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Croda International Plc

Croda International Resilient performance despite subdued market conditions

Croda International Plc (LON: CRDA), the speciality chemical company that creates high performance ingredients and technologies relied upon by industries and consumers globally, has today announced its half year results for the six months ended 30 June 2019.

Group highlights (adjusted, constant currency):

  • Core Business sales in line with prior year, despite subdued market conditions and strong prior year comparators
  • Operating profit unchanged, with stronger gross margin
  • Profit before tax slightly lower, due to higher interest charge, following special dividend and previous investments
  • Improving cash generation – free cash flow up more than 50%, capital investment reducing
  • Healthy innovation pipeline – New & Protected Product (NPP) sales increased to 28.3% (2018: 27.7%)
  • Significant new capacity on stream over next 12 months to support organic growth – North America biosurfactant plant to add significant capacity later in Q3
  • Recent technology acquisitions progressing well.

Sector performance (adjusted, constant currency):

Reported results (IFRS)Half year ended 30 June
  20192018% change
Operating profit£million175.0174.3+0.5%
Profit before tax£million166.2170.8(2.7)%
Basic earnings per share (EPS)Pence95.697.5(1.9)%
Ordinary dividend per sharePence39.538.0+3.9%
  • Excellent performance in Life Sciences, driven by strength of Health and Crop Care platforms – sales up 13.0% and return on sales improved to 30.6% (2018: 29.9%)
  • Personal Care weakness in US and North Asia, primarily due to the trade dispute, with continued growth across rest of sector. Sales 3.6% lower with modest decline in return on sales to 33.3% (2018: 34.1%)
  • Performance Technologies lower due to soft markets in automotive and polymers – sales reduced by 6.0% and return on sales declined to 18.0% (2018: 19.3%).

Group reported results (IFRS, reported currency):

  • Sales up 1.7% – favourable benefit from weaker Sterling
  • Operating profit broadly flat
  • Interim dividend increased by 3.9% to 39.5 pence.

Commenting on the results, Steve Foots, Croda International Plc Chief Executive Officer, said:

“We have delivered a resilient performance in challenging market conditions and against strong prior year comparatives, testament to Croda’s focused strategy. Although Personal Care was significantly impacted by the US/China trade dispute and new sales legislation in China, we saw growth across the rest of the sector. An excellent performance in Life Sciences ensured overall progress in consumer markets, whilst Performance Technologies slowed in line with the wider industry, due to softer end markets in automotive and polymers.

“We have a strong pipeline, a robust business model and a strategy to leverage innovation, customer intimacy and sustainability. Life Sciences is expected to show continued progress and in Personal Care we anticipate the US remaining subdued while Asia recovers progressively. Performance Technologies is likely to remain softer until end markets improve. Based on the current challenging economic conditions remaining unchanged, overall we expect a slight improvement in performance in the second half of the year versus the prior year comparator.”

Sector financial summary

SalesHalf year ended 30 June
  20192018% changereported rate% changeconstant rate
Personal Care£m246.8247.7(0.4)%(3.6)%
Life Sciences£m184.3158.6+16.2%+13.0%
Performance Technologies£m226.8235.9(3.9)%(6.0)%
Core Business£m657.9642.2+2.4%(0.4)%
Industrial Chemicals£m56.860.6(6.3)%(7.4)%
Adjusted operating profitHalf year ended 30 June
  20192018% changereported rate% changeconstant rate
Personal Care£m82.184.4(2.7)%(4.6)%
Life Sciences£m56.447.4+19.0%+19.0%
Performance Technologies£m40.845.6(10.5)%(11.2)%
Core Business£m179.3177.4+1.1%+0.0%
Industrial Chemicals£m0.11.1(90.9)%(100.0)%
Adjusted operating profit£m179.4178.5+0.5%(0.6)%
Adjusted profit before tax£m170.6175.0(2.5)%(3.5)%


1Adjusted results are stated before exceptional items, acquisition costs and amortisation of intangible assets arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists the reader by providing a meaningful basis upon which to analyse underlying business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each half year and full year results.

2Reported currency results reflect current year performance translated at reported rates (actual average exchange rates). Constant currency results reflect current year performance for existing business translated at the prior year’s average exchange rates. For constant currency profit, translation is performed using the entity reporting currency. For constant currency sales, local currency rates are translated into the most relevant functional currency of the destination country of sale (for example, sales in Latin America are primarily made in US dollars, which is therefore used as the functional currency). Sales in functional currency are then translated into Sterling using the prior year’s average rates for the corresponding period. Constant currency results are reconciled to reported results in the Finance Review.

