TIDMCRDA
RNS Number : 6511V
Croda International PLC
25 July 2018
25 July 2018
Results for the six months ended 30 June 2018
Growth strategy delivering - sales momentum in Core Business
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 half year results for the six months ended 30
June 2018.
Reported results
Reported results (IFRS) Half year ended 30 June
2018 2017 % change
-------------------------- ------------ ------- ------- ----------
Sales GBPmillion 702.8 707.3 (0.6)%
Operating profit GBPmillion 174.3 174.1 +0.1%
Profit before tax GBPmillion 170.8 168.0 +1.7%
Basic earnings per share
(EPS) Pence 97.5 92.4 +5.5%
Ordinary dividend per
share Pence 38.0 35.0 +8.6%
-------------------------- ------------ ------- ------- ----------
-- Sales 0.6% lower at reported currency, after adverse impact
of stronger Sterling on translation of 4.1%
-- Profit before tax up 1.7% at reported currency, after adverse
4.6% impact from currency translation
-- Basic earnings per share (EPS) up 5.5% at reported currency,
including benefit of lower tax rate in US
-- Interim dividend increased by 8.6% to 38.0 pence
Adjusted(1) results
Adjusted results Half year ended 30 June
2018 2017 % change % change
constant
rate(2)
------------------- ------------ ------ ------ --------- ----------
Sales GBPmillion 702.8 707.3 (0.6)% +3.6%
Operating profit GBPmillion 178.5 175.8 +1.5% +6.0%
Profit before tax GBPmillion 175.0 169.7 +3.1% +7.7%
Basic EPS pence 100.2 93.4 +7.3% +12.0%
Return on sales % 25.4% 24.9% +0.5%pts n/a
Free cash flow GBPmillion 62.7 40.5 +54.8% n/a
------------------- ------------ ------ ------ --------- ----------
(1) Adjusted results are stated before exceptional items,
acquisition costs and amortization of intangible assets arising on
acquisition, and tax thereon, as set out in note 1 below
(2) Constant currency results reflect current year performance
translated at the prior year's average exchange rate, as set out in
note 2 below
-- Growing the Core
o Record profit - profit before tax up 7.7% and basic EPS up
12.0%, at constant currency(2)
o Robust top line momentum - Core Business sales up 4.7% at
constant currency, demonstrating healthy demand in all three
businesses
o Further improvement in profitability - return on sales up 50
basis points to 25.4%
o Stronger free cash generation - over 50% increase in free cash
flow, driven by end of capital investment ramp and lower tax
-- Stretching the Growth
o Continued investment: two technology acquisitions completed
during the period, supporting strategy to accelerate top-line
growth through disruptive technologies, new market adjacencies and
smart R&D
o Innovation in new products: increased sales of New and
Protected Products (NPP) in Personal Care and through technology
acquisitions, offset by impact of product exits in Life Sciences
and Performance Technologies. NPP sales increased to 27.7% (2017:
27.5%)
Sector results (adjusted basis)
-- Three strong businesses
o Excellent sales growth in Personal Care, up 9.3% at constant
currency. Operating profit growth of 6.1% at constant currency
o Resilient Life Sciences performance despite headwinds, with
sales up 2.3% (+7.4% excluding impact of API contract withdrawal)
and operating profit up 1.8%, at constant currency
o Impressive profit growth in Performance Technologies, with
operating profit 15.2% higher on sales up 1.7%, at constant
currency. With its transition to higher value add products, the
sector is on target to achieve its medium term return on sales
target of 20%.
Commenting on the results, Steve Foots, Chief Executive Officer,
said:
"This is a strong first half performance. We are delivering our
strategy of 'Growing the Core', driving top line organic growth at
industry leading margins to achieve superior returns. Alongside
this, we are 'Stretching the Growth', accelerating delivery across
our markets by investing in disruptive technologies and exciting
new growth opportunities. We have encouraging momentum in our
consumer businesses and Performance Technologies has delivered
double digit percentage profit growth for the third successive
year, strong progress that is supported by improving cash
generation, underpinning confidence for the full year."
Further information
A presentation for investors and analysts will be held at 0930
BST on 25 July 2018 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: Conleth Campbell, VP Investor Relations, Croda +44 1405 860 551
Media: Charlie Armitstead, Teneo +44 20 3603 5220
Notes
(1) Adjusted results are stated before exceptional items
(including discontinued business costs), 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.
