TIDMCRDA
RNS Number : 8162T
Croda International PLC
23 July 2020
Press Release
23 July 2020
Results for the six months ended 30 June 2020
Strong business model delivers resilient performance
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 2020.
Highlights:
Half year ended 30 June
Adjusted(1) results 2020 2019 % change % change
reported constant
rate rate(2)
=============================== ========== ======= ====== ========== =========
Sales - Core Business(3) GBPmillion 625.9 657.9 (4.9) (6.0)
Operating profit GBPmillion 161.6 179.4 (9.9) (9.4)
Profit before tax (PBT) GBPmillion 152.5 170.6 (10.6) (10.1)
Basic earnings per share (EPS) pence 88.8 98.2 (9.6) (9.1)
Return on sales(4) % 24.0 25.1 (1.1)ppts n/a
Free cash flow(5) GBPmillion 80.2 94.5 (15.1) n/a
=============================== ========== ======= ====== ========== =========
Half year ended 30 June
Reported results (IFRS) 2020 2019 % change
=============================== ========== ======= ====== ==========
Sales GBPmillion 672.9 714.7 (5.8)
Operating profit GBPmillion 154.0 175.0 (12.0)
Profit before tax (PBT) GBPmillion 144.9 166.2 (12.8)
Basic EPS pence 84.1 95.6 (12.0)
Ordinary dividend per share pence 39.5 39.5 -
=============================== ========== ======= ====== ==========
Our response to COVID-19
Our priorities have been to protect the health and safety of our
employees and balance the needs of all our stakeholders fairly. The
response and commitment of all our employees has been exceptional,
with almost all able to work effectively, either on site or from
home. We have not furloughed employees, reduced pay or utilised
government liquidity facilities. All our 19 principal manufacturing
sites have remained in operation and raw material supply chains
secure. We have supported our customers and suppliers, given
financial assistance to the communities closest to our sites, and
sustained our track record of paying regular dividends to
shareholders. Through our actions, we aim to live up to our Purpose
of using Smart Science to Improve Lives(TM) .
Group highlights
Continued strength of business model demonstrated during
challenging COVID-19 conditions
-- Modest reduction in sales
o Core Business sales 4.9% lower (-6.0% constant currency
(CC))
o Ongoing delivery of innovation: New & Protected Product
(NPP) sales at 27.2% of total (2019: 28.3%)
-- Resilient margin despite lower volume and adverse product mix
o Adjusted operating profit 9.9% lower (-9.4% CC)
o Return on sales 110 basis points (bps) lower at 24.0%
o IFRS profit before tax 12.8% lower at GBP144.9m
-- Strong balance sheet and healthy cash generation supporting continued investment
o Capital investment in capacity expansion, digital platform for
customers and expanded R&D
o Technology-rich Health Care acquisition signed in July -
important addition to speciality drug delivery capability
-- 2019 final dividend paid in full and 2020 interim dividend maintained at 39.5 pence
Sector highlights
-- Life Sciences continued to perform well with limited COVID-19 impact
o 190 bps return on sales expansion to 32.5% with growth in
higher value-add niches; sales 0.8% lower (-1.7% CC)
-- Personal Care adversely impacted by consumer slowdown in
second quarter but encouraging North Asia performance
o Resilient return on sales of 30.4% (-290bps) despite adverse
volume and mix impact; sales 8.1% lower (-9.5% CC)
-- Performance Technologies progressively impacted by COVID-19
slowdown in industrial markets; strong home care & packaging
markets
o Weaker return on sales of 15.1% (-290bps) due to operating
leverage; sales 4.6% lower (-5.6% CC)
Outlook:
Following a challenging second quarter, trading has stabilised
but visibility is limited and the timing of recovery remains
unclear. Life Sciences will benefit from the phasing of Crop Care
sales and continued opportunities in Health Care. We anticipate
consumer markets significantly impacted by lockdowns to recover
more quickly than industrial end markets. We expect Group margin
and cash generation to remain robust.
Steve Foots, Chief Executive Officer, commented:
"The response and commitment of all our employees to serve our
customers during the COVID-19 pandemic has been exceptional and the
strength of Croda's business model has been clearly demonstrated.
Whilst customer demand has inevitably been impacted by the crisis,
the strength and breadth of our portfolio, global footprint and
flexible manufacturing have all helped to reduce its impact. This
has enabled us to deliver a resilient performance with only a
modest reduction in sales, a resilient margin and healthy cash
generation. With a strong balance sheet, low leverage and robust
liquidity, we have continued to pay our regular dividends, invest
in future organic growth and secure a technology-rich acquisition
in our fast-growing Life Sciences business.
"Despite current trading conditions remaining volatile, our
strategy is unchanged and, by focusing on the future during these
challenging times, we can accelerate delivery to enhance future
growth and profitability."
Further information:
An analyst presentation will be available via webcast at 0900
BST on 23 July 2020 on www.croda.com /investors. To participate,
please register in advance.
Investors: David Bishop, Croda +44 7823 874428
Press: Charlie Armitstead, Teneo +44 7703 330269
Sector financial summaries and definitions:
Half year ended 30 June
2020 % change % change 2019
Sales GBPm reported constant GBPm
rate rate
========================= ===== ========= ========= =====
Personal Care 226.7 (8.1) (9.5) 246.8
Life Sciences 182.9 (0.8) (1.7) 184.3
Performance Technologies 216.3 (4.6) (5.6) 226.8
========================= ===== ========= ========= =====
Core Business 625.9 (4.9) (6.0) 657.9
Industrial Chemicals 47.0 (17.3) (17.8) 56.8
========================= ===== ========= ========= =====
Group 672.9 (5.8) (6.9) 714.7
========================= ===== ========= ========= =====
Half year ended 30 June
2020 % change % change 2019
Adjusted profit(1) GBPm reported constant GBPm
rate rate
========================= ===== ========= ========= =====
Personal Care 68.9 (16.1) (16.6) 82.1
Life Sciences 59.4 5.3 7.4 56.4
Performance Technologies 32.7 (19.9) (19.6) 40.8
========================= ===== ========= ========= =====
Core Business 161.0 (10.2) (9.7) 179.3
Industrial Chemicals 0.6 500.0 500.0 0.1
========================= ===== ========= ========= =====
Operating profit 161.6 (9.9) (9.4) 179.4
Net interest (9.1) (3.4) (4.5) (8.8)
========================= ===== ========= ========= =====
Profit before tax 152.5 (10.6) (10.1) 170.6
========================= ===== ========= ========= =====
Negative percentage change denotes adverse movement, positive
percentage change denotes favourable movement
(1) Adjusted results are stated before exceptional items,
acquisition costs and amortisation of intangible assets arising on
acquisition, and tax thereon, and are adopted consistently. The
Board believes that the adjusted presentation 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.
(2) Reported currency results reflect current year performance
translated at actual average exchange rates. Constant currency (CC)
results 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 uses the entity reporting currency. For constant
currency sales, local currency rates are translated into the
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 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) Core Business comprises Personal Care, Life Sciences and
Performance Technologies.
(4) Return on sales is adjusted operating profit divided by
sales, at reported currency.
(5) Free cash flow is EBITDA less movements in working capital,
net capital expenditure, payment of lease liabilities, non-cash
pension expense, interest and tax payments.
Other non-statutory terms are defined in the "Alternative
performance measures" section of the Finance Review.
Croda International Plc
Group Performance Review
Adjusted results are stated before exceptional items,
acquisition costs and amortisation of intangible assets arising on
acquisition, and tax thereon. Constant currency results reflect
current year performance for existing business translated at the
prior year's average exchange rates. Alternative performance
measures are defined in the Finance Review.
Strong business model delivers a resilient performance
The strength of Croda's business model has been demonstrated
during the challenging market conditions created by the COVID-19
pandemic. Whilst customer demand has inevitably been impacted by
the crisis, the strength and breadth of our product portfolio
across consumer and industrial markets, our global footprint and
customer intimacy, together with our flexible, batch chemistry
manufacturing model have all helped to reduce its impact. This has
been reflected in Croda's resilient performance, with only a modest
reduction in sales, a resilient margin and healthy free cash
flow.
Our resilience has enabled us to maintain our focus on the
future at a time of industry uncertainty and to capitalise on the
emerging trends in our markets. With a strong balance sheet, low
leverage and robust liquidity, Croda has continued to invest in
capacity for future organic growth, secured a technology-rich
acquisition in our fast growing Life Sciences business, and
sustained our track record of paying regular dividends to
shareholders. Our strategy remains unchanged and, by focusing on
the future during these challenging times, we can accelerate our
strategic delivery to enhance future growth and profitability.
