Chr. Hansen has issued its Q1 2019/20 performance, outlining desirable results for its “game-changing” cheesemaking ingredient, despite low end-market growth for its segment fermented foods segment on the whole. The Danish supplier faced a decline in raw material prices for pigments carmine and annatto, which weighted the performance results of its natural colors business. Moving forward, the company is targeting mid- to high-single digit organic sales growth per year until 2024/25.
“We had a mixed start to the year, as expected. Food Cultures & Enzymes delivered good organic growth driven by all segments, apart from probiotics, in line with our expectations. The recently launched enzyme for cheese making, CHYMAX Supreme, has been very well received by customers and is off to a very good start,” CEO of Chr. Hansen, Mauricio Graber explains.
CHYMAX Supreme was launched last April targeting modern cheesemakers and positioned as a “game-changing” coagulant that enables up to 1 percent yield increase. CHY-MAX Supreme is claimed to be “the most precise and innovative coagulant on the market,” boasting superior functionality.
Despite waning consumer appetite for artificial food colors, raw material prices for pigments carmine and annatto declined in Q1, negatively impacting the pricing environment for Chr. Hansen’s natural alternatives to these coloring ingredients. “Natural colors declined due to continued negative raw material price impacts and challenging market conditions but showed a strong EBIT growth of 10 percent. Growth in the Fruitmax range remained strong,” notes Graber.
Within Chr. Hansen’s Fruitmax brand, the company commercialized a vegetable-based pigment last February – using the Hansen sweet potato Ipomoea batatas – using traditional breeding methods to create a long-sought after vibrant, natural red alternative to carmine. The potato is the result of a decade-long breeding program at the company.
“Even though Q1 was very much in line with our expectations, we are narrowing our guidance for 2019/20. We started the year with a cautious outlook due to the market challenges that we were facing, and those challenges have proven to be persistent. The end-market growth in Food Cultures & Enzymes is not improving, and we also see lower growth in dietary supplements,” says Graber.
“As a consequence of the lower end-market growth, and reflecting the preliminary conclusions in our on-going strategy review, which will be finalized in April 2020, we are issuing a preliminary long-term growth ambition of mid to high-single digit organic sales growth per year until 2024/25,” he concludes.
Market development
The end markets for Chr. Hansen’s fermented milk grew by 1 to 2 percent in the first three months of 2019/20, driven by Asia-Pacific and Latin America, while Europe, Middle East and Africa was flat, and the US declined slightly. Meanwhile, the global production of cheese grew by around 1 percent, primarily driven by North America and Latin America.
Globally, pricing structures still favor cheese production over available alternatives. The overall market for probiotics for human health is estimated to have grown by 5 to 7 percent, with the strongest growth in infant formula applications and a lower momentum in the market for dietary supplements.
The market for microbial-based solutions for animal health developed favorably overall, supported by an increased focus on reducing the use of antibiotics in livestock production. Milk prices in North America continued the improving momentum from previous quarters, which supported the probiotics business for dairy cattle.
Last June, Søren Westh Lonning, Executive Vice President & CFO of Chr. Hansen, told that the quest for lactose-free products was helping to drive overall growth. Other trends boosting results were food waste avoidance and fermented beverages.