Non-statutory terms are defined in the 'Alternative Performance
Measures' section of the Finance Review. The Core Business
comprises Personal Care, Life Sciences and Performance
Technologies.
Sector financial summary
Sales Half year ended 30 June
2018 2017 % change % change
constant
rate
-------------------------- ------ ------ ------ --------- ----------
Personal Care GBPm 247.7 238.3 +3.9% +9.3%
Life Sciences GBPm 158.6 162.4 (2.3)% +2.3%
Performance Technologies GBPm 235.9 239.9 (1.7)% +1.7%
-------------------------- ------ ------ ------ --------- ----------
Core Business GBPm 642.2 640.6 +0.2% +4.7%
Industrial Chemicals GBPm 60.6 66.7 (9.1)% (7.0)%
-------------------------- ------ ------ ------ --------- ----------
Group GBPm 702.8 707.3 (0.6)% +3.6%
-------------------------- ------ ------ ------ --------- ----------
Adjusted operating profit Half year ended 30 June
2018 2017 % change % change
constant
rate
--------------------------- ------ ------ ------ --------- ----------
Personal Care GBPm 84.4 82.6 +2.2% +6.1%
Life Sciences GBPm 47.4 49.3 (3.9)% +1.8%
Performance Technologies GBPm 45.6 40.9 +11.5% +15.2%
--------------------------- ------ ------ ------ --------- ----------
Core Business GBPm 177.4 172.8 +2.7% +7.0%
Industrial Chemicals GBPm 1.1 3.0 (63.3)% (50.0)%
--------------------------- ------ ------ ------ --------- ----------
Adjusted operating profit GBPm 178.5 175.8 +1.5% +6.0%
Interest GBPm (3.5) (6.1) (42.6)% (41.0)%
--------------------------- ------ ------ ------ --------- ----------
Adjusted profit before
tax GBPm 175.0 169.7 +3.1% +7.7%
--------------------------- ------ ------ ------ --------- ----------
GROUP PERFORMANCE REVIEW
Results are stated in adjusted(1) terms and growth at constant
currency(2) rates unless otherwise stated. Alternative performance
measures are defined in the Finance Review.
Growth strategy delivering
The first half of 2018 has seen strong progress delivering our
organic growth strategy - we call it 'Growing the Core'. We are
driving top line organic growth at industry leading margins to
achieve superior returns for shareholders. We have built on our
exceptional market positions, leading technologies and focused
innovation to drive profit growth and improve cash generation. We
have continued to invest in new market opportunities and
technologies to support future growth. As a result, in our Core
Business we are delivering robust sales growth, strong profit
growth and improved returns.
The top-line momentum seen in 2017 has continued through the
first half of 2018. Sales in the Core Business increased 4.7%,
reflecting volume growth across the Group's consumer businesses.
Personal Care was the standout performer, with the Crop Care
business in Life Sciences also growing well. Performance
Technologies reduced sales volume in lower margin products as it
continued to transition to stronger returns.
Profit grew faster than sales, in line with our 'value over
volume' philosophy. Operating profit increased by 6.0% and return
on sales increased by 50 basis points to 25.4% (2017: 24.9%).
Profit before tax increased by 7.7% to GBP175.0m. Basic earnings
per share (EPS) grew by 12.0%, benefitting from a lower tax
rate.
Solid progress in reported results (IFRS)
The strengthening of Sterling adversely impacted sales and
profit on a reported currency basis. Although sales at reported
rates reduced slightly to GBP702.8m (2017: GBP707.3m), profit
before tax on an IFRS basis increased by 1.7% to GBP170.8m (2017:
GBP168.0m) and IFRS basic EPS increased by 5.5% to 97.5p (2017:
92.4p). With free cash generation improving, as we complete our
recent capital investment ramp, the interim ordinary dividend has
been increased by 8.6% to 38.0p (2017: 35.0p).
Growing the Core
We continue to deliver year on year progress. This is centred on
delivering our strategy to connect to faster growth markets through
two areas - 'Growing the Core' and 'Stretching the Growth'.
'Growing the Core' focuses on delivering robust top line growth
above the market rate, at industry-leading margins, with a 'capital
light' model. We achieve this through a powerful business model -
sustainable products, with over 60% of our raw materials sourced
from naturals; a balanced global footprint, with 29 manufacturing
plants and sales operations in 37 countries; a dynamic innovation
engine, where we have invested in 34 customer innovation centres
globally; and an unrivalled local direct selling capability,
serving over 17,000 customers, both multinational and local. This
model drives profit growth ahead of sales growth ahead of volume
growth.
