Chr Hansen Holding A/S

CSE:CHR

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the presentation of Chr. Hansen interim report and conference call Q2 2022/'23. [Operator Instructions]

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

[Mauricio Graber, executive]

Thank you. Good morning, everybody, and welcome to the presentation of Chr. Hansen's Q2 '22/'23 results. I am here with our CFO, Lise Mortensen. And we will, as usual, walk you through the highlights of our second quarter and the outlook for the year, and we will also update you on the progress of the proposed merger with Novozymes.

Before moving on, please take notice of the safe harbor statement. And while you read this well-known statement, I would like to give my appreciation to the very strong support we received from our shareholders to the proposed merger with Novozymes at our Extraordinary General Meeting held on March 30. With the approval from the shareholders of both Chr. Hansen's and Novozymes, we are -- we have passed an important milestone towards creating a leading bioscience partner based on our complementary technology platforms.

Please turn to Slide 3. Chr. Hansen progressed through the year with a strong performance in the second quarter, delivering 11% organic growth for the group. Pricing came in as expected with volumes in Health & Nutrition were better than expected. In addition, euro-based pricing was also more supportive compared to our initial expectations for the quarter.

Year-to-date, organic growth reached 10%. Strong growth in Food Cultures & Enzymes was mainly driven by price, but also with good volume growth above the underlying markets. Solid growth in Health & Nutrition was volume-driven and with an increasing impact from the latest pricing initiatives implemented in January, and we expect to continue positive pricing impact in both businesses for the coming quarter.

Our EBIT margin before special items reached 27% in the second quarter, which was 0.7 percentage points below last year as continued inflationary pressure, negative impact from product mix and a high comparable in Health & Nutrition from Q2 last year were partly offset by a positive impact from pricing, scalability and exchange rates. Year-to-date, the EBIT margin before special items was 25.9% compared to 26.2% the year before.

Free cash flow before acquisitions and special items was EUR 39 million in the second quarter. Year-to-date, the cash flow amounted to EUR 56 million, down from EUR 86 million the year before. The drop was due to the cash flow from operating activities being negatively impacted by a change in working capital driven by inventories and an increase in taxes paid.

Please turn to the next slide, Slide 4, for the strategic and operational highlights of the quarter. Adjusting our selling prices to reflect the inflationary environment has been a key focus area in the past year. And it's encouraging to see the increasing impact from our initiatives, especially in Food Cultures & Enzymes but also, to a lesser extent, in Health & Nutrition.

With these pricing initiatives, we are taking important steps towards recovering from the inflationary environment we have experienced in the past year. However, despite some improvements in global supply, such as energy, we continue to see pressure from various raw materials and external services, and the general cost picture remain challenging short term.

Returning to organic growth, our core business delivered a solid 8% organic growth in the second quarter and reached 9% year-to-date. Despite the solid growth, the core business was, as expected, outgrown by the Lighthouses, which combined delivered 38% organic growth in Q2 and 21% year-to-date. Let me remind you to be mindful that it is important not to look at the Lighthouses on a quarterly basis [ as ] they still represent only about 10% of the global sales for the group.

All Lighthouses areas delivered double-digit growth in the first half of the year. Bioprotection started to see an improvement in the execution of the project pipeline, including projects related to the third-generation FreshQ. Fermented Plant Bases also showed strong growth, but still from a very low base. Plant Health delivered strong growth across the first 2 quarters, but in part was positively impacted by the early timing of orders into the first half.

HMO also delivered strong growth in the first half. But before we move on to this, let me just highlight our joint venture, Bacthera. In March, Bacthera added additional fermentation capacity through a minor acquisition, which supports the long-term growth outlook of the live biotherapeutics market. And in addition to this, Bacthera continues to work on preparing production facilities for the SER-109 agreement with Seres Therapeutics. Due to the acquisition of capacity and timing of milestone payment from Seres, Lonza and Chr. Hansen have provided additional funding to Bacthera during the first half of the year.

Please turn to Slide 5 for the recent highlights on our HMO Lighthouse. As many of you know, our investment into the developing market for human milk oligosaccharides, or HMOs, came off to a broad start after the acquisition in 2020. Despite this, we have continued to believe in the market potential of this business. And I am very pleased that we now, for several consecutive quarters, have seen very healthy development both in terms of the scientific, regulatory, operational and commercial performance.

