TIDMCRDA
RNS Number : 9740D
Croda International PLC
25 February 2020
Press Release
25 February 2020
Results for the year ended 31 December 2019
Strong business model delivers resilient performance in subdued
market conditions
Croda International Plc ("Croda" or the "Group"), the speciality
chemical company that creates high performance ingredients and
technologies relied upon by industries and consumers globally,
today announces its full year results for the year ended 31
December 2019.
Highlights
Full year ended 31 December
Adjusted(1) results 2019 2018 % change % change
reported constant
rate rate(2)
=============================== ========== ======= ======= ========= =========
Sales - Core Business(3) GBPmillion 1,265.9 1,268.7 (0.2)% (2.3)%
Operating profit GBPmillion 339.7 342.5 (0.8)% (1.8)%
Profit before tax (PBT) GBPmillion 322.1 331.5 (2.8)% (3.7)%
Basic earnings per share (EPS) pence 185.0 190.2 (2.7)% n/a
Return on sales(4) % 24.7% 24.7% 0.0%pts n/a
Free cash flow(5) GBPmillion 201.7 154.9 +30.2% n/a
=============================== ========== ======= ======= ========= =========
Adjusted results
-- Resilient performance despite subdued market conditions
o Core Business sales 2.3% lower and Group operating profit 1.8%
lower (both in constant currency)
o Robust margin maintained - return on sales unchanged at
24.7%
o Strong cash conversion - free cash flow up 30.2% to GBP201.7m
(2018: GBP154.9m)
o New & Protected Product sales (NPP) flat at 28.1% of sales
(2018: 28.2%) at constant currency
Sector performance (sales in constant currency)
-- Excellent performance in Life Sciences, driven by strength of
Health Care and Crop Protection platforms
o Sales up 5.9%, supported by speciality excipients
o Continued margin growth; return on sales 110 bps higher at
30.6%
-- Profit maintained in Personal Care
o Sales 3% lower, driven by North America & North Asia over
the first nine months, followed by return to modest growth in
fourth quarter
o Excellent margin retained, with return on sales up 50 bps to
33.4%
-- Performance Technologies impacted by slower industrial markets
o Sales 7.3% lower, with poor first half for automotive demand
developing into a broader market slowdown in the second half
year
o Lower volume impacted margin, with return on sales down 260
bps at 16.1%.
Full year ended 31 December
Reported results (IFRS) 2019 2018 % change
====================================== =========== ========= ========= =========
Sales GBPmillion 1,377.7 1,386.9 (0.7)%
Operating profit GBPmillion 319.9 328.8 (2.7)%
Profit before tax (PBT) GBPmillion 302.3 317.8 (4.9)%
Basic EPS pence 172.8 181.4 (4.7)%
Ordinary dividend per share
(declared) pence 90.0 87.0 +3.4%
Special dividend per share (declared) pence - 115.0 n/a
====================================== =========== ========= ========= =========
Reported results (IFRS, reported currency)
-- Sales 0.7% lower, including small benefit from weaker Sterling translation
-- Operating profit 2.7% lower due to lower sales and higher
charges for exceptional items and amortisation of intangible assets
arising on acquisition
-- Exceptional charge of GBP10.7m to deliver cost saving actions
(2018: GBP4.9m, relating to UK defined benefit pension scheme past
service cost)
-- Basic EPS reduced by 4.7% to 172.8p (2018: 181.4p)
-- Full year dividend increased by 3.4% to 90.0 pence.
Outlook
-- Performance expected to be underpinned by:
o Healthy innovation pipeline
o New capacity coming on stream to support organic growth -
including biosurfactant plant now operational in North America
o Continued progress through recent technology acquisitions
o Reinvestment of cost savings in future growth
opportunities.
Steve Foots, Chief Executive Officer, commented:
"In 2019, we delivered a resilient performance with a strong
margin maintained and increased cash flow, despite subdued market
conditions. This is testament to Croda's focused strategy and
strong business model.
"An excellent performance in Life Sciences was reflected in
sales growth and margin improvement. Sales in Personal Care were
significantly impacted by a slower US market and by new legislation
in China, but conditions improved in line with our expectations in
the final quarter, and sector profitability increased further.
Performance Technologies slowed in line with the wider sector, due
to weak industrial demand.
"In the year ahead, subject to trading conditions remaining
similar, we expect to make further progress in our consumer
markets, whilst demand in industrial markets is expected to remain
weak but stable. Our growth will be second half weighted.
"With our new Purpose, Smart Science to Improve Lives(TM) , we
will continue to increase the positive impact our products deliver
for our customers and their consumers. We will also reduce the
negative impact our activities have on our fragile world. The
combination of a healthy innovation pipeline, recent investments,
cost saving benefits and a robust business model is expected to
underpin performance."
Further information:
A presentation for investors and analysts will be held at 0900
GMT on 25 February 2020 at Farmers & Fletchers in the City, 3
Cloth Street, London EC1A 7LD. The presentation will be webcast on
www.croda.com
For enquiries contact:
Investors: Nick Commandeur, Croda +44 7771 810590
Press: Charlie Armitstead, Teneo +44 7703 330269
Sector financial summary
2019 reported currency 2018
GBPm Year on year Constant GBPm
Sales change currency
Change(2)
========================= ========= ============= ========== =======
Personal Care 485.2 (0.5)% (3.0)% 487.8
Life Sciences 350.5 +8.0% +5.9% 324.5
Performance Technologies 430.2 (5.7)% (7.3)% 456.4
========================= ========= ============= ========== =======
Core Business 1,265.9 (0.2)% (2.3)% 1,268.7
Industrial Chemicals 111.8 (5.4)% (6.6)% 118.2
========================= ========= ============= ========== =======
Group 1,377.7 (0.7)% (2.6)% 1,386.9
========================= ========= ============= ========== =======
2019 reported currency 2018
GBPm Year on year Constant GBPm
Adjusted profit(1) change currency
Change(2)
========================= ======== ============== ========== ======
Personal Care 162.1 +1.1% (0.2)% 160.3
Life Sciences 107.1 +11.8% +11.6% 95.8
Performance Technologies 69.4 (18.5)% (19.1)% 85.2
========================= ======== ============== ========== ======
Core Business 338.6 (0.8)% (1.6)% 341.3
Industrial Chemicals 1.1 (8.3)% (33.3)% 1.2
========================= ======== ============== ========== ======
Operating profit 339.7 (0.8)% (1.8)% 342.5
Net interest (17.6) (60.0)% (55.5)% (11.0)
========================= ======== ============== ========== ======
Profit before tax 322.1 (2.8)% (3.7)% 331.5
========================= ======== ============== ========== ======
First Second Full
2019 constant currency(2) sales Half Half Year
growth % % %
================================ ===== ====== =====
Personal Care (3.6) (2.3) (3.0)
Life Sciences 13.0 (0.9) 5.9
Performance Technologies (6.0) (8.6) (7.3)
================================ ===== ====== =====
Core Business (0.4) (4.2) (2.3)
Industrial Chemicals (7.4) (5.7) (6.6)
================================ ===== ====== =====
Group (1.0) (4.3) (2.6)
================================ ===== ====== =====
Definitions
(1) Adjusted results are stated before exceptional items,
acquisition costs and amortisation of intangible assets arising on
acquisition, and tax thereon. The Board believes that the adjusted
presentation (and the columnar format adopted for the Group income
statement) assists shareholders by providing a meaningful basis
upon which to analyse underlying business performance and make
year-on-year comparisons. The same measures are used by management
for planning, budgeting and reporting purposes and for the internal
assessment of operating performance across the Group. The adjusted
presentation is adopted on a consistent basis for each half year
and full year results
(2) Reported currency results reflect current year performance
translated at reported rates (actual average exchange rates).
Constant currency results reflect current year performance for
existing business translated at the prior year's average exchange
rates. For constant currency profit, translation is performed using
the entity reporting currency. For constant currency sales, local
currency rates are translated into the most relevant functional
currency of the destination country of sale (for example, sales in
Latin America are primarily made in US dollars, which is therefore
used as the functional currency). Sales in functional currency are
then translated into Sterling using the prior year's average rates
for the corresponding period. Constant currency results are
reconciled to reported results in the Finance Review
(3) The Core Business comprises Personal Care, Life Sciences and
Performance Technologies
(4) Return on sales is adjusted operating profit divided by
sales, at reported currency
(5) Free cash flow is EBITDA less movements in working capital,
net capital expenditure, payment of lease liabilities, non-cash
pension expense, and interest and tax payments
Other non-statutory terms are defined in the 'Alternative
Performance Measures' section of the Finance Review.
Croda International Plc
Strategic Report
Chief Executive's Review
Adjusted results are stated before exceptional items,
acquisition costs and amortisation of intangible assets arising on
acquisition, and tax thereon. Constant currency results reflect
current year performance for existing business translated at the
prior year's average exchange rates. Alternative performance
measures are defined in the Finance Review.
Strong business model delivers resilient performance
The strength of the Croda business model was demonstrated in
subdued market conditions in 2019. Our robust profit margin was
maintained, with return on sales unchanged at 24.7%. We delivered
strong cash conversion, with free cash flow up by over 30%. Our
relentless focus on innovation continues to differentiate Croda
and, as we enter 2020, our innovation pipeline remains healthy.
This will be reinforced by new capacity coming on stream to support
organic growth, notably the biosurfactant plant in North America
which is now operational. Our recent technology acquisitions made
good progress during the year and offer exciting future
opportunities through their sustainable platforms.
Subdued market conditions in Personal Care and Performance
Technologies
Group sales and profit were slightly lower, reflecting difficult
market conditions in Personal Care and Performance Technologies.
Core Business sales declined by 0.2% in reported currency to
GBP1,265.9m (2018: GBP1,268.7m) and by 2.3% in constant currency.