Stretching the Growth
'Stretching the Growth' focuses on accelerating sales in our
core markets; creating more technology, NPP and intellectual
property; and taking a disciplined approach to capital allocation.
The result is investment in high return opportunities and robust
cash conversion to create capital return optionality, all driving
superior shareholder returns.
In the first half year we achieved good progress in delivering
this strategy. After some delays, we are approaching the end of the
commissioning phase for our major capital investment in North
America, which will introduce sustainable bio-surfactants to our
markets. We continue to invest in disruptive technologies in core
markets and exciting market adjacencies. We completed the
acquisition of Nautilus, a marine biotechnology company which has
potential applications in Personal Care Beauty Actives and other
markets. In Life Sciences, we added a biostimulants business, Plant
Impact, a complementary technology to our existing Crop Care
business. Our open innovation programme, working with university
and small enterprise partners, continues to supplement our in-house
R&D investment. This included the launch of Poretect by Sederma
with a Canadian partner and Atplus DRT-6000, developed in
conjunction with the University of Nebraska, for spray drift
control in Crop Care. We increased the number of innovation
centres, opening a Beijing Crop Care lab and Singapore tribology
lab for Performance Technologies, enabling us to work closer still
with local customers to meet consumer needs. Our smart partnering
initiative saw the launch in May of an exciting range of innovative
special effect pigments for the premium colour cosmetics
market.
This strategy is delivering. In the first half of the year, we
delivered growth in profit before tax of 7.7%, ahead of sales
growth of 3.6%, with a significant improvement in our product mix.
Group NPP sales increased to 27.7% (2017: 27.5%), with strong
growth in Personal Care. Customer reformulation led to reduced NPP
sales in Life Sciences, whilst NPP was flat in Performance
Technologies.
Three strong legs of growth
We have three strong legs of growth in our Core Business.
Personal Care achieved an excellent performance, with sales up
9.3%. There was growth in all business segments and in all customer
groups, with improved demand from multinationals, and with 'Indie'
and local customers continuing to perform well. Return on sales
remains industry-leading at 34.1% (2017: 34.7%), despite the impact
of mix and transactional currency headwinds on European sales into
US dollar denominated markets.
Performance in Life Sciences was resilient. Sales rose 2.3% and
operating profit 1.8%, with strong growth in Crop Protection and
Seed Enhancement, together with encouraging progress in high purity
excipients in Health Care. These more than offset the headwinds -
an adverse impact from the Active Pharmaceutical Ingredient (API)
contract we exited in 2017, together with an initial loss following
the acquisition of Plant Impact, an exciting entry into the
biostimulants market. Excluding the API exit, sales in Life
Sciences rose by 7.4%.
Performance Technologies continued its transition to a more
profitable product portfolio. It progressed towards its medium-term
return on sales target of 20%, significantly reducing volume of low
value-add products and improving pricing and product mix. Sales
rose by 1.7% and profit by 15.2%, demonstrating the success of this
strategy.
Robust growth across all regions
We saw good organic sales growth in our Core Business across all
geographic regions. Sales in North America rose 5%, with an
excellent performance in Personal Care. In Asia, sales were 6%
ahead, with increased proximity to local and regional customers,
and China and Japan particularly strong. The market in Europe was
solid with sales up 4%, including successful integration of our
2017 acquisition of IonPhasE and good growth in newer geographic
markets in Eastern Europe, Middle East and Africa. Latin America
continued to recover, with sales growing 5%, despite a difficult
macroeconomic environment, benefitting from recent investment to
expand production capacity in Brazil to meet local customer
needs.
Robust financial platform and reducing capital investment
Our balance sheet is robust, giving flexibility for organic
investment, acquisitions and returns to shareholders. As we reach
the end of a period of significant capital expenditure, with the
commissioning of our industry-leading bio-surfactant plant in North
America, our free cash flow improved in the first half year to
GBP62.7m (2017: GBP40.5m). We continue to invest in technology
acquisitions, to further enhance innovation and supplement our
in-house R&D capabilities, spending over GBP150m in the last
three years. Our leverage (the ratio of net debt to EBITDA) remains
prudent at 1.0 times (2017: 1.0x).
