Final Results

RNS Number : 5152H

Croda International PLC

23 February 2010

 



Tuesday 23 February 2010

Croda International Plc

Preliminary results for the year to 31 December 2009 (unaudited)

STRONG SECOND HALF LEADS TO RECORD FULL YEAR RESULTS

SIGNIFICANT PROGRESS EXPECTED IN 2010

Highlights - Year to December	2009	2008	Change
Sales - continuing operations	£916.2m	£911.1m	+0.6%
Profit before tax and exceptional items
for continuing operations	£106.4m	£96.3m	+10.5%
Profit before tax	£89.2m	£96.3m	-7.4%
Earnings per share -  before exceptional items	53.0p	48.0p	+10.4%
Earnings per share - basic	17.6p	45.3p	-61.1%
Dividend per share	21.50p	19.75p	+8.9%

· Robust demand in core Consumer Care segment continues to drive growth

-      Operating profit up 17.2% to £104.9m on sales increase of 11.8% to £467.7m

-      Personal Care and Health Care particularly strong

·   Trading in Industrial Specialities segment has now recovered as market de-stocking ends

-      Second half operating profit up 120.3% to £17.4m, reflecting benefits of significant cost cutting activity

·   Net debt reduced by £109.6m to £288.5m

Highlights - Fourth Quarter	2009	2008	Change
Consumer Care Sales	£114.1m	£109.2m	+4.5%
Industrial Specialities Sales	£116.5m	£102.4m	+13.8%
Sales	£230.6m	£211.6m	+9.0%

Consumer Care Operating Profit	£26.5m	£24.0m	+10.4%
Industrial Specialities Operating Profit	£7.7m	£1.3m	+492.3%
Operating Profit	£34.2m	£25.3m	+35.2%
Interest	(£3.3m)	(£3.9m)
Continuing Pre-tax Profit	£30.9m	£21.4m	+ 44.4%

· Strong trading in quarter three continued throughout the fourth quarter

-      Significant cost reduction and the end of market destocking drove improved performance in Industrial Specialities

· Margin improvement in both Consumer Care and Industrial Specialities

· Overall volumes increased for the first time in 2009, up 19.0% on the fourth quarter of 2008

Commenting on these results, Chairman, Martin Flower said:

"Croda has achieved another year of exceptionally strong pre-tax profit* growth, despite the effects of the global recession. This performance has been driven by robust demand for our key products around the world and is testament to our strategy of prioritising quality of business over volume growth and maximising cost efficiencies across the group.

The fourth quarter was even stronger year-on-year than the third quarter, taking the full year's pre-tax profit* growth to 10.5% despite a difficult year for Industrial Specialities. Our core product areas performed well throughout the year, especially Personal Care and Health Care. Industrial Specialities were affected in the first half by severe destocking in the ultimate end user markets for our products but demand recovered in the second half. The operating result was complemented by very strong cash generation resulting in a £109.6m reduction in net debt, including currency translation benefits.

The encouraging trading performance seen during the second half has continued into 2010 and we are confident of achieving significant progress in the current year."

Throughout this preliminary results announcement, in order to show underlying business performance, sales are stated for continuing operations.  Operating profit and pre-tax profit are stated for continuing operations before exceptional site closure costs of £17.2m.  In 2008, the exceptional costs related to discontinued operations.  Further details of discontinued operations are included in note 7 to this announcement.

For further information, please contact:

Mike Humphrey, Group Chief Executive	Tel [phone]
Sean Christie, Group Finance Director
Financial Dynamics	Tel [phone]
Charlie Armitstead / Hazel Stevenson

The company will broadcast the meeting with analysts in a live webcast commencing at 9:30 AM on the company's website at www.croda.com.

Chairman's Statement

Introduction

2009 was another record year for Croda, producing pre-tax profits 10.5% up on 2008 despite one of the deepest global recessions of all time. The constant focus on product innovation, markets and customers combined with ongoing cost reduction has enabled us to achieve another year of pre-tax profit growth despite challenging conditions in the global economy.

Quarter Four Trading

In the first half of 2009, pre-tax profit declined 13.8% versus the previous year. There was a marked turnaround from the start of the second half with Quarter Three recording a 31.3% increase compared to 2008. Quarter Four's result further improved the trend, up 44.4% to £30.9m (2008: £21.4m).

Sales were up 9.0% on 2008, with Industrial Specialities being the biggest contributor to the uplift for the first time in 2009. Trading in this segment has now returned to more normal levels. Both Consumer Care and Industrial Specialities produced improvements in margins and significant uplifts in operating profit.

Overall volumes increased for the first time in 2009, up 19.0% on the fourth quarter of 2008.  Currency translation added a further 4.2% to the sales uplift. Average prices fell due to both a higher proportion of lower priced Industrial Specialities and commodities in the mix and falling output prices on commodity products. Return on sales was 14.8% (2008: 12.0%) in the fourth quarter. Interest costs reduced as a result of both lower borrowings and falling interest rates. 

