REG - Croda International - Results for the six months ended 30 June 2022
29/07/2022 07:00
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RNS Number : 1694U Croda International PLC 29 July 2022
Press Release
29 July 2022
Results for the six months ended 30 June 2022
Excellent first half performance driving profit growth
Croda International Plc ("Croda" or the "Group") announces its half year
results for the six months ended 30 June 2022.
Highlights
Statutory results (IFRS) Adjusted results
Half year ended 30 June 2022 2021 change 2022 2021 change change constant currency
Sales (£m) 1,127.3 934.0 20.7% 1,127.3 934.0 20.7% 18.3%
Operating profit (£m) 288.6 218.5 32.1% 300.4 242.1 24.1% 21.8%
Return on sales (%) 26.6 25.9 70bps
Profit before tax (£m) 636.5 204.1 211.9% 288.8 229.5 25.8% 23.6%
Basic earnings per share (p) 389.6 110.0 254.2% 155.2 124.0 25.2% 22.8%
Ordinary dividend per share (p) 47.0 43.5 8.0%
Free cash flow (£m) 21.1 42.7 (50.6)%
Excellent first half performance
• Delivered record sales, margin and profit
o Sales up 21%, driven by pricing and improved mix
o Adjusted profit before tax up 26%, reflecting sales growth and higher
return on sales, up 70 bps to 26.6% (2021: 25.9%)
o IFRS profit before tax of £636.5m (2021: £204.1m), including £360.6m
profit on strategic divestment
o Lower free cash flow reflecting investment in working capital to support
sales growth
• Strong operating model underpinning strategic progress
o Strength and depth of portfolio - growth in adjusted profit delivered
across Croda businesses
o Continued recovery of unprecedented raw material and cost inflation
• Transition to pure-play Consumer Care and Life Sciences business
o Divestment of majority of Performance Technologies and Industrial
Chemicals ("PTIC"; excludes Sipo in China in which Croda has a 65%
shareholding)
o Creates stronger margin, higher return, less cyclical and lower carbon
intensive business
o Increases proportion of sales from New and Protected Products ("NPP")
o Redeployment of divestment proceeds underway - enhanced organic investment
programme to drive future growth, supported by up to £75m of government
co-investment to expand capabilities in pharmaceutical delivery systems
Growth across all sectors and regions
• Strong Consumer Care performance, with sales up 24% and adjusted operating
profit 34% higher
o Sales growth across all four businesses, led by recovery in Beauty Care
over last 18 months
o F&F synergy delivery underway to meet 2025 target, with new geographic
presence added
o Margin expansion - return on sales of 26.6% (2021: 24.6%)
• Life Sciences building on exceptional prior year, with sales up a further 14%
and adjusted operating profit 4% higher
o Strong Crop Protection performance, supported by robust market conditions
o Good growth of speciality excipients and vaccine adjuvants in Health Care
o COVID demand in lipid systems moderating; encouraging pipeline of
non-COVID applications
o Continued best in class margin - return on sales of 36.0% (2021: 39.3%)
• Good result in Performance Technologies, with price/mix driving sales 23%
higher and return on sales of 18.3% (2021: 15.6%)
Half year ended 30 June
Sales Price/mix Volume 2021
2022 £m
£m Acquisition Currency Change
Consumer Care 454.9 22.3% (4.7)% 3.1% 3.3% 24.0% 367.0
Life Sciences 329.7 0.9% 10.6% - 2.0% 13.5% 290.4
Performance Technologies 274.4 32.4% (11.3)% - 1.6% 22.7% 223.7
Industrial Chemicals 68.3 34.5% (6.5)% - 1.1% 29.1% 52.9
Group 1,127.3 22.2% (5.1)% 1.2% 2.4% 20.7% 934.0
Half year ended 30 June
Adjusted profit 2022 Underlying growth Acquisition impact Currency Change
£m £m £m impact 2021
£m £m
Consumer Care 121.1 28.7 0.7 1.3 90.4 34.0%
Life Sciences 118.8 0.9 - 3.7 114.2 4.0%
Performance Technologies 50.2 15.0 - 0.4 34.8 44.3%
Industrial Chemicals 10.3 7.5 - 0.1 2.7 281.5%
Operating profit 300.4 52.1 0.7 5.5 242.1 24.1%
Net interest (11.6) (12.6) 7.9%
Profit before tax 288.8 229.5 25.8%
Steve Foots, Chief Executive Officer, commented:
"This is an excellent first half performance, with record sales, margin and
profit driven by the strength of our operating model, which enabled continued
recovery of unprecedented cost inflation, and the ongoing successful
implementation of our strategy.
"A strong Consumer Care performance saw expanded sales of our sustainable
technologies, increased geographic coverage in fragrances and margin
expansion. The increasing depth and diversity of our Life Sciences portfolio
was evident in a strong result in Crop Protection, whilst Health Care built on
an exceptional 2021 performance and is developing an exciting pipeline of
non-COVID applications.
"With the successful divestment of the majority of our industrials business,
our transition to a pure-play Consumer Care and Life Sciences business
continues. Croda is becoming a stronger margin, higher return, less cyclical
and lower carbon intensive business. Our focused platform and strategy are
enhancing both our full year expectations and our medium-term growth
prospects."
Outlook
Croda has delivered strong growth in the first half year, with profit ahead of
expectations. As a result, we expect full year adjusted profit before tax to
be modestly ahead of previous expectations. Growth in the second half year is
expected to moderate in consumer markets, together with lower sales in lipid
systems on reduced COVID vaccine demand, with full year total lipid sales now
expected to be US$150m, compared with US$230m in 2021. The improved full year
outlook reflects the enhanced strength and breadth of Croda's portfolio,
including a more resilient Consumer Care growth platform, strong ongoing
demand in Crop Care, albeit against a tougher second half comparator, and
Health Care enjoying good growth overall. Growth beyond 2022 is further
supported by a strong innovation pipeline, notably in non-COVID Health Care
applications, and our targeted capital investment programme.
Croda will host an investor seminar on its Health Care business on 5 October
2022.
Further information:
An analyst presentation will be available via webcast at 1000 BST on 29 July
2022 at www.croda.com (http://www.croda.com) /investors.
For enquiries contact:
Investors: David Bishop,
Croda
+44 7823 874428
Press: Charlie Armitstead,
Teneo
+44 7703 330269
Notes:
All comparisons are with the 2021 first half year, unless otherwise stated.
Alternative Performance Measures (APMs): We use a number of APMs to assist in
presenting information in this statement in an easily analysable and
comparable form. 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 and include the
impact of acquisitions. 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 Finance Review. The APMs are calculated
as follows:
a. For constant currency profit, translation is performed using the
entity reporting currency;
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 and disposals in the first year of impact. They are used by
management to measure the performance of each sector before the benefit of
acquisitions or the impact of divestments 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 Finance Review;
• Adjusted results: these are stated before exceptional items 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;
• 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 Chief
Executive's Review;
• Return on invested capital (ROIC): this is adjusted operating profit after tax
divided by the average adjusted invested capital. Adjusted invested capital
represents net assets adjusted for net debt, earlier goodwill written off to
reserves and accumulated amortisation of acquired intangible assets. The Board
believes that ROIC is a key measure of efficient capital allocation, in line
with its policy set out in the Finance Review, with its aim being to maintain
a ROIC of two to three times the cost of capital over the cycle, and that it
is useful to shareholders in assessing the superior returns delivered by the
Group and the impact of deploying more capital to grow future returns faster;
• 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. 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 EBITDA less movements in working capital, net
capital expenditure, payment of lease liabilities, non-cash pension expense,
and interest and tax payments. 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.
Croda International Plc
Group Performance Review
We use a number of APMs to assist in presenting information in this statement
in an easily analysable and comparable form (see page 3 for definitions).
Excellent first half performance driven by successful strategy implementation
Croda delivered an excellent performance in the first half year, with record
sales, margin and profit. This demonstrates the power of our operating model
and the strength and depth of the business portfolio, delivering growth across
Croda's businesses, together with continued recovery of unprecedented cost
inflation.
The sale of the majority of the Performance Technologies and Industrial
Chemicals ("PTIC") business on 30 June continues Croda's transition to a
pure-play Consumer Care and Life Sciences company. This is creating a stronger
margin, higher return, less cyclical, more knowledge intensive and lower
carbon intensive business.
The divestment releases more capital to invest in future growth, with capital
redeployment already underway. We have eight growth businesses, four in
Consumer Care and four in Life Sciences, supported by a new Industrial
Specialties business to manage the retained part of the PTIC business. All
eight businesses target growth of at least one and a half times global GDP
across the cycle, focusing on developing trends in existing and emerging
markets, notably greater demand for sustainable solutions and reliable
delivery systems.
The strength and depth of these eight businesses was seen in the first half
year performance. Consumer Care saw sales up 24% and adjusted operating profit
34% higher. Encouragingly, Beauty Care has continued to lead this growth over
the last 18 months. Life Sciences built on an exceptional prior year, when
COVID treatments peaked, with 14% sales growth and a 4% adjusted operating
profit increase in the first half year. A strong Crop Protection performance
was supplemented by good growth in speciality excipients and vaccine
adjuvants, delivering a best-in-class margin for the sector.
As a pure play Consumer Care and Life Sciences company, our capabilities in
sustainability and innovation will translate into consistent top line growth
and increased margins, delivering consistent, superior returns.
Strong pricing and resilient volume
The Group achieved robust sales in all sectors and regions. Group sales grew
by 21% to £1,127.3m (2021: £934.0m). Underlying sales rose by 17%, with
price/mix 22% higher and volume 5% lower. Global supply chain challenges
intensified, partly due to the conflict in Ukraine, leading to significant
cost inflation which we continued to recover, demonstrating the strength of
Croda's business model. In addition, price/mix benefitted from an improved
product mix and de-marketing of lower margin products in light of capacity
constraints, which eased as the first half year progressed. After strong
consumer demand and customer restocking in 2021, volume moderated as customers
normalised inventory levels as service levels improved and with our selective
de-marketing programme.