3The Core Business comprises Personal Care, Life Sciences and Performance Technologies.

4Return on sales is adjusted operating profit divided by sales.

5Free cash flow is cash generated before acquisitions, dividends and other cash movements, as set out in the Finance Review.

Other non-statutory terms are defined in the ‘Alternative performance measures’ section of the Finance Review.


Resilient performance despite subdued market conditions

Sales and operating profit in the first half of the year were unchanged despite subdued market conditions, significantly impacted by the major trade dispute between China and the US and increased macroeconomic uncertainties. An excellent performance in Life Sciences reflects the strength and appeal of our growing platforms in Health and Crop Care and the success of our organic and acquisition strategies. Against a strong comparative period, Personal Care slowed in the US and North Asia due to the uncertainty caused by the ongoing US/China trade dispute, with customers becoming much more cautious in purchasing. Sales continued to grow in the rest of the sector. In line with the wider industry, Performance Technologies was impacted by slower end markets in automotive and polymers, whilst continuing to innovate towards higher technology, sustainable markets.

Despite these subdued market conditions, sales in the Core Business rose by 2.4% in reported currency to £657.9m (2018: £642.2m) and reduced by 0.4% in constant currency. Adjusted operating profit in the Core Business increased by 1.1% in reported currency to £179.3m (2018: £177.4m) and was unchanged in constant currency.

Gross margin continued to increase, offsetting lower volume. This was supported by our continued focus on innovation, with NPP sales reaching 28.3% (2018: 27.7%); the current project pipeline is exciting. We have invested for future growth, with significant new capacity in high return projects due on stream over the next 12 months. These include expanding in high purity excipients in Health Care, growing our industry leading Beauty Actives platform and increasing our Smart Materials facility, as well as commissioning our North America biosurfactant plant later in the third quarter and which creates significant opportunities by creating sustainable ingredients for our customers. We are also developing our recent technology acquisitions, to deliver shareholder value in future years. The fundamentals of the markets in which we operate are strong and we are aligned with the key megatrends driving future growth.

Cash generation continues to improve; free cash flow was up over 50% to £94.5m (2018: £62.2m), as capital investment normalised with completion of construction of our North American biosurfactant project. With low leverage and strong cash generation, this creates opportunities for investment for future growth and returns.

Return on sales, in reported currency, remained solid, declining by 30 basis points to 25.1% (2018: 25.4%). With a higher interest charge, following the increased investment, acquisition of Biosector and special dividend to shareholders, in reported currency adjusted profit before tax reduced by 2.5% to £170.6m (2018: £175.0m) and adjusted basic earnings per share (EPS) were 2.0% lower at 98.2 pence (2018: 100.2p).

We paid a special dividend of over £150m in May and have increased the interim dividend by 3.9% to 39.5 pence (2018: 38.0p).

Reported results (IFRS)

The weakening of Sterling benefitted results on a reported currency basis. Sales at reported rates increased 1.7% to £714.7m (2018: £702.8m), whilst profit before tax on an IFRS basis decreased by 2.7% to £166.2m (2018: £170.8m). This was after a charge for exceptional items, acquisition costs and amortisation of intangible assets arising on acquisition of £4.4m (2018: £4.2m). IFRS basic EPS decreased by 1.9% to 95.6p (2018: 97.5p).

First half sector performance

The standout performance was in Life Sciences, with excellent sales growth accompanied by a stronger margin. Sales grew by 13.0% and adjusted operating profit by 19.0% in constant currency. Our Health Care platform grew in double digit percentage terms, benefitting from its leading position in drug delivery systems, responding to the more complex demands of the biologic and oncology-driven drug development pipeline. This was supported by the recent vaccine adjuvancy acquisition, our first inorganic investment in Health Care. Growth in Crop Care was also robust in the first half year, growing mid single digit percentage, a testimony to our innovation and global platform in a challenging agricultural market.

Personal Care demand slowed, against particularly strong comparators in 2018, with sales in constant currency 3.6% lower. This was due to weakness in the US and China where the trade war between the two countries has created significant uncertainty, weighing heavily on consumer confidence, together with new legislation on ‘Daigou’ cross-border selling in China. Away from these geographies, Personal Care sales growth was positive; Western Europe grew by 4% and our industry leading margin remained resilient, with return on sales at 33.3% (2018: 34.1%). We expect the adverse impact to be relatively short-lived, with the sector’s strong fundamentals underpinned by innovation, continued proliferation of local, niche brands and consumer demand for sustainable products.

