Chr Hansen Holding A/S

CSE:CHR

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the presentation of Chr. Hansen's Full Year Report and Conference Call Q4 2021-'22. [Operator Instructions]

It is my pleasure and I would like now to hand the conference over to your speaker today, Chr. Hansen's CEO, Mauricio Graber. Please go ahead, sir.

[Mauricio Graber, executive]

Good morning, and welcome to the presentation of Chr. Hansen's full year results for the financial year '21-'22. I'm here with our CFO, Lise Mortensen, and we will walk you through the highlights of our last quarter and the year as well as the outlook for the next financial year before opening up for Q&A.

Before we move on, please take notice of the safe harbor statement.

Please turn to the next slide, Slide 3. Let me start by praising our 3,800 employees. They are the reason why we, despite the volatile macroeconomic and geopolitical environment, can present what I see as a very solid set of results for the last financial year, well in line with our guidance.

For the full year, organic growth reached 9%, with euro growth of 13%. The top line performance supported a 9% growth in absolute EBIT, while the EBIT margin before special items contracted to 26.8%, mainly due to the inflationary pressure and initiatives to mitigate challenges in the supply chain.

Our free cash flow for the year ended EUR 172 million compared to EUR 196 million the year before. However, adjusted for the one-off impact of taxes paid last year from acquisitions, the cash flow generation has actually increased by more than 10% and ahead of the growth in EBIT of 9%.

For the fourth quarter, we delivered 6% organic growth, corresponding to 12% euro growth. The organic growth was as expected, lower than the first 9 months of the year in both Food Cultures & Enzymes and Health & Nutrition.

While volume was impacted by timing of orders, pricing in Food Cultures & Enzymes picked up as we continue to adjust selling prices to address the inflationary environment.

Despite these unprecedented market conditions, the Q4 EBIT margin before special items ended at 27.9%, only 9 percentage points below last year. The decrease was driven by a negative impact from high input costs and increased cost levels to mitigate challenges in the supply chain. This was partly offset by a positive contribution from currencies and the above-mentioned pricing initiatives.

Please turn to the next slide, Slide 4. Turning now to the strategic and operational highlights of the last quarter. Our focus was on business continuity and delivering to our customers at the service levels they expect as well as to execute on our strategic priorities in the ever-changing business environment we navigate in today.

In HMO, we made important progress, and I want to highlight the new regulatory approvals the business received across different geographies, in Europe, North America and Israel.

Looking at the Lighthouses combined, which account for approximately 10% of revenue, organic growth was negative by 9% in the fourth quarter, while the core business delivered 7% organic growth. The decline for the Lighthouses in Q4 was expected and driven by the timing of orders in Plant Health and HMO.

The full-year performance was strong, and growth for the Lighthouses reached 14%, outgrowing our core business, which delivered a solid 9% growth.

After an extraordinary strong growth rate in the first 9 months, we saw a more normalized growth in our Human Health business during the fourth quarter, in line with our expectations.

Overall, the business delivered solid results, especially in the infant and children segment, driven by the team's strong execution.

In Food Cultures & Enzymes, we continue to see strong momentum in the cheese segment, while fresh dairy market growth was impacted by the current macroeconomic environment. Growth was supported by the work done in close collaboration with our customers to deliver solutions which drive cost savings by further leveraging our product portfolio of productivity and yield optimizing solutions.

Please turn to the next slide, Slide 5, for highlights on why our microbial solutions performed well during these challenging times and how they can help the agriculture industry become even more efficient.

In the current environment, many of our customers are challenged by raising raw material prices as well as increased energy and labor costs. With our product ranges such as CHY-MAX Supreme, YIELDMAX and YOFLEX Premium, we can deliver solutions across the cheese and fresh dairy segment that help improve yield and save milk protein or sugar, depending on the product type and the production, as illustrated by the examples on this slide.

Please turn to the next slide, Slide 6. These solutions not only support the financials of our customers, but they also support a more sustainable food system. In Chr. Hansen, we are committed to advance the adoption of microbial solutions to continue to developing a more sustainable agriculture, reducing food waste and improving human and animal welfare. With our microbial and fermentation technology platforms, we can address various global sustainability challenges.

