Chr. Hansen to Focus on Emerging Markets, “Good” Bacteria

4 Sep 2013 --- Chr. Hansen has announced a new business strategy: Nature’s No. 1. “Every day Chr. Hansen’s ingredients are consumed by more than 500 million people worldwide. Yet significant potential remains in the global population of 7 billion people. We wish to meet the continuously growing demand for tasty, healthy, natural, safe and affordable food and nutrition,” says CEO Cees de Jong.

“The new strategy builds on our core competences and is about evolution rather than revolution. We see attractive growth potential within our core businesses and have identified new opportunities for leveraging Chr. Hansen’s strong technology platform within the field of microbial solutions.”

New focus areas include a stronger presence in emerging markets ? Asia in particular, a new business area “Plant Health” with natural alternatives to chemical crop protection, and increased focus on research within bacteria.

“Good bacteria are becoming an increasingly relevant way to address unmet consumer and customer needs in an all-natural way, and we have the technology to develop new and relevant solutions. We are excited about shaping our future. Simply put, we wish to be Nature’s No. 1,” concludes Cees de Jong.

The strategy consists of six overall themes:

1. Fully leveraging the potential of the Cultures & Enzymes Division
2. Developing the microbial solutions platform in the Health & Nutrition Division
3. Creating further value in the Natural Colors Division
4. Reinforcing Chr. Hansen’s position in emerging markets ? especially Asia
5. Driving a step change in innovation
6. Generating the fuel for growth

1. Fully leveraging the potential of the Cultures & Enzymes Division
Chr. Hansen is the market leader in cultures and enzymes for the dairy market and has consistently outperformed market growth since 2009 while driving significant improvements in EBIT margin. The dairy market continues to hold attractive growth opportunities driven by fundamental category growth, especially in emerging markets, continued conversion, and unmet consumer and customer needs for better functionality and yield. To address these opportunities, Chr. Hansen will focus on new innovation (e.g. next-generation bioprotection and other functional innovation), securing undisputed leadership in emerging markets, developing customer-driven commercial excellence, and reaping further improvements in scalability.

Five-year financial ambition
•    Average annual organic growth rate of 7-8%
•    Increased EBIT margin over the period.

2. Developing the microbial solutions platform in the Health & Nutrition Division
Chr. Hansen is the leading producer of probiotics for human and animal health. The Health & Nutrition Division has almost doubled revenue in the last five years and created significant improvements in EBIT margin. The core businesses in human and animal health continue to hold attractive growth opportunities. Chr. Hansen’s unique technology platform for bacterial cultures also enables the company to address attractive new growth opportunities in plant protection (medium term) and second-generation human health solutions (longer term).

Focus areas in the new strategy are:
•    Expand existing business through increased investments in animal health and continued focus on differentiation in human health through strong clinical documentation
•    Develop medium-term opportunities in plant protection by entering the rapidly growing EUR 1 billion biological crop protection market. Existing technologies and products provide a strong platform for entering the market through alliances and partnerships
•    Explore long-term opportunities for developing second-generation probiotics that capitalize on the exciting new scientific insight into the importance of “good bacteria” in human health.

Five-year financial ambition
•    Average annual organic growth rate above 10% from core business. Plant protection is expected to add additional growth towards the end of the period
•    As a consequence of the increased investments in future growth opportunities, EBIT margin is expected to be around current levels during the period.

3. Creating further value in the Natural Colors Division
Chr. Hansen is a leading producer of natural color solutions to the food & beverage industry. The Natural Colors Division has delivered strong growth in recent years, as consumers are demanding more natural products. The fundamental long-term trend towards conversion from synthetic to natural colors remains intact. Chr. Hansen will capture these conversion opportunities by providing improved cost-in-use solutions, addressing the significant potential in emerging markets, and developing an enhanced product offering. In addition, work continues on new transformational technology, e.g. through a fermented carmine solution.

Five-year financial ambition
•    Average annual organic growth rate above 10%
•    Increased EBIT margin over the period.

4. Reinforcing Chr. Hansen’s position in emerging markets
Emerging markets, in particular Asia, are expected to deliver the majority of the absolute market growth in key food categories in the next five to ten years. In order to fully capture the market potential in emerging markets, it is becoming increasingly important to adapt the product offering to regional and local needs. To meet these requirements, Chr. Hansen will focus on establishing a stronger presence in key markets. This includes a stronger and direct relationship with customers in specific countries, particularly in emerging Asia but also in countries like Turkey. This will be enabled by strengthening local organizations through improved application support and product development capabilities.

5. Driving a step change in innovation
Innovation is a strong driver of growth across Chr. Hansen’s divisions, and continued improvements in innovation efforts are essential to drive above-market organic growth. Chr. Hansen will continue to increase absolute investments in R&D and selectively strengthen competencies to ensure a strong product pipeline across the divisions and prepare for the next generation of microbial solutions in plant protection and human health.

6. Generating the fuel for growth
To achieve its strategic ambition of 7-10% organic growth in the next five years and pave the way for capturing longer-term growth opportunities, Chr. Hansen will invest in innovation, in emerging markets, and in animal health, plant protection, and second-generation human health solutions. To fuel this growth and at the same time deliver improved profitability, a continued strong focus on cost discipline as well as productivity and efficiency gains across the organization will be maintained.

Five-year financial ambitions:
•    Organic revenue growth rate of 7-10% per annum
•    R&D investments as a percent of revenue are expected to be around 7%. Capitalization of development costs is expected to be lower than in previous years, which will negatively impact the EBIT margin, especially in the early years of the period
•    Beyond the initial impact of lower capitalization of development costs, EBIT margin before special items is expected to improve over the period. The improvement will be driven by continued focus on scalability, while at the same time investing in innovation, emerging markets, and exploration of new growth opportunities.
•    Free cash flow is expected to increase over the period.

The outlook for 2012/13 remains unchanged compared to the announcement of July 3, 2013.