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Colours customer loss hits Chr. Hansen first quarter results

By Caroline Scott-Thomas+

15-Jan-2014

The company's biggest colours customer decided to revert to artificial colours, with a 7% hit to Chr. Hansen's colours division revenue
The company's biggest colours customer decided to revert to artificial colours, with a 7% hit to Chr. Hansen's colours division revenue

Chr. Hansen recorded a ‘soft start’ to 2014 after the loss of its biggest colours customer hit revenue – although it retained its growth expectations for the full year.

The ingredients company saw revenue fall 4% to €171.3m in the first quarter, while earnings before interest and tax (EBIT) fell 10.4% to €43m. However, its growth expectations remained at 7-9% for the full year.

The company said last quarter that it was preparing for a soft Q1 because of the loss of a major South American customer, and it added that the timing of orders also had a negative impact.

“It is fair to assume that this was the biggest colour customer that we had,” said CFO Klaus Pedersen in a conference call with investors this morning. It accounted for about 7% of Chr. Hansen’s total colours division revenue.

Pedersen said that the customer was unusual as it had all its investment in one natural colour solution and, therefore, he would be surprised to see a similar impact from other customers. In addition, despite the customer’s decision to revert to artificial colouring for cost reasons, the overall market trend is moving strongly in the other direction.

“We do not have many customers of that magnitude, and most of our customers have a more diversified portfolio with us,” Pedersen told FoodNavigator.

He explained that the impact over the full year amounted to about 1% for the group – and this was reflected in its outlook for the year.

“We are not saying 7-10% this year, but we are saying 7-9%, which is to some extent reflecting the loss of this customer,” he said.

Carmine effect to disappear?

For the past few years, carmine prices have affected the company’s colours business, and this quarter, carmine had about a 3% negative impact. However, a less volatile market and better agreements with suppliers should see this impact disappear “in a few quarters”, Pedersen said.

The company said it would continue to focus on growth in emerging markets in the Asia Pacific region during 2014, which saw 7% organic growth in the quarter compared to a year earlier. The company’s Americas business shrank 3%, hit by the colours customer loss, while growth in the EMEA region was 4% in the quarter, driven by fermented milk, cheese, meat and wine.

“The latest launches that we have done, like cultures and enzymes for reduced salt content in cheese and those that allow for a nice mouthfeel even with reduced fat, and also reduced sugar […] here we are hitting spot on some of these industry mega-trends. We are quite upbeat about some of our solutions for low fat, salt and sugar products,” he said.

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