Profit before tax (on an IFRS basis) increased by £432.4m to £636.5m (2021:
£204.1m), including a profit of £360.6m on the divestment of the majority of
PTIC. Adjusting for this one-off benefit and other similar items itemised in
the Finance Review, adjusted profit before tax rose by 26% to a record first
half year result of £288.8m (2021: £229.5m). Return on sales was 70 basis
points higher than the prior year period at 26.6% (2021: 25.9%). This included
a benefit of around 1.5 percentage points from a lower charge for variable
remuneration, reflecting the impact of a reduction in the Group's share price
versus the prior period, partly offset by the formulaic impact of the higher
sales prices to recover cost inflation.
Free cash flow reduced to £21.1m (2021: £42.7m), with working capital
increasing principally from the impact of significantly higher prices on
inventories and receivables.
Reinvesting the proceeds of divestment
On 30 June 2022, Croda divested the majority of its PTIC businesses to Cargill
for gross proceeds of €775m (£665m). This divestment included four
manufacturing sites, and laboratories and sales offices in 14 countries. It
excluded the potential sale of Croda Sipo in China in which we have a 65%
shareholding. We continue to explore with our partner the acquisition of their
35% stake in Sipo to enable a subsequent sale to Cargill of 100% of Sipo for
€140m.
The divestment has released more capital to invest into the rich seam of
growth opportunities in the Consumer Care and Life Sciences markets, whilst
maintaining our discipline of careful capital allocation to projects which
generate superior returns on capital. Our priority is organic capital
expenditure, supplemented by targeted acquisitions, in line with our preferred
approach to 'buy and build', as exemplified by our investment in Life
Sciences, where we have secured new technology platforms through modest
acquisition spends, then built scale through organic investment.
The first half year saw investment in organic capital expenditure of £61.8m
(2021: £81.6m), which included £6m to conclude our expansion of a UK PTIC
site which has now been divested. This spend reflects our typical capital
investment of around 6% of sales, around £100m annually, which includes
delivering our carbon reduction roadmaps as part of our sustainability
Commitment. In addition, within the Life Sciences Health Care business, drug
delivery offers a significant opportunity for faster growth by investing in
new manufacturing capacity to serve global pharmaceutical markets. We are
investing an extra £160m over the period 2021 to 2024 to broaden our
footprint and capabilities in lipid systems and drug delivery. Alongside our
investment, the US and UK governments are co-investing up to £75m,
recognising the importance of new generation delivery systems to global
pandemic preparedness and drug discovery.
We expect to supplement our organic plan with selective acquisitions to add
adjacent and complementary technologies, particularly those which can
accelerate our transition to greater use of natural raw materials or build our
platforms in Health Care, enhancing future growth. All of this will be
completed within our clear capital allocation policy, to provide a regular
dividend to shareholders and to operate with an appropriate balance sheet. The
Board has increased the interim ordinary dividend by 8% per share to 47.0p
(2021: 43.5p). Debt leverage reduced to 0.6x (2021: 1.7x) and the Board will
monitor the Group's ongoing capital requirements, alongside any surplus
capital, in line with our policy.
Growth across the businesses
Most encouraging was that the first half year growth in sales and profit was
delivered across almost all of Croda's businesses, reflecting the strength of
Croda's portfolio. Continuing the strong regional recovery of the last
eighteen months, Asia first half sales grew by over 30%. Sales in China
reached a record level during the first quarter and remained above the prior
period in April, despite local COVID lockdowns, before recovering strongly in
May. North America continued its strong growth, up over 20%. Excellent
regional crop demand contributed to over 30% growth in Latin America sales.
Europe delivered a double-digit percentage sales increase, despite the adverse
impact of the conflict in Ukraine.
Strong Consumer Care performance
Consumer Care was the stand-out performer in the first half year, growing
sales by 24% to £454.9m (2021: £367.0m), increasing adjusted operating
profit by over £30m to £121.1m (2021: £90.4m) and IFRS operating profit by
40%. Return on sales reached 26.6% (2021: 24.6%). On an underlying basis,
price/mix increased by 22%, driven by cost inflation recovery, while volume
was 5% lower, reflecting selective de-marketing of lower margin business and
the strong comparator in 2021 that included the benefit of customer restocking
on top of robust consumer demand. Acquisitions added 3% to overall sales
growth, as did the impact of currency translation.
Delivery of our Strengthen to Grow strategy is progressing well, positioning
Consumer Care as an even more resilient growth platform. Of the four
businesses, Beauty Care, which comprises the majority of personal care sales,
had experienced a variable performance from 2018 to 2020, with a good margin
but inconsistent sales growth. The last 18 months has seen consistent growth,
focused on skin care, hair care and solar protection, driven by a structural
shift in behaviour by customers and consumers towards sustainable ingredients.
Greater innovation by Croda is being delivered as part of an enhanced
formulation capability, with the US ECO range of bio-based surfactants and an
exciting pipeline in biotech particularly noteworthy. Alongside this, Beauty
Actives continues to lead the market in prestige skin ingredients and its
recent acquisition of Alban Muller has brought complementary natural actives
to this innovative area.
Home Care was the only Consumer Care business not to deliver profit growth, as
we invested in expanded manufacturing capacity to accelerate the roll out of
its high value protein ingredients for fabric care. The Fragrances &
Flavours (F&F) business saw some recovery in emerging market growth,
alongside benefits from the integration of fine fragrances from the Parfex
acquisition. Delivery of sales synergies from the Iberchem acquisition in 2020
is underway to meet our 2025 target, with new geographic presence and the
development of formulation centres to leverage cross-selling opportunities
between Croda's ingredients and fragrances.
Life Sciences building on exceptional prior year
Following an outstanding year for Life Sciences in 2021, with the rapid
expansion of Health Care following the Avanti acquisition and related COVID
vaccine delivery sales, the first half of 2022 has seen further progress, this
time driven by an excellent performance in Crop Protection. Sector sales
increased by 14% to £329.7m (2021: £290.4m), increasing adjusted operating
profit by 4% to £118.8m (2021: £114.2m) and IFRS operating profit by 12%.
With Crop Protection a larger proportion of the sales mix, return on sales
reduced to 36.0% (2021: 39.3%). Price/mix grew by 1%, while volume was 11%
higher. Currency translation added 2% to overall sales growth.
Our strategy to Expand Life Sciences continues to be effective, focusing on
building out our crop science and pharmaceutical platforms. Crop Protection
was the standout business, building on a strong performance in the second half
of last year, with a combination of high demand and significant commodity
inflation. Working collaboratively with its crop science customers, innovation
to improve yields sustainably is a key driver of growth. Syngenta awarded
Croda its "Reduction in Carbon" supplier award, recognising the carbon
benefits in use of Croda's products and the customer benefits delivered by our
sustainability strategy. We also saw continued growth in the Seed Enhancement
business.
Building on success in 2021, Health Care also delivered sales growth across
all of its platforms other than the lipid systems business, which experienced
peak COVID sales in the prior period. Alongside a good performance in Consumer
Health, recent investment in capacity expansion in Patient Health platforms
enabled a continued strong sales growth in vaccine adjuvants and speciality
excipients.
2020 saw the fast-track approval of COVID-19 vaccines using the new mRNA
technology. Croda was the first company to supply clinical and commercial
quantities of critical lipid systems to support the roll-out of COVID-19
vaccines globally. COVID-19 sales from lipid systems peaked in 2021 at US$190m
and are expected to decline steadily through to 2024, with a regular demand
thereafter. Progressively offsetting this will be an encouraging pipeline of
R&D projects using lipids for non-COVID applications, based on the Avanti
lipid R&D business.
First half total sales of lipid systems for COVID and non-COVID applications
were US$90m, with full year sales expected to be around US$150m (2021:
US$230m). We expect total lipid sales to be around US$120m in 2023 and 2024,
returning to growth from 2025 as clinical opportunities in mRNA and nucleic
acids develop and convert into commercial scale projects, leveraging Croda's
wider scale-up capability, driving medium term expansion in line with the
Avanti acquisition plan.
The Health Care business has had outstanding early success with its
involvement in COVID-19 vaccines, but, more importantly, we have built a
foundation for Croda in biological drug delivery. We are investing to expand
our capability across our three Patient Health platforms, and secured 30 new
customers and 80 new clinical and pre-clinical programmes in the first half of
2022, bringing the total to 330. More than three quarters of these programmes
are for non-COVID applications, up from two thirds just six months ago. In
lipid systems, all of the new programmes are for non-COVID applications, and
we are now involved in more oncology and gene editing trials than we are for
COVID. These include supplying lipids to a customer which recently completed
the world's first ever dosing of a patient with a gene editing therapy, as
part of a phase one clinical trial for the treatment of heart disease.
Industrial Specialties established
Following the recovery of Performance Technologies during 2021, sector sales
grew by 23% in the first half of 2022 to £274.4m (2021: £223.7m), increasing
adjusted operating profit by 44% to £50.2m (2021: £34.8m). Cost inflation
was most significant in this sector, with sales/price mix up 32% but volume
11% lower, compared with a strong comparator. IFRS profit was £49.2m (2021:
£31.3m).
Following the divestment, Croda's retained business within PTIC will form a
new Industrial Specialties ("IS") sector. IS will play a critical role in
Croda's integrated model, supporting the efficiency of the Consumer Care and
Life Sciences sectors.
Delivering our strategy as a pure-play Consumer Care and Life Sciences company
Strategy overview
Through our strategy implementation, including the Avanti and Iberchem
acquisitions and the divestment of most of our industrial business, Croda is
becoming a pure-play company, focused on life science and consumer markets.
These markets have reduced cyclicality, are faster growth, more capital and
carbon light, and value innovation, delivering higher margins.