Performance Technologies was adversely affected by significantly weaker automotive and polymer end markets, with constant currency sales 6.0% lower and adjusted operating profit 11.2% lower. This particularly impacted our Smart Materials business, whilst the Energy Technology business was broadly flat in more resilient markets. Despite this short term weakness, the fundamentals for Performance Technologies remain attractive, with a progressive shift in the business towards renewable technologies, greater innovation and sustainable solutions.

Regional performance

Regional performance was mixed. Market conditions in North America were notably tougher, reflecting the US/China trade dispute and lower automotive and consumer product demand. A slow first quarter in Asia reflected uncertainties over macroeconomic growth and changes to selling legislation in China, replaced by modest signs of improvement in the second quarter. By contrast, Latin America delivered strong growth, driven by Crop sales to customers substituting for US production and an improving regional macroeconomic environment. Europe proved resilient, with good consumer growth away from the weak automotive market.

Our purpose – ‘Smart Science to Improve LivesTM’

Despite current market conditions, Croda is well placed to continue to drive sales and profit growth across the cycle. We are focused on delivering robust top line growth, above the market rate, at industry-leading margins, with a ‘capital light’ model. We achieve this through a powerful business model – sustainable products, with over 60% of our raw materials sourced from naturals; a balanced global footprint, with 33 manufacturing plants and sales operations in 38 countries; a dynamic innovation engine, where we have invested in 34 customer innovation centres globally; and an unrivalled local direct selling capability, serving over 17,000 customers, both multinational and local.

As announced in our 2018 full year results, we have adopted a new purpose – ‘Smart Science to Improve LivesTM’ to better reflect Croda and our strategy. We contribute towards global environmental and social challenges by applying science to create new, better and sustainably sourced solutions. Building on our heritage of producing sustainable ingredients from natural resources, Croda aims to be a leading sustainable speciality ingredients company, building rich technologies and deep knowledge, offering irresistible innovation and service to our customers, and creating positive change for the planet and society. This will drive superior returns to our shareholders and allow us to set ambitious sustainability goals – for example, in climate action, customer benefit, using even less petrochemical feedstocks, improving health and liberating land for crops.

We are fully aligned with the megatrends which shape our markets and which will drive growth. Life Sciences delivers good health and well-being, through its focus on sickness prevention and cure, and improved crop yields, through more targeted delivery systems to feed a growing population from the same land with less environmental impact. Personal Care is meeting the expectations of consumers with growing incomes demanding clean and natural beauty, whilst protecting the health of consumers through more effective sun screens. Performance Technologies is focusing on renewable technologies, delivering affordable and clean energy, and helping customers meet their climate action goals.

For our businesses, our strategy shapes our investments. We are investing in biosurfactants to replace petrochemicals. We are expanding our high purity health care capacity to meet growing drug demands. Through acquisition, we have created a number of new technology platforms, including sustainable plant and marine organisms for Personal Care, novel surfactants with Enza and biostimulants through Plant Impact. In July we completed our latest technology acquisition, Rewitec, with novel lubricant technology to extend the life of wind turbines, a growing global market addressing renewable energy needs.

We will continue to strengthen Personal Care, expanding our Beauty Actives business and broadening technologies in Beauty Effects, whilst helping customers develop new products through our Beauty Formulation business. Life Sciences will expand to grow. As our fastest growing business, we will continue to scale it through geographic expansion, capital investment and acquisition in adjacent markets and technologies. Performance Technologies will be refined, transforming into a high-tech business with improved margins and growth.


We have a strong pipeline, a robust business model and a strategy to leverage innovation, customer intimacy and sustainability. Life Sciences is expected to show continued progress and in Personal Care we anticipate the US remaining subdued while Asia recovers progressively. Performance Technologies is likely to remain softer until end markets improve. Based on the current challenging economic conditions remaining unchanged, overall we expect a slight improvement in performance in the second half of the year versus the prior year comparator.


Growth in Personal Care offset by weak US and North Asia

Personal Care demand slowed, against particularly strong comparators in 2018 and trade headwinds impacting the two largest markets. Sales declined by 3.6% and adjusted operating profit by 4.6% in constant currency. In reported currency, sales were broadly flat at £246.8m (2018: £247.7m) with adjusted operating profit 2.7% lower at £82.1m (2018: £84.4m). IFRS operating profit was £81.8m (2018: £83.7m). Return on sales declined modestly to 33.3% (2018: 34.1%), due to the impact of a 6% fall in volume. Sales price/mix continued to improve, up 2 percentage points, reflecting the continued growth of prestige and innovation-driven products.