Outlook affirmed
We are delivering our strategy of 'Growing the Core', driving
top line organic growth at industry leading margins to achieve
superior returns. Alongside this, we are 'Stretching the Growth',
accelerating delivery across our markets by investing in disruptive
technologies and exciting new growth opportunities. We have
encouraging momentum in our consumer businesses and Performance
Technologies has delivered double digit percentage profit growth
for the third successive year, strong progress that is supported by
improving cash generation, underpinning confidence for the full
year.
SECTOR PERFORMANCE REVIEW
Excellent sales growth in Personal Care
Personal Care delivered an excellent performance in the first
half of the year. Sales grew by 9.3% and adjusted operating profit
by 6.1% in constant currency. Demand was strong across all three
business units and in all customer groups. Growth was driven
equally by volume increase and better price/mix, the latter
reflecting raw material price recovery and richer innovation sales.
NPP exceeded 42% of total sector sales (2017: 40%), with future
innovation set to benefit from recent acquisitions and technology
investments, including Enza and Cutitronics.
In reported currency, sales increased to GBP247.7m (2017:
GBP238.3m) and adjusted operating profit increased to GBP84.4m
(2017: GBP82.6m). Return on sales declined slightly to 34.1% (2017:
34.7%), due to the impact of mix and transactional currency impact
of stronger Euro and Sterling on our Europe-manufactured sales into
US dollar denominated markets.
Beauty Actives saw sales rise double digit percentage,
benefitting from capacity expansion at Sederma commissioned during
the first half of the year. Our innovative plant extract range of
botanical ingredients from Crodarom included the launch of 'Green
Caviar', a sustainable skin hydration ingredient produced from
algae. The trend towards more sustainable and ethical sourcing of
ingredients supported growth of plant cell products from IRB by
Sederma. Opportunities are being developed through our newly
acquired marine biotechnology company, Nautilus, which sustainably
uses microbial biodiversity to create novel actives and
ingredients.
Beauty Effects is a new, high return business, similar to Beauty
Actives, focused on the creation of ingredients for instant impact
and skin effects, particularly popular with the Millennial
Generation of customers. Sales of the Solaveil(TM) solar protection
range grew, including the launch of Solaveil(TM) XT-200, an
inorganic UV active and a better performing, sustainable
alternative to organic UV filters. Our smart partnership with
pigments innovator Glassflake developed and launched a range of
Moonshine(TM) ingredients, a new offering in colour cosmetics, in
less than 12 months.
Beauty Formulation continued to improve sales momentum. A
commercially sharper approach, together with improved engagement
with multinational customers, has seen the successful development
and differentiation of our heritage ingredients portfolio, with
Croda ingredients being formulated into several major relaunches.
New ingredient launches included Cropure(TM) Mango Butter, an
excellent natural moisturiser extracted from mango seed, and
Cithrol(TM) PGTL, a 100% bio-based, efficient and versatile water
in oil emulsifier which allows our customers to formulate creams
with excellent sensory performance. Local customers continue to
grow, as we identify and leverage exciting trends in the industry,
such as Japanese and Korean beauty. Our digital programme is
developing tools to meet the needs of a growing number of agile
'Indie' brands.
Resilient performance in Life Sciences
Life Sciences delivered a resilient performance, with strong
growth in the mainstream business offsetting headwinds from the
2017 exit of the North American API contract and added costs from
acquisition. Sales grew by 2.3% and adjusted operating profit by
1.8% in constant currency. Adjusted for the API exit, sales were
7.4% higher. Demand was robust across Crop Protection, Seed
Enhancement and Health Care excipients, growing volume by 3%
overall. NPP reduced due to customer reformulation but the
innovation pipeline is robust, as we become a more technology
focused strategic supplier to our customers.
In reported currency, sales reduced to GBP158.6m (2017:
GBP162.4m) and adjusted operating profit was GBP47.4m (2017:
GBP49.3m), reflecting the adverse impact of APIs and acquisition.
Return on sales was only marginally lower at 29.9% (2017: 30.4%),
despite an operating loss at Plant Impact due to it having only
early stage sales.
Sales volume grew in Crop Care, driven by investment in
innovation, faster growth markets and expanding collaboration with
crop science customers, both multinational and local. In Seed
Enhancement, Incotec is focused on growth, benefitting from recent
investment in better innovation, and is on track to achieve our 20%
return on sales objective within three years of acquisition. Sales
have been driven by industry-leading positions in priming and film
coating, including Disco(R) AG Clear L-650, a new field crop
encrustment product developed for the US corn market. Investment in
manufacturing, together with a new technical laboratory, have
positioned Incotec for faster growth in this key region.
