TIDMCRDA
RNS Number : 4898G
Croda International PLC
24 July 2019
24 July 2019
Results for the six months ended 30 June 2019
Resilient performance despite subdued market conditions
Croda International Plc ("Croda" or the "Group"), the speciality
chemical company that creates high performance ingredients and
technologies relied upon by industries and consumers globally,
today announces its half year results for the six months ended 30
June 2019.
Adjusted(1) results Half year ended 30 June
2019 2018 % change % change
reported constant
rate rate(2)
-------------------------- ------- ------ ------ ---------- ----------
Sales - Core Business(3) GBPm 657.9 642.2 +2.4% (0.4)%
Operating profit GBPm 179.4 178.5 +0.5% (0.6)%
Profit before tax GBPm 170.6 175.0 (2.5)% (3.5)%
Basic EPS pence 98.2 100.2 (2.0)% (3.0)%
Return on sales(4) % 25.1% 25.4% (0.3)%pts n/a
Free cash flow(5) GBPm 94.5 62.2 +51.9% n/a
-------------------------- ------- ------ ------ ---------- ----------
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):
-- 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%).
Reported results (IFRS) Half year ended 30 June
2019 2018 % change
-------------------------- ------------ ------- ------- ----------
Sales GBPmillion 714.7 702.8 +1.7%
Operating profit GBPmillion 175.0 174.3 +0.5%
Profit before tax GBPmillion 166.2 170.8 (2.7)%
Basic earnings per share
(EPS) Pence 95.6 97.5 (1.9)%
Ordinary dividend per
share Pence 39.5 38.0 +3.9%
-------------------------- ------------ ------- ------- ----------
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, 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."
Further information
A presentation for investors and analysts will be held at 0900
BST on 24 July 2019 at Farmers & Fletchers In the City, 3 Cloth
Street, London EC1A 7LD. The presentation will be webcast on
www.croda.com
For enquiries contact:
Investors: Conleth Campbell, VP Investor Relations, Croda +44 1405 860 551
Media: Charlie Armitstead, Teneo +44 7703 330 269
Sector financial summary
Sales Half year ended 30 June
2019 2018 % change % change
reported constant
rate rate
-------------------------- ------ ------ ------ ---------- ----------
Personal Care GBPm 246.8 247.7 (0.4)% (3.6)%
Life Sciences GBPm 184.3 158.6 +16.2% +13.0%
Performance Technologies GBPm 226.8 235.9 (3.9)% (6.0)%
-------------------------- ------ ------ ------ ---------- ----------
Core Business GBPm 657.9 642.2 +2.4% (0.4)%
Industrial Chemicals GBPm 56.8 60.6 (6.3)% (7.4)%
-------------------------- ------ ------ ------ ---------- ----------
Group GBPm 714.7 702.8 +1.7% (1.0)%
-------------------------- ------ ------ ------ ---------- ----------
Adjusted operating profit Half year ended 30 June
2019 2018 % change % change
reported constant
rate rate
-------------------------- ------ ------ ------ ---------- ----------
Personal Care GBPm 82.1 84.4 (2.7)% (4.6)%
Life Sciences GBPm 56.4 47.4 +19.0% +19.0%
Performance Technologies GBPm 40.8 45.6 (10.5)% (11.2)%
-------------------------- ------ ------ ------ ---------- ----------
Core Business GBPm 179.3 177.4 +1.1% +0.0%
Industrial Chemicals GBPm 0.1 1.1 (90.9)% (100.0)%
-------------------------- ------ ------ ------ ---------- ----------
Adjusted operating
profit GBPm 179.4 178.5 +0.5% (0.6)%
Interest GBPm (8.8) (3.5) (151.4)% (142.9)%
-------------------------- ------ ------ ------ ---------- ----------
Adjusted profit before
tax GBPm 170.6 175.0 (2.5)% (3.5)%
-------------------------- ------ ------ ------ ---------- ----------
Notes
(1) Adjusted 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.
(2) Reported 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.
(3) The Core Business comprises Personal Care, Life Sciences and
Performance Technologies.
(4) Return on sales is adjusted operating profit divided by
sales.
(5) Free 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.
GROUP PERFORMANCE 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 GBP657.9m (2018:
GBP642.2m) and reduced by 0.4% in constant currency. Adjusted
operating profit in the Core Business increased by 1.1% in reported
currency to GBP179.3m (2018: GBP177.4m) 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 GBP94.5m (2018: GBP62.2m), 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 GBP170.6m
(2018: GBP175.0m) 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 GBP150m 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 GBP714.7m
(2018: GBP702.8m), whilst profit before tax on an IFRS basis
decreased by 2.7% to GBP166.2m (2018: GBP170.8m). This was after a
charge for exceptional items, acquisition costs and amortisation of
intangible assets arising on acquisition of GBP4.4m (2018:
GBP4.2m). 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 Lives(TM) '
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 Lives(TM) ' 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.
Outlook
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.
FIRST HALF SECTOR PERFORMANCE REVIEW
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 GBP246.8m (2018: GBP247.7m) with adjusted operating profit
2.7% lower at GBP82.1m (2018: GBP84.4m). IFRS operating profit was
GBP81.8m (2018: GBP83.7m). 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 GBP184.3m
(2018: GBP158.6m) and adjusted operating profit was 19.0% higher at
GBP56.4m (2018: GBP47.4m). IFRS operating profit was GBP53.1m
(2018: GBP44.9m). 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(R) , 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(R) 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, Banzai(TM) , 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 GBP226.8m (2018: GBP235.9m) while
adjusted operating profit fell to GBP40.8m (2018: GBP45.6m). IFRS
operating profit was GBP40.0m (2018: GBP44.6m). 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 Flowsolve(TM)
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 GBP56.8m (2018: GBP60.6m) and
adjusted operating profit decreased to break-even (2018: GBP1.1m).
