Interim Results
Croda International PLC
25 July 2007
25 July 2007
CRODA INTERNATIONAL PLC
Interim results announcement June 2007
Highlights
• Turnover - continuing operations increased to £472.4m (2006: £156.6m).
• Pre-tax profit - continuing operations up 23.0% to £34.7m (2006: £28.2m).
• EPS - continuing operations up 11.3% to 16.7p (2006: 15.0p).
• Interim dividend increased 6.5% to 4.95p per share (2006: 4.65p).
• Pension deficit reduced to £56.6m (December 2006: £140.5m).
• Repositioning of Uniqema progressing to plan.
Commenting on the results, Chairman, Martin Flower, said:
'The Group has performed well across all areas of the business, despite the
widely documented cost pressures facing the sector at present. Uniqema has been
successfully integrated and we remain confident that the Group will make further
good progress in the second half of this year.'
For further information, please contact:
Mike Humphrey, Group Chief Executive Tel: 01405 860551
Sean Christie, Group Finance Director Tel: 01405 860551
Charlie Watenphul or Andrew Dowler, Financial Dynamics Tel: 0207 831 3113
Or visit our web site at: www.croda.com where the presentation to analysts will
be available by midday today
Chairman's Statement
Our performance in the first six months of 2007 has been encouraging with a
23.0% rise in pre-tax profits for continuing operations despite significant
adverse currency movements and higher raw material costs.
Continuing earnings per share increased by 11.3% to 16.7p (2006: 15.0p) and the
Board has declared an interim dividend of 4.95p, 6.5% higher than last year.
Trading
The repositioning of Uniqema is proceeding to plan. The separation of the
business into specialities (integrated into Croda's existing specialities
businesses) and oleochemicals (run as a global business) has driven strong
performance on all fronts. We have made significant cost savings across the
Group, particularly in the areas of central overheads, distribution, transport
and sales administration. We passed major price increases into the market as we
refocus the newly acquired business and also to counter the raw material
inflation we are currently experiencing across the Group.
We are improving the mix of the business, reducing volumes of lower margin
products and focusing on specialities. As a result, underlying1 sales volumes
declined by 6.5% with a corresponding uplift in price/mix of 8.5% leaving
underlying1 sales on a constant currency basis up 2.0%. After adverse currency
movements of 5.5%, underlying1 sales declined by 3.5%.
The price improvements and cost savings generated helped to drive pre-tax
profits from continuing operations up 23.0% despite the decrease in underlying1
sales.
Finance
We ended the first half with debt under £400m despite higher levels of working
capital as we replace third party distributors in our routes to market. We also
bore significant cash restructuring costs and made one off contributions to the
pension fund. In view of the strength of the Pound and increasing interest
rates, our decisions to source fixed rate, Dollar and Euro denominated debt have
been sound. As a result of the one off contributions, increasing bond rates and
equity market outperformance, our gross pension deficit has reduced
significantly from £140.5m at the year end to £56.6m at the end of June. In
June we sold Croda Food Services to AAK for £7.4m as part of the restructuring
programme of the enlarged group.
Outlook
We are confident that we shall make further good progress in all our business
areas in the second half, supported by the continued successful repositioning of
Uniqema.
Martin Flower
Chairman
1 Underlying sales include pro forma Uniqema revenues for 2006, but exclude the
revenues for the Croda Food Services business sold to AAK in June
Croda International Plc
Results for the six months ended 30 June 2007
Condensed Group income statement
Note 2007 2006 2006 2006 2006
First First Full Full Full
Unaudited £m Half Half Year Year Year
Before Exceptional Total
Exceptional items
items
Continuing
operations
Revenue 2 472.4 156.6 502.6 - 502.6
Cost of sales (369.9) (106.2) (372.1) (7.3) (379.4)
----- ----- ----- -----
Gross profit 102.5 50.4 1 30.5 (7.3) 123.2
Operating expenses (56.8) (23.0) (71.1) (25.7) (96.8)
Share of associate's
post tax profits
+-----------------------------------------------------+
Profit before tax | 0.7 1.0 1.9 - 1.9 |
Tax | (0.2) (0.3) (0.6) - (0.6)|
+-----------------------------------------------------+
0.5 0.7 1.3 - 1.3
----- ----- ----- ----- -----
Operating profit 2 46.2 28.1 60.7 (33.0) 27.7
Financial expenses 3 (14.5) (1.7) (13.3) (2.3) (15.6)
Financial income 3 3.0 1.8 6.1 - 6.1
----- ----- ----- ----- -----
Profit before tax 34.7 28.2 53.5 (35.3) 18.2
Tax (12.2) (9.8) (17.7) 6.8 (10.9)
----- ----- ----- ----- -----
