TIDMCRDA
RNS Number : 5242G
Croda International PLC
27 July 2021
Press Release
27 July 2021
Results for the six months ended 30 June 2021
Record first half performance reflecting accelerated strategic
implementation
Croda International Plc ("Croda" or the "Group") announces its
half year results for the six months ended 30 June 2021. This
announcement contains inside information.
Highlights
Statutory results
(IFRS) Adjusted results
change
constant
Half year ended 30 June 2021 2020 change 2021 2020 change currency
Sales (GBPm) 934.0 672.9 38.8% 934.0 672.9 38.8% 46.9%
Operating profit (GBPm) 218.5 154.0 41.9% 242.1 161.6 49.8% 58.7%
Return on sales (%) 25.9 24.0 190bps
Profit before tax (GBPm) 204.1 144.9 40.9% 229.5 152.5 50.5% 59.5%
Basic earnings per share
(p) 110.0 84.1 30.8% 124.0 88.8 39.6% 48.0%
Ordinary dividend per share
(p) 43.5 39.5 10.1%
Free cash flow (GBPm) 42.7 80.2 (46.8)%
============================ ====== ===== ====== ===== ===== ======= =========
Record performance driven by accelerated strategic
implementation
-- Excellent underlying growth across all sectors
o Underlying sales up 27% on 2020, including successful raw
material price recovery
o Sales now well above 2019 levels, up over 10% in underlying
terms (before the benefit of lipid systems )
o Strong Consumer Care and Performance Technologies
performances, driven by end consumer recovery, customer inventory
build and demand for sustainable solutions
o Benefitting from significant capital investment over last 12
months, together with increased innovation
-- Successful delivery from recent acquisitions opening up new fast growth markets
o Iberchem profit performance in line with plan; Avanti
significantly ahead
o Integration and synergy delivery on track; additional bolt-on
acquisitions completed in Consumer Care
-- Continued success in building Life Sciences platform
o Outstanding Health Care performance - continued sales growth
of vaccine adjuvants and speciality excipients, supplemented by
over US$100m of lipid system sales for COVID-19 applications
o Organic growth and acquisition resulting in near doubling of
adjusted operating profit
o Over GBP40m invested in Health Care capacity expansion this
half year, reinforcing leading niche positions
Excellent first half financial results
-- Reported sales up 39%, driven by organic growth and acquisitions
-- Improving margin driving excellent profit growth
o Return on sales up 190 basis points - Life Sciences
performance supported by progress in Consumer Care and Performance
Technologies
o Record adjusted profit before tax at GBP229.5m, up over 50% on
2020 and 35% on 2019
o IFRS profit before tax up over 40% to GBP204.1m (2020:
GBP144.9m)
-- Leverage reduced to 1.7x EBITDA, despite increased capital
investment and demand-driven working capital build
-- Interim ordinary dividend up 10% to 43.5p, continuing an
unbroken trend of increasing returns over nearly 30 years
Sector performance*
Half year ended 30 June
2020
Sales 2021 Restated
GBPm Price/mix Volume Acquisition Currency Change GBPm
========================= ====== ========= ====== ============= ========== ======== =========
Consumer Care 367.0 7.6% 10.8% 37.8% (10.0)% 46.2% 251.1(*)
Life Sciences 290.4 41.6% 5.8% 22.7% (8.6)% 61.5% 179.8(*)
Performance Technologies 223.7 3.1% 17.5% - (5.9)% 14.7% 195.0(*)
Industrial Chemicals 52.9 2.8% 15.2% - (5.4)% 12.6% 47.0
========================= ====== ========= ====== ============= ========== ======== =========
Group 934.0 13.5% 13.3% 20.1% (8.1)% 38.8% 672.9
========================= ====== ========= ====== ============= ========== ======== =========
Half
Underlying sales growth (excluding year
lipid systems) change
2021
vs. 2019
==================================== =========
Consumer Care 10.2%
Life Sciences 14.5%
Performance Technologies 10.6%
Industrial Chemicals (2.7)%
==================================== =========
Group 10.4%
==================================== =========
This table compares sales against the first half of 2019 to
remove the disruption to the first half of 2020 caused by the
COVID-19 pandemic. Lipid systems have been excluded to give a more
informative comparator to 2019, given the sales arising from
COVID-19 contracts secured since 2019
Half year ended 30 June
Underlying Acquisition Currency 2020
Adjusted profit 2021 growth impact impact restated
GBPm GBPm GBPm GBPm GBPm Change
========================= ====== ========== =========== ======== ========= =======
Consumer Care 90.4 7.8 14.2 (5.3) 73.7(*) 22.7%
Life Sciences 114.2 40.6 23.4 (7.6) 57.8(*) 97.6%
Performance Technologies 34.8 6.5 - (1.2) 29.5(*) 18.0%
Industrial Chemicals 2.7 2.3 - (0.2) 0.6 350.0%
========================= ====== ========== =========== ======== ========= =======
Operating profit 242.1 57.2 37.6 (14.3) 161.6 49.8%
Net interest (12.6) (9.1) (38.5)%
========================= ====== ========== =========== ======== ========= =======
Profit before tax 229.5 152.5 50.5%
========================= ====== ========== =========== ======== ========= =======
*indicates that sector results for half year 2020 have been
restated to reflect the Group's new reporting structure
All sectors delivering strong growth:
-- Outstanding performance in Life Sciences, growing sales by
over 60% and improving return on sales to 39.3% (2020*: 32.1%),
reflecting continued growth in higher value add niches
-- Strong improvement in Consumer Care performance, growing
sales by 46% and adjusted operating profit by almost GBP17m, driven
by:
o Significant progress in Personal Care, including improved mix
through recovery in Beauty Actives
o Successful integration of Iberchem acquisition, supplemented
by Parfex acquisition in fine fragrances
o Acquisition of Alban Muller, boosting natural ingredient
portfolio in Beauty Actives
-- Demand recovery in Performance Technologies, growing sales by
15% and improving return on sales to 15.6%, significant progress on
second half year 2020 return on sales of 10.9%*
Steve Foots, Chief Executive Officer, commented:
"Our record first half performance reflects the impact of our
strategic acceleration and investments, supported by improving
customer demand across all regions and sectors. This has been
delivered through excellent growth in our existing businesses,
successful delivery from our recent acquisitions and continued
success in building our Life Sciences platform. With the strategic
review of our Performance Technologies business well underway, we
continue our transition to becoming a pure play consumer facing
ingredients company.
"I am excited by Croda's increasing opportunities in emerging
technology platforms and faster growth markets, where demand for
sustainable solutions will drive our progress going forward. We are
investing in organic and inorganic expansion, continuing our
relentless innovation and focusing on sustainability across
everything we do. This is creating new avenues for future growth,
delivering significant value for our shareholders."
Outlook
The first half year has seen a strong performance across the
Group, reflecting the global recovery in demand, the accelerated
implementation of our strategic priorities and increased
investment.
We expect underlying growth across all sectors to continue in
the second half year, driven by consumer demand, whilst the
customer restocking seen in the first half is expected to moderate.
Together with the benefit of recent acquisitions opening up new
fast growth markets, we expect continued strong demand for lipid
systems and are increasing guidance for sales this year to at least
US$200m.
We now expect 2021 full year adjusted profit before tax to be
significantly ahead of current expectations. Subject to there being
no material change in current market conditions, we expect a
similar phasing of profit between the first and second half periods
as seen in previous years.
Demand for COVID-19 solution ingredients remains uncertain
beyond the short term and the current level of sales could
moderate; however, we expect to see an ongoing expansion in the
range of applications for lipid systems in vaccines and therapeutic
drugs over the medium term. Across the wider Group, the combination
of our differentiated business model, healthy innovation pipeline
and recent investment is expected to underpin performance and
continue to generate increased value for all our stakeholders.
Further information:
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulations (Regulation (EU)
No.596/2014). For the purposes of MAR and Article 2 of Commission
Implementing Regulation (EU) 2016/1055, this announcement is being
made on behalf of the Company by David Bishop, Investor Relations
Director.
An analyst presentation will be available via webcast at 0900
BST on 27 July 2021 at www.croda.com /investors.
For enquiries contact:
Investors: David Bishop, Croda +44 7823 874428
Press: Charlie Armitstead, Teneo +44 7703 330269
Notes:
Lipid systems comprise lipid excipients and other Avanti lipid
technology products. They are excluded from this growth calculation
to give a more informative comparator to 2019, given the sales
arising from COVID-19 contracts secured since 2019.
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.
The measures used in this statement include:
-- Constant currency results: these reflect current year
performance for existing business translated at the prior year's
average exchange rates and include the impact of acquisitions. For
constant currency profit, translation is performed using the entity
reporting currency. For constant currency sales, local currency
sales are translated into the most relevant functional currency of
the destination country of sale (for example, sales in Latin
America are primarily made in US dollars, which is therefore used
as the functional currency). Sales in functional currency are then
translated into Sterling using the prior year's average rates for
the corresponding period. Constant currency results are reconciled
to reported results in the Finance Review;
-- Underlying sales: these reflect constant currency values
adjusted to exclude the impact of acquisitions. They are reconciled
to reported sales 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
underlying business performance and make year-on-year comparisons.
The same measures are used by management for planning, budgeting
and reporting purposes and for the internal assessment of operating
performance across the Group. The adjusted presentation is adopted
on a consistent basis for each half year and full year results;
-- Return on sales: this is adjusted operating profit divided by sales, at reported currency;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and lease
liabilities;
-- Leverage ratio: this is the ratio of net debt to Earnings
Before Interest, Tax, Depreciation and Amortisation (EBITDA)
adjusted to include EBITDA from acquisitions or disposals in the
last 12 month period. EBITDA is adjusted operating profit plus
depreciation and amortisation;
-- Free cash flow: comprises EBITDA less movements in working
capital, net capital expenditure, payment of lease liabilities,
non-cash pension expense, and interest and tax payments.
Croda International Plc
Group Performance Review
Adjusted results are stated before exceptional items and
amortisation of intangible assets arising on acquisition, and tax
thereon. For a description of these adjustments and definitions of
all alternative performance measures, see the Finance Review.
Underlying sales reflect constant currency values adjusted to
exclude the impact of acquisitions. Constant currency results
reflect current year performance for existing business translated
at the prior year's average exchange rates. *Indicates that sector
results for half year 2020 have been restated to reflect the
Group's new reporting structure. All comparators are first half
2020 unless otherwise stated.