Our strategy combines leadership in sustainability with market-leading
innovation to deliver profitable growth. Sustainability trends are developing
rapidly in our markets, as consumers look to make a positive contribution to
living more sustainably through the products they buy. This is helping Croda
to win market share as customers look for sustainable alternatives that
existing supply chains cannot offer. We are reinforcing our sustainability
leadership in four ways; firstly, increasing the level of bio-based
ingredients, in response to customer demands to 'de-fossil' their ingredients;
secondly, innovating to meet the future sustainability demands of consumers;
thirdly, decarbonising our manufacturing processes and supply chains - by
achieving our Science Based Target by 2030, Croda will provide every customer
with an average 35% reduction in Scope 3 (supply chain) carbon emissions
associated with those purchases; and fourthly, ensuring our sourcing
activities have a positive impact on the communities and environments involved
in our supply chains.
Alongside sustainability, our innovation engine enables us to both create new
market niches through novel product offerings and win business in existing
markets by providing sustainable alternatives to incumbent petrochemical
derived supply. Through innovation, we deliver our strategic objective of
consistent top and bottom line growth, with profit growing ahead of sales,
ahead of volume. This supports our purpose, Smart science to improve
lives(TM).
Delivering our sustainability Commitment
Our Commitment is to be the world's most sustainable supplier of innovative
ingredients. In 2022 we are progressing execution of our plan, working in
partnership to become Climate, Land and People Positive by 2030.
To be Climate Positive, our verified carbon reduction target will ensure we
contribute to limiting the global temperature rise to no more than 1.5°C
above the pre-industrial level. To achieve this, we are investing in
decarbonisation roadmaps for all our sites, funded within our existing capital
budget. Projects in 2022 include approved expenditure on a new biogas boiler
to help decarbonise our Delaware site in the USA. We are expanding the scope
of our Land Positive Commitment, joining the World Business Council for
Sustainable Development and its Nature programmes, with the aim of being an
early adopter of the future Science-Based Targets for Nature when published.
Our People Positive objective covers both our communities and our people. We
focus on using our smart science to improve lives globally and have committed
a further £1m to the Croda Foundation this year. Projects already benefiting
from the Foundation include the British Asian Trust, which is supporting
vaccine infrastructure in India, and Instituto Amazonia, which supports remote
indigenous communities in Brazil. We are also committed to improving the
experience of the people we employ, achieving Board gender parity in 2022 and
making progress on our workforce diversity targets.
Supporting our sustainability Commitment, we are committed to being a safe
company. In 2022, we have set a stronger safety target, with an objective to
reduce our Total Recordable Incident Rate ("TRIR") to 0.3 by 2025, which
requires us to more than halve the 2021 rate of 0.73. Our Senior Leadership
team met in May to commit to the actions to deliver this.
We are reflecting the impact of the divestment of the majority of PTIC in our
sustainability targets. Scope 1 and 2 emissions reduced by 26% as a result of
the divestment and we are less carbon intensive; however, we are re-baselining
our decarbonisation target to maintain the original challenge. By contrast,
PTIC was a significant user of bio-based organic raw materials and the
divestment has reduced this proportion from 64% to 55%. However, we will
retain our bio-based target of 75% by 2030 and are developing bolder plans,
including a global ambition to move away from fossil-derived ethylene oxide
("EO") as a surfactant feedstock, building on our US transition to biobased EO
and enabling us to deliver a lower carbon footprint to customers globally. The
divestment has also reduced our land use footprint by 47% but we will retain
our existing target to save 200,000 hectares more land than we did in 2019,
through the application of our crop science technologies.
Driving innovation
Our innovation programme is fuelling future growth at Croda and we are
stepping up innovation with more resource investment, more external
partnerships and a focus on "big bet" projects. This is supporting higher
growth, improved mix and better margin as we position as a more
knowledge-intensive company.
Our innovation strategy combines our own R&D with external technology
investments and partnerships, augmenting Croda's innovation centres globally
with a network of over 500 academic and SME partners, working on more than 100
innovation projects. Our big bet projects aim to deliver significant
incremental sales. These are harnessing the potential of biotechnology,
alongside our traditional chemical technologies, and reinforcing our
leadership position in formulation science. Scaling biotech will transform our
approach to sustainability, particularly in reducing customer Scope 3 carbon
emissions and includes projects to develop more sustainable actives and
bio-based fragrance ingredients. Early-stage research is led by our five
biotech laboratories, established through technology acquisitions over the
last decade. Candidate technologies are then scaled up at application
laboratories in Paris and two UK facilities, before being taken to market by
existing business units. For example, Beauty Actives is launching novel
anti-ageing and anti-dandruff ingredients derived from biotechnology and our
Beauty Care business is adding biotech-derived surfactants to our existing ECO
range to meet customers' needs.
In the first half year, NPP as a proportion of total sales was 33% (2021:
38%), the reduction due to the strong performance of the Beauty Care and Crop
Protection businesses where NPP sales are lower. The divestment of the
majority of PTIC, with a relatively low proportion of NPP sales, results in
the proportion of Group NPP sales increasing to 37%.
Sector strategies to deliver consistent growth and even stronger margins
Within our strategy to drive sustainability and innovation to deliver
profitable growth, each of our eight growth businesses across the two focus
sectors targets superior sales growth, at least one and a half times global
GDP, margins of at least 20% and return on invested capital (ROIC) of at least
twice our cost of capital.
Our vision for Consumer Care is to be the global leader in sustainable
solutions in premium markets. Our strategy is to Strengthen to Grow Consumer
Care, to deliver mid-single digit percentage annual sales growth, together
with the synergies from the Iberchem acquisition, at a margin of over 25%.
Within Consumer Care's four businesses, this strategy is being achieved by:
· Scaling our market leadership in Beauty Actives in peptides,
botanicals and biotechnology;
· Strengthening Beauty Care, with sustainable ingredients and full
service formulation capabilities;
· Driving integration synergies in F&F by expanding Croda's
presence in emerging markets and providing Iberchem with access to Croda's
developed market presence, while supporting one-stop-shop formulations and
developing more sustainable fragrances; and
· Accelerating Home Care in sustainable cleaning and fabric care
technologies.
Our vision for Life Sciences is to become the global leader in biological drug
delivery in Health Care, alongside our leadership in sustainable delivery
systems for Crop Care. Our strategy is to Expand to Grow Life Sciences to
deliver high single digit percentage sales growth with a strong return on
sales, above 30%. Within the four Life Sciences businesses, this strategy is
being achieved by:
· Expanding our platforms in Patient Health by identifying and
acquiring new platforms, and growing them organically through targeted
investment;
· Continuing to grow in Consumer and Veterinary Health;
· Innovating in Crop Protection to expand our industry-leading
range of sustainable delivery systems, and develop systems for next generation
biopesticide delivery; and
· Creating long-term partnerships in Seed Enhancement, including
providing seed coatings that are free from micro-plastics.
Supporting our strategies in Consumer Care and Life Sciences and in scaling
Biotech, we are investing to Fast Grow China, where we are creating a combined
Beauty Actives and F&F manufacturing facility to grow domestic sales;
deliver proactive acquisitions, where we are exploring acquisition
opportunities to supplement our organic capital redeployment; and improve our
customer and employee experience, where we are expanding our customer insight
and measuring our Net Promotor Score ("NPS"), whilst developing more digital
connectivity and self-serve data for customers.
2022 Outlook
Croda has delivered strong growth in the first half year, with profit ahead of
expectations. As a result, we expect full year adjusted profit before tax to
be modestly ahead of previous expectations. Growth in the second half year is
expected to moderate in consumer markets, together with lower sales in lipid
systems on reduced COVID vaccine demand, with full year total lipid sales now
expected to be US$150m, compared with US$230m in 2021. The improved full year
outlook reflects the enhanced strength and breadth of Croda's portfolio,
including a more resilient Consumer Care growth platform, strong ongoing
demand in Crop Care, albeit against a tougher second half comparator, and
Health Care enjoying good growth overall. Growth beyond 2022 is further
supported by a strong innovation pipeline, notably in non-COVID Health Care
applications, and our targeted capital investment programme.
Finance Review
Currency translation
Sterling weakened during the period against the US Dollar (US$1.301 (2021:
US$1.388)) but was slightly stronger against the Euro (€1.189 (2021:
€1.152)). Currency translation benefitted sales by £22.2m and adjusted
operating profit by £5.5m. Transactional currency impact is correlated with
translation, given that the UK and EU are meaningful centres of production for
the Group, with the weakness of Sterling and the Euro positively impacting
margins, particularly from Europe into US Dollar priced markets.
Strong sales from organic growth
Sales grew by 20.7% to £1,127.3m (2021: £934.0m), driven by underlying
growth of 17.1%. Acquisitions added 1.2% and currency translation 2.4%. Within
underlying growth, sales/price mix improved by 22.2%, with the successful
recovery of cost inflation estimated to have added 20 percentage points and
mix 2%. Group volume reduced by 5.1%, with de-marketing of lower margin
products in light of capacity constraints and an end to the customer
restocking seen in 2021 when supply chain worries were significant. Consumer
Care volume reduced by 4.7% against a strong comparator in 2021 that included
the benefit of customer restocking on top of robust consumer demand. Life
Sciences volume grew on strong crop demand by 10.6% and the largest volume
decline, of 11.3%, was seen in Performance Technologies, again against a
strong comparator.