We broadly protected profit, with Group adjusted operating profit
0.8% lower in reported currency at GBP339.7m (2018: GBP342.5m),
1.8% lower in constant currency. This limited impact on profit
reflects the strength of the Croda model, which delivered a richer
quality of sales, with Core Business price/mix three percentage
points better, and lower operating costs, which together offset
much of the impact of lower volumes in Personal Care and
Performance Technologies. We continued to invest in additional
sales and innovation resource to target future growth, in line with
our strategy and Purpose.
We have a strong business model in Personal Care. Despite weaker
sales in the first nine months of the year, as trade headwinds
impacted its two largest markets of North America and North Asia
and customers destocked, the sector delivered margin growth and
maintained adjusted operating profit. In line with our
expectations, the fourth quarter saw a return to modest sales
growth as headwinds reduced and key markets in North America and
North Asia saw some recovery.
Life Sciences delivered a record sales performance, driven by
the strength of the Health Care and Crop Protection platforms.
Sector sales rose by almost 6% in constant currency, supported by
new opportunities in speciality excipients, and margin expanded,
delivering record profitability.
In contrast, after several years of strong profit growth,
Performance Technologies delivered a disappointing performance amid
economic uncertainty and weak demand, as lower sales volume
impacted margin, reducing profitability.
As we exited the year, a somewhat improved outlook for the
consumer business contrasted with challenges in industrial markets.
We continue to invest in growth opportunities whilst keeping our
existing cost base lean and fit for the future. We are reinvesting
the benefits of cost savings in over 100 new roles to drive future
growth, increasing our presence in China, expanding our digital
programme, and investing in more sales and innovation resource in
Personal Care and Life Sciences. These actions will protect Croda
and help us grow.
Strong cash generation supporting dividend and investment
Cash generation increased in 2019, with free cash flow of
GBP201.7m (2018: GBP154.9m), benefitting from better working
capital management. We continued to invest in projects to deliver
future growth, including finalisation of the North America
biosurfactants plant, as well as doubling capacity of our US
speciality excipients plant for Life Sciences, due on stream later
in 2020, growing our industry-leading Beauty Actives platform in
Personal Care and shifting Performance Technologies towards higher
technology markets and products. We have a clear approach to
capital allocation and paid GBP266.9m (2018: GBP110.5m) in
dividends to shareholders, including a special return of excess
capital in May 2019. We have proposed an increase in the full year
ordinary dividend declared to 90.0p (2018: 87.0p) on adjusted basic
earnings per share (EPS) of 185.0p (2018: 190.2p).
IFRS reported profit lower including increased exceptional
charge
Group sales decreased by 0.7% to GBP1,377.7m (2018:
GBP1,386.9m). Profit before tax on an IFRS basis decreased by 4.9%
to GBP302.3m (2018: GBP317.8m). This reflected lower sales and a
higher interest charge, including the impact of increased debt from
the special dividend and acquisition of Biosector, together with a
higher exceptional charge of GBP10.7m (2018: GBP4.9m), which in
2019 reflected the delivery of cost savings actions.
Sector performance led by record year in Life Sciences
The standout performance in 2019 was in Life Sciences, with
record sales accompanied by an improved margin. Sales grew by 5.9%
and adjusted operating profit increased 11.6%, both in constant
currency. With return on sales at 30.6% (2018: 29.5%), this
demonstrates the opportunity for Life Sciences to achieve similar
returns and at a similar scale to Personal Care. After excellent
first half sales growth, demand in the second half year was weaker,
partly due to slower demand in Seed Enhancement, but margins
continued to expand. We expect to deliver mid to high single digit
percentage sales growth across the medium term, driven by our
leading technology positions in speciality health care excipients
and crop protection delivery systems.
Personal Care demand slowed, against a strong comparator in
2018, as trade headwinds impacted the US and North Asia markets,
with sales 3.0% lower in constant currency. US consumer spending in
the Personal Care and Beauty category was broadly flat on the prior
year and we saw a marked reduction in customer inventories around
the middle of the year which adversely impacted our sales. In North
Asia, restrictions on Daigou sales into China hit sales to our
customers in Japan and Korea, whilst local Chinese customers were
under pressure from trade uncertainties and new legislation.
Encouragingly, the fourth quarter saw Personal Care sales in North
Asia and North America return to modest growth, with local demand
in China recovering well and sales to Japan/Korea back into
positive territory. The strength of the Personal Care model was
demonstrated through an improvement in return on sales to
33.4%.
After three successive years of double digit percentage profit
growth, 2019 marked a disappointing year for Performance
Technologies amid sustained economic uncertainty and weak demand.
Poor global automotive sales in the first half were followed by a
general slowing in broader industrial markets in Europe and North
America in the second half year. Sales were 7.3% lower in constant
currency and return on sales reduced to 16.1%. Despite this shorter
term weakness, the fundamentals for Performance Technologies remain
attractive, with a progressive shift in the business towards
renewable technologies, greater innovation and providing
sustainable solutions.
Regional performance weaker across all regions
The weakness in sales was reflected across all regions. In
Europe sales were 2% lower in constant currency as good Personal
Care demand was more than offset by weak industrial markets. Market
conditions in North America were noticeably tougher through the
first nine months, with full year constant currency sales down 6%,
reflecting the US/China trade dispute and lower automotive and
consumer product demand. Asia was also unusually weak, with
constant currency sales 1% lower than prior year, reflecting
uncertainties over macroeconomic growth and changes to selling
legislation in China. Latin America constant currency sales were
down 2%, with strong crop demand offset by weak Personal Care
sales. In the fourth quarter, although European markets slowed,
both North America and Asia saw an encouraging return to growth,
both up 3% in constant currency on 2018, driven by better consumer
demand.
Smart Science to Improve Lives(TM) - our Purpose and ambitious
sustainability commitment
At Croda, we have made it our Purpose to use our Smart Science
to Improve Lives(TM) . Croda was built upon a foundation of using
smart science to turn renewable raw materials into innovative
ingredients to give sustainable benefits in use. This focus still
sits at the core of Croda, driving innovation and sustainability to
create market-leading products and ensure that we have a positive
effect on the environment and society. In line with this Purpose,
our ambition is to become the most sustainable supplier of
innovative ingredients. By aligning our smart science with the
United Nations Sustainable Development Goals (SDGs), we will ensure
that we are helping to tackle some of the biggest challenges the
world is facing. We commit that by 2030 we will be "Climate, Land
and People Positive"; in other words, the impact that Croda has in
these three key areas of sustainability will be net positive for
the planet.
In becoming Climate Positive, we will support the transition to
a low carbon economy. We will work closely with our customers,
developing ingredients that deliver carbon savings in use. By 2030,
we will make significant progress towards net zero carbon emissions
associated with our activities, we will further increase the bio
content of our raw materials and the use of our ingredients will
save significantly more carbon emissions than required in their
manufacture. In becoming Land Positive, we will save more land than
we use. We will increase agricultural land use efficiency, protect
biodiversity and support food supply by sourcing sustainably and
inspiring innovation in our crop business. By 2030, the land area
saved through improved yields and crop resilience of our
agricultural ingredients and technologies will exceed that used to
grow all our raw materials.
In becoming People Positive, we will promote healthy lives and
wellbeing through the development and application of our
ingredients and technologies. By 2030, we will have used our smart
science to improve millions of extra lives.
We are launching a full range of these sustainability ambitions
and 2030 targets. We believe that Croda is strongly positioned to
deliver both superior financial performance and help to create a
sustainable planet.
Protecting our people and the communities in which we operate is
critical to Croda. In 2019 our process safety performance continued
to improve, with no serious incidents or any with major accident
potential, achieving an almost threefold reduction in incidents.
Our personal injury performance was another success story. For the
first time in our history, we achieved two consecutive months free
of any recordable injuries and we met our target of achieving a
Total Recordable Injury Rate (TRIR) of 0.6 a year ahead of
schedule. We were also pleased to be recognised as Company of the
Year by the UK Chemical Industry Association and as one of
Britain's Most Admired Companies and the most admired British
chemical company by Management Today, for the third year running.
We were voted Best Product Innovation in the Global ICIS Innovation
Awards for a novel patented polymer molecule which serves as a
building block for the development of more stable and effective
products.
Strategy delivery
Building on our Purpose, the Board reviewed our strategy through
to 2030. We have expanded our long term view, sharpened our sector
priorities and increased our focus on higher growth geographies.
Our strategy is to deliver:
-- Growth - consistent top and bottom line growth, with profit
growing ahead of sales, ahead of volume;
-- Innovation - the lifeblood of our business, we seek to
increase the proportion of NPP that we sell; and
-- Sustainability - aligning our business with our Purpose and
accelerating our customers' transition to sustainable
ingredients.
Our ability to connect to faster growth markets through faster
growth technologies, faster growth geographies and faster growth
market niches will enable us to deliver this strategy.
We are fully aligned with the megatrends which shape our markets
and which will drive growth. Life Sciences delivers better health
and well being, through its focus on disease prevention and cure,
and improved crop yields, through better delivery systems to feed a
growing population from the same land with less environmental
impact. Personal Care is meeting the expectations of consumers with
growing incomes seeking clean and natural beauty, whilst protecting
the health of consumers through more effective solar protection.
Performance Technologies is focusing on renewable technologies,
delivering affordable and clean energy, and helping customers meet
their climate action goals.
Our sector strategic priorities are to:
-- Strengthen to grow in Personal Care. As the leading innovator
in a market driven by an ageing population, rising disposable
incomes and a demand for sustainable products, Personal Care will
continue to scale its industry-leading Beauty Actives business,
broaden the product portfolio in Beauty Effects and continue to
reinvent the Beauty Formulation category. This should deliver good
top line growth and maintain the current excellent margin over the
medium term;
-- Expand to grow in Life Sciences. With its growing margin and
exciting technologies aligned to global health and food
sustainability trends, we will continue to build our Life Sciences
brand as a high value add solution provider to our pharmaceutical
and crop customers, enhance our product range and look to acquire
adjacent businesses and technologies. This should grow the top line
and increase the current margin over the medium term; and
-- Refine to grow in Performance Technologies. Able to meet
demands for sustainable solutions in advanced technologies,
Performance Technologies will continue to refine its existing
product portfolio, focus on fast growth markets and develop its
geographic footprint. This should deliver modest sales growth at an
improved margin over the medium term.