Profit after tax from 22.5 18.4 35.8 (28.5) 7.3
continuing operations
Profit after tax 5 2.5 0.5 0.7 - 0.7
from discontinued
operations
----- ----- ----- ----- -----
Profit for the period 25.0 18.9 36.5 (28.5) 8.0
===== ===== ===== ===== =====
Attributable to:
Minority interest 0.1 - -
Equity shareholders 24.9 18.9 8.0
----- ----- -----
25.0 18.9 8.0
----- ----- -----
2007 2006 2006 2006
First First Full Full
Half Half Year Year
Before Total
exceptional
items
pence per pence per pence per pence per
share share share share
Earnings per share of 10p
Basic
Total 18.5 15.4 28.9 6.3
Continuing operations 16.7 15.0 28.3 5.7
Diluted
Total 18.2 15.2 28.3 6.2
Continuing operations 16.4 14.8 27.8 5.6
Ordinary dividends
Interim 4.95 4.65 4.65
Final 9.65
Condensed Group statement of recognised income and expense
2007 2006 2006
First First Full
Unaudited £m Half Half Year
Profit attributable to equity shareholders 24.9 18.9 8.0
Exchange differences (0.1) (2.4) (3.6)
Actuarial movement on retirement benefit
liabilities (net of deferred tax) 38.3 14.5 13.5
----- ----- -----
Total recognised income attributable to
equity shareholders 63.1 31.0 17.9
----- ----- -----
Condensed Group balance sheet
Note At At At
Unaudited £m 30 June 30 June 31 December
2007 2006 2006
Assets
Non-current assets
Intangible assets 189.6 6.5 190.4
Property, plant and equipment 328.2 119.8 333.5
Investments 10.8 0.8 11.9
Deferred tax assets 33.9 28.4 46.8
----- ----- -----
562.5 155.5 582.6
----- ----- -----
Current assets
Inventories 150.3 55.3 133.5
Trade and other receivables 202.4 62.1 180.8
Cash and cash equivalents 51.2 23.5 48.6
Other financial assets 6 2.8 - 0.8
Current tax assets - - 2.6
Assets classified as held for sale 5 1.2 10.3 1.2
----- ----- -----
407.9 151.2 367.5
----- ----- -----
Liabilities
Current liabilities
Trade and other payables (189.8) (48.3) (200.1)
Borrowings and other financial
liabilities 6 (118.3) (34.7) (55.0)
Provisions (17.4) - (17.4)
Current tax liabilities (2.4) (5.0) -
----- ----- -----
(327.9) (88.0) (272.5)
----- ----- -----
Net current assets 80.0 63.2 95.0
----- ----- -----
Non-current liabilities
Borrowings and other financial (329.9) (27.9) (324.3)
liabilities
Other payables (1.8) (0.8) (1.1)
Retirement benefit liabilities (56.6) (82.3) (140.5)
Provisions (23.5) (9.6) (33.0)
Deferred tax liabilities (52.8) (16.4) (53.1)
----- ----- -----
(464.6) (137.0) (552.0)
Net assets 177.9 81.7 125.6
----- ----- -----
Shareholders' equity 7 176.1 81.5 123.7
Minority interest in equity 1.8 0.2 1.9
----- ----- -----
Total equity 177.9 81.7 125.6
----- ----- -----
Condensed Group cash flow statement
2007 2006 2006
Unaudited £m First First Full
Note Half Half Year
Cash flows from operating activities
Continuing operations
Operating profit 46.2 28.1 27.7
Adjustments for:
Depreciation and loss on disposal of fixed assets 15.7 6.7 19.7
Changes in working capital (37.3) (7.6) 4.7
Pension fund contributions in excess of service
cost (29.6) (0.5) (11.3)
Share based payments 0.5 0.5 1.0
Movement on provisions (8.0) - 29.7
Share of associate's post-tax profits (0.5) (0.7) (1.3)
Dividend from associate 1.9 - -
______ ______ ______
Cash used in continuing operations (11.1) 26.5 70.2
Discontinued operations 1.0 0.6 0.1
Interest paid (10.3) (1.7) (13.9)
Tax paid (6.9) (10.1) (19.1)
______ ______ ______
Net cash used in operating activities (27.3) 15.3 37.3
______ ______ ______
Cash flows from investing activities
Acquisition of subsidiaries (18.9) - (356.2)
Purchases of property, plant and equipment (16.0) (6.0) (22.6)
Proceeds from sale of property, plant and equipment 0.1 0.9 1.5
Proceeds from sale of investments - 0.5 0.5
Proceeds from sale of businesses (net of costs) 7.9 3.4 3.2
Cash paid against non-operating provisions (0.6) - (0.2)
Interest received 0.6 0.4 1.5
______ ______ ______
Net cash used in investing activities (26.9) (0.8) (372.3)
______ ______ ______
Cash flows from financing activities
Additional borrowings 83.7 - 341.9
Repayment of borrowings (9.3) (10.5) (27.9)
Net purchases of own shares 1.6 (18.8) (18.2)
Proceeds from share placement - - 60.6
Dividends paid 4 (13.2) (11.6) (17.9)
Other (0.8) 0.3 (0.2)
______ ______ ______
Net cash generated from financing activities 62.0 (40.6) 338.3
______ ______ ______
Net movement in cash and cash equivalents 7.8 (26.1) 3.3
Cash and cash equivalents brought forward 28.0 26.4 26.4
Exchange differences (1.0) (0.9) (1.7)
______ ______ ______
Cash and cash equivalents carried forward 34.8 (0.6) 28.0
______ ______ ______
Cash and cash equivalents carried forward
comprise
Cash at bank and in hand 51.2 23.5 48.6
Bank overdrafts (16.4) (24.1) (20.6)
______ ______ ______
34.8 (0.6) 28.0
______ ______ ______
A reconciliation of the cash flows above to the movement in net debt is shown at
note 8.