Full Year Results

Revenue increased by 0.6% for the year to £916.2m (2008: £911.1m). This result was boosted by favourable currency translation (+11.8% versus 2008) that mitigated significant first half volume losses in Industrial Specialities. Falling commodity prices reduced output prices in Industrial Specialities but had little effect on Consumer Care.

Turnover was up 11.8% in Consumer Care and down 9.0% in Industrial Specialities as we continued to focus on quality of business over volume growth. Consumer Care achieved an operating profit increase of 17.2% on sales up 11.8%. In Industrial Specialities, profits declined by 35.1% on sales down by 9.0%. All the reduction came in the first half, with the lack of the previous year's £8.2m glycerine pricing windfall adding to the effects of market destocking. A return to growth in sales and operating profit occurred in the second half.

Pre-tax profit was up 10.5% to £106.4m (2008: £96.3m). Restructuring and cost savings following the acquisition of Uniqema in 2006 continued throughout 2008 and 2009, boosting return on sales to 13.1% despite the adverse effects of the recession and glycerine pricing.  A largely non-cash cost increase of £3.9m relating to share based payments as a result of the strong share price in 2009 and the reduction in the IAS19 pension funding credit of £6.4m were broadly  balanced by a currency translation benefit of £11.1m.  Falling debt levels and lower global interest rates significantly reduced underlying interest costs.  Continuing earnings per share before exceptional items increased 10.4% from 48.0p in 2008 to 53.0p in 2009.

Cash flow was particularly impressive with net debt falling £109.6m to £288.5m (2008: £398.1m). Strong EBITDA was boosted by working capital reductions as we completed the post Uniqema reorganisation of our selling and distribution arrangements. Favourable currency translation accounted for £21.7m of the reduction in net debt. All this meant that our key banking ratio, Net Debt to EBITDA, fell below two times, significantly below our covenant limit of three times. 

Retirement benefits

The IAS19 pension deficit increased to £203.5m (2008: £88.5m). The market value of investments increased but the discount rates used to calculate the schemes' liabilities fell, despite rising inflation expectations, due to a reduction in corporate bond yields.  

Restructuring

During the year we announced the closures of our sites at Bromborough in Merseyside and Wilton in North Yorkshire. Bromborough ceased production in November 2009 and its results are treated as discontinued as we have exited the specific commodity markets supplied by this site. Wilton ceased production in January 2010. Since nearly all products at Wilton are being transferred to other Croda sites worldwide, this business has been treated as continuing in 2009 and 2008. 

Dividend

The Board has proposed an increase in the final dividend of 10.7% to 15p, taking the full year dividend to 21.5p, up 8.9% on the 19.75p paid last year. In 2008, we stated that in future our dividend increases would be 'more aligned' with earnings growth achieved. This was a change to our previous policy of more modest dividend growth as we improved dividend cover. 

Outlook

The strong trading performance during the fourth quarter has continued into 2010 and we are confident of achieving significant progress in the current year.

Operating Review 2009

A key feature of the Croda business model is the ability to sell thousands of different products to thousands of different customers all over the world.  Our relentless focus on innovation in specialities has given us the ability to get true value for our products.

Over the last decade, in good times and bad times, Croda has achieved pre-tax profit growth every year.  In 2009, in the worst recession in living memory, Croda delivered a record pre-tax profit of £106.4m, up 10.5% (2008: £96.3m).  This performance followed a significant increase in pre-tax profit in 2008 and is a testament to the rigorous adherence to our strategy and the execution ability of our high quality team around the world.  We continued to reshape the business during the year and maintain our strict policy of "quality of business over volume".  In the first half of the year, demand in some industrial markets was down over 50% but, as a result of our value added strategy, the full year increase in pre-tax profit was delivered.

During the year we closed our loss-making commodity oleochemical factory at Bromborough.  We also ceased production at our Wilton site following Dow's decision to close a vital raw material site in the UK.  Almost all of Wilton's output has been transferred to other Croda sites around the world.  We would like to thank the departing workforces of these sites for their hard work and professionalism during what has been a very difficult time for both them and their families.

In Consumer Care, we increased our margins to 22.4%, increased sales by 11.8% and improved operating profits by 17.2% to £104.9m.  In a time of deep global recession, we increased sales to all of our key global accounts in Personal Care.

In Industrial Specialities, sales were down by 9.0% to £448.5m due to the severe downturn in demand in many markets.  There were healthy signs of recovery later in 2009 and operating profits were a respectable £15.0m for the full year.

In addition to the outstanding pre-tax profit outcome, we had an impressive cash flow which resulted in debt reduction of £109.6m to £288.5m, including currency translation benefits. This was a notable performance in tough conditions and in a year where we invested £40.1m in new plant and equipment.

Performance and Prospects

Consumer Care

There are three main business areas within the Consumer Care segment: Personal Care, Health Care and Crop Care.  In 2009, sales increased by 11.8% to £467.7m (2008:  £418.4m) and operating profits increased 17.2% to £104.9m (2008:  £89.5m).