IFRS operating profit was GBP0.1m (2018: GBP1.1m).
FINANCE REVIEW
Currency
Currency translation benefitted reported sales and profit in the
first half year as Sterling weakened against the US dollar.
Sterling averaged US$1.294 (2018: US$1.375) and EUR1.145 (2018:
EUR1.137). Currency translation increased sales compared to 2018 by
GBP18.9m and adjusted profit before tax by GBP1.7m.
Sales
Sales in reported currency increased by 1.7% to GBP714.7m (2018:
GBP702.8m). In constant currency, sales decreased by 1.0%.
Acquisitions in Life Sciences added GBP6.5m.
Sales GBPm %
-------------------------------- ------- ------
2018 reported 702.8 -
Underlying growth (13.5) (1.9)
Impact of acquisitions 6.5 0.9
2019 at constant currency 695.8 (1.0)
Impact of currency translation 18.9 2.7
-------------------------------- ------- ------
2019 reported 714.7 1.7
-------------------------------- ------- ------
In the Core Business, constant currency sales decreased by 0.4%,
with one working day fewer than in the prior year estimated to have
reduced sales by 0.8%. Reduced sales volume, down 5%, offset
increased sales price/mix. Sales in Life Sciences grew strongly,
with Personal Care impacted by the US/China trade dispute and
associated slowing consumer confidence. Key end markets were weaker
in Performance Technologies.
Sales in constant currency % growth
---------------------------- ---------
Personal Care (3.6)
Life Sciences 13.0
Performance Technologies (6.0)
---------------------------- ---------
Core Business (0.4)
Industrial Chemicals (7.4)
---------------------------- ---------
Group (1.0)
---------------------------- ---------
Adjusted profit
Adjusted operating profit decreased by 0.6% in constant currency
to GBP179.4m (2018: GBP178.5m). This included the impact of
adopting IFRS16 'Leases', which had no material impact on adjusted
profit. Return on sales reduced by 30 basis points to 25.1% (2018:
25.4%) in reported currency.
Adjusted operating profit GBPm %
-------------------------------- ------ ------
2018 reported 178.5 -
Underlying growth (0.6) (0.3)
Impact of acquisitions (0.5) (0.3)
2019 at constant currency 177.4 (0.6)
Impact of currency translation 2.0 1.1
-------------------------------- ------ ------
2019 reported 179.4 0.5
-------------------------------- ------ ------
Adjusted operating profit grew strongly in Life Sciences, whilst
declining modestly in Personal Care and decreasing in Performance
Technologies.
Half year 2019 Half year 2018
-------------------------------- ---------------
Reported rates Constant rates Reported rates
Adjusted operating profit GBPm GBPm GBPm
----------------------------- --------------- --------------- ---------------
Personal Care 82.1 80.5 84.4
Life Sciences 56.4 56.4 47.4
Performance Technologies 40.8 40.5 45.6
----------------------------- --------------- --------------- ---------------
Core Business 179.3 177.4 177.4
Industrial Chemicals 0.1 - 1.1
----------------------------- --------------- --------------- ---------------
Group 179.4 177.4 178.5
----------------------------- --------------- --------------- ---------------
The net interest charge increased to GBP8.8m (2018: GBP3.5m) at
reported rates. The prior year period benefitted from
capitalisation of interest on the North American bio-surfactant
plant, construction of which was materially completed in June 2018
when capitalisation of interest therefore stopped. In addition,
2019 saw higher debt from the payment of the special dividend
announced in February 2019 and the acquisition of Biosector in
December 2018. As a result, adjusted profit before tax reduced to
GBP170.6m (2018: GBP175.0m).
Half year (reported rates)
-----------------------------
2019 2018
Summary income statement GBPm GBPm
---------------------------- -------------- -------------
Sales 714.7 702.8
Operating costs (535.3) (524.3)
Adjusted operating profit 179.4 178.5
Net interest charge (8.8) (3.5)
---------------------------- -------------- -------------
Adjusted profit before tax 170.6 175.0
---------------------------- -------------- -------------
The effective tax rate on this profit was unchanged at 24.8%
(2018: 24.8%). There were no significant adjustments between the
Group's expected and reported tax charge based on its accounting
profit. Adjusted profit for the half year at reported rates was
GBP128.3m (2018: GBP131.6m) and adjusted basic earnings per share
(EPS) at reported rates were slightly lower at 98.2p (2018:
100.2p).
IFRS profit
IFRS profit is measured after exceptional items, acquisition
costs and amortisation of intangible assets arising on acquisition.
The charge for these before tax was GBP4.4m (2018: GBP4.2m).
Acquisition costs were GBP0.1m (2018: GBP1.3m) and the charge for
amortisation of intangible assets was GBP4.3m (2018: GBP2.9m), with
no exceptional items (2018: GBPnil). The profit before tax on an
IFRS basis was GBP166.2m (2018: GBP170.8m), the profit after tax on
an IFRS basis was GBP124.8m (2018: GBP128.0m) and basic EPS were
95.6p (2018: 97.5p).
