 8% year-to-date with both Food Cultures & Enzymes and Health & Nutrition contributing to the solid results. For Health & Nutrition, we saw momentum in Animal Health pick up again after a flat Q1, supported by recent new product launches and favorable commodity prices. Whilst in Human Health, the trend reversed and we saw a decline in the second quarter as customers were working through inventories that have built up during the pandemic. Organic growth in Latin America was 32% in Q2 and 36% year-to-date, of which approximately 2/3 were euro pricing and 1/3 volume. Both Food Cultures & Enzymes and Health & Nutrition contributed to the strong growth performance in the Latin American region. Lastly, in Asia Pacific, we saw an improvement quarter-over-quarter driven by a strong Health & Nutrition business, resulting in 10% organic growth for Q2 and 3% year-to-date. Food Cultures & Enzymes had another difficult quarter with declining sales due to continued weakness in China, which accounts for roughly half of our Asia Pacific business. Whilst during the first phase of the pandemic, Chinese dairy industry was hit by shutdowns and production disruptions, what we have seen in the second half of the calendar year 2020, i.e. during our H1 fiscal year '21, was that overall dairy volumes grew slightly, supported by government recommendations to consume more dairy products but with a meaningful shift away from fermented products towards liquid milk. According to ACNielsen, the overall dairy retail value grew slightly in the second half of the calendar year, but it was driven by growth in drinking milk at the expense of fermented milk products. While drinking milk grew double digit, and that's a product segment that we don't have a large business in today, yogurt declined double digits, both in chilled and ambient. We already mentioned this development on our last call, and in our view, the trend continues to be driven by 2 main factors. First, consumers are choosing drinking milk over yogurt due to affordability considerations. Remember that yogurt remains a relatively expensive product for most Chinese, and that instead of consuming yogurt, they can also follow the government recommendations by consuming plain drinking milk instead. We have experienced a similar high-price sensitivity from consumers on yogurt segment already during the African swine fever outbreak. Secondly, in light of the short supply of raw milk and record-high milk prices, the highest we have seen in 9 years, producers have been simplifying their production and changed their priorities short term. We do not expect this trend to continue -- we do expect this trend to continue for the foreseeable future, meaning we do not expect the market to come back to growth during our financial year '21. And it's difficult to say exactly when we will see this trend reverse. But we believe that it is a temporary decline. We continue to see very high level of engagement with our Chinese customers and a solid project pipeline and strongly believe that midterm, the growth opportunities for the Chinese dairy market remain very attractive, which is why we will continue to invest, for example, in local product innovations and our application presence in China. And with this, I would like now to hand it over to Lise for the segment and group financials. Lise?

[Lise Skaarup Mortensen, Executive VP, CFO & Member of Executive Board]