The macro trends in Personal Care fit very well with Croda's innovation platform - natural, renewable raw materials, vanity and an ageing, but increasingly affluent, population.  Croda is recognised as the world leader in speciality ingredients for Personal Care.  The total market for ingredients is over £4.5 billion and is extremely fragmented, with hundreds of suppliers.  The market grows at about one and a half to two times global gross domestic product (GDP), with higher growth in the rapidly developing markets like Asia and Latin America.  Normally, we supply a very small percentage of the total raw material in any formulation.  It may be a small part, but it is often the vital part that makes the product work and supports the essential marketing claims.  The output of new products from our innovation centres across the world continues to increase to meet the ever changing demands of this fast moving, vibrant industry.  We remain confident of continued progress in this exciting market. In 2009, strong growth was seen in South America and Asia, boosting more modest uplifts in North America and Europe.

Health Care is one of our fastest growing business areas.  Croda's essential fatty acids (EFAs) and excipients are designed to meet the market's growing appetite for natural, self medication and an aging population's desire for extended health and well-being.  This market continued to grow rapidly in 2009 and we expect high levels of growth to continue.  The lipids (EFAs) market is growing at 15 to 25% per year and the excipients market grows at approximately 4% a year.  Croda is a world leader in the production of super high purity essential fatty acids such as Omega 3s, which are finding increasing use in the treatment of a number of inflammatory conditions and also in heart disease medication. Excipients are valuable vehicles which carry active ingredients used in topical treatments.  Like high purity lanolin in wound treatment creams, they can often have a synergistic and beneficial effect on the efficacy of the active ingredient. Strong growth was seen in this sector in both 2008 and 2009.

Since 2006, Crop Care has also been one of our fast growing businesses.  Our target market is worth over £500m a year.  After a strong 2008 and first quarter of 2009, sales in the rest of the year were down compared to 2008.  This was due to adverse climatic conditions in a number of geographies, which disrupted the planting cycle and reduced demand for all agrochemicals.  The mega trend of a rapidly growing global population and a need for a parallel increase in crop yields, combined with a desire to constantly reduce environmental impact, gives us every confidence that high growth rates will return to this market in 2010 and subsequent years.  Croda produces adjuvants, vehicles and seed coating ingredients, which are used by a growing number of companies in many countries.

Industrial Specialities

There are five main business areas in our Industrial Specialities segment: Polymer Additives, Lubricant Additives, Home Care, Coatings and Polymers and Geotech.  Overall, these markets were severely hit by the recession in the first six months of 2009, with appreciable recovery in the second half.  Sales were down by 9.0% to £448.5m (2008:  £492.7m) and continuing operating profit fell by 35.1% to £15.0m (2008: £23.1m).  In the second half, year on year profits were up 120.3% on a sales increase of 2.5%.  Lower commodity prices and the absence of the previous year's £8.2m windfall glycerine profit, combined with the lack of demand in ultimate consumer markets led to the overall decline in profits.  Lower overall GDP figures had a much smaller effect.  Our focus on growing the speciality portfolio and reducing our dependence on commodity fatty acids and glycerine leads us to be confident of future profit growth in this area.

In Polymer Additives, Croda is the global market leader in slip additives for polyolefins and is very strong in a number of additives such as antistatic agents for a range of other plastics.  In spite of the recession, sales in this sector were at the same level as the previous year.

The Lubricant Additives business area is ultimately exposed to the automotive and engineering sectors, which virtually stopped in the first half of 2009.  Sales were well down year on year, but recent months have shown increasing demand for our environmentally benign additives.  The desire for less harmful lubricants and reduced fuel consumption are trends that match our innovation programme and we expect that the market will have an increasing demand for greener products.

Sales in Home Care were slightly ahead of 2008, as the market increased its appetite for our more environmentally friendly ingredients.

Progress on transforming our Coatings and Polymers business from one that relies on commodities to a more dynamic, focused speciality portfolio was slowed by the recession.  Sales were down and customer development on our exciting new products to reduce Volatile Organic Compounds and mitigate environmental impact also slowed.  We are seeing good signs of a turnaround as end market demand returns to a more normal level.

Geotech is a new business area, formed to take advantage of our technology advantage in mining chemicals, oil field chemicals and water treatment.  These are rapidly growing markets driven by the need to maximise resource extraction and provide clean water for a growing population.

In all our business areas, we have sales of commodity products such as fatty acids and glycerine, where we have no real pricing power.  The margins are low compared to our speciality products, though in some cases we sell low value products which are produced as by-products when we make other higher value chemicals.  We continue to reduce the impact of commodities on our business.  We have sold businesses (Chicago and Klang), restructured (the closure of Bromborough) and walked away from unprofitable product streams. Continuing turnover of commodities in 2009 was £135.8m compared to £165.1m in 2008.  We cannot move out of commodity products completely, but we will continue to explore ways of reducing our exposure to them.