Half year ended 30 June
--------------------------
2019 2018
Income statement GBPm GBPm
IFRS profit
-------------------------------------- ------------ ------------
Adjusted profit before tax 170.6 175.0
Exceptional items, acquisition costs
& intangibles (4.4) (4.2)
-------------------------------------- ------------ ------------
Profit before tax (IFRS) 166.2 170.8
Tax (41.4) (42.8)
-------------------------------------- ------------ ------------
Profit after tax (IFRS) 124.8 128.0
-------------------------------------- ------------ ------------
Cash management
Delivering good cash generation is core to Croda's strategy and
the first half year saw free cash flow improve by over 50% to
GBP94.5m (2018: GBP62.2m), through increased EBITDA, reduced
capital expenditure and improved working capital management. This
cash generation is available to invest in future growth - through
R&D, acquisition and increased production capacity - and to pay
increased dividends. During the first half year, over GBP200m was
returned to shareholders through the ordinary final 2018 and the
special dividend.
Half year ended 30 June
--------------------------
2019 2018
Cash flow GBPm GBPm
------------------------------- ------------- -----------
Adjusted operating profit 179.4 178.5
Depreciation and amortisation 30.5 24.5
EBITDA 209.9 203.0
Working capital (27.9) (57.9)
Net capital expenditure (41.5) (54.8)
Lease payments (4.3) (0.5)
Non-cash pension expense 1.5 3.4
Interest & tax (43.2) (31.0)
------------------------------- ------------- -----------
Free cash flow 94.5 62.2
Dividends (216.1) (60.5)
Acquisitions 0.3 (15.5)
Other cash movements (8.9) 4.4
------------------------------- ------------- -----------
Net cash flow (130.2) (9.4)
------------------------------- ------------- -----------
After currency translation and including leases under the newly
adopted accounting standard IFRS16 (which increased net debt at 1
January 2019 by GBP45.8m), net debt increased to GBP603.7m (31
December 2018: GBP471.3m). The leverage ratio increased to 1.5
times (31 December 2018 restated: 1.2x) and remains substantially
below the maximum covenant level under the Group's lending
facilities of at least 3 times.
During the first half year, the Group added to its term debt,
issuing GBP233m of US Private Placement Notes (USPP) with
maturities of 8 to 10 years at attractive pricing. This included
replacing US$100m of Notes maturing in January 2020, with drawing
of these replacement Notes deferred until that date. The USPP
programme provides approximately GBP420m of long duration, term
loans, in addition to the Group's committed bank facilities and
leases. These facilities provide ample liquidity to meet the
Group's immediate plans at a relatively low interest cost. At 30
June 2019 the Group had GBP396.9m (30 June 2018: GBP407.6m) of cash
and undrawn committed credit facilities available.
Dividend and capital allocation
Croda seeks to deliver high quality profits, measured through a
superior return on capital, earnings growth and strong cash
returns. The Group's capital allocation policy is to:
1) Reinvest for growth - we invest in organic capital
expenditure, product innovation and expansion in attractive
geographic markets to drive sales and profit growth. This in turn
delivers a superior return on capital. During the first half of
2019, capital investment continued to reduce, following completion
of construction of our North America biosurfactant project;
2) Provide regular returns to shareholders - we pay a regular
dividend to shareholders, representing 40 to 50% of adjusted
earnings over the business cycle. The Board has increased the
interim dividend by 3.9% to 39.5p (2018: 38.0p);
3) Acquire promising technologies - we have identified a number
of exciting technologies to supplement organic growth in existing
and adjacent markets. Some of these will be acquired, either as
nascent opportunities for future scale-up or as larger
complementary acquisitions. In July 2019, we completed the
acquisition of Rewitec, an exciting renewable energy technology
business; and
4) Maintain an appropriate balance sheet and return excess
capital - we maintain an appropriate balance sheet to meet future
investment and trading requirements. We target leverage of 1.0 to
1.5x (excluding retirement benefit schemes), although we are
prepared to move above this range if circumstances warrant. We
consider returning excess capital to shareholders when leverage
falls below our target range and sufficient capital is available to
fund our investment opportunities. We returned over GBP150m to
shareholders by way of a special dividend in May 2019.
Retirement benefits
The post-tax deficit on retirement benefit plans at 30 June
2019, measured on an accounting valuation basis under IAS19,
increased to GBP43.3m (31 December 2018: GBP12.4m), due to lower
corporate bond yields. Cash funding of the various plans is driven
by the schemes' ongoing actuarial valuation reviews. No deficit
funding payments are currently required to the Group's largest
pension scheme, the UK Croda Pension Scheme.
Alternative performance measures
We use a number of alternative performance measures to assist in
presenting information in this statement in an easily analysable
and comprehensible form. We use such measures consistently at the
half year and full year and reconcile them as appropriate. The
measures used in this statement include:
-- Constant currency results: these reflect current year
performance for existing business translated at the prior year's
average exchange rates and include the impact of acquisitions. For
constant currency profit, translation is performed using the entity
reporting currency. For constant currency sales, local currency
sales 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 this Finance Review;
-- Adjusted results: these 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 shareholders 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;
-- Return on sales: this is adjusted operating profit divided by sales, at reported currency;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and obligations
under all lease liabilities;
-- Leverage: this is the ratio of net debt to Earnings Before
Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA is
adjusted operating profit plus depreciation and amortisation;
-- Free cash flow: comprises EBITDA less movements in working
capital, net capital expenditure, non-cash pension expense, and
interest and tax payments;
-- Gross margin: sales less material costs divided by sales.
Other matters
The principal risks and uncertainties facing the Group were set
out in the Group's financial statements for the year ended 31
December 2018. There have been no changes in the Group's principal
risks and uncertainties, risk management processes or policies
since the year end. Related party transactions during the period
are set out in note 10.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial
information has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last Annual Report.
