Chr Hansen CEO on full-year results: ‘What helps us to outgrow the industry? We can convert the big players’

By Niamh Michail contact

- Last updated on GMT


Related tags: Chr hansen, Kefir, Milk

We talked to Chr Hansen CEO about selling dairy cultures to the biggest cheese makers in the US, how to double profitability in colours by 'ditching complexities' and why he is sceptical of (but still investing in) plant-based ingredients.

This year, the Copenhagen-headquartered company recorded 10% overall organic growth - a slight dip on last year's 12% - but still “nicely at the top end" ​of the firm's long-term guidance of between 8 and 10%, CEO and president Cees de Jong said.

“Twelve percent is extraordinary and last year we benefitted from what I would call a tailwind, with additional milk being converted into cheese so more cultures were needed.

“When we look at dairy markets in general they grow at around 3% - cheese is at 2.5% and fresh dairy at 3.5% - so [based on 9% growth for food cultures] we are still outgrowing the underlying market by a factor of three.

The numbers in a nutshell

Revenue was €1,063 million, compared to €949 million in 2015/16.

Overall organic growth was 10%, down 2% on last year.

  • Food cultures & enzymes: 9% organic growth
  • Health & nutrition: 14% organic growth
  • Natural colours: 10% organic growth

Profit for the year increased by 22% to €224 million, compared to €184 million in 2015/16.

“What helps us to outgrow the industry is that we can convert big players – last year we converted one of the largest US-based manufacturers of cheese. We actually converted a number of cheese manufacturers last year but one really stood out because of its size.”

Bioprotection is also driving growth in food cultures and enzymes. This business segment, which Chr Hansen launched five years ago, now makes up more than 5% sales in that business, and it has been promoting it as a core part of its sustainability drive that can help prevent food waste​.

De Jong was hard pushed to pick areas for improvement but did identify the end markets for yoghurt and fermented milk drinks in France and Spain that have been stagnant, or even declining in the case of France.

“That impacts our ability to grow so we have been working hard to help manufacturers and marketers to better sell their yoghurts in France and Spain, to come up with better products and innovative solutions.”

Natural colours: We ditched the complexities

cocktail colors colours - RomanIsaykov
© iStock/RomanIsaykov

The natural colour division has doubled its profitability over a two year-period and enjoys 13% EBIT, which the supplier hopes to pull up to the mid-teens.

De Jong put this performance down to “a whole combination of activities​”, one being the close collaboration with its farmers to improve the units of pigment per fruit or vegetable used to create the natural colours or colouring foods.

It also recently optimised its production process to improve overall yields. The main driver for this improved profitability, however, was that it around 18 months ago it began “rationalising the portfolio of products​”.

“We’ve reduced the number of products that we have by about 44%. Basically, we looked at products that are very small but still require a lot of our attention or that are unprofitable.”

This does not mean that certain colours have been completely banished from Chr Hansen’s portfolio, rather that it no longer offers certain shades of red, yellow and orange, and by removing these “complexities​” from one part of the business, the firm was able to make savings across many departments from regulatory affairs to product safety data sheets.

The firm is still increasing the palette of colours it offers. “We’re not done [rationalising] yet but we’re also always adding new colours although we do it in a very controlled way. Otherwise, for want of the English expression, it’s like trying to dry the floor while the tap is still running,” ​added the Dutch-born doctor-turned-entrepreneur.

It is still looking to add bright, natural blues and greens to its portfolio, for instance.

Asia v Europe: It's a numbers game

As for geographical regions of interest, “it’s a numbers game​”. Europe has a population of around 300 million while Asia has around three to four billion and a rising GDP.

China, where it now has direct operations, is a huge driver for overall growth and some Chinese companies feature in the top ten list for the entire company’s customer base.

Categories that are definitely of interest in Europe, however, are dairy - where there is a strongly established dairy culture - and microbiome ingredients thanks to Europe’s “advanced probiotic heritage​” and development work in this area, which puts it even ahead of the US, he said.

Probiotic push

This is a key area of investment for the firm. It acquired probiotics player LGG from Finnish Valio in 2016 for €73m​and will be launching the first product on the back of this next month (November): probiotic cultures for yoghurt specifically targeted towards children.

Meanwhile, last month it launched probiotic fermentation cultures​ for plant ‘milks’ such as soy, coconut and almond.

Although the money invested into the R&D, marketing and commercialising of these cultures could be seen as a vote of confidence in the market for plant-based products, on a personal level de Jong is slightly more sceptical.

“We have to recognise, however, that this market is fairly small and, it’s fair to say, when I look at some of those products’ labels I’m surprised by amount of additives needed to make an acceptable product.

“So while we prepared range of cultures for plant based drinks I’m not sure it will be as big as some people believe. If it does, we’re prepared but I would urge consumers to look at the label - I think natural, traditional dairy has a cleaner label.”

“Nature has created milk and […] I don’t think we can come up with solutions that can better that.”

The five-year itch?

“I’m still not bored, I still very much like what we’re doing,” ​said the CEO and president, considering the fact he was presenting the company’s results for the fifth year in a row today.

"When I reflect on last year, it’s fantastic to see that all businesses and regions did well. Chr Hansen is not the sort of company where one big project or product creates a shift up in growth or will make or break the future. W­e need to get a lot of small things right.”

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