Chr. Hansen CFO details Jennewein acquisition speed bumps amid “strong” Q1 results

14 Jan 2021 --- Chr. Hansen is on track to fulfill its 2025 strategy following its Q1 2020/21 results, which revealed overall organic sales growth of 10 percent. However, there are temporary capacity constraints in its human milk oligosaccharide (HMO) business, which is set to impact FY21 revenues negatively.

CFO Lise Mortensen tells NutritionInsight that the constraints stem from the existing factory in Germany that Chr. Hansen took over in its September acquisition of HMO specialist Jennewein Biotechnologie. 

“At the beginning of January, our on-site experts saw that production was not able to flow in the amount we expected. However, the experts know how to scale production, and that is why we immediately knew what to invest in to boost production.”

After a minor investment to get more output, these constraints are expected to be resolved before the summer. However, this expansion means that some of the expected revenues from HMOs will likely be phased into 2022. 

“Nonetheless, we don’t see any risks on the overall business case and the revenue,” says Mortensen.

Chr. Hansen is also now focusing on building a new production footprint in Denmark, which will take an estimated two years. 

“Currently, we only have the downstream production, and the upstream production is outsourced. Now we are working with our vendor on outsourcing to increase the output.”During Q1 2020/21, three new patents were granted, seven new trademarks were registered, and fifteen new Animal Health product registrations were obtained.

Confirming HMO market attractiveness
Mortensen emphasizes that the long-term potential and market attractiveness in the emerging field of HMOs has already been confirmed. This was the very reason for the acquisition.

Crucially, the production side of Jennewein was never the primary motivation for the acquisition – the underlying intellectual property was. 

“We knew it was an emerging business, where some of the products are only in the registration phase.”

In addition to HMOs’ role in infant nutrition, Mortensen also flags that they could be used for other age groups. 

“This is definitely something that we are curious to understand more about on the scientific side going forward. It’s not included in our business case that has been circulated around, but we are curious about the potential.” 

Infant sector goes premium
Chr. Hansen anticipates that the global market for probiotics for infants and young children is expected to grow at a higher pace than dietary supplements. This is driven by a continued premiumization of the infant formula category and new product formats.

However, growth in this market segment is estimated to have been negative in Q1 2020/21 as demand from physical stores was lower in much of 2020. This led to inventory shifts in the supply chain.

Mortensen says that this negative growth is down to the timing of orders. “For us, it’s just a glitch, and we have positive expectations for this. It can come down to order timing from specific customers falling through two days into the next quarter, for example.”

Integrating acquisitions
Chr. Hansen emphasizes that the integration of its probiotic acquisitions is well on track. In June, it acquired US-based UAS Laboratories, which specializes in clinically documented probiotics, for US$530 million.

Meanwhile, in April the company acquired HSO Health Care, which offers probiotics for women’s health.

“While we won’t necessarily say no to other acquisitions, integration is our priority for this year. With UAS Labs, for example, we are in this boat together. However, the acquisition means that we have postponed other business on our side for a couple of years,” says Mortensen.

Chr. Hansen estimates that the overall market for human probiotics is estimated to have grown by 3 to 5 percent with “modest extraordinary” demand for dietary supplements during Q1 2020/21. 

Market growth was driven by North American and Asian markets with strong e-commerce platforms. In contrast, the European market is estimated to be in decline due to COVID-19 lockdowns. These prevented consumers from going to pharmacies, especially in key markets in Southern Europe.Chr. Hansen reports that COVID-19 created a small net positive effect due to demand for dietary supplements. 

Future outlook
Overall, Chr. Hansen’s Q1 2020/21 revenue was €243.5 million (US$291.5 million), with an EBITDA before special items of €87.8 million (US$105.1 million), up from €80.1 million (US$95.9 million).

Chr. Hansen’s growth was driven by Health & Nutrition, which delivered 15 percent growth, while Food Cultures & Enzymes delivered 8 percent growth.

The solid growth in Human Health was driven by very strong growth in dietary supplements, especially driven by North America and Asia, and helped by the reduction of customer inventories in the same period last year.

The company’s outlook for 2020/21 is unchanged on all key parameters, with organic revenue growth anticipated to be 5-8 percent.

“Our outlook for 2020/21 remains cautious, and despite COVID-19 we are able to maintain our outlook on all key parameters. This means that we will still outgrow the underlying markets as we strive to deliver industry-leading growth rates,” says CEO Mauricio Graber. 

By Katherine Durrell