The Directors of Croda International Plc at 30 June 2019 were as
follows (a list of current Directors is maintained on the Croda
website: www.croda.com):
Anita Frew (Chairman)
Steve Foots (Chief Executive Officer)
Roberto Cirillo
Alan Ferguson
Jacqui Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden.
By order of the Board
Steve Foots Jez Maiden
Group Chief Executive Group Finance Director
INDEPENT REVIEW REPORT TO CRODA INTERNATIONAL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the
half-yearly financial report for the six months ended 30 June
2019 which comprises the Group condensed interim income statement,
Group condensed interim statement of comprehensive income and
expense, Group condensed interim balance sheet, Group condensed
interim statement of changes in equity, Group condensed interim
statement of cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Chris Hearld
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
24 July 2019
Croda International Plc
Interim announcement of trading results for the six months ended
30 June 2019
Group condensed interim income statement
First half 2019 First half 2018 Full year 2018
Reported Reported Reported
Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 714.7 - 714.7 702.8 - 702.8 1,386.9 - 1,386.9
Cost of sales (446.0) - (446.0) (428.5) - (428.5) (864.6) - (864.6)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Gross profit 268.7 - 268.7 274.3 - 274.3 522.3 - 522.3
Operating costs (89.3) (4.4) (93.7) (95.8) (4.2) (100.0) (179.8) (13.7) (193.5)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Operating profit 2 179.4 (4.4) 175.0 178.5 (4.2) 174.3 342.5 (13.7) 328.8
Financial costs 3 (9.1) - (9.1) (4.2) - (4.2) (12.1) - (12.1)
Financial income 3 0.3 - 0.3 0.7 - 0.7 1.1 - 1.1
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit before
tax 170.6 (4.4) 166.2 175.0 (4.2) 170.8 331.5 (13.7) 317.8
Tax (42.3) 0.9 (41.4) (43.4) 0.6 (42.8) (81.6) 2.1 (79.5)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit after tax
for the period 128.3 (3.5) 124.8 131.6 (3.6) 128.0 249.9 (11.6) 238.3
_______ _______ _______ _______ _______ _______ _______ _______ _______
Attributable to:
Non-controlling
interests - - - (0.1) - (0.1) (0.2) - (0.2)
Owners of the
parent 128.3 (3.5) 124.8 131.7 (3.6) 128.1 250.1 (11.6) 238.5
_______ _______ _______ _______ _______ _______ _______ _______ _______
128.3 (3.5 124.8 131.6 (3.6) 128.0 249.9 (11.6) 238.3
_______ _______ _______ _______ _______ _______ _______ _______ _______
(1) Adjustments = exceptional items, acquisition costs and amortisation of intangible assets
arising on acquisition and the tax thereon
Pence Pence Pence Pence Pence Pence
per per per per per per
share share Share Share Share Share
Adjusted Total Adjusted Total Adjusted Total
Earnings per 10.61p
ordinary share
Basic 98.2 95.6 100.2 97.5 190.2 181.4
Diluted 97.9 95.3 99.7 97.0 189.2 180.4
Ordinary dividends paid in the
period
Interim - - 38.00
Final 49.00 46.00 46.00
Special 115.00 - -
Group condensed interim statement of comprehensive income and
expense
2019 2018 2018
First First Full
half half year
GBPm GBPm GBPm
Profit for the period 124.8 128.0 238.3
Other comprehensive (expense)/income:
Items that will not be reclassified
to profit or loss:
Remeasurements of post-employment
benefit obligations (36.0) 11.5 22.6
Tax on items that will not be reclassified 6.3 (2.0) (4.9)
______ ______ ______
(29.7) 9.5 17.7
______ ______ ______
Items that may be reclassified subsequently
to profit or loss:
Currency translation (1.5) (1.5) 14.9
______ ______ ______
Other comprehensive (expense)/income
for the period (31.2) 8.0 32.6
______ ______ ______
Total comprehensive income for the
period 93.6 136.0 270.9
______ ______ ______
Attributable to:
Non-controlling interests - - (0.1)
Owners of the parent 93.6 136.0 271.0
______ ______ ______
93.6 136.0 270.9
______ ______ ______
Arising from:
Continuing operations 93.6 136.0 270.9
______ ______ ______
93.6 136.0 270.9
______ ______ ______
Group condensed interim balance sheet
At At
Note 30 June 31 December
2019 2018
GBPm GBPm
Assets
Non-current assets
Intangible assets 449.1 454.9
Property, plant and
equipment 5 791.1 780.3
Right of use assets 52.1 -
Investments 4.5 4.8
Deferred tax assets 36.4 56.2
Retirement benefit
assets 5.3 24.6
______ ______
1,338.5 1,320.8
______ ______
Current assets
Inventories 286.7 287.2
Trade and other receivables 254.9 233.6
Cash and cash equivalents 73.8 71.2
______ ______
615.4 592.0
______ ______
Liabilities
Current liabilities
Trade and other payables (184.4) (190.5)
Borrowings and other financial
liabilities (107.6) (49.2)
Lease liabilities (8.2) -
Provisions (2.8) (4.0)
Current tax liabilities (49.9) (47.9)
______ ______
(352.9) (291.6)
______ ______
Net current assets 262.5 300.4
______ ______
Non-current liabilities
Borrowings and other financial
liabilities (521.4) (447.5)
Lease liabilities (40.3) -
Other payables (0.8) (0.8)
Retirement benefit
liabilities (61.0) (43.1)
Provisions (7.1) (7.1)
Deferred tax liabilities (101.9) (124.7)
______ ______
(732.5) (623.2)
______ ______
Net assets 868.5 998.0
______ ______
Equity attributable to owners
of the parent 861.0 990.5
