Latest Outlook

• Growth in the size of global middle income groups leading to increased demand for healthy food products
• Conversion i.e. from in-house bulk starter to DVS® cultures and from synthetic to natural colors
• Added functionality in food, i.e. probiotics
• Market share gains

Due to the scalability of our business model, driven by our global commercial footprint and our efficient production platform, operating profit (EBIT) is expected to grow faster than revenue.

Long term ambition (3-5 years)
Based on the fundamental growth factors, annual revenue is expected to grow organically in the region of 8-10%. Operating profit (EBIT) margin before special items is expected to increase gradually, assuming an unchanged business mix. Net working capital (NWC) is expected to be 14 -17% of revenue and capital expenditure at 6.5-7.5% of revenue.

Research & development expenditure (costs and capitalization) excluding amortization is expected to be around 6% of revenue.

Consequently a high cash conversion is expected and net debt leverage is expected to be between 2-2.5 times EBITDA with excess capital distributed to the shareholders.

Outlook 2011/12
Revenue growth continues to be driven by increased demand for healthy food products not least from the growing middle income population in emerging markets and conversion from in-house bulk starter to industrialized produced cultures and from synthetic to natural colors. Probiotic cultures used in fermented milk products remain affected by the current uncertainty around health claims.

Raw material prices for the natural color carmine have decreased in the beginning of the financial year and prices for 2011/12 are expected to be significantly below 2010/11. However, volatility remains significant and the expected price level is subject to considerable uncertainty.

Excluding effect on sales prices from changes to raw material prices for carmine the organic growth is expected to be in the range of 7-10% driven by growth in all three divisions. Including the effect from change in carmine prices organic growth is expected in the range of 5-8%.

EBIT margin b.s.i. is expected to be above 26% driven by Chr. Hansen’s scalable business model and the impact from decreasing raw material prices for carmine. The required level of clinical documentation to support health claims on functional food and food supplements have increased especially in Europe. Expenses related to clinical studies are expected to increase in 2011/12 as we build additional clinical documentation on our core probiotic cultures.

Research and Development expenditure (costs and capitalization) excluding amortization is expected to be around 7% in 2011/12.

As a consequence of the expected increase in spend on clinical studies and expected increase in investments in the Natural Colors Division to capture the growth potential from continued conversion, capital expenditure as a percentage of revenue is expected to be above last year. Free cash flow before acquisitions and divestments is expected to be above last year.

LONG TERM FINANCIAL AMBITION (2-4 YEARS)
Annual revenue is expected to grow organically in the range of 8-10%. EBIT margin b.s.i. is expected to increase gradually, assuming an unchanged business mix. Net working capital is expected to be 14-17% of revenue.

Capital expenditure is expected to be in the range of 7.5-8.5% of revenue. The increase in capital expenditure (compared to previous guidance of 6.5-7.5% of revenue) is driven by the expected increase in spend on clinical studies and increase in investments in Natural Colors over the coming 2-4 years.

Research & Development expenditure (costs and capitalization) excluding amortization is expected to be between 6-7%.

Consequently a high cash conversion is expected and net debt leverage is expected to be between 2-2.5 times EBITDA with excess capital distributed to shareholders.

The 2011/12 outlook and long term financial ambition are sensitive to major changes in the global economy including the USD exchange rate and raw material prices for carmine which could impact the expected result for Chr. Hansen.