Croda International PLC
27 February 2002
Date: Wednesday, 27 February 2002
Croda International Plc
Preliminary Results Announcement 2001
Croda today announces its preliminary results for the year ended 31 December
£m 2001 2000
Sales for continuing operations 309 307
Pre-tax profit before exceptional items 31.7 38.1
Pre-tax profit before exceptionals for
continuing operations 31.8 35.7
Dividends per share
• Recovery in fourth quarter after difficult third quarter
• Strong cash inflow of £37.7m
• Gearing down to 34.4%
• Product innovation continues
• Good start to 2002
Commenting on the results, Chairman, Antony Beevor, said:
'The second half of 2001 was difficult for many companies and the quality of our
core business is illustrated by the fact our pre-tax profits before exceptional
items from continuing operations in these circumstances were only 10.9% lower.
The current year has got off to a good start with strong sales for a number of
our major units in January and early indications for February and March in our
core Oleochemicals business are also positive. We believe there are grounds for
confidence in both the short and medium term.'
For further information, please contact:
Mike Humphrey, Chief Executive Tel: 07785 307 786
Barbara Richmond, Group Finance Director Tel: 07767 252 627
Charlie Armitstead, Financial Dynamics Tel: 0207 269 7182
Or visit our web site at: www.croda.com where the presentation to analysts will
be available by midday today.
I am fortunate to be taking over the Chairmanship of your Company at a time when
its transformation into a highly specialised oleochemicals company has been
substantially completed and it is now focused on the skills it knows best. Your
Board believes that there now exist exciting opportunities to exploit the
technologies and reputation your Company has established.
Trading and Dividends
The year 2001, particularly the second half, was difficult for many businesses
around the world and our statement in October showed that we were not immune.
Against this background, it is a tribute to the quality of our core products and
the resilience of the markets we serve that Croda's pre-tax profits before
exceptional items for continuing operations for 2001 were only 10.9 per cent
lower at £31.8 million against £35.7 million in 2000. The shortfall manifested
itself largely in the second half when macroeconomic factors in most areas
prevented us from achieving the progress we had planned, despite actions taken
throughout the year to improve working capital controls and achieving the
disposal of non-core businesses. Turnover was marginally higher at £308.5
million against £307.3 million for 2000. The Board is recommending a final
dividend of 7.45p per share (2000: 7.25p) making a total for the year of 11.3p,
2.7 per cent up on the 11.0p paid for 2000.
The UK oleochemicals units all had a difficult year as did our remaining
industrial chemicals businesses although our small metals treatment business
increased its profits. After several years of excellent results US
oleochemicals failed to deliver improved results due to conditions in the second
half. On the other hand good improvements during the year were achieved in
Croda Brazil, as well as in some of our European units and in our Japanese
domestic business. Further details of the Group's operating performance are
given in the Operating Review.
The tax rate increased slightly to 34.7 per cent from 33.9 per cent as an
increasing proportion of our profits come from high tax countries and normalised
earnings per share fell 17.4 per cent to 15.7p (2000: 19.0p) covering the
proposed dividend 1.4 times and gearing is reduced to just over 34%.
One of our undoubted achievements in 2001, for which managers around the Group
deserve much credit, was our success in improving our working capital controls,
in particular levels of stocks and debtors. This had a significant impact on
operating cash flow which increased in the year to £58.0 million (2000: £44.8
million). In addition acquisitions and disposals contributed £26.6 million net
cash proceeds with the result that, after £23.6 million capital expenditure, net
debt at the year end stood at £63.6 million compared with £99.8 million a year
earlier. At this level interest cover is almost seven times.
Enterprise Resource Planning
During 2001 the SAP system was rolled out at Croda Chemicals in the UK and
subsequently throughout our major offices in Europe. Whilst teething troubles
are inevitable, they have been contained and we are beginning to experience the
benefits that flow from the timely dissemination of information about raw
material and finished stock. The roll out of this system around the world will
continue over the next few years and we look forward to further benefits to
working capital levels around the Group.
