September 4, 2013 / 5:02 PM / 5 years ago

UPDATE 1-Risk of losing big clients prompts Chr. Hansen to lower sales guidance

* Long-term sales guidance lowered to 7-10 pct annually

* Previous guidance was 8-10 pct

* Operating margins will grow at slower pace - CEO (Adds details, quotes, share price)

By Teis Jensen

COPENHAGEN, Sept 4 (Reuters) - Denmark’s Chr. Hansen lowered its long-term sales guidance due to the risk that volatile prices of a food colouring made from insects could prompt major customers to shift to synthetic alternatives made by rivals.

Prices for Chr. Hansen’s best-selling food colouring, carmine, which is based on a type of lice mainly living in Peru, have been volatile during the last couple of years due to big differences in the size of harvests of the insect.

The company, which also produces bacteria for yoghurt and cheese, lost a major South American customer in its March-May third quarter, prompting a surprise profit warning in July.

It said it expected revenue to grow organically by 7 to 10 percent annually in the next five years, downgraded from an earlier guidance of 8 to 10 percent.

“An aspect of volatility is the possibility of losing big customers,” Chief Executive Cees de Jong said at a capital markets day on Wednesday.

“It is those type of impacts that could bring us to the lower end of the guided range,” he said. “We do not want to be running after ourselves because we have given too narrow a guidance,” he said, explaining the lowering of guidance.

Chr. Hansen’s Natural Colours Division accounted for 23 percent of group revenues in the first nine months of the financial year.

Two years ago carmine reached $120 a kilo from just $15 a kilo the year before, although it has since plunged back to around $15.

De Jong, who took the helm in April, said operating margin is expected to grow at a slower pace in the years ahead due to investments in innovations, emerging markets and in the exploration of new growth opportunities, such as microbiological solutions for plant protection.

Analyst Michael Jorgensen from Alm. Brand Bank said in a note to clients that Chr. Hansen’s new long-term guidance was disappointing and would prompt analysts to lower their growth estimates for the company as its organic sales growth had been between 8 and 10 percent since its initial public offering in 2010.

However another analyst, Morten Imsgard from Sydbank, stressed that the underlying growth drivers for the company were still intact and said the lower sales growth guidance merely reflected more volatility in Chr. Hansen’s markets.

Shares in Chr. Hansen fell by more than 3 percent in early trade on Wednesday but gained later in the day to end down 0.2 percent at 190.90 crowns, against a 0.1 percent fall in the Danish benchmark index OMXC20CAP.

Reporting by Teis Jensen; Editing by Pravin Char

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