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Back on track: Strong Q2 balances out natural colours loss for Chr. Hansen

By Nathan Gray+

09-Apr-2014
Last updated the 09-Apr-2014 at 14:06 GMT

Ingredients giant Chr. Hansen has an unchanged outlook for full year, after a strong second quarter eased the woes created by the firm losing its biggest colours customer in Q4 last year.

The Danish food and nutritional ingredients company reported revenue of €353 million for the year to date (H1 2013/14) with organic growth at 6% overall. EBITDA was up 1.8% to €113.7m, said the firm.

Speaking to FoodNavigator, Chr. Hansen CFO Klaus Pedersen said strong growth in cultures and enzymes throughout Q2 has helped to ease the impact brought on by the firm losing its biggest colours customer in Q4 of the previous year - which had impacted the firm significantly in Q1 .

Looking forward to the full year expectations, Pedersen said: "The customer loss impact will not be that significant in Q4, so that will tail off, and furthermore with a very strong performance in Q2 we believe there is a very good chance of us reaching our goal."

He added that for the full-year, the expectation continues to be organic growth of 7-9% and an operating margin above 26%.

"Our strategy says 7-10% planned organic growth for each year, and when we said 7-9% for this year that was exactly because we said that with the impact of the colour customer loss we cannot to 10% this year - 7-9% is more realistic."

Colours down, but not out

The Danish ingredients firm saw revenue from its natural colours division drop by 9% to €74m - with the division accounting for 21% of revenue, down from 23% of revenue in the same period last year.

The customer loss, which led to an 8% loss of organic growth in the division, has since been offset somewhat by good growth in the remaining business of the division - especially within FruitMax, colour blends, and carmine products, said the firm.

Indeed, Pedersen said the customer loss has impacted the colours business by between 7 and 8% in the first half of the year - adding that he expects to the negative impact towards colours growth in Q3 too.

Discounting the strong impact of the loss, coupled with impact that carmine prices are having on global businesses, he said that the colours division witnessed around 7% to 8% growth in other areas.

"We have an expectation of doing 10%, so it's not living up to our expectations, and the main reason for that is that in the Chinese colours market, we have not really got the momentum that we would like to see."

"We are not light years away from where we want to be, but we need to take it from between 7 and 8%, up to about 10%."

However, Pedersen admitted that for the year full year 14, the division would not reach its target of double digit growth - conceding that the impact of the customer loss is simply too big to catch up the losses and grow 10% on top in one financial year.

"But we believe that in the coming quarters we will revert to positive growth," he said.

Enzymes and cultures grown, despite probiotic downturn

Pedersen commented that growth in cultures and enzymes had been very strong in Q2, and has set up for the firm to meet and perhaps exceed expectations of around 10% grown in the area at full year.

"Obviously when we did 12% in Q2, that is a quarter where we succeeded in almost all product areas, from fermented meat to cheese and cultures, and also enzyme solutions. And from a geographical point of view that was also really well distributed," said the Chr. Hansen CFO.

"The only weakness in this division, as we see, is that the probiotic market in Europe continues to go down after the extra regulations came in to place."

Indeed, he said that the slow-down in probiotics has seen the category 'cannibalised' by other yoghurt categories, meaning a further decline will be expected in coming quarters.

"It's a testament to us not being too dependent on probiotics, in the sense that if we see the market growing in Greek yoghurt, or high protein or low fat yoghurts; it doesn't really make such a big difference for us.

"In essence what you are seeing is the cannibalisation of one category, but that it is benefiting other categories, and we are also well established in the other categories."

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