Non-controlling interests
in equity 7.5 7.5
______ ______
Total equity 868.5 998.0
______ ______
Group condensed interim statement of changes in equity
Share Non-
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2018 15.1 93.3 53.9 660.0 7.6 829.9
Profit for the period - - - 128.1 (0.1) 128.0
Other comprehensive
(expense)/income - - (1.6) 9.5 0.1 8.0
Transactions with owners:
Dividends on equity
shares - - - (60.5) - (60.5)
Share-based payments - - - 3.0 - 3.0
Transactions in own
shares - - - (0.9) - (0.9)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (58.4) - (58.4)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2018 15.1 93.3 52.3 739.2 7.6 907.5
______ ______ ______ ______ ______ ______
At 1 January 2019 15.1 93.3 68.7 813.4 7.5 998.0
Profit for the period - - - 124.8 - 124.8
Other comprehensive
(expense)/income - - (1.5) (29.7) - (31.2)
Transactions with owners:
Dividends on equity
shares - - - (216.1) - (216.1)
Share-based payments - - - (0.3) - (0.3)
Transactions in own
shares - - - (6.7) - (6.7)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (223.1) - (223.1)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2019 15.1 93.3 67.2 685.4 7.5 868.5
______ ______ ______ ______ ______ ______
Other reserves comprise the Capital Redemption Reserve of GBP0.9m
(30 June 2018: GBP0.9m) and the Translation Reserve of GBP66.3m (30
June 2018: GBP51.4m).
Group condensed interim statement of cash flows
2019 2018 2018
First First Full
Note half half year
GBPm GBPm GBPm
Cash flows from operating activities
Continuing operations
Operating profit 175.0 174.3 328.8
Adjustments for:
Depreciation and amortisation 34.8 27.4 56.2
Profit on disposal of property,
plant and equipment (2.8) (0.1) (0.1)
Changes in working capital (27.9) (57.9) (69.3)
Non-cash pension expense 1.5 3.4 8.7
Share of loss of associate 0.3 0.1 0.2
Share based payments 1.6 7.2 8.3
Cash paid against operating
provisions (0.7) (0.4) (1.1)
______ ______ ______
Cash generated from operations 181.8 154.0 331.7
Interest paid (7.9) (7.1) (14.7)
Tax paid (35.6) (24.6) (55.0)
______ ______ ______
Net cash generated from operating
activities 138.3 122.3 262.0
______ ______ ______
Cash flows from investing activities
Acquisition of subsidiaries 0.3 (15.5) (79.3)
Acquisition of associates and
other investments - - (3.2)
Purchase of property, plant
and equipment (42.7) (54.0) (100.2)
Purchase of intangible assets (1.7) (1.1) (3.4)
Proceeds from sale of property,
plant and equipment 2.9 0.3 0.5
Proceeds from sale of other investments - 0.4 0.4
Cash paid against non-operating
provisions (0.5) (0.6) (1.0)
Interest received 0.3 0.7 1.1
______ ______ ______
Net cash used in investing
activities (41.4) (69.8) (185.1)
______ ______ ______
Cash flows from financing activities
New borrowings 225.5 70.5 437.1
Repayment of borrowings (74.2) (58.5) (421.9)
Net transactions in own shares (6.7) (0.9) 0.4
Dividends paid to equity shareholders 4 (216.1) (60.5) (110.5)
Payment of lease liabilities
(2018: Capital element of finance
lease payments) (4.3) (0.5) (0.5)
______ ______ ______
Net cash used in financing
activities (75.8) (49.9) (95.4)
______ ______ ______
Net movement in cash and cash
equivalents 21.1 2.6 (18.5)
Cash and cash equivalents brought
forward 40.3 54.9 54.9
Exchange differences (1.4) 0.7 3.9
______ ______ ______
Cash and cash equivalents carried
forward 60.0 58.2 40.3
______ ______ ______
Cash and cash equivalents carried
forward comprise:
Cash at bank and in hand 73.8 73.0 71.2
Bank overdrafts (13.8) (14.8) (30.9)
______ ______ ______
60.0 58.2 40.3
______ ______ ______
A reconciliation of the cash flows above to the movements in net
debt is shown in note 6.
Notes to the Interim Financial Statement
1. a. General information
The Company is a public limited company (Plc) incorporated and
domiciled in the UK. The address of its registered office is Cowick
Hall, Snaith, Goole, East Yorkshire DN14 9AA. The Company is listed
on the London Stock Exchange. This consolidated interim report was
approved for issue on 24 July 2019. The financial information
included in this interim financial report for the six months ended
30 June 2019 does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006 and is unaudited. The
comparative information for the six months ended 30 June 2018 is
also unaudited. The comparative figures for the year ended 31
December 2018 have been extracted from the Group's financial
statements, as filed with the Registrar of Companies, on which the
auditors gave an unqualified opinion, did not contain an emphasis
of matter paragraph and did not make a statement under section 498
of the Companies Act 2006. These Group condensed interim financial
statements have been reviewed, not audited.
b. Basis of preparation
This consolidated interim financial report for the six months
ended 30 June 2019 has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 `Interim Financial Reporting' (as adopted by
the EU). The report should be read in conjunction with the Group's
financial statements for the year ended 31 December 2018, available
on the Group's website (www.croda.com), which were prepared in
accordance with IFRSs as adopted by the EU.