Let me mention some of the highlights, not least the encouraging performance in the first half with strong organic growth, supporting an organic growth for the full year of around 30%. Looking further ahead, we continue to see high customer interest, which is supported by good progress within regulatory approvals. In February, we received EU approvals for 3 of our key HMOs to be used in infant formula at the highest dosage. This follows approvals in the U.S., Canada, Israel, Australia and New Zealand last year.

In Human Health, we also introduced synbiotics solutions that combine both HMOs and probiotics for women's health. To support this positive development, we have secured near-term production capacity. However, we are still evaluating how to ensure the best expansion of capacity to support the long-term profitable growth potential of our HMO business. Let me also mention that the approval process is still ongoing in China, and we await the feedback from the Chinese authorities.

Please turn to Slide 6. Now looking at the second quarter top line performance for the 2 business areas. Growth was mainly driven by price in Food Cultures & Enzymes; while in Health & Nutrition, growth was volume-driven, however, with increasing pricing impact. On group level, the price adjustment contributed by 6% to the organic growth in Q2 and 5% year-to-date.

Food Cultures & Enzymes delivered strong 12% organic growth in Q2, reaching 10% year-to-date. While pricing accounted for 9% in Q2, we saw good volume growth above the underlying markets. Dairy showed strong growth, supported by pricing initiatives, solid momentum in cheese and the Lighthouses of Bioprotection and Fermented Plant Bases. Despite the decline in probiotics in fresh dairy, the segment delivered solid growth, however, mainly driven by pricing initiatives. In Food & Beverages, we saw very strong momentum in both bioprotective solutions and fermentation cultures for meat.

Now organic growth in Health & Nutrition reached 9% in Q2, driven by volume, leading to 10% year-to-date. Pricing contributed more positively in Q2 and the impact was 3%. Despite a tough comparable from last years, Human Health & HMO delivered strong growth.

Going into the quarter, we were cautious on Health & Nutrition, especially in the U.S. market. However, the strong performance of the region was supported by our HMO business, which, in addition to the good underlying momentum and pricing initiatives, was also positively impacted by the timing of orders. Animal & Plant Health delivered solid growth, driven by pricing in Animal Health and strong performance in Plant Health.

Please turn now to the next slide, Slide 7, for an update on the regional performance. Overall growth in the second quarter was supported by all regions, except for Asia Pacific, which was flat. Year-to-date, though, all regions contributed to the positive development of the group organic growth.

Starting with Europe, Middle East and Africa, that delivered 18% organic growth in Q2 and 17% year-to-date. Strong growth in both Health & Nutrition and Food Cultures & Enzymes drove the very positive EMEA performance. Growth in Health & Nutrition was supported by pricing initiatives and strong volume growth across all product categories; while growth in Food Cultures & Enzymes was supported by pricing, including euro-based pricing and volume growth.

North America improved from the previous quarter, delivering 4% organic growth in Q2 and 1% year-to-date. Growth in Food Cultures & Enzymes was solid, driven by good volume development across all segments as well as pricing. In Health & Nutrition, we saw negative growth mainly related to a tough comparable from last year's quarter in Human Health, which was partly offset by a positive impact from timing of orders in HMO.

Based on the current market trends, we see a stabilization of volumes in North America during the second quarter. The growth of probiotic Human Health products, however, remains below the midterm outlook of 4% to 6%, mainly due to slowdown in the North American market and certain Asian markets for dietary supplements.

Asia Pacific reported flat growth in Q2, while year-to-date growth was 6%. Food Cultures & Enzymes delivered negative growth due to the lower volumes in China, which was partly offset by strong momentum in India. In Health & Nutrition, strong growth in China drove the modest growth, while softening market conditions led to a decline in South Korea.

Lastly, Latin America reported the strongest growth in Q2, growing 22%. The year-to-date growth was also very strong at 19%. Both pricing initiatives, including euro-based pricing, and volume growth across Health & Nutrition and Food Cultures & Enzymes drove the very strong performance for the region.

I will now hand over to Lise for the financial review of the second quarter.

[Lise Mortensen, executive]

Thank you, Mauricio, and welcome, everyone.