Our response to COVID-19
Our priorities during the COVID-19 crisis have been to protect
the health and safety of our employees and balance the needs of all
our stakeholders fairly. The response and commitment of all our
employees to maintain business continuity and serve our customers
has been exceptional. Almost all our employees have been able to
work effectively, either on site, with strict social distancing
measures in place, or from home. Over a third of our 35 global
laboratories remained open throughout the crisis and all our
research and development (R&D) locations have now returned to
operation, protecting our future innovation pipeline. We have not
furloughed employees, reduced pay or utilised government liquidity
facilities.
All our 19 principal manufacturing sites have remained in
operation, with only our Indian plant experiencing significant
restrictions due to lockdown. Raw material supply chains have
remained secure, with over 60% of our organic raw materials coming
from bio-based sources, mostly sourced from multiple suppliers. We
have supported our customers, suppliers and local communities; made
supplies of free materials available for hand sanitiser production,
COVID-19 vaccine research and PPE provision; and have given
financial assistance to the communities closest to our sites.
Through our actions, we aim to live up to our Purpose of using
Smart Science to Improve Lives(TM) .
Resilient first half performance
Core business sales fell by 6.0% in constant currency, and by
4.9% in reported currency, during the first half year, reflecting a
slowdown in demand, particularly in consumer markets. In reported
currency, Group sales were 5.8% lower at GBP672.9m (2019:
GBP714.7m). The first quarter saw a continuation of the improving
outlook noted at the 2019 full year results. With the spread of
COVID-19 lockdowns through February and March, demand remained
solid, with customers primarily focused on securing their own
supply chains through Croda. During the second quarter, demand
became more variable, exacerbated by the delay and retiming of
customer orders.
Consumer product markets responded more rapidly to lockdown than
our industrial end markets. As a result, Personal Care sales were
hardest hit, 9% lower in the half year in constant currency (8%
lower in reported currency). However, return on sales remained
resilient at over 30%, demonstrating the defensive nature of the
Personal Care business. Performance Technologies sales were 6%
lower in constant currency (5% lower in reported currency), with
slower industrial demand, particularly in the automotive market,
partly offset by increased demand in home care and packaging.
Return on sales was adversely impacted by lower volume and weaker
product mix. Life Sciences sales were only 2% lower in constant
currency (1% lower in reported currency), reflecting a limited
impact from COVID-19. Continued growth in target markets in Health
Care saw return on sales increase to over 32%, in line with our
strategy.
Lower volume and adverse product mix saw adjusted operating
profit 9.9% lower, and 9.4% lower in constant currency, at
GBP161.6m (2019: GBP179.4m). As a result, return on sales declined
to 24.0% (2019: 25.1%). Adjusted profit before tax was GBP152.5m
(2019: GBP170.6m) and adjusted basic earnings per share (EPS) were
88.8p (2019: 98.2p). This was a creditable performance in
challenging COVID-19 conditions.
After exceptional items, acquisition costs and amortisation of
intangible assets arising on acquisition totalling GBP7.6m (2019:
GBP4.4m), profit before tax on an IFRS basis was GBP144.9m (2019:
GBP166.2m), with basic EPS of 84.1p (2019: 95.6p). The prudent
leverage and dividend policy we have adopted for many years has
enabled us, after careful consideration of the position of all
stakeholders and treating all groups consistently and fairly, to
pay the 2019 final ordinary dividend of 50.5 pence per share and to
declare an unchanged interim dividend for 2020 of 39.5p (2019:
39.5p).
Continued investment in future growth
Cash generation remained healthy, with free cash flow of
GBP80.2m (2019: GBP94.5m). Encouragingly, there was no material
slowdown in customer payments. We have accelerated our capital
investment programme, continuing to build new capacity in growing
market niches within our core sectors and investing in digital and
R&D capabilities. Much of this capacity will be on stream to
serve potential recovery and growth in 2021 and beyond.
Alongside reinvesting to deliver this organic growth and
providing a regular dividend to shareholders, our priorities for
capital allocation are to acquire disruptive technologies and
operate with an appropriate balance sheet. The Life Sciences sector
presents an exciting opportunity to combine both superior organic
growth with acquisition opportunities. At the end of 2020 we expect
to commission a doubling of our capacity in speciality excipient
drug delivery systems, serving a market growing between 10 and 30%
annually. Building on this leading position, earlier this month we
announced an agreement to acquire Avanti Polar Lipids, Inc. for an
initial consideration of US$185m. Avanti is an industry leader in
drug delivery technologies, with lipids increasingly used for
complex therapeutic drugs and next generation mRNA vaccines. It is
an excellent partner for Croda's existing Health Care business,
more than doubling our R&D capability in drug delivery and
combining Avanti's leading position in early stage pharmaceutical
research with Croda's access to global markets and manufacturing
expertise. This will prove important to enhancing the capabilities
and performance of Croda's Life Sciences business.
Mixed regional performance as COVID-19 impact unfolded
The geographical pattern of the impact of lockdowns broadly
followed the pandemic's journey from East to West, with China being
hit hardest at the beginning of the year but rebounding quickly. As
a result, Core Business sales in the key North Asia region,
covering China, Japan and South Korea, rose by 4% across the half
year, and in Asia as a whole were flat. Widespread country
lockdowns in Europe saw consumer demand reduce significantly during
the second quarter, resulting in first half Core Business sales 7%
lower, albeit that June saw a progressive relaxation in country
restrictions.
By contrast, North America was more resilient, with consumer
demand less impacted and Core Business sales only 1% lower in the
first half, and signs of recovery later in the second quarter.
Market conditions weakened progressively in Latin America through
the second quarter, with Core Business sales 24% lower in the first
half, exacerbated by a strong comparator in Crop Care.
Sector performance led by further profit growth in Life
Sciences
The Life Sciences sector saw limited adverse impact from
COVID-19 and continued to perform well in the first half year. With
fewer prescriptions issued and delays to elective surgery during
the crisis, there was some impact on demand in Health Care, but
speciality excipients continued to see growth in this exciting
niche. There was no discernible impact from the crisis on Crop
Care, although delayed plantings in Latin America and a strong
prior year comparator resulted in lower first half year sales,
which should reverse in the second half year. Sector sales were
0.8% lower in reported currency (1.7% lower in constant currency)
at GBP182.9m (2019: GBP184.3m). With the continued growth in higher
value-add niches, adjusted operating profit increased by 5.3% (7.4%
in constant currency) to GBP59.4m (2019: GBP56.4m), improving
return on sales by 190 basis points to 32.5% (2019: 30.6%).
Personal Care was adversely impacted, particularly in Europe and
Latin America. Consumer retail data showed a decline of nearly 15%
in European second quarter sales, whilst the 'door-to-door'
consumer selling model prevalent amongst customers in Latin America
was hard hit by the need to maintain social distancing.
Encouragingly, sales in North Asia recovered to be close to flat
across the first half as a whole, and consumer sales in North
America held up better than Europe. Overall, the use of 'at home'
products has been more resilient than those associated with 'going
out'. Skin care product usage is also typically resilient but was
impacted by disruption to consumer sales channels, including
luxury, travel and department stores. Sector sales were 8.1% lower
in reported currency (9.5% in constant currency) at GBP226.7m
(2019: GBP246.8m). Adjusted operating profit reduced to GBP68.9m
(2019: GBP82.1m). Despite the lower volume and a mix impact from a
higher proportion of sales of heritage 'at home' Beauty Formulation
ingredients, return on sales remained resilient at 30.4% (2019:
33.3%) and we expect this to improve again as sales recover.
In Performance Technologies, customers ended 2019 with low
inventories and focused on securing their supply chains in early
2020. Industrial demand subsequently slowed during the second
quarter, particularly in the automotive sector, partially offset by
stronger sales of speciality ingredients for the home care and
packaging markets. Sector sales were 4.6% lower in reported
currency (5.6% lower in constant currency) at GBP216.3m (2019:
GBP226.8m). Adjusted operating profit reduced to GBP32.7m (2019:
GBP40.8m), reflecting the impact of lower sales, higher operating
leverage and lower production volume. This had a significant impact
on return on sales which reduced to 15.1% (2019: 18.0%).
Accelerating our strategy delivery
In 2019 we adopted a new Purpose, to use our Smart Science to
Improve Lives(TM) . Our ambition is to be the most sustainable
supplier of innovative ingredients, creating, making and delivering
solutions to tackle some of the biggest challenges the world faces.
By 2030 we will be Climate, Land and People Positive; that is, the
impact that Croda has in these three key area of sustainability
will be net positive to the planet. COVID-19 may be the challenge
of 2020 but creating a sustainable future remains our long-term
challenge.
Building on our Purpose, our strategy is to deliver:
-- Growth - consistent top and bottom line growth, with profit
growing ahead of sales, ahead of volume;
-- Innovation - increasing the proportion of New and Protected
Products (NPP) that we sell; and
-- Sustainability - aligning our business with our Purpose and
accelerating our customers' transition to sustainable
ingredients.