Thank you, Mauricio, and welcome also from my side. Please move to Slide 6 for the segment review. Food Cultures & Enzymes grew 8% organically in Q2 and year-to-date, with a 2% contribution from volume/mix and a 6% contribution from the euro-pricing mechanism. Fermented milk markets in emerging markets remains soft. And with our 2% growth from volume and mix, we are still are outgrowing the underlying market. If we look at the product segments, in Q2, we've seen very strong growth in meat and enzymes, especially in yield-increasing enzymes like CHY-MAX Supreme and in our NOLA Fit lactase portfolio, followed by strong growth in cheese and bioprotection, while fermented milk only grew slightly and probiotics declined. Turning to profitability. The Q2 EBIT margin for FC&E decreased to 31.0% compared to 32.2% last year as efficiencies that we continue to realize in our production plants and COVID-19-related lower travel expenses were offset by unfavorable product mix, higher freight cost and FX. Year-to-date, the EBIT margin was 30.8% compared to 32% last year. Please move to next slide, Slide 7. In Health & Nutrition, we have seen another strong quarter with 14% organic growth in Q2 and year-to-date, with a continued strength in Animal Health, whilst momentum in Human Health slowed because of more challenging supplement markets in Europe and North America. Our probiotics business for infant formula and young children grew strongly in Q2 in line with expectations and despite softer markets. But also note that this is -- this only accounts for 20% of our Human Health business. Plant Health delivered strong growth ahead of the sugarcane season in Latin America. Our 3 acquisitions, HSO Health Care, UAS Labs and Jennewein, contributed EUR 22 million revenue in Q2 and EUR 43 million year-to-date, in line with our revised expectations. Looking at profitability in the underlying business, the margin was 30.9% in Q2 compared to 32.1% last year, and the decline can be fully attributed to FX. If we look at reported EBIT margin, it remained impacted by the acquisitions, which led to an overall EBIT margin for the segment of 19.6% in Q2. Remember that Q2 is the first quarter where we fully consolidate all 3 acquisitions, which is why the impact is larger than it was in Q1. Year-to-date, the reported EBIT margin was 16.8% compared to 26.5% last year, and for the underlying EBIT margin was 26.9%. If we look at the top line performance for the microbial business in total, please turn to Page 8. We realized 10% organic growth with equal contributions from price and volume, both in Q2 and year-to-date. Pricing was driven by our euro-price-list mechanism. And given current FX rates, we expect the tailwind to slow down but still with meaningful contribution of around 3% for the full year. Acquisitions contributed 9% to absolute revenue in Q2 and year-to-date and adjusting for negative currency effect, mainly because of the strengthening of the euro versus the U.S. dollars. This led to euro growth of 9% for the quarter and 10% year-to-date. It is also worth flagging that in the first half of FY '21, we had a relatively easier baseline, which, as you can see on the right side, will change as we go through the year. This is particularly true for Q3, where last time, we experienced extraordinary demand from customers ordering additional safety stock because of the pandemic. Let us now turn to profitability on the next page, Page 9. If we look at the margin bridge, the picture looks very similar to our Q1 reporting. In line with expectations, the EBIT margin in our underlying business was flat in Q2 as lower travel expenses and production efficiencies were offset by higher freight cost and investments into strategic initiatives. The negative impact from FX remained around minus 1 percentage point and the dilution from the acquisitions was approximately 4%, leading to a reported EBIT margin before special items of 27.0% in Q2 and 26.1% year-to-date. If we look at the cash flow on the next slide, Slide 10, year-to-date, our free cash flow before acquisitions and special items decreased compared to last year, mainly due to higher investments driven by the acquisition of the Kalundborg site for the HMO business. The CapEx-to-sales ratio was 14.9% compared to 9.7% last year. Operating cash flow increased driven by acquisition-related tax benefits resulting in lower taxes paid and higher noncash adjustments due to depreciations and amortization charges that were partly offset by higher working capital. Leverage was 3.7x EBITDA but has already come down to around 2x with receipt of the proceeds from the Natural Colors divestment. Following the divestment of Natural Colors, as Mauricio already mentioned, we have now initiated the process for paying out an extraordinary dividend at least equal to normalized ordinary dividends for FY '19/'20. The dividend amount is expected to be around EUR 116 million or DKK 6.5 per share. Declaration and payment of dividend is expected to be effected during the month of May, subject to Board approval. Please now turn to Page 11 for some comments around our guidance for this financial year. Given the strong performance during the first 6 months, we update our guidance for the financial year '20/'21 as follows: We now expect organic growth of 6% to 8% with a positive contribution from euro pricing of around 3%. Both Health & Nutrition and Food Cultures & Enzymes are expected to outgrow their respective underlying markets. Do note again that Q3 will be the weakest quarter of the year given the inventory building that took place in Q3 last year, the fading of the euro pricing tailwind and the currently relatively low demand in fermented milk in emerging markets. Our margin guidance is unchanged with EBIT margin before special items still expected to be in the range of 27% to 28%. The EBIT margin of the underlying business for FY '20/'21 is expected to be below last year as FY '19/'20 number contains some positive one-offs which we discussed in the annual report, and as we intend to ramp up investments in our 2025 strategy key initiatives and expect to return to more normal cost levels towards the end of the financial year. Currencies are expected to dilute the EBIT margin negatively by up to 1 percentage point, and the acquisitions by around 4.5 percentage points. With regard to the carve-out of Natural Colors, we now expect total special items of around EUR 20 million due to the complexity of the divestment. The accounting profit, which will be booked in Q3 as profit from discontinued operations, is expected to be around EUR 650 million after taxes and transaction cost. Guidance for free cash flow before acquisitions, divestment and special items is now expected to be EUR 140 million to EUR 160 million, with CapEx of around EUR 150 million to EUR 160 million, slightly below the EUR 150 million to EUR 175 million that we have indicated before. And with this, I'm handing back to Mauricio to wrap up the presentation.

