Croda International - Results for the year ended 31 December 2018

Highlights

 

Adjusted1 results

Full year ended 31 December

 

 

2018

2017

% change

% change

constant rate2

Sales - Core Business3

£million

1,268.7

1,246.1

+1.8%

+3.8%

Operating profit

£million

342.5

332.2

+3.1%

+5.8%

PBT

£million

331.5

320.3

+3.5%

+6.2%

Basic earnings per share (EPS)

pence

190.2

179.0

+6.3%

+8.8%

Return on sales4

%

24.7%

24.2%

+0.5%pts

n/a

Free cash flow5

£million

155.4

98.5

+57.8%

n/a

 

Adjusted results (constant currency):

·      Growing the Core - delivering strong performance

Consistent growth in the Core Business at industry-leading margins, generating enhanced shareholder returns

§    Top line momentum - Core Business sales up 3.8%

§    Profit growing faster than sales - PBT up 6.2%, basic EPS up 8.8%

§    Margin expansion - return on sales up 50 basis points to 24.7%

§    Improved cash generation - free cash flow up nearly 60%, capital investment reducing

§    Special dividend of 115 pence per share - return of excess capital of £150m

Sales and profit growth in all three core sectors:

§    Personal Care sales up 6.8% at robust margin (32.9%)

§    Life Sciences sales up 2.8% (6.7% excluding API exit)

§    Performance Technologies operating profit up 15.0% through growth in higher value applications

·      Stretching the Growth - investing for the future

Continued investment to drive future growth opportunities:

§    Greater innovation: Proportion of New & Protected Product (NPP) sales increased for sixth consecutive year to 28.2% of total sales

§    Biosector vaccine adjuvant acquisition expands position in high value Health Care delivery portfolio

§    Four technology investments, accelerating growth through disruptive technologies

§    Digital and Sustainability programmes underway

 

Reported results (IFRS)

Full year ended 31 December

 

 

2018

2017

% change

Sales

£million

1,386.9

1,373.1

+1.0%

Operating profit

£million

328.8

326.0

+0.9%

Profit before tax (PBT)

£million

317.8

314.1

+1.2%

Basic EPS

pence

181.4

180.8

+0.3%

Ordinary dividend per share

pence

87.0

81.0

+7.4%

Special dividend per share

pence

115.0

-

n/a

 

Reported results (IFRS, reported currency):

·      Sales up 1.0% - organic growth more than offset adverse currency translation

·      PBT up 1.2% -  good profit growth more than offset adverse currency translation

·      Proposed full year ordinary dividend increased by 7.4% to 87.0 pence per share

CHIEF EXECUTIVE'S REVIEW

Results are stated in adjusted1 terms and growth at constant currency rates2 unless otherwise stated. Alternative performance measures are defined in the Finance Review.

 

Our strategy - delivering across three strong legs of growth

Croda delivers consistently superior shareholder value by being a leading speciality ingredient company, driving sustainable innovation, superior performance and creating value for our customers and consumers. Our objectives are to:

·      Deliver consistent top and bottom line growth

·      Increase the proportion of protected innovation

·      Accelerate our customers' transition to sustainable ingredients.

In 2018 we made strong progress in delivering these three objectives by connecting to faster growth markets through our 'Growing the Core' and 'Stretching the Growth' strategy. Growing the Core is focused on delivering robust top line growth above the market rate, at industry-leading margins, with a capital-light model. Stretching the Growth is focused on accelerating future sales in core and adjacent markets and technologies to drive faster growth and future profitability.

Delivering sustained sales and profit growth

Croda continues to deliver sustained sales and profit growth through the economic cycle. In 2018 we further refined the business, growing profit ahead of sales, ahead of volume. Our business model is working well - a dynamic innovation engine creating exciting new products to meet new consumer needs; a balanced global manufacturing footprint; and an unrivalled direct selling capability, with local customer intimacy. Within our Core Business there are three strong legs of growth - Personal Care, Life Sciences and Performance Technologies - which have robust market positions, leading technologies and focused innovation. These are driving profit growth and improved cash generation.

Safety - at the heart of everything we do

Safety is at the centre of everything we do. In 2018 our process safety programme passed a major milestone, with the successful completion of the evaluation of almost 200 higher hazard process risks identified across the Group against demanding new internal standards. Our occupational health and safety performance remained broadly flat at an OSHA recordable incident rate of 0.72. In 2018 we launched a safety leadership programme across the global management team. I am delighted with the commitment of the senior leadership across the Group, with more engagement, visibility and audits, putting safety at the top of the agenda. This programme is expected to deliver improvement over the coming years and help us meet our 2020 OSHA recordable incident rate target of 0.60.

Growing the Core - delivering strong performance

In 2018 we continued to Grow the Core, with the top line momentum seen in 2017 continuing through 2018. Sales increased to £1,386.9m, with Core Business sales 3.8% higher, supported by volume growth across the Consumer businesses and stronger pricing and sales mix.

All three Core Business sectors grew sales and profit. Personal Care continued its strong performance, growing sales by 6.8% and profit by 4.9%. Life Sciences also delivered good year-on-year sales and profit growth, more than offsetting the headwind from the Active Pharmaceutical Ingredient (API) contract that we exited in December 2017. Performance Technologies continued to make encouraging progress on actively demarketing higher volume, lower margin products and driving growth in higher value applications, to create a more profitable, technology-rich business.

In line with our 'value over volume' philosophy, we continued to prioritise bottom line growth. Adjusted profit before tax was 6.2% higher in constant currency,  at £331.5m in reported currency. Return on sales increased by 50 basis points to 24.7%. Basic earnings per share (EPS) grew by 8.8% and free cash flow increased by almost 60%.

Outlook

In 2018, Croda has continued to deliver sustained sales and profit growth. Looking ahead, whilst global market conditions remain challenging, we continue to invest for the future and are confident that our strategy of Growing the Core and Stretching the Growth will deliver further progress in 2019.