In 2019, despite the challenging markets, we made progress in
delivering this strategy. Group NPP was broadly unchanged at 28.1%
(2018: 28.2%) of total sales on a constant currency basis and we
continued to invest to accelerate innovation in the future. We have
35 customer innovation centres, acquiring a new application lab in
Rewitec, and with upgraded centres planned in Shanghai and the US
in 2020. These facilities enable us to work more closely with both
global and local customers. This was supplemented by more than 100
active research projects with our network of over 500 open
innovation partners, in universities and SMEs, with over a quarter
of projects directly linked to delivering our sustainability
objectives. In addition, our recent technology acquisitions and
investments are delivering product development opportunities which
could generate meaningful sales over the next five to ten years.
Enza is developing novel patented chemistries to enhance existing
products and is utilising Croda's investment in high throughput
screening at the Materials Innovation Factory at the University of
Liverpool. Nautilus is using its library of marine organisms to
develop sustainable applications in haircare and crop applications.
Encapsulation technology from SiSaf is showing promise in Personal
Care and Life Sciences and Cutitronics is developing a prototype
skin assessment and delivery device. Plant Impact has been
restructured, to focus on generating data packages for its
innovative range of biostimulants, which should lead to new sales
by 2021.
Recent acquisitions are demonstrating exciting growth
opportunities in new niche markets, driven by sustainability needs.
IRB by Sederma continues to grow, using plant stem cells to deliver
sustainable beauty active ingredients. Ionphase is extending its
range of electrostatic dissipative polymers and its geographic
sales footprint through the Croda salesforce, and delivered its
first profit in 2019. Rewitec was acquired during the year,
creating a new range of lubricant additives to extend the life of
wind turbines. Biosector, a leader in vaccine adjuvancy, was
integrated into Croda's in-house sales network, replacing former
distributors with direct access to more customers. We expect
increasing demand for both human and animal vaccines to drive
future growth.
We are pleased by the recommissioning of the North American
biosurfactant plant, which became operational at the start of 2020,
following a leak in late 2018 which caused the operation of the
plant to be extensively reviewed to ensure safe operation. We have
begun replacing traditional petrochemical surfactants with our ECO
range of bio-based products offering identical performance from
sustainable ingredients for the first time, particularly for
personal and home care applications. 2020 should see additional
margin captured, with volume growth following as customers launch
new and replacement bio-based products. Further capacity expansion
is following from 2020 for speciality excipients, new polymer
additive products and botanical ingredients.
We are continuing to invest in our digital programme, focused on
digital solutions across our Engage, Create, Make and Sell business
model. In Engage, we are developing a knowledge platform to store
and share IP across our R&D teams. In Create, we are using
in-silico modelling to develop new products and artificial
intelligence (AI) to help seed customers screen out unhealthy
seeds. In Make, we are improving global supply chain management to
deliver better customer service and lower inventories, while
introducing new tools to enhance manufacturing efficiency. In Sell,
we are driving more traffic to our websites, with more literature
downloads, samples supplied and new customers engaged via 'live
chat'.
Whilst we focus on driving competitive advantage through our
relentless innovation machine and unique customer intimacy, we are
also managing our costs. Delivering cost savings helps offset cost
inflation whilst demand remains weak and funds reinvestment in
growth opportunities. These include additional resources for sales
and innovation in Asia growth markets and in Health Care. We
continue to invest to deliver exciting sales and profit
opportunities across our business, aligned with our purpose of
using Smart Science to Improve Lives(TM) .
Covid-19
As the Covid-19 virus has developed over recent weeks, we have
been assessing the impact on our employees and our business to
ensure that both are effectively supported and managed. At this
time, to the best of our knowledge, no Croda employees have been
infected by the virus. Our sales offices have reopened, as have our
two production units, albeit with more limited operations than
usual. China represents 6% of Croda's Core Business sales, 2% of
Group production and a limited component of our raw material supply
chain. However, there is potential for some disruption to customer
and consumer demand. We will continue to monitor the impact.
Outlook
In 2019, we delivered a resilient performance with a strong
margin maintained and increased cash flow, despite subdued market
conditions. This is testament to Croda's focused strategy and
strong business model.
In the year ahead, subject to trading conditions remaining
similar, we expect to make further progress in our consumer
markets, whilst demand in industrial markets is expected to remain
weak but stable. Growth will be second half weighted.
With our new Purpose, Smart Science to Improve Lives(TM) , we
will continue to increase the positive impact our products deliver
for our customers and their consumers. We will also reduce the
negative impact our activities have on our fragile world. The
combination of a healthy innovation pipeline, recent investments,
cost saving benefits and a robust business model is expected to
underpin performance.
Finance Review
Currency
Currency translation benefitted reported sales and profit in the
first half year as Sterling weakened against the dollar, before
recovering later in the year. Sterling averaged US$1.278 (2018:
US$1.334) and EUR1.141 (2018: EUR1.130).
Sales
Sales in reported currency reduced by 0.7% to GBP1,377.7m (2018:
GBP1,386.9m). Constant currency sales fell by 2.6%, including a
GBP11.0m benefit from acquisitions.
Sales GBPm %
=============================== ======= =====
2018 reported 1,386.9
Underlying growth (47.4) (3.4)
Impact of acquisitions 11.0 0.8
=============================== ======= =====
2019 constant currency 1,350.5 (2.6)
Impact of currency translation 27.2 1.9
=============================== ======= =====
2019 reported 1,377.7 (0.7)
=============================== ======= =====
In the Core Business, constant currency sales reduced by 2.3%.
Sales volume was 5% lower, partly offset by price/mix adding 3%,
driven by innovation and an improved product portfolio. Sales in
Life Sciences grew by nearly 6%, whilst Personal Care sales were 3%
lower and Performance Technologies declined over 7% due to weakness
across industrial markets.
First Second Full
Half Half Year
Sales at constant currency % % %
=========================== ===== ====== =====
Personal Care (3.6) (2.3) (3.0)
Life Sciences 13.0 (0.9) 5.9
Performance Technologies (6.0) (8.6) (7.3)
=========================== ===== ====== =====
Core Business (0.4) (4.2) (2.3)
Industrial Chemicals (7.4) (5.7) (6.6)
=========================== ===== ====== =====
Group (1.0) (4.3) (2.6)
=========================== ===== ====== =====
Adjusted profit
Adjusted operating profit decreased by 0.8% in reported currency
to GBP339.7m (2018: GBP342.5m). Operating costs reduced, with the
benefit of actions to reduce costs and no annual bonus charge due
to profit being slightly below the previous year. No depreciation
charge was incurred in 2019 on the North American biosurfactant
plant, as this did not come into operation until early in 2020. The
impact of its increased capital cost and delayed commissioning has
been reviewed but it was not considered to be at risk of
impairment, with the plant forming part of the profitable North
American business.
2019 2018
Income statement GBPm GBPm
=========================== ======= =======
Revenue 1,377.7 1,386.9
Cost of sales (865.5) (864.6)
=========================== ======= =======
Gross profit 512.2 522.3
Adjusted operating costs (172.5) (179.8)
=========================== ======= =======
Adjusted operating profit 339.7 342.5
Net interest charge (17.6) (11.0)
=========================== ======= =======
Adjusted profit before tax 322.1 331.5
=========================== ======= =======
Adjusted operating profit declined by 1.8% in constant currency
due to lower sales and the impact of acquisitions. Reflecting the
strong business model, return on sales remained unchanged at 24.7%
(2018: 24.7%) in reported currency.
Adjusted operating profit GBPm %
=============================== ===== =====
2018 reported 342.5
Underlying growth (5.3) (1.6)
Impact of acquisitions (0.7) (0.2)
=============================== ===== =====
2019 constant currency 336.5 (1.8)
Impact of currency translation 3.2 1.0
=============================== ===== =====
2019 reported 339.7 (0.8)
=============================== ===== =====
The margin improvement saw adjusted operating profit increase
modestly in Personal Care in reported currency, broadly flat in
constant currency. Life Sciences grew profit strongly, whilst
profit in Performance Technologies was sharply lower, as reduced
volume impacted fixed cost recovery in this more volume sensitive
business.
2019 2018
2019 Constant
Reported currency Reported
Adjusted operating profit GBPm GBPm GBPm
========================== ========= ========= =========
Personal Care 162.1 159.9 160.3
Life Sciences 107.1 106.9 95.8
Performance Technologies 69.4 68.9 85.2
========================== ========= ========= =========
Core Business 338.6 335.7 341.3
Industrial Chemicals 1.1 0.8 1.2
========================== ========= ========= =========
Group 339.7 336.5 342.5
========================== ========= ========= =========
The net interest charge increased to GBP17.6m (2018: GBP11.0m)
in reported currency and GBP17.1m in constant currency. 2019 saw
higher debt from the payment of a special dividend and the
acquisition of Biosector at the end of 2018. In addition, the prior
year benefitted from capitalisation of interest on the North
American biosurfactant plant, construction of which was materially
completed in 2018 when capitalisation of interest to the project
therefore stopped. However, as noted above, delays in commissioning
the plant, together with a small leak after first start up,
prevented the plant becoming operational until early in 2020.
Adjusted profit before tax reduced to GBP322.1m (2018:
GBP331.5m).
The effective tax rate increased to 25.6% (2018: 24.6%),
reflecting reduced profit in lower tax jurisdictions. There were no
significant adjustments between the Group's expected and reported
tax charge based on its accounting profit. Adjusted profit after
tax in reported currency was GBP239.7m (2018: GBP249.9m). Adjusted
basic earnings per share (EPS) decreased to 185.0p (2018:
190.2p).
IFRS profit
IFRS profit is measured after exceptional items, acquisition
costs and amortisation of intangible assets arising on acquisition.