[Mauricio Graber, CEO, President & Member of Executive Board]

Thank you, Lise. Let me keep it short. Chr. Hansen has delivered a strong first half of the year with 10% organic growth year-to-date, which is why we upgraded our organic growth guidance for the full year to 6% to 8% and also our free cash flow guidance. Despite this, we remain cautious about the impact of the global pandemic on our business. Weaker dairy and probiotics supplement end markets in some regions and continued travel restrictions make it more difficult to convert our solid commercial pipeline into revenues. And we do expect to see a negative impact from increased focus on cost and business continuity as well as launch and registration delays over the coming quarters. Strategically, after the successful carve-out of Natural Colors, the integration of UAS Labs, HSO Health Care and the ramp-up of our HMO lighthouse remain as our key priorities for fiscal year '20/'21. But I also look forward to seeing our new product launches come to market such as the third generation of bioprotection FreshQ. Thank you for listening, and with this, let's open up for questions and answers. Thank you.

[Operator]

[Operator Instructions] So our first question comes from the line of Søren Samsøe from SEB.

[Søren Samsøe, Country Head of Denmark and Analyst]

First, I have 3 questions. We'll start in Latin America where you showed strong organic growth and you mentioned that is supported by customer wins. Can you talk a bit more about these customer wins, please?

[Mauricio Graber, CEO, President & Member of Executive Board]

Absolutely, Søren. So what we have seen in Latin America, that, by the way, has been hit pretty strongly by the pandemic, particularly a market like Brazil, are 2 things. First, talking about Food Cultures & Enzymes. It's one of the market where some of our new innovations like CHY-MAX Supreme is performing very, very strong. It's helping customers leapfrog to a new generation with CHY-MAX Supreme and supporting the expansion of the cheese category. And cheese has performed very well in Latin America, both at retail and also with pizza delivery services in the region. We have also seen a very good engagement with customers for fresh dairy in the region. And while it's the smallest region for our dietary supplements, Health & Nutrition has also performed well as we see more interest in immunity. And honestly, those have been the key drivers. Obviously, it's the region where euro pricing has also been the strongest because of the development of the Latin American currencies.

[Søren Samsøe, Country Head of Denmark and Analyst]

Okay. Then a question in regards to your bioprotection. In general, you say you expect weaker growth in Q3 for the group and stronger growth in Q4. Is that partly because you expect growth to be supported in Q4 by the new launch in bioprotection? Or is that more something that will support growth next financial year? And also, if you could just remind us about how much bioprotection makeup of Food Cultures & Enzymes these days.

[Mauricio Graber, CEO, President & Member of Executive Board]

So if you remember, Søren, we have always said that when we launch a new product, our average time of project to launch is probably 12 to 18 months. So I think it's going to take a little bit of time until you see a FreshQ really making a contribution into the results. Also, as I highlighted in my notes, FreshQ is precisely being launched for developing markets, particularly, it will be a very strong offering for China because it reduces the post-acidification taste issue while supporting the longer supply chain. I believe we will see wins as early probably as Q3, some in Q4, but the more material input, you will get it definitely on the following year. Martin, Lise, just remind me, what percentage of Food Cultures & Enzymes is bio-p?

[Martin Riise, Head & Senior Director of Investor Relations]

It's still around 7%, 8% of bio-p, yes.

[Søren Samsøe, Country Head of Denmark and Analyst]

Okay. And then last question on Health & Nutrition. You say timing of order support growth in Q2. Is that then the part of the reason why you see lower growth in Q3?

[Mauricio Graber, CEO, President & Member of Executive Board]

Yes, partly, yes. You know that the orders -- we tend to have larger orders in Health & Nutrition and stocks may phase in Q3 or Q4. But the main factor, Søren, that we are highlighting is remember that in March and April of last year, you have, as Lise highlighted, the large customer safety stocks and consumer pantry-building because of the pandemic. And that is sort of the mountain that us and many other companies in the ingredient business will have to climb through that quarter.

[Søren Samsøe, Country Head of Denmark and Analyst]

Okay. But can you quantify this timing of order effect, you think?