Strategy

The core principles of Croda's strategy have remained valid since 1999.  We test them every year and every year we have found them to be a solid framework for successful growth.  Our aim is to be a leading, independent, global speciality chemical company.  We will only invest in businesses, current and future, that can:

-           be truly global

-           create profitable innovation

-           operate in end markets that have long term growth well above global GDP

-           realistically sustain high operating margins

Our focus on markets and market drivers means we are well aligned with the mega trends which will shape the future consumer and industrial markets.  Trends like an ageing population, health and well-being, sustainability and the correct use of renewable resources present great challenges and even greater opportunities.  Croda's culture of pragmatic innovation in every aspect of the business, not just in product development, means we are well-placed to be a truly leading speciality chemicals company.  We have offices and technical facilities in 36 countries and operate 19 state of the art factories across Europe, Asia and the Americas.  Through this network we are able to match and, in many instances, exceed our customers' rapid globalisation.

Our operating companies are set sales, profit growth and operating margin targets that form the basis of our budgets and strategic plans.  We report annually on our progress against five key financial key performance indicators:

·      Return on sales

·      EPS growth

·      Post tax ROIC

·      Net debt to EBITDA

·      EBITDA to interest cover

Summary

Croda is a truly global company with less than 7% of its sales in the UK.  Our customer focused business model has been the basis of our success for many years.  We will continue to increase this focus to create our future success.

Financial Review 

Pre-tax profit

The operating results for the continuing businesses are discussed in the Chairman's statement and the Operating Review.

Continuing pre-tax profit before exceptional items was up 10.5% to £106.4m (2008: £96.3m). This was after absorbing a largely non-cash cost increase of £3.9m relating to share based payments as a result of our strong share price performance in 2009 and a £6.4m reduction in our IAS19 pension funding interest credit, also a non-cash item. Adverse glycerine pricing of £8.2m versus 2008 was another major profit variance. On the plus side, there was an £11.1m currency translation benefit.

Continuing pre-tax profit after exceptional items was down 7.4% to £89.2m (2008: £96.3m) due to the exceptional costs relating to the closure of Wilton. Profit for the year was £24.0m (2008: £61.2m) with the exceptional costs and pre closure losses relating to Bromborough added to the Wilton closure costs at this level.

Interest costs were significantly lower despite the reduced IAS19 credit as borrowing levels fell and interest rates reduced. 

Exceptional Items

The main exceptional items relate to the closures of Bromborough and Wilton. Cash costs such as redundancy, demolition, product transfer costs and security are expected to amount to £21.9m. Non- cash asset write downs were £29.9m. There was a small net credit of £1.4m relating to a previously discontinued business and a tax credit of £6.3m. The majority of the cash cost relating to Bromborough will be spent during 2010. The cash costs relating to Wilton are expected to be incurred over both 2010 and 2011. 

Earnings per Share

Continuing earnings per share before exceptional items increased 10.4% to 53.0p (2008: 48.0p) with the pre-tax profit growth enhanced by a marginally lower tax rate but diluted by a small increase in the number of shares in issue. 

Dividend

The Board has increased the final dividend by 10.7% to 15.00p (2008: 13.55p). This takes the total dividend payable for 2009 to 21.50p, an increase of 8.9% on the previous year's payout of 19.75p. Dividend cover increases to 2.5 times (2008: 2.4 times). 

Debt and liquidity

Net debt was reduced by £109.6m to £288.5m (2008: £398.1m). Strong EBITDA, allied to working capital reductions as we finalised the main elements of our global sales and distribution restructuring, generated significant cash. Control of capital expenditure and favourable currency translation underpinned the high level of debt reduction. Our key borrowing ratio, net debt to EBITDA, fell to 1.8 times (2008: 2.6 times) against a covenant of less than 3 times. Interest cover increased to 11.3 times (2008: 9.3 times) against a covenant of greater than 4 times.

In January 2010 we took out a $100m, 10 year fixed rate loan at 5.94% as the first step in refinancing our committed facilities, most of which expire in June 2011. We maintain good relationships with our key banks and will be working to refinance our other facilities by the end of 2010. The underlying strength and resilience of the Group's trading, combined with the reducing core debt requirement, leads us to expect adequate market demand for our committed debt requirements. 

Retirement benefits

The gross IAS19 deficit increased to £203.5m (2008: £88.5m) despite the underlying market value of the investments increasing by over 13%. Corporate bond rates fell despite rising inflation expectations and this increased the current value of the liabilities. Post tax, the deficit is £150.0m, (2008: £63.4m). We have announced a number of changes to our UK employee contribution rates and benefits effective from September 2010, the main ones being a move to a contribution rate of 8% of salary for the 60ths benefit accrual and limiting the benefit accrual to 80ths for new starters.  

