Interim Results

Croda International PLC 26 July 2006 26 July 2006 CRODA INTERNATIONAL PLC Interim results announcement June 2006 Highlights 2006 2005 Sales for continuing operations Â£164.5m Â£154.5m + 6.5% Pre-tax profit for continuing operations Â£27.9m Â£25.1m + 11.2% Earnings per share for continuing operations 14.7p 12.5p + 17.6% Dividend per share 4.65p 4.35p + 6.9% â€¢ Pre-tax profits up 11.2% to Â£27.9m â€¢ Group sales up 6.5% to Â£164.5m o Consumer Care sales up 8.2% â€¢ Earnings per share up 17.6% â€¢ 4.65p interim dividend, up 6.9% â€¢ Â£32.4m returned to shareholders: o Â£21.5m treasury stock buyback o Â£10.9m final dividend paid â€¢ Acquisition of Uniqema announced Commenting on the results, Chairman, Martin Flower, said: 'This was a strong performance in spite of the headwinds of higher input costs, particularly energy. Pre-tax profits on continuing operations were up over 11% on sales up 6.5%, including 2.5% from currency translation. We were pleased to announce the acquisition of Uniqema from ICI PLC on 29 June. This transforming acquisition gives Croda a great opportunity to further enhance shareholder value.' 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 I am pleased to report a strong set of results for the first half of 2006. Overall pre-tax profits on continuing operations for the period were up 11.2% at Â£27.9m, compared to Â£25.1m for the same period last year, on sales up 6.5%. I am also delighted that Croda has reached agreement to acquire the Uniqema business from ICI PLC. The deal is expected to complete in early September. In line with the Group's stated objective to dispose of non-core activities, Croda sold its metal treatments division to Shell UK Limited for an initial consideration of Â£3.9m. Continuing earnings per share increased 17.6% to 14.7p (2005 12.5p) and as a result, the Board has declared an interim dividend of 4.65p, 6.9% higher than last year. Trading The first quarter profit uplift reported at the AGM continued in the second quarter, resulting in continuing pre-tax profits up 11.2% for the half versus the previous year. In the second quarter, improved margins versus last year compensated for fewer working days. We continued to focus on high margin, high added value products, reducing the level of toll processing and technical oil trading at Seatons. In Consumer Care, sales were buoyant with all regions making progress versus the previous year. Currency translation added around 2.5% to the sales increase, partially compensating for higher input costs, particularly energy. Finance We continued to buyback shares in the market. In the first quarter, 4.3m shares were purchased at a cost of Â£21.5m, taking the total purchased to 12.5m shares at a cost of Â£52.4m since the programme began in December 2004. The tax rate was slightly lower than last year, representing the relative trading in the various tax regimes in which Croda operates. Net debt at the end of June was Â£39.1m, with strong underlying cash generation before the Â£32.4m returned to shareholders via the share buyback and 2005 final dividend payment in June. Outlook Firm demand continues in our core markets and we remain confident of further progress for the rest of 2006. We look forward to integrating Uniqema, creating a new platform for growth. Croda International Plc Results for the six months ended 30 June 2006 Condensed Group income statement Note 2006 2005 2005 First First Full Unaudited Â£m Half Half Year Continuing operations Revenue 2 164.5 154.5 305.6 Cost of sales (113.3) (106.5) (214.5) ______ ______ ______ Gross profit 51.2 48.0 91.1 Operating expenses (23.4) (22.1) (40.0) ______ ______ ______ Operating profit 2 27.8 25.9 51.1 Net financial income 3 0.1 (0.8) (1.9) ______ ______ ______ Profit before tax 27.9 25.1 49.2 Tax (9.9) (9.0) (17.6) ______ ______ ______ Profit after tax from continuing operations 18.0 16.1 31.6 Profit after tax from