Please turn now to Slide 7. Turning back now to the financial performance. Food Cultures & Enzymes delivered 5% organic growth in Q4, leading to 7% for the full year. The last quarter was driven by solid growth in dairy, supported by strong demand in cheese, pricing initiatives and the projects supporting production efficiencies, while bioprotective solutions show more modest growth. Pricing contributed 4% in Q4 as we saw increased impact from the inflation-driven price adjustments which have a positive carryover effect into '22-'23.

Health & Nutrition saw solid growth in Q4, with 6% organic growth, leading to a strong 14% growth for the full year, driven by Human Health and HMO. Q4 was supported by strong performance, especially in the infant and children segment in Asia Pacific, while the other regions had a negative impact from customer order patterns, including HMOs from the U.S. market.

As mentioned in the beginning, we saw more normalized growth in Human Health in Q4, which was in line with expectations after the extraordinary first 9 months for the business.

Organic growth was negatively impacted by euro-based pricing, while we saw positive signs from the implementation of inflationary price adjustments in Health & Nutrition.

Animal & Plant Health delivered strong growth in the quarter, despite Plant Health being negatively impacted by the phasing of orders.

Please turn to the next slide, Slide 8, for the regional performance. In the last quarter, we saw emerging markets improved and the solid progress from the previous quarters continued in developed markets.

Europe, Middle East and Africa delivered 6% organic growth in Q4 and 10% for the full year. Growth in the last quarter was supported by all product areas, except for Human Health which was negatively impacted by customer ordering patterns. Positive contribution also came from pricing initiatives and from euro-based pricing, while organic growth was negatively impacted by Russia.

A 1% growth in North America in Q4 was supported by a continued solid momentum in the cheese and fermented beverage segments and pricing initiatives, while the fresh dairy segment were down relatively to last year due to market softness.

Health & Nutrition declined compared to last year due to customer order patterns in HMO and Human Health, whereas Animal & Plant Health delivered solid growth. Organic growth in the region reached 8% for the full year, with a strong pipeline of products with customers.

Asia Pacific grew 17% organically in Q4 and 12% for the full year. The last quarter was driven by volume growth and supported by all product areas apart from dairy, which was negatively impacted by declining volumes in China due to the COVID lockdowns. A positive impact from pricing initiatives was more than offset by a negative impact from euro-based pricing.

Lastly, in Latin America, the performance of Health & Nutrition was adversely impacted by the timing of orders in Plant Health, while pricing initiatives in Food Cultures & Enzymes were partly offset by a negative impact from euro-based pricing and lower volumes. The region still delivered good organic growth at 3% in Q4 and 7% for the full year.

For the financial overview of the last quarter, I will now hand over to Lise.

[Lise Mortensen, executive]

Thank you, Mauricio, and welcome, everyone. Please turn to Slide 9. Supported by a Q4 sales performance of 6% organic growth and 12% euro growth, the absolute EBIT before special items in Q4 rose by 8% compared to last year to EUR 91 million.

Despite the increasingly positive impact from pricing initiatives and exchange rates, the Q4 EBIT margin before special items came in at 27.9%, which is 0.9% below last year, as the negative impact from higher input costs and increased cost levels to mitigate challenges in the supply chain continue to pressure margins.

Looking at the full year, EBIT before special items increased by EUR 28 million to EUR 326 million. The full year EBIT margin before special items was 26.8%, down from 27.7% the year before. The drop was mainly due to increased raw material and freight costs, combined with higher cost levels from efforts to mitigate challenges in the supply chain. This was partly offset by scale effect from the volume growth, efficiency improvements, pricing initiatives and the positive impact from currencies.

Moving into the segment markets. Food Cultures & Enzymes remained affected by higher raw material and freight costs, increased cost levels to mitigate challenges in the supply chain, a general ramp-up of activities as well as the donation of an amount equal to the profit of Chr. Hansen Russia.

This was partly offset by a positive contribution from currencies and pricing initiatives, resulting in Q4 EBIT margin before special items of 32.5% compared to 33.0% last year. For the full year, the division delivered 29.9% EBIT margin before special items compared to 32.0% the year before.

In Health & Nutrition, the Q4 EBIT margin before special items reached 20.1% compared to 21.6% last year. The decrease was due to higher raw material and freight costs, increased cost levels to mitigate challenges in the supply chain and a general ramp-up of activities. And this was partly offset by positive contribution from currencies. The full-year EBIT margin before special items for the division reached 21.4% compared to 19.8% last year.