Financial KPIs

Performance against our five key KPIs (before exceptional items) is shown in the following table:

	Target	2009	2008
			As reported
Return on Sales	>15%	13.1%	12.0%
EPS Growth	+5-10%	+10.4%	+39.4%
Post tax ROIC	>WACC*	10.5%	9.8%
Debt/EBITDA	<3x	1.8x	2.6x
EBITDA Interest cover	>4x	11.3x	9.4x

All KPIs were ahead of target except Return on Sales where we continue to make significant progress towards our objective of a minimum margin of 15%. The return on sales target subdivides into 20% for Consumer Care, which we are achieving and 10% for Industrial Specialities which is where the shortfall arises. As Croda reduces its exposure to commodities we will move closer to our target margin in this division. 

* WACC:  Weighted average cost of capital, currently 6.8% (2008: 6.7%)

Croda International Plc

Preliminary announcement of trading results for the year ended 31 December 2009

Group income statement

	Note	2009 £m Before Exceptional items	2009 £m Exceptional Items	2009 £m Total	2008 £m Before Exceptional items	2008 £m Exceptional Items	2008 £m Total
Continuing operations
Revenue	2	916.2	-	916.2	911.1	-	911.1
Cost of sales		(680.0)	(17.2)	(697.2)	(698.7)	-	(698.7)
		______	______	______	______	______	______
Gross profit		236.2	(17.2)	219.0	212.4	-	212.4
Operating expenses		(116.3)	-	(116.3)	(99.8)	-	(99.8)
		______	______	______	______	______	______
Operating profit	2	119.9	(17.2)	102.7	112.6	-	112.6
Financial expenses	3	(15.7)	-	(15.7)	(25.5)	-	(25.5)
Financial income	3	2.2	-	2.2	9.2	-	9.2
		______	______	______	______	______	______
Profit before tax		106.4	(17.2)	89.2	96.3	-	96.3
Tax	4	(34.6)	2.1	(32.5)	(31.5)	-	(31.5)
		______	______	______	______	______	______
Profit after tax from continuing operations		71.8	(15.1)	56.7	64.8	-	64.8
(Loss)/profit after tax from discontinued operations	7	(3.7)	(29.0)	(32.7)	5.0	(8.6)	(3.6)
		______	______	______	______	______	______
Profit for the year		68.1	(44.1)	24.0	69.8	(8.6)	61.2
		______	______	______	______	______	______
Attributable to:
Minority interest				0.2			0.2
Equity shareholders				23.8			61.0
				______			______
				24.0			61.2
				______			______

	pence per share		pence per share
Earnings per share (note 5)
Basic
Total	17.6		45.3
Total before exceptional items	50.2		51.7
Continuing operations	41.8		48.0
Continuing operations before exceptional items	53.0		48.0
Diluted
Total	17.3		44.6
Continuing operations	41.1		47.2
Ordinary dividends (note 6)
Interim	6.50		6.20
Final	15.00		13.55

Group statement of comprehensive income and expense

for the year ended 31 December 2009

	2009 £m		2008 £m
Profit for the year	24.0		61.2
Other comprehensive income:
Currency translation differences	(7.1)		26.4
Movement in fair value of cash flow hedges	2.1		(2.8)
Actuarial movement on retirement benefit     liabilities	(141.8)		(23.9)
Deferred tax on actuarial movement on   retirement benefit liabilities	38.5		5.7
	______		______
Total comprehensive (expense)/income   for the year	(84.3)		66.6
	______		______
Attributable to:
Minority interest	-		0.5
Equity shareholders	(84.3)		66.1
	______		______
	(84.3)		66.6
	______		______

Group balance sheet at 31 December 2009

	Note	2009 £m		2008 £m
Assets
Non-current assets
Intangible assets		202.0		203.4
Property, plant and equipment		341.8		392.4
Investments		12.5		12.7
Deferred tax assets		73.9		49.4
		______		_____
		630.2		657.9
		______		_____
Current assets
Inventories		148.9		201.9
Trade and other receivables		159.0		185.8
Cash and cash equivalents		45.0		42.3
Assets classified as held for sale		-		1.1
		______		______
		352.9		431.1
		______		______
Liabilities
Current liabilities
Trade and other payables		(179.0)		(179.8)
Borrowings and other financial liabilities		(48.8)		(87.2)
Provisions	9	(30.6)		(7.0)
Current tax liabilities		(14.7)		(10.2)
		_____		______
		(273.1)		(284.2)
		_____		______
Net current assets		79.8		146.9
		_____		______
Non-current liabilities
Borrowings and other financial liabilities		(285.0)		(355.6)
Other payables		(3.6)		(4.7)
Retirement benefit liabilities		(203.5)		(88.5)
Provisions	9	(24.5)		(41.5)
Deferred tax liabilities		(35.2)		(49.2)
		______		______
		(551.8)		(539.5)
		______		______
Net assets		158.2		265.3
		_____		______
Equity shareholders' funds		156.5		263.3
Minority interests		1.7		2.0
		______		______
Total equity		158.2		265.3
		______		______