The charge for these before tax was GBP19.8m (2018: GBP13.7m).
Exceptional items in the current year were GBP10.7m related to
delivery of cost saving actions (the exceptional cost in the prior
year was GBP4.9m, relating to a past service cost on the UK defined
benefit pension scheme). Acquisition costs were GBP0.3m (2018:
GBP2.7m) and the charge for amortisation of intangible assets was
GBP8.8m (2018: GBP6.1m). Profit before tax on an IFRS basis was
GBP302.3m (2018: GBP317.8m), the profit after tax was GBP223.8m
(2018: GBP238.3m) and basic EPS were 172.8p (2018: 181.4p).
2019 2018
Income statement GBPm GBPm
=================================================== ====== ======
Adjusted profit before tax 322.1 331.5
Exceptional items, acquisition costs & intangibles (19.8) (13.7)
=================================================== ====== ======
Profit before tax (IFRS) 302.3 317.8
Tax (78.5) (79.5)
=================================================== ====== ======
Profit after tax (IFRS) 223.8 238.3
=================================================== ====== ======
Cash management
A key strength of the Croda model is its cash generation. In
2019, free cash flow increased by 30.2% to GBP201.7m (2018:
GBP154.9m) in reported currency, after funding net capital
expenditure of over GBP100m, which will see new capacity become
available during 2020. Working capital management improved during
the year after a disappointing 2018. The strong cash flow helped
support almost GBP267m in dividends to shareholders, including a
special dividend of 115 pence per share paid in May 2019. There
were no material acquisitions in the year.
2019 2018
Cash flow GBPm GBPm
========================================== ======= =======
Adjusted operating profit 339.7 342.5
Depreciation and amortisation 57.6 50.1
========================================== ======= =======
EBITDA 397.3 392.6
Working capital 1.6 (69.3)
Net capital expenditure (106.8) (103.1)
Payment of lease liabilities (8.8) (0.5)
Non-cash pension expense 2.8 3.8
Interest & tax (84.4) (68.6)
========================================== ======= =======
Free cash flow 201.7 154.9
Dividends (266.9) (110.5)
Acquisitions (5.0) (82.5)
Other cash movements (17.9) 4.4
========================================== ======= =======
Net cash flow (88.1) (33.7)
========================================== ======= =======
Net movement in borrowings 115.4 15.2
========================================== ======= =======
Net movement in cash and cash equivalents 27.3 (18.5)
========================================== ======= =======
After currency translation, and including leases under the newly
adopted accounting standard IFRS16 (which brought GBP46.0m of
additional lease debt onto the balance sheet on transition), net
debt increased to GBP547.7m (2018: GBP425.5m), a leverage ratio of
1.4 times (31 December 2018: 1.1x). During the year, the Group
refinanced its principal bank debt and issued US private placement
bonds at attractive pricing, and at 31 December 2019 had
GBP1,058.6m of committed debt facilities available with principal
maturities between 2023 and 2029, providing undrawn committed
facility headroom of GBP463.8m (2018: GBP358.4m).
Reflecting our new Purpose, Smart Science to Improve Lives(TM) ,
Croda worked with a core group of nine banks to promote delivery of
our sustainability objectives within the Group's principal
committed bank facilities. Aligned with Croda's commitment to be
Climate Positive by 2030, the new funding agreement requires Croda
to reduce its carbon use every year by a specified amount. Provided
Croda achieves this challenging target, the banking group will
reduce the interest margin which Croda pays, and Croda will
reinvest this saving in sustainability projects. If Croda does not
achieve the target in any year, Croda will pay a higher interest
margin and our banking group will reinvest this in sustainability
projects. As a result, our 'green' banking facility achieves
alignment between Croda and its core banking partners in delivering
sustainability for our fragile world.
Capital allocation
The Group's capital allocation policy is to:
1. Reinvest for growth - Croda seeks to invest in organic
capital expenditure to drive shareholder value creation through new
capacity, product innovation and expansion in attractive geographic
markets to drive sales and profit growth;
2. Provide regular returns to shareholders - we pay a regular
dividend to shareholders, representing 40 to 50% of adjusted
earnings over the business cycle. The Board has proposed an
increase of 3.4% in the full year dividend to 90.0 pence (2018:
87.0p), representing 49% of adjusted EPS;
3. Acquire disruptive technologies - we have identified a number
of exciting technologies to supplement organic growth in existing
and adjacent markets. Some of these will be acquired, either as
nascent opportunities for future scale-up or as larger
complementary acquisitions. During 2019, we increased our associate
investment in the personal care device company, Cutitronics, and
acquired Rewitec in Performance Technologies; and
4. Maintain an appropriate balance sheet and return excess
capital - we maintain an appropriate balance sheet to meet future
investment and trading requirements. We target leverage of 1.0 to
1.5x (excluding retirement benefit schemes), although we are
prepared to move above this range if circumstances warrant. We
consider returning excess capital to shareholders when leverage
falls below our target range and sufficient capital is available to
meet our investment opportunities. In 2019, we paid a special
dividend of 115p per share (GBP151.5m).
Brexit update
In 2019 we undertook contingency planning for the UK leaving the
European Union (EU) without a transition arrangement. In the event,
this was not required. We are now planning for the UK leaving the
EU at the end of 2020 ('Brexit'). With 96% of sales and 84% of
production outside the UK, the overall impact is expected to be
limited. Our focus remains on ensuring our ability to offer
continuity of service and supply to our customers, through our
Brexit-ready trading model, customer service and supply chains, and
in compliance with regulatory frameworks under a number of
different Brexit scenarios.
Retirement benefits
The post-tax deficit on retirement benefit plans, measured on an
accounting valuation basis under IAS19, increased to GBP60.1m
(2018: GBP12.4m), largely due to lower corporate bond yields. This
is expected to result in an increase in the Income Statement charge
in 2020 of around GBP3m. Cash funding of the various plans is
driven by the schemes' ongoing actuarial valuations. No deficit
funding payments are currently required to the largest pension
plan, the UK Croda Pension Scheme, with the next valuation due at
30 September 2020.
Alternative performance measures
We use a number of alternative performance measures to assist in
presenting information in this statement in an easily analysable
and comprehensible form. We use such measures consistently at the
half year and full year and reconcile them as appropriate. The
measures used in this statement include:
-- Constant currency results: these reflect current year
performance for existing business translated at the prior year's
average exchange rates and include the impact of acquisitions. For
constant currency profit, translation is performed using the entity
reporting currency. For constant currency sales, local currency
sales are translated into the most relevant functional currency of
the destination country of sale (for example, sales in Latin
America are primarily made in US dollars, which is therefore used
as the functional currency). Sales in functional currency are then
translated into Sterling using the prior year's average rates for
the corresponding period. Constant currency results are reconciled
to reported results in this Finance Review;
-- Adjusted results: these are stated before exceptional items,
acquisition costs and amortisation of intangible assets arising on
acquisition, and tax thereon. The Board believes that the adjusted
presentation (and the columnar format adopted for the Group income
statement) assists shareholders by providing a meaningful basis
upon which to analyse underlying business performance and make
year-on-year comparisons. The same measures are used by management
for planning, budgeting and reporting purposes and for the internal
assessment of operating performance across the Group. The adjusted
presentation is adopted on a consistent basis for each half year
and full year results;
-- Return on sales: this is adjusted operating profit divided by sales, at reported currency;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and lease
liabilities;
-- Leverage ratio: this is the ratio of net debt to Earnings
Before Interest, Tax, Depreciation and Amortisation (EBITDA).
EBITDA is adjusted operating profit plus depreciation and
amortisation;
-- Free cash flow: comprises EBITDA less movements in working
capital, net capital expenditure, payment of lease liabilities,
non-cash pension expense, and interest and tax payments.
Sector Performance Review
Strong business model in Personal Care
Demand in Personal Care slowed in the first nine months of 2019,
following strong sales in 2018, as trade headwinds impacted the two
largest markets and customers destocked. The fourth quarter saw a
return to modest growth as headwinds reduced and key markets
recovered in North America and Asia. For the year as a whole, sales
declined by 3.0% and adjusted operating profit was unchanged, both
in constant currency. Sales price/mix grew by four percentage
points, reflecting a stronger product portfolio and innovation in
Beauty Actives and Beauty Effects, while volume was seven
percentage points lower, as demand reduced, particularly in the
Beauty Formulation business. In reported currency, sales were
broadly flat at GBP485.2m (2018: GBP487.8m) with adjusted operating
profit 1.1% better at GBP162.1m (2018: GBP160.3m). With return on
sales up 50 basis points at 33.4% (2018: 32.9%), this demonstrates
the resilience of the Personal Care business model, despite the
weaker growth environment. IFRS operating profit was GBP158.2m
(2018: GBP156.6m).
The trade war between the US and China significantly impacted
demand for Croda products. US consumer spending in the Personal
Care and Beauty category remained constrained, with our customers'
sales broadly flat. In addition, Croda sales were adversely
impacted by significant ingredient destocking in the summer months
as customers adjusted inventory to the lower than expected demand.
However, by the end of the year, Personal Care sales in the US were
back in line with end market demand. In North Asia, new legislation
restricted Daigou sales into China from the key manufacturing
markets of Japan and Korea, whilst local Chinese customers were
adversely impacted by a combination of trade uncertainty and
tariffs, internet selling regulation and multinational competition.
The fourth quarter saw a return to strong sales growth in China and
modest growth in Japan/Korea, driving improved demand in Asian
markets. Meanwhile, demand in Western Europe remained robust whilst
Latin America was weaker. Personal Care sales globally returned to
modest growth in the fourth quarter.
The overall driver to performance in 2019 was lower demand.
Innovation was maintained, with NPP at 43% of total sector sales
(2018: 43%). Beauty Actives, which creates the most valuable
claims-based skincare ingredients, saw modest growth in sales, with
the strongest demand in the prestige cosmetic market. A new
generation of peptides supported a major customer's anti-ageing
product. There is significant market interest in biotech
ingredients, sustainable anti-ageing technology created from plant
cell culture, new botanicals, such as Banana Flower EC, and, in the
future, marine extracts, such as a novel haircare ingredient from
Nautilus. The number of new customer projects has increased with
the recently expanded R&D facility at Sederma.