discontinued operations 5 0.9 0.7 1.2 ______ ______ ______ Profit for the period 18.9 16.8 32.8 _____ _____ _____ Attributable to: Minority interest - - 0.1 Equity shareholders 18.9 16.8 32.7 ____ _____ ____ 18.9 16.8 32.8 _____ _____ _____ pence per pence per pence per share share share Earnings per share of 10p Basic Total 15.4 13.0 25.6 Continuing operations 14.7 12.5 24.7 Diluted Total 15.2 13.0 25.2 Continuing operations 14.5 12.5 24.3 Ordinary dividends Interim 4.65 4.35 4.35 Final 9.00 Condensed Group statement of recognised income and expense 2006 2005 2005 First First Full Unaudited Â£m Half Half Year Profit attributable to equity shareholders 18.9 16.8 32.7 Exchange differences (2.4) 1.6 4.7 Actuarial movement on retirement benefit liabilities (net of deferred tax) 14.5 - (3.8) ______ ______ ______ Total recognised income attributable to equity shareholders 31.0 18.4 33.6 ______ ______ ______ Condensed Group balance sheet At At At Unaudited Â£m 30 June 30 June 31 December Note 2006 2005 2005 Assets Non-current assets Goodwill 6.5 6.5 6.5 Property, plant and equipment 119.8 126.2 122.4 Investments 0.8 11.1 1.4 Deferred tax assets 28.4 33.8 36.0 ________ ______ ______ 155.5 177.6 166.3 ________ ______ ______ Current assets Inventories 55.3 55.9 53.4 Trade and other receivables 62.1 64.3 55.7 Cash and cash equivalents 6 23.5 36.2 39.3 Other financial assets - 0.3 0.1 Assets classified as held for sale 5 10.3 - 15.4 ______ ______ ______ 151.2 156.7 163.9 _______ ______ ______ Liabilities Current liabilities Trade and other payables (48.3) (66.6) (46.6) Borrowings and other financial liabilities 6 (34.7) (36.0) (24.2) Current tax liabilities (5.0) (4.4) (5.5) _______ ______ ______ (88.0) (107.0) (76.3) _______ ______ ______ Net current assets 63.2 49.7 87.6 ______ ______ ______ Non-current liabilities Borrowings and other financial liabilities 6 (27.9) (21.3) (39.4) Other payables (0.8) (0.7) (1.0) Retirement benefit liabilities (82.3) (102.5) (107.1) Provisions (9.6) (8.6) (9.6) Deferred tax liabilities (16.4) (15.4) (16.2) ______ ______ ______ (137.0) (148.5) (173.3) ______ ______ ______ Net assets 81.7 78.8 80.6 ______ ______ ______ Shareholders' equity 81.5 77.9 79.7 Minority interest in equity 0.2 0.9 0.9 _______ ______ ______ Total equity 81.7 78.8 80.6 ______ ______ ______ Condensed Group cash flow statement Note 2006 2005 2005 Unaudited Â£m First First Full Half Half Year Cash flows from operating activities Continuing operations Operating profit 27.8 25.9 51.1 Adjustments for: Depreciation and loss on disposal of fixed assets 7.0 7.0 14.0 Changes in working capital (7.9) (3.9) 3.4 Pension fund contributions in excess of service cost (0.5) (1.4) (2.8) Share based payments 0.5 0.4 0.7 ______ ______ ______ Cash generated from continuing operations 26.9 28.0 66.4 Discontinued operations 0.2 0.8 1.2 Interest paid (1.7) (1.5) (3.7) Tax paid (10.1) (9.1) (15.9) ______ ______ ______ Net cash generated from operating activities 15.3 18.2 48.0 ______ ______ ______ Cash flows from investing activities Purchases of property, plant and equipment (6.0) (4.1) (9.1) Proceeds from sale of property, plant and equipment 0.9 0.2 1.4 Proceeds from sale of investments 0.5 - - Proceeds from sale of businesses (net of costs) 3.4 - - Cash paid against provisions - (5.0) (5.2) Interest received 0.4 0.5 1.3 ______ ______ ______ Net cash used in investing activities (0.8) (8.4) (11.6) ______ ______ ______ Cash flows from financing activities Additional borrowings - 4.8 15.0 Repayment of borrowings (10.5) - (0.6) Net purchases of own shares (18.8) (8.9) (21.8) Dividends paid 4 (11.6) (5.4) (21.7) Other 0.3 - (0.1) ______ ______ ______ Net cash used in financing activities (40.6) (9.5) (29.2) ______ ______ ______ Net movement in cash and cash equivalents 9 (26.1) 0.3 7.2 Cash and cash equivalents brought forward 26.4 17.5 17.5 Exchange differences (0.9) 1.1 1.7 ______ ______ ______ Cash and cash equivalents carried forward (0.6) 18.9 26.4 ______ ______ ______ Cash and cash equivalents carried forward comprise Cash at bank and in hand 23.5 36.2 39.3 Bank overdrafts (24.1) (17.3) (12.9) ______ ______ ______ (0.6) 18.9 26.4 ______ ______ ______ A reconciliation of the cash flows above to the movement in net debt is shown at note 9. 