Please turn to Slide 8 for our profitability. On group level, the absolute EBIT before special items in Q3 increased by 8% from the year before, reaching EUR 91 million. The positive development was driven by a positive contribution from exchange rates, pricing initiatives and volume growth, which was partly offset by a negative impact from higher input costs.

The EBIT margin before special items in Q2 amounted to 27.0%, a decline of 0.7 percentage points compared to last year. The negative margin development was due to continued inflationary pressure, a negative impact from product mix and a high comparable in Health & Nutrition from the year before, partly offset by a positive impact from pricing initiatives, scalability and exchange rates.

Year-to-date, the absolute EBIT before special items increased by EUR 18 million to EUR 168 million, while the EBIT margin before special items reached 25.9% compared to 26.2% the year before.

Moving on to the segment margins. Profitability in Food Cultures & Enzymes improved in Q2 versus last year, and the EBIT margin before special items was 28.4% versus 28.0% last year. Pricing initiatives, scalability and the positive impact from exchange rates were partly offset by higher input costs, a change in product mix between fresh dairy and cheese, and the donation of an amount equal to the profit of Chr. Hansen, Russia.

In Health & Nutrition, the margin reached 24.7% in Q2 compared to 27.3% last year. The decline was due to continued inflationary pressure, negative impact from product mix and not least the high comparable from last year. This was partly offset by a positive impact from pricing initiatives and exchange rates.

Let's move on to the movement in free cash flow. Please turn to Slide 9. Free cash flow before acquisitions and special items was EUR 56 million year-to-date compared to EUR 86 million last year. The decrease was due to cash flow from operating activities being impacted by negative change in working capital driven by increase in inventories and taxes paid and despite the improvement in operating profit.

To secure our supply chains going into the year, we took measures that led to the higher inventories. We expect the inventories to decrease as we progress through the year. And as a reminder, the higher taxes paid in the first half was related to the fact that last year was positively impacted by acquisitions. In addition, we expect a change in phasing of operational investing activities, which will improve the free cash flow for the full year.

Return on invested capital, excluding goodwill, was 23.2% year-to-date, up from 22.6% the year before. The improvement was driven by the strong sales development in Health & Nutrition.

Next, let's have a look at our outlook. Please turn to Slide 10. The strong results of the second quarter make us confident about the attractiveness of the market we serve, both in Food Cultures & Enzymes and Health & Nutrition. Organic growth was strong at 11%, driven by mix of both price and volume. EBIT before special items increased by 8%, driven by the organic growth and currencies. And this led to an EBIT margin before special items of 27.0%.

Based on the increased impact from euro-based pricing, we adjust the outlook for organic growth while maintaining the outlook for EBIT margin before special items. For organic growth, we adjust the outlook to 8% to 11% from 7% to 10%. The expected growth is composed of a positive impact from price adjustments, growth in Lighthouses and the successful execution of the project pipeline in the core business, including expansion of the market for bacterial solutions, which provides customers with the opportunity for production improvements.

EBIT before special items is expected to grow in line with revenue, and the EBIT margin before special items is expected to be in the range of 26% to 27% as a positive impact from operational efficiencies and pricing initiatives is expected to be partly offset by continued pressure from the inflationary environment, unfavorable product mix and continued actions to protect against supply chain disruptions.

Free cash flow before special items is expected to be in the range of EUR 180 million to EUR 220 million from the previous EUR 170 million to EUR 210 million to reflect the changed phasing of investing activities.

I will now hand back to Mauricio for an update on the combination with Novozymes.

[Mauricio Graber, executive]

Thank you, Lise. Thanks for the good update on our strong financial performance.

Before I sum it up, let me use this page on Slide 11 to provide an update on the proposed combination with Novozymes. As mentioned earlier, we are very pleased with the strong support from our shareholders who voted in favor of the proposed merger. With the release of the exemption document, we also announced the nomination of the proposed Board of Directors for the newco, which offers a good balance between Chr. Hansen, Novozymes and Novo Holdings as a major shareholder.

While achieving important milestones, we continue our efforts to secure deal closure and preparing for the integration of these 2 great companies. And another milestone was the expiration of the statutory waiting period for the U.S. merger control. We continue our preparation for additional filings and are engaging in a constructive dialogue with the relevant authorities.