Half year ended 30 June
Sales 2022 Price/mix Volume 2021
£m Acquisition
Change £m
Currency
Consumer Care 454.9 22.3% (4.7)% 3.1% 3.3% 24.0% 367.0
Life Sciences 329.7 0.9% 10.6% - 2.0% 13.5% 290.4
Performance Technologies 274.4 32.4% (11.3)% - 1.6% 22.7% 223.7
Industrial Chemicals 68.3 34.5% (6.5)% - 1.1% 29.1% 52.9
Group 1,127.3 22.2% (5.1)% 1.2% 2.4% 20.7% 934.0
Record profit and margin
The first half year saw an acceleration in raw material inflation, with
constrained supply chains accentuated by the conflict in Ukraine, and our
average basket of raw materials was up 25% between December 2021 and June
2022. Inflation in operating costs also accelerated, most notably in energy,
logistics and salary costs. Croda's powerful business model enabled continued
recovery of this significant inflation, with absolute profit protected and
margin enhanced through selective de-marketing of lower margin products, in
light of capacity constraints, and product mix. In addition, the impact of
higher inflation and bond yields on the Group's share price resulted in a
lower charge for variable remuneration, benefitting Group return on sales by
approximately 1.5 percentage points.
2022 2021
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
£m £m £m £m £m £m
Sales 1,127.3 - 1,127.3 934.0 - 934.0
Cost of sales (591.3) - (591.3) (463.5) - (463.5)
Gross profit 536.0 - 536.0 470.5 - 470.5
Operating costs (247.4) (11.8) (235.6) (252.0) (23.6) (228.4)
Operating profit 288.6 (11.8) 300.4 218.5 (23.6) 242.1
Gain on business disposal 360.6 360.6 - - - -
Net interest charge (12.7) (1.1) (11.6) (14.4) (1.8) (12.6)
Profit before tax 636.5 347.7 288.8 204.1 (25.4) 229.5
Tax (90.1) (20.7) (69.4) (50.0) 6.0 (56.0)
Profit after tax 546.4 327.0 219.4 154.1 (19.4) 173.5
IFRS operating profit was £288.6m (2021: £218.5m) and profit before tax
£636.5m (2021: £204.1m). IFRS profit before tax included a profit on the
PTIC divestment of £360.6m and a charge for other adjusting items of £12.9m
(2021: £25.4m), of which the charge for amortisation of intangible assets was
£17.3m (2021: £16.8m), a gain on contingent consideration of £5.5m (2021:
£3.1m charge) and interest on discount unwind of contingent consideration
£1.1m (2021: £1.8m). Exceptional items in the prior half year also included
business acquisition and disposal costs of £3.7m.
Adjusted operating profit, measured excluding the adjusting items above,
increased by 24.1% to £300.4m (2021: £242.1m), reflecting the higher sales
and improved margin. Return on sales improved to 26.6% (2021: 25.9%). Adjusted
profit before tax increased by 25.8% to £288.8m (2021: £229.5m).
The effective tax rate on adjusted profit was 24.0% (2021: 24.4%). The
effective tax rate on IFRS profit was 14.2% (2021: 24.5%) as the Group
utilised eligible corporate tax exemptions on its profit from the PTIC
divestment. There were no significant adjustments between the Group's expected
and reported tax charge based on its accounting profit. IFRS basic earnings
per share (EPS) were 389.6p (2021: 110.0p) and adjusted basic EPS increased by
25.2% to 155.2p (2021: 124.0p).
Profit performance was strong across all sectors. In Consumer Care, the
successful recovery of inflation and selective de-marketing resulted in
adjusted operating profit up 34.0%. In Life Sciences, adjusted operating
profit grew by 4.0%, despite a prior year comparator buoyed by demand for
COVID-19 vaccines, with the first half year driven by strong growth in Crop
Protection. Performance Technologies and Industrial Chemicals also delivered
good profit performances, with adjusted operating profit increasing by 44% and
281% respectively.
2022 2021
Operating profit IFRS Adjustments Adjusted IFRS Adjustments Adjusted
£m £m £m £m £m £m
Consumer Care 110.9 (10.2) 121.1 79.4 (11.0) 90.4
Life Sciences 118.2 (0.6) 118.8 105.1 (9.1) 114.2
Performance Technologies 49.2 (1.0) 50.2 31.3 (3.5) 34.8
Industrial Chemicals 10.3 - 10.3 2.7 - 2.7
Group 288.6 (11.8) 300.4 218.5 (23.6) 242.1
This profit growth primarily reflected an improvement in underlying growth
across the sectors, with no material benefit from acquisitions (covering the
first 12 months of ownership) and a £5.5m benefit from currency translation
against prior year.
Half year ended 30 June
Adjusted profit 2022 Underlying growth Acquisition impact Currency Change
£m £m £m impact 2021
£m £m
Consumer Care 121.1 28.7 0.7 1.3 90.4 34.0%
Life Sciences 118.8 0.9 - 3.7 114.2 4.0%
Performance Technologies 50.2 15.0 - 0.4 34.8 44.3%
Industrial Chemicals 10.3 7.5 - 0.1 2.7 281.5%
Operating profit 300.4 52.1 0.7 5.5 242.1 24.1%
Net interest (11.6) (12.6) 7.9%
Profit before tax 288.8 229.5 25.8%
Impact of PTIC divestment
On 22 December 2021, the Group announced an agreement to divest the majority
of the PTIC business. The separation process continued through the first half
year and the principal divestment completed on 30 June 2022 for gross proceeds
of €775m (£665m), subject to customary adjustments for separation costs and
cash/debt-like items. This divestment excluded the sale of Croda Sipo in China
in which we have a 65% stake; subject to reaching agreement with our partner
to allow Croda to first acquire 100% of Sipo, subsequent sale proceeds from
Cargill of €140m for 100% of the equity have been agreed. A profit before
tax on the first disposal of £360.6m has been recognised in these results.
The completion accounts process will be finalised in the second half of the
year.
The divested business was not defined as a discontinued operation in the
period as Croda is not exiting a geographical area of operation and we are
retaining a proportion of PTIC which will be reported as Industrial
Specialties. In the first half of 2022, PTIC revenue totalled £342.7m and
adjusted operating profit was £60.5m. Taking account of the sales and profit
to be retained by Croda under future supply agreements for products
manufactured at Croda retained sites and supplied to the acquirer, together
with dis-synergy costs remaining with Croda which were previously allocated to
the divested business, the estimated impact of the divestment on these
results, had it occurred on 1 January 2022, would have been to reduce revenue
by £191m and adjusted operating profit by £39m.
Lower free cash flow reflecting investment in working capital
Free cash flow reduced to £21.1m (2021: £42.7m), primarily due to a £183.8m
increase in working capital. Of this increase in working capital,
approximately £121m reflected the impact of increased sales and raw material
costs, at a constant "days cover". The Group did not experience any
deterioration in debt collection, with the remaining £63m primarily
reflecting higher accounts receivables to support sales growth and a change in
business mix in the period. Second half year working capital is expected to
improve, particularly if recent inflation moderates.
Half year ended 30 June
Cash flow 2022 2021
£m
£m
Adjusted operating profit 300.4 242.1
Depreciation and amortisation 43.5 38.2
EBITDA 343.9 280.3
Working capital (183.8) (98.4)
Net capital expenditure (61.8) (81.6)
Payment of lease liabilities (8.8) (6.8)
Non-cash pension expense 5.0 6.1
Interest & tax (73.4) (56.9)
Free cash flow 21.1 42.7
Dividends (78.8) (71.8)
Acquisitions (14.2) (55.5)
Business disposal net of cash in disposed businesses 613.4 -
Other cash movements (22.1) 5.4
Net cash flow 519.4 (79.2)
Net movement in borrowings 154.3 77.5
Net movement in cash and cash equivalents 673.7 (1.7)
The divestment has released capital to be reinvested in faster growth markets,
further developing our sustainability leadership in consumer care and crop
care markets, whilst increasing our presence in pharmaceutical delivery
systems. We are prioritising organic capital investment to create new
technology platforms and expand capacity for future growth. This will be
complemented with inorganic investment, where we can acquire complementary
businesses and organically invest in them to grow, in line with our "buy and
build" model. These elements are reflected in the Group's capital allocation
policy, to:
1. Reinvest for growth - invest in organic capital expenditure to drive
shareholder value creation through new capacity, product innovation and
expansion in attractive geographic markets to drive sales and profit growth.
Net capital expenditure in the first half year was £61.8m (2021: £81.6m) as
we access faster growth market opportunities;
2. Provide regular returns to shareholders - pay a regular dividend to
shareholders, representing 40 to 50% of adjusted earnings over the business
cycle. The interim dividend has been raised by 8% to 47.0p (2021: 43.5p);
3. Acquire disruptive technologies - to supplement organic growth, target
a number of exciting technology acquisitions in existing and adjacent markets,
with a focus on strengthening our Consumer Care business and expanding in Life
Sciences; and
4. 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. With the receipt of the divestment proceeds on 30
June 2022, closing net debt was £331.3m (31 December 2021: £823.2m) and the
leverage ratio reduced to 0.6x (31 December 2021: 1.4x).
As at 30 June 2022, the Group had committed funding in place of £1,337.8m,
with undrawn long-term committed facilities of £263.4m and £786.4m in cash.
Post period end, a proportion of the proceeds was used to pay down outstanding
Sterling and Euro balances on the Group's revolving credit facility and to pay
off and cancel a term loan associated with a previous acquisition.
Retirement benefits
The post-tax asset on retirement benefit plans at 30 June 2022, measured on an
accounting valuation basis under IAS19, improved to £80.9m (31 December 2021:
£5.8m), primarily due to higher discount rates. 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 2020 and indicated that the scheme was 101%
funded on a technical provisions basis. Consequently, no deficit recovery plan
is required.
Sector Performance Review
Strong Consumer Care performance
Consumer Care was the stand-out performer in the first half year, growing
sales by 24% and adjusted operating profit by over £30m. Delivery of our
Strengthen to Grow strategy is progressing well, ensuring Consumer Care is an
even more resilient growth platform. Of the four businesses, Beauty Care led
the way, completing 18 months of consistent sales growth, driven by customer
and consumer demand for sustainable ingredients, supported by an enhanced
formulation capability. Beauty Actives continues to lead the market in
prestige skin ingredients and the recent acquisition of Alban Muller has added
complementary natural actives to the portfolio. Home Care is rolling out high
value protein ingredients and the F&F business continued to build sales
synergies, alongside benefits from the integration of last year's Parfex
acquisition.
