Chr. Hansen reports “solid” Q3 financials, but reduces organic growth outlook for the year
Poor economic environments in emerging markets have contributed to decreased sales in Natural Colors and Animal Nutrition departments
27 Jun 2019 --- Danish-headquartered bioscience company Chr. Hansen has reported a solid financial result of 9 percent organic growth for the first nine months, but has adjusted its full-year organic growth outlook from 9-11 percent to 7-8 percent. Performance in Food Cultures & Enzymes continued to be in line with expectations and solid growth was seen in Health & Nutrition and Animal Health. The company's Natural Colors segment, however, was hit by “headwind from a poor economic environment in emerging markets,” resulting in organic growth that was below expectations, notes CEO Mauricio Graber.
“We delivered solid Q3 results despite more challenging trading conditions, mainly in emerging markets. Performance in Food Cultures & Enzymes continues to be in line with expectations and we are progressing well on our strategic agenda of delivering new innovative solutions to customers, so we can continue to grow solidly and profitably, even in markets with lower volume growth momentum,” says Graber.
Søren Westh Lonning, Executive Vice President & CFO, tells FoodIngredientsFirst that there are three main market trends that have driven the robust growth. First is the quest for lactose-free products. “We sell enzymes that can remove lactose and the need for added sugar in fermented milk products, which is a strong trend. Another opportunity is creating great tasting cheese without added salt.”
Sweety, launched by the company, is claimed to be the first culture in the world that allows dairy manufacturers to create naturally sweeter products while reducing added sugar. The culture helps address modern market trends and consumer demands for healthy food by reducing added sugar without compromising the good taste of the product. Sweety Y-1 is an innovative culture solution allowing the natural creation of sweetness by unlocking milk’s own resource – lactose. In today’s market for fermented dairy products, the pressure is on for dairy manufacturers to reduce added sugar, especially in yogurt.
A second market trend is reducing food waste and protecting food. In this way, the company saw a 16 percent growth in bio-protection, where bacteria are playing a role to keep food fresh for longer. “This can reduce food waste, as well as clean your label with fewer additives being used, and also reduce the risk of listeria. Preserving the food in a natural way,” Lonning says.
Thirdly, the trend of fermented beverages has impacted the company well. Here, bacteria and fermentation technologies have been boosted.
“In Q3, organic growth in Bioprotection increased to around 15 percent, an acceleration from Q2. We’ve now launched Sweety, a new culture that allows dairies to reduce added sugar by up to 20 percent. In Health & Nutrition, the business accelerated from Q2, and this 11 percent organic growth was driven by strong growth in infant formula and Plant Health. Organic growth in Animal Health was solid, although a higher momentum was expected in Q3. In Natural Colors, headwind from a poor economic environment in emerging markets was stronger than anticipated, and 3 percent organic growth in Q3 is below our ambition,” Graber adds.
Also according to the report, the EBIT margin before special items in the first nine months of the year increased by 0.7 percent and was driven by improved margins in all business areas.
Organic growth outlook for the year reduces
As a result of the lower than expected growth momentum in Natural Colors and Animal Health, and a weaker growth environment in emerging markets, the company is adjusting its full-year to 7-8 percent organic growth.
Guidance for Food Cultures & Enzymes is unchanged, Health & Nutrition is now expected to grow around 10 percent, and Natural Colors is now expected to grow 4-5 percent. The guidance on EBIT margin is unchanged. The free cash flow before acquisitions, divestments and special items is now expected to be above last year, as some investments have been moved into next year. Based on the cash-flow generated in the first nine months, the Board of Directors has decided to pay out an “extraordinary” dividend totaling €110 million (DKK 6.24 per share).
Looking forward, Lonning notes that understandings around bacteria are only just beginning, and that there is huge potential here. “We are in an exciting time for bacteria. We see bacteria playing a larger role beyond its core segments such as yogurt cheese. Bio-protection also can be applied to fruit, vegetables, fish, meats for freshness, less food waste, and protection from listeria.”
By Laxmi Haigh