With this progress, we are advancing according to the expectations and still expect closing of the merger in Q4 of this year or latest in Q1 of next year. At the EGM and as a condition for the completion of the merger, shareholders also approved the change of the financial year to follow the calendar year. In the transition year, the financial year will cover 16 months from 1st of September 2022 to 31st of December 2023.

Subject to the status of the regulatory approval process for the proposed merger, we expect, in connection with the Q3 report in July, to supplement our current guidance for the financial period September 1, 2022 to August 31, 2023, with an outlook for the extended financial period that will cover September 1, 2022 to December 31, 2023.

Let me, with that, move on to Slide 12 to sum up the presentation today. While we are working on deal closing activities as well as early preparation for the integration of these 2 great companies, the prime focus of our organization is to secure our operational performance and deliver against our 2025 ambition.

We have seen consistent improvement in our HMO business over the past quarters and are tracking well in line with our revised business plan. We are making good progress in Bacthera where we are building solutions for the future. And we have, in close collaboration with our customers, implemented price adjustments across all our businesses to protect our ability to reinvest into future opportunities to the benefit of our customers, consumers and society.

That said, with an uncertain macroeconomic and geopolitical environment, combined with a continued cost pressure, we maintain a cautious outlook for the coming quarters. But let me stress that we are ready to navigate under these circumstances. With 10% organic growth and an EBIT margin which is stabilizing, we continue our strong delivery in both businesses in the first half of the year, which make us assured about the resilience of our customer-centric business model.

I am very pleased with the performance of the entire Chr. Hansen organization and the progress we made in the first half of the year as well as our ability to deliver on our outlook for the full year. Thank you all very much for your attention, and we are ready to move on to the Q&A section of our call.

[Operator]

[Operator Instructions] The first question is from the line of Lars Topholm with Carnegie Investment Bank.

[Lars Topholm, analyst]

First of all, Lise and Mauricio, congrats with a very solid quarter. I just have one question, which is basically a discussion of your organic growth outlook of 11 -- 8% to 11%. You now stand at 10% after the first half of the year. So I really wonder how you derive at a low end of that range of just 8% because that would imply 6% organic growth for the second half of the year, and you already have 6% from pricing. So I wonder if you can put a volume assumption on that organic growth guidance.

And maybe also a comment on whether the 6% pricing momentum we saw in Q2 is a number we should expect to accelerate in the second half of the year or stay at the same level or maybe be lower since there's some price in the -- and it comes from H2 last year.

[Mauricio Graber, executive]

Thank you, Lars. Thanks for the good questions. I think we have updated the guidance mainly to reflect the 1% change in euro-based pricing. I think you are correct that the lower end of the guidance would imply lower volumes. I think I clearly stated in the call that we just remain cautious on the second quarter of the year because of the macroeconomic challenges that we are still facing, and that's what is reflected there.

I can confirm, before I pass it on to Lise, we are seeing a strong execution and delivery of our pricing. We expect pricing to continue to come in the quarters to come. It's a dynamic thing because you then need to consider that in Q3 and even more in Q4, some of our initial wave for price increases will lap and then you will have the impact for the new price increases. But for sure, we expect the strong pricing contribution to continue in the second half.

Lise, anything to add?

[Lise Mortensen, executive]

No, I think it's spot on. Our impact from pricing will increase in the coming quarters, and volumes are taken quite cautious. But I do want to highlight that it's -- we still have the ambition to outgrow the underlying markets.

[Lars Topholm, analyst]

So just to be 100% certain I understand you correctly, you said, Lise, the impact from pricing will increase in the coming quarters, i.e., be 6% or higher. Was that correct?

[Lise Mortensen, executive]

Well, it's not -- the impact of pricing will increase, Lars, because some of the latest rounds of pricing has only been implemented in January.

[Lars Topholm, analyst]

So then that implicitly means 6% or more for H2. Isn't that the case?

[Lise Mortensen, executive]

It's in that ballpark. And it also, as you say, indicates that the lower end of our range is very modest on volume growth.

[Operator]

The next question is from the line of Søren Samsøe with SEB.

[Soren Samsoe, analyst]

Just to follow up on Lars' question. I appreciate that you are being cautious in your assumptions for second half. But would it be fair to say that the comparables in second half are fairly easy given that you had a lower growth in second half last year, in the second half than the first half, and the same was actually the case the year before that even? So is it fair to say that the comparables are rather easy in the second half, do you think?

