REG - Croda International - Results for the six months ended 30 June 2024
30/07/2024 07:00
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RNS Number : 2902Y Croda International PLC 30 July 2024
Press Release
30 July 2024
Results for the six months ended 30 June 2024
Group performance in line with expectations reflecting more stable market
conditions and operational progress
Croda International Plc ("Croda" or the "Group") announces its half year
results for the six months ended 30 June 2024.
Highlights
Statutory results (IFRS) Adjusted results
Half year ended 30 June H124 H123 change H124 H123 Constant change
currency change
Sales (£m) 815.9 880.9 (7.4)% 815.9 880.9 (4.4)% (7.4)%
Operating profit (£m) 114.4 130.2 (12.1)% 135.6 175.8 (18.9)% (22.9)%
Operating margin (%) 16.6 20.0 - (3.4)ppts
Profit before tax (£m) 106.1 128.7 (17.6)% 127.3 174.3 (23.2)% (27.0)%
Basic earnings per share (p) 57.2 63.1 (9.4)% 68.8 92.9 - (25.9)%
Ordinary dividend per share (p) 47.0 47.0 0.0%
Free cash flow (£m) 122.7 72.8* - 68.5%
Net debt (£m) 507.9 349.3 - (45.4)%
Change Change Change
v H123 v H123 v H223
constant currency ex CV19(1)
Sales growth %
Consumer Care 3% 6% 9%
Life Sciences (19)% (16)% (2)%
Industrial Specialties (17)% (14)% 21%
Group (7)%
(4)% 7%
% changes are comparisons with reported H123 results unless stated. For a
reconciliation of % changes compared with H223 results see Sector performance
section. (1)Life Sciences and Group sales exclude £48m of lipid sales for
CV19 vaccine applications in Q4 2023. Where explicitly stated, constant
currency comparisons remove the impact of currency translation into Sterling,
the Group's reporting currency. *H123 free cash flow has been restated in line
with the definition on p3.
Group performance in line with expectations
· Sequential improvement in Group sales (v H223) driven by Consumer
Care and Industrial Specialties
o Consumer Care growing in all regions at constant currency
o Weaker than anticipated sales in Life Sciences impacted by lower Crop
Protection demand; Pharma sales up 3% vs H223 ex CV19 lipids despite continued
destocking in consumer health
o Positive sequential sales growth in Industrial Specialties enhancing
efficiency of manufacturing model
o New and Protected Product (NPP) sales up to 36% (H123: 34%), reflecting
higher demand for innovation
· Sequential improvement in adjusted operating margin (ex CV19
lipids) driven by higher sales volumes, increased capacity utilisation, price
discipline and robust cost control
o 16.6% adjusted operating margin (H123: 20.0%); 1.6 percentage points
higher than H223 (ex CV19 lipids)
o £106.1m IFRS profit before tax (H123: £128.7m)
o £127.3m adjusted profit before tax (H123: £174.3m) or £133.8m at
constant currency
· Strong cashflow with working capital inflow and lower capex;
continued balance sheet strength
o Free cash flow up 69% to £122.7m (H123 (restated): £72.8m); £43.5m
working capital inflow
o Net debt fell to £507.9m (31 Dec 23: £537.6m); resilient balance sheet
1.4x levered
o Interim dividend maintained at 47.0p (H123: 47.0p); focused on delivering
returns from recent investments
Portfolio well positioned for earnings growth
· Consumer Care growing in key markets with increasing demand for
sustainable ingredients
o Strong Beauty Actives growth especially in China driven by sales to local
and regional customers
o Sequential improvement in Beauty Care sales due to more stable demand and
regained sales in USA
o F&F continuing to grow ahead of 'tier one' peers
o Home Care innovation driving double-digit percentage sales growth
· Life Sciences impacted by lower Crop Protection demand and destocking
in consumer health; higher sales in strategic Pharma platforms
o Sales of delivery systems for nucleic acid and protein-based drugs growing
as customer pipelines expand
o New drug delivery technologies coming to market; e.g. novel lipid-based
adjuvants contributing sales
o Innovating to develop sustainable Crop Protection solutions despite
continued destocking
· Continued operational progress
o Strengthening senior team with appointments of Group Chief Financial
Officer and President Life Sciences
o New organisational structure delivering customer, employee and efficiency
benefits
o Robust cost control expected to benefit Group margin by about half a
percentage point this year
Sales H124 Price/mix Volume Acquisition Constant currency change Currency H123
£m £m Change
Consumer Care 468.4 (8.5)% 13.7% 1.1% 6.3% (3.5)% 455.6 2.8%
Life Sciences 246.2 (1.2)% (16.7)% 1.5% (16.4)% (2.4)% 303.2 (18.8)%
Industrial Specialties 101.3 (9.7)% (4.4)% 0.0% (14.1)% (2.8)% 122.1 (16.9)%
Group 815.9 (5.2)% (0.2)% 1.0% (4.4)% (3.0)% 880.9 (7.4)%
Sales H124 H223 Change H223 Change(1)
£m £m ex CV19
£m(1)
Consumer Care 468.4 430.5 8.8% 430.5 8.8%
Life Sciences 246.2 299.1 (17.7)% 251.1 (1.9)%
Industrial Specialties 101.3 84.0 20.6% 84.0 20.6%
Group 815.9 813.6 0.3% 765.6 6.6%
( )
(1) Life Sciences and Group sales exclude £48m of lipid sales for CV19
vaccine applications in Q4 2023. They are excluded from this growth
calculation to give a more informative comparator to the underlying business,
as no CV19 lipid sales are expected in 2024.
H124 Underlying growth Acquisition impact Constant currency change Currency
Adjusted profit £m £m £m impact H123
£m £m Change
Consumer Care 82.5 (8.5) (0.1) (9.0)% (4.1) 95.2 (13.3)%
Life Sciences 45.0 (24.3) (0.6) (34.4)% (2.4) 72.3 (37.8)%
Industrial Specialties 8.1 0.2 - 2.4% (0.4) 8.3 (2.4)%
Operating profit 135.6 (32.6) (0.7) (18.9)% (6.9) 175.8 (22.9)%
Net interest (8.3) (1.5)
Profit before tax 127.3 174.3
Steve Foots, Chief Executive Officer, commented:
"Group performance was in line with expectations in the first half year, with
further progress in Consumer Care, key strategic Pharma platforms and
Industrial Specialties. The Group returned to year-on-year growth in the
second quarter, helped by more stable market conditions, price discipline and
continued operational progress. Our sales of innovative products increased to
record levels and robust cost control is enabling us to deliver improving
operating margins.
"We've seen continued momentum in higher growth areas where we have focused
recent investment, testament to our strategy to realign the portfolio towards
the megatrends shaping our industry. In particular our strong relationships
with local and regional customers is driving growth as they innovate and grow
quickly. And with customer pipelines continuing to expand across biologics,
vaccines and nucleic acid-based drugs, our strategic focus areas in Pharma
will support accelerating growth for Croda in due course.
"We are focused on strengthening the Group through implementing our strategy
with cost and capital discipline, to deliver strong earnings growth in the
future and significant value for our shareholders."
Outlook
We are encouraged by first half performance in Consumer Care, key strategic
Pharma platforms and Industrial Specialties, with improving operating margins
driven by higher sales volumes, price discipline and robust cost control.
However, with a weaker than anticipated performance in Life Sciences due to
continued destocking in Crop Protection and consumer health, and no signs of
an immediate recovery in Crop Protection, we now expect Group adjusted profit
before tax to be between £260m and £280m in full year 2024 at constant
currency(2).
Further information:
A pre-recorded analyst presentation and accompanying slides are now available
at: www.croda.com/investors/ (http://www.croda.com/investors/) . The
pre-recorded presentation will be played via webcast at 0900 BST on 30 July
2024; this will then be followed by a live Q&A at 0930 BST. Please
register via at www.croda.com/investors/ (http://www.croda.com/investors/) .
Investors: David Bishop, Croda +44 7823 874428
Media: Charlie Armitstead, FTI Consulting +44 7974 278280
Notes:
(1) CV19 lipids comprise lipid sales for Covid-19 vaccine applications which
totalled £48m in the second half of 2023. They are excluded from this growth
calculation to give a more informative comparator to the underlying business,
as no CV19 lipid sales are expected in 2024.
(2) Constant currency expectations are based on the Group's average exchange rates
through 2023. H124 adjusted profit before tax was adversely impacted by
£6.5m due to strengthening Sterling. Assuming 1 July 2024 exchange rates for
the remainder of the year, we estimate translation would have a further £5m
adverse impact on Group adjusted profit before tax in the second half of the
year. The Group's exchange rate sensitivity analysis in provided in the
Financial performance section.
Alternative Performance Measures (APMs): We use a number of APMs to assist in
presenting information in this statement. We use such measures consistently at
the half year and full year, and reconcile them as appropriate. Whilst the
Board believes the APMs used provide a meaningful basis upon which to analyse
the Group's financial performance and position, which is helpful to the
reader, it notes that APMs have certain limitations, including the exclusion
of significant recurring items, and may not be directly comparable with
similarly titled measures presented by other companies.
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. Constant
currency results are the primary measure used by management to monitor the
performance of overseas business units, since they remove the impact of
currency translation into Sterling, the Group's reporting currency, over which
those overseas units have no control. Constant currency results are similarly
useful to shareholders in understanding the performance of the Group excluding
the impact of movements in currency translation over which the Group has no
control. Constant currency results are reconciled to reported results in the
review of financial performance below. The APMs are calculated as follows:
a) For constant currency profit, translation is performed using the entity
reporting currency before the application of IAS 29 hyperinflation and any
associated one-off foreign exchange gains or losses;
b) 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;
· Underlying results: these reflect constant currency values adjusted to exclude
acquisitions in the first year of impact. They are used by management to
measure the performance of each sector before the benefit of acquisitions are
included, in order to assess the organic performance of the sector, thereby
providing a consistent basis on which to make year-on-year comparison. They
are seen as similarly useful to shareholders in assessing the performance of
the business. Underlying results are reconciled to reported results in the
Financial performance section below;
· Adjusted results: these are stated before exceptional items (as disclosed in
the review of financial performance below) 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 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;
· Operating margin or return on sales: this is adjusted operating profit divided
by sales, at reported currency. Management uses the measure to assess the
profitability of each sector and the Group, as part of its drive to grow
profit by more than sales value, in turn by more than sales volume as set out
in the Group performance section below;
· Net debt: comprises cash and cash equivalents (including bank overdrafts),
current and non-current borrowings and lease liabilities. Management uses this
measure to monitor debt funding levels and compliance with the Group's funding
covenants which also use this measure. It believes that net debt is a helpful
additional measure for shareholders in assessing the risk to equity holders
and the capacity to invest more capital in the business;
· Leverage ratio: this is the ratio of net debt to Earnings Before Interest,
Tax, Depreciation and Amortisation (EBITDA) adjusted to include EBITDA from
acquisitions or disposals in the last 12 month period. EBITDA is adjusted
operating profit plus depreciation and amortisation. Calculations and
reconciliations are provided in the five year record of the Group's Annual
Report. The Board monitors the leverage ratio against the Group's debt funding
covenants and overall appetite for funding risk, in approving capital
expenditure and acquisitions. It believes that the APM is a helpful additional
measure for shareholders in assessing the risk to equity holders and the
capacity to invest more capital in the business;
· Free cash flow: comprises net cash generated from operating activities
adjusted for the cash effect of exceptional items less net capital expenditure
and payment of lease liabilities, plus interest received. The definition of
free cash flow was revised in the prior year to better align with the most
directly reconcilable line in the Group's IFRS cash flow statement. The Board
uses free cash flow to monitor the Group's overall cash generation capability,
to assess the ability of the Company to pay dividends and to finance future
expansion, and, as such, it believes this is useful to shareholders in their
assessment of the Group's performance;
· New and Protected Products (NPP): these are products which are protected by
virtue of being either newly launched, protected by intellectual property or
by unique quality characteristics. NPP is used by management to measure and
assess the level of innovation across the Group.
