Vanity care pays off for Croda

AN ageing population and people wanting to look their best have helped natural chemicals group Croda make it through one of the most ” tumultuous and difficult years” in living memory for the global chemical industry.

The Goole-based firm, which supplies some of the world’s best known skincare and cosmetics companies such as L’Oreal, Chanel, Clarins, Estee Lauder and Procter & Gamble, has reported a pre-tax profit rise of 61.8% to a record £98.4m for the year ended December 31.

Turnover increased by 18.8% to £956.4m (2007: £804.8m) while average selling prices rose by 18.5% in turn compensating for the 11.2% volume shortfall caused by reducing Croda’s ex Uniqema commodity business and weak industrial markets in the second half.

Earnings per share before exceptional items increased by 39.4% to 51.7p (2007: 37.1p), despite the dilution from the sale of Baxenden Chemicals to Chemtura for £13m and Chicago Oleochemicals to HIG Capital for £46.8m.

As a result of the strong trading performance Croda has increased the final dividend by 25.5% to 13.55p, making a total of 19.75p for the year.

This represents an increase of 25.4% versus the 15.75p paid out for 2007.

Consumer care sales, which includes personal, health, home and crop divisions, in the fourth quarter were up by 46.4% year-on-year, with strong underlying trading augmented by price and favourable currency translation.

Croda said that the main drivers of continued global growth in this market were vanity and an ageing population.

Other key influences include a move to “natural” self-medication.

Croda’s two main areas of expertise are in excipients, such as lanolin in wound care, and essential fatty acids used increasingly for therapeutic treatment of heart and inflammatory problems.

“The industry has a growing appetite for innovation and Croda is recognised as a world leader in speciality ingredients for the whole range of Personal Care products,” it said.

“Added impetus to growth is provided by the rapid evolution of developing markets such as Asia and Latin America.”

A move to more environmentally friendly household products in the global market has also boosted sales.

But it’s Croda’s crop care market that is enjoying fastest growth as a result of growing food demands and the pressure on agrochemical companies to reduce their environmental impact .

However, not all fo Croda’s divisions have fared so well. It said there were “significant, but inevitable” volume declines in its industrial specialities sector due to the large fall in demand in some end markets.

The main parts of this business are polymer additives, lubricant additives and coatings additives plus a number of smaller market areas such as water treatment.

Demand in the second half of 2008 was reduced but in spite of the second half severe downturn in the more industrial markets the business overall grew sales by 11.9% in 2008. Sales in the fourth quarter actually declined by 15.7%.

“Our strategy has been to reduce our exposure to the more commoditised products in the portfolio and the recent market shocks have convinced us that we are moving in the right direction,” commented Croda.

“These operations are more exposed to global GDP trends, but our focus on innovating the product range and on more speciality products has helped soften the blow of the global downturn.”

Indeed, 10 years ago the company decided to focus on markets that had intrinsic growth in good times and bad – a policy which looks to have paid off.

“Our success is predicated on choosing the right markets and our focus markets have been selected based on these criteria,” it said.

“But choosing correctly is not enough. We have also invested in innovative plant and processes to enhance our leadership position. We are also innovative in our responses to the global challenges to society and the environment.”

Martin Flower, Croda’s chairman added: “The group’s ability to weather turbulent economic conditions and produce record sales and profits demonstrates the robustness of the underlying business and the continuing resilience of our chosen market sectors.

“Furthermore, these results were achieved despite steeply rising raw material costs in the first half and weak industrial markets, particularly in the second half.”

He continued: “We have started 2009 in line with expectations. The broad trading trends of resilient consumer care demand, weaker industrial markets and favourable currency translation are continuing. We are confident of making further progress in the year ahead.”