2020 has so far proved a challenging year to deliver strategic
progress. To date, growth has been broadly absent as markets have
been impacted by COVID-19, reflected in our 6% decline in reported
currency sales. Many innovation projects were also temporarily
paused during lockdown. The proportion of our sales from NPP
products was lower than prior year at 27.2% (2019: 28.3%). We do
not expect there to be an impact on the medium-term innovation
pipeline, with both our customers' and our R&D teams again
operating from site. Our 35 customer innovation centres will be
supplemented by major new centres under construction in Shanghai
and the US, together with more than 100 active research projects in
our network of 500 open innovation partners. Recent technology
acquisitions continue to evolve; in the area of marine
biotechnology, Nautilus Biosciences, acquired in 2018, is using
high throughput robotics to screen its library of microbial
extracts for potential anti-viral activity against coronaviruses.
We have also continued to drive forward our transition to
sustainability, developing decarbonisation roadmaps for our top ten
carbon-emitting sites during the first half year. In recognition of
Croda's leading position, we were awarded a Triple A ESG rating by
the leading agency MSCI.
As our strategy remains unchanged, so too do the drivers behind
this strategy. Global population growth is driving crop
consumption, an ageing population is seeking better health and
well-being, technology is transforming the way we live and
interact, and climate change is demanding clean, renewable
solutions. With our resilient business model and strong balance
sheet to support us, we have focused on accelerating key elements
of our strategy delivery, making bolder steps that capitalise on
the current environment, planning ahead to enhance future growth
and profitability.
Our key sector priorities are to:
-- Expand to Grow Life Sciences. With its growing margin and
exciting technologies aligned to global health and food
sustainability trends, we continue to build our Life Sciences brand
as a high value-add solution provider to our pharmaceutical and
crop customers. We have accelerated investment in Life Sciences
with organic expansion of our speciality excipients business and
the acquisition of adjacent technologies to build a broad drug
delivery business of global scale. We expect to complete our
acquisition of Avanti during the third quarter, adding proprietary
lipid technology, which increases the efficacy and safety of
complex therapeutic drugs, to Croda's capabilities in drug delivery
systems. Alongside improving sales from our recent vaccine adjuvant
acquisition, Biosector, and strong R&D relationships in Crop
Care, we expect to continue to grow sales and increase the margin
in Life Sciences over the medium term;
-- Strengthen to Grow Personal Care. COVID-19 does not appear to
have changed the key market trends, which are driven by an ageing
population, improved well-being and demand for sustainable
products. As the leading global innovator, Croda will continue to
scale its industry-leading Beauty Actives business, broaden the
product portfolio in Beauty Effects and continue to reinvent the
Beauty Formulation category. In the first half year, we
successfully expanded our digital reach to locked-down customers,
enhanced ingredient transparency for sustainable ingredients, and
continued to develop new technologies and partnerships, such as our
minority investment in novel personal care device innovator,
Cutitronics. Despite short-term challenges, we expect to restore
good top line growth and retain our excellent margin in Personal
Care over the medium term; and
-- Refine to Grow Performance Technologies. We are refining
Performance Technologies to focus on high-tech markets and reduce
exposure to cyclical business. The first half year saw progress in
meeting demands for sustainable solutions in advanced technologies,
with the launch of new customer products using our protein-based
solutions in fabric conditioners and our first customers in home
care for sustainable surfactants. We are expanding our geographic
footprint, creating a major new R&D facility in Shanghai. We
continue to reduce our business in oil and gas and traditional
automotive applications, focusing on fast growth markets in
electric vehicles and other renewable technologies. We expect to
progressively overcome the cyclical nature of this business and to
deliver modest sales growth at an improved margin in Performance
Technologies over the medium term.
Alongside these sector priorities, investment continues to
deliver an outstanding customer experience digitally, complementing
Croda's successful traditional customer intimacy model. During
lockdown, with few customer visits possible, we provided
self-service product information to customers, instant connection
to industry experts and tailored, insight-driven help. This
resulted in 67% more 'live chat' interactions and 12% more website
visits in the second quarter compared to the first quarter,
together with a 400% increase in digital webinar participants
compared to the same period in 2019. A digital selling office has
been piloted in the US, nurturing and managing new and existing
customers entirely digitally, and is now being rolled out to 13
global locations.
Other strategic priorities include continued investment to "fast
grow" in Asia, more proactive M&A and scaling our recent
investments in new technologies, such as biotech. We are also
focused on organic expansion at our key manufacturing sites. In the
first half year, these investments included expansion of our sales,
marketing, technical and digital resource in China, negotiating the
Avanti acquisition and capital expenditure of over GBP50m in
projects to bring new manufacturing, R&D and customer service
capacity on stream for 2021 and 2022.
The North American biosurfactant plant came online early in
2020. Following a successful commissioning phase, the plant is now
producing the majority of our US feedstock demand, allowing
replacement of traditional petrochemical surfactants with our ECO
range of bio-based products, which deliver identical performance
from sustainable ingredients for the first time. To date, two
multinationals in the homecare market and one in the personal care
market have adopted these bio-based surfactants and the pipeline
for future annual sales of ECO products is close to US$20m.
COVID-19 has adversely impacted short-term economics, with
sanitiser-grade bioethanol in short supply, resulting in a high raw
material price. We expect to be able to move to a cheaper
feedstock, following plant trials in the second half year, but
costs will be around US$10 million higher in 2020 as a result.
Protecting our people and the communities in which we operate is
critical to Croda. In the first half of 2020 our good process
safety performance was sustained, with no serious incidents or any
with major accident potential. Our personal injury performance also
continued to improve, ahead of target with a Total Recordable
Injury Rate (TRIR) of 0.46 (2019: 0.60).
Outlook
Following a challenging second quarter, trading has stabilised
but visibility is limited and the timing of recovery remains
unclear. Life Sciences will benefit from the phasing of Crop Care
sales and continued opportunities in Health Care. We anticipate
consumer markets significantly impacted by lockdowns to recover
more quickly than industrial end markets. We expect Group margin
and cash generation to remain robust.
Croda has a strong business model, low leverage and robust
liquidity and we will continue to accelerate key elements of our
strategy to drive growth. This underpins our confidence and we
expect to continue to generate value for all our stakeholders, with
high quality sales growth at industry-leading margins and strong
cash generation.
Finance Review
Currency
The impact of currency translation was limited in the first half
year, slightly benefitting sales but marginally adverse on profit
translation. The average rates against the Group's key currencies
were US$1.261 (2019: US$1.294) and EUR1.145 (2019: EUR1.145).
Sales in reported currency reduced by 5.8% to GBP672.9m (2019:
GBP714.7m). Constant currency sales fell by 6.9%.
Sales GBPm %
=============================== ====== =====
2019 reported 714.7
Underlying growth (49.6) (6.9)
Impact of acquisitions 0.2 -
=============================== ====== =====
2020 constant currency 665.3 (6.9)
Impact of currency translation 7.6 1.1
=============================== ====== =====
2020 reported 672.9 (5.8)
=============================== ====== =====
In the Core Business, constant currency sales reduced by 6.0%.
Volume was 2% lower, reflecting reduced demand during the COVID-19
period. Price/mix reduced by 4%, reflecting adverse raw material
pricing and weaker product mix. Sales fell in all three
sectors.
Sales at constant currency % growth
=========================== ========
Personal Care (9.5)
Life Sciences (1.7)
Performance Technologies (5.6)
=========================== ========
Core Business (6.0)
Industrial Chemicals (17.8)
=========================== ========
Group (6.9)
=========================== ========
Adjusted profit
Adjusted operating profit decreased by 9.9% in reported currency
to GBP161.6m (2019: GBP179.4m). Operating costs reduced, with the
benefit of cost savings delivered at the end of 2019 and lower
discretionary spend during the first half of 2020. These operating
cost savings were partially offset by the start-up of the new North
American biosurfactant plant in the early part of the year.
Half year (reported
rates)
Restated
2020 2019
GBPm GBPm
=========================== ========= ==========
Sales 672.9 714.7
Cost of sales (362.4) (385.3)
=========================== ========= ==========
Gross profit 310.5 329.4
Adjusted operating costs (148.9) (150.0)
=========================== ========= ==========
Adjusted operating profit 161.6 179.4
Net interest charge (9.1) (8.8)
=========================== ========= ==========
Adjusted profit before tax 152.5 170.6
=========================== ========= ==========
The classification of cost of sales and administrative expenses
within the Income Statement has been revised to align more closely
with the Group's inventory valuation policy and market practice. As
a result, first half year 2019 comparative operating costs have
been increased by GBP60.7m, with a corresponding reduction in cost
of sales.
Adjusted operating profit declined by 9.4% in constant currency,
primarily reflecting the lower sales. With lower volume and a
weaker product mix, return on sales reduced to 24.0% (2019: 25.1%),
reflecting Croda's resilient operating model.