Croda International Plc
Group performance
We use a number of APMs to assist in presenting information in this statement
which are defined on page 3. Percentage changes are comparisons with reported
H123 results unless stated. For a reconciliation of % changes compared with
H223 results see Sector performance section. Where explicitly stated, constant
currency comparisons remove the impact of currency translation into Sterling,
the Group's reporting currency.
Group performance in line with expectations with sequential sales and margin improvement (ex CV19 lipids)
The Group's performance in the first half of the year was in line with
expectations, driven by strong Consumer Care sales volumes and a steady
sequential improvement in Industrial Specialties sales offset by continued
weakness in Life Sciences.
Group sales were £815.9m (H123: £880.9m), with volume flat, price/mix down
5%, a 1% contribution from the Solus Biotech acquisition which completed in
July 2023, and a 3% headwind from foreign exchange, leading to reported sales
down 7%.
The 4% reduction in sales at constant currency comprised a 6% increase in
Consumer Care, a 16% reduction in Life Sciences and a 14% reduction in
Industrial Specialties. After record results in 2021 and 2022 when Croda
significantly benefitted from CV19-related sales and customers building up
inventory levels, Group performance has been impacted by prolonged
industry-wide destocking and weaker economic conditions.
Encouragingly, customer inventories and demand have become more stable in
Consumer Care and Industrial Specialties, with Consumer Care sales up by 9%
compared with the second half of last year, and Industrial Specialties up 21%
on the same basis. In Life Sciences, destocking has continued in crop
protection and consumer health markets, but sequential sales growth in Pharma
compared with H2 last year (excluding CV19 lipids) and improving orders
provide some encouraging signs. Overall, the Group returned to sales growth in
the second quarter compared with Q2 last year.
Raw material costs have continued to fall in the period, ending the half
approximately 4% lower on average than on 1 January 2024, following around a
12% reduction in 2023. Raw material costs now appear to have "bottomed out"
with the significant fall over the last 18 months facilitating lower prices to
customers in certain markets, in turn helping to drive the recovery in sales
volumes and higher levels of manufacturing site utilisation. Importantly, the
margin that we make in our sales prices on these raw materials has remained
robust and broadly in line with the pre-pandemic period.
Group adjusted operating profit margin was below the prior period at 16.6%
(H123: 20.0%) but was 1.6 percentage points higher than in the second half of
2023 (excluding CV19 lipid sales), improving more quickly than anticipated.
This was due to better capacity utilisation, pricing discipline and robust
cost control reflecting our focus on "controlling what we can control".
Ongoing margin expansion will come from higher sales volumes and improved
price/mix, helped further by a continued recovery in post-pandemic demand.
Profit before tax (on an IFRS basis) was £106.1m (H123: £128.7m) and
adjusted profit before tax was £127.3m (H123: £174.3m) or £133.8m at
constant currency, with foreign exchange rates reducing reported PBT by
£6.5m.
With low utilisation rates at our larger manufacturing sites negatively
impacting margins over the last 18 months, sales volumes and efficiencies are
a focus for Croda. However, fundamentally we remain a high value-added
ingredients business, differentiated by innovation and focused on value over
volume. The technology trends driving our future growth have not changed with
a continued transition to sustainable ingredients and biologics demanding high
levels of innovation. We have successfully realigned our portfolio with these
megatrends, supported by continued investment in R&D and carefully
considered capacity expansion, and we are now focused on driving earnings
growth to deliver returns on recent investments.
Our innovation pipelines are expanding, with customers continuing to invest in
new product development. Sales of new and protected products (NPP) grew to 36%
of total sales (H123: 34%) and we saw continued increases in the proportion of
NPP sales in Consumer Care and Life Sciences. Total NPP sales grew 2% at
constant currency.
For us, sustainability has a direct link to commercial value because we
provide customers with ingredient options, often unique to Croda, that help
them meet their own sustainability commitments. Demand is increasing for our
ingredients that are differentiated by their sustainability characteristics
with sales of ECO surfactants, for example, continuing to grow. We continue to
be recognised for our sustainability leadership with further improvements in
our sector-leading CDP and FTSE4Good scores, alongside our 'Triple A' rating
from MSCI.
Sector summary
Consumer Care - growing in key markets
Consumer Care increased sales to £468.4m (H123: £455.6m), up 3% on a
reported basis, 6% at constant currency and 9% compared with the second half
of 2023. Second quarter sales were up 6% compared with the same period last
year.
Reported sales growth was driven by a recovery in sales volumes, which were up
14%, with price/mix 9% lower as a result of lower prices and the mix impact of
some more tactical business, particularly in Beauty Care. Acquisitions added
1% from sales of ceramides following the Solus Biotech acquisition, whilst
foreign currency translation was a 4% headwind. There was a notable 9%
increase in constant currency sales to local and regional customers who are
innovating and growing quickly.
NPP sales grew 11% at constant currency and improved to 42% of total sales
(H123: 40%), reflecting customer investment in new product development and our
focus on innovation to drive the continued differentiation of our ingredient
portfolio. Sustainability continues to influence customer buying behaviour as
illustrated by strong demand for our bio-based ECO surfactants as well as good
interest in our new biotech-derived surfactants. We are also leveraging our
leadership position in sustainability with carbon footprint data now available
for over 80% of product codes in Beauty Care, and recently launched for Beauty
Actives and Home Care, enabling customers to quantify the benefits associated
with using our ingredients in their products.
IFRS operating profit was £68.9m (H123: £79.2m) and adjusted operating
profit was £82.5m (H123: £95.2m). Adjusted operating profit margin was below
the prior period at 17.6% (H123: 20.9%) but was 2.5 percentage points higher
than in the second half of 2023.
All regions delivered higher sales on a constant currency basis. Sales in the
key Asian markets of China, India and South Korea continued to grow strongly
including double-digit percentage growth in China, with Asia the primary focus
of Consumer Care investment.
By business unit, 9% sales growth in Beauty Actives was led by Asia, where the
business benefits from its strong relationships with local and regional
customers, particularly in China. Following our acquisition of Solus Biotech
in July 2023, we have made good progress implementing our growth plan for its
fermentation-derived active ingredients, integrating the business with our
South Korean operations, exiting distributor relationships and leveraging
Croda's global selling network as well as our formulation expertise.
Beauty Care sales were down 6%, but up 9% compared with the second half of
last year, with performance in North America benefitting from regained share
previously lost due to our inability to meet all of the demand for certain
ingredients at the peak of restocking in 2022.
Our Fragrances and Flavours (F&F) business has continued to grow ahead of
'tier one' peers, with sales up 13%, reflecting its niche positioning with
local and regional customers outside North America and Europe.
Home Care also delivered continued double-digit percentage growth in sales,
which were up 15%, due to its focus on innovative ingredients differentiated
by sustainability, including ECO surfactants and our range of biopolymers
which extend the life of fabrics.
Life Sciences - impacted by destocking in Crop Protection and consumer health
Life Sciences sales were down 19% to £246.2m (H123: £303.2m), or by 16% in
constant currency, principally reflecting the exceptional Crop Protection
performance in early 2023 before destocking began. Sales of NPP improved to
33% of total sales (H123: 31%) as our strategic focus areas in Pharma grew
more quickly than sales for consumer health applications and with a lower
proportion of Crop Protection sales.
On a reported basis, volume was 17% lower while price/mix fell 1%.
Acquisitions added 2% due to sales of phospholipids following the Solus
Biotech acquisition, and foreign currency translation was a 2% headwind.
Whilst Life Sciences has continued to be impacted by destocking in crop
protection and consumer health markets, sequential sales growth in Pharma
compared with H2 last year (excluding CV19 lipid sales) and improving orders
provide some encouraging signs. Despite adverse FX, reported Pharma sales were
up 3% compared with the second half of last year (ex CV19 lipids), with second
quarter sales in 2024 higher than in quarter one.
IFRS operating profit was £37.6m (H123: £63.6m) and adjusted operating
profit was £45.0m (H123: £72.3m). The resulting adjusted operating profit
margin of 18.3% (H123: 23.8%) continued to be negatively impacted by low sales
volumes in Crop Protection partially offset by robust cost control.
In Pharma, some of the challenges that faced healthcare markets in 2023, such
as CV19 normalisation and destocking in consumer health, continued into the
first half of this year. Lower CV19 demand adversely impacted Adjuvant Systems
and destocking primarily effected our consumer health business. Sales of
delivery systems for nucleic acid and protein-based drugs, both strategic
focus areas for Croda, have continued to grow. We are making further progress
building industry-leading positions in high-growth markets, and customer
pipelines across biologics, vaccines and nucleic acid-based drugs are
continuing to expand. We are also bringing new drug delivery technologies to
market as planned, including novel lipid-based adjuvants, which are already
contributing sales.
In Crop Protection, sales were down 33% against a strong prior year comparator
and were 2% lower than the second half of last year with the absence of a
positive inflection in demand. Following an exceptional 2022, when Crop
Protection delivered ~50% sales growth, agriculture markets have subsequently
seen a prolonged period of destocking compounded by weather and flooding
issues in the period, and by stable-but-lower commodity prices. As a result,
while some customer inventory levels are now lower than in 2023, we have not
yet seen a normalisation in order cycles, however the seasonality of planting
cycles provides a further opportunity for improved demand in quarter four. We
are focused on innovation and developing sustainable crop care solutions to
meet customers' immediate and longer-term needs. Sales were 10% lower in Seed
Enhancement, a seasonally second half weighted business, but sales of
microplastic-free seed coatings grew strongly reflecting Croda's
market-leading position and the EU's decision to ban the use of microplastics
in seed coatings by 2028.