We opened a new Crop Protection and Seed Enhancement laboratory
in China, a territory with excellent growth opportunities.
Globally, Crop Protection delivered excellent sales growth and good
margin improvement. It benefitted from expansion of local
manufacture in Brazil, providing opportunities to grow with
multinational customers and adding innovative offerings for local
customers. These technologies help customers deliver more complex,
efficient and safer formulations that minimise the impact on the
environment.
The acquisition of Plant Impact added a new leg to Crop Care. It
introduces exciting opportunities in biostimulants, a new market
adjacency for Croda. Reflecting its pre-acquisition performance, we
anticipate a limited operating loss for Plant Impact in 2018 whilst
sales are developed.
Health Care saw good excipient sales growth, helping offset the
API exit. New product launches included Crodamol(TM) GMCC, an
excipient used in nutritional and pharmaceutical applications, and
Crodamol(TM) CCC, specifically created for use in pharmaceutical
skin care preparations. We are investing GBP27m in North America to
expand manufacturing of high purity excipients. Demand for complex
drug delivery systems continues to grow rapidly, supported by a
rich customer innovation pipeline. Asia is a region where,
historically, we have been underweight. We are driving growth as we
expand our regional presence. Our programme to create Chinese
monograph compliant products and support the local registration of
high purity systems is making good progress.
Impressive profit growth in Performance Technologies
Performance Technologies made further progress as part of its
transition to a higher value business. Sales grew by only 1.7% but
adjusted operating profit growth was impressive, up 15.2% in
constant currency. Volume declined significantly, 9% lower, whilst
price/mix improved by 11%, as low margin business was shed,
improving mix, and price increases recovered raw material
inflation. NPP remained flat.
At reported currency, sales declined slightly to GBP235.9m
(2017: GBP239.9m) while adjusted operating profit increased to
GBP45.6m (2017: GBP40.9m), the third consecutive year of double
digit percentage profit growth. Return on sales increased strongly,
up 230 basis points to 19.3% (2017: 17.0%), on target to achieve
our medium term return on sales target for the sector of 20%.
Performance Technologies continues to drive 'value over volume'.
Profitability has continued to improve in the strategic growth
businesses of Smart Materials and Energy Technologies, supported by
the recent acquisition of IonPhasE. Technology change will make
these Performance Technologies markets increasingly attractive for
Croda, supported by customers increasingly looking to improve their
sustainability profile using Croda ingredients. As part of our
'Stretching the Growth' strategy, we are improving knowledge
intensity, strengthening expertise in sales, marketing and
technical resources, whilst reducing the capital we deploy in asset
intensity. In addition, we have improved testing capability, to
generate better application data and support new novel niches. In
digital, we are running e-commerce trials to expand our customer
reach. We continue to broaden our customer base beyond its
traditional European heartland, into North America and Asia, with
the opening of a new laboratory in Singapore during the first half
year.
In Smart Materials, IonPhasE has made a positive start since its
acquisition in December 2017. There was good sales growth in the
first half year, distribution arrangements have been exited and
sales transitioned to Croda's global sales teams, and new
opportunities developed by adding this new technology to our
existing product portfolio. A GBP27m investment to expand polymer
additive manufacturing capacity in the UK is on track.
Energy Technologies has a developing pipeline of innovative flow
assurance products. In the marine market, demand for
environmentally friendly lubricants continued to grow, with
additional opportunities in renewable energy markets.
Home Care and Water Treatment reduced low margin sales to the
oil and gas markets, compared to a strong prior year comparator. We
continued to selectively develop our presence in Home Care;
commissioning of the North American plant will see the launch of
our 'Eco' range of biosurfactants.
Continued portfolio refinement in Industrial Chemicals
We continued to refine the product portfolio in Industrial
Chemicals, reducing volumes of low value co-product and tolling
business. In constant currency, sales declined by 7.0%, equally
split between lower volume and reduced commodity prices, with
market conditions in China remaining weak. In reported currency,
sales declined to GBP60.6m (2017: GBP66.7m) and adjusted operating
profit decreased to GBP1.1m (2017: GBP3.0m).
FINANCE REVIEW
Currency
Currency translation adversely impacted both reported sales and
profit in the first half year as Sterling strengthened,
particularly against the US dollar. Sterling averaged US$1.375
(2017: US$1.260) and EUR1.137 (2017: EUR1.162). Currency
translation reduced sales compared to 2017 by GBP29.7m and adjusted
profit before tax by GBP7.8m.