Record performance driven by accelerated strategic
implementation
The first half year has seen a strong performance across the
Group, enabled by the accelerated implementation of our strategic
priorities, increased organic investment and the broader global
recovery in demand. We have achieved excellent underlying growth
across all sectors; successfully delivered from our recent
acquisitions opening up new fast growth markets; and secured
continued success in expanding our Life Sciences platform.
Our priorities during the COVID-19 pandemic have been to protect
the health and safety of our employees and balance the needs of all
our stakeholders fairly. Our colleagues have continued to
demonstrate remarkable personal resilience and commitment to serve
our customers almost eighteen months into the crisis, particularly
as a growing number of colleagues are having to self-isolate at a
time of increased demand.
Our focus on accelerating key elements of our strategy over the
last 12 months has ensured that Croda is well positioned to benefit
from the recovery in consumer demand, as lockdowns are lifted, and
to capitalise on developing trends in existing and emerging
markets, notably increasing demand for sustainable solutions. After
a resilient performance in 2020, Croda has returned to strong sales
and profit growth in the first half of 2021. At the same time, we
are focused on the fast growth markets of the future, unlocking
value from our investment of almost GBP1bn last year in
acquisitions and capacity expansion, as well as investing nearly
GBP140m in capital expenditure and acquisitions in the first half
of 2021, to deliver sustainable future growth.
Excellent first half financial results
Group performance has been driven by a return of demand for the
underlying business across all sectors, successful progress in
integrating the second half 2020 acquisitions of Iberchem and
Avanti, and an outstanding performance in Life Sciences. Despite
the return of COVID-19 infection control measures to many countries
during the early part of the year, customer demand has been less
impacted than in previous lockdowns. In addition, end consumer
demand has recovered well in many countries, most notably the
Americas and parts of Asia, and, even in those countries still
impacted by lockdowns, our demand has benefitted from customer
restocking in anticipation of recovery. The first half year has
also seen rising raw material costs, which we have successfully
recovered.
Sales grew by 39% year-on-year, to GBP934.0m (2020: GBP672.9m).
Underlying sales were up 27% and acquisitions added 20% (at
constant currency), while the adverse impact from currency
translation was 8%, reflecting the strengthening of Sterling during
the period. Given the disruption to last year's sales caused by the
start of the pandemic, it is perhaps more notable to see the
strength of underlying sales measured against the first half of
2019, up over 10% (before the additional benefit of lipid systems
which were introduced in 2020). The recovery of increased raw
material costs added around 5% to first half average sales prices,
alongside substantial volume growth across the business.
Return on sales also improved, up 190 basis points to 25.9%
(2020: 24.0%). This reflected the continued growth of higher value
add technology platforms in Life Sciences, an improved business mix
in the Personal Care business within Consumer Care, and the
positive impact of volume recovery on operating leverage in
Performance Technologies. These benefits were partly offset by
margin dilution from a full half year of Iberchem and an increased
remuneration incentive charge to reflect the strong results. The
combination of sales growth, acquisition and improved margin saw
reported profit before tax (on an IFRS basis) increase by GBP59.2m
to GBP204.1m (2020: GBP144.9m) and adjusted profit before tax
increase by over 50% on 2020 to a record first half year result of
GBP229.5m (2020: GBP152.5m). Adjusted profit before tax was 35%
higher than the first half of 2019.
We achieved continued success in building out our Life Sciences
platforms. An outstanding Health Care performance saw sales of
vaccine adjuvants and speciality excipients each grow by more than
two thirds. The scale-up of Avanti's technology platform within
Croda saw lipid system sales exceed US$100m, with our principal
COVID-19 vaccine contract supplemented by additional drug and
vaccine applications, albeit at smaller scale. We are now working
on more than 100 COVID-19 projects in 20 countries across our three
patient health platforms. Adjusted operating profit in Life
Sciences almost doubled through this combination of excellent
organic growth, successful acquisition integration and demand for
COVID-19 solutions.
Deploying capital for future growth
We continue to deploy capital to deliver sustainable growth in
life science and consumer markets. In the first half year, capital
expenditure exceeded GBP80m, as we accelerated our investment
programme to build new capacity in fast growth market niches. Drug
delivery offers the most significant global opportunity for growth
and we are investing in new manufacturing capacity to serve patient
health care markets. We invested over GBP40m in Health Care
capacity expansion in the first half year, reinforcing our leading
positions in drug and vaccine delivery systems. We are expanding
our GMP capability in vaccine adjuvants and are currently
completing investments in lipid system capacity in Avanti in the US
and in our UK scale-up site. Whilst initially serving current
strong demand for emergency COVID-19 vaccines, this capacity will
increasingly unlock future opportunities in new mRNA and gene
therapy applications. We have also commissioned a GBP30m investment
which has doubled capacity of speciality excipients in the US.
In Consumer Care, we invested in the acquisition of two
businesses which accelerate our transition to more natural raw
materials, an important differentiator in this market. In March, we
acquired natural actives specialist Alban Muller for a total
enterprise value of EUR25m, expanding our portfolio of natural
ingredients in our global leading Beauty Actives business. In June,
we completed the acquisition of Parfex for a total enterprise value
of EUR45m. This acquisition increases Iberchem's sustainable
fragrance offerings and reinforces Iberchem's superior growth
profile with greater access to fine fragrances. Alongside these,
the Consumer Care business is benefitting from our bio-based
surfactants plant in the US which has been fully operational since
March, enabling us to produce sought-after sustainable ingredients
that deliver identical performance to petrochemical peers.
Alongside reinvesting to deliver organic growth and acquiring
disruptive technologies, our capital allocation priorities are to
provide a regular dividend to shareholders and to operate with an
appropriate balance sheet. Higher profitability saw debt leverage
reduce to 1.7x EBITDA (full year 2020: 1.8x), despite the increased
capital expenditure and a demand-driven working capital build, with
free cash flow of GBP42.7m (2020: GBP80.2m). The 2021 interim
ordinary dividend is being increased by 10% per share to 43.5p
(2020: 39.5p) and by 19% in cash terms, following last year's
acquisition funding share placing.
Strong growth across all sectors
2021 saw the creation of the Consumer Care sector, comprising
Croda's leading global position in Personal Care, its growing Home
Care business and the Iberchem fragrances business, acquired in
November 2020. The first half of 2021 saw an excellent sales
performance, up 46%, with underlying sales growth of 18%
supplemented by a 38% increase from acquisitions, partly offset by
an adverse impact of currency translation of 10%. After a steady
recovery in the second half of 2020 from the negative impact of
COVID-19 on 'going out' sales of actives and cosmetics, Personal
Care improved rapidly in the first half of 2021, led by a
resurgence in Beauty Actives and by strong regional demand in the
Americas, to be 8% above 2019 in underlying terms. This enriched
product mix benefitted margin. Innovation is focused on natural
ingredients and biotechnology to meet growing consumer demand, with
Beauty Actives launching Ameyezing(TM) , a biodegradable product
with its origins in wild ginger that improves the appearance of
dark eye circles.
Iberchem has proven to be an excellent acquisition; its
underlying sales grew at 12% in the first half year, integration
with Croda's sales network is progressing well and the first
cross-selling opportunities are underway, including a new fragrance
operation being established through Croda Brazil. Growth continued
in Home Care, reflecting an ongoing consumer focus on hygiene and
new sales from Croda's innovative fabric care offering. Consumer
Care adjusted operating profit increased by 23% (and by 9% on an
IFRS basis), with return on sales of 24.6% (2020*: 29.4%), the
reduction reflecting the dilution impact of Iberchem and a higher
remuneration incentive charge.
Life Sciences continues to develop into a business to rival
Croda's long held leadership in Consumer Care markets. With its
focus on drug, vaccine and crop science delivery systems, the
sector is growing sales through organic expansion and by leveraging
acquired technologies using Croda's existing scale-up capabilities.
The business is moving into higher value, lower volume niches,
delivering essential functionality for customers' drug, vaccine and
crop science products. The first half year saw sales up 61% and
adjusted operating profit almost double over the first half of
2020. Whilst much of this reflected growth from scale-up of lipid
systems at Croda sites, reflecting current peak demand for COVID-19
vaccines, the rest of the Life Sciences portfolio grew underlying
sales by 17% including sales of vaccine adjuvants and speciality
excipients both growing by over two thirds. Crop Protection and
Seed Enhancement also delivered double-digit percentage growth on
an underlying basis. Avanti added 23% to sector sales.
With growth in higher value add niches, Life Sciences adjusted
operating profit increased by 98% (and by 98% in IFRS terms), with
return on sales rising to 39.3% (2020*: 32.1%). Achieving this
level of growth and profit improvement in such a short period has
placed significant demands on the business, our manufacturing
capability and, most of all, our people. The margin level and
growth rate will moderate in the future as we bring new capacity on
stream to refine and expand the manufacturing process and emergency
COVID-19 demand normalises. We are proud of the contribution we
have made to relieving the pandemic's challenge and the
opportunities for future growth in two globally critical areas,
Health Care and Crop Care, are exciting.
After a challenging two years, Performance Technologies has
recovered well in 2021. Sales have grown by 15% through a recovery
in industrial end markets and sustainability driven demand across
multiple niche applications, with underlying sales growth of 21%.
Adjusted operating profit increased by 18% (and by 13% in IFRS
terms), as higher sales positively impacted operating leverage
through higher production volumes. Return on sales was 15.6%
(2020*: 15.1%), a significant improvement on 10.9%* achieved in the
second half of 2020. Smart Materials continued to benefit from good
demand in packaging and polymer applications, whilst the
progressive recovery in industrial markets saw Energy Technologies
return to growth, supported by increased exposure to next
generation applications, such as electric vehicles.
In May, we announced a strategic review of the Performance
Technologies and Industrial Chemicals ('PTIC') businesses to
establish what ownership structure would best serve this part of
Croda's business going forward, creating a stronger platform for
its future growth while allowing more capital to be deployed into
the higher returning Consumer Care and Life Sciences businesses.
PTIC is an excellent, world leading business, delivering industry
leading margins across the cycle. We have now defined a perimeter
and scope for those PTIC activities which can form the strongest
possible portfolio as a separate business and are non-core to
Consumer Care and Life Sciences. We have concluded that up to an
equivalent of 75% of the revenue of the current PTIC portfolio
could be included in the scope of any potential divestment and are
now assessing how the full potential of these assets can best be
delivered, with the review expected to conclude by the end of
2021.