Notes to the interim report
1. Basis of preparation
This interim financial report has been prepared under the
historical cost convention and in accordance with the accounting policies used
in the Group's financial statements for the year ended 31 December 2006. The
IFRS and interpretations that will be applicable as at 31 December 2007,
including those that will be applicable on an optional basis, are not yet known
with certainty at the time of preparing this report.
The financial information included in this interim financial
report for the six months ended 30 June 2007 does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985 and is unaudited.
The comparative information for the six months ended 30 June 2006 is also
unaudited. The comparative figures for the year ended 31 December 2006 have
been extracted from the Group's financial statements as filed with the Registrar
of Companies, on which the auditors gave an unqualified opinion and did not make
a statement under section 237 of the Companies Act 1985.
2. Segmental information
Primary reporting format - business segments
At 30 June 2007 the Group is 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.
2007 2006 2006
First First Full
Half Half Year
£m £m £m
Revenue - continuing operations
Consumer Care 196.1 113.5 271.9
Industrial Specialities 276.3 43.1 230.7
_____ _____ _____
472.4 156.6 502.6
_____ _____ _____
Operating profit - continuing operations
Consumer Care 37.3 23.8 50.7
Industrial Specialities 8.9 4.3 10.0
Exceptional items - - (33.0)
_____ _____ _____
46.2 28.1 27.7
_____ _____ _____
Total inter-segment revenue in the six months ended 30 June 2007
was £7.6m (2006: £nil) and arises on sales from the Industrial Specialities
segment into Consumer Care. All operating costs of the Group are allocated
between the segments.
2. Segmental information (continued)
Secondary reporting format - geographical segments
The sales analysis in the table below is based on the location of
the customer.
2007 2006 2006
First First Full
Half Half Year
£m £m £m
Revenue by destination - continuing operations
Europe 225.4 63.6 226.5
Americas 159.5 60.6 175.4
Asia 66.7 21.9 72.1
Rest of World 20.8 10.5 28.6
_____ _____ _____
472.4 156.6 502.6
_____ _____ _____
3. Net financial expenses
Financial expenses
Bank interest payable 14.5 1.7 13.3
Exceptional financial expenses - - 2.3
_____ _____ _____
14.5 1.7 15.6
_____ _____ _____
Financial income
Bank interest receivable (0.6) (0.4) (3.1)
Expected return on pension scheme assets less (2.4) (1.4) (3.0)
interest on scheme liabilities
_____ _____ _____
(3.0) (1.8) (6.1)
_____ _____ _____
Net financial expenses 11.5 (0.1) 9.5
_____ _____ _____
4. Dividends paid
Pence
per share
Ordinary
2005 Final - paid June 2006 9.00 - 10.9 10.9
2006 Interim - paid October 2006 4.65 - - 6.2
2006 Final - paid June 2007 9.65 13.0 - -
_____ _____ _____
13.0 10.9 17.1
Preference (paid June and - - 0.1
December)
Dividends paid to minority 0.2 0.7 0.7
shareholders
_____ _____ _____
13.2 11.6 17.9
_____ _____ _____
4. Dividends paid (continued)
An interim dividend in respect of 2007 of 4.95p, amounting to a
total dividend of £6.7m, was declared by the directors at their meeting on 24
July 2007. This interim report does not reflect the 2007 interim dividend
payable. The dividend will be paid on 5 October 2007 to shareholders registered
on 7 September 2007.