Industrial Specialties - contributing to the efficiency of our shared manufacturing sites
Croda's Industrial Specialties business plays an important role in our Group
manufacturing model, contributing to the efficiency of our shared
manufacturing site model by helping to optimise utilisation rates, maximising
sales into niche value-added industrial applications using Croda's core
chemistries, and operating a supply contract to the new owner of the
industrial businesses that we divested in June 2022.
Industrial Specialties sales were down 17% to £101.3m (H123: £122.1m), with
both volumes and price/mix lower, against strong 2023 comparators with market
conditions progressively weakening through 2023. Sequentially, sales improved
by 21% compared with the second half of 2023 with improving volumes and
positive mix, and Q2 sales were higher than Q1.
IFRS operating profit was £7.9m (H123: a loss of £12.6m) and adjusted
operating profit was £8.1m (H123: £8.3m). The resulting adjusted operating
profit margin was 8.0% (H123: 6.8%), a 6.7 percentage point improvement on the
second half of 2023.
Regional summary
Key drivers of performance were similar globally, with higher Consumer Care
sales in every region particularly to local and regional customers but Life
Sciences behind, and operating margins stronger than anticipated. Asia led the
way in Consumer Care with North America delivering a good performance as
Beauty Care demand returned. In Life Sciences, Crop Protection was weak in all
regions, but saw some improvement towards the end of the period particularly
in Latin America. Pharma performance varied depending on the sales profile in
the region, with North America the most robust due its emphasis on biologic
drug development, and Latin America the weakest with its focus on
over-the-counter consumer health applications.
Continued balance sheet strength
Our focus on cash flow management continues to deliver excellent results with
improved free cash flow of £122.7m (H123 (restated): £72.8m) including a
working capital inflow of £43.5m (H123: £9.7m outflow) more than offsetting
lower profit.
Enhanced by this improved free cash flow, our balance sheet remains strong
with our debt leverage ratio within our target range of one to two times at
1.4x. This is enabling disciplined investment in our portfolio in line with
our capital allocation policy (as outlined in the Finance performance section
below) and accompanying returns criteria.
In Life Sciences, we are investing in a new applications centre for Nucleic
Acid Delivery in Singapore as well continued investment in R&D
capabilities at the Alabaster site in the USA acquired with Avanti. We are
investing £175m in the period 2021 to 2025 to add Pharma manufacturing
capacity, with the US and UK Governments co-investing up to an additional
£75m combined, and we have invested ~£120m in the programme to date.
Reflecting the strategic focus on high-growth markets in Asia, the principal
capital expenditure projects in Consumer Care are a new surfactants plant in
Dahej, India, due to be commissioned in early 2025, and a combined Beauty
Actives and F&F manufacturing facility in Guangzhou to grow domestic sales
in China.
Given the challenging market conditions, we reviewed the pace of in-flight
capital expenditure projects to carefully consider phasing. First half capital
expenditure of £69.7m (H123: £76.1m) was broadly in line with our guidance
of ~£150m for the full year. We are expecting a similar level of capital
expenditure in 2025 as the Pharma investment programme concludes, after which
annual capex should trend downwards as a percentage of sales as we utilise the
capacity we have built and investment in future capacity is highly
selective.
Closing net debt was £507.9m (31 Dec 2023: £537.6m) resulting in a debt
leverage ratio of 1.4x (31 Dec 2023: 1.3x), towards the lower end of our one
to two times target range and providing continued resilience and optionality.
Following the significant portfolio transition in recent years, our focus is
now on delivering returns from recent investments, and we would expect any
acquisitions in the near term to be focused on small adjacent technologies.
Building on our record of consistent distribution to shareholders, the Board
is proposing to maintain the interim dividend flat at 47.0p (H123: 47.0p).
Proven strategy
Portfolio well positioned for earnings growth
Croda is built on strong fundamentals, including a clear Purpose: Smart
science to improve lives(TM), a unique culture and a successful business model
focused on relentless innovation. We provide mission-critical, novel
ingredients that represent a fraction of customers' costs but are vital to the
performance of their products. With a portfolio aligned with long-term
technology trends, our strategy is well established and supported by
consistent investment.
Despite ongoing challenging conditions in some of our markets, the technology
trends that will drive our future growth have not changed, namely the demand
for sustainable ingredients and the continued transition from small molecule
active ingredients to large molecule biologics. Through active portfolio
management we have successfully realigned our portfolio with these megatrends
and our approach is now to extract value from recent acquisitions and to drive
earnings growth.
Our strategy is to combine market-leading innovation with sustainability
leadership to deliver profit growth, ahead of sales growth and ahead of cost
growth. Innovation is our key differentiator, creating new market and
technology niches. Our R&D teams now report directly into Consumer Care
and Life Sciences, ensuring that our priorities are customer-driven and
aligned with unmet needs. We have stepped up our rate of internal innovation
within Croda and through more external partnerships to access world-leading
expertise in technologies like biotech, in total filing more than 50 new
patents in the first half year. Customer demand for our innovation-led
approach is evidenced by further growth in the proportion of New and Protected
Products that we sell, more engagement with global brands on new product
development, and increased sample requests.
As well as offering a current portfolio of sustainable ingredients that
provide customers with practical options to meet their sustainability
commitments, we are applying our innovation to create new sustainable
ingredients and reduce emissions, supported by best-in-class validation data
to enable customer decision-making. We can demonstrate the benefits of using
our ingredients with cradle-to-gate product-level carbon footprint data now
available for ingredients in Life Sciences and Industrial Specialties as well
as Consumer Care, enabling customers to quantify the positive impact on the
carbon footprint of their products. As we work towards achieving our 2030
goals, we are reviewing our sustainability strategy to focus on those
commitments that deliver the most significant benefits to our customers whilst
also having the most positive impacts on the planet and its people.
Focused on innovation-led growth in Consumer Care and Life Sciences
In Consumer Care, our leadership in innovative and sustainable ingredients,
and the breadth and diversity of our ingredient portfolio, customer base and
geographic reach are our key strengths. With the continued fragmentation of
Consumer Care markets, our ability to support local and regional customers,
which represent over 78% of sales (H123: 77%), is a particularly important
source of competitive advantage as these customers innovate and grow quickly.
Our strategy is to localise the delivery of innovation to meet the specific
requirements of consumers in each region, "widen the gap" in our
sustainability leadership, and prioritise selected countries, notably China
and India, where we are growing strongly.
In Life Sciences, the move to biologics is the principal technology trend in
both pharmaceutical and agriculture markets over the next decade. Through
execution of our strategy, we have established our Crop Protection business as
innovation partner for delivery systems to meet the sustainability challenges
of conventional pesticide delivery while creating new systems specifically to
support the move to biopesticides which will be an important structural driver
of medium-term growth.
In Pharma, we have established an industry-leading position in empowering
biologics delivery, with a business that has excellent competitive positioning
across three technology platforms: Protein and Small Molecule Delivery which
has an industry-leading portfolio of speciality high purity excipients;
Adjuvant Systems which is the only independent supplier with the portfolio of
adjuvants needed for future vaccine applications; and Nucleic Acid Delivery
which has a unique portfolio of over 2,000 lipids and polymers used as
delivery systems for nucleic acid-based drugs. Pharma is focused on segments
with the highest innovation needs presenting opportunities for strong growth
at high margins. It has a well-diversified risk portfolio combining both near
and medium-term growth opportunities with novel technologies generating
revenue at every stage of the development cycle of new drugs spanning
discovery through to commercial supply.
Continued operational progress
We are focused on delivery, enhancing our leadership, driving operational
efficiencies, and ensuring rigorous cost control to continue our long record
of strong performance and progressive shareholder returns.
Focused on leadership and engagement
Reflecting our focus on talent and succession, we have recently appointed two
senior leaders to our Executive Committee from outside Croda who have directly
relevant sector experience and will join us next year. On 1 July 2024, we
announced the appointment of Stephen Oxley as Chief Financial Officer (CFO)
and Executive Director. Stephen is currently CFO of Johnson Matthey Plc, and
has valuable experience in setting and executing strategy, enhancing business
performance, transformation and corporate transactions. We have also recently
appointed Thomas Riermeier as President of Life Sciences, who joins us from
Evonik Industries AG where he has run the Health Care business with
responsibility for drug substances, drug delivery and products, and health
solutions, including lipid delivery systems for nucleic acid-based vaccines
and drugs.
We are focused on employee engagement, ensuring that we listen to our people
and act on their feedback, seeking to build on already strong engagement
levels illustrated by an 83% completion rate and 68% overall engagement score
in the recent survey. Most employees have a financial stake in Croda's success
through high levels of share ownership, which remain at over 80% in the UK and
over 70% elsewhere, aided by our Free Share Plan.
Focused on operational efficiencies
A new organisational structure has been in place since the start of 2024 which
makes Consumer Care and Life Sciences fully accountable for strategy and
performance. The new organisation has clarified accountabilities, is ensuring
we deliver more quickly and effectively for our customers and has simplified
our structure for employees. Whilst the motivation for the change was not to
reduce costs, the new structure is more efficient, and we are on track to
deliver annual cost savings of £9m from 2025.
We are constantly evaluating opportunities to drive efficiency savings by
simplifying our business processes and improving the way we work. We have
established a centre of operational excellence to drive improvements with
near-term impact such as a review of all indirect procurement, to reduce the
amount we spend on external services, and a review of our storage and
distribution network. Other workstreams will deliver sustained benefits to our
operational effectiveness over the longer term including the use of artificial
intelligence, data analytics, online ordering tools and a multi-year SAP
upgrade. These workstreams are already positively impacting our customer net
promoter score which is currently +34, with scores for 'ease of doing
business' showing notable improvements.
Facilitated by the new organisational structure, we are accelerating the
integration of recent acquisitions to drive cost synergies, alongside the
growth synergies that are already progressing well. Integration activities
include a focus on consolidation of our site footprint and adsorption into our
established infrastructure, such as the closure of an office providing
administrative support to our Seed Enhancement business in China. We have also
closed an acquired laboratory in Sweden whilst retaining the associated
intellectual property and scientific expertise.
Continuous cost discipline and strict control of discretionary expenditure is
playing an important role in maximising efficiencies and our earnings,
alongside the prioritisation of customer-facing activities to drive sales
volumes and strong capital discipline. Many of the self-help measures that we
have introduced are the right thing to do for the business over the longer
term as well as having a positive impact on Group operating margin this year.
We will review our cost base further on completion of our annual strategic
planning process in the second half of the year.
Outlook
We are encouraged by first half performance in Consumer Care, key strategic
Pharma platforms and Industrial Specialties, with improving operating margins
driven by higher sales volumes, price discipline and robust cost control.
However, with a weaker than anticipated performance in Life Sciences due to
continued destocking in Crop Protection and consumer health, and no signs of
an immediate recovery in Crop Protection, we now expect Group adjusted profit
before tax to be between £260m and £280m in full year 2024 at constant
currency. Croda will provide an update on third quarter sales performance on
Monday 11 November 2024.