A Purpose-led consumer-facing ingredients company
Through the strategic moves that we have made over the last 12
months, we are increasingly exposed to fast growth life science and
consumer markets, which now represent 85% of the Group's
profitability. Sustainability trends are increasing rapidly in
these markets as economies recover from COVID-19, driven by
regulatory change and consumer demand. We believe that delivering
sustainability, together with our relentless focus on innovation,
will allow us to achieve our strategic objective of consistent top
and bottom line growth, with profit growing ahead of sales, ahead
of volume.
Croda was built on a foundation of using science to turn
renewable raw materials into innovative ingredients. Today, our
Purpose is to use Smart science to improve lives(TM) , and we are
committed to being the most sustainable supplier of innovative
ingredients by being Climate, Land and People Positive by 2030. It
is the right thing to do but it is also what our customers and
consumers are increasingly demanding; accelerating the transition
to sustainable ingredients makes clear commercial, as well as
ethical, sense.
Leveraging our leading position in renewable raw materials, we
enable our customers to meet their sustainability commitments
through focusing more of our innovation on sustainable ingredients,
ethical sourcing, greater ingredient transparency and sustainable
manufacture. We have decarbonisation roadmaps in place for sites
accounting for over 90% of our carbon emissions, supported by an
internal carbon price to facilitate improved decision making. We
are now one of only three major chemical companies worldwide to
have our 1.5(o) C target verified by the Science Based Targets
initiative (SBTi). This commits us to delivering improvements in
line with the objective to limit global temperature rises to no
more than 1.5degC above pre-industrial levels, the most ambitious
SBTi pathway. In recognition of Croda's position as a
sustainability leader, we were ranked number one of the 1,000
largest publicly listed companies outside the US in the Barrons'
Most Sustainable International Company rankings.
We are also committed to being a safe company for our employees
and communities. With the inclusion of recent acquisitions into
Group metrics, the Total Recordable Incident Rate ('TRIR') rose to
0.70 for the first half of the year, excluding COVID-19 cases (2020
full year: 0.54). We are targeting to reduce this to 0.3 by
2025.
It is the combination of sustainability and innovation that
drives value to our customers. Our innovation pipeline is robust
and our innovation strategy combines internal R&D with external
technology investments and partnerships, augmenting Croda's 48
global innovation centres with a network of over 500 academic and
SME partners working on more than 100 innovation projects. An
increasing proportion of innovation is focused on sustainability;
we are scaling our biotechnology investment to develop disruptive
technologies and more sustainable products, augmenting close to 50
biotech products that have been launched by our Beauty Actives
business alone. In line with our strategic objective of increasing
the proportion of New and Protected Products ('NPP') that we sell,
NPP as a percentage of sales increased to 28% (2020: 27%) or to 38%
including the Iberchem and Avanti acquisitions and lipid system
sales. We opened a new innovation centre in Shanghai, enabling us
to work on collaborative projects with customers from China and
North Asia, and have commenced a multi-million pound project to
improve innovation collaboration, deliver artificial intelligence
and utilise data mining across our global R&D knowledge
base.
Outlook
The first half year has seen a strong performance across the
Group, reflecting the global recovery in demand, the accelerated
implementation of our strategic priorities and increased
investment.
We expect underlying growth across all sectors to continue in
the second half year, driven by consumer demand, whilst the
customer restocking seen in the first half is expected to moderate.
Together with the benefit of recent acquisitions opening up new
fast growth markets, we expect continued strong demand for lipid
systems and are increasing guidance for sales this year to at least
US$200m.
We now expect 2021 full year adjusted profit before tax to be
significantly ahead of current expectations. Subject to there being
no material change in current market conditions, we expect a
similar phasing of profit between the first and second half periods
as seen in previous years.
Demand for COVID-19 solution ingredients remains uncertain
beyond the short term and the current level of sales could
moderate; however, we expect to see an ongoing expansion in the
range of applications for lipid systems in vaccines and therapeutic
drugs over the medium term. Across the wider Group, the combination
of our differentiated business model, healthy innovation pipeline
and recent investment is expected to underpin performance and
continue to generate increased value for all our stakeholders.
Finance Review
Adverse impact from currency translation
Sterling strengthened during the period, particularly against
the US Dollar. The average Sterling exchange rates against the
Group's key currencies were US$1.388 (2020: US$1.261) and EUR1.152
(2020: EUR1.145). As a result, currency translation reduced sales
by GBP54.5m and adjusted operating profit by GBP14.3m.
Transactional currency impact is correlated with translation, given
that the UK and EU are meaningful centres of production for the
Group, with the strength of Sterling adversely impacting margins,
particularly from Europe into US Dollar priced markets.
Strong sales from organic growth and acquisition
Sales grew by 38.8% to GBP934.0m (2020: GBP672.9m), comprising
underlying growth of 26.8% and acquisition benefit of 20.1%, partly
offset by adverse currency translation of 8.1%. Underlying sales
growth comprised approximately 8 percentage points of growth coming
from lipid systems (manufactured at existing Croda sites which have
scaled Avanti's technology under contracts which were in place
between Croda and Avanti prior to the acquisition of Avanti) and
19% growth in the rest of the Croda business. Acquisition sales
growth comprised 14 percentage points of growth from Iberchem and 6
percentage points from Avanti.
Sales/price mix improved by 13.5%, reflecting a better product
mix and successful recovery of raw material cost increases. Volume
was 13.3% higher, as the impact of economic recovery on consumer
demand was accentuated by customer restocking.
Half year ended 30 June
2020
Sales 2021 Restated
GBPm Price/mix Volume Acquisition Currency Change GBPm
========================= ====== ========= ====== ============= ========== ======== =========
Consumer Care 367.0 7.6% 10.8% 37.8% (10.0)% 46.2% 251.1(*)
Life Sciences 290.4 41.6% 5.8% 22.7% (8.6)% 61.5% 179.8(*)
Performance Technologies 223.7 3.1% 17.5% - (5.9)% 14.7% 195.0(*)
Industrial Chemicals 52.9 2.8% 15.2% - (5.4)% 12.6% 47.0
========================= ====== ========= ====== ============= ========== ======== =========
Group 934.0 13.5% 13.3% 20.1% (8.1)% 38.8% 672.9
========================= ====== ========= ====== ============= ========== ======== =========
Sales performance was strong across all sectors, led by Life
Sciences where sales were up 61.5%, driven by growth across the
board and over US$100m of sales into the lipid systems platform.
With progressive volume growth in consumer and industrial end
markets, sales increased by 46.2% in Consumer Care and 14.7% in
Performance Technologies, augmented by customer restocking and raw
material cost recovery.
Underlying sales were also over 10% ahead of the first half of
2019 (excluding sales of lipid systems introduced since 2019, to
provide a better basis of comparison), demonstrating significant
growth against pre-pandemic levels. Consumer Care, Life Sciences
and Performance Technologies were all up double-digit percentage on
2019.
Half
Underlying sales growth (excluding year
lipid systems) change
2021
vs. 2019
==================================== =========
Consumer Care 10.2%
Life Sciences 14.5%
Performance Technologies 10.6%
Industrial Chemicals (2.7)%
==================================== =========
Group 10.4%
==================================== =========
Record profit and improved margin
The first half year has seen the most significant upward
movement in raw material prices for over seven years. Croda's
operating model is to recover such increases as they occur and this
has been delivered. The resultant average increase in selling
prices is estimated to have been around 5% in the first half year.
There has been some disruption and shortages in the supply of
certain raw materials and in the availability of freight, impacting
costs, but overall we have managed these challenges effectively.
The first half year has also seen new working arrangements adopted
following the end of the Transition Period for the UK's exit from
the European Union (EU). Implementation of our new European trading
model has been successful, although external factors have continued
to constrain our ability to ship certain categories of products and
have impacted freight costs. In addition, 2021 includes a
significantly higher remuneration incentive charge, covering bonus
and share-based payment costs, reflecting the enhanced profit and
share price performance; this has reduced year-on-year margin
improvement by over two percentage points.
2021 2020
==================== ============================== ==============================
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======= =========== ======== ======= =========== ========
Sales 934.0 - 934.0 672.9 - 672.9
Cost of sales (463.5) - (463.5) (362.4) - (362.4)
==================== ======= =========== ======== ======= =========== ========
Gross profit 470.5 - 470.5 310.5 - 310.5
Operating costs (252.0) (23.6) (228.4) (156.5) (7.6) (148.9)
==================== ======= =========== ======== ======= =========== ========
Operating profit 218.5 (23.6) 242.1 154.0 (7.6) 161.6
Net interest charge (14.4) (1.8) (12.6) (9.1) - (9.1)
-------------------- ------- ----------- -------- ------- ----------- --------
Profit before tax 204.1 (25.4) 229.5 144.9 (7.6) 152.5
Tax (50.0) 6.0 (56.0) (36.6) 1.5 (38.1)
==================== ======= =========== ======== ======= =========== ========
Profit after tax 154.1 (19.4) 173.5 108.3 (6.1) 114.4
==================== ======= =========== ======== ======= =========== ========
IFRS operating profit increased by 41.9% to GBP218.5m (2020:
GBP154.0m). The charge for adjusting items before tax was GBP25.4m
(2020: GBP7.6m), with an increase in the charge for amortisation of
intangible assets to GBP16.8m (2020: GBP4.9m), following recent
acquisitions. The charge for exceptional items was GBP8.6m (2020:
GBP2.7m), consisting of a GBP1.8m discount unwind and GBP3.1m fair
value increase for the Avanti acquisition, as we now expect the
earn-out payable on the Avanti acquisition to reach its maximum
level following strong trading, and GBP3.7m of business acquisition
and disposal costs, primarily relating to preparing part of the
PTIC business for potential sale. Adjusted operating profit
increased by 49.8% to GBP242.1m (2020: GBP161.6m), reflecting
higher sales and an improved business mix. Return on sales improved
to 25.9% (2020: 24.0%), despite the higher remuneration incentive
charge.
With the net interest charge increasing to GBP12.6m (2020:
GBP9.1m), reflecting higher net debt following recent acquisitions
and a loan write-off, adjusted profit before tax increased by 50.5%
to GBP229.5m (2020: GBP152.5m). IFRS profit before tax increased by
40.9% to GBP204.1m (2020: GBP144.9m).
The effective tax rate on adjusted profit was broadly unchanged
at 24.4% (2020: 25.0%) and there were no significant adjustments
between the Group's expected and reported tax charge based on its
accounting profit. With an increase in shares in issue following
the equity placing to acquire Iberchem in late 2020, IFRS basic
earnings per share (EPS) were 110.0p (2020: 84.1p) and adjusted
basic EPS increased by 39.6% to 124.0p (2020: 88.8p).
