Interim Results

Croda International PLC 27 July 2005 Wednesday, 27 July 2005 Croda International Plc Interim Results Announcement Six months to 30 June 2005 Highlights 2005 2004 Sales for continuing operations Â£158.9m Â£146.5m +8.5% Pre-tax profit for continuing operations Â£25.8m Â£22.4m +15% Earnings per share 13.0p 11.6p +12% Dividend per share 4.35p 4.10p + 6% â€¢ Pre-tax profits up 15% â€¢ Consumer Care sales up 11.7% â€¢ Consumer Care volumes up 11% â€¢ Consumer Care margins maintained at 21% â€¢ Dividend increased 6% to 4.35p per share â€¢ Continued Treasury share buy back programme Commenting on the results, Chairman, Antony Beevor, said: 'Demand from our customers has continued to be good. In particular, in the Consumer Care segment sales rose by 11.7% on volumes which were 11% up on the previous year. The principal driver of growth was skin care, which is one of the fastest growing parts of the personal care market worldwide. Overall, ongoing demand remains good across the business. We anticipate further product launches in the second half giving us confidence in the continued growth of the business in our chosen markets. We expect 2005 to be another year of progress for the Group.' For further information, please contact: Mike Humphrey, Chief Executive Tel: 01405 860551 Barbara Richmond, Group Finance Director Tel: 01405 860551 Charles 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 10.30 a.m. today. Croda International Plc Chairman's Statement These are the first set of results we have prepared under International Financial Reporting Standards (IFRS). Profit before tax for the first six months was Â£25.8m, 15% ahead of the same period last year. Sales from continuing operations increased by 8.5%. For the first time in a number of years currency had no significant effect on sales values or profits in the first half. The tax rate of 34.9% was in line with expectations, resulting in earnings per share of 13p (2004 11.6p). As a result of this strong performance, the Board has declared an interim dividend 6% higher than last year. This dividend of 4.35p (2004 4.1p) will be payable to shareholders on 6 October 2005, in line with best practice and three months earlier than the Company has previously paid the interim dividend. Trading At the AGM in April, I reported the year had started strongly. Demand has continued to be good in the second quarter. In particular, in the Consumer Care segment (comprising the Personal, Health and Home Care businesses) sales rose by 11.7% on volumes which were 11% up on the previous year. Whilst all of this segment performed well, the principal driver of growth was skin care, which is one of the fastest growing parts of the Personal Care market worldwide. The operating margin in Consumer Care was maintained at 21%. Sales of Industrial Specialities were up 2.7% on volumes which were 2.5% lower. The good performance in higher added value plastics additives was partly offset by lower volumes of commodity industrial products. Geographically, we achieved very good growth in the Americas, with North American sales up 16% and those in South America up almost 35%. Europe also performed well with an increase in mainland Europe of 8%. Sales in Asia grew at a lower rate overall with good growth in some areas such as China and little growth in countries such as Indonesia. Finance Again we achieved a good cash performance with operating cash inflow of 14.5p per share (2004 12.7p). We continued to buy back shares into Treasury in the first half and have now purchased in total 6.5 million shares at a cost of Â£23.5m since the buy back programme began in December of last year. We also returned to the market 1.4 million shares as a result of the exercise of employee share options in the first half. Net debt at the end of June was Â£20.8m producing gearing of 26.4% (2004 24.7%). Further information on the impact of IFRS on the accounting policies and 2004 results can be found by visiting our website www.croda.com and going to the ' Latest Announcements' in the Investor centre. Outlook Overall, ongoing demand remains good across the business. Also we anticipate further product launches in the second half, giving us confidence in the continued growth of the business in our chosen markets. We expect 2005 to be another year of progress for the Group. As already announced I will be retiring at the end of September, handing over to Martin Flower. I have been privileged to be Chairman of Croda for the last three and a half years and I wish Martin all possible success in the