Technical foreign exchange guidance
Constant currency expectations are based on the Group's average exchange rates
through 2023 which were US$1.243 and €1.149. The US Dollar and the Euro
represent approximately 65% of the Group's currency translation exposure. We
estimate that the average annual currency translation impact on adjusted
operating profit is £1m per Dollar cent movement per annum and £1m per Euro
cent movement per annum. H124 adjusted profit before tax was adversely
impacted by £6.5m due to strengthening Sterling. Assuming 1 July 2024
exchange rates for the remainder of the year, we estimate translation would
have a further £5m adverse impact on Group adjusted profit before tax in the
second half of the year.
Non-financial performance
Higher sales of New and Protected Products reflecting strong customer demand for innovation
Croda is a high value-added ingredients business, differentiated by innovation
and focused on value over volume. Our principal measure of innovation is sales
of New and Protected Products (NPP) which are defined as sales protected by
virtue of being newly launched, protected by intellectual property or by
unique quality characteristics. We measure both NPP sales as a proportion of
total sales and NPP sales growth.
NPP sales increased to 36% of total sales (H123: 34%), driven by continued
increases in the proportion of NPP sales in Consumer Care and Life
Sciences.
In Consumer Care, NPP improved to 42% of total sales (H123: 40%), reflecting
customer investment in new product development and our focus on innovation to
drive the continued differentiation of our ingredient portfolio. In Life
Sciences, sales of NPP improved to 33% of total sales (H123: 31%) as our
strategic focus areas in Pharma grew more quickly than sales for consumer
health applications, and with a lower proportion of Crop Protection sales.
Group NPP sales grew 2% at constant currency, driven by an 11% constant
currency increase in Consumer Care, with all four business units in Consumer
Care growing NPP sales on that basis.
Continued recognition for our sustainability leadership
For Croda, sustainability has a direct link to commercial value because we
provide customers with ingredient options often unique to Croda that help them
meet their own sustainability commitments. We continue to be recognised for
our sustainability leadership in the most robust global rankings. This
includes CDP - which rates us A- across their key Climate, Forest and Water
metrics with a further improvement in scores achieved this year, by MSCI -
which rates us "triple A," and by FTSE4Good - which recognised our
environmental leadership with a further improvement in our score in the
period.
We use smart science to create high performance ingredients that improve lives
and aim to have positive global impacts on climate, nature, and society in
line with our commitment to be Climate, Land and People Positive by 2030, with
interim targets set for 2024.
To be Climate Positive, the use of our ingredients will enable consumers to
avoid more carbon than is associated with our operations and supply chain.
Delivering on our carbon emission reduction targets will ensure we contribute
to limiting the global temperature rise to no more than 1.5°C above
pre-industrial levels. In line with our verified science-based target (SBT),
we will reduce operational greenhouse gas emissions by 46.2% between 2018 and
2030. Our scope 1 and 2 emissions were 57,517 tonnes CO2e (H123: 54,257 CO2e
(restated)), and we are on track to meet both our 2024 interim target and our
2030 SBT.
We are already Land Positive, saving more land through the use of our crop
protection, biostimulant and seed enhancement technologies, than is used to
grow our bio-based raw materials, and our target now is to save at least
200,000 hectares more land per year in 2030 than in our 2019 baseline. We are
also committed to bringing 10 technological breakthroughs to market in
Agriculture by 2024 and are on-track to meet this interim goal. In 2022, we
announced our aspiration to build on our Land Positive Commitment to
contribute to a Nature Positive world with our focus currently on
understanding our impacts and dependencies on nature.
Our People Positive objective covers both our employees and wider society. We
focus on using our smart science to improve more lives globally, with the
Croda Foundation committing £4.4m in project funding since it was founded as
a charity in 2021. Reflecting our absolute commitment to be a safe company for
our communities and our employees, we have set a stronger safety target to
reduce our Total Recordable Incident Rate ("TRIR") to 0.3 by 2025. The rate
fell to 0.57 (H123: 0.83.)
Financial performance
Currency translation
Sterling strengthened against both the US Dollar, at US$1.266 (H123: US$1.234)
and against the Euro, at €1.170 (H123: €1.141). Currency translation
reduced sales by £27.0m and adjusted operating profit by £6.9m. This was
driven by both the strength of Sterling against the US Dollar and the Euro
(which together represent approximately 65% of the Group's currency
translation exposure) and by the impact of changes in exchange rates for other
smaller currencies including the effect of the application of IAS 29
('Financial Reporting in Hyperinflationary Economies') to reporting in
Argentina and Turkey. We estimate that the average annual currency translation
impact on adjusted operating profit is £1m per Dollar cent movement per annum
and £1m per Euro cent movement per annum.
Sales
Sales H124 Price/mix Volume Acquisition Constant currency change Currency H123
£m £m Change
Consumer Care 468.4 (8.5)% 13.7% 1.1% 6.3% (3.5)% 455.6 2.8%
Life Sciences 246.2 (1.2)% (16.7)% 1.5% (16.4)% (2.4)% 303.2 (18.8)%
Industrial Specialties 101.3 (9.7)% (4.4)% 0.0% (14.1)% (2.8)% 122.1 (16.9)%
Group 815.9 (5.2)% (0.2)% 1.0% (4.4)% (3.0)% 880.9 (7.4)%
Group sales were down 7% to £815.9m (H123: £880.9m), with volume flat,
price/mix down 5%, a 1% contribution from the Solus Biotech acquisition
completed in July 2023, and a 3% headwind from foreign exchange.
The 4% reduction in sales at constant currency comprised a 6% increase in
Consumer Care with Life Sciences and Industrial Specialties lower by 16% and
14% respectively. After record results in 2021 and 2022 when Croda
significantly benefitted from CV19-related sales and customers building up
inventory levels, Group performance has been impacted by prolonged
industry-wide destocking and weaker economic conditions.
Sequential sales improving
Sales H124 H223 Change H223 Change(1)
£m £m ex CV19
£m(1)
Consumer Care 468.4 430.5 8.8% 430.5 8.8%
Life Sciences 246.2 299.1 (17.7)% 251.1 (1.9)%
Industrial Specialties 101.3 84.0 20.6% 84.0 20.6%
Group 815.9 813.6 0.3% 765.6 6.6%
( )
(1) Life Sciences and Group sales exclude £48m of lipid sales for CV19
vaccine applications in Q4 2023. They are excluded from this growth
calculation to give a more informative comparator to the underlying business,
as no CV19 lipid sales are expected in 2024.
Customer ingredient inventories and demand have become more stable in Consumer
Care and Industrial Specialties, with Consumer Care sales up by 9% compared
with the second half of last year, and Industrial Specialties up 21% on the
same basis. In Life Sciences, destocking has continued in crop protection and
consumer health markets but sequential sales growth in Pharma compared with H2
last year (excluding CV19 lipids), and improving orders provide some
encouraging signs.
Quarterly sales performance
Overall, the Group returned to growth in the second quarter compared with the
prior year with sales in Consumer Care 6% higher. In comparison with the first
quarter of 2024, second quarter sales were down 2% in Consumer Care due to the
impact of a strong January on first quarter sales but increased 2% in Life
Sciences driven by Pharma and by 3% in Industrial Specialties as sales
continued to recover.
Sales £m Consumer Life Industrial Group Life Sciences Group
Care Sciences Specialties (ex-CV19)* (ex-CV19)*
Q1 2023 236.8 170.8 69.1 476.7 170.8 476.7
Q2 2023 218.8 132.4 53.0 404.2 132.4 404.2
Q3 2023 218.2 125.0 43.7 386.9 125.0 386.9
Q4 2023 212.3 174.1 40.3 426.7 126.1 378.7
Q1 2024 236.8 121.8 49.9 408.5 121.8 408.5
Q2 2024 231.6 124.4 51.4 407.4 124.4 407.4
H1 2023 455.6 303.2 122.1 880.9 303.2 880.9
H2 2023 430.5 299.1 84.0 813.6 251.1 765.6
H1 2024 468.4 246.2 101.3 815.9 246.2 815.9
*Life Sciences and Group sales exclude £48m of lipid sales for CV19 vaccine
applications in Q4 2023.
They are excluded from this growth calculation to give a more informative
comparator to the underlying business, as no CV19 lipid sales are expected in
2024.
Profit and margin
H124 H123
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
£m £m £m £m £m £m
Sales 815.9 - 815.9 880.9 - 880.9
Cost of sales (448.7) - (448.7) (498.4) - (498.4)
Gross profit 367.2 - 367.2 382.5 - 382.5
Operating costs (252.8) (21.2) (231.6) (252.3) (45.6) (206.7)
Operating profit 114.4 (21.2) 135.6 130.2 (45.6) 175.8
Net interest charge (8.3) - (8.3) (1.5) - (1.5)
Profit before tax 106.1 (21.2) 127.3 128.7 (45.6) 174.3
Tax (26.0) 4.9 (30.9) (40.3) 4.0 (44.3)
Profit after tax 80.1 (16.3) 96.4 88.4 (41.6) 130.0
H124 H123
Operating profit/(loss) IFRS Adjustments Adjusted IFRS Adjustments Adjusted
£m £m £m £m £m £m
Consumer Care 68.9 (13.6) 82.5 79.2 (16.0) 95.2
Life Sciences 37.6 (7.4) 45.0 63.6 (8.7) 72.3
Industrial Specialties 7.9 (0.2) 8.1 (12.6) (20.9) 8.3
Group 114.4 (21.2) 135.6 130.2 (45.6) 175.8
Adjustments H124 H123
£m
£m
Business acquisition costs - (7.7)
Restructuring costs (2.4) -
Impairments - (20.8)
Amortisation of intangible assets arising on acquisition (18.8) (17.1)
Total adjustments (21.2) (45.6)
H124 Underlying growth Acquisition impact Constant currency change Currency H123
£m £m £m impact £m Change
£m
Adjusted profit
Consumer Care 82.5 (8.5) (0.1) (9.0)% (4.1) 95.2 (13.3)%
Life Sciences 45.0 (24.3) (0.6) (34.4)% (2.4) 72.3 (37.8)%
Industrial Specialties 8.1 0.2 - 2.4% (0.4) 8.3 (2.4)%
Operating profit 135.6 (32.6) (0.7) (18.9)% (6.9) 175.8 (22.9)%
Net interest (8.3) (1.5)
Profit before tax 127.3 174.3
Cost of sales benefitted from a reduction in raw material costs, which ended
the half year ~4% lower on average than 1 January 2024, in addition to the
~12% reduction in 2023. Compared with the second half of last year, people and
freight costs were higher as anticipated, and energy costs were broadly flat.
IFRS operating profit was £114.4m (H123: £130.2m). IFRS operating profit
included a charge for adjusting items of £21.2m (H123: £45.6m), comprising
an £18.8m (H123: £17.1m) charge for amortisation of acquired intangibles and
continuing restructuring costs associated with changes to the Group's
operating model of £2.4m (H123: £nil).