Adjusted operating profit GBPm %
=============================== ====== =====
2019 reported 179.4
Underlying growth (16.9) (9.4)
Impact of acquisitions - -
=============================== ====== =====
2020 constant currency 162.5 (9.4)
Impact of currency translation (0.9) (0.5)
=============================== ====== =====
2020 reported 161.6 (9.9)
=============================== ====== =====
This lower margin reflected the impact of adverse product mix in
Personal Care, as Beauty Formulation's 'at home' use products held
up better during the lockdown than the higher value-add Beauty
Actives and Effects, together with the impact of lower sales,
weaker product mix and lower production output in Performance
Technologies. Life Sciences margin improved, reflecting increased
volume in high value-add Health Care sales.
Half year
Half year 2020 2019
Reported Constant Reported
rates rates rates
Adjusted operating profit GBPm GBPm GBPm
========================== ======== ======== =========
Personal Care 68.9 68.5 82.1
Life Sciences 59.4 60.6 56.4
Performance Technologies 32.7 32.8 40.8
========================== ======== ======== =========
Core Business 161.0 161.9 179.3
Industrial Chemicals 0.6 0.6 0.1
========================== ======== ======== =========
Group 161.6 162.5 179.4
========================== ======== ======== =========
The net interest charge was broadly unchanged at GBP9.1m (2019:
GBP8.8m) in reported currency, with the impact of higher net debt
following the payment of the special dividend in May 2019 and an
increase in committed facility headroom following the refinancing
of the Group's debt facilities in the second half of 2019, mostly
offset by lower interest rates. Adjusted profit before tax reduced
to GBP152.5m (2019: GBP170.6m).
The effective tax rate was broadly flat at 25.0% (2019: 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 in reported currency was GBP114.4m (2019:
GBP128.3m). Adjusted basic earnings per share (EPS) decreased to
88.8p (2019: 98.2p).
IFRS profit
IFRS profit is measured after exceptional items, acquisition
costs and amortisation of intangible assets arising on acquisition,
whereas the adjusted results are presented excluding these items.
The charge for these adjusting items before tax was GBP7.6m (2019:
GBP4.4m). Acquisition costs were GBP1.0m (2019: GBP0.1m), the
charge for amortisation of intangible assets was GBP4.9m (2019:
GBP4.3m) and the charge for exceptional items was GBP1.7m (2019:
GBPnil), reflecting the delivery of the cost saving actions
announced in the 2019 full year results. All items associated with
delivering the cost savings have been presented as exceptional by
virtue of their nature and for consistency across reporting
periods. Profit before tax on an IFRS basis was GBP144.9m (2019:
GBP166.2m), the profit after tax on an IFRS basis was GBP108.3m
(2019: GBP124.8m) and basic EPS were 84.1p (2019: 95.6p).
Half year ended
30 June
2020 2019
Income statement GBPm GBPm
=================================================== ======== =======
Adjusted profit before tax 152.5 170.6
Exceptional items, acquisition costs & intangibles (7.6) (4.4)
=================================================== ======== =======
Profit before tax (IFRS) 144.9 166.2
Tax (36.6) (41.4)
=================================================== ======== =======
Profit after tax (IFRS) 108.3 124.8
=================================================== ======== =======
Cash management
With our strong profit and cash generating model and a limited
adverse impact from COVID-19, Croda has continued to invest in
future growth. Net capital expenditure accelerated to GBP50.9m
(2019: GBP41.5m) with investments including capacity expansion in
Health Care in the US and Japan, greater digital and innovation
capability in China, a major new customer service and R&D
facility in the US, expansion of our vaccine adjuvant facility in
Denmark and increased capacity to meet future global demand growth
on our key European plants. Working capital control remained good,
with no adverse impact of COVID-19 on customer receivables. Free
cash flow reduced slightly to GBP80.2m (2019: GBP94.5m), reflecting
reduced EBITDA and higher investment.
Half year ended
30 June
2020 2019
Cash flow GBPm GBPm
========================================== ======= ========
Adjusted operating profit 161.6 179.4
Depreciation and amortisation 31.8 30.5
========================================== ======= ========
EBITDA 193.4 209.9
Working capital (13.5) (27.9)
Net capital expenditure (50.9) (41.5)
Payment of lease liabilities (4.9) (4.3)
Non-cash pension expense 4.3 1.5
Interest & tax (48.2) (43.2)
========================================== ======= ========
Free cash flow 80.2 94.5
Dividends (65.0) (216.1)
Acquisitions - 0.3
Other cash movements (12.4) (8.9)
========================================== ======= ========
Net cash flow 2.8 (130.2)
========================================== ======= ========
Net movement in borrowings (17.1) 151.3
========================================== ======= ========
Net movement in cash and cash equivalents (14.3) 21.1
========================================== ======= ========
Net debt and liquidity
After currency translation and including new leases (primarily
the new US customer service centre), net debt increased to
GBP577.1m (31 December 2019: GBP547.7m). The Group has a strong
balance sheet, having completed its debt refinancing in 2019, with
no material debt maturities falling due before 2023. As at 30 June
2020, the Group had committed funding in place of GBP1,090m, with
undrawn long-term committed facilities (net of overdrafts) of
GBP448.2m, GBP61.1m in cash and a leverage ratio of 1.5 times net
debt to EBITDA (31 December 2019: 1.4x), compared to a covenant
maximum of 3.5x, measured semi-annually.
We have reviewed the liquidity and covenant forecasts for the
Group, which have been updated for the expected impact of COVID-19
on trading activities. We have also considered sensitivities in
respect of potential downside scenarios and the mitigating actions
available. These sensitivities include a severe but plausible
downside scenario for the impact of COVID-19, which is materially
worse than our experience of the crisis to date, alongside an
additional scenario considered to be severe but remote. Relative to
a base case scenario, the sensitivities assume increasingly
pessimistic outlooks for global demand, coupled with slower
economic recoveries. In both downside scenarios, demand remains
significantly below 2019 levels throughout the remainder of 2020
and all of 2021. Furthermore, the downside scenarios assume a
material increase in working capital, due to inventory build and
higher customer receivables, and substantial margin erosion. This
evaluation shows that, in both the downside scenarios, the Group
continues to have robust liquidity and financial covenant
headroom.
Post balance sheet event
Following the half year period, the Group signed an agreement to
acquire Avanti Polar Lipids, Inc. for an initial consideration of
US$185m and a potential earn-out of up to US$75m. This acquisition
will be funded from a US$200m unsecured, committed three-year term
loan, with financial covenant requirements consistent with the
Group's existing facilities, provided by some of the Group's core
relationship banks. Therefore, combined with Avanti's cash
generation, the acquisition will have a limited impact on Croda's
leverage and no material impact on its liquidity. The transaction
is expected to close during the third quarter of 2020 and had no
impact on the first half year financial statements.
Capital allocation
Croda has operated for many years with a prudent leverage and
dividend distribution policy. This enabled the Board, after careful
consideration of all stakeholders and treating all groups
consistently and fairly, to pay the final 2019 ordinary dividend of
50.5 pence per share (GBP65.0m). In addition, given the resilience
of the business model during the COVID-19 pandemic to date, Croda
will pay an unchanged interim dividend of 39.5p (2019: 39.5p) in
October 2020.
The Group's capital allocation policy remains to:
1. Reinvest for growth - invest in organic capital expenditure
to drive shareholder value creation through new capacity, product
innovation and expansion in attractive geographic markets to drive
sales and profit growth;
2. Provide regular returns to shareholders - pay a regular
dividend to shareholders, representing 40 to 50% of adjusted
earnings over the business cycle;
3. Acquire disruptive technologies - to supplement organic
growth, continue to target a number of exciting technology
acquisitions in existing and adjacent markets, with a focus on
strengthening our Personal Care business and expanding in Life
Sciences. The Avanti acquisition is expected to significantly
expand our Health Care position in drug delivery capabilities;
and
4. Maintain an appropriate balance sheet and return excess
capital - maintain an appropriate balance sheet to meet future
investment and trading requirements, targeting leverage of 1.0 to
1.5x (excluding retirement benefit schemes) over the medium term
cycle and moving above this range where appropriate. We consider
returning excess capital to shareholders when leverage falls below
our target range and sufficient capital is available to meet our
investment opportunities, having returned over GBP150m through a
special dividend in 2019.
Brexit update
During the current transition period under the UK-EU Withdrawal
Agreement , we have continued with our contingency planning for
different Brexit scenarios after 2020. With 96% of sales and 84% of
production outside the UK, the overall impact on Croda is expected
to be relatively limited, with our focus on ensuring our ability to
offer continuity of service and supply to our customers. This
involves preparing changes to our European trading model, customer
service and supply chains, and moving to new regulatory
frameworks.