Profit performance was strong across all sectors, led by Life
Sciences where adjusted operating profit was up 97.6%, reflecting
sales growth and an improvement in product mix towards higher value
add niches. Consumer Care adjusted operating profit rose 22.7%,
benefitting from improved business mix in Personal Care and the
inclusion of Iberchem, following its acquisition in November 2020.
Performance Technologies benefitted from the recovery in demand and
significant improvement in return on sales, compared to second half
2020, driven by higher volume and a positive impact from operating
leverage, with adjusted operating profit 18.0% higher.
2021 2020 restated
========================= ============================ ==============================
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
Operating profit GBPm GBPm GBPm GBPm GBPm GBPm
========================= ===== =========== ======== ======= =========== ========
Consumer Care 79.4 (11.0) 90.4 72.6(*) (1.1) 73.7(*)
Life Sciences 105.1 (9.1) 114.2 53.2(*) (4.6) 57.8(*)
Performance Technologies 31.3 (3.5) 34.8 27.7(*) (1.8) 29.5(*)
Industrial Chemicals 2.7 - 2.7 0.5 (0.1) 0.6
========================= ===== =========== ======== ======= =========== ========
Group 218.5 (23.6) 242.1 154.0 (7.6) 161.6
========================= ===== =========== -------- ======= =========== --------
Underlying growth across the sectors added GBP57.2m to adjusted
operating profit, acquisitions contributed GBP37.6m and currency
represented a GBP14.3m headwind.
Half year ended 30 June
Underlying Acquisition Currency 2020
Adjusted profit 2021 growth impact impact restated
GBPm GBPm GBPm GBPm GBPm Change
========================= ====== ========== =========== ======== ========= =======
Consumer Care 90.4 7.8 14.2 (5.3) 73.7(*) 22.7%
Life Sciences 114.2 40.6 23.4 (7.6) 57.8(*) 97.6%
Performance Technologies 34.8 6.5 - (1.2) 29.5(*) 18.0%
Industrial Chemicals 2.7 2.3 - (0.2) 0.6 350.0%
========================= ====== ========== =========== ======== ========= =======
Operating profit 242.1 57.2 37.6 (14.3) 161.6 49.8%
Net interest (12.6) (9.1) (38.5)%
========================= ====== ========== =========== ======== ========= =======
Profit before tax 229.5 152.5 50.5%
========================= ====== ========== =========== ======== ========= =======
Lower free cash flow reflecting higher investment and demand
growth
Free cash flow fell to GBP42.7m (2020: GBP80.2m) as a result of
a working capital build associated with the growth in demand and
the increase in capital expenditure set out in the Group
Performance Review above.
Half year ended
30 June
2021 2020
Cash flow GBPm GBPm
========================================== ======== =======
Adjusted operating profit 242.1 161.6
Depreciation and amortisation 38.2 31.8
========================================== ======== =======
EBITDA 280.3 193.4
Working capital (98.4) (13.5)
Net capital expenditure (81.6) (50.9)
Payment of lease liabilities (6.8) (4.9)
Non-cash pension expense 6.1 4.3
Interest & tax (56.9) (48.2)
========================================== ======== =======
Free cash flow 42.7 80.2
Dividends (71.8) (65.0)
Acquisitions (55.5) -
Other cash movements 5.4 (12.4)
========================================== ======== =======
Net cash flow (79.2) 2.8
========================================== ======== =======
Net movement in borrowings 77.5 (17.1)
========================================== ======== =======
Net movement in cash and cash equivalents (1.7) (14.3)
========================================== ======== =======
Total investment in organic capital spend and inorganic
acquisition totalled GBP137.1m (2020: GBP50.9m), creating new
technology platforms and expanding capacity for future growth. This
reflects elements 1 and 3 from the Group's capital allocation
policy below, to:
1. Reinvest for growth - invest in organic capital expenditure
to drive shareholder value creation through new capacity, product
innovation and expansion in attractive geographic markets to drive
sales and profit growth;
2. Provide regular returns to shareholders - pay a regular
dividend to shareholders, representing 40 to 50% of adjusted
earnings over the business cycle. The interim dividend has been
raised by 10% to 43.5p (2020: 39.5p);
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. At 30 June 2021, the leverage ratio had reduced to
1.7x (31 December 2020: 1.8x).
We expect to continue with the current accelerated capital
reinvestment programme for the remainder of 2021, given the strong
demand environment and range of opportunities, particularly in
Consumer Care and Life Sciences.
Closing net debt in the period was GBP866.3m (31 December 2020:
GBP800.5m). The Group has a strong balance sheet, having completed
its debt refinancing in 2019, with no material debt maturities
falling due before 2023. As at 30 June 2021, the Group had
committed funding in place of GBP1,228.2m, with undrawn long-term
committed facilities of GBP305.5m and GBP104.8m in cash.
During the COVID-19 pandemic, we have monitored liquidity and
covenant forecasts for potential impact on trading activities. We
also considered sensitivities in respect of potential downside
scenarios and the mitigating actions available, relative to a base
case scenario. The downside scenarios assumed a significant
reduction in demand, a material increase in working capital and
substantial margin erosion. The evaluation showed that, even in the
most pessimistic downside scenario, the Group would continue to
have sufficient liquidity and financial covenant headroom. In the
event, the first half of 2021 has traded well ahead of the base
case scenario in both sales and profit terms.
Retirement benefits
The post-tax asset on retirement benefit plans at 30 June 2021,
measured on an accounting valuation basis under IAS19, improved to
GBP1.3m (31 December 2020: GBP25.3m liability), 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.
Alternative performance measures
We use a number of alternative performance measures to assist in
presenting information in this statement in an easily analysable
and comprehensible form. We use such measures consistently at the
half year and full year and reconcile them as appropriate. The
measures used in this statement include:
-- Constant currency results: these reflect current year
performance for existing business translated at the prior year's
average exchange rates and include the impact of acquisitions. For
constant currency profit, translation is performed using the entity
reporting currency. For constant currency sales, local currency
sales are translated into the most relevant functional currency of
the destination country of sale (for example, sales in Latin
America are primarily made in US dollars, which is therefore used
as the functional currency). Sales in functional currency are then
translated into Sterling using the prior year's average rates for
the corresponding period. Constant currency results are reconciled
to reported results in this Finance Review;
-- Underlying sales: these reflect constant currency values
adjusted to exclude the impact of acquisitions. They are reconciled
to reported results in this 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
underlying business performance and make year-on-year comparisons.
The same measures are used by management for planning, budgeting
and reporting purposes and for the internal assessment of operating
performance across the Group. The adjusted presentation is adopted
on a consistent basis for each half year and full year results;
-- Return on sales : this is adjusted operating profit divided by sales, in reported currency;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and lease
liabilities;
-- Leverage ratio : this is the ratio of net debt to Earnings
Before Interest, Tax, Depreciation and Amortisation (EBITDA)
adjusted for EBITDA from acquisitions or disposals in the last 12
month period. EBITDA is adjusted operating profit plus depreciation
and amortisation;
-- Free cash flow: comprises EBITDA less movements in working
capital, net capital expenditure, payment of lease liabilities,
non-cash pension expense, and interest and tax payments.
Sector Performance Review
Significant improvement in Consumer Care
Following a disappointing two years for sales growth, the first
half year for Consumer Care targeted a continued recovery in sales
and underlying margin in Personal Care and progress with the
integration of Iberchem, without disrupting its track record of
sales growth and profitability. These have both been achieved.
Personal Care delivered underlying sales growth of 19%, with first
half sales 8% ahead of pre-pandemic levels for the same period in
2019. Growth was strongest in the 'high end', IP-rich products,
benefitting mix and margin. Underlying Iberchem sales grew by 12%
and profit was in line with the acquisition plan.
Sales were stronger, increasing by 46% to GBP367.0m (2020*:
GBP251.1m). Underlying sales grew by 18%, a significant recovery
after the challenges of COVID-19 lockdowns in 2020. Acquisitions
added 38% (at constant currency) and currency translation was
adverse by 10%. Within underlying growth, price/mix increased by
7%, reflecting a better product mix and recovery of higher raw
material costs, with volume 11% higher.
IFRS operating profit increased by 9% to GBP79.4m (2020*:
GBP72.6m). Adjusted operating profit increased by 23% to GBP90.4m
(2020*: GBP73.7m). Following a weaker product mix in the second
half of last year, underlying margin in Personal Care improved.
Return on sales for Consumer Care as a whole was 24.6% (2020*:
29.4%), reflecting the dilution impact from the lower margin
acquired Iberchem business, together with an increased remuneration
incentive charge.
Demand from Personal Care customers strengthened during the half
year, particularly in luxury and premium markets. This benefitted
our Beauty Actives business, the leading innovator in the global
skin care market, which increased sales by 26%. Beauty Effects saw
a progressive improvement in demand for its ingredients for sun
care, cosmetics and hair care markets, growing sales by 11%, but
remained constrained by the impact of continued lockdowns in some
parts of Asia and Europe. Beauty Formulation had enjoyed resilient
sales through pandemic lockdown, with its focus on 'at home' use
products, but still delivered 8% growth as lockdowns eased.
Innovation is focused on natural ingredients and biotechnology to
meet growing consumer demand, with Beauty Actives launching
Ameyezing(TM) , a biodegradable product with its origins in wild
ginger that improves the appearance of dark eye circles.
Iberchem, the global fragrances and flavours business which was
acquired in November 2020, continued its excellent track record of
organic growth, with a double-digit percentage sales increase to
GBP85.1m. Return on sales was in line with the acquisition plan,
despite some lag in recovery of raw material increases, and
includes targeted investment in additional resource to deliver
synergies. The integration of Iberchem, which has more than 80% of
sales in emerging markets, is on track to deliver nearly EUR50m of
annualised revenue synergies by 2025, principally through
leveraging the combined global sales network. Integration has
focused on realising these revenue synergies and helping to
transition Iberchem's raw materials onto a more sustainable
platform. Ten target countries have been identified for revenue
synergies, including the United States and countries in Asia,
leveraging Croda's sales team presence. In Brazil, a new Iberchem
business and R&D laboratory have been established at the Croda
site. With sustainability a potential differentiator in the
fragrance and flavours market, Iberchem has launched new product
lines that are Ecocert-accredited as environmentally friendly and
socially conscious, as well as biodegradable.