We are pleased with the attention being generated by our corporate website,
www.croda.com, which is playing a useful role in graduate recruitment and the
dissemination of product information. It also carries shareholder information
including the presentation of our results given to professional analysts and
investors and our quarterly trading statements.
Keith Hopkins retired from being Chairman of Croda on 31 December 2001 after
twenty five years with the Group, sixteen of them as a main board director. As
Chief Executive for twelve years up to 1999 he played the key role in driving
the transformation of Croda into a high technology oleochemicals group serving
major manufacturers in the personal care and healthcare industries. This
involved exiting businesses such as inks and paints and making the important
acquisitions of Sederma and Westbrook. He was greatly respected and admired
throughout both the Group and the chemical industry and will be much missed. We
thank him for all he has done for us and wish him well in the several roles he
continues to undertake.
Michael Ward, who is a Director of the pharmaceutical distributors Gehe AG,
became a non-executive director in April 2001 and stands for re-election at the
Annual General Meeting. He has been appointed Chairman of our Audit Committee.
The management changes announced by Keith Hopkins a year ago are working well
and the Executive Committee, chaired by Mike Humphrey and including the Regional
Sector Heads, is providing strong and effective day-to-day management of your
It has become trite to say that a business is only as good as the people who
work for it, but with our emphasis on product development and selling new
products to both new and old customers, we will only prosper by recruiting and
motivating outstanding people. We have a talented, loyal and hard working team
for whom 2001 provided frustrations as well as successes. I thank them for
reacting to both with equal fortitude and good humour and for their hard work
throughout the year.
January yielded strong sales at satisfactory margins for a number of our
important business units. Early indications for February and our order books
for March in our core Oleochemicals business are both looking healthy. The
obvious question is whether this represents restocking by our customers after
their cut-backs at the end of last year or whether we are seeing early signs of
a longer recovery. In addition 2002 should see contributions for the first time
from Croda Chemicals' Asthma treatment product and from some new products from
Sederma where Matrixyl is now its biggest selling product. Our new venture in
refining natural oils from the Amazon basin, Crodamazon, should be profitable by
the end of the year and we have many promising products in development that will
benefit us in 2003 and beyond.
The year has got off to a promising start and I believe that there are grounds
for confidence in both the short and medium term.
2001 was a testing year for the global chemical industry. Croda came through
the test and goes into 2002 a stronger, more focused company, justifiably proud
of its achievements. Sales in continuing businesses held up well against an
international backdrop of unremitting gloom. Profits fell, but only by 11%, and
all of that fall came in the second half when uncertainty ruled in all market
sectors. The core Oleochemical Speciality business again remained robust in
spite of the second half uncertainties particularly in North America. The
remaining businesses had a tough year.
In Europe, sales were effectively flat, whilst in the UK there were further
falls due to weak demand. Poland was again a strong market for our specialities
and sales in Germany, Italy and Spain moved forward.
The Americas showed a mixed picture. Both the USA and Canada were affected by
the weakening of the US economy in the second half, a situation exacerbated by
the tragic events of September. We showed good growth in Latin America with the
obvious exception of Argentina and to a lesser extent Brazil.
Asia was again a success story, with sales in most markets showing pleasing
gains, especially in Japan, Singapore, Thailand and Korea. Asia was affected in
the second half by the US downturn, so an overall 9% increase was commendable.
We also made excellent progress in the Middle East and Southern Africa.
Our focus on Consumer Care in general and Personal Care and Health Care in
particular underpins the successes of last year. We held our gross margins due
to constant innovation in products and marketing. Our costs rose as we invested
in future business which should bring Croda back to its traditionally high
growth rates in Oleochemical Specialities. Our confidence in these investments
in people and processes has been rewarded with the launch and acceptance of many
exciting new products.