The trade war between the US and China significantly impacted demand, as customers cut inventories due to the uncertain tariff situation. In the US, consumer spending was squeezed and, in North Asia, new legislation restricting Daigou cross-border selling impacted some local customers. Asia has begun to show some modest recovery and sales with multinational customers continue to grow, as they expand in the region. Away from these short term macro issues in the US and North Asia, which saw local sales 10% lower, Personal Care sales continued in growth, up 4% in Western Europe, 2% in Latin America and 1% in South Asia in constant currency.

The fundamentals for Personal Care are strong with good structural growth, driven by greater consumer spending in emerging markets, supported by our continued resource expansion in Asia, the proliferation of niche and ‘Indie’ brands targeted at more local and personalised consumer needs, and increasing brand and ingredient innovation. Beauty Actives continues to grow in developed markets, with the prestige cosmetic market remaining confident. This is being supported by recently commissioned additional R&D and manufacturing capacity in Sederma, with a strong innovation pipeline. Beauty Effects, which targets millennial generation consumers, grew sales across Europe and Latin America, and is expanding its range of technologies. Whilst Beauty Formulation, our heritage ingredient portfolio, experienced subdued sales in the first half year, it is partnering to win, with strong multinational relationships, greater formulation capability for regional and local customers and opportunities to leverage sustainability through the new biosurfactant facility. This will be supported by our digital programme, with our increased investment in consumer devices through Cutitronics opening up possibilities in personalisation of products for consumers, whilst accessing significant data on skin health. We are also piloting ‘live chat’ to help smaller, ‘Indie’ customers learn about how to formulate with Croda’s leading ingredients, increasing our access to an ever growing numbers of customers.

Our innovation pipeline remains exciting, demonstrated through NPP sales of 42% (2018: 42%). Beauty Actives continues to generate greater scientific data to support new product claims. A new generation of peptides supported a major customer’s anti-ageing product. IRB by Sederma has launched a sustainable anti-ageing technology created from plant cell culture and Crodarom launched Banana Flower EC, a collaboratively sourced tropical ingredient boosting mood and delivering prebiotic properties. Coupled with organic sourcing of plant extracts, these innovations support the drive towards green beauty and sustainability. In Beauty Effects sensory impact and sustainability are key trends. Crodabond CSA was launched, delivering on-trend claims, reducing colour fade in hair colour applications and creating longer wear benefits in colour cosmetics. As ingredient partner to a major multinational company, we reformulated their entire range of hair colourants to improve consumer experience and colour retention. Our partnership in Moonshine Effect pigments continues to expand our position in colour cosmetics, with the launch of four new products creating striking colour with extraordinary visual impact.

Excellent performance in Life Sciences

Life Sciences delivered an excellent performance, with double digit percentage sales growth accompanied by a stronger margin. Sales grew by 13.0% and adjusted operating profit by 19.0% in constant currency. Health Care was the standout performer, with constant currency sales up 24%, including the Biosector acquisition completed at the end of 2018. Crop Care was also strong, with constant currency sales up 4%. NPP increased to 29% of sector sales, supporting price/mix growth of 9%.

In reported currency, sales increased by 16.2% to £184.3m (2018: £158.6m) and adjusted operating profit was 19.0% higher at £56.4m (2018: £47.4m). IFRS operating profit was £53.1m (2018: £44.9m). Return on sales improved to 30.6% (2018: 29.9%), despite the dilutive impact of recent acquisitions, reflecting the technology-rich, attractive platforms that we have developed in Health and Crop Care.

Life Sciences is a strong business getting stronger. Our strategy is to grow through expansion, delivering exciting sales and margin growth. We are moving to faster growth markets – in delivery systems for Health and Crop Care, in vaccine delivery, in seed enhancement and bio-stimulants, and into other adjacencies where we are looking to invest organically and inorganically. This sector is wholly aligned with UN sustainability goals, whether by ensuring healthy lives through new drugs and vaccines or by supporting zero hunger by creating better agriculture yields and crop protection systems.

Health Care continued to build on its leading market position in high purity excipients, where the removal of impurities eliminates adverse interaction with drug actives, and where demand is driven by the drug development pipeline, rather than macroeconomic conditions. Organic investment will double manufacturing capacity in the US, due to come on stream in 2020. We are also investing in new purification technologies to support a wider range of drugs, broadening our customer base. We are adding sales and technical resource in Asia and continue to obtain monograph approvals conforming with the Chinese Pharmacopeia, allowing us to expand our presence in this key drug market. Our equity investment in SiSaf has seen the launch of ProSilic®, increasing stability, targeting and controlled release of drug actives.