[Mauricio Graber, CEO, President & Member of Executive Board]

I would not quantify now, Søren, but I think it's not the most material reason why we are flagging the Q3. Again, I would say, it's more because of the comparable to last year. And the timing of orders is also in relation to the comparable of last year.

[Operator]

Our next question comes from the line of Annette Lykke from Handelsbanken.

[Annette Lykke, Research Analyst]

I would just ask a little bit into the launch of your new interesting FreshQ. Normally, when you launch new products, I guess, it's if your clients have a problem to solve expanding capacity or a specific consumer demand. What will drive the new generation of bio-p in the launch of China? And would you see a faster uptake in China because it is a country that often see more shift changes than other regions? And then besides China, do you see any other markets where this post-acidification is an issue? Or...

[Mauricio Graber, CEO, President & Member of Executive Board]

Absolutely, so first of all, every time that we launch a new product is really to cover a unmet need in the market or to provide a new generation that really enables customers to have a better product, more productivity and something that is also margin accretive for us. So FreshQ, third generation of bioprotection is something that we have for a while as being the next generation of providing, first, a stronger bioprotection to avoid the formation of molds; and b, do it in a way that has less technical complication for the customers because it doesn't show up with the post-acidification challenge. And that applies overall to all markets. It just happens to be that where we had the biggest challenge with consumers or customers sensing the post-acidification challenge was in China. So we expect that this is a global launch. It's not only a launch in China, it's a global launch. We have continued to improve the way we launch products. And I think I mentioned in my notes that we already have some key customers that have engaged with those on test and trials, and those have proven to be very successful. So we go into this with a high engagement and high conviction that will be a product that will be relevant in North America, in Europe, in Latin America and Asia. But the strongest unmet need is in developing markets where the distribution chains are less consistent on the cold distribution chains, and particularly in Asia because of the post-acidification.

[Annette Lykke, Research Analyst]

Okay. Would you say that it is food safety that are the most important for the Chinese dairy producers? Or would it more be expanded shelf life due to a more robust, yes, distribution?

[Mauricio Graber, CEO, President & Member of Executive Board]

Yes, I don't believe it's a food safety issue, definitely. It's really a brand image, is a seal of guarantee of reaching the consumer in the best conditions, the way the product is intended to taste and for the consumer to have the full experience of the chilled yogurt in an all-natural way, right? Yes.

[Operator]

Our next questions comes from the line of Heidi Vesterinen from Exane BNP Paribas.

[Heidi Maria Vesterinen, Financial Analyst]

So the first question is on your outlook. You talked about tough comps and destocking into Q3. Does this just concern supplements or do you see this in any other parts of the portfolio? I was thinking yogurt, for example, is an in-home consumed product in the mature market. So did you have a benefit last year? That's the first question.

[Lise Skaarup Mortensen, Executive VP, CFO & Member of Executive Board]

We did have strong benefits across Food Cultures & Enzymes and Health & Nutrition in Q3 of last year. So it is for both businesses that we see Q3 to be significantly softer than the other quarters of the year.

[Heidi Maria Vesterinen, Financial Analyst]

Okay. That's very clear. And then the next question is on infant formula, please. Some estimates seem to be calling for a material decline in the Chinese market. What are you currently seeing? And I think at the Capital Markets Day, you had estimated the market would grow 10% per annum. Is that still a realistic estimate?

[Mauricio Graber, CEO, President & Member of Executive Board]

So Heidi, there are some reports, as you mentioned, indicating that. There are some other reports indicating slightly different numbers. But overall, what I want to remind you is for sure, a good performance of infant formula is beneficial, but the largest opportunity for us is the penetration with probiotics into infant formula that we have mentioned are below 10% penetration. And obviously, with HMOs, that will be a nascent, let's say, additional ingredient. So while we are concerned on the infant formula numbers, as an overall retail growth, you can see that our performance with Health & Nutrition was strong because we continue to see probiotics being an important ingredient for the infant formula market, and particularly for the upper end or the more sophisticated formula, infant formula offerings.

[Heidi Maria Vesterinen, Financial Analyst]

And then finally, in Animal Health, you talked about strong seasonal demand in Q2. So what is your outlook into Q3, please?