Going concern basis
After making enquiries, and having reassessed the principal
risks, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the interim financial
information.
c. Accounting policies
(i) The Group adopted IFRS 16 'Leases' from 1 January 2019. A
number of other new standards are effective from 1 January 2019 but
they do not have a material effect on the Group's financial
statements.
IFRS 16 requires lessees to recognise a lease liability
reflecting future lease payments and a right of use asset for
virtually all lease contracts. It replaces IAS 17, under which
lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). IFRS
16 includes optional exemptions which can be applied for certain
short-term and low value leases.
The net impact of the new standard on the Group's profit or
financial gearing is not material. Accordingly, the Group has
adopted the simplified approach permitted under IFRS 16 and has
therefore not restated prior year comparators and no adjustment has
been recognised in the opening balance of equity at the date of
initial application. Right of use asset values were set equal to
lease liabilities at the date of transition. The Group has adopted
recognition exemptions for short-term and low value leases and has
elected to apply the practical expedient available for all leases
which end within 12 months of the date of transition (accounting
for as short-term leases).
On initial application, the Group recorded right of use assets
and lease liabilities with a value of GBP45.8m. This exceeded the
GBP35.6m non-cancellable lease commitments reported as at 31
December 2018 under IAS 17 due to extension options reasonably
certain to be exercised. The weighted average lessee's incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 2%.
The recognised right of use assets relate to the following types
of assets:
At At
30 June 1 January
2019 2019
GBPm GBPm
Land and buildings 44.5 43.1
Plant and equipment 7.6 2.7
______ ______
Total right of use assets 52.1 45.8
______ ______
(ii) Except as described below, the accounting policies applied
in these interim financial statements are the same as those applied
in the Group's financial statements for the year ended 31 December
2018. The changes in accounting policies are also expected to be
reflected in the Group's financial statements for the year ended 31
December 2019.
Leases
When entering into a new contract, the Group assesses whether it
is, or contains, a lease. A lease conveys a right to control the
use of an identified asset for a period of time in exchange for
consideration.
The Group recognises a right of use asset and a lease liability
at the lease commencement date. The right of use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses, adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date
and discounted using the interest rate implicit in the lease or,
more typically, the Group's incremental borrowing rate (when the
implicit rate cannot be readily determined).
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made.
It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, a change in the estimate
of the amount expected to be payable under a residual value
guarantee or changes in the Group's assessment of whether a
purchase, extension or termination option is reasonably certain to
be exercised.
The Group adopts recognition exemptions for short-term (less
than 12 months) and low value leases and elects not to separate
lease components from any associated fixed non-lease
components.
Other matters
For details on the principal risks and uncertainties facing the
Group refer to note 9.
For information on related party transactions during the period
refer to note 10.
2. Segmental information
The Group's sales, marketing and research activities are
organised into four global market sectors, being Personal Care,
Life Sciences, Performance Technologies and Industrial Chemicals.
These are the segments for which summary management information is
presented to the Group's Executive Committee, which is deemed to be
the Group's Chief Operating Decision Maker.
There is no material trade between segments. Segmental results
include items directly attributable to a specific segment as well
as those that can be allocated on a reasonable basis.
There are no significant seasonal variations which impact the
split of revenue between the first and second half of the financial
year.
Adjustments in the Group Income Statement of GBP4.4m (30 June
2018: GBP4.2m) relate to acquisition costs and amortisation of
intangible assets arising on acquisition. The adjustments relate to
our segments as follows: Personal Care GBP0.3m (30 June 2018:
GBP0.7m), Life Sciences GBP3.3m (30 June 2018: GBP2.5m),
Performance Technologies GBP0.8m (30 June 2018: GBP1.0m) and
Industrial Chemicals GBPNil (30 June 2018: GBPNil).
2019 2018 2018
First First Full
half Half year
GBPm GBPm GBPm
Revenue
Personal Care 246.8 247.7 487.8
Life Sciences 184.3 158.6 324.5
Performance Technologies 226.8 235.9 456.4
______ ______ ______
Core Business 657.9 642.2 1,268.7
Industrial Chemicals 56.8 60.6 118.2
______ ______ ______
714.7 702.8 1,386.9
______ ______ ______
Adjusted operating profit
Personal Care 82.1 84.4 160.3
Life Sciences 56.4 47.4 95.8
Performance Technologies 40.8 45.6 85.2
______ ______ ______
Core Business 179.3 177.4 341.3
Industrial Chemicals 0.1 1.1 1.2
______ ______ ______
179.4 178.5 342.5
Exceptional items, acquisition
costs and amortisation of intangible
assets arising on acquisition (4.4) (4.2) (13.7)
______ ______ ______
Total Group operating profit 175.0 174.3 328.8
______ ______ ______
In the following table, revenue has been disaggregated by sector
and destination.
This is the primary management information that is presented to
the Group's Executive Committee.