[Mauricio Graber, executive]

I think, Søren, specifically to your question, I think we had a mountain to climb in Q2 where Health & Nutrition had a comparable of 26%. I would -- I am extremely proud and want to thank our Health & Nutrition business team who were able to deliver 9% of organic growth on top of the 26% growth that we had last year. Yes, that was the, let's say, the highest comparable and then our business had a strong performance as well in the second half of last year.

So we came out at the beginning of the year with an ambitious guidance, which we have been able to deliver. And I think the most important for Chr. Hansen is to continue to deliver on our ambitious plans and to make progress on the historic opportunity of the merger with Novozymes to create a bio-industrial solution partner for the future. And that's what we're delivering against with the strong performance of the second quarter.

[Lise Mortensen, executive]

Maybe just adding one comment then that there is also a component of HMO business and health business results in Q2. That's actually a timing of business that were anticipated later in the year.

[Soren Samsoe, analyst]

Okay. And then now that we are talking about HMO, could you go a little bit more into detail with the strong growth? What is sort of driving that? And a follow-up on that would be, you did not make the investment in the HMO plant that you had first announced. Is there a risk that you hit a sort of a wall at some point in terms of production capacity? And when would that be in that case? And then also, what are sort of the margin level of your HMO business now? Is it getting closer to being in line with the group? Or is it still far below?

[Mauricio Graber, executive]

Yes, Søren. So we have always, I think, said that we expect the HMO business to grow on a CAGR of north of 20%. I think we -- it's strong what we have mentioned today that we expect 30% growth for this financial year for HMO business. I think it's driven by higher demand and product launches where HMOs are approved, particularly North America and Europe. I think also by some of the innovation and higher dosages of the regulatory approvals, that is what is driving the volume growth.

I would say, nothing changes in what we had communicated before in the sense that we will phase the investments into capacity based on the development. We have enough -- secured enough capacity for our 2025 Strategy, and we expect HMO to at least be margin-neutral by 2025. And then I think depending on the proposed merger, it will be sort of probably a newco decision where and how to make the investments based on the combined future capabilities of the company.

[Lise Mortensen, executive]

And talking about the HMO margin, it's less an improvement compared to last year, but we are still looking at a couple of percentage points drag for the current year.

[Operator]

The next question is from the line of André Thormann with Danske Bank.

[André Thormann, analyst]

Just 2 from me. First of all, also a bit of a follow-up on the pricing. But can you maybe help or repeat exactly the split of the top line guidance? So you guide this 8% to 11%. So how much is volume? How much is price? And how much is your base price? That's the first one.

[Mauricio Graber, executive]

So when we started the year, I think we said about half of the growth will come from pricing, half would come from volume. And I think directionally, that is still there. I don't think we specifically split price increases, euro-based pricing.

[Lise Mortensen, executive]

Maybe at this point in time, Mauricio, we should say that it's in -- we are indicating a little bit higher pricing than on volume.

[Mauricio Graber, executive]

Higher, yes.

[Lise Mortensen, executive]

Yes. This is how things develop. And as we have previously said, we are quite cautious on our volume expectations. Pricing is executing according to plan, but euro-based pricing is actually a positive on top of 1 percentage point. Yes.

[André Thormann, analyst]

So the euro-based pricing, that's 1 percentage point over, yes?

[Lise Mortensen, executive]

Yes, you can expect around 1 percentage point, which is what we changed our guidance with. That's, in broad terms, the euro-based pricing impact.

[André Thormann, analyst]

And the original guidance when you said half-half, that was -- there was no euro-based pricing in that guidance as far as I recall, right?

[Lise Mortensen, executive]

There was really no euro-based guidance. Exactly.

[André Thormann, analyst]

Yes. So that was 7% to 10%. So that's around, what, 4 -- just above 4% from pricing ex euro-based pricing, that was the initial guidance, and that has not changed. Is that true?

[Lise Mortensen, executive]

Well, it's always a landing corridor. And of course, we are quite confident looking at the pricing, price-up impact that we have seen so far. But I think this is the level of detail we can go into. We will have more from pricing than from volume. We are cautious on volume, and we have added euro-based pricing.

[André Thormann, analyst]

And when you say more from pricing than on volume, that's including euro-based pricing or excluding?

[Lise Mortensen, executive]

Including.