Sales reached £454.9m (2021: £367.0m), adjusted operating profit was
£121.1m (2021: £90.4m) and IFRS operating profit £110.9m (2021: £79.4m).
Price/mix increased by 22%, driven by cost inflation recovery. Volume was 5%
lower, reflecting a strong prior year comparator, which had benefited from a
post-COVID resurgence in consumer demand and customer restocking, together
with selective de-marketing of lower margin business in the first half of
2022. Acquisitions added 3% to overall sales growth, as did currency
translation.
The successful recovery of inflation ensured that profit was protected. A
positive business mix, which benefited from selective de-marketing
supplemented by a lower variable remuneration charge, resulted in return on
sales increasing by 200 basis points to 26.6% (2021: 24.6%). This drove
adjusted operating profit 34% higher.
Our strategic vision for Consumer Care is to be the global leader in
sustainable solutions in premium markets. Our strategy is to Strengthen to
Grow Consumer Care, delivering annual sales growth of mid-single digit
percentage, supplemented by synergies from the F&F acquisitions. The
target is to deliver a return on sales in excess of 25%.
2022 has seen the continued implementation of our strategy. Beauty Actives has
clear market and innovation leadership. We are expanding our range of skin
active technologies, from Sederma's high performance peptide chemistry, based
around the Matrixyl range, to botanicals and natural actives. Recent launches
have included Silverfree, a peptide that reduces grey hair, and BB-Biont,
designed to enhance consumer wellbeing by minimising acne-related disorders
and promoting a healthy skin microbiome. Within the biotech pipeline,
opportunities include novel anti-ageing and anti-dandruff ingredients derived
from "blue" biotechnology, which will be taken to market by Sederma. 2022 also
sees the launch of a differentiated retinol anti-aging active; by
encapsulating the active, we have improved skin penetration by more than nine
times, while creating the most sustainable retinol-containing complex on the
market, by ensuring its effects last twice as long. As part of our Fast Grow
China strategic initiative, and with China forecast to be the fastest growing
consumer care market over the next five years, a site has been acquired to
build a botanicals and fragrance plant, in partnership with the F&F
business.
Beauty Care is being strengthened to deliver more consistent top line growth,
through sustainable ingredients and an expanded full service formulation
capability, giving smaller customers greater access to formulations containing
Croda's high performance ingredients. We are seeing a structural shift in
behaviour by customers and consumers towards sustainable ingredients and Croda
is exceptionally placed to deliver this, with future growth driven by
bio-based and milder surfactants, supported by an exciting pipeline of
biotech-based ingredients. Sales of ECO bio-based surfactants in North America
continue to accelerate, alongside the development of biotech-derived
surfactants to provide a wider range of sustainable options for customers.
These aim to deliver an increase in the bio-based portfolio of the business,
with an ambition to eliminate petrochemical derived surfactants globally by
2030. Beauty Care is also focused on higher value add capabilities in solar
protection and hair care, the fastest growing parts of the portfolio. Consumer
preference for innovative mineral-based sunscreens saw sales of UV filters
grow strongly in North America and Asia.
Eighteen months following acquisition, F&F is driving integration
synergies, targeting delivery of almost €50m of additional annual sales
synergies by 2025. We are expanding Croda's presence in emerging markets,
where Iberchem is already focused, while providing Iberchem with access to
Croda's developed market presence. In 2022, we have expanded our presence in
Indonesia and South Africa, and launched F&F in Brazil, leveraging Croda's
personal care strength. The 2021 acquisition of Parfex has expanded our
presence in fine fragrances and built our market position in France. Beauty
Care and F&F are combining to build Formulation Centres across the world,
supporting a "one stop shop" formulation capability for smaller and "indie"
customers. 2022 saw the launch of VernovaCaps, a biodegradable fragrance
capsule, only the second encapsulated product on the market and the only
technology which meets the OECD's definition of being readily biodegradable.
The technology has been taken up in fabric conditioners and will be extended
to other customer applications over time.
Home Care is accelerating the growth of sustainable, high value technologies
for cleaning and fabric care, supporting a multinational relaunch in fabric
conditioners. Manufacturing capacity for specialist proteins that extend the
life of fabrics is being added.
Investments in organic expansion form part of the redeployment of capital from
the PTIC divestment into innovative, fast growth markets. Investment is
focused on expanding sustainable technologies and increasing geographic
coverage, particularly in China. This will be supplemented by targeted
acquisition of adjacent technology bolt-ons, particularly those which can
accelerate the transition to greater use of natural raw materials and higher
value-add applications. The sector is also benefiting from Croda's biotech
investment, leveraging past technology acquisitions, such as Nautilus' marine
ingredients, to bring new innovative ingredients to market. NPP remains strong
at 40% (2021: 44%) of total sector sales, with the decline in the first half
year reflecting strong growth in lower NPP businesses, including a greater
inflationary/sales price impact in non-NPP product areas.
Life Sciences building on exceptional performance in 2021
Following an outstanding year for Life Sciences in 2021, with the rapid
expansion of Health Care following the Avanti acquisition and related COVID
vaccine delivery sales, the first half of 2022 has seen further progress.
Sales increased by 14% and adjusted operating profit by 4%. Implementation of
our strategy to expand Life Sciences continues apace. Across the four
businesses, Crop Protection led the way, with strong sales growth supported by
favourable market conditions. We also saw steady growth in Seed Enhancement,
with its innovative microplastic-free product innovation. Consumer Health
delivered robust sales, whilst Patient Health consolidated on its stellar
growth in 2021, with continued expansion in its speciality excipient and
vaccine adjuvant platforms helping offset lower demand in lipid systems, as
COVID vaccine sales declined from peak 2021 demand.
Sales increased to £329.7m (2021: £290.4m), adjusted operating profit was
£118.8m (2021: £114.2m) and IFRS operating profit was £118.2m (2021:
£105.1m). Volume was 11% higher and price/mix grew by 1% with the benefit
from inflation cost recovery largely offset by the higher proportion of Crop
Protection sales. Currency translation added 2%. With the increased crop mix,
return on sales reduced to 36.0% (2021: 39.3%), with the lower variable
remuneration charge also benefitting margin. We continue to expand our
innovation capability, with NPP 43% (2021: 51%) of total sector sales, the
first half decline reflecting the lower proportion of lipid system sales and
the mix impact of stronger crop sales with less NPP content.
Our strategic vision for Life Sciences is to become the global leader in
biological drug delivery in Health Care, alongside our existing leadership in
sustainable delivery systems for Crop Care. Our strategy is to Expand Life
Sciences, delivering annual sales growth of high single digit percentage at a
target return on sales in excess of 30%.
2022 sees the continued implementation of this strategy, building out our crop
science and pharmaceutical platforms. Crop Protection was the standout
business, building on a strong performance in the second half of last year, as
global markets have responded to a combination of high global demand and
significant commodity inflation. Working collaboratively in partnership with
its crop science customers, innovation to improve yields sustainably is a key
driver of growth. Syngenta awarded Croda its "Reduction in Carbon" supplier
award, recognising the carbon benefits in use of Croda's products and the
customer benefits delivered by our sustainability strategy. We are investing
in Life Sciences to develop innovative sustainable solutions in Crop Care,
focused on developing systems for next generation biopesticide delivery that
use microbials and RNA.
Crop Protection was supported by continued growth in the Seed Enhancement
business, with field crop demand particularly strong. As an innovation partner
to leading crop science companies, our range of seed coatings that are free
from micro-plastics have now been proven in field trials across a variety of
vegetable seeds and field crops, opening up a significant medium-term sales
pipeline. Future R&D projects include the development of drought-resistant
seed coatings to combat abiotic stress and a collaborative project to grow
potatoes from pelleted seeds, rather the tubers, to reduce their
susceptibility to disease.
Building on its success in 2021, Health Care delivered sales growth across all
of its platforms other than lipid systems, progressing its vision to become a
global leader in biological drug delivery. The strategy is to identify and
acquire new technology platforms, then grow them organically through organic
investment. The Patient Health platform develops and supplies high purity
delivery systems for pharmaceutical formulations, including vaccine adjuvants,
speciality excipients for protein delivery and lipid systems for nucleic acid
applications. This is supplemented by a vibrant Consumer and Animal Health
business. Our first Patient Health platform, speciality excipients, has been
established for over 10 years. Growth is being driven by demand for high-value
delivery systems to enable the latest biologic drug therapeutics, with a
strong pipeline of new opportunities for monoclonal antibody delivery. A
recent doubling in manufacturing capacity at the US facility has unlocked
further growth. In addition, following its acquisition in 2018, investment in
rapid expansion of vaccine adjuvants is also driving strong growth. Adjuvant
demand is being driven by new vaccines, greater adjuvant use to enhance the
body's reaction to vaccine protection and WHO programmes to expand vaccine
take up in developing countries, together with industry interest in sourcing
from independent manufacturers, such as Croda. Vaccines are also increasingly
being used to trigger an immune response to an already contracted disease,
such as HIV, with 1,500 clinical trials of therapeutic vaccines underway
globally.
Croda entered its third Patient Health platform, lipid systems, through its
2020 US acquisition of Avanti Polar Lipids. Alongside this additional
technology platform, Avanti strengthened Croda's access to clinical stage drug
and vaccine development through Avanti's service to 3,000 pharmaceutical
R&D customers. Avanti combined a well established R&D business model
with access to the novel area of nucleic acid delivery. Lipid systems offer
significant potential as the delivery system for a wide range of nucleic acid
applications, including novel mRNA-based therapeutics, such as flu vaccines
and cancer treatments. Given the scale of the current clinical development
pipeline, the market for lipid systems is expected to grow significantly over
the next ten years.
