Chr. Hansen targets “different path” with expansion of microbial capacities
25 Aug 2020 --- Chr. Hansen’s new 2025 strategy will see more investments in the expansion of its microbial platform and technological capabilities. Notably, the Denmark-based company is allocating approximately three-quarters of its R&D spending during this strategy period toward new product development. Growth is also set to be achieved via bolt-on acquisitions, especially within the Health & Nutrition space. During the strategy period the supplier’s longer-term financial ambition is to deliver mid- to high single-digit organic growth, averaged over the period.
“Our strategy to focus on microbial solutions and fermentation-based technologies takes us down a different path from some of the other industry players. We see some companies becoming more diversified across many different technology types and attempt to become a one-stop-shop for customers across all kinds of relevant technologies. In contrast, our path focuses on the things that we are uniquely good at,” Christian Barker, Executive Vice President of Health & Nutrition at Chr. Hansen, tells NutritionInsight in this exclusive interview.
Historically, Food Cultures & Enzymes constituted the bulk of the group’s revenue (59 percent in FY2018/19). Meanwhile, Health & Nutrition accounted for 22 percent and Natural Colors contributed 19 percent. However, Barker anticipates that Health & Nutrition may well become a much bigger part of Chr. Hansen. One potential factor for this could be the outcome of the company’s ongoing review of its Naturals Colors segment, which may lead to its divestment.
Another element is that the company expects high organic growth within the Health & Nutrition segment, as well as actively pursuing acquisitions in this space, Barker adds. “Historically, we have seen a high return on acquisitions such as Nutritional Physiology Company (NPC) in animal health. There continues to be attractive targets available, as evidenced by our recent acquisitions of UAS Labs in the US and HSO Health Care in Austria.”
Christian Barker, Executive Vice President of Health & Nutrition at Chr. Hansen.Four focus areas: Reinvest, leverage, extend and review
The strategy has been under works since last fall, with the launch originally planned for April. However, Barker notes that this came a month after many European countries experienced the start of COVID-19 lockdowns. “At that point, we decided to take a little bit of a timeout to see how COVID-19 and the economic situation would play out. We also wanted to look at if it really changed anything in our strategy, aside from maybe some economic projections as the market guide.”
He notes that the external fundamentals of the strategy changed very little, especially in the context of Health & Nutrition. “Notably, health solutions only became more relevant with COVID-19. While the world is going through a challenging time in many ways, I also think the opportunities ahead of us are great.”
Chr. Hansen has defined four strategic focus areas that set the framework for its future growth trajectory: Reinvest, Leverage, Extend and Review.
With reference to the Reinvest area, the company notes that the majority of the absolute growth will come from the core platforms, so it will continue to prioritize and invest in Food Cultures & Enzymes and Animal and Human Health. Innovative products, launched across all business areas, are expected in the strategy period, both in existing and new product categories. One example is probiotic solutions for foods and pet food.
Meanwhile, the microbial platform will be used to grow new areas and lighthouses – a business area predicted to have long-term revenue potential in excess of €100 million (US$118 million), as well as high growth. One notable new lighthouse is fermentation solutions for spoonable and drinkable fermented milk alternatives and fermented beverages. The company’s joint venture with Lonza, Bacthera, also comes under the Leverage umbrella.
“Bacthera is focused on what we hope will become the world’s leading contract development and manufacturing organization for live biotherapeutics. It is off to a promising start. We have landed the first handful of customers and are having promising dialogues in major regions of the world for additional customer opportunities,” states Barker. He hopes that within the next five years, Bacthera will have introduced the first commercially approved drugs based on bacteria on the market.
Next, the Extend area pertains to the microbial space, with the company planning to strengthen its technology platform across its competencies, such as cultures and probiotics, dairy enzymes and value-added fermentation through acquisitions and the expansion of the R&D partner network. Finally, Review is in reference to its Natural Colors division, which the company notes has limited synergies with the microbial platform.
In financial terms, the company also plans to increase its underlying EBIT margin before special items, before portfolio changes and currency impacts, with efficiency gains and scalability benefits from operations, as well as synergies from recent acquisitions, to be partly reinvested into the business during the strategy period. Average growth in free cash flow before acquisitions and special items is expected to exceed the average absolute EBIT growth.
Future potential areas of probiotic expansion include women’s health, weight management and the gut-brain axis.Looking to the future
While the probiotic space has traditionally focused on gastrointestinal health, as well as immunity to some extent, Baker sees opportunity to expand Chr. Hansen’s portfolio across all life stages and across all key consumer segments.
“We will have offerings that address groups from preterm infants all the way to the elderly. Additionally, the indications we focus on go significantly beyond the historical focus. These new areas – including women’s health, weight management and the gut-brain axis – will all see more launches in the future.”
Reflecting on his eight years at Chr. Hansen, Barker observes that the biggest single change is the understanding around microbial solutions. “As we look ahead, we see more relevance and more opportunities to innovate within microbial solutions. That’s driven in part by increased consumer interest and awareness of what good microbes can do.”
Barker adds that in addition to growing consumer interest and unmet needs, technological possibilities continue to grow. “There are many exciting things ongoing and we are fortunate enough that if I look at our purpose and our capabilities, we’re well-positioned against many of these trends,” he concludes.
By Katherine Durrell