North Latin Reported
Europe America America Asia Total
GBPm GBPm GBPm GBPm GBPm
Revenue
First half 2019
Personal Care 88.2 71.2 29.9 57.5 246.8
Life Sciences 75.2 50.0 32.9 26.2 184.3
Performance Technologies 110.5 57.7 14.0 44.6 226.8
______ ______ ______ ______ ______
Core Business 273.9 178.9 76.8 128.3 657.9
Industrial Chemicals 28.1 6.8 0.9 21.0 56.8
______ ______ ______ ______ ______
302.0 185.7 77.7 149.3 714.7
______ ______ ______ ______ ______
Revenue
First half 2018
Personal Care 86.4 72.5 27.5 61.3 247.7
Life Sciences 64.9 48.6 21.0 24.1 158.6
Performance Technologies 118.0 63.6 14.1 40.2 235.9
______ ______ ______ ______ ______
Core Business 269.3 184.7 62.6 125.6 642.2
Industrial Chemicals 32.0 5.2 1.5 21.9 60.6
______ ______ ______ ______ ______
301.3 189.9 64.1 147.5 702.8
______ ______ ______ ______ ______
3. Net financial costs
2019 2018 2018
First First Full
half half year
GBPm GBPm GBPm
Financial costs
Bank interest payable (8.6) (7.1) (14.8)
Capitalised interest - 3.2 3.3
Lease interest (0.4) - -
Net interest on retirement benefit
liabilities (0.1) (0.3) (0.6)
______ ______ ______
(9.1) (4.2) (12.1)
______ ______ ______
Financial income
Bank interest receivable and
similar income 0.3 0.7 1.1
______ ______ ______
Net financial costs (8.8) (3.5) (11.0)
______ ______ ______
4. Dividends paid
2019 2018 2018
First First Full
Pence half half year
per share GBPm GBPm GBPm
Ordinary
2017 Final - paid May
2018 46.00 - 60.5 60.4
2018 Interim - paid
October 2018 38.00 - - 50.0
2018 Final - paid May
2019 49.00 64.6 - -
2018 Special - paid
May 2019 115.00 151.5 - -
______ ______ ______
216.1 60.5 110.4
Preference (paid June and
December) 0.0 0.0 0.1
______ ______ ______
216.1 60.5 110.5
______ ______ ______
An interim dividend in respect of 2019 of 39.5p per share,
amounting to a total dividend of GBP50.8m, was declared by the
Directors at their meeting on 23 July 2019. This interim report
does not reflect the 2019 interim dividend payable. The dividend
will be paid on 2 October 2019 to shareholders registered on 23
August 2019.
5. Property, plant and equipment
2019 2018 2018
First First Full
half half year
GBPm GBPm GBPm
Opening net book amount 780.3 684.0 684.0
Exchange differences (2.0) 6.2 26.2
Additions 42.7 57.2 103.5
Acquisitions - 0.5 15.4
Disposals, write offs and reclassifications (4.7) (0.2) (0.7)
Depreciation charge for period (25.2) (23.6) (48.1)
______ ______ ______
Closing net book amount 791.1 724.1 780.3
______ ______ ______
Reclassifications in the period primarily relate to long-term
lease assets reclassified from Property, plant and equipment to
Right of use assets.
At 30 June 2019 the Group had contracted capital expenditure
commitments of GBP31.7m (30 June 2018: GBP26.4m).
6. Reconciliation to net debt
2019 2018 2018
First First Full
half half year
GBPm GBPm GBPm
Net movement in cash and cash
equivalents 21.1 2.6 (18.5)
Net movement in borrowings and
other financial liabilities (147.0) (11.5) (14.7)
______ ______ ______
Change in net debt from cash flows (125.9) (8.9) (33.2)
Non-cash movement in lease liabilities (52.0) (0.5) (0.7)
Exchange differences (0.3) (2.2) (10.1)
______ ______ ______
(178.2) (11.6) (44.0)
Net debt brought forward (425.5) (381.5) (381.5)
______ ______ ______
Net debt carried forward (603.7) (393.1) (425.5)
______ ______ ______
7. Accounting estimates and judgements
The Group's significant accounting policies under IFRS have been
established by management with the approval of the Audit Committee.
The application of these policies requires estimates and
assumptions to be made concerning the future and judgements to be
made on the applicability of policies to particular situations.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
Under IFRS an estimate or judgement may be considered critical
if it involves matters that are highly uncertain or where different
estimation methods could reasonably have been used, or if changes
in the estimate that would have a material impact on the Group's
results are likely to occur from period to period.
The critical accounting judgements required when preparing the
Group's accounts are as follows:
Provisions
The Group has recognised potential environmental liabilities and
other provisions. The Group's assessment of whether constructive or
legal obligation has arisen from a past event (and can be measured
reliably) is a key judgement in determining the appropriate
accounting treatment.
At 30 June 2019, the Group has an environmental provision of
GBP9.4m (31 December 2018: GBP9.9m) in respect of soil and
potential ground water contamination on a number of sites, both
currently in use and previously occupied, in Europe and the
Americas.
In relation to the environmental provision, the Directors expect
that the balance will be utilised within ten years. Provisions for
remediation costs are made when there is a present obligation, it
is probable that expenditures for remediation work will be required
and the cost can be estimated within a reasonable range of possible
outcomes. The costs are based on currently available facts and
prior experience. Environmental liabilities are recorded at the
estimated amount at which the liability could be settled at the
balance sheet date. Remediation of environmental damage typically
takes a long time to complete due to the substantial amount of
planning and regulatory approvals normally required before
remediation activities can begin. In addition, increases in or
releases of environmental provisions may be necessary whenever new
developments occur or additional information becomes available.
Consequently, environmental provisions can change significantly.
The level of environmental provision is based on management's best
estimate of the most likely outcome for each individual
exposure.
The Group has also considered the impact of discounting on its
provisions and has concluded that, as a consequence of the
significant utilisation expected in a relatively short timescale,
the impact is not material.