Sales
Sales in reported currency declined by 0.6% to GBP702.8m (2017:
GBP707.3m). In constant currency, sales increased by 3.6%. The
acquisitions of IonPhasE and Plant Impact added GBP5.3m.
Sales GBPm %
-------------------------------- ------- ------
2017 reported 707.3 -
Underlying growth 19.9 2.8
Impact of acquisitions 5.3 0.8
2018 at constant currency 732.5 3.6
Impact of currency translation (29.7) (4.2)
-------------------------------- ------- ------
2018 reported 702.8 (0.6)
-------------------------------- ------- ------
In the Core Business, constant currency sales increased by 4.7%,
with lower sales volume, down 4%, more than offset by increased
sales price/mix, up 9%, reflecting the impact of improved product
mix, innovation and some limited raw material price recovery.
Sales in constant currency % growth
---------------------------- ---------
Personal Care 9.3
Life Sciences 2.3
Performance Technologies 1.7
---------------------------- ---------
Core Business 4.7
Industrial Chemicals (7.0)
---------------------------- ---------
Group 3.6
---------------------------- ---------
Adjusted profit
Adjusted operating profit increased to GBP178.5m (2017:
GBP175.8m), a 6.0% increase in constant currency.
Adjusted operating profit GBPm %
-------------------------------- ------ ------
2017 reported 175.8 -
Underlying growth 13.0 7.4
Impact of acquisitions (2.4) (1.4)
2018 at constant currency 186.4 6.0
Impact of currency translation (7.9) (4.5)
-------------------------------- ------ ------
2018 reported 178.5 1.5
-------------------------------- ------ ------
This growth in adjusted operating profit in constant currency
was delivered through profit improvement across all Core Business
sectors. Return on sales increased by 50 basis points to 25.4%
(2017: 24.9%).
Half year 2018 Half year 2017
-------------------------------- ---------------
Reported rates Constant rates Reported rates
Adjusted operating profit GBPm GBPm GBPm
----------------------------- --------------- --------------- ---------------
Personal Care 84.4 87.6 82.6
Life Sciences 47.4 50.2 49.3
Performance Technologies 45.6 47.1 40.9
----------------------------- --------------- --------------- ---------------
Core Business 177.4 184.9 172.8
Industrial Chemicals 1.1 1.5 3.0
----------------------------- --------------- --------------- ---------------
Group 178.5 186.4 175.8
----------------------------- --------------- --------------- ---------------
The net interest charge decreased to GBP3.5m (2017: GBP6.1m) at
reported rates, with an increase in capitalised interest on the
construction of the North American bio-surfactant plant and a
reduction in interest on pensions. Adjusted profit before tax
increased to GBP175.0m (2017: GBP169.7m).
Half year (reported rates)
-----------------------------
2018 2017
Summary income statement GBPm GBPm
---------------------------- -------------- -------------
Sales 702.8 707.3
Operating costs (524.3) (531.5)
Adjusted operating profit 178.5 175.8
Net interest charge (3.5) (6.1)
---------------------------- -------------- -------------
Adjusted profit before tax 175.0 169.7
---------------------------- -------------- -------------
The effective tax rate on this profit reduced to 24.8% (2017:
27.7%), reflecting a lower US Federal rate of 21.0% (2017: 35.0%).
There were no other significant adjustments between the Group's
expected and reported tax charge based on its accounting profit.
Adjusted profit after tax for the half year was GBP131.6m (2017:
GBP122.7m) and adjusted basic EPS increased to 100.2p (2017:
93.4p).
IFRS profit
Adjusted profit is stated before exceptional items (including
discontinued business costs), 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.
The charge before tax for exceptional items, acquisition costs
and amortisation of intangible assets arising on acquisition was
GBP4.2m (2017: GBP1.7m). This increase is due to GBP1.2m of
acquisition expenses and GBP1.3m amortisation relating to recently
acquired businesses. After deducting this charge, the profit before
tax on an IFRS basis was GBP170.8m (2017: GBP168.0m). The profit
after tax on an IFRS basis was GBP128.0m (2017: GBP121.4m) and
basic EPS were 97.5p (2017: 92.4p).