Retirement benefits
The post-tax deficit on retirement benefit plans, measured on an
accounting valuation basis under IAS19, decreased at 30 June 2020
to GBP16.4m (2019: GBP43.3m), largely due to good returns on
assets. Cash funding of the various plans is driven by the schemes'
ongoing actuarial valuations. No deficit funding payments are
currently required to the largest pension plan, the UK Croda
Pension Scheme, with the next valuation due at 30 September
2020.
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 lease
liabilities;
-- Leverage ratio: 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, payment of lease liabilities,
non-cash pension expense, and interest and tax payments.
Sector Performance Review
Personal Care impacted by consumer lockdown
Following a solid first quarter, which saw continued recovery in
the North America market in particular, the personal care and
beauty industry was significantly affected by COVID-19 lockdowns.
China was impacted in the early part of the year but rebounded
quickly, with good demand from local brands, and overall sales in
North Asia broadly flat across the first half as a whole. With the
near closure of the French cosmetic industry for several weeks and
disruption to consumer sales channels globally in luxury, travel
and department stores, Europe was significantly impacted, with
consumer retail data showing a decline in sales of close to 15% in
the second quarter. Latin America was also heavily impacted by the
difficulties of a direct-to-doorstep consumer distribution model
during social distancing. North America was less affected, with
consumer sales data showing a more resilient performance apart from
in the cosmetics and sun care markets.
For the first half year, sales declined by 9.5% and adjusted
operating profit by 16.6%, both in constant currency. Sales/price
mix declined by 3%, reflecting a weaker product mix, with volume 6%
lower. In reported currency, sales were 8.1% lower at GBP226.7m
(2019: GBP246.8m) and adjusted operating profit was GBP68.9m (2019:
GBP82.1m). Return on sales reduced to 30.4% (2019: 33.3%),
reflecting the adverse product mix and lower volume, which we
expect to recover when sales growth returns. IFRS operating profit
was GBP67.8m (2019: GBP81.8m).
Across the three business units, Beauty Formulation, with its
heritage ingredient portfolio used in 'at home' products, was less
impacted. The smallest business, Beauty Effects, was hardest hit,
given its exposure to 'going out' products, such as solar
protection and cosmetics. Disruption to consumer distribution
channels adversely impacted Beauty Actives, but consumer usage of
skin care products is likely to have remained resilient, with Boots
reporting a record customer waitlist ahead of the launch of its No7
Advanced Retinol 1.5% Complex Night Concentrate containing Croda's
Matrixyl(R) 3000+. We retained our customer portfolio and
benefitted from new orders, due to the robustness and
responsiveness of our close-to-customer supply chain, particularly
where competitors faced supply delays.
The drivers behind Personal Care's 'Strengthen to Grow' strategy
remain unchanged. Building on its presence in every major market,
strong innovation pipeline and sector-leading margin, future growth
will be driven by an ageing population, improved well-being,
greater use of digitalisation, continued market fragmentation
amongst our customers and the acceleration in demand for
sustainable consumer products. Beauty Actives continued its
industry-leading innovation and biotechnology expansion in the
first half year, including the launch of Synchrolife(TM) from
Sederma, which is of certified natural origin and counteracts the
harmful effects of digital pollution, particularly relevant to
consumers doing more work from home. Reflecting similar
characteristics to this, Beauty Effects continues to broaden its
product range to meet sustainable and lifestyle needs through
organic innovation and partnerships, including Keramatch(TM) V, a
vegan alternative to keratin to improve damaged hair. Beauty
Formulation continues to reinvent its business, developing new
points of differentiation; the first half year saw the launch of
waterless formulations and the ECO range of sustainable bio-based
surfactants which are expected to lead to new sales from 2021.
Digital engagement with customers has been a key driver. The
first half year saw the continued roll out of 'live chat' across
Asia, in addition to North America and Europe, resulting in a 50%
increase in leads and webinars on more than 30 topics, with one
fifth of delegates subsequently requesting samples. We are also
providing enhanced ingredient transparency data to customers, to
respond to growing consumer demand for sustainable ingredients and
'clean beauty'. The innovation pipeline remains robust, with NPP
products representing 42% (2019: 43%) of total sector sales.
Continued margin expansion in Life Sciences
Life Sciences has seen limited impact from COVID-19. Health Care
demand has been modestly affected, with fewer prescriptions being
issued and delays to elective surgery. There has been no
discernible impact from the crisis on Crop Protection, whilst the
adjacent market of Seed Treatment has seen some impact on reduced
demand for vegetables due to restaurant closures. Demand for
speciality excipients and vaccine adjuvants resulted in overall
first half year growth in Health Care, whilst sales in Crop Care
were behind a tough comparator period.
Across the first half year, sales in Life Sciences were close to
flat whilst profit improved. Sales fell by 1.7% on a constant
currency basis but adjusted operating profit was 7.4% higher.
Volume grew by 2% while price/mix was 4% lower, reflecting a lower
share of Crop Protection sales due to in-year phasing. In reported
currency, sales were 0.8% lower at GBP182.9m (2019: GBP184.3m) with
adjusted operating profit up 5.3% to GBP59.4m (2019: GBP56.4m).
Reported return on sales continued to strengthen to 32.5% (2019:
30.6%), reflecting the sector's continued migration to higher
value-add technologies, an improved vaccine adjuvant performance
and reduced Plant Impact loss. IFRS operating profit was GBP54.8m
(2019: GBP53.1m). NPP sales accounted for 26.1% of total sales
(2019: 28.7%), reflecting the timing of Crop Protection sales
between the first and second half years.
In Health Care, the COVID-19 crisis is accelerating our progress
in building a broad drug delivery business, as pharmaceutical
customers look for high quality products supported by
well-invested, stable and innovative partners. Our speciality
excipients and adjuvants are being trialled in a number of COVID-19
related projects. With the continued growth in parenteral,
biologic-based drugs and the requirements for speciality delivery
systems to stabilise complex molecule formulations, the first half
year saw double digit percentage growth in pharmaceutical
excipients sales. We are continuing to build on our leading
position in this niche market by launching new speciality
excipients, adding sales and technical resource in Asia, and
through organic investment to double manufacturing capacity in the
US.
Similarly, with seven out of ten vaccines including adjuvants in
their formulations to help trigger the immune response, the market
for adjuvants is growing. We acquired Biosector at the end of 2018
to access this market and are now a leading supplier of safe and
effective vaccine adjuvants, manufactured in the only aseptic and
GMP-compliant facility in the world. After an initial period of
lower sales due to customer destocking post the acquisition and
lower animal vaccine demand due to African Swine Fever, sales are
growing and benefitting from integration into the Croda selling
network.
Crop Protection first half sales were lower against a strong
comparator period (which had benefitted from early Latin America
crop treatments). This was due to adverse weather which delayed
planting in Latin America, expected to be recovered in the second
half year, and voluntary withdrawal from products with a negative
environmental footprint. North America recovered from the impact of
last year's China trade dispute and our Asia footprint continued to
expand. The first half year saw continued development with our crop
science multinational customers and the launch of Hydravance(TM)
200 to retain moisture in the soil and Atplus(TM) DRT-EPS to reduce
pesticide drift by controlling droplet size and ensuring better
delivery to the crop. The integration of the Plant Impact
biostimulants business continued, including more field trials to
create future sales.
Whilst the first half year is seasonally quieter for Seed
Enhancement, sales performance was good, with sustainability a key
driver behind our launch of patented DISCO(TM) technology to create
coatings for seeds that are free of microplastics. The period also
saw the first sales of PaddyRise(TM) , our rice seed coating
technology.
Life Sciences' 'Expand to Grow' strategy continues to be
delivered both organically and through acquisition, driven by the
need to address environmental and social requirements, increasing
technology demands of complex drug and crop actives, and the demand
for increased crop yields through more sustainable treatments. We
are supplementing organic growth with the acquisition of adjacent
businesses in Crop Care, such as Incotec and Plant Impact. In
Health Care, we acquired Biosector vaccine adjuvants in December
2018, and in July 2020 announced the addition of Avanti, a leader
in lipid technology that is increasingly being used in
next-generation drug delivery and vaccines. Through this
acquisition we will significantly enhance our presence across the
pharmaceutical product lifecycle, including early stage R&D,
clinical trials, analysis and formulation, adding an exciting drug
delivery technology to our fast-growing platform for healthcare
excipients.
Limited sales impact in Performance Technologies
After a weak 2019, Performance Technologies experienced a steady
recovery in demand during the first quarter. Customers initially
moved to secure inventory in the supply chain as COVID-19
developed. With significant closures of automotive and industrial
plants, sales progressively weakened during the second quarter.
This general weakness in industrial demand was partially offset by
strong sales into the hygiene market, as cleaning became the 'new
health care', and in packaging markets, driven by greater
protection of products from contamination.