Let's move on to the free cash flow, Slide 10. Free cash flow before special items stood at EUR 172 million for the year, down EUR 24 million from last year, driven by higher taxes paid which impacted the cash flow from operating activities before special items.

That said, as already mentioned by Mauricio, when adjusting for the one-off impact from acquisitions on taxes paid last year, the cash flow increased by more than 10% and ahead of the 8% growth in EBIT, which is in line with our long-term ambition.

Return on invested capital, excluding goodwill, was 24.0% for the year compared to 24.8% last year. The decrease was driven by Food Cultures & Enzymes, which was down compared to last year due to the negative impact from higher input costs and a general ramp-up of activities, while the return on invested capital in Health & Nutrition improved compared to last year due to the strong sales development.

The return on invested capital remained impacted by the current pressure on profitability. And as can be seen in the difference between the 2 business areas, it was also impacted by the acquisitions made in Health & Nutrition in 2020. With the businesses now well integrated, we expect to see improvements in the return in the coming years.

Please turn to Slide 11. In Chr. Hansen, we have clear capital allocation principles of which supporting our organic growth is a clear #1. In the past year, 8% of our revenue were allocated for developing our technology platform. In addition, over the same period, we continue to strengthen our education setup to build new solutions in close collaboration with our customers.

This also includes investments in new application centers, which together with continued capacity expansions led to CapEx spend of 11.6% in '21/'22. Following the high activity in 2020, we have in the past year focused on the integration of our new businesses and have not made any acquisitions.

Based on a 13% increase in earnings per share and our strong free cash flow generation, the Board of Directors is proposing an ordinary dividend for the year of EUR 125 million. The proposed ordinary dividend is equal to 55% of the profit of the year.

Furthermore, the Board of Directors during '22-'23 will evaluate the capacity to distribute excess cash through a safe harbor share repurchase program or, alternatively, through an extraordinary dividend, in line with the company's capital allocation principles. Such an initiative would have the intent to keep Chr. Hansen at a financial leverage consistent with a solid investment-grade credit profile.

Now let's move to the outlook for next year. Please turn to next slide, Slide 12. While the underlying market growth is expected to be modest for next year, considering the current uncertain geopolitical and macroeconomic environment, Chr. Hansen expects to deliver organic revenue growth in the range of 7% to 10%. The growth outlook is based on a positive impact from ongoing pricing adjustments, growth in our Lighthouses as well as successful execution on the project pipeline in the core business, including expansion of the market for bacterial solutions, providing customers with productivity improvements.

Based on the current exchange rates, especially related to the U.S. dollar, we expect revenue growth to be positively impacted by approximately 5%.

Given the outlook for revenue and organic growth, the absolute EBIT before special items is expected to grow faster than revenue, and the EBIT margin before special items is expected in the range of 27% to 28%.

A positive impact from operational efficiencies, pricing initiatives and currency exchange rate is expected to be partly offset by continued pressure from the inflationary environment and continuous actions to mitigate supply chain disruptions.

Free cash flow before special items is expected to be in the range of EUR 190 million to EUR 230 million.

Before I hand back to Mauricio, let me just add a few words to the next slide on how we manage the current environment. As just mentioned, the outlook reflects continued inflationary pressures on key input costs such as raw materials, energy and logistics as well as the need to continuously manage volatile global supply chains.

Some of the key drivers of cost pressure relate to our energy exposure, both through our direct spend but also indirectly through increased cost on raw materials, transportation, packaging and traded materials, all correlated to the cost of energy.

Secondly, we continue to see constraints in the global supply chains, and we are mitigating these through optimization programs, strict supply chain management and ensuring that alternative energy sources are available for critical parts of our supply chain.

Last but not least, we will continue to closely collaborate with our customers to adjust our selling prices to reflect the current inflationary environment but through a balanced approach to secure long-term value creation for both Chr. Hansen and our customers.

With these comments, I will now hand back to Mauricio.

[Mauricio Graber, executive]

Thank you, Lise. And please turn to Slide 14. We are indeed experiencing uncertain times, and we will continue to adapt to a changing business environment for both our company and our customers. With our robust business model, Chr. Hansen is well positioned as we progress on our strategic ambition to differentiate as a bioscience company focused on our microbial and fermentation technology platforms.