[Lise Skaarup Mortensen, Executive VP, CFO & Member of Executive Board]

Excuse me?

[Mauricio Graber, CEO, President & Member of Executive Board]

Can you repeat that, Heidi? Sorry.

[Heidi Maria Vesterinen, Financial Analyst]

So in the Animal Health area, you talked about strong seasonal demand, I think it was for cattle in Q2, cattle probiotics. So what is your outlook on Animal Health as we go into Q3?

[Mauricio Graber, CEO, President & Member of Executive Board]

We continue to see a strong performance from Animal Health. If you see my remarks also, the growth has been driven by new product launches. And we are seeing very good tracking and momentum of our Animal Health business despite Q1 that you remember was sort of flattish. If you look at the last 6 quarters of Animal Health, it's been quite a strong performance, Heidi. And we see us continue to benefit from the Chinese swine market for the new launches of BOVAMINE Dairy Plus for cattle and also GALLIPRO FIT continuing to do very, very well in the poultry segment. So we see a good momentum for our Animal Health business for the balance of the year, and we haven't received any questions about that, but Plant Health has also had a pretty good performance year-to-date, and we see the year as being a year for Plant Health as well.

[Operator]

Our next questions comes from the line of Alex Sloane from Barclays.

[Alexander Morrow Sloane, Research Analyst]

On -- for fermented milk cultures in emerging markets, and I think you've been quite clear on the dynamics in China, but just in terms of Lat Am, where you did flag a headwind also in Q2, is that just a sort of a market-related demand for fermented milk products? Or is there any risk that your quite strong euro-based pricing has meant you've lost some share there to competitors? That would be the first one. Then the second one, just on Jennewein, good to hear that the capacity constraints are on track to being kind of addressed. I guess with that in mind and thinking to next year, to fiscal '22, can you give any guide, any ballpark guide at this point on the revenue outlook for that business relative to the, I think, EUR 50 million revenue guide that you originally had for this year? Could you be at that level next year? Or does the slower pace of the market mean that even with the capacity sorted, revenues might be lower? Any guidance there would be great.

[Mauricio Graber, CEO, President & Member of Executive Board]

So we lost, at the very beginning, your question, but I think it was in -- related to fresh dairy and what we have seen in fresh dairy. I don't believe, honestly, that we lose market share or lose projects because of the strong euro pricing. I think the strong euro pricing just talks to the strength of our customer engagement, our technical sales ability and ultimately, the value that the customer sees in that. And I have mentioned previously that in our business model, once we have worked with customers on a solution for their product in their plants, there are so many services connection to that in the rotation in our cultures that it would be -- that we don't have a lot of customer defecting our business. So no, I don't believe that. I think if you read the reports of some of the large fresh dairy customers, Danone, et cetera, there's been some challenges in that category for sure. And I think that, from a volume perspective, gets reflected in our business. On HMO. Indeed, our capacity constraints in Germany are being addressed on time. I think what we have flagged in relation to delayed registration approvals, because some of the government agencies are working at a slight lower pace due to COVID that ultimately delays product registrations has put less of a strain on the capacity short term. We will not guide now for fiscal year 2022. But what I could mention is that from '21 to '25, we continue to see HMO as something that will be a very solid double-digit growth rate journey. This initial delay on product registrations and customer launches is something that we'll sort out, I believe, within the first 12 to 18 months of our HMO journey. And we still view the long-term potential of HMO as being a very right and strong bet for Chr. Hansen.

[Operator]

Our next and last questions come from the line of Lars Topholm from Carnegie.

[Lars Topholm, Co]

Congrats with a good quarter. A couple of questions for me. One is a follow-up question on infant formula in China, where apparently there are big market share changes with local players gaining market share and some of the international losing. I just wonder if you can give some flavor on how you see that and to what extent this is a benefit for you or the opposite. Then a question on currencies, there are 2 actually. So in Q2, there was a currency impact of minus 9% on group revenue. Assuming current foreign exchange rates, where do you predict that number will be for the full year? And likewise, the euro-based pricing effects, assuming currencies are where they are now, how do you see that for Q3 and Q4? My assumption would be it's pretty high in Q3, but then edging sharply lower in Q4, but I wonder if you have any comments on that.