The reshaping of the business continued with the completion of the sale of our
Resins business and also our 50% share in the automotive refinishing paints unit
in Australia. We bought out our partner in Mexico and sales have subsequently
Our capital investment programme continued albeit at a reduced level. The plant
in Singapore is now running well. The new plant at Rawcliffe Bridge built to
produce the active ingredient for Provensis' varicose vein treatment is
installed and being commissioned. The unique ultra high purity lipids plant at
Leek has started to make trial batches and will spearhead our move into even
higher value products for Health Care. The first phase of our major investment
in the US plant at Mill Hall is almost complete, providing welcome capacity and
a safer environment. We also commissioned valuable new capacity at Universal in
Hull and at Croda Japan's impressive Shiga plant.
We have talked a lot about our new IT system, SAP, and the problems associated
with such a radical change. We have now implemented this at two major UK units,
Universal and Chemicals, and also in France, Germany and Italy. There has been
much pain, but slowly we are starting to see the gain. We now have much better
information and this, coupled with a heroic drive by all units, resulted in
significant progress in achieving our challenging targets for reduction in
working capital. Excellent cash generation and consequent debt reduction was a
major achievement in 2001. We will continue our emphasis on cash generation in
There is a constant focus on acquisitions in our chosen areas. There have been
many opportunities but very few good ones. There have been none at realistic
prices. The strength of our balance sheet gives us the flexibility to make
acquisitions. However, we believe that our strong global network and excellent
product portfolio mean that we don't have to be big to be better.
Results 2001 2000
External turnover 261.2 256.4
Trading profit 37.7 43.4
Capital employed 221.0 226.7
Return on capital 17.1% 19.1%
In a normal year, sales growth of 2% and a 13% fall in trading profit would be
worrying. In a year like 2001 this was a robust performance. After a good
start to the year, the second half results were poor. We continued to withdraw
from commodity orientated products and maintained our excellent gross margins.
With the exception of woolgrease, raw material prices were benign.
Sederma had another good year with excellent sales of Matrixyl and the
successful launch of other exciting new products. Crodarom, our plant extracts
business, also demonstrated good growth. For the first time in a very long
time, sales to the Personal Care industry in North America slowed in the second
half. This seems to have been a knee jerk response to the events of September
11, resulting in a large destocking across the sector. There is some evidence
that this was a one-off and temporary event. Again, a good portfolio of new
products from our North American Technical Centre will enable us to regain our
impetus in this very important market. At Croda Chemicals and Westbrook,
admirable progress was made in consolidating our position as world leaders in
the lanolin and derivatives business, with particular success in new high value
products for hair and skin care. A number of new conditioning proteins were
created at Croda Colloids which will improve further our leading position in
this important area.
A radical new project was launched in Manaus, Brazil with the opening and
commissioning of the new Crodamazon factory. Exotic nuts and fruits from the
rainforest are collected by village communities in a totally sustainable system
overseen by our own ecologists. These are processed in the Crodamazon factory
and shipped both direct to customers and to Croda factories for further
processing. We are very pleased with the instant success of this venture, and
expect to discover further new and valuable ingredients for Personal Care and
also for Health Care.
We have been investing strongly in our Health Care business since the technical
breakthrough with Lorenzo's Oil ten years ago. We have our first orders for
high purity lipids for a new Asthma treatment and we are close to commercial
supply of lipids for an Irritable Bowel Syndrome product, which shows great
promise. There has been much press coverage of the Provensis treatment for
varicose veins. Our new GMP plant has been installed and will be available on
time. This project should have a positive impact on our business in 2004. A
number of other projects are in development and we have a terrific amount of
interest in the new ultra high purity lipid production facility at Leek. Much
progress has also been made in research and development related to the wound
healing properties of special lanolin products. We are working closely with
major companies in this growing area.
In the general area of Consumer Care, we are involved with a number of companies
in the field of tissue and wet-wipe additives. Sales of speciality emollients
for these applications have grown strongly in 2001 and look to grow further in
2002. We are also confident of success in transferring our world leading
protein technology from Skin and Hair Care to Fabric Care.