We will likely see less support from market growth across our segments in the coming year. But with our robust business model, this also represents opportunities, and we expect to grow through continued innovation and upselling of our core business, expanding our market presence through our acquisitions in Human Health and through market penetration in our Lighthouses, such as HMO & Plant Health.

And as you will see on the next slide, we remain committed to our long-term financial ambitions.

Moving to Slide 15. Our ambition is to deliver industry-leading organic revenue growth of mid to high single digits through the strategy period. Note that in 2021, we delivered 7% organic growth. Last year, we delivered 9% organic growth. And for this year, we expect a similar organic growth rate in the upper part of our long-term financial ambition.

On EBIT margin before special items, we want to reach 30% by 2025. And the average growth in free cash flow before special items are to exceed the average growth in EBIT before special items.

While we are well on track on both organic growth and free cash flow, reaching the EBIT margin target will be challenging and more back-end loaded due to significant impact from changes in the geopolitical and macroeconomic environment, particularly by the inflationary cost pressure and disruptions in the global supply chains.

So to meet the long-term financial ambitions towards '25, we are adjusting selling prices to offset this inflationary pressure over the period. And we need to see normalization of global supply chains and a stabilization of the geopolitical and macroeconomic environment.

With this, I will move to the next slide to wrap up. First point. Despite the turbulent business environment, Chr. Hansen showed good progress on our strategic ambitions, our sustainability targets and delivered solid financial results for 2021. This provides us with confidence to continue adapting to a changing business environment while we aim to deliver on the targets for the year '22-'23.

Second, we have embarked on another year of delivering on our 2025 strategy, and we are committed to delivering industry-leading profitable organic growth, enabled by passionate employees with a relentless focus on innovation, efficiencies and strong customer relationships.

Third, the foundation of pioneering microbial science to improve food, health and productivity for a sustainable future will carry us forward.

Thank you all very much for your attention. And now I propose that we open up for questions and answers.

[Operator]

[Operator Instructions] We have the first question from Alex Sloane from Barclays.

[Alexander Sloane, analyst]

The first one, in terms of the 7% to 10% organic sales growth guidance, could you give us a sense of the proportion of pricing versus volume within that. And I'm assuming it obviously requires some incremental pricing. So just on that, in terms of incremental pricing negotiations, are there any signs or pressures that this is getting tougher as retailers push back in negotiations with your customers further down the chain?

And then just a second one. In terms of HMOs, obviously, you flagged some good regulatory developments there in the year and, overall for the year, good underlying momentum. Can you remind us what the current state of play is with regards to the time line for building the new site at Kalundborg and when your base case would be that you can fully in-source production there?

[Mauricio Graber, executive]

Alex, thanks for your questions. I will take your questions both on the growth and volume as well as the progress in our HMO business.

So first, on the -- on the 7% to 10% organic growth guidance for next year, it should tell you sort of the confidence we have on the momentum of our business. We entered the year with a full pipeline of projects with our customers. I mentioned during the call the productivity tools that we are able to bring with our customers.

So I would think about it in 3 elements. First, it's clear, as I mentioned in the call, we will see less strength in the underlying market momentum. We already see that in fresh dairy, but we expect the underlying markets to be weaker for Food Cultures & Enzymes and Health & Nutrition.

However, based on our project pipeline and based on our innovation and productivity tools, we expect a good contribution of volume for the 7% to 10% that will be complemented by a higher contribution from pricing for next year. We have mentioned in Food Cultures & Enzymes, we exit the year with a pricing momentum above 4%. So that's probably a good relative guidance on what the volume to pricing component will be for next year.

On your question on how tough is it on pricing negotiations with customers, yes, that is never easy. But I think we have a very good dialogue with customers and how we can pass on price increases but helping productivity and yields. And our customers have, as you know, many tools on how they will deal them with prices with retailers.

Moving on to HMO. So I'm very pleased with the growth that HMO had during the year. You remember, we had mentioned HMO, we delivered north of 20% growth in FY 2021. They over-delivered to that, and we made good progress, both geographically and also with our customers, as well as with innovation with our 5 mix that is now being commercialized.