[Mauricio Graber, CEO, President & Member of Executive Board]

Thank you, Lars. I'll take the first one on infant formula, and then pass it on to Lise for currencies and euro pricing. So on infant formula, you're correct, you probably have access to the same type of reports that we read. Overall, our business in infant formula is pretty well-hedged with local players and international players. So let's say, we're a little bit agnostic to the growth there. What it is clear is that in the off-line channel, meaning through retail, actual physical stores, the leading Chinese brands have been gaining share. By the way, the customers that have been gaining share are the largest, best customers with more upscale formulas, and that plays good to our product portfolio. You have more dependency on some of the international brands on the import channel into China. That was a little bit disrupted because of COVID. But if you look long term, infant formula will continue to be a very important product in China for Chinese mothers and Chinese consumers. A rebalance on the online versus off-line will for sure take place. And I think you will continue to see a market share battle between the leading international brands and the local Chinese brands. I hope, Lars, that sort of gives the full perspective on that. I will just reiterate that on probiotics, our journey is really on penetration of probiotics in the infant formula, both with international and local players, both showing a lot of interest in our brands, particularly LGG and BB-12, making gains in the market. And when you look at HMO, the positive thing is that the Chinese authorities are now receiving dossiers for the approval of HMOs. Now I want to remind you just to be cautious around this because it might be a journey of 3 or 4 years for the products to actually hit the market because first, we need to have the ingredients registered and approve the HMOs, and then you will need to have the actual infant formula finished products also approved with HMOs. And that will be a strong collaboration with our customers and the Chinese authority. Lise, on to you for the questions on currency.

[Lise Skaarup Mortensen, Executive VP, CFO & Member of Executive Board]

Yes, just very briefly, yes, the impact for this quarter was 9%. And I don't want to display too much confidence in our ability to look into the crystal ball on this. For the full year, we expect a comparable number, probably a little bit less.

[Lars Topholm, Co]

That's very clear. And then on the euro-based pricing.

[Lise Skaarup Mortensen, Executive VP, CFO & Member of Executive Board]

On the euro-based pricing, we expect the full year to be 3%, in the range of 3%, yes.

[Operator]

And we have follow-up questions from Heidi Vesterinen from Exane BNP Paribas.

[Heidi Maria Vesterinen, Financial Analyst]

Just one follow-up. We recently saw some news about certain European countries allowing the word probiotics to be used again. Do you expect this to impact your business? Or did you think that consumer awareness is high already on this product so it's not really going to change anything? I'd be interested to hear your view.

[Mauricio Graber, CEO, President & Member of Executive Board]

Heidi, it's interesting, you're right about that. And I think there will be -- what I think we are doing is continue to drive our dietary supplement business through the right science and through effective advocacy. I refer back to what we have done with The Probiotic Institute as a way of bringing the science and the reason to believe in probiotics, in bringing that to leaders of opinion, consumers. But we also work very closely with the regulatory authorities. I think it is a positive always if you're able to mention the word probiotic. And we hope that overall European regulation will advance, sort of looking at probiotics and gut health as an important aspect of human health for the 21st century.

[Operator]

And we have another follow-up question from the line of Lars Topholm from Carnegie.

[Lars Topholm, Co]

Yes, just a brief follow-up on third-generation bioprotections. I wonder if the price point is any different from second generation.

[Mauricio Graber, CEO, President & Member of Executive Board]

The price point will be competitive, Lars. Remember that we always sort of price, not on a cost loss but value-based pricing. And our pricing strategy follows the quantification of the benefit this brings to the customers. Obviously, we also improve our technology and I mentioned that being margin accretive. So we have a lot of faith, I think, when I talk to the technical and commercial team, yes, there's a lot of very positive thoughts and a lot of excitement about the launch of the third generation of bioprotection. And I hope that we will able to share some exciting news about how fast we can penetrate the market with that.

[Operator]

Thank you. As there are no further questions, I will hand it back for closing remarks.

[Mauricio Graber, CEO, President & Member of Executive Board]

Thank you. I hope we provided a good balance on the strong performance on the first half of the year, our cautions around Q3 but overall, the strong journey in Chr. Hansen towards our purpose of growing a better world naturally. This concludes today's conference call session. Thank you for joining, and we look forward to continuing our dialogue during the upcoming business roadshows. Take care and stay safe. Thank you.