“Market challenges” stunt Chr. Hansen’s growth, company to conduct strategy review

10 Oct 2019 --- Bioscience company Chr. Hansen has announced a cautious outlook for 2019/20 in light of the market challenges it is facing. Tougher market conditions – especially in emerging markets – made it difficult to grow to the level of the company’s ambition. The year ended with a 7 percent organic growth, which is at the low end of the guidance provided in June. However, the company is satisfied that it delivered well on the financial targets for EBIT margin and free cash flow that was set at the beginning of the year. It will now conduct a review of its strategy and present the results in April 2020.

“We particularly see challenges in China, the Middle East and in parts of Latin America – Argentina in particular. Within China, there are a few factors affecting us and we have the biggest challenges in areas including Natural Colors. We believe this is linked to the food inflation seen in the market and to consumers’ search for more basic solutions,” Søren Westh Lonning, Executive Vice President & CFO, tells FoodIngredientsFirst.

He notes the rise of ambient-temperature yogurt as an example of a challenge the company faces in China “We see ambient-temperature yogurts growing and taking shares from chilled yogurts. We have a good market share in both categories but we can add more value-added functionalities into the chilled yogurts so we are hit in that way.

Meanwhile, in the Middle East and Argentina, economic and natural causes are creating tough conditions. For example, the Argentinian economy makes it difficult to convert consumers from synthetic to natural colors.

“After a first quarter with flat to low single-digit growth, we expect to improve the momentum in Food Cultures & Enzymes and Health & Nutrition for the rest of the year to end at 4-8 percent organic growth for the group, with an EBIT margin on par with 2018/19 and an improved operating cash flow,” says Mauricio Graber, CEO at Chr. Hansen.

EBIT margin before special items reached 29.6 percent and 17 percent growth in free cash flow before acquisitions and special items. For the full year, Food Cultures & Enzymes delivered solid organic growth of 8 percent, while Health & Nutrition delivered 9 percent and Natural Colors delivered 3 percent. However, in Q4, organic growth came down as expected for all three business areas, as the company continued to see macroeconomic challenges in emerging markets, primarily impacting Food Cultures & Enzymes and Natural Colors.

In June, the company – which produces enzymes and bacteria for the dairy, wine and meat industries – adjusted its full-year organic growth outlook from 9-11 percent to 7-8 percent. Lonning told FoodIngredientsFirst that the quest for lactose-free products was helping to drive overall growth. Other trends boosting results were food waste avoidance and fermented beverages.

The company highlighted its Lonza joint venture as a success.Progress on priorities
The company underscored its progress on its strategic priorities, with Plant Health seeing a very strong year in Latin America, and is set to have another strong year, selling in both Latin America and North America. It also highlighted its joint venture with Lonza, BacThera, as a success. The new collaboration, which will attract €90 million (US$99 million) in investment from the companies over the next three years, received the anti-trust approvals necessary for its establishment in August. It is now engaging with its first customers and commencing the contract manufacturing of live biotherapeutic products. 

“We’ve reached an important milestone for our Human Microbiome lighthouse with the BacThera joint venture, and while bioprotection did not have a very strong year, it still delivered double-digit growth, and we are confident in the commercial pipeline and have accelerated the development of the third generation technology,” Graber continues. 

The company will conduct its biennial review of the Nature’s no. 1 strategy over the next few months. The strategy aims to enable the wider adoption of natural ingredients to address global challenges within food, health and agriculture. By collaborating with customers and partners to innovate products and processes, Chr. Hansen strives to meet and create future demand for innovative natural solutions that advance food, health and productivity for the benefit of everyone.

The results of the review will be presented at a Capital Markets Day next April. “Given our strong belief in the opportunities inherent in the strategy, fundamental changes from our focus on microbial and natural solutions produced via fermentation should not be expected. Until then, our business focus in 2019/20 will be to improve on our execution of the strategy,” continues Graber.

This improved execution has already taken the form of organizational changes, as seen in the new leadership in Food Cultures & Enzymes and in Natural Colors. “In addition to launching new products this year, we are also accelerating some of the development projects we already have. We are convinced that we need them faster. We are also executing our tasks with high conviction and with a focus on the sales pipeline of commercial products for customers,” concludes Lonning.

By Katherine Durrell