2020 saw the fast-track approval of COVID-19 vaccines using the new mRNA
technology. Croda was the first company to supply clinical and commercial
quantities of critical lipid systems to support the roll-out of COVID vaccines
globally. COVID sales from lipid systems peaked in 2021 at US$190m and are
currently expected to decline steadily through to 2024, with a regular demand
thereafter. Progressively offsetting this will be an encouraging pipeline of
R&D projects using lipids for non-COVID applications, based on the Avanti
lipid R&D business.
First half total sales of lipid systems were US$90m, with full year sales
expected to be around US$150m (2021: US$230m). We expect total lipid sales to
be around US$120m in 2023 and 2024, returning to growth from 2025 as clinical
opportunities in mRNA and nucleic acids develop and convert into commercial
scale projects, leveraging Croda's wider scale-up capability, driving medium
term expansion in line with the Avanti acquisition plan.
Our Health Care business has had outstanding early success with its
involvement in COVID vaccines, but, more importantly, we have built a
foundation for Croda in biological drug delivery. In the first half, we
secured 30 new customers and 80 new clinical and pre-clinical programmes,
bringing the total to 330. More than three quarters of these programmes are
for non-COVID applications, up from two thirds just six months ago. In lipid
systems, all of the new programmes were for non-COVID applications, bringing
the pipeline to over 50, including supporting a customer which recently
completed the world's first ever dosing of a patient with a gene editing
therapy, as part of a phase one clinical trial for the treatment heart
disease.
We are investing £160m over the period 2021 to 2024 to broaden our footprint
and capabilities in lipid systems and drug delivery. This capital investment
includes the expansion of the Avanti site in Alabama, USA into a full cGMP
R&D facility, the expansion of Croda's UK lipid scale-up facility and
establishing a second scale up plant in Pennsylvania, USA, as part of a new
multi-purpose cGMP Health Care facility. The latter two sites have secured up
to £75m of funding from the UK and US governments respectively, as part of
their pandemic preparedness plans.
Performance Technologies and Industrial Chemicals (PTIC)
Following the recovery of demand in Performance Technologies during 2021,
sales grew 23% in the first half of 2022. This reflected a 32% increase in
price/mix, reflecting successful recovery of significant inflation across most
raw materials. Volume declined by 11%, reflecting strong demand in the prior
year comparator, when customers increased supply chain inventories to meet the
rapid recovery in consumer demand, and with the higher prices leading to some
customer reformulation in lower value products. Currency translation added 2%.
Across the two principal businesses, Energy Technologies performed well as
post-pandemic demand returned, particularly in the automotive market. Smart
Materials also built on a strong performance in 2021, to deliver further
growth across packaging, circular plastics and other polymer applications.
Sales in the first half were £274.4m (2021: £223.7m) with NPP 17% (2021:
18%) of total sector sales. Adjusted operating profit increased by 44% to
£50.2m (2021: £34.8m) and IFRS profit was £49.2m (2021: £31.3m). Return on
sales improved to 18.3% (2021: 15.6%), reflecting the benefit of operating
leverage.
Industrial Chemicals benefitted from stronger commodity prices, with sales up
29%, driven by a 35% increase in price/mix. Adjusted operating profit was
£10.3m (2021: £2.7m) and return on sales improved on the better pricing and
operating leverage to 15.1% (2021: 5.1%). IFRS operating profit was £10.3m
(2021: £2.7m)
Following the divestment, Croda's retained industrial business will form a new
Industrial Specialties sector. This will play a critical role in Croda's
integrated model, supporting the efficiency of the Consumer Care and Life
Sciences sectors. In addition to supplying ingredients for water treatment,
fibres and fabrics, emulsion technologies, low emission coatings, display
technologies and electronics, it will also generate revenue from new long-term
supply agreements with the acquirer.
Other matters
Principal risks
The principal risks and uncertainties facing the Group were set out on pages
50 to 55 of the Group's financial statements for the year ended 31 December
2021. There have been no changes in the Group's principal risks and
uncertainties, risk management processes or policies since the year end. The
Group's principal risks as reported in the financial statements for the year
ended 31 December 2021 were revenue generation; product and technology
innovation and protection; digital technology innovation; delivering
sustainable solutions - Climate and Land 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. Within revenue
generation risk, significant inflation has continued which we have
successfully recovered. After a period of strong market growth, there are some
signs of macro-economic slowdown amid a consumer cost of living squeeze. Our
powerful business model has allowed us to continue to manage this risk
effectively.
Related party transactions during the period are set out in note 10.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial information has
been prepared in accordance with IAS 34 as adopted 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 2022 were as follows (a
list of current Directors is maintained on the Croda website: www.croda.com
(http://www.croda.com) ):
Anita Frew (Chair)
Steve Foots (Group Chief Executive)
Roberto Cirillo
Jacqui Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden
John Ramsay
Julie Kim
Nawal Ouzren
By order of the Board
Steve Foots Jez Maiden
Group Chief Executive Group Finance Director
Independent Review Report to Croda International Plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the 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 2022 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 of 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. As
disclosed in note 1, 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
28 July 2022
Croda International Plc
Interim announcement of trading results for the six months ended 30 June 2022
Group Condensed Interim Income Statement
First half 2022 First half 2021 Full year 2021
Note Adjusted Adjustments Reported Adjusted Adjustments Reported Adjusted Adjustments Reported
£m
£m
Total
£m
£m
Total
£m
£m
Total
£m
£m
£m
Revenue 2 1,127.3 - 1,127.3 934.0 - 934.0 1,889.6 - 1,889.6
Cost of sales (591.3) - (591.3) (463.5) - (463.5) (950.7) - (950.7)
Gross profit 536.0 - 536.0 470.5 - 470.5 938.9 - 938.9
Operating costs (235.6) (11.8) (247.4) (228.4) (23.6) (252.0) (470.3) (30.4) (500.7)
Operating profit 2 300.4 (11.8) 288.6 242.1 (23.6) 218.5 468.6 (30.4) 438.2
Gain on business disposal 11 - 360.6 360.6 - - - - - -
Financial costs 3 (12.4) (1.1) (13.5) (12.9) (1.8) (14.7) (24.9) (3.3) (28.2)
Financial income 3 0.8 - 0.8 0.3 - 0.3 1.5 - 1.5
Profit before tax 288.8 347.7 636.5 229.5 (25.4) 204.1 445.2 (33.7) 411.5
Tax (69.4) (20.7) (90.1) (56.0) 6.0 (50.0) (94.4) 5.7 (88.7)
Profit after tax for the period 219.4 327.0 546.4 173.5 (19.4) 154.1 350.8 (28.0) 322.8
Attributable to:
Non-controlling interests 2.9 - 2.9 0.7 - 0.7 2.0 - 2.0
Owners of the parent 216.5 327.0 543.5 172.8 (19.4) 153.4 348.8 (28.0) 320.8
219.4 327.0 546.4 173.5 (19.4) 154.1 350.8 (28.0) 322.8
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
Reported
Reported
Reported
Adjusted
Total
Adjusted
Total
Adjusted
Total
Earnings per 10.61p ordinary share
Basic 155.2 389.6 124.0 110.0 250.0 230.0
Diluted 154.9 388.8 123.7 109.8 249.5 229.5
Ordinary dividends paid in the period
Interim 4 - - 43.5
Final 4 56.5 51.5 51.5
Group Condensed Interim Statement of Comprehensive Income
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Profit after tax for the period 546.4 154.1 322.8
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of post-retirement benefit obligations 99.3 40.5 40.6
Tax on items that will not be reclassified (24.9) (8.7) (8.3)
74.4 31.8 32.3
Items that have been or may be reclassified subsequently to profit or loss:
Currency translation 87.8 (48.5) (61.1)
Reclassification of currency translation (14.8) - -
Cash flow hedging 2.8 - 3.7
Reclassification of cash flow hedging (6.5) - -
Cost of hedging reserve - - (6.0)
Reclassification of cost of hedging reserve 6.0 - -
Tax on items that may be reclassified (0.4) - 0.4
74.9 (48.5) (63.0)
Other comprehensive income/(expense) for the period 149.3 (16.7) (30.7)
Total comprehensive income for the period 695.7 137.4 292.1
Attributable to:
Non-controlling interests 3.5 0.6 2.1
Owners of the parent 692.2 136.8 290.0
695.7 137.4 292.1
Arising from:
Continuing operations 695.7 137.4 292.1
Group Condensed Interim Balance Sheet
Note At At
30 June 31 December
2022 2021
£m
£m
Assets
Non-current assets
Intangible assets 5 1,272.6 1,271.6
Property, plant and equipment 6 916.4 988.1
Right of use assets 88.7 87.9
Investments 3.3 3.3
Deferred tax assets 11.9 13.5
Retirement benefit assets 8 131.5 35.3
2,424.4 2,399.7
Current assets
Inventories 434.8 443.0
Trade and other receivables 472.6 337.9
Cash and cash equivalents 786.4 112.8
1,693.8 893.7
Liabilities
Current liabilities
Trade and other payables (358.4) (358.0)
Borrowings and other financial liabilities (114.2) (50.9)
Lease liabilities (12.3) (12.2)
Provisions (5.3) (5.5)
Current tax liabilities (70.2) (33.3)
(560.4) (459.9)
Net current assets 1,133.4 433.8
Non-current liabilities
Borrowings and other financial liabilities (912.2) (794.6)
Lease liabilities (79.0) (78.3)
Other payables (3.6) (12.3)
Retirement benefit liabilities 8 (23.4) (27.4)
Provisions (3.6) (3.6)
Deferred tax liabilities (162.8) (151.4)
(1,184.6) (1,067.6)
Net assets 2,373.2 1,765.9
Equity attributable to owners of the parent 2,358.6 1,753.1
Non-controlling interests in equity 14.6 12.8
Total equity 2,373.2 1,765.9
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 2021 16.2 707.7 19.3 842.6 9.3 1,595.1
Profit after tax for the period - - - 153.4 0.7 154.1
Other comprehensive (expense)/income - - (48.4) 31.8 (0.1) (16.7)
Total comprehensive (expense)/income for the period - - (48.4) 185.2 0.6 137.4
Transactions with owners:
Dividends on equity shares 4 - - - (71.8) - (71.8)
Share-based payments - - - 7.0 - 7.0
Transactions in own shares - - - (4.8) - (4.8)
Total transactions with owners - - - (69.6) - (69.6)
Acquisition of a subsidiary with NCI - - - - 1.6 1.6
Total equity at 30 June 2021 16.2 707.7 (29.1) 958.2 11.5 1,664.5
At 1 January 2022 16.2 707.7 (43.8) 1,073.0 12.8 1,765.9
Profit after tax for the period - - - 543.5 2.9 546.4
Other comprehensive income - - 74.3 74.4 0.6 149.3
Total comprehensive income for the period - - 74.3 617.9 3.5 695.7
Transactions with owners:
Dividends on equity shares 4 - - - (78.8) - (78.8)
Share-based payments - - - 3.5 - 3.5
Transactions in own shares - - - (10.6) - (10.6)
Total transactions with owners - - - (85.9) - (85.9)
Changes in ownership interests:
Acquisition of an NCI - - - 0.3 (1.7) (1.4)
Total changes in ownership interests - - - 0.3 (1.7) (1.4)
Preference share capital reclassification (1.1) - - - - (1.1)
Total equity at 30 June 2022 15.1 707.7 30.5 1,605.3 14.6 2,373.2
Other reserves include the Capital Redemption Reserve of £0.9m (30 June 2021:
£0.9m) and the Translation Reserve of £29.6m (30 June 2021: £(30.0)m).