Group adjusted operating profit was £135.6m (H123: £175.8m). The operating
profit margin was 16.6% (H123: 20.0%) due to weaker price/mix and the partial
unwind of the benefit we saw in 2023 from a negligible variable remuneration
charge. The operating margin was 1.6 percentage points higher than in the
second half of 2023 (excluding CV19 lipid sales), improving more quickly than
anticipated. This was due to better capacity utilisation and robust cost
discipline reflecting our focus on "controlling what we can control" with the
self-help measures that we have introduced expected to benefit Group operating
margin by approximately half a percentage point this year compared with
initial expectations.
Net finance costs were £8.3m (H123: £1.5m) and we expect net finance costs
to be approximately £20m for 2024, at the top end of our previously
anticipated range. Profit before tax (on an IFRS basis) was £106.1m (H123:
£128.7m) and adjusted profit before tax was £127.3m or £133.8m at constant
currency. The effective tax rate on adjusted profit was 24.3% (H123: 25.4%)
and the effective tax rate on IFRS profit was 24.5% (H123: 31.3%). IFRS basic
earnings per share (EPS) were 57.2p (H123: 63.1p) and adjusted basic EPS were
68.8p (H123: 92.9p).
Strong free cash flow generation
Six months ended 30 June
Cash flow Restated
H124 H123
£m
£m
Adjusted operating profit 135.6 175.8
Depreciation and amortisation 48.9 43.4
EBITDA 184.5 219.2
Working capital 43.5 (9.7)
Interest & tax paid (33.4) (52.3)
Non-cash pension expense 0.9 (1.7)
Share-based payments 1.5 (3.6)
Other cash movements (2.5) (7.7)
Net cash generated from operating activities 194.5 144.2
Net capital expenditure (69.7) (76.1)
Interest received 2.3 5.0
Payment of lease liabilities (8.8) (8.0)
Exceptional items cash outflow add back 4.4 7.7
Free cash flow 122.7 72.8
Dividends (86.6) (85.1)
Acquisitions - (35.1)
Business disposal - (4.4)
Exceptional items cash outflow (4.4) (4.6)
Other cash movements (3.5) (10.3)
Net cash flow 28.2 (66.7)
Net movement in borrowings 14.5 150.7
Net movement in cash and cash equivalents 42.7 84.0
Our focus on cash flow management continues to deliver excellent results with
improved free cash flow of £122.7m (H123 (restated): £72.8m) including a
working capital inflow of £43.5m (H123: £9.7m outflow). This working capital
inflow was primarily driven by the timing of a £48m payment for CV19 lipids
shipped in the final quarter of 2023, as well as careful working capital
management which enabled a modest inventory rebuild to support future demand
without an associated cash outflow.
Continued balance sheet strength
Enhanced by improved free cash flow, our balance sheet remains strong. This is
enabling disciplined investment in our portfolio in line with our capital
allocation policy which is to:
· Reinvest for growth - investment 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;
· Provide regular returns to shareholders - pay a regular dividend to
shareholders, representing 40 to 50% of adjusted earnings over the business
cycle;
· Acquire disruptive technologies - target technology acquisitions
in existing and adjacent markets: and,
· Maintain an appropriate balance sheet and return excess capital -
maintain an appropriate balance sheet to meet future investment and trading
requirements, targeting a leverage ratio of 1 to 2x over the medium-term
cycle. We consider returning excess capital to shareholders when leverage
falls below our target range and sufficient capital is available to meet our
investment opportunities.
Given the challenging market conditions, we reviewed the pace of in-flight
capital expenditure projects to carefully consider phasing. First half capital
expenditure of £69.7m (H123: £76.1m) was broadly in line with our guidance
of ~£150m for the full year. We are expecting a similar level of capital
expenditure in 2025 as the Pharma investment programme concludes, after which
annual capex should trend downwards as a percentage of sales as we utilise the
capacity we have built and investment in future capacity is highly
selective.
Following the significant portfolio transition in recent years, our focus is
now on delivering returns from recent investments, and we would expect any
acquisitions in the near term to be focused on small adjacent technologies.
Building on our record of consistent distribution to shareholders, the Board
is proposing to maintain the interim dividend flat at 47p (H123: 47p).
Closing net debt fell to £507.9m (31 Dec 23: £537.6m), with a leverage ratio
of 1.4x EBITDA (31 Dec 23: 1.3x), within our 1-2x target range. As at 30 June
2024, the Group had committed funding in place of £1,045.9m, with undrawn
long-term committed facilities of £364.8m and £209.3m in cash.
Retirement benefits
The post-tax asset on retirement benefit plans at 30 June 2024, measured on an
accounting valuation basis under IAS19, was £94.1m (31 December 2023:
£64.9m). Cash funding of the various plans is driven by the schemes' ongoing
actuarial valuations. The triennial actuarial valuation of the largest pension
plan, the UK Croda Pension Scheme, was performed as at 30 September 2023 and
indicated that funding position of the scheme had significantly improved. The
scheme was 120.6% funded on a technical provisions basis. Consequently, the
cash cost of providing benefits has fallen and no deficit recovery plan is
required.
Sector performance
Consumer Care - growing in key markets
Consumer Care Change Change
v H123 v H223
Beauty Actives sales 9% 11%
Beauty Care sales (6)% 9%
Fragrances and Flavours sales 13% 8%
Home Care sales 15% 3%
Total Consumer Care sales 3% 9%
Consumer Care H124 H123 Change Constant currency change H223 Change
£m £m £m
Sales 468.4 455.6 3% 6% 430.5 9%
Adjusted operating profit 82.5 95.2 (13)% (9)% 65.1 27%
Adjusted operating margin 17.6% 20.9% (3.3)ppts 15.1% 2.5ppts
Consumer Care increased sales to £468.4m (H123: £455.6m), up 3% on a
reported basis, 6% at constant currency and 9% compared with the second half
of 2023. Second quarter sales were up 6% compared with the same period last
year.
Sales growth was driven by a recovery in sales volumes, which were up 14%,
reflecting more stable customer inventory levels. Price/mix was 9% lower due
to the impact of lower prices and the mix impact of some more tactical
business, particularly in Beauty Care. Acquisitions added 1% from sales of
ceramides following the Solus Biotech acquisition, whilst foreign currency
translation was a 4% headwind.
There was a notable 9% increase in constant currency sales to local and
regional customers who are innovating and growing quickly.
NPP sales grew at 11% in constant currency and improved to 42% of total sales
(H123: 40%) reflecting customer investment in new product development and our
focus on innovation to drive the continued differentiation of our ingredient
portfolio. Sustainability continues to influence customer buying behaviour as
illustrated by further strong growth of our ECO bio-based surfactants, as well
as good interest in our new biotech-derived surfactants. We are also
leveraging our leadership position in sustainability with carbon footprint
data now available for over 80% of product codes in Beauty Care, and newly
launched in Beauty Actives and Home Care, enabling customers to quantify the
benefits associated with using our ingredients in their products.
IFRS operating profit was £68.9m (H123: £79.2m) and adjusted operating
profit was £82.5m (H123: £95.2m). Adjusted operating profit margin was below
the prior period at 17.6% (H123: 20.9%) but was 2.5 percentage points higher
than in the second half of 2023, recovering more quickly than anticipated.
All regions delivered higher sales on a constant currency basis. Sales in the
key Asian markets of China, India and South Korea continued to grow strongly
with the Asia region remaining the primary focus of Consumer Care investment.
While our direct sales into China have continued to grow, driven by our
excellent relationships with regional customers, a broad-based recovery in
Chinese consumer spending and travel would underpin improved global demand for
consumer care products.
Consumer Care comprises four business units. Beauty Actives is a leader in
peptides - the most effective ingredient for preventing skin ageing, and
biotech-derived ingredients such as plant cell cultures and now ceramides. The
business delivered 9% sales growth, or 11% compared with the second half of
2023, led by the sale of peptides and a strong increase in sales to Asia which
has been the focus of our recent investment. Sales growth in Asia included a
double-digit percentage increase in China where the business has excellent
relationships with regional customers which are winning market share. Growth
in India was also strong, illustrating the continued premiumisation of
consumer markets there. Whilst peptides drove the sales growth, most new
launches were biotech-based ingredients which offer excellent efficacy
combined with sustainability benefits. Recent launches have included an
anti-aging active with its origins in marine biotechnology, and two active
ingredients derived from plant cell cultures, one that restores natural skin
glow and the other that fades age spots caused by the sun.
Following our acquisition of Solus Biotech in July 2023, we have made good
progress implementing our growth plan for its biotech-derived active
ingredients, integrating the business with our South Korean operations and
exiting all distributor agreements. We are accelerating global sales by
leveraging Croda's global selling network with dedicated business development
leads in each region. The new team is also collaborating with our Beauty
Actives experts in Paris to launch ceramides that are easier for customers to
formulate.
Beauty Care is the largest business unit in Consumer Care, comprising "effect"
ingredients, such as hair care proteins and mineral sunscreens - where we are
already a market leader, and "formulation" ingredients many of which are
differentiated by their sustainability profile, supported by data about their
carbon footprint. We are accelerating innovation to enhance portfolio
differentiation, with NPP sales growing as a proportion of total Beauty Care
sales, whilst also managing sales volumes in the bottom ~20% of the portfolio
where there is less differentiation to underpin consistent plant utilisation.
Sales fell 6%, as higher sales volumes were offset by weaker price/mix against
a prior period that included a strong first quarter, but were 9% ahead of the
second half of 2023. Sales were up in North America in constant currency
benefitting from regained sales previously lost due to our inability to meet
all of the demand for certain ingredients at the peak of restocking in 2022.
Performance also benefitted from our focus on contract manufacturers as an
additional route to local and regional companies, who we can support through
our expertise in trends and formulation. Our sustainable surfactant options
grew particularly well with ECO being formulated into to a leading baby brand
for the first time. Asia was the strongest region where we are supporting
growth with investment, including a new surfactants plant in Dahej, India, due
to be commissioned in early 2025.
Fragrances and Flavours (F&F) continued to grow ahead of 'tier one' peers,
delivering 13% sales growth, benefitting from its niche positioning with local
and regional customers outside North America and Europe. This growth was well
balanced across both Fragrances and Flavours and was driven by a combination
of higher sales with existing customers and new customer wins. Sales synergies
are delivering additional benefits, for example with significant Croda
ingredient sales expected this year to F&F's largest customer based in the
Middle East. Innovation continues to ramp up with 475 new fragrance references
launching each month, and new technologies such as microencapsulation and
malodour control "opening doors" to new customers. To sustain strong growth,
we are investing to expand fine fragrances at our dedicated facility in Grasse
in France, opening a new R&D centre in Dubai, and building a new
manufacturing facility in China which will be joint with Beauty Actives.