We are also integrating the Biosector acquisition. With 80 years experience in delivering safe and effective vaccine adjuvants for human and veterinary applications, the industry-leading products are widely recognized for their unmatched track record and are manufactured in the only aseptic and GMP compliant adjuvant manufacturing facility in the world. R&D capability has been strengthened through the combination with Croda, where the vaccine and blood products of tomorrow will require new and innovative adjuvants. NanoQuil® is a next generation nanoparticle adjuvant solving customers’ issues of stability and production.

Global market conditions were mixed for Crop Care, with the US/China trade dispute adversely impacting sales in both countries, aggravated by severe US weather. However, our investment in creating a global footprint in Crop Protection resulted in significant sales growth in other regions, most notably Latin America, where sales more than doubled.

Crop Care is growing through both organic and inorganic investment. Alongside being the ‘go to’ company for crop delivery systems, this has led to adjacencies in seed enhancement and biostimulants. Our formulation capability is helping crop science customers better deliver their new actives; in the first half year, we launched a range of capsule suspension formulations which use microcapsules to reduce operator hazards and risks to the natural habitat. Incotec is developing a growing organic product portfolio, including Promotor Organic priming treatments. Its latest innovation in seed upgrading, X-ray eXpress, uses artificial intelligence to automate seed sorting to improve the quality of tomato and pepper seed lots, cutting nursery production time by three weeks. Plant Impact continues to develop new biostimulants for yield enhancement. One of these, BanzaiTM, enhances the yield of cocoa, supporting greater farm incomes and sustainable crop production in West Africa.

Mixed markets in Performance Technologies

Performance Technologies was adversely impacted by the recent decline in automotive and polymer end-markets and a more cautious inventory position adopted by European and US customers. This primarily impacted our Smart Materials business, with demand in Energy Technologies solid. Sales declined by 6.0% and adjusted operating profit by 11.2% in constant currency. At reported currency, sales declined to £226.8m (2018: £235.9m) while adjusted operating profit fell to £40.8m (2018: £45.6m). IFRS operating profit was £40.0m (2018: £44.6m). Return on sales decreased to 18.0% (2018: 19.3%), with volume 8% lower.

Sales into developing markets in Asia and Eastern Europe were strong. Energy Technologies was also broadly flat, with resilient markets in marine lubricants, renewable energy and the automotive after-market. Smart Materials, which improves the performance of polymer and coatings systems particularly in the automotive sector, was most impacted by the slowdown, with sales 7% lower in constant currency. The smaller Home Care & Water business saw reduced demand in oil exploration.

Although impacted by short term weakness in some markets, the fundamentals for Performance Technologies are good with changes in our end markets continuing to create significant opportunities. Its strategy is to grow by refining the business, progressively moving towards new and high technology markets, with a strong sustainability focus. Reflecting an increasing investment in innovation, NPP increased to 19% (2018: 18%), its highest ever level. Innovation includes improving transmission performance and heat management in electric vehicles and extending lifetime performance of wind turbines. We are also well positioned for 5G cellular developments using adhesives for electronics. The forthcoming commissioning of our North American biosurfactant plant will see new sales into customers’ sustainable home care products. Our technology acquisition JD Horizons, with its FlowsolveTM technology, which prevents asphaltenes precipitating in oil exploration and keeps oil flowing, has reached critical mass, with sales having grown ten fold since acquisition in 2014.

Sustainability is a key driver in the technology change which is driving Performance Technologies. Croda is a world leader in Environmentally Acceptable Lubricants, positioning us to meet tighter regulations for better biodegradable marine lubricants. We are also growing through new technology acquisitions; in July 2019, we acquired Rewitec, whose lubricant additives extend the life of wind turbines, a fast growing market in renewable energy. Ionphase, acquired in December 2017, has launched rSTAT3, a permanent anti-static offering excellent UV stability in polymer applications, supplementing its innovative range of electrostatic dissipative solutions for electronic and polymer applications.

Continued portfolio development in Industrial Chemicals

We continued to refine the product portfolio in Industrial Chemicals, reducing volumes of low value co-product and tolling business. In constant currency, sales declined by 7.4%. Our China manufacturing joint venture, Sipo, saw an encouraging improvement in domestic sales and profitability. In reported currency, Industrial Chemicals sales reduced to £56.8m (2018: £60.6m) and adjusted operating profit decreased to break-even (2018: £1.1m). IFRS operating profit was £0.1m (2018: £1.1m).