Sales in Beauty Effects, which offers similar growth and NPP
potential as Beauty Actives, showed good growth, with innovation in
Moonshine pigments, with over 50 customers launching products using
this innovative colour cosmetics range. Crodabond CSA was launched,
delivering on-trend claims and reducing colour fade in haircare
applications. Sales in Beauty Formulation declined by mid single
digit percentage, most notably in multinationals and regional
customers. By contrast, demand in smaller customers and Indie
brands was strongest, benefitting from Croda's ability to help
customers formulate new products. The drive to meet consumer
demands for more sustainable products continues. With the North
American biosurfactant plant now operational, this will enable new
'white space' growth to be delivered by substituting for
petrochemical ingredients. This is being supported by our digital
programme, from developing application of new digital devices
through our investment in Cutitronics to the roll out of a digital
selling channel and 'live chat' to customers across most of the
world, increasing our access to new customers.
With a strong margin and active innovation pipeline, Personal
Care has weathered the tougher sales environment in 2019 and has a
strategy to deliver growth - 'Strengthen to grow'. This recognises
Croda's strength through nearly one hundred years in Personal Care,
operating in all major markets globally and recognised as the
leading innovator in the sector. Growth drivers include an ageing
population, the continued rise in disposable income, especially in
Asia, use of digitalisation, market fragmentation amongst our
customers, and tackling climate change, with a focus on sustainable
consumer products. Aiming to deliver low to mid single digit
percentage sales growth, our strategic priorities are:
-- To continue to scale our Beauty Actives business, where we
are market leader, through industry-leading innovation and
expanding in biotech, delivering above average growth;
-- With similar characteristics to Actives, with nearly 80% of
sales in NPP and strong margins, Beauty Effects is the smallest of
the three businesses; our strategy here is to broaden the product
range to meet sustainable and lifestyle needs through organic
innovation and partnerships; and
-- In Beauty Formulation, with its heritage ingredient portfolio
but lower NPP, we will continue to reinvent this business,
developing new points of differentiation, such as introducing
sustainable bio-based surfactants and providing unmatched
formulation expertise to our customers.
Excellent performance in Life Sciences, driven by strength of
Health Care and Crop Protection platforms
2019 marked the most successful year ever for Life Sciences.
Growth in speciality excipients in Health Care and in
differentiated adjuvants in Crop Protection provide an excellent
platform to build further. Sales grew by 5.9% in constant currency,
margin improved and adjusted operating profit increased 11.6% in
constant currency. Sales price/mix added four percentage points,
reflecting the ability to capture more value from our innovative
products, while volume was two percentage points better. In
reported currency, sales were up 8.0% at GBP350.5m (2018:
GBP324.5m) with adjusted operating profit 11.8% better at GBP107.1m
(2018: GBP95.8m) and return on sales up 110 basis points at 30.6%
(2018: 29.5%). NPP decreased to 27% of sales (2018: 29%), primarily
due to lower sales in Seed Enhancement. IFRS operating profit was
GBP97.7m (2018: GBP89.7m).
After excellent first half year sales growth, demand in the
second half year was weaker but margins continued to increase. In
Health Care, growth remained strong in speciality excipients but
destocking in consumer health impacted, as did reduced veterinary
sales due to the outbreak of African Swine Fever (ASF). The Crop
Protection business remained robust but Seed Enhancement had a
disappointing fourth quarter, normally the busiest of the year. We
continue to expect mid to high single digit percentage organic
sales growth for the sector across the medium term.
Full year sales in Health Care grew double digit percentage,
continuing to build on its leading market position in speciality
excipients. The more complex demands of the latest biologic drug
actives are supporting growth of these pharmaceutical delivery
systems, with seven new excipients launched in 2019. Growth in Asia
continued, with new excipient registrations secured for the Chinese
pharmaceuticals market. We are investing in significant new
capacity, due on stream later in 2020, are developing new
purification technologies and have produced our first trial
excipient from the acquired Enza technology. Following its
acquisition in 2018, we have integrated Biosector into the Health
Care innovation and sales teams. Although its vaccine adjuvant
sales were lower in 2019 due to customer destocking following the
acquisition, as well as lower animal vaccine demand due to ASF, the
year ended with record demand, the successful exit of distributors
to transfer sales to Croda's captive distribution model and several
new project approvals, including for NanoQuil (R) , a next
generation nanoparticle adjuvant solving customers' issues of
stability and production.
Crop Protection grew by mid single digit percentage, once again
ahead of the market. North American demand was impacted earlier in
the year by the trade dispute with China and poor weather
conditions, but this was fully mitigated as demand switched to
Latin America and by an encouraging recovery in sales in the US
towards the end of the year. Globally, sales increased with tier 1
multinational crop science companies and with tier 2 customers in
Europe and Asia, as we invested in local capability. We integrated
our biostimulants business, Plant Impact, into the Crop Protection
team, allowing costs to be reduced. With resources focused on
delivering innovation across a broader range of high value crops,
supported by field trials, new sales are expected to be delayed
into 2021. We remain confident in the opportunity for biostimulants
in combination with our wider crop and seed business.
Seed Enhancement sales declined 10% in constant currency due to
weaker market conditions, albeit with a favourable product mix
supporting margins. Demand was disappointing in North America, due
to similar conditions as Crop Protection, and China suffered from
high customer inventory and lower seed prices. Whilst our strength
in Latin America again provided some sales recovery, this was not
sufficient to fully offset the shortfall. A recovery plan is in
place for 2020, building on our latest innovations, such as X-ray
NeXt, which uses artificial intelligence to automate seed sorting,
cutting nursery growing time. We launched our new seed treatment,
PaddyRise, to help rice crops be more resilient against diseases
and pests, such as snails.
We continue to improve the sustainability of our product
portfolio in Life Sciences. In line with our Purpose, 2020 will see
our voluntary withdrawal from a range of Crop products which can
have negative environmental impacts; this is expected to reduce
sector sales by two percentage points. We are responding to
customer needs and changing regulations by developing new patented
technology to create coatings for seeds that are free of
microplastics and have also commissioned a new production line for
treating organic seeds.
With its growing profitability and exciting product portfolio,
Life Sciences is increasing sales and margin. Our strategy for Life
Sciences is 'Expand to grow'. This recognises the opportunities to
grow both organically and through acquisition. Growth drivers
include the global need to address environmental and social targets
through the SDGs, the increasing technology demands of complex drug
and crop actives, and the need to increase crop yields with more
effective and sustainable treatments. Aiming to deliver mid to high
single digit percentage organic sales growth, our strategic
priorities are:
-- To build the Croda brand in Life Sciences, becoming a key
solution provider to global pharma and crop markets, expanding
geographically to support new market development in China, India
and Brazil;
-- To enhance our product portfolio organically and create more
value by extending our speciality excipient and crop adjuvant
ranges and technologies; and
-- To acquire adjacent businesses and technologies in health and
crop care with strong growth prospects.
Disappointing performance in Performance Technologies due to
slower industrial markets
After three successive years of double digit percentage profit
growth, 2019 marked a disappointing year for Performance
Technologies amid economic uncertainty and weak demand. This was
driven by poor global automotive sales in the first half year,
followed by a general slowing of broader industrial markets in
Europe and North America in the second half year. Consequently,
sales declined by 7.3% in constant currency, while margin was
adversely impacted by 7% lower volume in this higher operating
leverage sector, reducing adjusted operating profit by 19.1% in
constant currency. Sales price/mix was unchanged, with return on
sales 260 basis points lower at 16.1% (2018: 18.7%). In reported
currency, sales were down 5.7% at GBP430.2m (2018: GBP456.4m) with
adjusted operating profit 18.5% lower at GBP69.4m (2018: GBP85.2m).
IFRS operating profit was GBP63.8m (2018: GBP81.7m).
Smart Materials sales declined by 7% in constant currency, with
the exit sales rate improving after the business was adversely
impacted earlier in the year by the sharp slowdown in new build
automotive demand, to which the business is significantly exposed
in polymer and adhesives additives. The German car market saw a 23
year low production rate in 2019, down 10% on 2018 and 17% on 2017.
Energy Technologies constant currency sales declined by 5% in the
full year; in contrast, this reflected a flat first half
performance followed by a broader slowing in industrial markets to
which the business is exposed in lubricant additives, reflecting
trade uncertainty and recessionary conditions in both Europe and
the US. Other business sales were down in double digit percentage
terms, due to a weak oil and gas market, particularly in North and
Latin America.
Action was taken to reduce short term costs, while maintaining
investment for future growth. We are shifting sales and innovation
resources towards higher growth areas and new geographies, with
encouraging sales progress in Asia and EEMEA in 2019, as
Performance Technologies looks to reduce its dependence on its
traditional Western European market. Our new China application lab
will open in Shanghai in 2020. We have launched digital selling in
North America, which is targeted to double the customer base over
five years through ease of search, dialogue and sampling.
Although adversely impacted by short-term weakness, the
fundamentals for Performance Technologies are good with changes to
our end markets creating significant opportunities. The innovation
pipeline is growing, with NPP at 19% of sales (2018: 18%), as the
sector progressively invests in moving to technology-driven markets
and reduces its cyclical exposure to more industrial markets. We
call this strategy 'Refine to grow'.
This recognises the opportunities to grow in higher growth
markets, organically and through small technology acquisitions,
increasing 'knowledge' intensity and reducing 'capital' intensity
and operating leverage. Aiming to deliver low to mid single digit
percentage organic sales growth, our strategic priorities are:
-- To refine the portfolio through further demarketing of low value add business;
-- To focus on fast growing markets where we have technical competence and digital capability;
-- To develop the geographic footprint, especially in Asia; and
-- To leverage the sector's strong sustainability credentials to
meet customers' product development needs.