Home Care is focused on bringing Croda's ingredients to selective premium home
care markets. This is delivered through two technology platforms which provide
improved efficacy and sustainability: fabric care, with proteins that increase
the lifetime of clothes; and household care, with sustainable alternatives to
fossil-based surfactants. The business delivered continued double-digit
percentage growth, with sales up 15%, as we won new customers for our fabric
care proteins beyond the foundation multinational brands, and new applications
drove continued growth of ECO surfactants, for example, with their inclusion
in a launch of a new environmentally friendly laundry sheet.
Life Sciences - continued progress building industry-leading positions in high-growth markets
Life Sciences Change Change Ex CV19*
v H123 v H223 Change
v H223
Pharma sales (11)% (24)% 3%
Crop Protection sales (33)% (2)% (2)%
Seed Enhancement sales (10)% (17)% (17)%
Total Life Sciences sales (19)% (18)% (2)%
Life Sciences H124 H123 Change Constant currency change H223 Change H223
£m £m £m Ex CV19* Change(*)
£m
Sales 246.2 303.2 (19)% (16)% 299.1 (18)% 251.1 (2)%
Adjusted operating profit 45.0 72.3 (38)% (34)% 78.0 (42)%
Adjusted operating margin 18.3% 23.8% (5.5)ppts 26.1% (7.8)ppts
(*)Life Sciences and Group sales exclude £48m of lipid sales for CV19 vaccine
applications in Q4 2023.
They are excluded from this growth calculation to give a more informative
comparator to the underlying business, as no CV19 lipid sales are expected in
2024.
Life Sciences sales were down 19% to £246.2m (H123: £303.2m), or by 16% in
constant currency, principally reflecting the very strong Crop Protection
performance in the first quarter of 2023 before destocking began in the second
quarter. They fell by 2% compared with the second half of 2023 ex CV19 lipids.
NPP improved to 33% of total sales (H123: 31%) as our strategic focus areas in
Pharma grew more quickly than sales for consumer health applications, and with
Crop Protection a lower proportion of sales.
On a reported basis, volume was 17% lower while price/mix fell 1%.
Acquisitions added 2% due to sales of phospholipids following the Solus
Biotech acquisition, and foreign currency translation was an 2% headwind.
Whilst Life Sciences has continued to be impacted by destocking in crop
protection and consumer health markets, sequential sales growth in Pharma
compared with H2 last year (ex CV19 lipids) and improving orders provide some
encouraging signs. Despite adverse FX, Pharma sales were up 3% compared with
the second half of last year (ex CV19 lipids), with second quarter sales in
2024 higher than in quarter one.
IFRS operating profit was £37.6m (H123: £63.6m) and adjusted operating
profit was £45.0m (H123: £72.3m). The resulting adjusted operating profit
margin of 18.3% (H123: 23.8%) continued to be negatively impacted by low sales
volumes in Crop Protection, partially offset by robust cost control.
In Life Sciences, the move to biologics is the key structural driver of growth
in both pharmaceutical and agriculture markets over the next decade. Through
execution of our strategy, we have established our Agriculture business as
innovation partner for delivery systems, creating new systems specifically for
the delivery of biopesticides and meeting the sustainability challenges of
conventional pesticide delivery. In Pharma, we have established an
industry-leading position in empowering biologics delivery, acquiring and
entering partnerships with businesses with critical knowledge and technology,
then building scale through capital expenditure in partnership with national
governments. This approach has ensured our Pharma business has excellent
competitive positioning focused on segments with the highest innovation needs
and a broad, well diversified portfolio. Thomas Riermeier has recently been
appointed Life Sciences President and will join us from Evonik Industries AG
where he has run their Health Care business with responsibility for drug
substances, drug delivery and products, and health solutions, including lipid
delivery systems for nucleic acid-based vaccines and drugs.
In Pharma, sales declined 11%, as some of the challenges that faced healthcare
markets in 2023, such as CV19 normalisation and destocking in consumer health,
continued into the first half of this year. Lower CV19 demand adversely
impacted Adjuvant Systems and destocking primarily affected our consumer
health business where customer products are normally sold over-the-counter.
Both of these effects appear to be easing with Pharma sales up 3% compared
with the second half of last year (ex CV19 lipids), including an increase in
sales for Consumer Health applications. Sales of delivery systems for nucleic
acid and protein-based drugs, both strategic focus areas for Croda, have
continued to grow.
We are making further progress building industry-leading positions in
high-growth markets, with customer pipelines across biologics, vaccines and
nucleic acid-based drugs continuing to expand, and new Croda drug delivery
technologies brought to market as planned.
· Protein and Small Molecule Delivery has an industry-leading
portfolio of speciality high purity excipients. Following the Solus Biotech
acquisition, sales of naturally derived phospholipids are developing well,
both for intravenous nutrition and as delivery systems for pharma actives.
Virodex, our first bioprocessing aid and a superior alternative to a
competitor product that is now banned in Europe, is already contributing sales
and is in validation phase with eight pharma customers.
· Adjuvant Systems is the only independent supplier with the
portfolio of adjuvants needed for future vaccine applications, in a market
where current systems are owned by individual vaccine companies so are not
available for licensing. Our newly-launched proprietary lipid-based adjuvants
are now sampled into 80 projects and will contribute meaningful sales in the
second half year as a customer's clinical trials progress towards regulatory
drug submission. Future growth will also benefit from recent partnerships for
the supply of sustainable squalene and saponin adjuvants.
· Nucleic Acid Delivery has a unique portfolio of over 2,000 lipids
and polymers used as delivery systems for nucleic acid-based drugs. As pharma
industry drug pipelines continue to expand, our business continues to grow due
to its leading position in the supply of lipids and other materials for drug
discovery and clinical trials. Accelerating medium-term growth will be driven
by the commercialisation of new mRNA vaccines for infectious diseases - where
we are working closely with 'big pharma' companies driving this development,
oncology applications - which require more targeted delivery systems, and gene
editing therapies.
Our principal R&D investments include a new applications centre for
Nucleic Acid Delivery in Singapore and continued investment in the Alabaster
site in the USA acquired with Avanti. We are also investing £175m in the
period 2021 to 2025 to add multi-purpose manufacturing capacity that will
enable our next stage of growth, with the US and UK Governments co-investing
up to an additional £75m combined, and we have invested over ~£120m in the
programme to date.
In Crop Protection, sales declined 33% principally reflecting the very strong
performance in early 2023 before customers began reducing inventory levels,
and were 2% lower than the second half of last year with the absence of
positive inflection in demand. Following an exceptional 2022, when Crop
Protection delivered ~50% sales growth, agriculture markets have subsequently
seen a prolonged period of destocking compounded by weather and flooding
issues in the first half year, and by stable-but-lower prices for soy, wheat
and corn. As a result, while some customer inventory levels are now lower than
in 2023, we have not yet seen a normalisation in order cycles, however the
seasonality of planting cycles provides a further opportunity for improved
demand in quarter four. We remain focused on innovation and developing
sustainable crop care solutions to meet customers' immediate and longer-term
needs which will support recovery when markets improve. We are meeting the
sustainability challenges of conventional pesticide delivery by developing
ingredients for drone application. Following an excellent response from
customers in China, our bespoke product for drone application is now available
across Asia with good interest from our major customers. We have also secured
initial sales of our first dedicated delivery system for biopesticides.
Sales were 10% lower in Seed Enhancement, a seasonally second half weighted
business, impacted by adverse weather conditions in the Americas, with a
better second half anticipated. Sales of microplastic-free (MPF) seed coatings
grew strongly reflecting Croda's market-leading position and the EU's decision
to ban the use of microplastics in seed coatings by 2028. Our MPF coatings are
now being sold across Europe, North America and Latin America, where they are
also in final test stages with major seed companies.
Industrial Specialties - contributing to the efficiency of our shared manufacturing sites
Industrial Specialties H124 H123 Change Constant currency change H223 Change
£m £m £m
Sales 101.3 122.1 (17)% (14)% 84.0 21%
Adjusted operating profit 8.1 8.3 (2)% 2% 1.1 636%
Adjusted operating margin 8.0% 6.8% 1.2ppts 1.3% 6.7ppts
Croda's Industrial Specialties business plays an important role in our Group
manufacturing model, contributing to the efficiency of our shared
manufacturing site model by helping to optimise utilisation rates, maximising
sales into value-added industrial applications using Croda's core chemistries,
and operating a supply contract to the new owner of the industrial business
that we divested in June 2022.
Industrial Specialties sales were £101.3m (H123: £122.1m), a 17% reduction
with both volumes and price/mix lower, against a 2023 comparator when market
conditions progressively weakened through the year. Sequentially, reported
sales improved by 21% compared with the second half of 2023 with improving
volumes and positive mix, and both direct and supply agreement sales growing
well. Second quarter sales were also higher than in quarter one.
IFRS operating profit was £7.9m (H123: a loss of £12.6m) and adjusted
operating profit was £8.1m (H123: £8.3m). The resulting operating profit
margin was 8.0% (H123: 6.8%), a 6.7 percentage point improvement on the second
half of 2023.
Other matters
Principal risks
Our risk management processes, policies and the principal risks and
uncertainties facing the Group were set out on pages 51 to 57 of the Group's
Annual Report and Accounts for the year ended 31 December 2023. Our risk
management processes and policies remain largely consistent, with minor
adjustments being made in conjunction with the ongoing deployment of new
integrated risk management software. There have been no changes in the Group's
principal risks and uncertainties. The Group's principal risks as reported in
the financial statements for the year ended 31 December 2023 were revenue
generation; product and technology innovation and protection; digital
technology innovation; delivering sustainable solutions - Climate Land, and
People Positive; management of business change; our people - culture,
wellbeing, talent development and retention; product quality; loss of
significant manufacturing site; ethics and compliance; and security of
business information and networks.
During our periodic risk reviews, we confirmed that all principal risks
reported remain relevant and no new principal risks were identified.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial information has
been prepared in accordance with IAS 34 as adopted for use in the UK 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 2024 were as follows (a
list of current Directors is maintained on the Croda website: www.croda.com
(http://www.croda.com) ):
Danuta Gray (Chair)
Steve Foots (Group Chief Executive)
Ian Bull
Roberto Cirillo
Jacqui Ferguson
Chris Good
Julie Kim
Professor Keith Layden
Nawal Ouzren
John Ramsay
By order of the Board
Steve
Foots
Group Chief
Executive
Independent Review Report to Croda International Plc
Conclusion
We have been engaged by Croda International PLC ("the Company") to review the
condensed set of financial statements in the half-yearly financial report for
the six months ended 30 June 2024 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 2024 is not prepared, in all material respects, in accordance with IAS 34
Interim Financial Reporting as adopted for use in the UK and the Disclosure
Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct
Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed. This conclusion is based on the
review procedures performed in accordance with ISRE (UK) 2410. However, future
events or conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the Group will
continue in operation.