Consistent with what we have said in the past, we will invest into Kalundborg as the market develops and as we see the volume growth demands requiring us to make that investment. It's been now obviously a period of high inflation and a lot of instability in the supply chain, so I wouldn't judge it as the best moment to start a large capital project. Therefore, we have continued to make progress in our design of the Kalundborg site, and we will obviously decide to start that project whenever the volume of HMO requires us to do so.

Just to finalize on that, we do expect HMO to continue to grow above 20% for next year.

[Operator]

The next question comes from James Targett from Berenberg.

[James Targett, analyst]

A couple of questions from me. Just firstly on the margin outlook. Could you maybe talk about, quantify what you think the contribution from FX based on your -- in your 5% expectation currently will be to that margin increase?

And then also the energy component as well, you mentioned you're hedged for at least part of the year. Could you talk about the visibility that you have on that hedging in terms of what the year-on-year kind of increase of your energy costs you're facing are and also how you're -- how you're planning to pass that on to customers -- if it's by energy surcharge invoice or through the usual price negotiations. So that's the question on the margins.

And then just on the top line, just regarding quantity of the various order timings you mentioned, just maybe some color on how that could impact Q1, that would be helpful?

[Mauricio Graber, executive]

Excellent, James. I'll take the question on the top line. And Lise, I'll pass it on to you for the margin outlook, currencies and energy questions.

So we've had some -- basically some timing of orders in the Lighthouses, particularly on plant health and HMO. I expect both of those to be, let's say, beneficial for Q1, particularly for Plant Health will provide some underlying momentum to Health & Nutrition in Q1, but nothing that would be, let's say, significant phasing, but both HMO and Plant Health would enter Q1 with good momentum from some of those phasing of orders.

Lise, on to you for the other parts of the question.

[Lise Mortensen, executive]

Yes, yes, thank you, James. Based on the current exchange rate level of the U.S. dollars, we expect to have around 1.5% margin tailwind. And adjusting for this, the margin is expected to stabilize as we implement further pricing adjustments to mitigate the continued inflationary pressure and continued need to secure supply.

If we look at inflation and, as you say, it is definitely energy that's kind of taking the picture as we speak. It's also very, very volatile, so -- and as also I said previously, we have a direct component and we also have an indirect component hitting us on raw materials, transportation, so on and so forth.

On our own part, we have a high level of secured pricing for the rest of this calendar year and we'll be more exposed to the volatile markets for both gas and electricity in 2023. And when that is set, our ability to foresee what will happen with energy is only as good as it gets, but we have included in our outlook that we'll be more exposed from -- in calendar year 2023.

[James Targett, analyst]

Can I just follow up. For the period that you are hedged for, can you give us any idea of what your increase in cost is? And then just also, again, just in terms of how you're planning to recoup that from your customers.

[Lise Mortensen, executive]

We are coming from a hedging of energy of around 60% plus. And we will go down to around 40% or something like that. That's the detail I can share.

[Operator]

The next question comes from Søren Samsøe from SEB.

[Soren Samsoe, analyst]

Yes, everyone. Just a couple of questions from my side. First of all, on your organic growth target of 7% to 10%. Just -- I mean, you usually get some support from hyperinflation in this organic growth. Maybe you can quantify a little bit what kind of tailwind you have in that in your guidance.

And then also the special item in Q4, give more details exactly what it relates to. You mentioned Natural Colors, but I thought that was a while ago since you finalized that. So maybe give a bit more details on that.

[Mauricio Graber, executive]

Søren, on organic growth -- and Lise, I'll pass it on to you for special items. So I mean, on organic growth, we -- as I said before, organic growth will have a component of volume and a component of pricing to compensate for the inflation. I don't know if that's exactly your question. I would assume that pricing, we have a 4% momentum going into the year. So you could expect pricing to be that or slightly higher. And the rest would be volume from our project pipeline and contribution from the innovation that we're doing with customers. Lise?

[Lise Mortensen, executive]

Yes. And so specifically on hyperinflation, this is something that we have made an assessment of, for example, for Turkey, and it's immaterial for us. So no adjustments for that.

When you look at the special items, we have experienced certain costs which is not related to our recurring business. And these costs are mainly financial adjustments related to the carve-out and to our probiotics acquisitions.

Yes, it's true that it was in March we received the proceeds from selling Natural Colors, but it's a complex process to carve out an operation like that from the company. And we've had some final adjustments in Q4 to kind of end that journey.