After strong demand for hygiene products during 2020, Home Care
sales growth slowed to 5% in the first half of 2021. Customer
product relaunches using Croda's fabric care technology, together
with progressive replacement of petrochemical products with
bio-based surfactants, are expected to drive future growth.
Our strategy is to 'Strengthen to Grow' in Consumer Care,
positioning the sector to capitalise on continued market
fragmentation amongst our customer base and the accelerating demand
for sustainable ingredients. This sustainability trend is driven by
regulatory change and by increasing consumer demand for 'clean
beauty' and products with a beneficial impact on wellbeing. The
Consumer Care sector enables its customers to meet their
sustainability commitments by leveraging Croda's leading position
in renewable raw materials, through ethical sourcing and greater
ingredient transparency, more sustainable manufacture and by
focusing a greater proportion of innovation on sustainable
ingredients. With these trends, Iberchem's superior growth profile
and the potential of Home Care, we expect Consumer Care to achieve
mid single digit percentage top line growth in the medium term at
strong margins.
This strategy is supported by organic and inorganic investment
and a robust innovation pipeline. Following significant investment
in previous years, the US bio-based surfactants plant has been
fully operational since March, enabling us to produce sustainable
ingredients that deliver identical performance to petrochemical
peers. We expect the plant to move from loss making to profit as
new sales convert from petrochemical materials and with a planned
change to cheaper bio-feedstock later in 2021.
Organic investment has been supported by the acquisition of two
businesses which accelerate the transition to more natural raw
materials, an important differentiator in Consumer Care markets. In
March, we acquired botanicals specialist Alban Muller to expand our
portfolio of natural ingredients within the Beauty Actives
platform, for a total enterprise value of EUR25m. In June, we
completed the acquisition of Parfex for a total enterprise value of
EUR45m. This acquisition increases Iberchem's sustainable fragrance
offerings and presence in fine fragrances, illustrating our
appetite to invest to reinforce Iberchem's superior growth. NPP
increased to 45% (2020: 42%) of sector sales, reflecting the
improvement in business mix in Personal Care, a significant
increase in Home Care, as well the inclusion of Iberchem sales.
Outstanding performance in Life Sciences
The first half year in Life Sciences has seen an outstanding
Health Care performance, with rapid expansion in all patient health
platforms and successful integration of the Avanti acquisition,
coupled with good growth across Crop Care. The business is moving
into higher value, lower volume niches, delivering essential
functionality for customers' drug, vaccine and crop science
applications. In addition to significant sales growth in existing
platforms, Croda has been supporting an increasing number of
emergency COVID-19 vaccine and drug applications by reprioritising
resources, investing capital to expand innovation and manufacturing
capacity, and finding new agile ways to solve urgent problems.
Sales growth was outstanding, increasing by 61% to GBP290.4m
(2020*: GBP179.8m). Underlying sales grew by 47%, including 30
percentage points from scale-up of lipid systems at existing Croda
sites for COVID-19 applications. Strong demand beyond these
immediate applications drove a 17% increase in underlying sales in
the balance of the Health Care and Crop Care businesses,
demonstrating the breadth of sales growth across the Life Sciences
portfolio. Alongside this, acquisition added 23% (at constant
currency) and currency translation was adverse by 9%. Within
underlying growth, the improvement in product mix was evident, with
price/mix adding 42%, while volume increased by 6%.
IFRS operating profit increased by 98% to GBP105.1m (2020*:
GBP53.2m). With the continued growth in higher value add niches,
adjusted operating profit increased by 98% to GBP114.2m (2020*:
GBP57.8m), improving return on sales to 39.3% (2020*: 32.1%).
To achieve this level of sales and profit growth in such a short
period has placed significant demands on the business, our
manufacturing capability and our people. To meet COVID-19 related
demand, we have redeployed resource to our US and UK sites,
including transferring 20 specialist staff from around the world
under special travel protocols to Avanti's US operation. We have
invested rapidly in capacity to maximise available product for our
customers, who are meeting the urgent needs of the world with
vaccine and drug solutions. Over time, we expect growth rates and
margin to moderate, as we bring new capacity on stream to refine
and expand the manufacturing process and emergency COVID-19 demand
normalises. In June, Avanti was recognised for its significant
contribution to fighting the COVID-19 pandemic with the Societal
Contribution Award from the American Chemistry Council.
The leading area of COVID-19 application has used Avanti's
proprietary lipid systems technology. Across Avanti and other Croda
sites involved in the scale-up of production, lipid systems sales
in the first half year exceeded US$100m. We now expect full year
2021 lipid system sales to reach at least US$200m, an increase from
our previous guidance of US$125m. While the majority of sales are
to our principal COVID-19 vaccine contract, over time we expect
other drug and vaccine applications of lipids to progressively grow
and the customer base to broaden.
The broader Health Care business saw excellent underlying growth
across its patient health technologies. We are also working on more
than 100 COVID-19 projects across all three drug delivery
platforms, the majority of which utilise our vaccine adjuvant
technologies, in addition to our expertise in speciality excipients
and lipid systems. These three platforms saw excellent progress in
the first half year:
-- Sales of speciality excipients grew by more than two thirds,
driven by the expansion in injectable drugs using biologic actives
and the doubling of our US manufacturing capacity through the
commissioning of a GBP30m capital investment;
-- Vaccine adjuvant sales grew by more than two thirds, driven
by demand for COVID-19 and other vaccines. This builds on the 2018
acquisition of Biosector, a leading supplier of adjuvants which
help trigger the body's immune response; and
-- Lipid systems offer significant potential beyond COVID-19 for
a wide variety of future mRNA and gene therapy applications. Whilst
a small number of competitors are entering the multi-billion dollar
potential market, our first-mover advantage and market leading
position, established through the Avanti acquisition, has been
augmented by continued innovation and total capital investment of
almost GBP40m.
In Crop Protection, we developed our position as innovation
partner to agricultural customers, providing increasingly
sustainable delivery systems to enable continued customer
compliance in areas such as biodegradability. Both the Crop
Protection and Seed Enhancement businesses delivered double-digit
percentage underlying sales growth. Crop Protection saw some
customer restocking and a positive external environment with higher
commodity prices. Seed Enhancement is helping customers stay ahead
of EU regulatory change on microplastics, with trials of
microplastic-free seed coatings underway with both vegetable and
field crop customers leading to the first commercial orders. The
Seed Enhancement business delivered its highest growth in Latin
America, where performance was augmented by the uptake of novel
film coatings based on technology from elsewhere in Croda's
portfolio.
Our strategy is to 'Expand to Grow' Life Sciences. With its
growing margin and exciting technologies aligned to global patient
health and crop sustainability trends, we will continue to build
our Life Sciences brand as a high value add solution provider. This
strategy is driven by innovation and investment, with a robust
pipeline to expand the number of products in our speciality
excipients portfolio and to develop the next generation of vaccine
adjuvant and lipid technologies. NPP sales accounted for 29% of
total sales (2020: 26%), or 51% when Avanti and lipid system sales
are included. We are deploying more capital in the sector, both
organically and through acquisition. We have commissioned our US
speciality excipient expansion and are bringing new capacity in
Avanti and lipid scale-up on line during the third quarter. This
will be followed by further expansion in Health Care and Crop Care
opportunities. We expect to deliver mid to high single digit
percentage organic sales growth at attractive margins over the
medium term, supplemented by further acquisition opportunities.
Performance Technologies recovering strongly
The first half year for Performance Technologies saw a continued
improvement in sales, driven by a recovery in industrial markets
and sustainability driven demand for multiple niche applications.
Margins also improved due to a better business mix and operating
leverage. Sales increased by 15% to GBP223.7m (2020*: GBP195.0m).
Underlying sales grew by 21%, with Smart Materials leading the
recovery, supported by a progressive recovery in demand in Energy
Technologies. Price/mix increased 3%, principally reflecting higher
raw material costs, while volumes were 18% higher. First half
underlying sales for 2021 were 11% ahead of 2019, completing the
recovery above pre-pandemic levels.
IFRS operating profit increased by 13% to GBP31.3m (2020*:
GBP27.7m). Adjusted operating profit increased by 18% to GBP34.8m
(2020*: GBP29.5m), reflecting the impact of higher sales, positive
operating leverage and higher production volume. Return on sales
recovered to 15.6% (2020*: 15.1%), a significant improvement on
second half 2020 at 10.9%*, despite the impact of higher
remuneration incentive costs.
Against a backdrop of rapid recovery in industrial and
technology markets, as well as rising raw material costs, demand
grew significantly across both businesses, accentuated by customer
inventory build. Smart Materials built on its improved sales
performance in 2020 with a further 18% increase in sales. This
reflected continued strong demand for food packaging and protective
equipment, a recovery in broader materials demand and growing
customer requirements for sustainable solutions, such as
biodegradable and recyclable polymers. After a slower start, Energy
Technologies delivered a 10% increase in sales, as industrial
demand returned, particularly in Asia. Demand has outpaced the
broader recovery in mobility and end markets more generally, due to
our exposure to higher growth traditional markets, as well as next
generation applications such as electric vehicles.
In May, we announced a strategic review of the Performance
Technologies and Industrial Chemicals ('PTIC') businesses to
establish what ownership structure would best serve this part of
Croda's business going forward, creating a stronger platform for
its future growth, while allowing more capital to be deployed into
the higher returning Consumer Care and Life Sciences businesses.
PTIC is an excellent, world leading business, delivering industry
leading margins across the cycle. It is also a highly integrated
part of Croda with important mutual dependencies, so the focus of
the strategic review to date has been on the practicalities of
separation. We have now defined a perimeter and scope for those
PTIC activities which can form the strongest possible portfolio as
a separate business and are non-core to Consumer Care and Life
Sciences. We have concluded that up to an equivalent of 75% of the
revenue of the current PTIC portfolio could be included in the
scope of any potential divestment and are now assessing how the
full potential of these assets can best be delivered, with the
review expected to conclude by the end of 2021.
The strategic review is consistent with the prioritisation of
capital to the Consumer Care and Life Sciences sector and the
'refine to grow' strategy for Performance Technologies, through
which we are transitioning the portfolio to focus on high-tech
markets. We are also expanding our geographic footprint, opening a
new innovation centre in Shanghai to drive our China growth by
working collaboratively with customers on near term projects and
tailoring longer term innovation projects to the needs of customers
in China and North Asia. We are already seeing robust sales growth
and progress towards our 20% margin target.