Half year ended 30 June
--------------------------
2018 2017
Income statement GBPm GBPm
IFRS profit
-------------------------------------- ------------ ------------
Adjusted profit before tax 175.0 169.7
Exceptional items, acquisition costs
& intangibles (4.2) (1.7)
-------------------------------------- ------------ ------------
Profit before tax (IFRS) 170.8 168.0
Tax (42.8) (46.6)
-------------------------------------- ------------ ------------
Profit after tax (IFRS) 128.0 121.4
-------------------------------------- ------------ ------------
Cash management
Delivering good cash generation is core to Croda's strategy.
This cash is used to invest in R&D, faster growth technologies,
both organically and by acquisition, to expand production capacity
and to pay increased dividends. EBITDA increased to GBP203.0m
(2017: GBP200.4m). Net capital expenditure has begun to decline, as
we approach the end of the commissioning of the North America
bio-surfactants plant, to GBP54.8m (2017: GBP70.8m). Working
capital increased by GBP57.9m, an increase of 11 days, reflecting
higher inventories to support stronger sales growth, with this
increase likely to reverse somewhat in the second half of the year.
Free cash flow increased by more than 50% to GBP62.7m (2017:
GBP40.5m).
Half year ended 30 June
--------------------------
2018 2017
Cash flow GBPm GBPm
------------------------------- ------------ ------------
Adjusted operating profit 178.5 175.8
Depreciation and amortisation 24.5 24.6
EBITDA 203.0 200.4
Working capital (57.9) (34.5)
Net capital expenditure (54.8) (70.8)
Non-cash pension expense 3.4 1.6
Interest & tax (31.0) (56.2)
------------------------------- ------------ ------------
Free cash flow 62.7 40.5
Dividends (60.5) (54.1)
Acquisitions (15.5) -
Other cash movements 4.4 4.2
------------------------------- ------------ ------------
Net cash flow (8.9) (9.4)
------------------------------- ------------ ------------
After currency translation, net debt increased slightly to
GBP393.1m (2017: GBP367.6m). The leverage ratio (the ratio of net
debt to EBITDA) remained at 1.0 times (2017: 1.0x) and remains
substantially below the maximum covenant level under the Group's
lending facilities of 3 times.
There were no material changes to committed debt facilities
during the first half of the year. These facilities provide ample
liquidity to meet the Group's immediate plans at a relatively low
interest cost. At 30 June 2018 the Group had GBP407.6m (2017:
GBP452.0m) of cash and undrawn committed credit facilities
available.
Dividend and capital allocation
Croda seeks to deliver high quality profits, measured through a
superior ROIC, earnings growth and strong cash returns. The Group's
capital allocation policy is to:
1) Reinvest for growth - we reinvest in capital projects to grow
sales, increase product innovation and expand in attractive
geographic markets, delivering a superior ROIC. During the first
half of 2018 capital investment was over twice depreciation,
funding asset replacement and new investment in key technologies,
all of which should support future ROIC;
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 increased the
interim dividend by 8.6% to 38.0p (2017: 35.0p);
3) Acquire promising 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 'bolt ons'.
During the first half of 2018 we completed the acquisitions of
Nautilus and Plant Impact; 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 to 1.5
times (excluding deficits on retirement benefit schemes), although
we are prepared to move above this range if circumstances warrant
and will consider further returns to shareholders in the event that
leverage falls below the target range.
Retirement benefits
The post-tax deficit on retirement benefit plans at 30 June
2018, measured on an accounting valuation basis under IAS19, was
broadly flat at GBP15.6m (31 December 2017: GBP21.1m). Cash funding
of the various plans within the Group is driven by the schemes'
ongoing actuarial valuation reviews. The latest valuation of the
Group's largest pension scheme, the UK Croda Pension Scheme, as at
30 September 2017 showed a surplus on a Technical Provisions basis.
As a result, no deficit funding payments are currently
required.
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 the Finance Review;
-- Adjusted results: these are stated before exceptional items
(including discontinued business costs), 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;
-- Return on Invested Capital (ROIC): this is adjusted operating
profit after tax divided by the average invested capital for the
year for the Group. Invested capital represents the net assets of
the Group, adjusted for earlier goodwill written off to reserves,
net debt, retirement benefit liabilities, provisions and deferred
taxes;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and obligations
under finance leases;
-- Leverage: 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, non-cash pension expense, and
interest and tax payments.
Other matters
The principal risks and uncertainties facing the Group were set
out in the Group's financial statements for the year ended 31
December 2017. There have been no changes in the Group's principal
risks and uncertainties, risk management processes or policies
since the year end. Related party transactions during the period
are set out in note 10.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial
information has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last Annual Report.