future. Croda International Plc Results for the six months ended 30 June 2005 Condensed Group income statement Unaudited Â£m Note 2005 2004 2004 First First Full Half Half Year Continuing operations Turnover 2 158.9 146.5 291.1 Cost of sales (110.4) (104.4) (206.5) ______ ______ ______ Gross profit 48.5 42.1 84.6 Operating expenses (22.7) (19.8) (39.3) Share of associate's post-tax profits Profit before tax 1.1 1.7 2.6 Tax (0.3) (0.5) (0.8) 0.8 1.2 1.8 ______ ______ ______ Operating profit 2 26.6 23.5 47.1 Finance costs 3 (0.8) (1.1) (1.9) ______ ______ ______ Profit before tax 25.8 22.4 45.2 Tax (9.0) (7.5) (15.2) ______ ______ ______ Profit after tax from continuing operations 16.8 14.9 30.0 Discontinued operations 5 - 0.5 0.7 Minority interest and preference dividends - (0.2) (0.2) ______ ______ ______ Profit attributable to ordinary shareholders 16.8 15.2 30.5 _____ _____ _____ pence per pence per pence per share share share Earnings per share of 10p Basic Total 13.0 11.6 23.3 Continuing operations 13.0 11.3 22.8 Diluted Total 13.0 11.6 23.1 Continuing operations 13.0 11.3 22.7 Ordinary dividends Interim 4.35 4.10 4.10 Final 8.40 Condensed Group balance sheet Unaudited Â£m Note At At At 30 June 30 June 31 December 2005 2004 2004 Assets Non-current assets Property, plant and equipment 126.2 130.1 127.4 Intangible assets 6.5 6.5 6.5 Investments 11.1 11.2 10.9 Deferred tax assets 33.8 32.4 34.1 ______ ______ ______ 177.6 180.2 178.9 ______ ______ ______ Current Assets Inventories 55.9 52.1 52.0 Trade and other receivables 64.3 59.0 54.9 Cash, cash equivalents and other financial assets 6 36.5 28.2 32.4 ______ ______ ______ 156.7 139.3 139.3 ______ ______ ______ Liabilities Current liabilities Trade and other payables (66.6) (51.3) (42.1) Borrowings and other financial liabilities 6 (36.0) (18.0) (15.6) Current tax liabilities (4.4) (6.1) (4.8) ______ ______ ______ (107.0) (75.4) (62.5) ______ ______ ______ Net current assets 49.7 63.9 76.8 ______ ______ ______ Non-current liabilities Borrowings and other financial 6 liabilities (21.3) (31.1) (32.0) Other payables (0.7) (0.7) (0.9) Retirement benefit obligations (102.5) (99.9) (104.1) Provisions (8.6) (14.0) (13.6) Deferred tax liabilities (15.4) (13.9) (15.5) ______ ______ ______ (148.5) (159.6) (166.1) ______ ______ ______ Net assets 78.8 84.5 89.6 ______ ______ ______ Equity shareholders' funds 77.9 83.3 88.8 Minority interests 0.9 1.2 0.8 ______ ______ ______ Total equity 78.8 84.5 89.6 ______ ______ ______ Condensed statement of recognised income and expense Unaudited Â£m 2005 2004 2004 First First Full Half Half Year Profit attributable to ordinary shareholders 16.8 15.2 30.5 Exchange differences 1.6 (1.6) (0.7) Actuarial movement on retirement benefit obligations (net of deferred tax) - - (5.2) ______ ______ ______ Total recognised income and expense 18.4 13.6 24.6 ______ ______ ______ Condensed statement of changes in equity Unaudited Â£m 2005 2004 2004 First First Full Half Half Year Opening shareholders' equity 88.8 84.1 84.1 Total recognised income 18.4 13.6 24.6 Ordinary dividends on equity shares (16.2) (15.5) (15.5) Transactions in own shares (13.3) 1.0 (4.7) Share based payments 0.2 0.1 0.3 ______ ______ ______ Closing shareholders' equity 77.9 83.3 88.8 ______ ______ ______ Condensed Group cash flow statement Unaudited Â£m Note 2005 2004 2004 First First Full Half Half Year Cash flows from operating activities Profit before tax Continuing operations 25.8 22.4 45.2 Discontinued operations - (0.2) (0.2) Adjustments for: Depreciation and loss on disposal of fixed assets 7.1 7.2 14.5 Changes in working capital (3.6) (3.0) (0.7) Net financing cost 0.8 1.1 1.9 Pension fund contributions in excess of service costs (1.4) (2.2) (3.8) Share based payments 0.4 0.3 0.4 Share of profit of associated undertaking (0.8) (1.2) (1.8) Dividend received from associated undertaking 0.5 0.8 1.9 ______ ______ ______ Cash generated from operations 28.8 25.2 57.4 Interest paid (1.5) (1.8) (3.4) Tax paid (9.1) (7.3) (12.5) ______ ______ ______ Net cash generated from operating activities 18.2 16.1 41.5 ______ ______ ______ Cash flows from investing activities Purchases of property, plant and equipment (4.1) (8.9) (14.9) Proceeds from sale of property, plant and equipment 0.2 2.2 1.3 Proceeds from sale of businesses (net of costs) - 3.2 4.6 Cash paid against provisions (5.0) - - Interest received 0.5 0.6 1.1 ______ ______ ______ Net cash used in investing activities (8.4) (2.9) (7.9) ______ ______ ______ Cash flows from financing activities Additional borrowings 4.8 - - Repayment of borrowings - (5.2) (3.3) Net purchases of own shares (8.9) 1.0 (4.7) Dividends paid 4 (5.4) (5.4) (16.0) Other - (0.1) - ______ ______ ______ Net cash used in financing activities (9.5) (9.7) (24.0) ______ ______ ______ Net increase in cash and cash equivalents 0.3 3.5 9.6 Cash and cash equivalents brought forward 17.5 8.5 8.5 Exchange differences 1.1 (0.6) (0.6) ______ ______ ______ Cash and cash equivalents carried forward 18.9 11.4 17.5 ______ ______ ______ Cash and cash equivalents carried forward comprise Cash at bank and in hand 36.2 28.2 32.4 Bank overdrafts (17.3) (16.8) (14.9) ______ ______ ______ 18.9 11.4 17.5 ______ ______ ______ Reconciliation to net debt Net increase in cash and cash equivalents 0.3 3.5 9.6 Increase in debt and lease financing (4.8) 5.2 3.3 ______ ______ ______ Change in net debt from cash flows (4.5) 8.7 12.9 New finance lease contracts - - (0.1) Exchange differences (1.1) (0.1) 1.5 ______ ______ ______ (5.6) 8.6 14.3 Net debt brought forward (15.2) (29.5) (29.5) ______ ______ ______ Net debt carried forward (20.8) (20.9) (15.2) ______ ______ ______ Notes to the interim report 1. Basis of preparation The financial information in this interim report has been prepared on the basis of all IFRS's that had been published by 31 December 2004 and apply to accounting periods beginning on or after 1 January 2005. The Group has also, as permitted, early adopted the amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses' that was published by the International Accounting Standards Board ('IASB') in December 2004. The standards used are those endorsed by the EU together with those standards and interpretations that had been issued by the IASB but had not been endorsed by the EU at the time of preparing these statements (July 2005). The directors expect that the amendments to IAS 19 ' Employee Benefits - Actuarial Gains and Losses' issued by the IASB will be fully adopted by the EU and will therefore be available for use in the IFRS financial statements for the year ended 31 December 2005. During 2005 further standards and interpretations may be issued that will be applicable for financial years beginning on or after 1 January 2005 or that are applicable to later accounting periods but may be adopted early. The Group's first IFRS financial statements may, therefore, be prepared in accordance with some different accounting policies from the financial information presented here. Additionally, IFRS is currently being applied in the United Kingdom, and in a large number of other countries simultaneously, for the first time. Furthermore, due to a number of new and revised standards included within the body of standards that comprise IFRS, there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied and reported on in the Group's first IFRS financial statements cannot be determined with certainty and may be subject to change. In June 2005, the Group published via the Stock Exchange and on its website (croda.com) a 'Statement on the Transition to International Accounting Standards and International Financial Reporting Standards' ('the transition statement'). This statement described the likely impact of the transition from UK GAAP to IFRS on the Group's equity, net income and cash flows, as well as providing each of the reconciliations required by IFRS 1. The interim report should be read in conjunction with the transition statement. The accounting policies followed in the preparation of this interim report were set out in full in the transition statement and have been consistently applied to all the years presented except for those relating to the classification and measurement of financial instruments. The Group has made use of the exemption available under IFRS 1 to only apply IAS 32 and IAS 39 from 1 January 2005. The comparative figures for the financial year ended 31 December 2004 are not the Group's statutory accounts for the financial year. Those accounts, which were prepared under UK GAAP in accordance with the Companies Act 1985, have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. Segmental information Primary reporting format - business segments At 30 June 2005 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. 2005 2004 2004 First First Full Half Half Year Â£m Â£m Â£m Turnover - continuing operations Consumer Care 104.9 93.9 187.3 Industrial Specialities 54.0 52.6 103.8 ______ ______ ______ 158.9 146.5 291.1 ______ ______ ______ Operating profit - continuing operations Consumer Care 22.0 20.3 40.7 Industrial Specialities 4.6 3.2 6.4 ______ ______ ______ 26.6 23.5 47.1 ______ ______ ______ There are no sales between business segments and all operating costs of the Group are allocated between the segments. Secondary reporting format - geographical segments The sales analysis in the table below is based on the location of the customer. 