Chr. Hansen results beat expectations, colours providing improved ROI

11-Jan-2012 - Last updated on 11-Jan-2012 at 13:39 GMT

Chr. Hansen Q1 results shows ROI on invested capital in colours of 29%

Chr. Hansen’s first quarter results for financial year 2011/12 are a notch stronger than analysts had expected.

“12% organic growth in what many regard as an extremely turbulent quarter is impressive,” said Denmark-based Carnegie analyst Lars Topholm.

Reported revenue for the quarter was €168m, up 12% compared to Q1 2010/11. Organic growth was adjusted to 12% from 13% to reflect changes in raw material prices for carmine.

Net profit for the period was €26m compared to €23m in Q1 2010/11, said the supplier with CEO Lars Frederiksen claiming the strong performance in Q1 means Chr. Hansen is reiterating its outlook for the year. He expects organic growth to be around 7% to 10% for 2011/12.

Speaking to this publication, the CEO said the company expects growth in all regions for 2011/12, even in those markets perceived to be saturated such as North America and Europe.

Increased consumption of milk products in emerging markets continues to drive growth in the cultures and enzymes division, notes Frederiksen but conversion from in-house bulk starter to industrialized produced cultures is also fuelling profits.

In Q1, revenue in the division amounted to €101m, an increase, notes Chr. Hansen, of 7% compared to the same period last year, corresponding to an organic growth of 8%.

Capital in colours

In terms of other developments in the quarter, Carnegie’s Topholm said the return on investment (ROI) in the Danish supplier’s colour business is considerable - almost doubling since the same quarter in 2011.

“The colour division may have traditionally been perceived as providing low margin returns but it is also a production area that requires low capital input, with the Chr. Hansen division showing ROI on invested capital in colours of 29% in the quarter," he told this publication.

Tophom added: “It is not enough just to look at the margins.”

And he also cites the lower carmine prices over the past few months as has having played a role in offsetting input costs in colour production for the producer.

Ownership switch

But the Carnegie analyst puts today’s hike in shares in the Danish supplier more down to the change in ownership in Chr. Hansen announced by the company this morning - the majority shareholder in the Danish company, PAI Partners, is to sell its 25.66% stake to Novo for around €560m.

The divesture follows six years of involvement of the private equity group in Chr. Hansen. The deal is subject to the customary regulatory approvals.

“We believe Chr.Hansen will benefit from having Novo on board as a long-term, stable shareholder,” said Frédéric Stévenin, a spokesperson for PAI.

The Chr. Hansen CEO said the company was only informed about the transaction this morning. “But it was no secret that PAI was looking to sell its shares in Chr. Hansen after interim shedding of its stocks over the past 18 months,” he stressed.

PAI Partners did a tremendous job with the Danish group, added Carnegie’s Topholm, and he reckons the decision of Novo to purchase the 25.6% stake makes “good business sense” as Chr. Hansen offers "terrific long term growth potential."

But the analyst was quick to point out that he does not see any merger potential arising out of the fact that Novo is also a major shareholder in Novozymes due to what he terms a lack of synergies between the two ingredients firms.

“While Novozymes and Chr. Hansen are both involved in bioscience and fermented production, there is minimum overlap in the markets they serve.”