During the period, the Group's preference share capital has been reclassified
from equity to borrowings and other financial liabilities.
Group Condensed Interim Statement of Cash Flows
Note 2022 2021 2021
First half
First half
Full year
£m
£m
£m
Cash generated by operations
Operating profit 288.6 218.5 438.2
Adjustments for:
Depreciation and amortisation 60.8 55.0 113.3
Fair value movement on contingent consideration (5.5) 3.1 (6.2)
Impairments - - 1.1
(Profit)/Loss on disposal and write-offs of intangible assets and property, (0.1) 0.1 5.8
plant and equipment
Net provisions charged - 0.4 1.6
Share-based payments (10.4) 13.8 29.1
Non-cash pension expense 5.0 6.1 -
Share of loss of associate - 1.8 0.7
Cash paid against operating provisions (0.5) (1.5) (2.1)
Movement in inventories (67.6) (58.7) (140.9)
Movement in receivables (140.3) (76.5) (53.2)
Movement in payables 24.1 36.8 91.6
Cash generated by operations 154.1 198.9 479.0
Interest paid (11.5) (8.3) (19.8)
Tax paid (62.7) (48.9) (111.5)
Net cash generated from operating activities 79.9 141.7 347.7
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (55.5) (48.9)
Payment of contingent consideration (12.8) - (9.2)
Purchase of property, plant and equipment (60.9) (78.7) (153.0)
Purchase of other intangible assets (2.8) (3.1) (5.7)
Proceeds from sale of property, plant and equipment 1.9 0.2 0.2
Proceeds from business disposal, net of cash in disposed business 11 613.4 - -
Cash paid against non-operating provisions (0.5) (0.7) (1.1)
Interest received 0.8 0.3 1.5
Net cash generated from investing activities 539.1 (137.5) (216.2)
Cash flows from financing activities
New borrowings 207.4 194.4 320.2
Repayment of borrowings (53.1) (116.9) (282.6)
Payment of lease liabilities (8.8) (6.8) (14.4)
Acquisition of non-controlling interest (1.4) - (0.7)
Net transactions in own shares (10.6) (4.8) (2.4)
Dividends paid to equity shareholders 4 (78.8) (71.8) (132.5)
Dividends paid to non-controlling interests - - (0.2)
Net cash generated from financing activities 54.7 (5.9) (112.6)
Net movement in cash and cash equivalents 673.7 (1.7) 18.9
Cash and cash equivalents brought forward 94.3 77.8 77.8
Exchange differences 6.2 4.4 (2.4)
Cash and cash equivalents carried forward 774.2 80.5 94.3
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 786.4 104.8 112.8
Bank overdrafts (12.2) (24.3) (18.5)
774.2 80.5 94.3
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 28 July 2022. The
financial information included in this interim financial report for the six
months ended 30 June 2022 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 2021 is also unaudited. The
comparative figures for the year ended 31 December 2021 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
2022 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 2022 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 period ending 31
December 2022 using rates substantively enacted by 30 June 2022 as required by
IAS 34 'Interim Financial Reporting'.
The annual financial statements of the Group for the year ended 31 December
2022 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 2021, 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 2022 the Group had £1,338m of committed debt facilities available
from its banking group, USPP bondholders and lease providers, with principal
maturities between 2023 and 2030, of which £263.4m (30 June 2021: £305.5m)
was undrawn, together with cash balances of £786.4m (30 June 2021: £104.8m)
as a result of the PTIC divestment.
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 over 90% to trigger an event
of default, 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 2021.
2. Segmental information
The Group's sales, marketing and research activities are organised into four
global market sectors, being Consumer Care, Life Sciences, Performance
Technologies and Industrial Chemicals. These are the segments for which
summary management information is presented to the Group's Executive
Committee, which is deemed to be the Group's Chief Operating Decision Maker.
Following the completion of the divestment, Croda's retained business within
PTIC will form a new Industrial Specialties sector, and summary management
information will be updated to reflect the new organisational structure of
three global market sectors being Consumer Care, Life Sciences and Industrial
Specialties.
There is no material trade between segments. Segmental results include items
directly attributable to a specific segment as well as those that can be
allocated on a reasonable basis. There are no significant seasonal variations
which impact the split of revenue between the first and second half of the
financial year.
Adjustments
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Exceptional items - operating profit
Business acquisition and disposal costs - (3.7) (13.5)
Pension curtailment gain - - 11.2
Fair value movement on contingent consideration 5.5 (3.1) 6.2
Exceptional items - financial costs
Unwind of discount on contingent consideration (1.1) (1.8) (3.3)
Gain on business disposal 360.6 - -
Exceptional items 365.0 (8.6) 0.6
Amortisation of intangible assets arising on acquisition (17.3) (16.8) (34.3)
Total adjustments 347.7 (25.4) (33.7)
The exceptional items in the current year reflect the gain on the PTIC
divestment, associated business disposal costs and discount unwind and fair
value adjustment both in respect of contingent consideration. Movements in
contingent consideration have been presented as exceptional as they are not
directly representative of the underlying business performance in the period,
and therefore this presentation provides a meaningful basis to make
comparisons between reporting periods. Business divestment profit and disposal
costs have been presented as exceptional due to their size and one-off nature.
The exceptional items in the prior half year related to discount unwind and
fair value adjustment both in respect of contingent consideration, acquisition
costs and disposal costs in relation to the PTIC divestment. The adjustments
to operating profit relate to our segments as follows: Consumer Care £10.2m
(30 June 2021: £11.0m), Life Sciences £0.6m (30 June 2021: £9.1m),
Performance Technologies £1.0m (30 June 2021: £3.5m) and Industrial
Chemicals £Nil (30 June 2021: £Nil).
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Income statement
Revenue
Consumer Care 454.9 367.0 763.0
Life Sciences 329.7 290.4 572.3
Performance Technologies 274.4 223.7 439.5
Industrial Chemicals 68.3 52.9 114.8
Total Group revenue 1,127.3 934.0 1,889.6
Adjusted operating profit
Consumer Care 121.1 90.4 188.5
Life Sciences 118.8 114.2 208.5
Performance Technologies 50.2 34.8 64.5
Industrial Chemicals 10.3 2.7 7.1
Total Group operating profit (before exceptional items and amortisation of 300.4 242.1 468.6
intangible assets arising on acquisition)
Exceptional items and amortisation of intangible assets arising on acquisition (11.8) (23.6) (30.4)
Total Group operating profit 288.6 218.5 438.2
In the following table, revenue has been disaggregated by sector and
destination. This is the primary management information that is presented to
the Group's Executive Committee.
Reported
Total
Europe North America £m Latin America £m Asia
£m
£m
£m
Revenue
First half 2022
Consumer Care 182.4 123.1 43.8 105.6 454.9
Life Sciences 137.5 93.4 41.7 57.1 329.7
Performance Technologies 133.0 62.1 13.0 66.3 274.4
Industrial Chemicals 29.7 7.6 1.4 29.6 68.3
Total Group revenue 482.6 286.2 99.9 258.6 1,127.3
Revenue
First half 2021
Consumer Care 151.4 96.7 33.0 85.9 367.0
Life Sciences 140.3 83.1 28.8 38.2 290.4
Performance Technologies 110.8 50.3 11.2 51.4 223.7
Industrial Chemicals 24.1 5.9 1.1 21.8 52.9
Total Group revenue 426.6 236.0 74.1 197.3 934.0
3. Net financial costs
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Financial costs
Bank interest payable (11.2) (9.2) (19.9)
Net interest on retirement benefit liabilities - (0.1) (0.3)
Interest on lease liabilities (1.2) (1.1) (2.2)
Provision against non-operating loan - (2.5) (2.5)
Unwind of discount on contingent consideration (exceptional) (1.1) (1.8) (3.3)
(13.5) (14.7) (28.2)
Financial income
Bank interest receivable and similar income 0.6 0.3 1.5
Net interest on retirement benefit liabilities 0.2 - -
0.8 0.3 1.5
Net financial costs (12.7) (14.4) (26.7)
4. Dividends
Pence per 2022 2021 2021
share
First half
First half
Full year
£m
£m
£m
Ordinary
2020 final, paid June 2021 51.5 - 71.8 71.8
2021 interim, paid October 2021 43.5 - - 60.6
2021 final, paid June 2022 56.5 78.8 - -
78.8 71.8 132.4
Preference (paid June and December) - 0.0 0.1
78.8 71.8 132.5
An interim dividend in respect of 2022 of 47.0p per share, amounting to a
total dividend of £65.6m, was declared by the Directors at their meeting on
21 July 2022. This interim report does not reflect the 2022 interim dividend
payable. The dividend will be paid on 4 October 2022 to shareholders
registered on 9 September 2022.