Group statement of changes in equity

for the year ending 31 December 2009

	Share Capital £m	Share Premium Account £m	Other Reserves £m	Retained Earnings £m	Minority Interests £m	Total £m
At 1 January 2008	15.1	93.3	7.9	101.7	1.7	219.7
Profit for the year attributable to   equity shareholders	-	-	-	61.0	-	61.0
Other comprehensive (expense)/   income	-	-	26.1	(21.0)	-	5.1
Transactions with owners:
Dividends on equity shares	-	-	-	(22.9)	-	(22.9)
Share based payments	-	-	-	1.5	-	1.5
Consideration received for sale     of own shares held in trust	-	-	-	0.6	-	0.6
	_____	_____	_____	_____	_____	_____
Total transactions with owners	-	-	-	(20.8)	-	(20.8)
	_____	_____	_____	_____	_____	_____
Transactions with minority interests:
Share of profit after tax	-	-	-	-	0.2	0.2
Currency translation differences	-	-	-	-	0.3	0.3
Dividends paid to minority     shareholders	-	-	-	-	(0.2)	(0.2)
	_____	_____	_____	_____	_____	_____
Total transactions with minority   Interests	-	-	-	-	0.3	0.3
	_____	_____	_____	_____	_____	_____
Total equity at
31 December 2008	15.1	93.3	34.0	120.9	2.0	265.3
	_____	_____	_____	_____	_____	_____
At 1 January 2009	15.1	93.3	34.0	120.9	2.0	265.3
Profit for the year attributable to   equity shareholders	-	-	-	23.8	-	23.8
Other comprehensive (expense)/   income	-	-	(6.9)	(101.2)	-	(108.1)
Transactions with owners:
Dividends on equity shares	-	-	-	(27.1)	-	(27.1)
Share based payments	-	-	-	3.0	-	3.0
Consideration received for sale     of own shares held in trust	-	-	-	1.6	-	1.6
	_____	_____	_____	_____	_____	_____
Total transactions with owners	-	-	-	(22.5)	-	(22.5)
	_____	_____	_____	_____	_____	_____
Transactions with minority   interests:
Share of profit after tax	-	-	-	-	0.2	0.2
Currency translation differences	-	-	-	-	(0.2)	(0.2)
Dividends paid to minority     shareholders	-	-	-	-	(0.3)	(0.3)
	_____	_____	_____	_____	_____	_____
Total transactions with minority   Interests	-	-	-	-	(0.3)	(0.3)
	_____	_____	_____	_____	_____	_____
Total equity at
31 December 2009	15.1	93.3	27.1	21.0	1.7	158.2
	_____	_____	_____	_____	_____	_____

Other reserves include the Capital Redemption Reserve of £0.9m (2008:  £0.9m) and the Translation Reserve of £26.2m (2008:  £33.1m).

Group statement of cash flows

for the year ended 31 December 2009

	Note	2009 £m		2008 £m
Cash flows from operating activities
Continuing operations
Operating profit		102.7		112.6
Adjustments for:
Depreciation, amortisation and profit on disposal of
fixed assets		34.5		30.9
Exceptional items		17.2		-
Other provisions		0.7		0.4
Cash paid against operating provisions		(10.4)		(17.1)
Changes in working capital		58.6		(4.9)
Pension fund contributions in excess of service
costs		(16.6)		(8.9)
Share based payments		4.3		1.6
		______		______
Cash generated by continuing operations		191.0		114.6
Discontinued operations		5.9		6.2
Interest paid		(20.5)		(22.5)
Tax paid		(21.5)		(41.3)
		______		______
Net cash generated by operating activities		154.9		57.0
		______		______
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)		-		(4.1)
Purchase of property, plant and equipment		(39.8)		(51.9)
Purchase of computer software		-		(0.1)
Proceeds from sale of property, plant, equipment
and other investments		0.7		0.8
Proceeds from sale of businesses (net of costs)		2.7		49.4
Cash paid against non-operating provisions		(5.1)		(1.2)
Interest received		0.6		1.6
		______		______
Net cash absorbed by investing activities		(40.9)		(5.5)
		______		______
Cash flows from financing activities
Additional borrowings		-		67.5
Repayment of borrowings		(66.9)		(85.4)
Capital element of finance lease repayments		(0.4)		(0.3)
Net proceeds on own shares		1.6		0.6
Dividends paid	6	(27.4)		(23.1)
		______		______
Net cash absorbed by financing activities		(93.1)		(40.7)
		______		______
Net movement in cash and cash equivalents		20.9		10.8
Cash and cash equivalents brought forward		17.3		1.2
Exchange differences		(1.0)		5.3
		______		______
Cash and cash equivalents carried forward		37.2		17.3
		______		______
Cash and cash equivalents carried forward comprise
Cash at bank and in hand		45.0		42.3
Bank overdrafts		(7.8)		(25.0)
		______		______
		37.2		17.3
		______		______
Net movement in cash and cash equivalents		20.9		10.8
Movement in debt and lease financing		67.3		18.2
		______		______
Change in net debt from cash flows		88.2		29.0
New finance lease contracts		(0.3)		(0.6)
Exchange differences		21.7		(60.5)
		______		______
		109.6		(32.1)
Net debt brought forward		(398.1)		(366.0)
		______		______
Net debt carried forward		(288.5)		(398.1)
		______		______

