Food ingredients business Chr. Hansen is branching out with products that could displace chemical pesticides, looking to tap expected rapid growth in biological plant protection, its chief executive told Reuters.
The Danish company has a 140-year history of producing bacteria and enzymes for cheese, yogurt and other foods, but relatively recent global trends have served to accelerate its growth.
From natural food coloring to probiotic bacteria, Chr. Hansen has fed increased demand for natural products and more western eating habits in emerging markets, helping to lift core profit by 70 percent in the past five years, and the aim now is for its expertise in the screening of bacteria strains to be put to use in another growth market.
The company's Plant Health business is developing new microbes that can protect plants from pests and help them to grow faster without the need for some of the toxic chemicals used today.
"In 2017 or 2018 the revenue in Plant Health will become meaningful; several tens of millions," de Jong said.
Group revenue last year was 756 million euros ($873 million) and de Jong expects the company's diversification to help it to scale new heights.
"A few hundred million from Plant Health would make a very meaningful addition," de Jong said, though he declined to indicate when he expected such levels to be achieved.
The sugar cane product, Nemix C, is sprayed into the soil but future products could be applied in various ways, such as being blended into the seeds or applied directly to the plants, the company said.
Chr. Hansen is focusing its research on two types of biological micro-organisms: biofungicides that protect plants against disease and biostimulants that increases yields by improving plants' ability to take up nutrients.
Within biological plant protection, a market that is still in early development, Chr. Hansen faces competition from industrial biotech company Novozymes as well as chemical and agriculture majors such as BASF, Bayer , Monsanto and Syngenta.
"I like that in a way, because it is a validation that there is something there," de Jong said.
Chr. Hansen estimates that the global market for biological plant protection is worth about 2.5 billion euros a year and is growing 14-15 percent annually, with a projected value of more than 5 billion euros by 2020.
The hope is that over time natural products can take a bigger share of the giant chemical pesticides market, which is worth about 50 billion euros and growing by 5-6 percent per year, according to Chr. Hansen.
"It is a huge field. A lot of the chemicals that are being used today can probably be replaced by more natural solutions, and there will be big benefit for humans and animals," de Jong said.
Chr. Hansen is not aiming to become the largest player but to carve out high-margin niches, such as in fruit and vegetable crops.
"We are not going after the major crops, where GMO (genetically modified organisms) are also often used. That's not our cup of tea. We want to stay with all-natural bacteria," de Jong said.
The company's strategy also includes more research in both human and animal health. The human element involves the use of 'good' bacteria from the body while animal health research will focus on reducing the use of antibiotics in farm animals and promoting faster growth.
The new research areas sit within the Health & Nutrition division, which is forecast by the company to increase sales by more than 10 percent a year for the next three years.
Some analysts, however, remain wary.
Chr. Hansen shares trade at 36 times the past 12 months' earnings, while the multiples for rivals Novozymes and DSM are 32 and 18 respectively.
"We do not see the options on future business areas justify the (share price) premium," Alm Brand Bank analyst Michael Jorgensen said in a note to clients, adding that the prospects of the business areas are too long-term and uncertain for such a high valuation.