NATURE’S NO. 1™ - REAFFIRMED
Chr. Hansen’s NATURE’S NO. 1™ strategy was launched in 2013 with the aim of capturing the full potential of Chr. Hansen’s core business and pursuing broader opportunities within microbial solutions by leveraging the Company’s strong technology platform.
During 2015/16, the strategy was reviewed, and the results were presented in April 2016. In all major respects, the strategy review reaffirmed NATURE’S NO. 1™ and led to only minor – yet important – adjustments, including increasing focus on bioprotective solutions in food applications; new products and partnerships in human, animal and plant health; accelerating capacity expansion for cultures; and prioritizing profitability over growth in Natural Colors. In addition, the expectation of meaningful revenue within plant health was postponed from 2017/18 to 2019/20 due to the current market conditions.
As part of the strategy review, it was reaffirmed that Chr. Hansen will not:
- Expand organically or through acquisitions in areas unrelated to the existing businesses within microbial solutions and natural colors
- Attempt to become a full-fledged pharma company
- Lose focus on cost control and operational efficiency
The long-term financial ambition for organic revenue growth was revised to 8-10% each year from 2016/17 through 2019/20 (previously 7-10% until 2017/18), combined with improvements in EBIT margin before special items and free cash flow before acquisitions, divestments and special items over the period.
FULLY LEVERAGING THE POTENTIAL OF FOOD CULTURES & ENZYMESTop
As a market leader, Chr. Hansen remains strongly positioned to drive growth in specific niches within dairy and other food segments. Chr. Hansen’s technologies cater to emerging consumer and food market trends and deliver high impact and value to its customers.
Future growth opportunities are mainly based on fundamental market growth – not least in emerging markets – as well as continuing to convert bulk starter users to DVS® formats, introducing new culture and enzyme functionalities, and expanding the use of bioprotective solutions.
Chr. Hansen has opportunities to further expand margins, mainly through production efficiency and the ability to upsell solutions that bring added value to customers’ products and/or processes.
FOCUS AREAS IN 2016/17
The key focus areas for Food Cultures & Enzymes in 2016/17 will be to further develop the bioprotection initiative, strengthen Chr. Hansen’s position in emerging markets and secure the capacity expansion of the Copenhagen facility.
DEVELOPING THE MICROBIAL SOLUTIONS PLATFORM IN HEALTH & NUTRITIONTop
The business areas in Health & Nutrition are supported by global trends, such as increasing awareness of the adverse effects of antibiotic growth promoters and chemical pesticides, resource scarcity, increasing health costs, and a growing scientific understanding of the benefits of “good bacteria.”
Chr. Hansen has opportunities to expand and grow its businesses in human and animal health through innovation in the form of new strains and new applications, and further penetration with key customers and in new geographies.
The product pipeline in plant health also offers attractive opportunities. Opportunities have opened up faster than expected within the human microbiome, especially the potential to support partners in upscaling and establishing production processes.
To support long-term growth in Health & Nutrition, a high investment level will be maintained in innovation across all four business areas, but particularly the human microbiome and plant health. Chr. Hansen will also pursue bolt-on acquisitions where these support existing business areas.
FOCUS AREAS IN 2016/17
The key focus areas for Health & Nutrition in 2016/17 will be integrating the acquired businesses in human and animal health, ensuring the successful launch of new products to secure long-term growth in animal and plant health, and developing existing and new partnerships in the human microbiome.
CREATING FURTHER VALUE IN NATURAL COLORSTop
Increased regulation and growing consumer awareness are driving the demand for cleaner food & beverage products, including natural ingredients. Chr. Hansen benefits from these trends, which are driving a fundamental long-term conversion from synthetic to natural colors. This trend has recently also started to materialize in the US market.
Chr. Hansen will secure profitable growth, not least in the US, by strengthening the commercial organization, expanding the product offering within coloring foodstuffs, improving cost-in-use solutions and optimizing the product portfolio.
Profitability in Natural Colors has been below expectations, but optimization and simplification initiatives identified across the business offer opportunities to increase profitability over the period.
FOCUS AREAS IN 2016/17
The key focus areas for Natural Colors in 2016/17 will be to continue driving the conversion from synthetic colors to natural colors, particularly in the US and emerging markets, to develop a stronger position in coloring foodstuff to secure continued growth, and to optimize products and processes to restore profitability.
Chr. Hansen will continue to invest in innovation, emerging markets and capacity. Significant investments in capacity will be made, especially in 2016/17, with the planned expansion of capacity for cultures in Copenhagen. To fuel this growth and to deliver improved profitability, strong focus will be maintained on cost discipline as well as productivity and efficiency gains across the organization.
Long-term financial ambition through 2019/20
- Organic revenue growth rate of 8-10% per year from 2016/17 to 2019/20 (previously 7-10%).
- Increased EBIT margin before special items over the period.
- Increased free cash flow before acquisitions, divestments and special items over the period.
Capital allocation principles
Chr. Hansen’s capital allocation principles prioritize investment in organic revenue growth and bolt-on acquisitions to support its existing businesses. The priorities are as follows:
- Support organic revenue growth through investments in innovation, capacity and people.
- Pursue bolt-on acquisitions, e.g. via technology or market presence.
- Pay an ordinary dividend of 40-60% of net profit.
- Maintain financial leverage consistent with a solid investment-grade credit profile, while returning excess cash to shareholders through interim dividends or buyback programs.