Talking with us on its Q2 results day, CFO Søren Westh Lonning told us the company had been outpacing growth within the probiotics supplement market with tie ups with pharmaceutical players.
Yet for its cultures destined for probiotic yoghurts had seen a slowdown over the past four or five years.
“The amount of probiotics used in yoghurts has been reduced because of the EU regulatory situation.”
He declined to give exact figures on this decline but said it was clear supplements held the highest growth opportunity.
The term ‘probiotic’ is banned in the EU as an authorised implied health claim – and the European Food Safety Authority (EFSA) has rejected every probiotic health claim application passed through its door since the introduction of the claims regulation at the end of 2006.
The Danish supplier of enzymes, colours and flavours posted strong overall organic revenue growth of 13% in the first half of 2015/16 – but its health and nutrition division brought little to the table.
This broke down to 13% for its food cultures and enzymes division, 22% for natural colours and just 2% for health and nutrition.
Why the modest growth for health and nutrition?
The company’s CEO, Cees de Jong, said this “modest growth” in health and nutrition had been anticipated, and the company expected higher growth in the second half of the year.
For the half year, earnings before interest and taxes (EBIT) before special items - a large expense or source of income that a company does not expect to recur in future years - increased by 23% to €118m. In Q2, organic growth reached 12% and EBIT before special items increased by 22% to €64m.
Westh Lonning told us this was largely down to the loss of a contract within animal health after a customer owned by one of its major competitors decided to source in-house.
Meanwhile human health and nutrition was performing well with double digit growth of between 15-20%, although he declined to give an exact figure.
“When we look at the health and nutrition it’s really a dual story. For human health growth is very, very strong. We’re very pleased. And human health is about 60% of that division.”
Research spending spree
He said research was key to continuing growth within supplements. The company was currently developing several new strains within gastrointestinal and immune health, projects that would likely to come to fruition in the next four to six years.
“We are investing a lot in the human microbiome area – that’s an area where there is a lot of research and innovation and we are uniquely positioned in this.”
This was a long term strategy, he said.
“That’s something I’m highly excited about.”
Last December Chr Hansen secured a €75m loan from the European Investment Bank (EIB) to support its microbial work, something which came alongside its own increase in R&D investment.
Science director Anders Mohr Christensen told us at the time the company had spent €55 million on R&D during 2014-2015, which equated to 6.4% of revenue and an increase of 19% compared to the previous year.
Cash cows
The company would also be sticking by its animal health division despite recent difficulties.
In January this year it announced its acquisition of Nutritional Physiology Company (NPC), a US-based supplier of probiotics for beef cattle.
“Growth will come back to this sector,” Westh Lonning said, citing an increasing consumer and regulatory interest in curbing antibiotic use in livestock.
“So the fundamentals are very attractive but once in a while you get a bump in the road.”
Based on the first half results, the company raised its overall expectations for organic revenue growth from 9-11% to 10-12%.
It had half year turnover of €443.3m compared to €396.9 in the first half of 2014-15.