[Soren Samsoe, analyst]

Okay. And then just another question on R&D. It looks like it's -- R&D to sales dropping in Q4. What should we expect to happen through R&D to sales in the coming year?

[Lise Mortensen, executive]

I think you should expect a flat development. And Q4 is also not something you should conclude anything on. Look at the full year, and that level will continue.

[Mauricio Graber, executive]

Yes, and I think to complement that, Søren, we have always said that we believe that the current ratio of R&D to sales provide us the right level of innovation for Chr. Hansen to have good competition of projects and prioritization of what we need to bring for innovation to market. So I would not expect that ratio to variate on an annual basis where you could have small variations on a quarter-to-quarter basis.

[Operator]

The next question comes from Faham Baig from Crédit Suisse.

[Mirza Faham Baig, analyst]

A couple of questions from me as well. Could I go back to energy costs, please. Could you remind me the split between gas -- natural gas, electricity and renewables. I'm convinced that renewables has historically been a significant proportion of the energy cost and you do tend to have long-term contracts. If you can remind us, that will be helpful?

The second question is housekeeping. Could you -- could you help us with expected CapEx rates for FY '23 tax rate and interest cost as well. I'm conscious that 40% of your loans are floating. So I just want to see how that develops into '23 as well?

And if I can squeeze in a third, sorry about this. But supply chain issues, where are we on this? Have the issues largely resolved? Or should we expect a continuation of a headwind into '23 as well?

[Mauricio Graber, executive]

Several questions. So let's make sure we don't forget but I will tackle a couple of them, and Lise, I will hand over to you.

Probably starting from the end, supply chain. There has been a very globally disrupted supply chain across all areas. From basic materials to packaging materials to distribution networks, we see an improved supply chain, but not a normalized supply chain, let's say, to pre-COVID levels.

So while I -- we expect further normalization of the supply chains as there's a less, let's say, heated market, we still get constantly challenges in the supply chain that requires us to either expedite solutions or to have a higher cost to secure our #1 priority, which is servicing our customers. I do expect that the cost of mitigating supply chain challenges may be lower next year as it was this year, but we are not out of the -- completely out of the forest.

I don't think we will go into a lot of details on the split of energy that you requested. But if I can give an overall direction to give you some color to that, I would say, in electricity, as part of our sustainable journey, we have largely moved to sustainable energy, particularly in Denmark. And towards our decarbonization journey, we plan to go globally 100% to renewable energy, and that obviously makes us less dependent on fossil fuels energy.

The part where we are more exposed to gas is basically on the burners we use or on the boilers we use on our facilities to generate steam. That is the exposure to gas. We have a mitigation strategy for that in being able to have dual sources of energy for those boilers.

I don't know, Lise, I'll pass it on to you if you want to comment a little bit more on that as well as on CapEx and the tax rates.

[Lise Mortensen, executive]

I can maybe lean a little bit out, Mauricio, and say that electricity is more than half, it's close to 60%. And gas is then, well, maybe in the range of 20%, but it's all supporting what you say.

Our expectations on CapEx is flat. And your question on tax, we expect for the coming year to be in the lower end of our range of 24% to 25%. And for net financials, we expect around EUR 20 million roughly, in line with last year.

[Operator]

The next question comes from Lars Topholm from Carnegie Investment Bank.

[Lars Topholm, analyst]

Yes, congrats with the quarter. Just one question for me which goes to the trends you see in the global yogurt market. I mean, you're the leading supplier of yogurt culture. So without mentioning specific customer names, you must be able to see what goes on. So my question is really, in this environment, who is taking market share? Who is losing? It seems big brands are losing just from Nestle and Danone at least. Do you see a trade down? If it's a trade down, is it to private labels or is it cheaper yogurts? Is there any tendency that people don't buy probiotic yogurts but maybe buy cheaper yogurts? How do you assess the price elasticity in this market?

A slightly broad question, I apologize for that, but it would be super interesting to hear your views.

[Mauricio Graber, executive]

Thank you, Lars, and thank you for the congrats. I think all our employees would appreciate that message as they worked really hard against a very challenging environment. So I'm proud to represent them in this call.

Listen, when you look at Food Cultures & Enzymes, I think I've tried to provide some clarity in the call that we continue to see strong underlying momentum in cheese. Cheese market continues to advance with innovation, both in our business-to-business as well as what we see on our customers in the food service segment.

