Chr. Hansen CFO flags APAC potential as China begins HMO approval process
15 Apr 2021 --- Chr. Hansen is spotlighting the potential of the Asia-Pacific (APAC) market in its Q2 2020/2021 results, which reveal an overall 10 percent organic sales growth in comparison to Q2 2019/2020.
Notably, China’s process for allowing human milk oligosaccharides (HMOs) has begun, with the company expecting approvals to come through in around two years. This is a space that has been closely watched by many other global HMO players, such as DSM, which previously flagged COVID-19 could delay the approval process.
“In China, first you need to get HMOs approved as such. Next, each of the products that contain HMOs also needs to go through regulatory approval. We don’t have any concerns that this will not happen,” Lise Mortensen, chief financial officer, tells NutritionInsight.
Chinese authorities are now looking into dosage, which involves testing and trials, according to Mortensen.
She notes that there is a clear and persistent trend toward more premium infant nutrition products, driven by parents “feeding the most precious things in their lives.”
The company states that customer engagement, both in China and globally, remains high despite the current difficulties of in-person interactions.
Unchanged long-term HMO opportunity
Chr. Hansen entered the HMO arena with its acquisition of Jennewein Biotechnologie last September. In its Q1 2020/21 results, the company reported that there were temporary capacity constraints stemming from issues at the factory.
Today, Chr. Hansen states its HMO capacity expansion in Germany is on track, but there are delays in product registration and regulatory approvals. Mortensen says that this is related to COVID-19 making government offices slower in their approval processes.
Nonetheless, the company asserts that the market opportunity for HMOs in the long term is unchanged.
Room for probiotic growth
Additionally, Chr. Hansen has seen a successful quarter for its probiotics for infant formula in China. “However, the penetration of our products into formula is not that wide,” points out Mortensen.
For example, probiotics have only penetrated around 20 to 30 percent of infant formula worldwide, she notes.
“This means that there is still a lot of opportunity with our probiotics, and then you can add HMOs on top once the approvals come through,” she notes.
The company is also set to fortify its probiotics’ position in women’s health throughout the year.
Chr. Hansen is focused on building a more balanced business between Food Cultures & Enzymes and Health & Nutrition.
A cutting-edge market
APAC currently makes up 18 percent year-to-date of Chr. Hansen’s business and the region delivered 10 percent organic growth, fueled by its Health & Nutrition division.
“Some APAC markets are more innovative and are ahead of the curve, setting high standards, in comparison to some of the other developed markets,” Mortensen notes.
“China is, by far, at the top of our list of where we want to invest and see opportunities. However, we expect other emerging markets to piggyback on with what we’re doing in China,” she details.
Additionally, APAC consumers are more used to doing online business, which has been especially salient during the pandemic.
Notably, Chr. Hansen has seen some negative impacts in regions where people are more likely to physically go to pharmacies to buy dietary supplements. In contrast, it has been doing well in APAC regions where people are using e-commerce more widely.
During Vitafoods Asia Digital Week in February, other industry players also flagged the potential of healthy aging and immunity in the APAC region.
A narrowed future outlook
Looking forward, Mortensen anticipates that e-commerce will continue to become increasingly mainstream, even in a post-COVID-19 world.
“This pandemic has also brought a lot of good attention to areas like naturality, sustainability and immunity. We believe this will be sustained after the pandemic. We are very confident that if Chr. Hansen was ever relevant, we will be very relevant in the post-COVID-19 era,” she asserts.
Notably, the company has narrowed upward its full-year outlook for organic growth from 5-8 percent to 6-8 percent.
Overall, revenue in Q2 2020/2021 was €260 million (US$311.2 million), up from €238.6 million (US$285.6 million) in Q2 2019/2020.
Other key results include Health & Nutrition delivering 14 percent growth, with Food Cultures & Enzymes delivering 8 percent. This quarter’s underlying EBIT margin was 30.1 percent, compared to 32.2 percent in Q2 2019/2020.
Chr. Hansen is currently focused on building a more balanced business globally between Food Cultures & Enzymes and Health & Nutrition. It has continued the integration of the acquired businesses and has recently completed a major milestone in the divestment of Natural Colors.
In Q3, the company will launch a new generation of bioprotection products for fermented milks and certain cheeses.
The company anticipates that Q4 will be stronger than Q3 as Q3 of last year had a tailwind effect from customers building COVID-19-related safety inventories.
By Katherine Durrell