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 2005. The IFRS and interpretations that will be applicable as at 31 December 2006, 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 2006 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 2005 is also unaudited. The comparative figures for the year ended 31 December 2005 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 2006 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. 2006 2005 2005 First First Full Half Half Year Â£m Â£m Â£m Turnover - continuing operations Consumer Care 113.5 104.9 207.8 Industrial Specialities 51.0 49.6 97.8 _____ _____ _____ 164.5 154.5 305.6 _____ _____ _____ Operating profit - continuing operations Consumer Care 23.8 22.0 43.9 Industrial Specialities 4.0 3.9 7.2 _____ _____ _____ 27.8 25.9 51.1 _____ _____ _____ There are no sales between business segments and 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. 2006 2005 2005 First First Full Half Half Year Â£m Â£m Â£m Turnover by destination - continuing operations Europe 71.0 69.0 131.7 Americas 60.6 55.9 111.5 Asia 22.3 20.2 42.3 Rest of World 10.6 9.4 20.1 _____ _____ _____ 164.5 154.5 305.6 _____ _____ _____ 3. Net financial income Net bank interest payable (1.3) (1.0) (2.3) Expected return on pension scheme assets less interest on scheme liabilities 1.4 0.2 0.4 _____ _____ _____ 0.1 (0.8) (1.9) _____ _____ _____ 4. Dividends paid Pence per share Ordinary 2004 Interim - paid January 2005 4.10 - 5.4 5.4 2004 Final - approved April 2005, paid July 2005 8.40 - - 10.7 2005 Interim - paid October 2005 4.35 - - 5.5 2005 Final - paid June 2006 9.00 10.9 - - _____ _____ _____ 10.9 5.4 21.6 Preference (paid June and December) - - 0.1 Dividends paid to minority shareholders 0.7 - - _____ _____ _____ 11.6 5.4 21.7 _____ _____ _____ An interim dividend in respect of 2006 of 4.65p per share, amounting to a total dividend of Â£5.6m, was declared by the directors at their meeting on 25 July 2006. This interim report does not reflect the 2006 interim dividend payable. The dividend will be paid on 6 October 2006 to shareholders registered on 8 September 2006. 5. Discontinued operations On 27 March 2006, in continuance of the Group's stated objective to dispose of non-core activities, the Group's metal treatments division was sold to Shell UK Limited for an initial consideration of Â£3.9m, with a further Â£0.8m payable a year from the date of sale contingent upon the business achieving a pre-determined level of profits. The sale did not include the non-current assets of the business, primarily land and buildings, however the Group has received a valuation of the land and buildings which is significantly in excess of their carrying value. Accordingly, there has been no re-measurement to fair value less costs to sell. Under the terms of the sale agreement, following completion the Group was committed to an initial three month period of toll manufacture. A subsequent agreement signed on 21 June 2006 extends the period of manufacture for a maximum of a further six months. Once this period is complete, the directors are confident that the valuation of the land and buildings will be realised through their disposal. In addition, 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 and at 30 June the process was continuing. The Board remain committed to the disposal plan and consider it highly probable that the disposal will have taken place within twelve months. Accordingly, the carrying value of the Group's investment in Baxenden (Â£10.3m) has been categorised within current