In 2019 investment to develop Smart Materials into new
technology areas in high value polymers included a GBP25m capital
project in the UK which should come on stream in 2021. We secured
promising inroads into new niches, but these are not yet big enough
to offset volatility in more traditional market areas and we are
accelerating development. This includes additive applications for
the circular plastics economy, creating biodegradable and
recyclable packaging, and moving away from single use plastics.
In Energy Technologies we acquired Rewitec, whose lubricant
additives extend the life of wind turbines, a fast growing market
in renewable energy. 2019 also saw Ionphase move into profit - a
2017 technology acquisition, this market-leading technology in
electrostatically dissipative polymers offers exciting
opportunities in electronics and packaging applications, with over
fifty new customer-product applications added in 2019. In the home
care market, the commissioning of the North American bio-based
plant is creating significant customer interest in moving away from
petrochemical-based surfactants. Coltide, a protein platform to
extend the life of fabrics, is becoming a key sustainability
driver. Our Purpose plays to the strengths of Performance
Technologies, from bio-based raw materials sequestering carbon from
the atmosphere to increased engine efficiency through our lubricant
additives.
Continued portfolio development in Industrial Chemicals
We continue to refine the product portfolio in Industrial
Chemicals, reducing volume of low value co-product and tolling
business. In constant currency, sales declined by 6.6%. Our China
manufacturing operation, Sipo, saw an encouraging improvement in
sales and the commissioning of a new plant to improve future
profitability. Sipo was reviewed for potential goodwill impairment
but the future value remains above the carrying value, albeit with
limited headroom. In reported currency in 2019, Industrial
Chemicals sales reduced to GBP111.8m (2018: GBP118.2m) and adjusted
operating profit was broadly unchanged at GBP1.1m (2018: GBP1.2m).
IFRS operating profit was GBP0.2m (2018: GBP0.8m).
Croda International Plc
Summary Financial Statements for the Year Ended 31 December
2019
Group Income Statement
for the year ended 31 December 2019
2019 2019 2019 2018 2018 2018
Reported Reported
Adjusted Adjustments Total Adjusted Adjustments Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
========================== ==== ========= ============ ========= ========= ============ =========
Revenue 2 1,377.7 - 1,377.7 1,386.9 - 1,386.9
Cost of sales (865.5) - (865.5) (864.6) - (864.6)
========================== ==== ========= ============ ========= ========= ============ =========
Gross profit 512.2 - 512.2 522.3 - 522.3
Operating costs (172.5) (19.8) (192.3) (179.8) (13.7) (193.5)
========================== ==== ========= ============ ========= ========= ============ =========
Operating profit 2 339.7 (19.8) 319.9 342.5 (13.7) 328.8
Financial costs 3 (18.5) - (18.5) (12.1) - (12.1)
Financial income 3 0.9 - 0.9 1.1 - 1.1
========================== ==== ========= ============ ========= ========= ============ =========
Profit before tax 322.1 (19.8) 302.3 331.5 (13.7) 317.8
Tax 4 (82.4) 3.9 (78.5) (81.6) 2.1 (79.5)
========================== ==== ========= ============ ========= ========= ============ =========
Profit after tax for
the year 239.7 (15.9) 223.8 249.9 (11.6) 238.3
========================== ==== ========= ============ ========= ========= ============ =========
Attributable to:
Non-controlling interests (0.1) - (0.1) (0.2) - (0.2)
Owners of the parent 239.8 (15.9) 223.9 250.1 (11.6) 238.5
========================== ==== ========= ============ ========= ========= ============ =========
239.7 (15.9) 223.8 249.9 (11.6) 238.3
========================== ==== ========= ============ ========= ========= ============ =========
Adjustments relate to exceptional items, acquisition costs,
amortisation of intangible assets arising on acquisition and the
tax thereon.
Pence Pence Pence Pence
Reported Reported
Adjusted Total Adjusted Total
============================= ========= ========= ========= =========
Earnings per 10.61p ordinary
share
Basic 5 185.0 172.8 190.2 181.4
Diluted 184.6 172.4 189.2 180.4
Ordinary dividends paid
in the year
Interim 6 39.50 38.00
Final 6 49.00 46.00
Special 6 115.00 -
============================= ========= ========= ========= =========
Group Statement of Comprehensive Income
for the year ended 31 December 2019
2019 2018
Note GBPm GBPm
====================================== ===== ====== =====
Profit after tax for the
year 223.8 238.3
Other comprehensive (expense)/income:
Items that will not be
reclassified
subsequently to profit
or loss:
Remeasurements of post-retirement
benefit obligations (56.5) 22.6
Tax on items that will
not be reclassified 8.4 (4.9)
=============================================== ====== =====
(48.1) 17.7
============================================ ====== =====
Items that may be reclassified
subsequently to profit
or loss:
Currency translation (34.7) 14.9
=============================================== ====== =====
Other comprehensive (expense)/income
for the year (82.8) 32.6
=============================================== ====== =====
Total comprehensive income
for the year 141.0 270.9
=============================================== ====== =====
Attributable to:
Non-controlling interests (0.5) (0.1)
Owners of the parent 141.5 271.0
=============================================== ====== =====
141.0 270.9
============================================ ====== =====
Arising from:
Continuing operations 141.0 270.9
141.0 270.9
============================================ ====== =====
Group Balance Sheet
at 31 December 2019
2019 2018
Note GBPm GBPm
============================================ ==== ======= =======
Assets
Non-current assets
Intangible assets 445.3 454.9
Property, plant and equipment 805.2 780.3
Right of use assets 46.2 -
Investments 4.7 4.8
Deferred tax assets -11.8 56.2
Retirement benefit assets 10.2 24.6
============================================ ==== ======= =======
1,323.4 1,320.8
============================================ ==== ======= =======
Current assets
Inventories 268.9 287.2
Trade and other receivables 216.8 233.6
Cash and cash equivalents 81.9 71.2
============================================ ==== ======= =======
567.6 592.0
============================================ ==== ======= =======
Liabilities
Current liabilities
Trade and other payables (163.9) (190.5)
Borrowings and other financial liabilities (109.5) (48.8)
Lease liabilities (7.8) (0.4)
Provisions 7 (10.9) (4.0)
Current tax liabilities (44.3) (47.9)
============================================ ==== ======= =======
(336.4) (291.6)
============================================ ==== ======= =======
Net current assets 231.2 300.4
============================================ ==== ======= =======
Non-current liabilities
Borrowings and other financial liabilities (476.6) (446.9)
Lease liabilities (35.7) (0.6)
Other payables (0.8) (0.8)
Retirement benefit liabilities 7 (85.2) (43.1)
Provisions 7 (5.3) (7.1)
Deferred tax liabilities (82.4) (124.7)
============================================ ==== ======= =======
(686.0) (623.2)
============================================ ==== ======= =======
Net assets 868.6 998.0
============================================ ==== ======= =======
Equity
Ordinary share capital 14.0 14.0
Preference share capital 1.1 1.1
============================================ ==== ======= =======
Share capital 15.1 15.1
Share premium account 93.3 93.3
Reserves 753.2 882.1
============================================ ==== ======= =======
Equity attributable to owners of the parent 861.6 990.5
Non-controlling interests in equity 7.0 7.5
============================================ ==== ======= =======
Total equity 868.6 998.0
============================================ ==== ======= =======
Group Statement of Changes in Equity
for the year ended 31 December 2019
Share Non
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2018 15.1 93.3 53.9 660.0 7.6 829.9
Profit after tax for the year - - - 238.5 (0.2) 238.3
Other comprehensive income - - 14.8 17.7 0.1 32.6
===================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive income/(expense)
for the year - - 14.8 256.2 (0.1) 270.9
===================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 6 - - - (110.5) - (110.5)
Share-based payments - - - 7.3 - 7.3
Transactions in own shares - - - 0.4 - 0.4
===================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (102.8) - (102.8)
===================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 31 December
2018 15.1 93.3 68.7 813.4 7.5 998.0
===================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2019 15.1 93.3 68.7 813.4 7.5 998.0
Profit after tax for the year - - - 223.9 (0.1) 223.8
Other comprehensive expense - - (34.3) (48.1) (0.4) (82.8)
===================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive (expense)/income
for the year - - (34.3) 175.8 (0.5) 141.0
===================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 6 - - - (266.9) - (266.9)
Share-based payments - - - 0.8 - 0.8
Transactions in own shares - - - (4.3) - (4.3)
===================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (270.4) - (270.4)
===================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 31 December
2019 15.1 93.3 34.4 718.8 7.0 868.6
===================================== ==== ======== ======== ========= ========= ============ =======
Other reserves include the Capital Redemption Reserve of GBP0.9m
(2018: GBP0.9m) and the Translation Reserve of GBP33.5m (2018:
GBP67.8m).