5. Discontinued operations
On 29 June 2007, in continuance of the Group's stated objective to
dispose of non-core activities, the Group's Food Services division was sold to
Aarhuskarlshamn UK Limited for £7.4m.
During 2006, the Group's metal treatment division was sold to
Shell UK Limited. The sale did not include the non-current assets of the
business, primarily land and buildings. The land and buildings have
subsequently been actively marketed and a sale is expected in the near future.
These have been valued significantly in excess of their carrying value of £1.2m
and, accordingly, there has been no re-measurement to fair value less costs to
sell.
During 2005, the Group, in conjunction with the company's majority
shareholder, commenced the process of selling its holding in the Group's sole
associate, Baxenden Chemicals Limited. The sale process did not result in any
prospective purchaser being able to match the shareholders' valuation of the
company and accordingly the process was discontinued. Baxenden has thus been
reclassified back into continuing operations.
2007 2006 2006
First First Full
Half Half Year
£m £m £m
Operating profit of discontinued operations 0.4 0.7 1.0
Profit on disposal and closure of discontinued 3.2 - -
operations
Tax (1.1) (0.2) (0.3)
_____ _____ _____
2.5 0.5 0.7
_____ _____ _____
6. Financial assets and liabilities
The Group manages its interest rate profile by use of interest
rate swaps to maintain a balance between fixed and floating rate debt. Under
IFRS, the fair value of such derivative instruments must be recognised in the
financial statements with a corresponding fair value adjustment to the
underlying loan instrument. Accordingly, a financial asset of £2.8m (2006: £0.1m
liability) has been recognised within current assets, being the fair value of
the interest rate swap, and current financial liabilities include a credit
adjustment of £2.8m (2006: £0.1m debit) in recognition of the corresponding
adjustment to the fair value of the Group's debt.
7. Condensed statement of changes in equity
2007 2006 2006
First First Full
Half Half Year
£m £m £m
Opening shareholders' equity 123.7 79.7 79.7
Total recognised income 63.1 31.0 17.9
Dividends on equity shares (13.0) (10.9) (17.2)
Transactions in own shares 1.6 (18.8) 42.4
Share based payments 0.7 0.5 0.9
_____ _____ _____
Closing shareholders' equity 176.1 81.5 123.7
_____ _____ _____
8. Reconciliation to net debt
2007 2006 2006
First First Full
Half Half Year
£m £m £m
Net movement in cash and cash equivalents 7.8 (26.1) 3.3
Movement in debt and lease financing (73.6) 10.2 (313.8)
_____ _____ _____
Change in net debt from cash flows (65.8) (15.9) (310.5)
Loans in acquired businesses - - (0.8)
New finance lease contracts - - (0.1)
Exchange differences 1.5 1.0 5.7
_____ _____ _____
(64.3) (14.9) (305.7)
Net debt brought forward (329.9) (24.2) (24.2)
_____ _____ _____
Net debt carried forward (394.2) (39.1) (329.9)
_____ _____ _____
9. Accounting estimates and judgements
The Group's critical accounting policies under IFRS have been set
by management with the approval of the Audit Committee. The application of
these policies requires estimates and assumptions to be made concerning the
future and judgements to be made on the applicability of policies to particular
situations. Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. Under 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
judgements required when preparing the Group's accounts are as follows:
(i) Provisions - the Group has made significant provision for
potential environmental liabilities and for the costs of the restructuring
exercise following the acquisition of Uniqema.
The environmental provision relates to soil and potential ground
water contamination on a number of sites, both currently in use and previously
occupied, in Europe and the Americas. Restructuring provisions relate to the
ongoing plans to integrate the acquired Uniqema business with the existing Croda
businesses. Provisions are made where a constructive or legal obligation can be
quantified and where the timing of the transfer of economic benefits relating to
the provisions cannot be ascertained with any degree of certainty.
In relation to the environmental provision, the directors consider
that the balance will be utilised within 20 years. With regard to the
restructuring provisions, significant elements have been utilised to date and
the directors' view is that there will be further elements, notably in respect
of redundancy costs, that will be utilised in 2007 and that further significant
utilisation will occur in 2008 and 2009 with the balance utilised within 20
years. Based on information currently available and on the detailed plans
established for the restructuring of the Group, this level of provision is
considered appropriate by the directors.
(ii) Goodwill and fair value of assets acquired - the Group's
goodwill carrying value increased significantly in 2006 following the
acquisition of Uniqema. The Group tests annually 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 underlying
cash generating units. These calculations require the use of estimates, however
as recoverable amounts as calculated at the end of last year far exceed carrying
values, including goodwill, and as there has been no indication thus far this
year of subsequent impairment, there is no sensitivity with regard to
impairment.
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