In Plastics Additives we shipped a record tonnage of Amides into the Polyolefin
market and with increased production capacity and some very interesting new
products, the Universal business has an exciting future.
The strength of the Oleochemical Specialities business is in our technical
ability, but more especially our technical sales and marketing ability. Our
global network gave us resilience in last year's global downturn and will give
us dynamic sales growth as the economies recover. We have a truly global
approach to our markets, backed by what we believe is the best sales and
marketing team in the industry.
The understandable under-performance in North America was to some extent offset
by good sales performances in Poland, South Africa, Singapore, Mexico and
There are signs that 2002 will be a better year for our core business. New
products, new markets and new technologies are all in place to deliver the kind
of growth our shareholders and our people have come to expect.
Results 2001 2000
External turnover 47.3 50.9
Trading profit 3.4 4.8
Capital employed 30.3 33.0
Return on capital 11.2% 14.5%
Unfortunately, since last year, market demand has deteriorated further and
competition has increased for the residual industrial businesses. Raw material
prices remained high as did energy costs.
Celtite in Australia had another poor year, as did Fire Fighting Chemicals,
where a technical setback meant that the investment in new foams has been put on
hold. Croda Distillates again failed to make acceptable returns. Baxenden
Chemicals performed well in difficult circumstances, as did Croda Application
Chemicals. We continue to encourage the performance of these divisions and we
will take firm action with those that fail to respond.
Our major focus this year is to accelerate the organic growth of our core
businesses. At the same time we will increase the pressure on cash generation.
Good new projects will be allocated the resource needed to deliver new products
and technologies, though capital expenditure is not expected to grow in 2002, as
we have now completed a number of major projects. We are committed to pursuing
all value enhancing acquisition possibilities. However, we are confident we
have the new products and new technologies to achieve excellent future growth
Whilst overall sales were flat in 2001, sales in the core oleochemicals business
rose by 2% to £261.2m. The strength of this business is highlighted by the fact
that this was achieved despite a 2% fall in volumes, due to a positive mix of
sales and price rises associated with recent product launches. In fact, our
overall contribution percentage on sales of the ongoing businesses was in line
with the previous year.
Currency, whilst neutral overall, did have an impact on our individual units.
We gained in the translation of the results of our North American business from
the strengthening of the US Dollar. Conversely in Japan, we were negatively
affected by the weakening Yen. A further impact of the appreciating US Dollar
was to increase raw material costs in a number of other countries.
Operating margins were lower in 2001 due to increases in costs, some of which
are ongoing and some one off. In particular we had a full year's depreciation
of our new Singapore plant in 2001 compared to only six months in the 2000
results and, in line with most manufacturing companies, suffered increased
energy costs as prices temporarily rose. We also incurred high product
development costs in our continuing businesses during 2001 associated with
product testing and patent applications. There were additional engineering
costs in the United States associated with capital investment in plant, and in
Europe the costs of the roll-out of our new SAP computer system are ongoing.
The exceptional items in 2001 primarily relate to business disposals. The
Resins and Croda Herberts disposals were in the early part of the year and the
sale of our small US Storage business was in October. In addition we sold a
vacated site at Luton in the UK.
As expected, we saw a further small rise in the tax rate on our ongoing trading
operations to 34.7% in line with the geographical distribution of our profits.
For the next couple of years we do not expect a further significant rise in the
tax rate, even with the introduction in 2002 of the new Accounting Standard on
deferred taxation, FRS 19.
The Board is proposing a final dividend of 7.45p making 11.3p for the year, an
increase of 2.7%. This reduces our dividend cover to 1.4 times (2000 1.9
times). Clearly we expect the dividend cover to increase over the coming years
as we would not consistently maintain such a low cover. We consider the
dividend this year appropriate, given our level of cash generation from
continuing businesses which was just under 22p per share (2000 1.4p).