Group Statement of Cash Flows
for the year ended 31 December 2019
2019 2018
Note GBPm GBPm
====================================================== ==== ======= =======
Cash flows from operating activities
Adjusted operating profit 339.7 342.5
Exceptional items (10.7) (4.9)
Acquisition costs and amortisation of intangible
assets arising on acquisition (9.1) (8.8)
====================================================== ==== ======= =======
Operating profit 319.9 328.8
Adjustments for:
Depreciation and amortisation 66.4 56.2
Impairment 1.4 -
Profit on disposal of property, plant and equipment (3.8) (0.1)
Net provisions charged 10.5 -
Share-based payments (5.2) 8.3
Non-cash pension expense 1.6 8.7
Share of loss of associate 0.8 0.2
Cash paid against operating provisions (4.0) (1.1)
Movement in inventories 12.2 (22.2)
Movement in receivables 8.3 (26.3)
Movement in payables (18.9) (20.8)
====================================================== ==== ======= =======
Cash generated from operating activities 389.2 331.7
Interest paid (17.0) (14.7)
Tax paid (68.3) (55.0)
====================================================== ==== ======= =======
Net cash generated from operating activities 303.9 262.0
====================================================== ==== ======= =======
Cash flows from investing activities
Acquisition of subsidiaries (3.7) (79.3)
Acquisition of associates and other investments (1.3) (3.2)
Purchase of property, plant and equipment (105.2) (100.2)
Purchase of other intangible assets (5.8) (3.4)
Proceeds from sale of property, plant and equipment 4.2 0.5
Proceeds from sale of other investments - 0.4
Cash paid against non-operating provisions (1.1) (1.0)
Interest received 0.9 1.1
====================================================== ==== ======= =======
Net cash used in investing activities (112.0) (185.1)
====================================================== ==== ======= =======
Cash flows from financing activities
New borrowings 752.5 437.1
Repayment of borrowings (637.1) (421.9)
Payment of lease liabilities (2018: Capital element
of finance lease repayments) (8.8) (0.5)
Net transactions in own shares (4.3) 0.4
Dividends paid to equity shareholders 6 (266.9) (110.5)
====================================================== ==== ======= =======
Net cash used in financing activities (164.6) (95.4)
====================================================== ==== ======= =======
Net movement in cash and cash equivalents 27.3 (18.5)
Cash and cash equivalents brought forward 40.3 54.9
Exchange differences (4.5) 3.9
====================================================== ==== ======= =======
Cash and cash equivalents carried forward 63.1 40.3
====================================================== ==== ======= =======
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 81.9 71.2
Bank overdrafts (18.8) (30.9)
====================================================== ==== ======= =======
63.1 40.3
====================================================== ==== ======= =======
Reconciliation to net debt
2019 2018
Note GBPm GBPm
=========================================================== ===== ======= =======
Net movement in cash and cash equivalents 27.3 (18.5)
Net movement in borrowings and other financial liabilities (106.6) (14.7)
================================================================== ======= =======
Change in net debt from cash flows (79.3) (33.2)
Non-cash movement in lease liabilities (52.9) (0.7)
Exchange differences 10.0 (10.1)
================================================================== ======= =======
(122.2) (44.0)
Net debt brought forward (425.5) (381.5)
================================================================== ======= =======
Net debt carried forward (547.7) (425.5)
================================================================== ======= =======
Notes to the Summary Financial Statements
1. Basis of preparation
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31
December 2019 or 2018 but is derived from those financial
statements. Statutory financial statements for 2018 have been
delivered to the Registrar of Companies and those for 2019 will be
delivered following the Company's Annual General Meeting. The
auditor has reported on those financial statements; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) of the Companies Act 2006.
In preparing this financial information, management has used the
principal accounting policies that will be detailed in the Group's
Annual Report for 2019 and which are unchanged from the prior year,
except as detailed below.
Changes in accounting policy
(a) New and amended standards adopted by the Group
The following standards have been adopted by the Group for the
first time for the financial year commencing
1 January 2019:
IFRS 16 'Leases' requires lessees to recognise a lease liability
reflecting future lease payments and a right of use asset for
virtually all lease contracts. It replaces IAS 17, under which
lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). IFRS
16 includes optional exemptions which can be applied for certain
short-term and low value leases.
The net impact of the new standard on the Group's profit or
financial gearing is not material. Accordingly, the Group has
adopted the simplified approach permitted under IFRS 16 and has
therefore not restated prior year comparators and no adjustment has
been recognised in the opening balance of equity at the date of
initial application. Right of use asset values were set equal to
lease liabilities at the date of transition. The Group has adopted
recognition exemptions for short-term and low value leases and has
elected to apply the practical expedient available for all leases
which end within 12 months of the date of transition (accounting
for as short-term leases).
On initial application, the Group recorded right of use assets
and lease liabilities with a value of GBP46.0m. This exceeded the
GBP35.6m non-cancellable lease commitments reported as at 31
December 2018 under IAS 17 due to extension options reasonably
certain to be exercised, partly offset by the application of short
term and low value exemptions. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities on 1
January 2019 was 2%.
The recognised right of use assets relate to the following types
of assets:
At At
31 December 1 January
2019 2019
GBPm GBPm
========================== ============ ==========
Land and buildings 39.3 43.3
Plant and equipment 6.9 2.7
========================== ============ ==========
Total right of use assets 46.2 46.0
========================== ============ ==========
IFRIC 23 'Uncertainty over Income Tax Treatments' came into
effect from 1 January 2019. The Group has adopted IFRIC 23 in its
financial statements for the year ended 31 December 2019. The
application of IFRIC 23 did not affect the recognition or
measurement of uncertain tax treatments because the Group's
previous accounting policy was consistent with the guidance in
IFRIC 23.
(b) New standards and interpretations not yet adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2020 and have not been applied in preparing the
consolidated financial statements. None of these are expected to
have a significant effect on the consolidated financial statements
of the Group.
2. Segmental information
The Group's sales, marketing and research activities are
organised into four global market sectors, being Personal Care,
Life Sciences, Performance Technologies and Industrial Chemicals.
These are the segments for which summary management information is
presented to the Group's Executive Committee, which is deemed to be
the Group's Chief Operating Decision Maker.
There is no material trade between segments. Segmental results
include items directly attributable to a specific segment as well
as those that can be allocated on a reasonable basis. Segment
assets consist primarily of property, plant and equipment,
intangible assets, inventories and trade and other receivables.
Adjustments in the Group income statement of GBP19.8m (2018:
GBP13.7m) include a GBP10.7m exceptional cost (2018: GBP4.9m),
acquisition costs of GBP0.3m (2018: GBP2.7m) and amortisation of
intangible assets arising on acquisition of GBP8.8m (2018:
GBP6.1m). The exceptional item in the current year relates to the
delivery of cost saving actions, comprising GBP10.4m of redundancy
costs and GBP0.3m of other restructuring costs (including an
associated curtailment gain on defined benefit pension schemes of
GBP1.2m and related impairments of GBP1.4m). All items associated
with delivering the cost savings have been presented collectively
as exceptional by virtue of their size and nature. The exceptional
cost in the prior year related to the UK defined benefit pension
scheme, being a past service cost to equalise benefits for the
effects of unequal Guaranteed Minimum Pensions. The tax impact on
all adjustments was GBP3.9m (2018: GBP2.1m).
The adjustments to profit before tax relate to our segments as
follows: Personal Care GBP3.9m (2018: GBP3.7m), Life Sciences
GBP9.4m (2018: GBP6.1m), Performance Technologies GBP5.6m (2018:
GBP3.5m) and Industrial Chemicals GBP0.9m (2018: GBP0.4m).
2019 2018
GBPm GBPm
========================================================= ======= =======
Income statement
Revenue
Personal Care 485.2 487.8
Life Sciences 350.5 324.5
Performance Technologies 430.2 456.4
Industrial Chemicals 111.8 118.2
========================================================= ======= =======
Total Group revenue 1,377.7 1,386.9
========================================================= ======= =======
Adjusted operating profit
Personal Care 162.1 160.3
Life Sciences 107.1 95.8
Performance Technologies 69.4 85.2
Industrial Chemicals 1.1 1.2
========================================================= ======= =======
Total Group operating profit (before exceptional items,
acquisition costs and amortisation of intangible assets
arising on acquisition) 339.7 342.5
Exceptional items, acquisition costs and amortisation of
intangible assets arising on acquisition (19.8) (13.7)
========================================================= ======= =======
Total Group operating profit 319.9 328.8
========================================================= ======= =======
In the following table, revenue has been disaggregated by sector
and destination. This is the primary management information that is
presented to the Group's Executive Committee.
Europe North Latin Asia Reported
GBPm America America GBPm Total
GBPm GBPm GBPm
========================= ======= ========= ========= ====== ========
Revenue 2019
Personal Care 168.4 143.1 55.1 118.6 485.2
Life Sciences 138.1 98.3 58.6 55.5 350.5
Performance Technologies 200.4 112.9 27.6 89.3 430.2
Industrial Chemicals 52.0 13.1 2.5 44.2 111.8
========================= ======= ========= ========= ====== ========
Total Group revenue 558.9 367.4 143.8 307.6 1,377.7
========================= ======= ========= ========= ====== ========
Revenue 2018
Personal Care 165.7 143.1 57.8 121.2 487.8
Life Sciences 128.6 94.6 50.3 51.0 324.5
Performance Technologies 217.4 124.3 30.6 84.1 456.4
Industrial Chemicals 60.7 10.7 2.3 44.5 118.2
========================= ======= ========= ========= ====== ========
Total Group revenue 572.4 372.7 141.0 300.8 1,386.9
========================= ======= ========= ========= ====== ========
2019 2018
GBPm GBPm
========================== ======= =======
Balance sheet
Total assets
Personal Care 560.3 611.3
Life Sciences 568.2 493.7
Performance Technologies 501.0 480.2
Industrial Chemicals 152.9 170.8
========================== ======= =======
Total segment assets 1,782.4 1,756.0
Tax assets 11.8 56.2
Retirement benefit assets 10.2 24.6
Cash and investments 86.6 76.0
========================== ======= =======
Total Group assets 1,891.0 1,912.8
========================== ======= =======
3. Net financial costs
2019 2018
GBPm GBPm
=============================================== ===== =====
Financial costs
US$100m 5.94% fixed rate 10 year bond 4.6 4.5
2014 Club facility due 2021 0.8 2.5
2016 Club facility due 2021 0.2 -
2019 Club facility due 2024 3.3 -
EUR30m 1.08% fixed rate 7 year bond 0.3 0.3
EUR70m 1.43% fixed rate 10 year bond 0.9 0.9
GBP30m 2.54% fixed rate 7 year bond 0.8 0.8
GBP70m 2.80% fixed rate 10 year bond 2.0 2.0
EUR50m 1.18% fixed rate 8 year bond 0.3 -
GBP65m 2.46% fixed rate 8 year bond 0.9 -
US$60m 3.70% fixed rate 10 year bond 0.9 -
Net interest on retirement benefit liabilities 0.3 0.6
Interest on lease liabilities 1.0 -
Other bank loans and overdrafts 2.2 3.8
Capitalised interest - (3.3)
=============================================== ===== =====
18.5 12.1
=============================================== ===== =====
Financial income
Bank interest receivable and similar income (0.9) (1.1)
=============================================== ===== =====
Net financial costs 17.6 11.0
=============================================== ===== =====
4. Tax
2019 2018
GBPm GBPm
==================================== ===== =====
Analysis of tax charge for the year
United Kingdom current tax 15.1 15.0
Overseas current tax 50.5 42.1
Deferred tax 12.9 22.4
==================================== ===== =====
78.5 79.5
==================================== ===== =====
5. Earnings per share
2019 2018
pence pence
============================================================= ====== ======
Adjusted earnings per share 185.0 190.2
Impact of exceptional items, acquisition costs, amortisation
of intangible assets
arising on acquisition and the tax thereon (12.2) (8.8)
============================================================= ====== ======
Basic earnings per share 172.8 181.4
============================================================= ====== ======
6. Dividends paid
Pence Pence
per 2019 per 2018
share GBPm share GBPm
==================================== ====== ===== ====== =====
Ordinary
Interim
2018 interim, paid October 2018 - - 38.00 50.0
2019 interim, paid October 2019 39.50 50.7 - -
Final
2017 final, paid May 2018 - - 46.00 60.4
2018 final, paid May 2019 49.00 64.6 - -
2018 special, paid May 2019 115.00 151.5 - -
==================================== ====== =====
203.50 266.8 84.00 110.4
==================================== ====== ======
Preference (paid June and December) 0.1 0.1
==================================== ====== ===== ====== =====
266.9 110.5
==================================== ====== ===== ====== =====
The Directors are recommending a final dividend of 50.5p per
share amounting to a total of GBP65.0m in respect of the financial
year ended 31 December 2019. Subject to shareholder approval, the
dividend will be paid on 28 May 2020 to shareholders registered on
17 April 2020. The total proposed dividend for the year ended 31
December 2019 will be 90.0p per share amounting to GBP115.7m.