Notes to the preliminary announcement

1.     Basis of preparation

        In preparing this financial information, management has used the principal accounting policies that will be detailed in the Group's annual report and which are unchanged from the prior year.  The results shown for 2009 are unaudited.  The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 in respect of 2009 accounts or Section 240(3) of the Companies Act 1985 in respect of 2008 accounts.  Statutory accounts of the Company in respect of the financial year ended 31 December 2008, upon which the Company's auditors have given a report which was unqualified and did not contain statement under Section 237(2) or Section 237(3) of the Companies Act 1985, have been delivered to the Registrar of Companies.

        The following new standards, amendments to existing standards or interpretations are mandatory for the first time for financial years beginning on or after 1 January 2009, and have been adopted by the Group effective from 1 January 2009:

         (i)      IAS 1 (revised), "Presentation of financial statements" - The revised standard brings new disclosure requirements regarding "non-owner changes in equity" and owner changes in equity, which are now required to be shown separately.  Under this revised guidance the Group has elected to continue to present two performance statements:  an income statement and a statement of comprehensive income and expense (previously the "Statement of Recognised Income and Expense").  These financial statements have been prepared under the revised disclosure requirements.

         (ii)     IFRS 8, "Operating Segments" - IFRS 8 replaces IAS 14, "Segment reporting", and aligns segment reporting with the requirements of the US standard SFAS 131, "Disclosures about segments of an enterprise and related information".  The new standard requires a "management approach", under which segment information is presented on the same basis as that used for internal reporting purposes.  The Group adopted IFRS 8 from January 2009.  These financial statements have been prepared under the revised disclosure requirements, however, this has not resulted in a change to the reported segments, which remain as Consumer Care and Industrial Specialities.

         (iii)    IFRS 7 "Financial instruments - Disclosures" (amendment) - The amendment requires enhanced disclosures about fair value measurement and liquidity risk.  In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy.  The Group has applied IFRS 7 from 1 January 2009 but it has had a disclosure only impact on the Group's financial statements.

         The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 2009 but do not have a material impact on the Group:  IFRIC 16 "Hedges of a net investment in a foreign operation", IAS 30 (amendment) "Financial instruments:  Recognition and measurement", IFRS 2 (amendment) "Share-based payments - vesting conditions and cancellations", IAS 23 (amendment) "Borrowing Costs".

2.     Segmental information

        At 31 December 2009 the Group continued to be organised on a worldwide basis into two main business segments, relating to the manufacture and sale of the Group's products which are destined for either the Consumer Care market or the market for Industrial Specialities.  These are the segments for which management information is presented to the Group's Finance and Executive Committees, which are deemed to be the Group's Chief Operating Decision Makers.  There is no material trade between segments.  Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 

        Income statement

	2009 £m		2008 £m
Revenue - continuing operations
Consumer Care	467.7		418.4
Industrial Specialities	448.5		492.7
	_____		______
	916.2		911.1
	_____		______
Operating profit - continuing operations before exceptional items
Consumer Care	104.9		89.5
Industrial Specialities	15.0		23.1
	_____		______
	119.9		112.6
	_____		______

        Total assets

	2009 £m		2008 £m
Consumer Care	481.7		536.7
Industrial Specialities	370.0		446.8
	_____		______
Total segment assets	851.7		983.5
Assets classified as held for sale	-		1.1
Tax assets	73.9		49.4
Cash, other financial assets and other
investments	57.5		55.0
	_____		______
Total assets	983.1		1,089.0
	_____		_____

3.     Net financial expenses

	2009 £m		2008 £m
Financial expenses
Bank interest payable	(15.7)		(25.5)
	_____		_____
Financial income
Bank and other interest receivable	1.5		2.1
Expected return on pension scheme assets
less interest on scheme liabilities	0.7		7.1
	_____		_____
	2.2		9.2
	_____		_____
Net financial expenses	(13.5)		(16.3)
	_____		_____

4.     Tax on continuing operations

	2009 £m		2008 £m
Analysis of tax charge for the year
United Kingdom current tax	(0.7)		-
Overseas current tax	27.5		26.6
Deferred tax	5.7		4.9
	_____		_____
	32.5		31.5
	_____		_____

5.     Earnings per share

	2009 p		2008 p
Earnings per share - continuing operations before exceptional items	53.0		48.0
Impact of discontinued operations trading	(2.8)		3.7
	_____		_____
Earnings per share before exceptional items	50.2		51.7
Impact of exceptional items	(32.6)		(6.4)
	_____		_____
Earnings per share - basic	17.6		45.3
	_____		_____

6.     Dividends paid

	Pence Per share	2009 £m		2008 £m
Ordinary
2007 Final - paid June 2008	10.80	-		14.5
2008 Interim - paid October 2008	6.20	-		8.3
2008 Final - paid June 2009	13.55	18.2		-
2009 Interim - paid October 2009	6.50	8.8		-
		_____		_____
		27.0		22.8
Preference (paid June and
December)		0.1		0.1
Dividends paid to minority
Shareholders		0.3		0.2
		_____		_____
		27.4		23.1
		_____		_____

The directors are proposing a final dividend of 15.0p per share (£20.3m) in respect of the financial year ended 31 December 2009.  It will be paid on 3 June 2010 to shareholders registered on 30 April 2010.  The total dividend for the year ended 31 December 2009 is 21.5p per share (£29.1m). 