In 2001 the Group generated £37.7m of cash, a very strong performance. Our
resultant interest cover is 7 times. Although a net £26.6m of this was
generated from disposals and acquisitions the balance came from concerted
efforts on working capital by the Group's employees which are ongoing. During
the last year we reduced our working capital by over £10m to 87 days sales and
we are targetting a further reduction in the current year.
A further benefit has been obtained from the tax planning measures we took in
1998 when we declared a series of Foreign Income Dividends (FID's) following a
change in UK tax legislation. This meant that whilst we had to pay Advance
Corporation Tax (ACT) on these dividends at the time, we would be able to
reclaim the ACT later. In 2001 we received that ACT repayment of £7.0m and, in
addition, interest on the repayment of £0.3m which further reduced our net
interest expense. This was a one off repayment and our tax payments will return
to normal next year.
With such a large cash inflow for the second year running, our net debt has
reduced to £63.6m. Gearing of 34.4% gives us a very strong balance sheet
compared to many other companies in our industry.
The Group's treasury policies are approved by the Board and subject to regular
reporting and review.
The main financial risks faced by the Group relate to currency, interest rates
and the availability of capital.
As far as currency risk is concerned, transaction risk is hedged up to two
months forward by the use of foreign currency bank balances and forward currency
contracts. Translation currency exposure is not hedged but the risk is reduced
by matching interest expense to foreign currency earnings where it is efficient
to do so.
Along with most companies, in preparation for the full implementation of FRS 17,
the new Accounting Standard on Pensions, we are disclosing the impact of its
implementation on our Group.
As with many other companies Croda operates defined benefit and defined
contribution pension schemes.
The vast majority of our UK employees, who comprise just over 60% of the total
workforce, are covered by defined benefit schemes and have been for many years.
The introduction of FRS 17 will therefore have an impact on the Group's
accounting for pension costs. We have, as required under the new Standard,
calculated what the net balance sheet value of our UK pension scheme would be at
31 December 2001 and disclosed that in comparison with the actual SSAP 24
balance. We also did the same calculation as at 31 December 2000. The results
are as follows:
2000 2000 2001 2001
FRS 17 SSAP 24 FRS 17 SSAP 24
£m £m £m £m
Asset/(liability) 26.8 27.6 (5.6) 28.7
Deferred tax (8.0) (8.3) 1.7 (8.6)
____ ____ ____ ____
Net asset/(liability) 18.8 19.3 (3.9) 20.1
____ ____ ____ ____
As can be seen, whilst the SSAP 24 balance has remained relatively static the
FRS 17 number has reduced dramatically. This is due to the FRS 17 requirement
to 'mark to market' the value of the pension assets and to discount the
liabilities at the AA corporate bond rate at the time. As our pension assets
are predominantly invested in equities their value has fallen in line with world
stock markets over the last twelve months and the consequent 'flight to bonds'
has reduced bond yields and thus increased the net present value of the pension
liabilities. These figures clearly illustrate the short-term impact of FRS 17
accounting on pension funding decisions which are made for the much longer term.
Despite this reduction under FRS 17, the resultant net liability of £3.9m is
very small relative to the market value of the assets in the UK pension schemes,
to the Group's net assets and our market capitalisation.
We have also calculated the impact on our profit and loss account if we applied
FRS 17 instead of SSAP 24 in our 2002 results. The pre-tax pension cost for our
UK scheme in 2002 would be approximately £2.8m and £2.4m under SSAP 24 and FRS
17 respectively, a difference of only £0.4m.