5. Intangible assets
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Opening net book amount 1,271.6 1,311.7 1,311.7
Exchange differences 36.7 (39.7) (54.6)
Additions 2.8 3.1 5.7
Acquisitions - 48.2 48.4
Disposals, write offs and reclassifications (19.8) (0.2) (2.6)
Amortisation charge for the period (18.7) (18.0) (37.0)
Closing net book amount 1,272.6 1,305.1 1,271.6
6. Property, plant and equipment
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Opening net book amount 988.1 900.8 900.8
Exchange differences 57.1 (20.3) (12.4)
Additions 61.0 78.7 153.0
Acquisitions - 13.0 13.0
Disposals, write offs and reclassifications (155.0) (0.8) (3.2)
Depreciation charge for the period (34.8) (30.7) (63.1)
Closing net book amount 916.4 940.7 988.1
7. Reconciliation to net debt
2022 2021 2021
First half
First half
Full year
£m
£m
£m
Net movement in cash and cash equivalents 673.7 (1.7) 18.9
Net movement in borrowings and other financial liabilities (145.5) (70.7) (23.2)
Change in net debt from cash flows 528.2 (72.4) (4.3)
Loans in acquired business - - (5.7)
Non-cash movement in lease liabilities (5.2) (9.5) (24.1)
Non-cash preference shares reclassification (1.1) - -
Exchange differences (30.0) 16.1 11.4
491.9 (65.8) (22.7)
Net debt brought forward (823.2) (800.5) (800.5)
Net debt carried forward (331.3) (866.3) (823.2)
8. Critical accounting judgements and key sources of estimation uncertainty
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 critical if it involves matters that are highly uncertain or
where different estimation methods could reasonably have been used, or if
changes in the estimate that would have a material impact on the Group's
results are likely to occur from period to period.
The critical accounting judgement required when preparing the Group's accounts
are as follows:
Business disposal
The Group completed the divestment of the majority of its Performance
Technologies and Industrial Chemicals ('PTIC') business to a wholly owned
subsidiary of Cargill Inc. on 30 June 2022. The Group's assessment that the
disposal group does not meet the definition of a separate major line of
business or geographical area of operations, and therefore is not a
discontinued operation, is a key judgement. The key considerations in forming
this conclusion were:
· The Group is not exiting a geographical area of operations; Croda
will remain active in all territories in which the divested business operates
· Whilst the majority of the PTIC business is being divested, a
significant proportion remains with Croda via the retained Industrial
Specialties product portfolio, supply agreements and retained production
capabilities
· The complex carve-out requirements of the disposal mean that the
operations and cash flows of the divested business cannot be distinguished
clearly from the remaining Croda Group.
Croda Sipo in which Croda has a 65% shareholding was excluded from the
transaction that completed on 30 June 2022. The Group's assessment that Sipo
is not available for sale in its present condition is a key judgement in
determining that Sipo is not classified as an asset held for sale at 30 June
2022. Croda continues to discuss options for the future of Croda Sipo with its
partner, including a sale to Cargill Inc at an agreed price of €140m.
The critical accounting estimates and assumptions required when preparing the
Group's accounts are as follows:
Post-retirement benefits
The Group's principal retirement benefit schemes are of the defined benefit
type. Recognition of the liabilities under these schemes and the valuation of
assets held to fund these liabilities require a number of significant
assumptions to be made, relating to key financial market indicators such as
inflation and expectations on future salary growth and asset returns. These
assumptions are made by the Group in conjunction with the schemes' actuaries
and the Directors are of the view that any estimation should be appropriate
and in line with consensus opinion.
The majority of the remeasurement gain in the period relates to the Group's UK
pension scheme as a result of a significant rise in corporate bond yields
increasing the discount rate to 3.7% (2021: 1.8%). 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. During the period the business divestment
resulted in a curtailment gain of £3.9m on cessation of defined benefit
accrual, primarily within the Group's UK pension scheme, which has been
recognised in the Group Income Statement as part of the gain on business
disposal.
2022 2021
First half Full year
£m
£m
Opening net retirement benefit surplus/(deficit) 7.9 (32.3)
Current service cost (10.5) (25.1)
Net interest cost 0.2 (0.3)
Employer contributions 5.3 13.6
Benefits paid 0.4 0.3
Past service cost - curtailments 3.9 11.2
Remeasurements 99.3 40.6
Acquisitions - (0.9)
Disposals 1.8 -
Exchange movement (0.2) 0.8
Closing net retirement benefit surplus 108.1 7.9
Total market value of assets 1,107.6 1,340.1
Present value of scheme liabilities (988.5) (1,318.7)
Net pension plan asset 119.1 21.4
Post-employment medical benefits (11.0) (13.5)
Net retirement benefit surplus 108.1 7.9
Analysed in the balance sheet as:
Retirement benefit assets 131.5 35.3
Retirement benefit liabilities (23.4) (27.4)
Net retirement benefit surplus 108.1 7.9
Goodwill impairment
Management are required to undertake an annual test for impairment of
indefinite lived assets such as goodwill. At 30 June 2022, management have
performed an assessment for potential impairment triggers and no impairment
triggers were identified.
The Group tests annually whether goodwill has suffered any impairment and the
Group's goodwill value has been supported by the fair value less cost to sell
or detailed value in use calculations relating to the recoverable amounts of
the underlying Cash Generating Units ('CGUs'). These value in use calculations
require the use of estimates to enable the calculation of the net present
value of cash flow projections of the relevant CGU. The critical assumptions
are as follows:
· Terminal value growth in EBITDA (calculated as operating profit
before depreciation and amortisation) - estimated at 3% unless the profile of
a particular CGU warrants a different treatment.
· Selection of appropriate market participant discount rates to
reflect the risks specific to the CGU.
· Specific cash flow projections including key assumptions on
revenue growth and operating margins - generally over a 5 year period unless
the profile of a particular CGU warrants a longer period.
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 sectors and regional operating units to enable prompt
identification of financial risks so that appropriate action may be taken. In
the management definition of capital the Group includes ordinary and
preference share capital and net debt.
The condensed interim financial statements do not include all financial risk
management information and disclosures required in the annual financial
statements; they should be read in conjunction with the Group's financial
statements for the year ended 31 December 2021. 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, other investments and lease
liabilities, which are classed as level 3.
Fair values
For financial instruments with a remaining life of greater than one-year, fair
values are based on cash flows discounted at prevailing interest rates.
Accordingly, the fair value of cash deposits and short-term borrowings
approximates to the book value due to the short maturity of these
instruments. The same applies to trade and other receivables and payables
(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.
Prior to 2016, the Group did not typically utilise complex financial
instruments and accordingly the only element of Group borrowings where fair
value differed from book value was the US$100m fixed rate ten year note that
was issued in 2010. In January 2020 the existing US$100m fixed rate ten-year
note matured and was repaid, this was replaced with a new US$100m fixed rate
ten-year note (27 January 2020). On 27 June 2016, the Group issued £100m and
€100m of fixed rate notes. On 6 June 2019, the Group issued a further £65m,
€50m and US$60m of fixed rate notes.
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
2022
2022
2021
2021
£m
£m
£m
£m
US$100m 3.75% fixed rate 10 year note (81.6) (78.3) (74.1) (78.2)
€30m 1.08% fixed rate 7 year note (25.7) (25.7) (25.2) (25.5)
€70m 1.43% fixed rate 10 year note (60.1) (59.1) (58.7) (61.5)
£30m 2.54% fixed rate 7 year note (30.0) (29.8) (30.0) (30.3)
£70m 2.80% fixed rate 10 year note (70.0) (68.7) (70.0) (71.9)
€50m 1.18% fixed rate 8 year note (42.9) (41.2) (41.9) (43.5)
£65m 2.46% fixed rate 8 year note (65.0) (62.2) (65.0) (65.7)
US$60m 3.70% fixed rate 10 year note (48.9) (47.2) (44.5) (47.4)
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.
11. Business disposal
On 30 June 2022, the Group completed the disposal of the majority of its
Performance Technologies and Industrial Chemicals business for cash
consideration of £650.7m. The divested business comprised four manufacturing
facilities, together with associated laboratory facilities and sales
operations, and formed part of Croda's integrated operating model prior to
disposal. The following table summarises the effect of the disposal on the
Group's consolidated financial statements.
£m
Cash consideration received 650.7
Amounts owed to the divested business (21.6)
629.1
Assets and liabilities of the divested business
Intangible assets 20.0
Property, plant & equipment 154.4
Right of use assets 1.1
Inventories 96.5
Trade and other receivables 24.4
Cash and cash equivalents 9.4
Trade and other payables (35.2)
Lease liabilities (1.1)
Current tax payable (1.5)
Retirement benefit liabilities (1.8)
Deferred tax (10.7)
Net assets 255.5
Associated transactions and costs
Pension curtailment gain 3.9
Disposal and separation costs (31.7)
Reclassification of currency translation 14.8
Gain on business disposal before tax 360.6
Income tax on business disposal (22.2)
Gain on business disposal after tax 338.4
The cash consideration received includes a £0.6m gain on associated cash flow
hedging and a £4.4m deduction for VAT payable.
Income tax payable on the gain on business disposal has been calculated on a
jurisdiction-by-jurisdiction basis, applying the relevant corporation tax
rates and exemptions.
A completion accounts process remains ongoing to finalise the consideration
received and net assets transferred which will be completed in the second
half-year. This may result in an adjustment to the final reported gain on
business disposal.
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