2005 2004 2004 First First Full Half Half Year Â£m Â£m Â£m Turnover by destination - continuing operations operations Europe 72.8 69.6 132.7 Americas 55.9 47.2 97.4 Asia 20.3 20.0 41.0 Rest of World 9.9 9.7 20.0 ______ ______ ______ 158.9 146.5 291.1 ______ ______ ______ 3. Finance costs 2005 2004 2004 First First Full Half Half Year Â£m Â£m Â£m Net bank interest payable 1.0 1.2 2.1 Expected return on pension scheme assets less interest on scheme liabilities (0.2) (0.1) (0.2) ______ ______ ______ 0.8 1.1 1.9 ______ ______ ______ 4. Dividends paid Pence 2005 2004 2004 per First First Full share Half Half Year Â£m Â£m Â£m Ordinary 2003 Interim - paid January 2004 4.02 - 5.3 5.3 2003 Final - approved April 2004, paid July 2004 7.83 - - 10.2 2004 Interim - paid January 2005 4.10 5.4 - - _____ _____ _____ 5.4 5.3 15.5 Preference (paid June and December) - - 0.1 Dividends paid to minority shareholders - 0.1 0.4 _____ _____ _____ 5.4 5.4 16.0 _____ _____ _____ A final dividend in respect of 2004 of 8.4p per share, amounting to a total dividend of Â£10.8m, was approved at the Company's AGM on 21 April 2005 and was paid on 7 July 2005. An interim dividend in respect of 2005 of 4.35p per share, amounting to a total dividend of Â£5.5m, was declared by the directors at their meeting on 26 July 2005. The interim report does not reflect the 2005 interim dividend payable. The dividend will be paid on 6 October 2005 to shareholders registered on 9 September 2005. 5. Discontinued operations During 2004 the Group sold its Fire Fighting Chemicals and rock anchor manufacturing businesses. The results of these businesses up to the point of disposal are included within discontinued operations on the face of the income statement along with any profit or loss arising on the business disposal itself and the profits or losses arising from the subsequent disposals of properties previously occupied by disposed businesses. The impact on the income statement is summarised below. 2005 2004 2004 First First Full Half Half Year Â£m Â£m Â£m Profit before tax of discontinued operations to point of disposal - (0.2) (0.2) Profit on disposal and closure of discontinued operations - 0.3 (0.5) Profit on disposal of fixed assets in discontinued operations - 0.6 0.6 Tax - (0.2) 0.8 ______ ______ ______ - 0.5 0.7 ______ ______ ______ 6. Financial assets and liabilities The Group manages its interest rate profile by use of an interest rate swap to convert a proportion of its fixed rate debt to a floating rate. 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 Â£0.3m has been recognised within current assets, being the fair value of the interest rate swap, and current and non-current financial liabilities include Â£0.1m and Â£0.2m respectively in recognition of the corresponding adjustment to the fair value of the Group's fixed rate debt at 30 June 2005. 7. Treasury shares During the period covered by this interim report the Company purchased 4,537,305 shares on the open market to be held as treasury shares for a consideration of Â£17.2m. Included within this consideration is an amount of Â£4.4m accrued in respect of purchases contracted before the period end with a settlement date shortly after the period end. The Company now holds 6,522,589 shares in total as treasury shares. These shares have been deducted from shareholders' equity and will be held until such time as the Board decides to cancel, reissue or use them to satisfy share options. 8. Accounting estimates and judgements The Group's critical accounting policies under IFRS, as discussed in the transition statement, 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 only such critical judgement required when preparing the Group's accounts is discussed below. Environmental provisions At 30 June 2005, the Group has an environmental provision of Â£8.6m in respect of soil and potential ground water contamination on a number of sites. These provisions were established in line with UK GAAP and have been reviewed to ensure compliance with IFRS. Based on information currently available, this level of provision is considered appropriate by the directors. This information is provided by RNS The company news service from the London Stock Exchange

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