The critical accounting estimates and assumptions required when
preparing the Group's accounts are as follows:
Post-retirement benefits
The Group's principal retirement benefit schemes are of the
defined benefit type. Recognition of the liabilities under these
schemes and the valuation of assets held to fund these liabilities
require a number of significant assumptions to be made, relating to
levels of scheme membership, key financial market indicators such
as inflation and expectations on future salary growth and asset
returns. These assumptions are made by the Group in conjunction
with the schemes' actuaries and the Directors are of the view that
any estimation should be prudent and in line with consensus
opinion.
The Group's net retirement benefit liabilities have increased by
GBP37.2m in the first half of 2019 to GBP55.7m. This movement
comprises GBP1.5m of service costs in excess of contributions,
GBP0.1m of net financial costs and GBP36.0m due to changes in
actuarial assumptions and the market value of assets, offset by a
currency translation gain of GBP0.4m.
Taxation
The Group is subject to corporate income taxes in numerous
jurisdictions. Significant judgement is often required in
determining the worldwide expense and liability for such taxes,
including consideration of the potential impact of transfer
pricing. There are many transactions and calculations where the
ultimate tax determination is uncertain during the ordinary course
of business. The Group recognises liabilities for tax issues based
on estimates of whether additional taxes will be due, based on its
best interpretation of the relevant tax laws and rules. Where the
final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the
income tax and deferred tax provisions in the period in which such
determination is made.
Goodwill and fair value of assets acquired
Management are required to undertake an annual test for
impairment of indefinite lived assets such as goodwill.
Accordingly, the Group tests annually whether goodwill has suffered
any impairment and the Group's goodwill value has been supported by
detailed value-in-use calculations relating to the recoverable
amounts of the underlying Cash Generating Units ('CGUs'). These
calculations require the use of estimates to enable the calculation
of the net present value of cash flow projections of the relevant
CGU. Critical assumptions include the rate of growth in EBITDA and
the selection of appropriate discount rates.
Recoverable amounts currently exceed carrying values including
goodwill. Goodwill arising on acquisition is allocated to the CGU
that is expected to benefit from the synergies of the acquisition.
Such goodwill is then incorporated into the Group's standard
impairment review process as described above.
8. Contingent liabilities
The Group is subject to various claims which arise in the course
of business. These contingent liabilities are reviewed on a regular
basis and where possible an estimate is made of the potential
financial impact on the Group.
The Group is also involved in certain environmental legal
actions and proceedings. Whilst the Group cannot predict the
outcome of any current or future actions or proceedings with any
certainty, it currently believes the likelihood of any material
liabilities to be low, and that the liabilities, if any, will not
have a material adverse effect on its consolidated income,
financial position or cash flows. The Group also considers it has
insurance in place in relation to any significant contingent
liabilities. The environmental actions and proceedings the Group is
subject to relate to a discontinued business in the USA and are a
matter of public record.
9. Principal risks and uncertainties
Financial risk factors
The Group's activities expose it to a variety of financial
risks; currency risk, interest-rate risk, liquidity risk, and
credit risk. The Group's overall risk management strategy is
approved by the Board and implemented and reviewed by the Risk
Management Committee. Detailed financial risk management is then
delegated to the Group Finance department which has a specific
policy manual that sets out guidelines to manage financial risk.
Regular reports are received from all sectors and regional
operating units to enable prompt identification of financial risks
so that appropriate action may be taken. In the management
definition of capital the Group includes ordinary and preference
share capital and net debt.
The condensed interim financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements; they should be read in conjunction
with the Group's financial statements for the year ended 31
December 2018. There have been no changes in the Group's risk
management processes or policies since the year end.
Financial instruments
Financial instruments measured at fair value use the following
hierarchy;
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2)
- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
All of the Group's financial instruments are classed as level 2
with the exception of other investments and finance lease
obligations, which are classed as level 3.
Fair values
For financial instruments with a remaining life of greater than
one-year, fair values are based on cash flows discounted at
prevailing interest rates. Accordingly, the fair value of cash
deposits and short-term borrowings approximates to the book value
due to the short maturity of these instruments. The same applies to
trade and other receivables and payables. Where there are no
readily available market values to determine fair values, cash
flows relating to the various instruments have been discounted at
prevailing interest and exchange rates to give an estimate of fair
value.
Prior to 2016, the Group did not typically utilise complex
financial instruments and accordingly the only element of Group
borrowings where fair value differed from book value was the
US$100m fixed rate ten year bond that was issued in 2010. On the 27
June 2016, the Group issued GBP100m and EUR100m of fixed rate
bonds. On the 6 June 2019, the Group issued a further GBP65m,
EUR50m and $60m of fixed rate bonds.
The book value and fair values of these bonds can be found in
the table below.
Book Value Fair value Book Value Fair value
First half First half Full year Full year
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
US$100m fixed rate 10
year bond 78.6 79.3 78.8 76.5
EUR30m fixed rate 7 year
bond 26.8 27.8 27.1 27.7
EUR70m fixed rate 10
year bond 62.6 67.1 63.1 65.3
GBP30m fixed rate 7 year
bond 30.0 30.6 30.0 30.4
GBP70m fixed rate 10
year bond 70.0 73.1 70.0 71.4
EUR50m fixed rate 8 year
bond 44.7 47.1 - -
GBP65m fixed rate 8 year
bond 65.0 66.2 - -
$60m fixed rate 10 year
bond 47.1 48.9 - -
10. Related party transactions
The Group has not entered into any related party transactions in
the first six months of the year, except for Directors' and key
management compensation.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFFADEIVFIA
(END) Dow Jones Newswires
July 24, 2019 02:01 ET (06:01 GMT)
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