ORGANIC REVENUE GROWTH
For 2018/19, organic revenue growth is expected to be 9-11%, positively impacted by a high EUR price effect.
Food Cultures & Enzymes is expected to grow above the long-term ambition of 7-8% organic growth, with the additional growth driven by a high EUR price impact. Health & Nutrition is expected to grow organically at 10% or above, while Natural Colors is expected to grow organically between 6-10%.
EBIT MARGIN BEFORE SPECIAL ITEMS (B.S.I.)
The EBIT margin b.s.i. is expected to be around 29.5%. Increased utilization of production capacity in Food Cultures & Enzymes will have a positive impact on the margin. The positive margin development is expected to be partly offset by increased investments into the lighthouse projects and other strategic priorities.
FREE CASH FLOW
Free cash flow before acquisitions, divestments and special items is expected to be around the EUR 196 million realized in 2017/18. This expectation assumes lower growth in cash flow from operating activities than growth of EBIT before special items, due to higher taxes paid in 2018/19 mainly related to the absence of acquisition-driven tax benefits realized in 2017/18. Cash flow used for operational investment activities will be at a relatively high level and is expected to be between EUR 110-130 million. This includes multiple investments across the group, and also assumes a successful sale-and-lease-back of the company’s main site in Hørsholm in Q4 2018/19.
ASSUMPTIONS
The outlook is based on constant currencies and stable raw material prices and assumes no acquisitions and investments. The outlook is also based on the current political and economic environment, although there is a risk of increased political and economic uncertainty – e.g. the economic climate in the Middle East and Latin America, and trade tensions between large economies. Any deterioration in these situations might impact the outlook.
SENSITIVITY
Chr. Hansen is a global company serving more than 140 countries through subsidiaries in more than 30 countries.
The most significant exchange rate exposure relates to USD, which accounts for 25-30% of revenue, while the exposure to other currencies is more modest. A 5% decrease in the USD exchange rate impacts revenue measured in EUR negatively by around EUR 15-20 million.
Organic revenue growth is sensitive to exchange rate fluctuations in currencies for which Chr. Hansen applies a EUR-based pricing model, and to changes in raw material prices for natural colors as some contracts are adjusted for movements in raw material prices.
The EBIT margin is also sensitive to exchange rate fluctuations and to changes in raw material prices for natural colors. Production in the US and sourcing in USD only partly offset the impact on revenue from changes in the USD exchange rate. Therefore, the relative EBIT exposure is higher than the 25-30% revenue exposure. A 5% decrease in the USD exchange rate would impact EBIT negatively by roughly half of the revenue impact.
The sensitivity to currency also applies to free cash flow.
The use of currency hedging of balance sheet exposures and future cash flows is described in note 4.3 to the Consolidated Financial Statements 2017/18.