Croda International Plc
Preliminary announcement of trading results for the year ended 31 December 2001
Group profit and loss account
Continuing Discontinued 2001 Continuing Discontinued 2000
operations operations Total operations operations Total
£m £m £m £m £m £m
Turnover 308.5 3.9 312.4 307.3 58.6 365.9
_______ _______ _______ _______ _______ _______
Group operating profit 34.8 (0.2) 34.6 41.4 1.9 43.3
Share of associates'
operating profit 2.3 0.1 2.4 2.8 0.8 3.6
_______ _______ _______ _______ _______ _______
Total operating profit 37.1 (0.1) 37.0 44.2 2.7 46.9
Exceptional items 3.1 (0.6) 2.5 - 10.3 10.3
Net interest payable (5.3) - (5.3) (8.5) (0.3) (8.8)
_______ _______ _______ _______ _______ _______
Profit before taxation 34.9 (0.7) 34.2 35.7 12.7 48.4
_______ _______ _______ _______ _______ _______
UK taxation (1.7) (1.7)
Overseas taxation (9.3) (11.2)
Tax on exceptional items (2.5) (3.2)
Profit after taxation 20.7 32.3
Minority interests and
preference dividends (0.2) (0.2)
Profit attributable to
ordinary shareholders 20.5 32.1
Ordinary dividends (14.7) (14.5)
Reserves transfer 5.8 17.6
Earnings per share Pence Pence
Basic 15.7 24.4
Basic before exceptional
items 15.7 19.0
Interim 3.85 3.75
Final 7.45 7.25
Summarised balance sheet
At 31 December At 31 December
Fixed assets 194.3 196.9
Stock 60.5 68.7
Debtors 84.9 105.8
Creditors and provisions (91.2) (91.3)
Shareholders' funds 183.7 178.6
Minority interests 1.2 1.7
Net debt 63.6 99.8
Movements in shareholders' funds
Profit attributable to ordinary shareholders 20.5 32.1
Ordinary dividends (14.7) (14.5)
Goodwill written back on disposal 4.3 7.9
Currency translation differences (5.0) (0.3)
Net movement in shareholders' funds 5.1 25.2
Opening shareholders' funds 178.6 153.4
Closing shareholders' funds 183.7 178.6
There were no recognised gains or losses except for those included above
Summarised cash flow
Group operating profit 34.6 43.3
Depreciation 15.2 14.9
Goodwill amortisation 0.5 0.4
Working capital 10.5 (11.8)
Other (2.8) (2.0)
Operating cash flow 58.0 44.8
Interest (5.4) (8.6)
Dividends paid (14.6) (14.2)
Taxation (3.7) (13.8)
Fixed assets purchased (23.6) (29.2)
Net purchase of own shares (1.3) (1.8)
Acquisitions and disposals 30.0 41.4
Other (1.7) 1.7
Movement in net debt from cash flows 37.7 20.3
New finance lease contracts (0.1) (0.4)
Exchange differences (1.4) (2.8)
Movement in net debt in the period 36.2 17.1
Notes to the preliminary announcement
1. Segmental analysis of continuing operations
Oleochemicals 261.2 256.4
Other 47.3 50.9
Oleochemicals 37.7 43.4
Other 3.4 4.8
Central costs (4.0) (4.0)
Operating profit 37.1 44.2
Turnover by geographical destination
United Kingdom 61.8 64.4
Rest of Europe 81.4 82.9
Americas 96.0 96.9
Asia 39.5 36.1
Rest of World 29.8 27.0
Turnover by market
Personal and Health Care 155.4 150.7
Home Care and Plastics Additives 43.4 37.6
Industrial Specialities 62.4 68.1
Other 47.3 50.9
2. Exceptional items
Profit on disposal of discontinued
Profit on disposal 3.7 18.2
Goodwill written back (4.3) (7.9)
Profit on disposal of fixed assets in
continuing operations 3.1 -
3. Additional matters
a. The financial information above is derived from the Group's full
statutory accounts on which the auditors have reported; their report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985. Statutory accounts for 2000 have been filed with the
Registrar of Companies and those for 2001 will be delivered following the Annual
b. The final dividend of 7.45p will be paid on 5 July 2002 to
shareholders registered on 7 June 2002.
c. The above financial information has been prepared on the basis of
the accounting policies which are to be set out in the Group's 2001 statutory
accounts, and in accordance with all applicable UK accounting standards and the
Companies Act 1985. The accounting policies are consistent with those applied
in previous years as set out in the Group's 2000 statutory accounts.
This information is provided by RNS
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