7. Critical accounting judgements and key sources of estimation
uncertainty
The Group's significant 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.
The critical accounting judgements required when preparing the
Group's accounts are as follows:
Provisions and contingent liabilities
The Group has recognised potential environmental liabilities and
other provisions. The Group's assessment of whether a constructive
or legal obligation exists at the reporting date (and can be
measured reliably) is a key judgement in determining whether to
recognise a liability or disclose a contingent liability. A
liability is recognised only where, based on the Group's legal
views and advice, it is considered probable that an outflow of
resources will be required to settle a present obligation that can
be measured reliably. Disclosure of contingent liabilities is made
in note 8 unless the possibility of a loss arising is considered
remote.
At 31 December 2019, the Group has an environmental provision of
GBP8.1m (2018: GBP9.9m) in respect of soil and potential ground
water contamination on a number of sites, both currently in use and
previously occupied, in Europe and the Americas.
In relation to the environmental provision, the Directors expect
that the balance will be utilised within ten years. Provisions for
remediation costs are made when there is a present obligation, it
is probable that expenditures for remediation work will be required
and the cost can be estimated within a reasonable range of possible
outcomes. The costs are based on currently available facts and
prior experience. Environmental liabilities are recorded at the
estimated amount at which the liability could be settled at the
balance sheet date. Remediation of environmental damage typically
takes a long time to complete due to the substantial amount of
planning and regulatory approvals normally required before
remediation activities can begin. In addition, increases in or
releases of environmental provisions may be necessary whenever new
developments occur or additional information becomes available.
Consequently, environmental provisions can change significantly and
the timing and quantum of costs are inherently uncertain. The level
of environmental provision is based on management's best estimate
of the most likely outcome for each individual exposure.
The Group has also considered the impact of discounting on its
provisions and has concluded that, as a consequence of the
significant utilisation expected in a relatively short timescale,
the impact is not material.
The critical accounting estimates and assumptions required when
preparing the Group's accounts are as follows:
Goodwill and fair value of assets acquired
Management are required to undertake an annual test for
impairment of indefinite lived assets such as goodwill.
Accordingly, 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 ('CGUs'). These
calculations require the use of estimates to enable the calculation
of the net present value of cash flow projections of the relevant
CGU. Critical assumptions include the terminal value growth in
EBITDA and the selection of appropriate discount rates.
Recoverable amounts currently exceed carrying values including
goodwill. Goodwill arising on acquisition is allocated to the CGU
that is expected to benefit from the synergies of the acquisition.
Such goodwill is then incorporated into the Group's standard
impairment review process as described above.
Post-retirement benefits
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 key financial market indicators such as inflation and
expectations on future salary growth and asset returns. These
assumptions are made by the Group in conjunction with the schemes'
actuaries and the Directors are of the view that any estimation
should be appropriate and in line with consensus opinion. Total
Group net retirement benefit liabilities have increased by GBP56.5m
in 2019 to GBP75.0m. This movement comprises GBP11.1m of experience
losses, GBP1.8m of service costs in excess of contributions,
GBP0.3m of net financial costs and GBP45.4m of losses due to
changes in actuarial assumptions offset by GBP2.1m of currency
translation gains.
8. Contingent liabilities
The Company has guaranteed loan capital and bank overdrafts of
subsidiary undertakings amounting to GBP162.3m (2018:
GBP104.3m).
The Group is subject to various claims which arise in the course
of business. These contingent liabilities are reviewed on a regular
basis and where possible an estimate is made of the potential
financial impact on the Group.
The Group is also involved in certain environmental legal
actions and proceedings. Whilst the Group cannot predict the
outcome of any current or future actions or proceedings with any
certainty, it currently believes the likelihood of any material
liabilities to be low, and that the liabilities, if any, will not
have a material adverse effect on its consolidated income,
financial position or cash flows. The Group also considers it has
insurance in place in relation to any significant contingent
liabilities. The environmental actions and proceedings the Group is
subject to relate to our operations in the USA and are a matter of
public record.
9. Principal risks and uncertainties
Financial risk factors
The Group's activities expose it to a variety of financial
risks; currency risk, interest rate risk, liquidity risk, and
credit risk. The Group's overall risk management strategy is
approved by the Board and implemented and reviewed by the Risk
Management Committee. Detailed financial risk management is then
delegated to the Group Finance department which has a specific
policy manual that sets out guidelines to manage financial risk.
Regular reports are received from all sectors and regional
operating units to enable prompt identification of financial risks
so that appropriate action may be taken. In the management
definition of capital the Group includes ordinary and preference
share capital and net debt. These summary financial statements do
not include all financial risk management information; full
disclosures will be available in the Group's annual financial
statements for the year ended 31 December 2019.
Financial instruments
Financial instruments measured at fair value use the following
hierarchy;
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2)
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs)
(level 3).
All of the Group's financial instruments are classed as level 2
with the exception of other investments and lease liabilities,
which are classed as level 3.
Fair values
For financial instruments with a remaining life of greater than
one year, fair values are based on cash flows discounted at
prevailing interest rates. Accordingly, the fair value of cash
deposits and short term borrowings approximates to the book value
due to the short maturity of these instruments. The same applies to
trade and other receivables and payables. Where there are no
readily available market values to determine fair values, cash
flows relating to the various instruments have been discounted at
prevailing interest and exchange rates to give an estimate of fair
value.
Prior to 2016, the Group did not typically utilise complex
financial instruments and accordingly the only element of Group
borrowings where fair value differed from book value was the
US$100m fixed rate ten year bond that was issued in 2010. On the 27
June 2016, the Group issued GBP100m and EUR100m of fixed rate
bonds. On the 6 June 2019, the Group issued a further GBP65m,
EUR50m and $60m of fixed rate bonds.
The table below details a comparison of the Group's financial
assets and liabilities where book values and fair values
differ.
Book Fair Book Fair
value value value value
2019 2019 2018 2018
GBPm GBPm GBPm GBPm
====================================== ====== ====== ====== ======
US$100m 5.94% fixed rate 10 year bond (76.4) (76.5) (78.8) (76.5)
EUR30m 1.08% fixed rate 7 year bond (25.6) (26.2) (27.1) (27.7)
EUR70m 1.43% fixed rate 10 year bond (59.7) (63.1) (63.1) (65.3)
GBP30m 2.54% fixed rate 7 year bond (30.0) (30.6) (30.0) (30.4)
GBP70m 2.80% fixed rate 10 year bond (70.0) (73.2) (70.0) (71.4)
EUR50m 1.18% fixed rate 8 year bond (42.6) (44.4) - --
GBP65m 2.46% fixed rate 8 year bond (65.0) (66.4) - -
US$60m 3.70% fixed rate 10 year bond (45.8) (47.7) - -
====================================== ====== ====== ====== ======
10. Related party transactions
The Group has no related party transactions, with the exception
of remuneration paid to key management and Directors.
11. Business combinations
On 16 July 2019, the Group acquired Rewitec(R) GmbH for total
consideration of GBP6.8m inclusive of contingent consideration.
Rewitec is a technology-based business specialising in improving
the efficiency and longevity of wind turbines and moving machinery
through the application of their patented additives. Based in
Germany, Rewitec's innovations offer sustainability benefits by
extending the lifetime and improving the performance of gearboxes,
bearings and engines within wind turbine, automotive and marine
industries worldwide. The acquisition will form part of our Energy
Technologies business (Performance Technologies sector), leveraging
our dedicated global sales network to accelerate Rewitec's growth
potential.
During 2019, the Group completed fair value reviews relating to
its 2018 acquisitions of Nautilus Biosciences Canada, Plant Impact
Plc and Brenntag Biosector A/S. This review did not identify any
changes to the asset base or goodwill.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent Company
financial statements in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of
their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant, reliable and prudent;
-- for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
-- for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the parent
Company financial statements;
-- assess the Group and parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, 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 Strategic Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKQBKDBKBNBB
(END) Dow Jones Newswires
February 25, 2020 02:00 ET (07:00 GMT)
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