This strategy is driven by innovation and investment. Our
innovation pipeline continues to expand, with NPP sales improving
to 18% of total sector sales (2020: 17%). The Rewitec acquisition,
whose additives repair damage to wind turbines, has delivered good
growth and is now conducting trials with a major energy company, as
well as investing to expand in China. Energy Technologies is
applying its innovation to align to the sustainability driven
transition of industrial markets; for example, we are working with
global manufacturers to enhance drivetrain lubrication of electric
vehicles, with excellent results seen in recent trials. Smart
Materials will see completion of a GBP30m expansion project in the
UK in 2021, expanding capacity and offering customers new
technologies in high value polymers for lightweight and durable
applications.
Industrial Chemicals
Industrial Chemicals activities continue to support the overall
efficiency of Croda's three principal sectors. After a period of
declining demand as we reengineered out of our processes a number
of the by-products which have traditionally been sold by this
sector, the upsurge in global industrial demand, together with
higher commodity prices, saw sales 13% higher at GBP52.9m (2020:
GBP47.0m). Underlying sales rose 18%. IFRS operating profit
increased to GBP2.7m (2020: GBP0.5m) and adjusted operating profit
was also GBP2.7m (2020: GBP0.6m).
Other matters
The principal risks and uncertainties facing the Group were set
out on pages 44 to 48 of the Group's financial statements for the
year ended 31 December 2020. There have been no changes in the
Group's principal risks and uncertainties, risk management
processes or policies since the year end, other than the expanding
exposure to the increased risk of operating within pharmaceutical
markets, following recent acquisitions, together with a new
principal risk relating to our ability to execute significant
strategic change objectives in parallel. The Group's principal
risks as reported in the financial statements for the year ended 31
December 2020 were: revenue generation in established and emerging
markets; product and technology innovation and protection; digital
technology innovation; delivering sustainable solutions - Climate
Positive; our people, culture, wellbeing, talent development and
retention; product quality/liability claims; loss of significant
manufacturing site; suppliers and raw material security; product
stewardship and chemical regulatory compliance; ethics and
compliance; security of business information and networks; and
ineffective management of pension liabilities.
Related party transactions during the period are set out in note
11.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial
information has been prepared in accordance with IAS 34 as adopted
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 2021 were as
follows (a list of current Directors is maintained on the Croda
website: www.croda.com ):
Anita Frew (Chair)
Steve Foots (Group Chief Executive)
Roberto Cirillo
Jacqui Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden
John Ramsay
By order of the Board
Steve Foots Jez Maiden
Group Chief Executive Group Finance Director
Independent Review Report to Croda International Plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-year statement for the six
months ended 30 June 2021 which comprises the Group condensed
interim income statement, Group condensed interim statement of
comprehensive income, Group condensed interim balance sheet, Group
condensed interim statement of changes in equity, Group condensed
interim statement of cash flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-year statement for the six months ended 30 June 2021 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").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-year statement and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-year statement is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-year statement in accordance with the DTR of the
UK FCA.
As disclosed in note 1, the latest annual financial statements
of the Group were prepared in accordance with International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and the next annual
financial statements will be 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-year statement in accordance with IAS 34 as adopted for
use in the UK .
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-year
statement based on our review.
The purpose of our review and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Ian Griffiths
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
26 July 2021
Croda International Plc
Interim announcement of trading results for the six months ended
30 June 2021
Group Condensed Interim Income Statement
First half 2021 First half 2020 Full year 2020
Reported Reported Reported
Adjusted Adjustments Total Adjusted Adjustments Total Adjusted Adjustments Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Revenue 2 934.0 - 934.0 672.9 - 672.9 1,390.3 - 1,390.3
Cost of sales (463.5) - (463.5) (362.4) - (362.4) (758.2) - (758.2)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Gross profit 470.5 - 470.5 310.5 - 310.5 632.1 - 632.1
Operating costs (228.4) (23.6) (252.0) (148.9) (7.6) (156.5) (312.5) (29.6) (342.1)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Operating profit 2 242.1 (23.6) 218.5 161.6 (7.6) 154.0 319.6 (29.6) 290.0
Financial costs 3 (12.9) (1.8) (14.7) (9.2) - (9.2) (19.5) (1.5) (21.0)
Financial income 3 0.3 - 0.3 0.1 - 0.1 0.5 - 0.5
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Profit before
tax 229.5 (25.4) 204.1 152.5 (7.6) 144.9 300.6 (31.1) 269.5
Tax (56.0) 6.0 (50.0) (38.1) 1.5 (36.6) (72.4) 4.5 (67.9)
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Profit after tax
for the period 173.5 (19.4) 154.1 114.4 (6.1) 108.3 228.2 (26.6) 201.6
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
Attributable to:
Non-controlling
interests 0.7 - 0.7 0.1 - 0.1 - - -
Owners of the
parent 172.8 (19.4) 153.4 114.3 (6.1) 108.2 228.2 (26.6) 201.6
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
173.5 (19.4) 154.1 114.4 (6.1) 108.3 228.2 (26.6) 201.6
================ ==== ======== =========== ======== ======== =========== ======== ======== =========== ========
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 124.0 110.0 88.8 84.1 175.5 155.1
Diluted 123.7 109.8 88.7 84.0 175.3 154.8
Ordinary dividends paid in the period
Interim 4 - - 39.50
Final 4 51.50 50.50 50.50
====================================== ========= ========= ========= ========= ========= =========
Group Condensed Interim Statement of Comprehensive Income
2021 2020 2020
First half First half Full year
GBPm GBPm GBPm
==================================================================== =========== =========== ==========
Profit after tax for the period 154.1 108.3 201.6
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of post-retirement benefit obligations 40.5 58.7 51.3
Tax on items that will not be reclassified (8.7) (9.9) (9.7)
==================================================================== =========== =========== ==========
31.8 48.8 41.6
==================================================================== =========== =========== ==========
Items that may be reclassified subsequently to profit or loss:
Currency translation (48.5) 30.4 (15.0)
==================================================================== =========== =========== ==========
Other comprehensive (expense)/income for the period (16.7) 79.2 26.6
==================================================================== =========== =========== ==========
Total comprehensive income for the period 137.4 187.5 228.2
==================================================================== =========== =========== ==========
Attributable to:
Non-controlling interests 0.6 0.5 0.1
Owners of the parent 136.8 187.0 228.1
==================================================================== =========== =========== ==========
137.4 187.5 228.2
==================================================================== =========== =========== ==========
Arising from:
Continuing operations 137.4 187.5 228.2
==================================================================== =========== =========== ==========
Group Condensed Interim Balance Sheet
At At
30 June 31 December
2021 2020
Note GBPm GBPm
============================================ ==== ========= ============
Assets
Non-current assets
Intangible assets 1,305.1 1,311.7
Property, plant and equipment 5 940.7 900.8
Right of use assets 6 80.7 80.1
Investments 3.3 5.2
Deferred tax assets 16.8 14.5
Retirement benefit assets 8 30.0 17.6
============================================ ==== ========= ============
2,376.6 2,329.9
============================================ ==== ========= ============
Current assets
Inventories 361.0 302.6
Trade and other receivables 365.6 289.9
Cash and cash equivalents 104.8 106.5
============================================ ==== ========= ============
831.4 699.0
============================================ ==== ========= ============
Liabilities
Current liabilities
Trade and other payables (296.1) (240.5)
Borrowings and other financial liabilities (61.9) (49.1)
Lease liabilities (11.5) (10.7)
Provisions 8 (4.3) (6.7)
Current tax liabilities (45.4) (38.4)
============================================ ==== ========= ============
(419.2) (345.4)
============================================ ==== ========= ============
Net current assets 412.2 353.6
============================================ ==== ========= ============
Non-current liabilities
Borrowings and other financial liabilities (826.4) (776.2)
Lease liabilities (71.3) (71.0)
Other payables (25.8) (27.1)
Retirement benefit liabilities 8 (28.2) (49.9)
Provisions 8 (4.3) (3.9)
Deferred tax liabilities (168.3) (160.3)
============================================ ==== ========= ============
(1,124.3) (1,088.4)
============================================ ==== ========= ============
Net assets 1,664.5 1,595.1
============================================ ==== ========= ============
Equity attributable to owners of the parent 1,653.0 1,585.8
Non-controlling interests in equity 11.5 9.3
============================================ ==== ========= ============
Total equity 1,664.5 1,595.1
============================================ ==== ========= ============
Group Condensed Interim Statement of Changes in Equity
Share Non-
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2020 15.1 93.3 34.4 718.8 7.0 868.6
Profit after tax for the period - - - 108.2 0.1 108.3
Other comprehensive income - - 30.0 48.8 0.4 79.2
===================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive income for
the period - - 30.0 157.0 0.5 187.5
===================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 4 - - - (65.0) - (65.0)
Share-based payments - - - 1.0 - 1.0
Transactions in own shares - - - (9.1) - (9.1)
===================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (73.1) - (73.1)
===================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 30 June 2020 15.1 93.3 64.4 802.7 7.5 983.0
===================================== ==== ======== ======== ========= ========= ============ =======
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 an NCI - - - - 1.6 1.6
===================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 30 June 2021 16.2 707.7 (29.1) 958.2 11.5 1,664.5
===================================== ==== ======== ======== ========= ========= ============ =======
Other reserves include the Capital Redemption Reserve of GBP0.9m
(30 June 2020: GBP0.9m) and the Translation Reserve of GBP(30.0)m
(30 June 2020: GBP63.5m).
