Chr. Hansen CFO flags uncertainty in coming year amid opportunities in infant nutrition and probiotics

08 Oct 2020 --- The COVID-19 pandemic has had both positive and negative impacts on Chr. Hansen’s 2019/2020 financial results, which overall saw 5 percent organic growth with revenues boosted to €1.189 billion (US$1.396 billion). 

Executive vice president and CFO Søren Lonning speaks to NutritionInsight about moves for infant nutrition, probiotics and “taking a breather” following a string of acquisitions.

Overall, the pandemic had a neutral impact on Chr. Hansen, with the slight net positive effect in Q3 turning into a slight net negative impact in Q4 (ended August 31). 

Lonning – who will be leaving his role at Chr. Hansen at the end of this month – explains that the positive effect in Q3 is partially attributable to stockpiling, both at a consumer and customer level. 

“When the COVID-19 crisis hit, there was uncertainty about what kinds of things would be available for consumers. Customers were also scared that they might run out of critical ingredients to produce their products.”

However, as the situation started to normalize, there was less demand. This was the case in sectors like infant formula and food, where consumers may have bought more products than they needed.

These are only the inventory dimensions, with Lonning flagging that the potential global recession as also having an impact. Other day-to-day elements have changed as well, such as the company’s ability to travel to customers’ trial runs. 

“There is a lot of uncertainty about how things will be developing in the coming year. Particularly in emerging markets like China, India and the Middle East, we have seen negative impacts in Q4 in some of the categories. This is simply because of COVID-19 impacting the economic situation.”

E-commerce bolsters North American and Asian probiotics
Chr. Hansen estimates that the overall market for human probiotics has grown by 5 to 7 percent, with COVID-19 creating “extraordinary” demand in the second half of the year, especially in dietary supplements. 

Market growth in the North American and Asian markets is estimated to have been above 10 percent driven by e-commerce platforms. In contrast, the European market is estimated to be in a small decline due to COVID-19 lockdowns preventing consumers from going to pharmacies, especially in key markets in Southern Europe.

Lonning explains that Europe has a long tradition of receiving probiotics via doctor recommendations and pharmacies, whereas the US tends to be marketing-driven. 

“It’s clear we can take some learnings from the North American markets. We can help our customers be successful in an e-commerce selling environment, which is helped by our UAS Labs acquisition. Many of their customers have a large portion of sales on the online channels. This experience is relevant to leverage in Europe.”Market growth in the North American and Asian markets is estimated to have been above 10 percent driven by e-commerce platforms.

Infant formula goes premium
Notably, the global market for probiotics for infant formula has continued to grow at a higher pace than dietary supplements, primarily driven by a continued premiumization of the infant formula category, notes Chr. Hansen. 

Lonning details that, while the overall infant formula market is growing by around 2 to 3 percent in the last year, the value of the products is growing at a double-digit rate. 

“This is a reflection of children’s health – newborn babies especially – being of the utmost importance for parents. If there are options to improve the quality of the infant formula, they buy it for their babies. This trend for high-end solutions in infant formula is quite consistent.”

However, this year’s strong growth in the Human Health section (18 percent) was primarily driven by “customer wins” in dietary supplements, while infant formula declined, mainly due to destocking of COVID-19 inventories and a high comparable from last year.

Chr. Hansen’s infant nutrition offerings now have a boost thanks to the company acquiring Jennewein. Lonning emphasizes the synergies between Jennewein’s human milk oligosaccharides (HMOs) and Chr. Hansen’s probiotic offerings. 

“Solid” results
For the 2019/2020 financial year, Chr. Hansen’s organic growth of 5 percent corresponded to a revenue increase of 2 percent to €1.189 billion (US$1.396 billion). Food Cultures & Enzymes had 5 percent organic growth, Health & Nutrition 9 percent, and Natural Colors – which has now been sold – had 0 percent.Looking ahead, the company anticipates 5 to 9 percent organic revenue growth for 2020/2021. 

The company also estimates that the end markets for fermented milk were roughly flat in 2019/20, as the impacts of COVID-19 led to reduced output in China. 

Looking ahead, the company anticipates 5 to 9 percent organic revenue growth for 2020/2021. 

“It’s a given that we cannot change the market growth. What we can influence is that as a company, we are not just growing with the market growth. We are also delivering innovation, upselling products and converting customers our solutions and increasing penetration,” says Lonning. 

The last year has also seen major moves for the company, with it already acting on its 2025 strategy to hone in on its microbial platform.

Following a spate of acquisitions, Lonning says it is time for the company to take a “breather.” 

“We have done four important transactions over the last six months in the shadow of COVID-19. We need to spend a little bit of time to judge and make sure that we integrate and separate successfully with minimum interruption to the rest of the businesses.”

This will be the major focus area for the next 12 months, but in the longer-term, the company may well eye further bolt-on acquisitions to further strengthen its portfolio. 

By Katherine Durrell