assets as 'assets classified as held for sale'. The impact of discontinued operations on the income statement is as follows: 2006 2005 2005 First First Full Half Half Year Â£m Â£m Â£m Operating profit of discontinued operations 1.3 1.0 1.9 Profit on disposal and closure of discontinued operations - - (0.3) Profit on disposal of fixed assets in discontinued operations - - 0.3 Tax (0.4) (0.3) (0.7) _____ _____ _____ 0.9 0.7 1.2 _____ _____ _____ 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 liability of Â£0.1m (2005: Â£0.3m asset) has been recognised within current liabilities, being the fair value of the interest rate swap, and current and non-current financial liabilities include a debit adjustment of Â£0.1m (2005: Â£0.1m credit) and Â£nil (2005: Â£0.2m credit) respectively in recognition of the corresponding adjustment to the fair value of the Group's fixed rate debt. 7. Condensed statement of changes in equity 2006 2005 2005 First First Full Half Half Year Â£m Â£m Â£m Opening shareholders' equity 79.7 88.8 88.8 Total recognised income 31.0 18.4 33.6 Dividends on equity shares (10.9) (16.2) (21.7) Transactions in own shares (18.8) (13.3) (21.8) Share based payments 0.5 0.2 0.8 _____ _____ _____ Closing shareholders' equity 81.5 77.9 79.7 _____ _____ _____ 8. Treasury shares During the period covered by this interim report the Company purchased 4,335,000 shares on the open market to be held as treasury shares for a consideration of Â£21.5m. The Company now holds 12,457,589 shares in total as treasury shares. These shares have been deducted from shareholders' equity and will be held until such time as the Board decided to cancel, reissue or use them to satisfy share options. 9. Reconciliation of movement in net debt 2006 2005 2005 First First Full Half Half Year Â£m Â£m Â£m Net movement in cash and cash equivalents (26.1) 0.3 7.2 Movement in debt and lease financing 10.2 (4.8) (14.3) _____ _____ _____ Change in net debt from cash flows (15.9) (4.5) (7.1) New finance lease contracts - - (0.2) Exchange differences 1.0 (1.1) (1.7) _____ _____ _____ (14.9) (5.6) (9.0) Net debt brought forward (24.2) (15.2) (15.2) _____ _____ _____ Net debt carried forward (39.1) (20.8) (24.2) _____ _____ _____ 10. 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 only such critical judgement required when preparing the Group's accounts is discussed below. Environmental provisions At 30 June 2006, the Group has an environmental provision of Â£8.5m 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. 11.Post balance sheet events On 29 June 2006, the Group announced the proposed acquisition of Uniqema, a division of Imperial Chemical Industries PLC ('ICI') for a consideration of Â£410m on a cash and debt free basis. At completion, the Group will pay Â£370m and assume Â£40m of unfunded retirement benefit liabilities. As part of the completion mechanics, there will be an adjustment for working capital and an adjustment for any retirement benefit liabilities, which will be funded, net of tax, by ICI. The acquisition constitutes a 'Reverse Takeover' under the UK Listing Rules by virtue of its size and is subject to the approval of the Croda shareholders, which will be sought at an Extraordinary General Meeting ('EGM') that is anticipated to be held in late August, and obtaining the necessary competition clearances. The Circular inviting shareholders to vote at the EGM is expected to be posted in the near future. Given that the transaction is a 'Reverse Takeover', Croda's ordinary shares were suspended from trading on 29 June 2006, pending the publication of a Prospectus for the enlarged Group. It is anticipated that the Prospectus will be published in late August 2006 and that trading in Croda shares will recommence shortly thereafter. This information is provided by RNS The company news service from the London Stock Exchange

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