So good capacities, expansion going on around the world, strength of the cheese market in North America, and we continue to make good progress in the conversions of bulk starter to our DVS solutions.

You are right that the fresh dairy market or the yogurt market has been more challenged. It has not grown, I would say, and showed some signs of weaknesses, both across mature markets and developing markets. And as everybody in the call well knows, it has been a continued compressed market in China basically that has declined. It hasn't recovered since COVID.

So to your question on who's growing, I think there has been growth in the opportunities for us to the fresh dairy market precisely because of the type of solutions that we bring, which is solutions that help our customers drive yield improvement, show productivity in their processes or upselling of some of the opportunities that we have with our new culture ranges, culture ranges that can be more robust in their production processes, culture ranges that provide opportunities as well to upsell with probiotics, other parts of our portfolio.

But overall, if you take the fresh dairy market, which I know is a concern for you, you probably have to look at it that large global customers are focusing on innovation and how they can reinvent moments of consumption with consumers.

You see smaller customers and start-up looking at ways to disrupt in the same way that it happened with the Greek yogurt. And we have, as you know, we cover more than 4,000 dairies globally. So we work with small customers on their good innovations.

And then you have the private label segment that is very actively managing their price and offering to consumers to provide consumers that option. And we work across those -- across all of those elements.

That's why, let's say, I don't want to sugarcoat it. There's not a lot of underlying strength in the fresh dairy market, but we are very confident on our ability to outgrow that market and deliver positive growth globally for the fresh dairy market.

I hope, Lars, that gives you more color to that, but happy to point to other some specifics if you have.

[Lars Topholm, analyst]

No. If one had an assumption that the global yogurt market would, in fact, contract, if you look at the next 12 months, would that be sort of a material deviation to your outlook?

[Mauricio Graber, executive]

No. I do believe you're right, it will be either flat to a slight construction. We have not built our guidance on any positive growth momentum from the underlying fresh dairy market. Thank you, Lars.

[Operator]

The next question is from Georgina Fraser from Goldman Sachs.

[Georgina Fraser, analyst]

Mauricio, Lise, my first question is just on your pipeline visibility. Can you give us an idea how far ahead you can see and how secure those orders that you have in the pipeline are?

And then my second question is much bigger picture. So if global economic powerhouse forecasts are right, the population in India is set to overtake the population of China in 2023. I was wondering if you see that as a trend that matters for Chr. Hansen in terms of overall dairy consumption of the global population?

[Mauricio Graber, executive]

Georgina, good to talk to you. Lise, I will take this one if you're okay with that. And then maybe as you lived in India, you can build on my comment.

So on the pipeline, we have a very structured process on the pipeline for Chr. Hansen based on implementation that has been done over the years. So every interaction with customers, every project, has a very good stage gate and we have good visibility on that. And when I say we have a full pipeline, meaning we have a full pipeline of projects on what we expect to bring off incremental revenue from new projects.

Usually, those projects would have, on average, 18 months from, let's say, a project definition to sell. And you remember during COVID, we talked that closing those projects was taking a little bit longer. But we see a normalization of that pipeline and a normalization of those projects.

It varies between the different categories that we work. Some projects in Human Health may take longer. Some projects in FC&E may be shorter. But on average, I would say, roughly 18 months. So we have that visibility to our pipeline as we go into the new financial year.

Moving on to your question on India. India is obviously one of the largest producers of milk. The challenge of India has always been about the low percentage of industrialization of the milk. But when I look at the results for Asia Pacific and the strength that I mentioned, India was a strong contributor to that. So we have definitely seen an acceleration of the industrialization in India.

I'll share with you a little internal story, but every quarter, we give, internal, in Chr. Hansen, our success of the quarter which is recognizing teams or recognizing parts of our business that performed really well. And we are very proud of the success that we have had in India as one of our successes of this quarter.

So we are investing in India in our application capabilities, in our go-to-market to be able to reach an expanding customer base. But before I pass it to Lise that has hand-on experience, everything in India takes time. So we -- I don't expect this will be a revolution but rather than an evolution. Lise.

[Lise Mortensen, executive]

No, I couldn't agree more, Mauricio. We will grow with India as India will industrialize and they will. It just doesn't happen from one day to the other. I do want to say that I think something like COVID can accelerate -- can accelerate a little bit industrialization, but it is a very, very promising opportunity for the long run.