First half year sales declined by 5.6% and adjusted operating
profit by 19.6% in constant currency. Price/mix declined by 4%,
reflecting lower raw material prices and more tactical business
being secured in volatile market conditions, limiting the volume
decline to 2%. In reported currency, sales declined by 4.6% to
GBP216.3m (2019: GBP226.8m) and adjusted operating profit fell to
GBP32.7m (2019: GBP40.8m). Return on sales decreased to 15.1%
(2019: 18.0%), due to the higher operating leverage in this sector
and from lower production at our sites in Europe and India. IFRS
operating profit was GBP30.9m (2019: GBP40.0m). NPP sales reduced
to 17.4% of total sales (2019: 19.4%) due to an increase in
tactical business sales.
The Smart Materials business was relatively resilient, with
polymer additives being used in many COVID-19 applications
including PPE, medical devices, tapes and packaging. The first half
year saw the launch of Ionphase trSTAT(TM) which controls static to
avoid contamination in transparent plastic products. The Energy
Technologies business was significantly impacted by lower lubricant
demand in the automotive market and for flow control additives in
oil and gas production. By contrast, the Home, Fabric & Water
business grew strongly, reflecting COVID-19 demand, as well as
increased sales of Coltide Radiance(TM) , a protein-based
technology that doubles the life of fabrics, and sales of ECO
products from our new biosurfactants plant.
Performance Technologies' 'Refine to Grow' strategy will reduce
exposure to more cyclical markets. This recognises the
opportunities to grow in high-tech, higher growth markets and a
drive to increase 'knowledge intensity' and deploy capital more
selectively. We will continue to refine the product portfolio,
focus on fast growing markets where we have technical competence
and digital capability, develop the geographic footprint,
especially in Asia, and leverage the sector's strong sustainability
credentials to meet customers' product development needs. With
sustainability a key driver for Performance Technologies, we are
working with global manufacturers to enhance drivetrain lubrication
in electric vehicles. We launched Hypermer Volt 4000(TM) , a
conductive carbon dispersant that improves battery capacity to meet
electrification challenges across a range of industries. Rewitec,
which we acquired last year and whose lubricant additives repair
damage and extend the life of wind turbines, has been integrated
into the Croda direct selling model, increasing our capabilities in
this fast-growing market. A new China innovation and technical
centre will open in Shanghai later this year.
Industrial Chemicals
We continue to reduce sales of low value co-product and tolling
products. As a result, constant currency sales declined by 17.8%.
In reported currency, sales were GBP47.0m (2019: GBP56.8m) and
adjusted operating profit was GBP0.6m (2019: GBP0.1m). IFRS
operating profit was GBP0.5m (2019: GBP0.1m).
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 2019. There have been no changes in the Group's principal
risks and uncertainties, risk management processes or policies
since the year end, other than an increased recognition of the
impact of pandemics. The risk of pandemic was already recognised in
our risk register, although it was rated as having high impact/low
likelihood and therefore did not feature in our principal
risks.
Related party transactions during the period are set out in note
11.
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 2020 were as
follows (a list of current Directors is maintained on the Croda
website: www.croda.com):
Anita Frew (Chair)
Steve Foots (Group Chief Executive)
Roberto Cirillo
Jacqui Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden
John Ramsay
By order of the Board
Steve Foots Jez Maiden
Group Chief Executive Group Finance Director
Independent 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 2020 which comprises the Group condensed
interim income statement, Group condensed interim statement of
comprehensive income, 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 2020 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 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 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 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
Leeds LS1 4DA
22 July 2020
Croda International Plc
Interim announcement of trading results for the six months ended
30 June 2020
Group Condensed Interim Income Statement
First half 2019 Full year 2019 (restated
First half 2020 (restated ) )
Reported Reported Reported
Adjusted Adjustments Total Adjusted Adjustments Total Adjusted Adjustments Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Revenue 2 672.9 - 672.9 714.7 - 714.7 1,377.7 - 1,377.7
Cost of sales (362.4) - (362.4) (385.3) - (385.3) (746.5) - (746.5)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Gross profit 310.5 - 310.5 329.4 - 329.4 631.2 - 631.2
Operating costs (148.9) (7.6) (156.5) (150.0) (4.4) (154.4) (291.5) (19.8) (311.3)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Operating profit 2 161.6 (7.6) 154.0 179.4 (4.4) 175.0 339.7 (19.8) 319.9
Financial costs 3 (9.2) - (9.2) (9.1) - (9.1) (18.5) - (18.5)
Financial income 3 0.1 - 0.1 0.3 - 0.3 0.9 - 0.9
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Profit before
tax 152.5 (7.6) 144.9 170.6 (4.4) 166.2 322.1 (19.8) 302.3
Tax (38.1) 1.5 (36.6) (42.3) 0.9 (41.4) (82.4) 3.9 (78.5)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Profit after tax
for the period 114.4 (6.1) 108.3 128.3 (3.5) 124.8 239.7 (15.9) 223.8
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Attributable to:
Non-controlling
interests 0.1 - 0.1 - - - (0.1) - (0.1)
Owners of the
parent 114.3 (6.1) 108.2 128.3 (3.5) 124.8 239.8 (15.9) 223.9
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
114.4 (6.1) 108.3 128.3 (3.5) 124.8 239.7 (15.9) 223.8
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Adjustments relate to exceptional items, acquisition costs,
amortisation of intangible assets arising on acquisition and the
tax thereon.
The classification of cost of sales and administrative expenses
in the Income Statement has been revised (see note 1c). First half
2019 comparative operating costs have been increased by GBP60.7m
(2019 full year: GBP119.0m increase), with a corresponding
reduction in cost of sales.
Pence Pence Pence Pence Pence Pence
Reported Reported Reported
Adjusted Total Adjusted Total Adjusted Total
==================== ========= ========= ========= ========= ========= =========
Earnings per 10.61p
ordinary share
Basic 88.8 84.1 98.2 95.6 185.0 172.8
Diluted 88.7 84.0 97.9 95.3 184.6 172.4
Ordinary dividends
paid in the period
Interim 4 - - 39.50
Final 4 50.50 49.00 49.00
Special 4 - 115.00 115.00
==================== ========= ========= ========= ========= ========= =========
Group Condensed Interim Statement of Comprehensive Income
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
====================================================== ====== ====== ======
Profit after tax for the period 108.3 124.8 223.8
Other comprehensive income/(expense):
Items that will not be reclassified subsequently
to profit or loss:
Remeasurements of post-retirement benefit obligations 58.7 (36.0) (56.5)
Tax on items that will not be reclassified (9.9) 6.3 8.4
====================================================== ====== ====== ======
48.8 (29.7) (48.1)
====================================================== ====== ====== ======
Items that may be reclassified subsequently to profit
or loss:
Currency translation 30.4 (1.5) (34.7)
====================================================== ====== ====== ======
Other comprehensive income/(expense) for the period 79.2 (31.2) (82.8)
====================================================== ====== ====== ======
Total comprehensive income for the period 187.5 93.6 141.0
====================================================== ====== ====== ======
Attributable to:
Non-controlling interests 0.5 - (0.5)
Owners of the parent 187.0 93.6 141.5
====================================================== ====== ====== ======
187.5 93.6 141.0
====================================================== ====== ====== ======
Arising from:
Continuing operations 187.5 93.6 141.0
====================================================== ====== ====== ======
Group Condensed Interim Balance Sheet
At At
30 June 31 December
2020 2019
Note GBPm GBPm
============================================ ==== ======== ============
Assets
Non-current assets
Intangible assets 456.6 445.3
Property, plant and equipment 5 865.4 805.2
Right of use assets 6 61.0 46.2
Investments 4.2 4.7
Deferred tax assets 11.6 11.8
Retirement benefit assets 31.6 10.2
============================================ ==== ======== ============
1,430.4 1,323.4
============================================ ==== ======== ============
Current assets
Inventories 294.0 268.9
Trade and other receivables 228.8 216.8
Cash and cash equivalents 61.1 81.9
============================================ ==== ======== ============
583.9 567.6
============================================ ==== ======== ============
Liabilities
Current liabilities
Trade and other payables (185.6) (163.9)
Borrowings and other financial liabilities (21.1) (109.5)
Lease liabilities (7.7) (7.8)
Provisions 8 (7.8) (10.9)
Current tax liabilities (33.4) (44.3)
============================================ ==== ======== ============
(255.6) (336.4)
============================================ ==== ======== ============
Net current assets 328.3 231.2
============================================ ==== ======== ============
Non-current liabilities
Borrowings and other financial liabilities (558.4) (476.6)
Lease liabilities (51.0) (35.7)
Other payables (1.0) (0.8)
Retirement benefit liabilities 8 (54.2) (85.2)
Provisions 8 (5.4) (5.3)
Deferred tax liabilities (105.7) (82.4)
============================================ ==== ======== ============
(775.7) (686.0)
============================================ ==== ======== ============
Net assets 983.0 868.6
============================================ ==== ======== ============
Equity attributable to owners of the parent 975.5 861.6
Non-controlling interests in equity 7.5 7.0
============================================ ==== ======== ============
Total equity 983.0 868.6
============================================ ==== ======== ============
Group Condensed Interim Statement of Changes in Equity
Share Non-
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2019 15.1 93.3 68.7 813.4 7.5 998.0
Profit after tax for the period - - - 124.8 - 124.8
Other comprehensive expense - - (1.5) (29.7) - (31.2)
===================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive (expense)/income
for the period - - (1.5) 95.1 - 93.6
===================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 4 - - - (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
===================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2020 15.1 93.3 34.4 718.8 7.0 868.6
Profit after tax for the period - - - 108.2 0.1 108.3
Other comprehensive income - - 30.0 48.8 0.4 79.2
===================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive income for
the period - - 30.0 157.0 0.5 187.5
===================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 4 - - - (65.0) - (65.0)
Share-based payments - - - 1.0 - 1.0
Transactions in own shares - - - (9.1) - (9.1)
===================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (73.1) - (73.1)
===================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 30 June 2020 15.1 93.3 64.4 802.7 7.5 983.0
===================================== ==== ======== ======== ========= ========= ============ =======
Other reserves include the Capital Redemption Reserve of GBP0.9m
(30 June 2019: GBP0.9m) and the Translation Reserve of GBP63.5m (30
June 2019: GBP66.3m).