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. The
annual financial statements of the Group are prepared in accordance with
UK-adopted international accounting standards. The directors are responsible
for preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted for use in
the UK. In preparing the condensed set of financial statements, the directors
are responsible for assessing the Group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
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. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
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.
Ian Griffiths
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
29 July 2024
Croda International Plc
Interim announcement of trading results for the six months ended 30 June 2024
Group Condensed Interim Income Statement
First half 2024 First half 2023 Full year 2023
Note Adjusted Adjustments Reported Adjusted Adjustments Reported Adjusted Adjustments Reported
£m
£m
Total
£m
£m
Total
£m
£m
Total
£m
£m
£m
Revenue 2 815.9 - 815.9 880.9 - 880.9 1,694.5 - 1,694.5
Cost of sales (448.7) - (448.7) (498.4) - (498.4) (964.5) - (964.5)
Gross profit 367.2 - 367.2 382.5 - 382.5 730.0 - 730.0
Operating costs (231.6) (21.2) (252.8) (206.7) (45.6) (252.3) (410.0) (72.5) (482.5)
Operating profit 2 135.6 (21.2) 114.4 175.8 (45.6) 130.2 320.0 (72.5) 247.5
Financial costs 3 (12.8) - (12.8) (6.5) - (6.5) (26.0) - (26.0)
Financial income 3 4.5 - 4.5 5.0 - 5.0 14.8 - 14.8
Profit before tax 127.3 (21.2) 106.1 174.3 (45.6) 128.7 308.8 (72.5) 236.3
Tax (30.9) 4.9 (26.0) (44.3) 4.0 (40.3) (73.7) 9.5 (64.2)
Profit after tax for the period 96.4 (16.3) 80.1 130.0 (41.6) 88.4 235.1 (63.0) 172.1
Attributable to:
Non-controlling interests 0.3 - 0.3 0.3 - 0.3 1.1 - 1.1
Owners of the parent 96.1 (16.3) 79.8 129.7 (41.6) 88.1 234.0 (63.0) 171.0
96.4 (16.3) 80.1 130.0 (41.6) 88.4 235.1 (63.0) 172.1
Adjustments relate to exceptional items, amortisation of intangible assets
arising on acquisition and the tax thereon.
Details are disclosed in note 2.
Pence Pence Pence Pence Pence Pence
Adjusted
Reported
Adjusted
Reported
Adjusted
Reported
Total
Total
Total
Earnings per 10.61p ordinary share
Basic 68.8 57.2 92.9 63.1 167.6 122.5
Diluted 68.8 57.2 92.8 63.0 167.4 122.3
Ordinary dividends paid in the period
Interim 4 - - 47.0
Final 4 62.0 61.0 61.0
Group Condensed Interim Statement of Comprehensive Income
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Profit after tax for the period 80.1 88.4 172.1
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of post-retirement benefit obligations 37.5 (10.9) (23.3)
Tax on items that will not be reclassified (9.3) 2.8 5.5
28.2 (8.1) (17.8)
Items that have been or may be reclassified subsequently to profit or loss:
Currency translation (52.8) (69.8) (58.4)
Cash flow hedging - (20.8) (19.3)
(52.8) (90.6) (77.7)
Other comprehensive expense for the period (24.6) (98.7) (95.5)
Total comprehensive income/(expense) for the period 55.5 (10.3) 76.6
Attributable to:
Non-controlling interests 0.1 (0.8) 0.1
Owners of the parent 55.4 (9.5) 76.5
55.5 (10.3) 76.6
Arising from:
Continuing operations 55.5 (10.3) 76.6
Group Condensed Interim Balance Sheet
Note At At
30 June 31 December
2024 2023
£m
£m
Assets
Non-current assets
Intangible assets 5 1,357.0 1,408.5
Property, plant and equipment 6 1,046.6 1,044.0
Right of use assets 84.4 87.5
Investments 1.9 1.9
Deferred tax assets 17.2 14.4
Retirement benefit assets 8 151.7 113.5
2,658.8 2,669.8
Current assets
Inventories 357.4 341.2
Trade and other receivables 353.9 395.7
Cash and cash equivalents 209.3 172.5
920.6 909.4
Liabilities
Current liabilities
Trade and other payables (267.1) (252.0)
Borrowings and other financial liabilities (30.1) (36.7)
Lease liabilities (14.1) (13.7)
Provisions (6.5) (8.6)
Current tax liabilities (20.2) (9.2)
(338.0) (320.2)
Net current assets 582.6 589.2
Non-current liabilities
Borrowings and other financial liabilities (604.3) (588.4)
Lease liabilities (68.7) (71.3)
Other payables (1.1) (1.1)
Retirement benefit liabilities 8 (26.0) (26.8)
Provisions (9.4) (10.5)
Deferred tax liabilities (196.1) (192.8)
(905.6) (890.9)
Net assets 2,335.8 2,368.1
Equity attributable to owners of the parent 2,321.2 2,352.5
Non-controlling interests in equity 14.6 15.6
Total equity 2,335.8 2,368.1
Group Condensed Interim Statement of Changes in Equity
Note Share Share Other Retained Non- Total
capital
premium
reserves
earnings
controlling
equity
£m
account
£m
£m
interests
£m
£m
£m
At 1 January 2023 15.1 707.7 47.1 1,645.7 15.5 2,431.1
Profit after tax for the period - - - 88.1 0.3 88.4
Other comprehensive expense for the period - - (89.5) (8.1) (1.1) (98.7)
Total comprehensive (expense)/income for the period - - (89.5) 80.0 (0.8) (10.3)
Transactions with owners:
Dividends on equity shares 4 - - - (85.1) - (85.1)
Share-based payments - - - 1.6 - 1.6
Transactions in own shares - - - (9.8) - (9.8)
Total transactions with owners - - - (93.3) - (93.3)
Total equity at 30 June 2023 15.1 707.7 (42.4) 1,632.4 14.7 2,327.5
At 1 January 2024 15.1 707.7 (10.3) 1,640.0 15.6 2,368.1
Profit after tax for the period - - - 79.8 0.3 80.1
Other comprehensive (expense)/income for the period - - (52.6) 28.2 (0.2) (24.6)
Total comprehensive (expense)/income for the period - - (52.6) 108.0 0.1 55.5
Transactions with owners:
Dividends on equity shares 4 - - - (86.6) - (86.6)
Share-based payments - - - 1.7 - 1.7
Transactions in own shares - - - (1.8) - (1.8)
Total transactions with owners - - - (86.7) - (86.7)
Changes in ownership interests:
Dividends paid to non-controlling interest - - - - (1.1) (1.1)
Total changes in ownership interests (1.1) (1.1)
Total equity at 30 June 2024 15.1 707.7 (62.9) 1,661.3 14.6 2,335.8
Other reserves include the Capital Redemption Reserve of £0.9m (30 June 2023: £0.9m), the Hedging Reserve of £nil (30 June 2023: £(20.8)m) and the Translation Reserve of £(63.8)m (30 June 2023: £(22.5)m)
Group Condensed Interim Statement of Cash Flows
Note 2024 2023 2023
First half
First half
Full year
£m
£m
£m
Cash generated by operations
Operating profit 114.4 130.2 247.5
Adjustments for:
Depreciation and amortisation 67.7 60.5 126.2
Impairments of intangible assets and property, plant and equipment - 21.8 22.0
Impairment of investment - - 1.5
Loss on derivatives - - 4.6
(Profit)/loss on disposal and write-offs of intangible assets and property, (0.1) (0.5) 0.2
plant and equipment
Net provisions charged/(released) 2.0 (0.2) 5.6
Share-based payments 1.5 (3.6) (4.2)
Non-cash pension expense 0.9 (1.7) (4.4)
Net-monetary adjustment 2.4 - 6.3
Cash paid against operating provisions (4.4) (0.3) (3.4)
Movement in inventories (24.5) 30.4 117.8
Movement in receivables 25.0 0.5 (19.0)
Movement in payables 43.0 (40.6) (69.7)
Cash generated by operations 227.9 196.5 431.0
Interest paid (11.3) (7.9) (24.2)
Tax paid (22.1) (44.4) (69.3)
Net cash generated from operating activities 194.5 144.2 337.5
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - - (204.3)
Payment of contingent consideration - (7.2) (9.6)
Purchase of property, plant and equipment (95.5) (81.8) (180.4)
Receipt of government grant 26.7 6.5 10.9
Purchase of other intangible assets (1.7) (5.8) (8.6)
Proceeds from sale of property, plant and equipment 0.8 1.0 4.0
Tax paid on business disposals -- (4.4) (4.6)
Settlement of derivatives - (20.8) (23.9)
Cash paid against non-operating provisions (0.6) (0.5) (1.6)
Interest received 2.3 5.0 8.3
Net cash used from investing activities (68.0) (108.0) (409.8)
Cash flows from financing activities
New borrowings 80.7 215.7 336.0
Repayment of borrowings (66.2) (65.0) (210.9)
Payment of lease liabilities (8.8) (8.0) (17.0)
Net transactions in own shares (1.8) (9.8) (9.8)
Dividends paid to equity shareholders 4 (86.6) (85.1) (150.7)
Dividends paid to non-controlling interests (1.1) - -
Net cash (used)/generated from financing activities (83.8) 47.8 (52.4)
Net movement in cash and cash equivalents 42.7 84.0 (124.7)
Cash and cash equivalents brought forward 150.2 281.6 281.6
Exchange differences (3.2) (6.9) (6.7)
Cash and cash equivalents carried forward 189.7 358.7 150.2
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 209.3 379.5 172.5
Bank overdrafts (19.6) (20.8) (22.3)
189.7 358.7 150.2
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 29 July 2024. The
financial information included in this interim financial report for the six
months ended 30 June 2024 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 2023 is also unaudited. The
comparative figures for the year ended 31 December 2023 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
2024 has been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK.
Tax charged within the six months ended 30 June 2024 has been calculated by
applying the effective rate of tax which is expected to apply, on a
jurisdiction by jurisdiction basis, to the Group for the year ending 31
December 2024 using rates substantively enacted by 30 June 2024 as required by
IAS 34 'Interim Financial Reporting'.
The annual financial statements of the Group for the year ended 31 December
2023 will be prepared in accordance with UK-adopted international accounting
standards. As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial statements has
been prepared applying the accounting policies and presentation that were
applied in the preparation of the Company's published consolidated financial
statements for the year ended 31 December 2023, which were prepared in
accordance with the requirements of the Companies Act 2006 ("Adopted IFRSs")
and prepared in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union.
Going concern basis
The condensed consolidated financial statements have been prepared on a going
concern basis which the Directors believe to be appropriate for the following
reasons:
At 30 June 2024 the Group had £1,045.9m of committed debt facilities
available from its banking group, USPP bondholders and lease providers, with
principal maturities between 2026 and 2030, of which £364.8m (30 June 2023:
£367.7m) was undrawn, together with cash balances of £209.3m (30 June 2023:
£379.5m).