[André Thormann, analyst]

Okay. But excluding, it's the same as beginning of the year. It's just -- I'm not sure I get it.

[Lise Mortensen, executive]

Yes. You can assume something in that ballpark.

[André Thormann, analyst]

And then my second question is just in terms of what Lars also asked because then it does not make sense to me how pricing will be -- you said 6% or higher in the rest of the year, if the initial guidance should make sense in terms of this sort of just above 4% from pricing ex euro-based pricing.

[Lise Mortensen, executive]

Well, I think we are trying now to go into a game of being accurate on something that's very hard to be accurate on. When we talk about the impact from pricing increasing, it's also in absolute numbers, to be honest. When we go into Q4, we will come up against price-up initiatives already happening last year. So yes, our price-up will be in the range of 5%, 6% -- 5% maybe. It's -- that's what our gut feeling is right now and then 1 percentage point from euro-based pricing.

[André Thormann, analyst]

On top of the 5% to 6%? Or including?

[Lise Mortensen, executive]

Euro-based pricing is 1 percentage point on top of the pricing. If you look at where the pricing was for Q2, we also have 1 percentage point of euro-based pricing.

[Operator]

The next question is from the line of Joan Lim with BNP Paribas.

[Yuan Lim, analyst]

Two questions for me. So one...

[Lise Mortensen, executive]

Sorry, we can't hear you.

[Yuan Lim, analyst]

Is this better? Can you hear me?

[Mauricio Graber, executive]

Yes, I think you need to get started from the beginning and please get closer to the mic. We can hardly hear you.

[Yuan Lim, analyst]

Okay. Can you hear me better now?

[Mauricio Graber, executive]

Yes.

[Lise Mortensen, executive]

Yes, it's better now.

[Yuan Lim, analyst]

Okay. Perfect. Thank you very much for the color on dietary supplements. So for the full year, do you still expect the same stabilization of volumes in North America and weaker markets in Asia? That's my first question.

And my second question is on the merger. You've talked about being in discussions with regulators on antitrust. What have you heard from your discussions with them so far?

[Mauricio Graber, executive]

So to your question on the North American probiotic market, I think we have said that the U.S. dietary supplement market remains soft as we see that there's some consumer price sensitivity. However, we are confident that the U.S. market is increasingly likely to rebound in the future based on the consumption data that we see, the customer order patterns and the pipeline that for us is starting to trend positively.

What's the other question? Was it around China?

[Lise Mortensen, executive]

Yes, or Asia.

[Mauricio Graber, executive]

Yes. I mean it's -- for Food Cultures & Enzymes, China has continued to be challenging. Basically, the fresh dairy market, it will take some time. I am not, short term, optimistic on that. But I think the opening -- the lifting of the restriction enables us now to talk to customers, talk about projects, and I'm confident on the long-term outlook for our Food Cultures & Enzymes business in Asia.

And in Health & Nutrition, we have continued to see a pretty robust business momentum in China for dietary supplements. Where we have seen a little bit of softening, as mentioned, is in the important market of South Korea.

And then on the merger, it's too early to comment about anything, but we need to basically get approval in other key jurisdictions that includes, among others, the EU, China and Brazil, to mention just 3 of them.

[Operator]

The next question is from the line of Alex Sloane with Barclays.

[Alexander Sloane, analyst]

Two questions from me, please. Lise, I think you said that in H2, on volumes, you still had the objective to outgrow underlying market. So I'd be interested in terms of what are you assuming underlying market volume growth is maybe in aggregate in the second half? And then maybe any specific color with regards to some of the key end markets like fresh dairy and cheese?

And secondly, just on HMOs, do you have any updated thoughts on the timing of potential approval in China from here? And I'd be interested in interest levels from customers ahead of that given the success of HMOs in Europe and the U.S. so far.

[Lise Mortensen, executive]

In terms of the market growth, we -- yes, the growth for the dairy market does -- we do remain cautious on that short term due, amongst others, due to the uncertainty in China. We expect a growth of 0% to 1% volume growth in all of our FY '23, predominantly supported by the cheese segment in North America, while we actually expect fermented milk to be below FY '22 slightly. So that's a little bit comparing against a flat market when we talk Food Cultures & Enzymes.