Group Condensed Interim Statement of Cash Flows
2021 2020 2020
First First Full
half half year
Note GBPm GBPm GBPm
==================================================== ==== ======= ======= =======
Cash flows from operating activities
Operating profit 218.5 154.0 290.0
Adjustments for:
Depreciation and amortisation 55.0 36.7 81.8
Fair value movement on contingent consideration 3.1 - -
Impairment - - 1.4
Loss/(Profit) on disposal of property, plant and
equipment 0.1 (0.1) -
Net provisions charged 0.4 1.7 4.2
Share-based payments 13.8 2.6 4.1
Non-cash pension expense 6.1 4.3 7.7
Share of loss of associate 1.8 0.5 1.1
Cash paid against operating provisions (1.5) (4.8) (7.8)
Movement in inventories (58.7) (20.6) (7.0)
Movement in receivables (76.5) (9.9) (15.6)
Movement in payables 36.8 16.9 15.3
Cash generated from operating activities 198.9 181.3 375.2
Interest paid (8.3) (8.8) (17.5)
Tax paid (48.9) (39.5) (70.7)
==================================================== ==== ======= ======= =======
Net cash generated from operating activities 141.7 133.0 287.0
==================================================== ==== ======= ======= =======
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (55.5) - (868.2)
Acquisition of associates and other investments - - (1.5)
Purchase of property, plant and equipment (78.7) (48.2) (115.0)
Purchase of other intangible assets (3.1) (2.9) (6.2)
Proceeds from sale of property, plant and equipment 0.2 0.2 0.2
Cash paid against non-operating provisions (0.7) (0.4) (1.7)
Interest received 0.3 0.1 0.5
==================================================== ==== ======= ======= =======
Net cash used in investing activities (137.5) (51.2) (991.9)
==================================================== ==== ======= ======= =======
Cash flows from financing activities
New borrowings 194.4 171.1 438.7
Repayment of borrowings (116.9) (188.2) (201.4)
Payment of lease liabilities (6.8) (4.9) (7.6)
Issue of ordinary shares - - 615.5
Net transactions in own shares (4.8) (9.1) (6.9)
Dividends paid to equity shareholders 4 (71.8) (65.0) (115.9)
==================================================== ==== ======= ======= =======
Net cash used in financing activities (5.9) (96.1) 722.4
==================================================== ==== ======= ======= =======
Net movement in cash and cash equivalents (1.7) (14.3) 17.5
Cash and cash equivalents brought forward 77.8 63.1 63.1
Exchange differences 4.4 2.3 (2.8)
==================================================== ==== ======= ======= =======
Cash and cash equivalents carried forward 80.5 51.1 77.8
==================================================== ==== ======= ======= =======
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 104.8 61.1 106.5
Bank overdrafts (24.3) (10.0) (28.7)
==================================================== ==== ======= ======= =======
80.5 51.1 77.8
==================================================== ==== ======= ======= =======
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 26 July 2021. The financial information
included in this interim financial report for the six months ended
30 June 2021 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 2020 is
also unaudited. The comparative figures for the year ended 31
December 2020 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 2021 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 2021 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 2021 using rates substantively
enacted by 30 June 2021 as required by IAS 34 'Interim Financial
Reporting'. Legislation to increase the UK standard rate of
corporation tax from 19% to 25% was substantively enacted on the 24
May 2021, effective from 1 April 2023. The calculation of deferred
tax balances have been revised accordingly however the impact on
the Group is immaterial.
The annual financial statements of the Group for the year ended
31 December 2021 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 2020, 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 ongoing impact of COVID-19, and the broader consequences on
the markets in which the Group operates has been considered in the
preparation of the condensed consolidated interim financial
statements including within our evaluation of critical accounting
estimates and judgements which are detailed further in note 8. The
condensed consolidated financial statements are prepared on a going
concern basis which the directors believe to be appropriate for the
following reasons:
The Group's existing Club facility has a maturity date of
October 2025. At 30 June 2021 the Group had GBP1,228.2m of
committed debt facilities available from its banking group, USPP
bondholders and lease providers, with principal maturities between
2023 and 2030, of which GBP305.5m (30 Ju ne 2020: GBP470.2m) was
undrawn, together with cash balances of GBP104.8m (30 June 2020:
GBP61.1m). Net cash generated from operating activities in the six
month period was GBP141.7m
(30 June 2020: GBP133.0m).
The Directors have reviewed updated liquidity and covenant
forecasts for the Group. The Directors have also considered
sensitivities in respect of potential downside scenarios and the
mitigating actions available in concluding that the Group is able
to continue in operation for a period of at least twelve months
from the date of approving the condensed consolidated interim
financial statements. These sensitivities include a severe but
plausible downside scenario alongside an additional scenario
considered to be severe but remote. Relative to the base case
scenario, the sensitivities assume an increasingly pessimistic
outlook for global economic demand, coupled with slower economic
recoveries. Specifically, the severe but remote scenario assumes
demand falls below average 2020 levels for the remainder of 2021
and all of 2022. Furthermore, both downside scenarios assume a
material increase in working capital, due to inventory build and
higher customer receivables, and substantial margin erosion,
predicated on a deterioration in the economic conditions.
In both downside scenarios, throughout the period under
assessment, the Group continues to have sufficient liquidity
headroom and sufficient financial covenant headroom under its debt
facilities. The Directors are satisfied that the Group has
sufficient resources to continue in operation for the foreseeable
future, which is a period of not less than 12 months from the date
of this report.
b. Basis of preparation continued
In May 2021, the Group announced a strategic review of its
Performance Technologies & Industrial Chemicals businesses,
representing a material component of the Group's current trading.
As at the date of approving the condensed consolidated interim
financial statements the review has not been completed; however,
the Directors have considered the potential outcomes and are
satisfied that these would have no significant impact on the
Group's ability to continue operating for a period of not less than
12 months from the date of approval of this report.
Accordingly, the condensed consolidated interim 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 2020.
Other matters
For details on the principal risks and uncertainties facing the
Group refer to note 10. For information on related party
transactions during the period refer to note 11.
2. Segmental information
The Group's sales, marketing and research activities are
organised into four global market sectors, being 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.
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
2021 2020 2020
First First Full
half half year
GBPm GBPm GBPm
========================================================= ====== ====== ======
Exceptional items - operating profit
Business acquisition and disposal costs (3.7) (1.0) (11.7)
Redundancy, restructuring and impairments - (1.7) (4.3)
Fair value movement on contingent consideration (3.1) - -
Exceptional items - financial costs
Unwind of discount on contingent consideration (1.8) - (1.5)
========================================================= ====== ====== ======
Exceptional items (8.6) (2.7) (17.5)
Amortisation of intangible assets arising on acquisition (16.8) (4.9) (13.6)
========================================================= ====== ====== ======
Total adjustments (25.4) (7.6) (31.1)
========================================================= ====== ====== ======
The exceptional items in the current year reflects discount
unwind and fair value adjustment both in respect of contingent
consideration, acquisition costs and fees incurred in preparation
of the potential disposal of part of the PTIC business. 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 acquisition and disposal costs have been presented as
exceptional due to their size and one-off nature. The exceptional
items in the prior year related to the delivery of cost saving
actions announced in the 2019 full year results and acquisition
costs. The adjustments to operating profit relate to our segments
as follows: Consumer Care GBP11.0m (30 June 2020: GBP1.1m), Life
Sciences GBP9.1m (30 June 2020: GBP4.6m), Performance Technologies
GBP3.5m (30 June 2020: GBP1.8m) and Industrial Chemicals GBPNil (30
June 2020: GBP0.1m).
2. Segmental information continued
2020 2020
2021 Restated Restated
First First Full
half half year
GBPm GBPm GBPm
========================================================= ====== ========= =========
Income statement
Revenue
Consumer Care 367.0 251.1 527.8
Life Sciences 290.4 179.8 392.5
Performance Technologies 223.7 195.0 373.6
Industrial Chemicals 52.9 47.0 96.4
========================================================= ====== ========= =========
Total Group revenue 934.0 672.9 1,390.3
========================================================= ====== ========= =========
Adjusted operating profit
Consumer Care 90.4 73.7 146.5
Life Sciences 114.2 57.8 124.5
Performance Technologies 34.8 29.5 48.9
Industrial Chemicals 2.7 0.6 (0.3)
========================================================= ====== ========= =========
Total Group operating profit (before exceptional items,
acquisition costs and amortisation of intangible assets
arising on acquisition) 242.1 161.6 319.6
Exceptional items and amortisation of intangible assets
arising on acquisition (23.6) (7.6) (29.6)
========================================================= ====== ========= =========
Total Group operating profit 218.5 154.0 290.0
========================================================= ====== ========= =========
As announced in the 2020 Annual Report the Group has revised the
composition of its operating segments. Accordingly, the Group has
restated the previously reported segment information for the six
months ended 30 June 2020 and as at
31 December 2020.
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
Europe North Latin Asia Total
GBPm America America GBPm GBPm
GBPm GBPm
========================= ======== ========= ========= ====== ===================
Revenue
First half 2021 o
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
========================= ======== ========= ========= ====== ===================
Revenue
First half 2020
Consumer Care 85.0 82.0 25.3 58.8 251.1
Life Sciences 74.9 51.5 24.0 29.4 179.8
Performance Technologies 94.8 48.3 10.7 41.2 195.0
Industrial Chemicals 21.7 6.2 0.9 18.2 47.0
========================= ======== ========= ========= ====== ===================
Total Group revenue 276.4 188.0 60.9 147.6 672.9
========================= ======== ========= ========= ====== ===================
3. Net financial costs
2021 2020 2020
First First Full
half half year
GBPm GBPm GBPm
============================================================ ====== ====== ======
Financial costs
Bank interest payable (9.2) (8.1) (16.8)
Net interest on retirement benefit liabilities (0.1) (0.6) (1.2)
Interest on lease liabilities (1.1) (0.5) (1.5)
Provision against non-operating loan (2.5) - -
Unwind of discount on contingent consideration (exceptional
item) (1.8) - (1.5)
============================================================ ====== ====== ======
(14.7) (9.2) (21.0)
============================================================ ====== ====== ======
Financial income
Bank interest receivable and similar income 0.3 0.1 0.5
============================================================ ====== ====== ======
Net financial costs (14.4) (9.1) (20.5)
============================================================ ====== ====== ======
4. Dividends paid
2021 2020 2020
Pence First First Full
per half half year
share GBPm GBPm GBPm
==================================== ====== ====== ====== =====
Ordinary
2019 final, paid May 2020 50.50 - 65.0 65.0
2020 interim, paid October 2020 39.50 - - 50.8
2020 final, paid June 2021 51.50 71.8 - -
==================================== ====== ====== ======
71.8 65.0 115.8
==================================== ======
Preference (paid June and December) 0.0 0.0 0.1
==================================== ====== ====== ====== =====
71.8 65.0 115.9
==================================== ====== ====== ====== =====
An interim dividend in respect of 2021 of 43.50p per share,
amounting to a total dividend of GBP60.7m, was declared by the
Directors at their meeting on 26 July 2021. This interim report
does not reflect the 2021 interim dividend payable. The dividend
will be paid on 5 October 2021 to shareholders registered on 10
September 2021.
5. Property, plant and equipment
2021 2020 2020
First First Full
half half year
GBPm GBPm GBPm
============================================ ====== ====== ======
Opening net book amount 900.8 805.2 805.2
Exchange differences (20.3) 38.1 (13.1)
Additions 78.7 48.2 115.0
Acquisitions 13.0 - 50.9
Disposals, write offs and reclassifications (0.8) (0.3) (0.6)
Depreciation charge for the period (30.7) (25.8) (55.5)
Impairments - - (1.1)
============================================ ====== ====== ======
Closing net book amount 940.7 865.4 900.8
============================================ ====== ====== ======
At 30 June 2021 the Group had contracted capital expenditure
commitments of GBP35.0m (30 June 2020: GBP57.6m).