7.     Discontinued operations and exceptional items

        In April 2009, continuing its strategy to reduce exposure to basic commodity sectors, the Group announced the closure of its operations at Bromborough in Merseyside, United Kingdom.  This represents an exit from the commodity oleochemicals sector in the UK.  There have been exceptional asset write offs and non-cash items of £20.6m and exceptional cash closure costs of £9.8m, of which £2.8m was incurred in 2009 and the remainder is expected to be spent during 2010.  There was a small net credit of £1.4m relating to previously discontinued businesses.

        During 2008, the Group sold its 46.5% stake in its associate, Baxenden Chemicals Limited, to Chemtura Corporation for £13m and its Chicago Oleochemicals business was sold to H.I.G. Capital LLC for £46.8m.

        The impact of the operations discontinued in 2009 and 2008 is as follows:

	2009 £m	2008 £m
Pre-tax operating results from discontinued operations	(5.1)	6.4
Income from disposed associate	-	0.4
Tax	1.4	(1.8)
	______	______
Post tax operating (loss)/profit from discontinued operations	(3.7)	5.0
	______	______
Loss on disposal	(29.0)	(8.6)
	______	______
Total loss after tax from discontinued operations	(32.7)	(3.6)
	______	______

        In July 2009 the Group announced the closure of its operations at Wilton on Teesside, United Kingdom.  Since nearly all products previous manufactured at Wilton are being transferred to other Croda sites worldwide, this business has been treated as continuing in 2009.  There have been exceptional asset write-offs and non-cash items of £5.1m and exceptional cash closure costs of £12.1m, which are all expected to be incurred during the course of 2010 and 2011.

8.     Financial assets and liabilities

        During 2006 the Group took out interest rate swaps to fix a proportion of the floating rate acquisition funding, these swaps being designated as cash flow hedges.  Under IFRS, the fair value of such derivative instruments must be recognised in the financial statements.  Accordingly, a financial liability of £0.3m (2008: liability of £2.4m) has been recognised within current liabilities, being the fair value of the interest rate swaps designated as cash flow hedges, with a corresponding adjustment to equity.  The swaps will expire on 29 January 2010.

9.     Accounting estimates and judgements

        The Group's critical 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.  Critical judgement has been required when preparing the Group's accounts as follows:

        Provisions

        At 31 December 2009, the Group has an environmental provision of £13.4m in respect of soil and potential ground water contamination on a number of sites.  Restructuring provisions, totalling £24.9m as at 31 December 2009, relate to the ongoing plans to integrate the acquired Uniqema business with the existing Croda businesses and costs associated with the closure of our Wilton site.  The discontinued provision of £7.0m was established in 2009 on the closure of our Bromborough facility and the discontinuance of its associated business.  Other provisions include those established as part of the fair value exercise following the acquisition of Uniqema.  These relate, amongst other items, to provisions in respect of onerous lease contracts.

        Based on environmental information currently available and the detailed plans established for the restructuring of the Group, the level of provisions is considered appropriate by the directors.

        Goodwill and fair value of assets acquired

        The Group tests annually whether goodwill has suffered any impairment and the carrying value of goodwill in the Group balance sheet has been supported by detailed value-in-use calculations relating to the recoverable amounts of the underlying cash generating units. These calculations require the use of estimates, however as recoverable amounts currently exceed carrying values,  there is no impairment within a wide range of assumptions.

Retirement benefit liabilities

The Group's principal retirement benefit schemes are of the defined benefit type. Year end 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 levels of scheme membership, mortality rates, key financial market indicators such as inflation and expectations on future salary growth and asset returns. These assumptions are made by management taking account of advice received from the schemes' actuaries.  As a result of falling bond rates and increasing inflation expectations, the IAS 19 gross pension deficit at 31 December 2009 has increased to £203.5m.

10.  Principal Risks

Each division considers strategic, operational and financial risks and identifies actions to mitigate those risks.  These risk profiles are updated at least annually.  The principal risks and uncertainties for the Group are the same risks and uncertainties that will be referred to and discussed in the Group's Annual Report and which are unchanged from the prior year.  These risks remain as:  a major site event, loss of key personnel, interruption of raw material supply, major environmental incident, product liability, regulatory compliance, IT failure, management of pension fund assets and working capital management.

Responsibility Statement Of The Directors On The Annual Report

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 December 2009. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·     the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

·     the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

 

END

 

 

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