The Directors have reviewed the liquidity and covenant forecasts for the
Group's going concern assessment period covering at least 12 months from the
date of approval of the condensed consolidated financial statements. Based on
these forecasts, the Group continues to have significant liquidity headroom
and strong financial covenant headroom under its debt facilities.
A reverse stress testing scenario has been performed which assesses that
adjusted operating profit would need to fall by approximately 80% to trigger
an event of default as at 31 December 2025, before consideration of available
actions to conserve cash. The Directors do not consider this a plausible
scenario. The Directors are therefore satisfied that the Group has sufficient
resources to continue in operation for a period of not less than 12 months
from the date of approval of the condensed consolidated financial statements.
Accordingly, the condensed consolidated financial statements have been
prepared on a going concern basis.
c. Accounting policies
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 2023.
A number of amendments to accounting standards are effective from 1 January
2024 but they do not have a material effect on the Group's financial
statements.
2. Segmental information
The Group's sales, marketing and research activities are organised into three
global market sectors, being Consumer Care, Life Sciences and Industrial
Specialties. 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.
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Income statement
Revenue
Consumer Care 468.4 455.6 886.1
Life Sciences 246.2 303.2 602.3
Industrial Specialties 101.3 122.1 206.1
Total Group revenue 815.9 880.9 1,694.5
Adjusted operating profit
Consumer Care 82.5 95.2 160.3
Life Sciences 45.0 72.3 150.3
Industrial Specialties 8.1 8.3 9.4
Total Group operating profit (before exceptional items and amortisation of 135.6 175.8 320.0
intangible assets arising on acquisition)
Exceptional items and amortisation of intangible assets arising on acquisition (21.2) (45.6) (72.5)
Total Group operating profit 114.4 130.2 247.5
In the following table, revenue has been disaggregated by sector and
destination.
Europe, Middle East & Africa Reported
£m
Total
North America £m Latin America £m Asia
£m
£m
Revenue
First half 2024
Consumer Care 198.0 100.2 48.2 122.0 468.4
Life Sciences 89.2 73.9 35.3 47.8 246.2
Industrial Specialties 36.7 20.7 4.0 39.9 101.3
Total Group revenue 323.9 194.8 87.5 209.7 815.9
Revenue
First half 2023
Consumer Care 196.7 99.0 44.3 115.6 455.6
Life Sciences 107.9 92.1 50.4 52.8 303.2
Industrial Specialties 46.7 20.8 5.5 49.1 122.1
Total Group revenue 351.3 211.9 100.2 217.5 880.9
Adjustments
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Exceptional items - operating profit
Business acquisition costs - (7.7) (9.6)
Restructuring costs (2.4) - (5.4)
Goodwill impairment - (20.8) (20.8)
Exceptional items (2.4) (28.5) (35.8)
Amortisation of intangible assets arising on acquisition (18.8) (17.1) (36.7)
Total adjustments (21.2) (45.6) (72.5)
The exceptional items in the current year relate to restructuring costs
associated with changes in the Group's operating model as detailed in the
Group's 2023 Annual Report and Accounts. These costs were treated as
exceptional in 2023 due to the significance of the programme. Total
exceptional costs associated with the restructuring since its commencement now
amount to £7.8m. The exceptional items in the prior half year related to a
goodwill impairment to the carrying value of the Chinese SIPO joint venture in
Industrial Specialties and acquisition costs. The adjustments to operating
profit relate to our segments as follows: Consumer Care £13.6m (30 June 2023:
£16.0m), Life Sciences £7.4m (30 June 2023: £8.7m) and Industrial
Specialties £0.2m (30 June 2023: £20.9m).
3. Net financial costs
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Financial costs
Interest payable on borrowings 11.0 4.7 20.2
Interest on lease liabilities 1.4 1.2 2.6
Other bank loans and overdrafts 0.4 0.6 3.1
Preference share dividend - - 0.1
12.8 6.5 26.0
Financial income
Bank interest receivable and similar income (2.4) (2.3) (9.4)
Net interest on post-retirement benefits (2.1) (2.7) (5.4)
(4.5) (5.0) (14.8)
Net financial costs 8.3 1.5 11.2
4. Dividends
Pence per 2024 2023 2023
share
First half
First half
Full year
£m
£m
£m
Ordinary
2022 final, paid May 2023 61.0 - 85.1 85.1
2023 interim, paid October 2023 47.0 - - 65.6
2023 final, paid May 2024 62.0 86.6 - -
86.6 85.1 150.7
An interim dividend in respect of 2024 of 47.0p per share, amounting to a
total dividend of £65.6m, was declared by the Directors at their meeting on
25 July 2024. This interim report does not reflect the 2024 interim dividend
payable. The dividend will be paid on 8 October 2024 to shareholders
registered on 6 September 2024.
5. Intangible assets
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Opening net book amount 1,408.5 1,253.2 1,253.2
Exchange differences (33.7) (31.6) (24.7)
Additions 1.9 5.8 8.8
Acquisitions - - 233.8
Disposals and write offs - (0.1) (1.0)
Reclassifications from property, plant and equipment 1.7 0.4 0.2
Amortisation charge for the period (21.4) (18.8) (41.0)
Impairments -- (20.8) (20.8)
Closing net book amount 1,357.0 1,188.1 1,408.5
6. Property, plant and equipment
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Opening net book amount 1,044.0 964.5 964.5
Exchange differences (9.3) (34.2) (37.4)
Additions 52.3 75.3 181.1
Acquisitions - - 9.2
Disposals and write offs (0.6) (0.4) (2.3)
Reclassifications to intangible assets (1.7) (0.4) (0.2)
Depreciation charge for the period (38.1) (34.3) (69.7)
Impairments - (1.0) (1.2)
Closing net book amount 1,046.6 969.5 1,044.0
During the period the Group received government grant funding of £21.2m (FY
2023: £18.3m) relating to the US cGMP scale up project and UK Pharma
production capacity expansion project. Grant income is deducted from the cost
of the associated asset within the additions line above.
7. Reconciliation to net debt
2024 2023 2023
First half
First half
Full year
£m
£m
£m
Net movement in cash and cash equivalents 42.7 84.0 (124.7)
Net movement in borrowings and other financial liabilities (5.7) (142.7) (108.1)
Change in net debt from cash flows 37.0 (58.7) (232.8)
Non-cash movement in lease liabilities (7.7) (4.4) (6.1)
Non-cash preference shares reclassification - - (12.9)
Exchange differences 0.4 9.0 9.4
29.7 (54.1) (242.4)
Net debt brought forward (537.6) (295.2) (295.2)
Net debt carried forward (507.9) (349.3) (537.6)
8. Significant accounting judgements and estimates
The Group's significant accounting policies under UK-adopted international
accounting standards have been set 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 UK-adopted international accounting
standards an estimate or judgement may be considered significant if it has a
significant effect on the amounts recognised in the financial statements or if
the estimates have a risk of material adjustment to assets and liabilities
within the next financial year.
No significant accounting judgements have been required when preparing the
Group's accounts.
The significant accounting estimates 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.
The majority of the remeasurement gain in the period relates to the Group's UK
pension scheme primarily a rise in corporate bond yields increasing the
discount rate to 5.1% (31 December 2023: 4.5%), partly offset by a reduction
in the value of the scheme's assets. The majority of the Group's retirement
benefit asset relates to the Group's UK pension scheme. The UK pension scheme
is open to future accrual and therefore the surplus is recognised on the basis
that this could be recovered through a reduction in future service
contributions.
2024 2023
First half Full year
£m
£m
Opening net retirement benefit surplus 86.7 100.1
Current service cost (5.4) (10.0)
Net interest income 2.1 5.4
Employer contributions 4.7 14.2
Benefits paid - 0.2
Exchange differences 0.1 0.5
Remeasurements 37.5 (23.3)
Acquisitions - (0.4)
Closing net retirement benefit surplus 125.7 86.7
Total market value of assets 936.4 967.1
Present value of scheme liabilities (798.1) (867.3)
Net pension plan asset 138.3 99.8
Post-employment medical benefits (12.6) (13.1)
Net retirement benefit surplus 125.7 86.7
Analysed in the balance sheet as:
Retirement benefit assets 151.7 113.5
Retirement benefit liabilities (26.0) (26.8)
Net retirement benefit surplus 125.7 86.7
8. Critical accounting judgements and key sources of estimation uncertainty continued
Post-retirement benefits (continued)
The triennial actuarial valuation of the largest pension plan, the UK Croda
Pension Scheme, was performed as at 30 September 2023 and indicated that
funding position of the scheme had significantly improved. The scheme was
120.6% funded on a technical provisions basis. Consequently, the cash cost of
providing benefits has fallen and no deficit recovery plan is required.
Goodwill impairment
Management are required to undertake an annual test for impairment of
indefinite lived assets such as goodwill, or more frequently if impairment
indicators are identified. This review is performed in the second half of the
year. However, the Group is also required to assess for any impairment
triggers at each reporting date.
At 30 June 2024, management have performed an assessment for potential
impairment triggers across the Group's CGUs and Operating Segments including
consideration of current performance and future expectations, and no material
impairment indicators were identified. This review included the Flavours and
Croda Korea CGUs which were identified as significant accounting estimates as
part of the Group's Annual Report and Accounts.
9. Financial instruments
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 businesses 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 2023. There have been no changes in
the Group's risk management processes or policies since the year end.
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 contingent consideration and other investments, which are classed
as level 3.
9. Financial instruments continued
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
(excluding contingent consideration which is discounted using a risk-adjusted
discount rate). 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.
In January 2020 the existing US$100m fixed rate 10 year note matured and was
repaid, this was replaced with a new US$100m fixed rate 10 year note (27
January 2020). On 27 June 2016, the Group issued £100m (£70m and £30m) and
€100m (€70m and €30m) of fixed rate notes. On 6 June 2019, the Group
issued a further £65m, €50m and US$60m of fixed rate notes. In June 2023,
the existing £30m and €30m fixed rate 7 year notes matured and were repaid.
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 Book value Fair value
First half
First half
Full year
Full year
2024
2024
2023
2023
£m
£m
£m
£m
US$100m 3.75% fixed rate 10 year note (79.1) (70.3) (78.5) (71.5)
€70m 1.43% fixed rate 10 year note (59.3) (56.7) (60.8) (58.2)
£70m 2.80% fixed rate 10 year note (70.0) (66.2) (70.0) (66.1)
€50m 1.18% fixed rate 8 year note (42.3) (39.6) (43.5) (40.9)
£65m 2.46% fixed rate 8 year note (65.0) (59.5) (65.0) (59.8)
US$60m 3.70% fixed rate 10 year note (47.5) (43.7) (47.1) (43.7)
10. 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.
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