Group Condensed Interim Statement of Cash Flows
2020 2019 2019
First First Full
half half year
Note GBPm GBPm GBPm
====================================================== ==== ======= ======= =======
Cash flows from operating activities
Operating profit 154.0 175.0 319.9
Adjustments for:
Depreciation and amortisation 36.7 34.8 66.4
Impairment - - 1.4
Profit on disposal of property, plant and equipment (0.1) (2.8) (3.8)
Net provisions charged 1.7 - 10.5
Share-based payments 2.6 1.6 (5.2)
Non-cash pension expense 4.3 1.5 1.6
Share of loss of associate 0.5 0.3 0.8
Cash paid against operating provisions (4.8) (0.7) (4.0)
Changes in working capital (13.6) (27.9) 1.6
Cash generated from operating activities 181.3 181.8 389.2
Interest paid (8.8) (7.9) (17.0)
Tax paid (39.5) (35.6) (68.3)
====================================================== ==== ======= ======= =======
Net cash generated from operating activities 133.0 138.3 303.9
====================================================== ==== ======= ======= =======
Cash flows from investing activities
Acquisition of subsidiaries - 0.3 (3.7)
Acquisition of associates and other investments - - (1.3)
Purchase of property, plant and equipment (48.2) (42.7) (105.2)
Purchase of other intangible assets (2.9) (1.7) (5.8)
Proceeds from sale of property, plant and equipment 0.2 2.9 4.2
Cash paid against non-operating provisions (0.4) (0.5) (1.1)
Interest received 0.1 0.3 0.9
====================================================== ==== ======= ======= =======
Net cash used in investing activities (51.2) (41.4) (112.0)
====================================================== ==== ======= ======= =======
Cash flows from financing activities
New borrowings 171.1 225.5 752.5
Repayment of borrowings (188.2) (74.2) (637.1)
Payment of lease liabilities (4.9) (4.3) (8.8)
Net transactions in own shares (9.1) (6.7) (4.3)
Dividends paid to equity shareholders 4 (65.0) (216.1) (266.9)
====================================================== ==== ======= ======= =======
Net cash used in financing activities (96.1) (75.8) (164.6)
====================================================== ==== ======= ======= =======
Net movement in cash and cash equivalents (14.3) 21.1 27.3
Cash and cash equivalents brought forward 63.1 40.3 40.3
Exchange differences 2.3 (1.4) (4.5)
====================================================== ==== ======= ======= =======
Cash and cash equivalents carried forward 51.1 60.0 63.1
====================================================== ==== ======= ======= =======
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 61.1 73.8 81.9
Bank overdrafts (10.0) (13.8) (18.8)
====================================================== ==== ======= ======= =======
51.1 60.0 63.1
====================================================== ==== ======= ======= =======
A reconciliation of the cash flows above to the movements in net
debt is shown in note 7.
Notes to the Interim Financial Statements
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 22 July 2020. The financial information
included in this interim financial report for the six months ended
30 June 2020 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 2019 is
also unaudited. The comparative figures for the year ended 31
December 2019 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 2020 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 2019, available
on the Group's website (www.croda.com), which were prepared in
accordance with IFRSs as adopted by the EU.
Going concern basis
The potential impact of COVID-19 on the Group has been
considered in the preparation of the interim financial statements
including our evaluation of critical accounting estimates and
judgements which are detailed further in note 8. The condensed
consolidated financial statements are prepared on a going concern
basis which the Directors believe to be appropriate for the
following reasons:
In 2019, the Group refinanced its principal bank debt and issued
US private placement bonds at attractive pricing. At 30 June 2020
the Group had GBP1,090m of committed debt facilities available from
its banking group, USPP bondholders and lease providers, with
principal maturities between 2023 and 2030, of which GBP470.2m (30
June 2019: GBP350.3m) was undrawn, together with cash balances of
GBP61.1m (30 June 2019: GBP73.8m).
The Directors have reviewed the liquidity and covenant forecasts
for the Group, which have been updated for the expected impact of
COVID-19 on trading activities. The Directors have also considered
sensitivities in respect of potential downside scenarios, and the
mitigating actions available, in concluding that the Group is able
to continue in operation for a period of at least twelve months
from the date of approving the interim financial statements. These
sensitivities include a severe but plausible downside scenario for
the impact of COVID-19, which is materially worse than the Group's
experience of the crisis to date, alongside an additional scenario
considered to be severe but remote. Relative to a base case
scenario, the sensitivities assume increasingly pessimistic
outlooks for global demand, coupled with slower economic
recoveries. In both downside scenarios, we have assumed that our
principal manufacturing sites continue to operate but that demand
remains significantly below 2019 levels throughout the remainder of
2020 and all of 2021. Furthermore, the downside scenarios also
assume a material increase in working capital, due to inventory
build and higher customer receivables, and substantial margin
erosion, predicated on a further deterioration in the economic
conditions. In considering the suitability of these scenarios, the
Directors have considered, among other factors, the potential
impact of Brexit and the recent trading experience outlined in the
Finance Review.
In both the downside scenarios, the Group continues to have
significant liquidity headroom and good financial covenant headroom
under its debt facilities. The Directors have also considered the
impact on the Group from the agreement to acquire Avanti Polar
Lipids, Inc. This acquisition will be funded from a US$200m
unsecured, committed three year term loan, with financial covenant
requirements consistent with the Group's existing facilities.
Therefore, combined with Avanti's cash generation, the acquisition
will have a limited impact on Croda's leverage and no material
impact on its liquidity. The Directors are satisfied that the Group
has sufficient resources to continue in operation for the
foreseeable future, a period of not less than 12 months from the
date of this report. Accordingly, the consolidated financial
information has been prepared on a going concern basis.
c. Accounting policies
Except for as set out 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
2019.
The Group has changed the classification of certain costs
between cost of sales and administrative expenses. This change
aligns cost of sales recognised in the income statement more
closely with the Group's inventory valuation policy and market
practice. As a result, first half year 2019 comparative operating
costs have been increased by GBP60.7m (2019 full year: GBP119.0m
increase), with a corresponding reduction in cost of sales. There
has been no impact on the 2019 Group balance sheet or opening Group
balance sheet as at 1 January 2019.
Other matters
For details on the principal risks and uncertainties facing the
Group refer to note 10. For information on related party
transactions during the period refer to note 11.
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 GBP7.6m (30 June
2019: GBP4.4m) include a GBP1.7m exceptional cost (30 June 2019:
GBPnil), acquisition costs GBP1.0m (30 June 2019: GBP0.1m) and
amortisation of intangible assets arising on acquisition of GBP4.9m
(30 June 2019: GBP4.3m). The exceptional item in the current year
relates to the delivery of cost saving actions announced in the
2019 full year results. The adjustments relate to our segments as
follows: Personal Care GBP1.1m (30 June 2019: GBP0.3m), Life
Sciences GBP4.6m (30 June 2019: GBP3.3m), Performance Technologies
GBP1.8m (30 June 2019: GBP0.8m) and Industrial Chemicals GBP0.1m
(30 June 2019: GBPnil).
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
========================================================= ====== ====== =======
Income statement
Revenue
Personal Care 226.7 246.8 485.2
Life Sciences 182.9 184.3 350.5
Performance Technologies 216.3 226.8 430.2
Industrial Chemicals 47.0 56.8 111.8
========================================================= ====== ====== =======
Total Group revenue 672.9 714.7 1,377.7
========================================================= ====== ====== =======
Adjusted operating profit
Personal Care 68.9 82.1 162.1
Life Sciences 59.4 56.4 107.1
Performance Technologies 32.7 40.8 69.4
Industrial Chemicals 0.6 0.1 1.1
========================================================= ====== ====== =======
Total Group operating profit (before exceptional items,
acquisition costs and amortisation of intangible assets
arising on acquisition) 161.6 179.4 339.7
Exceptional items, acquisition costs and amortisation
of intangible assets arising on acquisition (7.6) (4.4) (19.8)
========================================================= ====== ====== =======
Total Group operating profit 154.0 175.0 319.9
========================================================= ====== ====== =======
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.