[Mauricio Graber, executive]

And in a way, it's -- your analogy with China is good because, obviously, we have seen some slowdown in the Chinese market. And for our Asia Pacific performance, India has been a very good compensating factor and probably something we need to start talking more as we look into the future.

[Operator]

The next question comes from Charles Eden from UBS.

[Charles Eden, analyst]

Just one question left from my side. Could you comment a little bit on the outlook for probiotics and supplements for '22-'23?

[Mauricio Graber, executive]

Charles, we cannot hear you well. Can you get just closer to the mic. I'm sorry, you're coming across very weak.

[Charles Eden, analyst]

Apologies. Is that better?

[Mauricio Graber, executive]

Yes.

[Charles Eden, analyst]

Yes. So just one question left from my side. Could you comment on the outlook of probiotics and supplements for '22-'23? I guess my question is, do you expect a positive volume development for Chr. Hansen in this product area? And I guess, what is baked in, in terms of your broader market trends for probiotics and supplements? I ask because obviously it's an area a couple of your peers have called out some caution in the coming quarters. And I think, Mauricio, you're somewhat cautious in this category with Q3, particularly with North America. So any update on that business would be helpful?

[Mauricio Graber, executive]

Yes, Charles, happy to do that. So if you recall from our Capital Markets Day and our long-term view on the dietary supplement segment of probiotics, we have talked about 4% to 6% underlying market growth. We think that given the inflationary pressures, you're probably talking about the lower end of that segment as the underlying market.

Now some of the same comments that I made around fresh dairy apply to our Human Health business as well. We have, over the last couple of years, significantly transformed our Human Health business from a business that was more focused on the traditional channel, that was more focused on single strain, high scientific probiotics to what we call now, and I want to sort of reiterate that, our strain to solution strategy.

We are now well hedged on a multichannel approach. We are now well hedged on a regional growth approach. And we are now well hedged between high-documented single strain and our ability to also do fast multi-strength solutions.

So we believe that our growth in the probiotic dietary supplements market will continue based on our ability to continue to commercialize the benefits of the legacy strong Chr. Hansen Probiotics business. The addition of the HSO strains that has given you -- given us tremendous momentum in the women's health category as well as the momentum from the UAS Labs acquisition and our strength in the U.S. market and the Asia Pacific market.

And I think with this last call from Charles, we ran out of time. We have time for one more question. Okay. Let's take one more question then before we wrap up.

[Operator]

The question comes from André Thormann from Danske Bank.

[André Thormann, analyst]

Just one more question from my side. In terms of price increases for Health & Nutrition, I wonder if you can give some comments. Now you mentioned the 4% impact in Food Cultures & Enzymes in Q4. But actually, you saw 1% decline in pricing in Health & Nutrition, as I see it. So how do you look at price increases into '22-'23 for Health & Nutrition? And what was the reason for this price decline in Q4?

[Lise Mortensen, executive]

You know, André, on Health & Nutrition specifically in Q4, it was the euro-based pricing mechanism that pulled pricing down. Taking that aside, we did see signs of the pricing initiatives that we have started to work -- to start working.

The time lag between implementing new prices in Health & Nutrition is longer than it is with Food Cultures & Enzymes for the reason that customers may put an order and then takes 8 to 12 weeks, because we are now all the way from strain to solutions to actually produce and get to market, so on and so forth. So the delay for Health & Nutrition is bigger.

I also want to highlight that Health & Nutrition is less exposed to a food cost inflation. It means it doesn't -- it's not that it doesn't matter, but it's more important for Food Cultures & Enzymes.

[Mauricio Graber, executive]

And probably -- lastly, thank you, Lise, for the good comments, and probably just to complement on that. We see very clear signs in our Health & Nutrition business of the, let's say, inflationary pricing pass-through. But there are other elements that have, let's say, negatively compensated that. One, Lise, as you mentioned, some of the euro-based pricing impacts as well as some of large negotiations with customers that are multiyear and may have some short-term impacts to that.

With that, André, let me then conclude today's conference call, and thank you all for the engaging Q&A session. Thanks for joining us this morning. We really look forward to connecting with you in dialogue as Lise and I, with our IR team, will be in road shows on the days ahead, and we look forward to seeing you and several of our investors. Thank you so much.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.