In Health & Nutrition, as Mauricio also talked to before, we are, of course, a little bit exposed to the probiotics, the dietary supplement market in large markets like the U.S. and South Korea, which is why we also expect this year to be below our usual midterm expectations of 4% to 6%. How much below? Is it top of that? We don't know, but we definitely see a slowdown in that market, and we remain cautious on that.

[Mauricio Graber, executive]

And just to complement, Alex, what Lise said, I think an important thing is we've always talked about our ability to outgrow the underlying market, right? So it's clear that it's sort of a flattish underlying market on the Food Cultures & Enzymes and an underlying market below the midterm expectation for Health & Nutrition of 4% to 6%.

But if you look at the results for the first half, which is what we can talk very clearly, is on Food Cultures & Enzymes, we saw a good component of volume. And that comes because, for example, our productivity initiatives on yield improvement products and everything continues to help customers produce more with less and bring innovation and new products to market.

In the same way, in Health & Nutrition, even though it's a challenging underlying market for dietary supplements, our strength-to-solution strategy is working very well. And we are able to gain projects with customers and deliver innovation in infant, in the women's health category and immunity, and those are important categories that are performing well for us in our Health & Nutrition business. And that's where we continue to always have confidence on the Chr. Hansen resilient customer-centric business model that we execute and win on projects with customers and outgrow the underlying markets.

Now on to your question of HMO, if you can just refresh me, Alex, what was specific on HMO?

[Alexander Sloane, analyst]

Yes, it was just a question in terms of the timing in China of approval, if you had any thoughts there, and what you're hearing and seeing from customers ahead of that in terms of interest levels given the success of HMOs elsewhere?

[Mauricio Graber, executive]

So HMO in the markets where, at least, where it has been approved, I think, has delivered on what we had commented that HMO would be a front-panel ingredient in infant formulas, demonstrating that HMO brings infant formulas closer to mother's milk. And obviously, the innovation and for us, our HMO mix is -- has been one of the success drivers of our volume growth.

We see very high interest from our customers in China, both from international customers leading with a strong presence in China as well as from the strong innovation leaders, Chinese infant formula customers. So I expect that HMO will be an important ingredient in the future formulation of infant formulas in China.

I don't think we expect -- we continue to say what we have said that we expect probably the approval of HMOs in China to fall after our financial 2022/'23 year, meaning likely end of the calendar year or in FY '24.

[Operator]

[Operator Instructions] The next question is from the line of Alexander Jones with BofA.

[Alexander Jones, analyst]

The first one, just to follow up on dietary supplements and [indiscernible], could you comment specifically on the performance of the UAS and HSO assets and how that's helping you in the current dietary supplements market environment? That's the first one.

And then the second, just on Bioprotection, you mentioned that you're starting to see better traction there, particularly with the third-generation product. Could you expand on that a bit? And does that mean that customers who are maybe a bit cautious with Bioprotection when consumers might be under a bit of income pressure are now starting to change that trend and become more interested again?

[Mauricio Graber, executive]

Yes, happy to comment on that. I mean UAS -- the UAS Labs acquisition and HSO has been very important addition to our strategy and our performance on dietary supplements. Part of the continued success of our strength-to-solution strategy means that we are able to work with customers in single strains, high science from Chr. Hansen as well as integrating multi-strain solutions from our UAS Labs acquisition. When you see our strength in the women's health category, that is, in large, driven by the strength of our Chr. Hansen UREX portfolio, combined with the HSO acquisition.

So I think if you look at the strength of our performance in Human Health over the last few years, it has definitely bring, I would say, propelled by the broader portfolio, the larger and more diversified end-customer segments where we're now able to reach as effectively the traditional channel in Europe as the online channel in North America and Asia. So we have a broader portfolio and more diversified across customers, regions and indication areas that are growing successfully. So I'm quite pleased with those acquisitions.

As it relates to bio-p, yes, indeed, I always have to remember that Bioprotection is an add-on cost for customers. And the fact that we are seeing a positive development of our bio-p business shows that there's business that is being developed that is not only related to yield and productivity, but also to innovation and bringing natural solutions and clean labels to products for consumers.

With that, and I think what we reported a strong set of results, this concludes today's conference call Q&A session. Thank you all very much for joining this morning, and we look forward to continuing the dialogue with you in person and virtually over the coming days and weeks. On behalf of all of us at Chr. Hansen, thank you.