6. Right of use assets
2021 2020 2020
First First Full
half half year
GBPm GBPm GBPm
=================================== ====== ====== ======
Opening net book amount 80.1 46.2 46.2
Exchange differences (1.6) 2.0 (1.7)
Additions 7.4 17.4 43.8
Acquisitions 1.3 - 2.5
Remeasurements 0.1 0.5 0.4
Other disposals and write offs (0.4) (0.1) (0.2)
Depreciation charge for the period (6.2) (5.0) (10.6)
Impairments - - (0.3)
=================================== ====== ====== ======
Closing net book amount 80.7 61.0 80.1
=================================== ====== ====== ======
7. Reconciliation to net debt
2021 2020 2020
First First Full
half half year
GBPm GBPm GBPm
=========================================================== ======= ======= =======
Net movement in cash and cash equivalents (1.7) (14.3) 17.5
Net movement in borrowings and other financial liabilities (70.7) 22.0 (229.7)
=========================================================== ======= ======= =======
Change in net debt from cash flows (72.4) 7.7 (212.2)
Non-cash movement in lease liabilities (9.5) (18.3) (47.8)
Exchange differences 16.1 (18.8) 7.2
=========================================================== ======= ======= =======
(65.8) (29.4) (252.8)
Net debt brought forward (800.5) (547.7) (547.7)
=========================================================== ======= ======= =======
Net debt carried forward (866.3) (577.1) (800.5)
=========================================================== ======= ======= =======
8. Critical accounting judgements and key sources of estimation
uncertainty
The Group's significant accounting policies under IFRS have been
established by management with the approval of the Audit Committee.
The application of these policies requires estimates and
assumptions to be made concerning the future and judgements to be
made on the applicability of policies to particular situations.
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
Under IFRS an estimate or judgement may be considered critical
if it involves matters that are highly uncertain or where different
estimation methods could reasonably have been used, or if changes
in the estimate that would have a material impact on the Group's
results are likely to occur from period to period.
The critical accounting judgements required when preparing the
Group's accounts are as follows:
Provisions and contingent liabilities
The Group has recognised potential environmental liabilities and
other provisions. The Group's assessment of whether a constructive
or legal obligation exists at the reporting date (and can be
measured reliably) is a key judgement in determining whether to
recognise a liability or disclose a contingent liability. A
liability is recognised only where, based on the Group's legal
views and advice, it is considered probable that an outflow of
resources will be required to settle a present obligation that can
be measured reliably. Disclosure of contingent liabilities is made
in note 9 unless the possibility of a loss arising is considered
remote.
At 30 June 2021, the Group has an environmental provision of
GBP5.6m (31 December 2020: GBP6.3m) in respect of soil and
potential ground water contamination on a number of sites, both
currently in use and previously occupied, in Europe and the
Americas.
In relation to the environmental provision, the Directors expect
that the balance will be utilised within ten years. Provisions for
remediation costs are made when there is a present obligation, it
is probable that expenditures for remediation work will be required
and the cost can be estimated within a reasonable range of possible
outcomes. The costs are based on currently available facts and
prior experience. Environmental liabilities are recorded at the
estimated amount at which the liability could be settled at the
balance sheet date. Remediation of environmental damage typically
takes a long time to complete due to the substantial amount of
planning and regulatory approvals normally required before
remediation activities can begin. In addition, increases in or
releases of environmental provisions may be necessary whenever new
developments occur or additional information becomes available.
Consequently, environmental provisions can change significantly and
the timing and quantum of costs are inherently uncertain. The level
of environmental provision is based on management's best estimate
of the most likely outcome for each individual exposure.
The Group has also considered the impact of discounting on its
provisions and has concluded that, as a consequence of the
significant utilisation expected in a relatively short timescale,
the impact is not material.
The critical accounting estimates and assumptions required when
preparing the Group's accounts are as follows:
Post-retirement benefits
The Group's principal retirement benefit schemes are of the
defined benefit type. Recognition of the liabilities under these
schemes and the valuation of assets held to fund these liabilities
require a number of significant assumptions to be made, relating to
key financial market indicators such as inflation and expectations
on future salary growth and asset returns. These assumptions are
made by the Group in conjunction with the schemes' actuaries and
the Directors are of the view that any estimation should be
appropriate and in line with consensus opinion. Whilst the
assumptions have been updated as at 30 June 2021, the sensitivity
of the defined benefit obligation to changes in the significant
assumptions remains broadly unchanged from those disclosed in the
Group's financial statements for the year ended 31 December 2020.
Total Group net retirement benefit liabilities have decreased by
GBP34.1m in the first half of 2021 to a GBP1.8m asset position.
This movement comprises GBP6.1m of service costs in excess of
contributions, GBP0.1m of net financial costs and GBP0.9m increase
from acquisitions offset by GBP0.7m of currency translation gains
and GBP40.5m of net actuarial gains.
Goodwill and fair value of assets acquired
Management are required to undertake an annual test for
impairment of indefinite lived assets such as goodwill, both
annually and when there are indications that the carrying value may
not be recoverable. Examples of such triggering events include a
major change in market conditions or technology, or
underperformance against financial forecasts. In performing its
impairment analysis, the Group takes into consideration these
indicators including the difference between its market
capitalisation and net assets. Accordingly, the Group tests whether
goodwill has suffered any impairment and the Group's goodwill value
has been supported by detailed value-in-use calculations relating
to the recoverable amounts of the
8. Critical accounting judgements and key sources of estimation
uncertainty continued
underlying Cash Generating Units ('CGUs'). These calculations
require the use of estimates to enable the calculation of the net
present value of cash flow projections of the relevant CGU.
Critical assumptions include the terminal value growth in EBITDA
and the selection of appropriate discount rates.
Recoverable amounts currently exceed carrying values including
goodwill. Goodwill arising on acquisition is allocated to the CGUs
that are expected to benefit from the synergies of the acquisition.
Such goodwill is then incorporated into the Group's standard
impairment review process as described above.
9. Contingent liabilities
The Group is subject to various claims which arise from time to
time in the course of its business including, for example, in
relation to commercial matters, product quality or liability,
employee matters and tax audits.
The Group is also involved in certain environmental legal
actions and proceedings, which relate to our operations in the USA
and are a matter of public record. These matters are reviewed on a
regular basis and where possible an estimate is made of the
potential financial impact on the Group. In appropriate cases a
provision is recognised based on advice, best estimates and
management judgement. Where it is too early to determine the likely
outcome of these matters, no provision is made. The Group also
considers it has insurance in place in relation to any significant
contingent liabilities. Whilst the Group cannot predict the outcome
of any current or future such matters with any certainty, it
currently believes the likelihood of any material liabilities to be
remote, and that such liabilities, if any, will not have a material
adverse effect on its consolidated income, financial position or
cash flows.
10. 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 2020. There have been no changes in the Group's risk
management processes or policies since the year end. With new
acquisitions and the move into new market areas, the Group
recognises the increased risks of operating within pharma markets,
together with a new principal risk relating to capacity to execute
significant strategic change objectives in parallel.
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
10. Financial instruments continued
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 GBP100m and EUR100m of fixed rate notes. On 6 June 2019, the
Group issued a further GBP65m, EUR50m 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
First First Book value Fair value
half half Full year Full year
2021 2021 2020 2020
GBPm GBPm GBPm GBPm
====================================== ========== ========== ========== ==========
US$100m 3.75% fixed rate 10 year note (71.9) (78.0) (73.2) (82.9)
EUR30m 1.08% fixed rate 7 year note (25.8) (26.2) (26.9) (27.5)
EUR70m 1.43% fixed rate 10 year note (60.1) (63.4) (62.7) (67.0)
GBP30m 2.54% fixed rate 7 year note (30.0) (30.6) (30.0) (30.9)
GBP70m 2.80% fixed rate 10 year note (70.0) (73.4) (70.0) (75.2)
EUR50m 1.18% fixed rate 8 year note (42.9) (44.9) (44.8) (47.5)
GBP65m 2.46% fixed rate 8 year note (65.0) (66.9) (65.0) (68.9)
US$60m 3.70% fixed rate 10 year note (43.1) (46.9) (43.9) (49.9)
====================================== ========== ========== ========== ==========
11. Related party transactions
The Group has no related party transactions in the first six
months of the year, with the exception of remuneration paid to key
management and Directors.
12. Business combinations
On 2 March 2021, the Group acquired the worldwide business
activities of Alban Muller including 100% of the shares and voting
interests of Acallmi for a total consideration of GBP16m.
Established in France and employing 90 people, Alban Muller
specialises in eco-responsible solutions to developing innovative
botanical extracts, natural formulation ingredients and natural
organic cosmetics. The company is an excellent fit for Croda's
Beauty Actives business (part of the Consumer Care sector) and
provides Croda with access to innovative technology in the
botanicals market.
On 1 June 2021, the Group acquired a 96% majority shareholding
in Parfex S.A. ('Parfex'), a fine fragrance business based in
Grasse, France for a total consideration of GBP35.6m. Employing 75
people, Parfex creates fragrances principally for premium personal
care and fine perfumery markets, leveraging the natural raw
materials that are available in the region. The company will form
part of the newly created Fragrances & Flavours business (part
of the Consumer Care sector) alongside Iberchem acquired in
November 2020.
The following table summarises the Directors' provisional
assessment of the consideration paid in respect of the
acquisitions, and the fair value of assets acquired and liabilities
assumed. The assessments are provisional given the proximity of the
acquisitions to the period end date.
Alban
Muller Parfex
GBPm GBPm
============================================== ======= ======
Cash consideration 16.0 35.6
============================================== ======= ======
Fair value of assets and liabilities acquired
Intangible assets 8.9 19.5
Property, plant & equipment 7.1 5.9
Right of use assets 1.2 0.1
Working capital and net debt (4.2) 4.7
Retirement benefit liabilities (0.4) (0.5)
Deferred tax (3.0) (5.9)
Total identifiable net assets 9.6 23.8
============================================== ======= ======
Fair value of NCI - (1.6)
============================================== ======= ======
Goodwill 6.4 13.4
============================================== ======= ======
During the period, the Group completed the fair value reviews
relating to the 2020 acquisitions. These reviews did not identify
any changes to the asset base or goodwill.
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END
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