Europe North Latin Asia Reported
GBPm America America GBPm Total
GBPm GBPm GBPm
========================= ======= ========= ========= ====== ========
Revenue
First half 2020
Personal Care 77.3 71.7 22.4 55.3 226.7
Life Sciences 74.9 54.6 24.0 29.4 182.9
Performance Technologies 102.5 55.4 13.6 44.8 216.3
Industrial Chemicals 21.7 6.3 0.9 18.1 47.0
========================= ======= ========= ========= ====== ========
Total Group revenue 276.4 188.0 60.9 147.6 672.9
========================= ======= ========= ========= ====== ========
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
Industrial Chemicals 28.1 6.8 0.9 21.0 56.8
========================= ======= ========= ========= ====== ========
Total Group revenue 302.0 185.7 77.7 149.3 714.7
========================= ======= ========= ========= ====== ========
3. Net financial costs
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
=============================================== ====== ====== ======
Financial costs
Bank interest payable (8.1) (8.6) (17.2)
Net interest on retirement benefit liabilities (0.6) (0.1) (0.3)
Interest on lease liabilities (0.5) (0.4) (1.0)
=============================================== ====== ====== ======
(9.2) (9.1) (18.5)
=============================================== ====== ====== ======
Financial income
Bank interest receivable and similar income 0.1 0.3 0.9
=============================================== ====== ====== ======
Net financial costs (9.1) (8.8) (17.6)
=============================================== ====== ====== ======
4. Dividends paid
2020 2019 2019
Pence First First Full
per half half year
share GBPm GBPm GBPm
==================================== ====== ====== ====== =====
Ordinary
2018 final, paid May 2019 49.00 - 64.6 64.6
2018 special, paid May 2019 115.00 - 151.5 151.5
2019 interim, paid October 2019 39.50 - - 50.7
2019 final, paid May 2020 50.50 65.0 - -
==================================== ====== ====== ======
65.0 216.1 266.8
==================================== ======
Preference (paid June and December) 0.0 0.0 0.1
==================================== ====== ====== ====== =====
65.0 216.1 266.9
==================================== ====== ====== ====== =====
An interim dividend in respect of 2020 of 39.5p per share,
amounting to a total dividend of GBP50.8m, was declared by the
Directors at their meeting on 22 July 2020. This interim report
does not reflect the 2020 interim dividend payable. The dividend
will be paid on 1 October 2020 to shareholders registered on 21
August 2020.
5. Property, plant and equipment
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
============================================ ====== ====== ======
Opening net book amount 805.2 780.3 780.3
Exchange differences 38.1 (2.0) (27.5)
Additions 48.2 42.7 105.2
Disposals, write offs and reclassifications (0.3) (4.7) (5.3)
Depreciation charge for the period (25.8) (25.2) (46.8)
Impairments - - (0.7)
============================================ ====== ====== ======
Closing net book amount 865.4 791.1 805.2
============================================ ====== ====== ======
Reclassifications in the prior period primarily relate to
long-term lease assets reclassified from Property, plant and
equipment to Right of use assets.
At 30 June 2020 the Group had contracted capital expenditure
commitments of GBP57.6m (30 June 2019: GBP31.7m).
6. Right of use assets
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
============================================= ====== ====== =====
Opening net book amount (2019 on transition) 46.2 46.0 46.0
Exchange differences 2.0 - (1.6)
Additions 17.4 5.8 11.6
Remeasurements 0.5 (0.1) (5.4)
Other disposals and write offs (0.1) (0.1) (0.2)
Reclassifications - 4.7 4.7
Depreciation charge for the period (5.0) (4.2) (8.8)
Impairments - - (0.1)
============================================= ====== ====== =====
Closing net book amount 61.0 52.1 46.2
============================================= ====== ====== =====
7. Reconciliation to net debt
2020 2019 2019
First First Full
half half year
GBPm GBPm GBPm
=========================================================== ======= ======= =======
Net movement in cash and cash equivalents (14.3) 21.1 27.3
Net movement in borrowings and other financial liabilities 22.0 (147.0) (106.6)
=========================================================== ======= ======= =======
Change in net debt from cash flows 7.7 (125.9) (79.3)
Non-cash movement in lease liabilities (18.3) (52.0) (52.9)
Exchange differences (18.8) (0.3) 10.0
=========================================================== ======= ======= =======
(29.4) (178.2) (122.2)
Net debt brought forward (547.7) (425.5) (425.5)
=========================================================== ======= ======= =======
Net debt carried forward (577.1) (603.7) (547.7)
=========================================================== ======= ======= =======
8. Critical accounting judgements and key sources of estimation
uncertainty
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 and contingent liabilities
The Group has recognised potential environmental liabilities and
other provisions. The Group's assessment of whether a constructive
or legal obligation exists at the reporting date (and can be
measured reliably) is a key judgement in determining whether to
recognise a liability or disclose a contingent liability. A
liability is recognised only where, based on the Group's legal
views and advice, it is considered probable that an outflow of
resources will be required to settle a present obligation that can
be measured reliably. Disclosure of contingent liabilities is made
in note 9 unless the possibility of a loss arising is considered
remote.
At 30 June 2020, the Group has an environmental provision of
GBP8.1m (31 December 2019: GBP8.1m) 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 and
the timing and quantum of costs are inherently uncertain. 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
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
appropriate and in line with consensus opinion. Total Group net
retirement benefit liabilities have decreased by GBP52.4m in the
first half of 2020 to GBP22.6m. This movement comprises GBP4.3m of
service costs in excess of contributions, GBP0.6m of net financial
costs and GBP1.4m of currency translation losses offset by GBP58.7m
of net actuarial gains.
Goodwill and fair value of assets acquired
Management are required to undertake a test for impairment of
indefinite lived assets such as goodwill, both annually and when
there are indications that the carrying value may not be
recoverable. Accordingly, the Group tests 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 terminal
value 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.
9. 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 our operations in the USA and are a matter of
public record.
10. 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 2019. There have been no changes in the Group's risk
management processes or policies since the year end other than an
increased recognition of the impact of pandemics. The risk of
pandemic was already recognised in our risk register, although it
was rated as having high impact/low likelihood and therefore did
not previously feature in our principal risks.
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 lease liabilities,
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. This bond
was repaid on 28 January 2020. On 27 January 2020 a new US$100m
3.75% fixed rate ten year bond was issued.
The table below details a comparison of the Group's financial
assets and liabilities where book values and fair values
differ.
Book value Fair value
First First Book value Fair value
half half Full year Full year
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
====================================== ========== ========== ========== ==========
US$100m 5.94% fixed rate 10 year bond - - (76.4) (76.5)
EUR30m 1.08% fixed rate 7 year bond (27.3) (28.0) (25.6) (26.2)
EUR70m 1.43% fixed rate 10 year bond (63.6) (68.1) (59.7) (63.1)
GBP30m 2.54% fixed rate 7 year bond (30.0) (31.1) (30.0) (30.6)
GBP70m 2.80% fixed rate 10 year bond (70.0) (75.6) (70.0) (73.2)
EUR50m 1.18% fixed rate 8 year bond (45.5) (47.9) (42.6) (44.4)
GBP65m 2.46% fixed rate 8 year bond (65.0) (69.1) (65.0) (66.4)
US$60m 3.70% fixed rate 10 year bond (48.7) (55.7) (45.8) (47.7)
US$100m 3.75% fixed rate 10 year bond (81.2) (93.5) - -
====================================== ========== ========== ========== ==========
11. Related party transactions
The Group has no related party transactions in the first six
months of the year, with the exception of remuneration paid to key
management and Directors.
12. Post balance sheet event
Following the half year period, the Group signed an agreement to
acquire Avanti Polar Lipids, Inc. for an initial consideration of
US$185m and a potential earn-out of up to US$75m. This acquisition
will be funded from a US$200m unsecured, committed three year term
loan provided by some of the Group's core relationship banks. This
will retain Croda's strong balance sheet and liquidity. The
transaction is expected to close during the third quarter of 2020
and had no impact on the first half year financial statements.
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 FLFSDDRIFFII
(END) Dow Jones Newswires
July 23, 2020 02:00 ET (06:00 GMT)
Croda (LSE:CRDA)
Gráfica de Acción Histórica
De Feb 2024 a Mar 2024
Croda (LSE:CRDA)
Gráfica de Acción Histórica
De Mar 2023 a Mar 2024