The Directors of Croda International Plc at 30 June 2018 were as
follows:
Anita Frew (Chairman)
Steve Foots (Chief Executive Officer)
Roberto Cirillo
Alan Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden
Steve Williams.
A list of current Directors is maintained on the Croda website:
www.croda.com
By order of the Board
Steve Foots Jez Maiden
Group Chief Executive Group Finance Director
INDEPENT REVIEW REPORT TO CRODA INTERNATIONAL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises Group condensed
interim income statement, Group condensed interim statement of
comprehensive income and expense, Group condensed interim balance
sheet, Group condensed interim statement of changes in equity,
Group condensed interim statement of cash flows, and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Chris Hearld
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds, LS1 4DA
25 July 2018
Croda International Plc
Interim announcement of trading results for the six months ended
30 June 2018
Group condensed interim income statement
First half 2018 First half 2017 Full year 2017
Reported Reported Reported
Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 702.8 - 702.8 707.3 - 707.3 1,373.1 - 1,373.1
Cost of sales (428.5) - (428.5) (435.1) - (435.1) (855.7) - (855.7)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Gross profit 274.3 - 274.3 272.2 - 272.2 517.4 - 517.4
Operating costs (95.8) (4.2) (100.0) (96.4) (1.7) (98.1) (185.2) (6.2) (191.4)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Operating profit 2 178.5 (4.2) 174.3 175.8 (1.7) 174.1 332.2 (6.2) 326.0
Financial costs 3 (4.2) - (4.2) (6.3) - (6.3) (12.5) - (12.5)
Financial income 3 0.7 - 0.7 0.2 - 0.2 0.6 - 0.6
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit before
tax 175.0 (4.2) 170.8 169.7 (1.7) 168.0 320.3 (6.2) 314.1
Tax (43.4) 0.6 (42.8) (47.0) 0.4 (46.6) (85.9) 8.5 (77.4)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit after tax
for the period 131.6 (3.6) 128.0 122.7 (1.3) 121.4 234.4 2.3 236.7
_______ _______ _______ _______ _______ _______ _______ _______ _______
Attributable to:
Non-controlling
interests (0.1) 0.3 (0.3)
Owners of the
parent 128.1 121.1 237.0
_______ _______ _______
128.0 121.4 236.7
_______ _______ _______
(1) Adjustments = exceptional items (including discontinued business costs), acquisition costs
and amortisation of intangible assets arising on acquisition and the tax thereon
Pence per Pence per Pence Pence Pence per Pence per
per per
share share Share Share Share Share
Adjusted Total Adjusted Total Adjusted Total
Earnings per 10.36p
share
Basic 100.2 97.5 93.4 92.4 179.0 180.8
Diluted 99.7 97.0 92.5 91.5 177.3 179.0
Ordinary dividends
Interim 38.00 35.00 35.00
Final 41.25
Group condensed interim statement of comprehensive income and
expense
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Profit for the period 128.0 121.4 236.7
Other comprehensive
income/(expense):
Items that will not
be reclassified to
profit or loss:
Remeasurements of
post-
employment benefit
obligations 11.5 44.3 121.9
Tax on items that
will not be
reclassified (2.0) (9.2) (23.8)
______ ______ ______
9.5 35.1 98.1
______ ______ ______
Items that may be reclassified
subsequently to profit
or loss:
Currency translation (1.5) (11.8) (22.6)
______ ______ ______
Other comprehensive income
for the period 8.0 23.3 75.5
______ ______ ______
Total comprehensive
income for the period 136.0 144.7 312.2
______ ______ ______
Attributable to:
Non-controlling interests - - (0.6)
Owners of the parent 136.0 144.7 312.8
______ ______ ______
136.0 144.7 312.2
Arising from:
Continuing operations 136.0 144.7 313.9
Discontinued operations - - (1.7)
______ ______ ______
136.0 144.7 312.2
______ ______ ______
Group condensed interim balance sheet
At At
Note 30 June 31 December
2018 2017
GBPm GBPm
Assets
Non-current assets
Intangible assets 401.2 386.3
Property, plant and
equipment 5 724.1 684.0
Investments 1.7 2.2
Deferred tax assets 35.1 33.1
Retirement benefit
assets 28.5 19.1
______ ______
1,190.6 1,124.7
______ ______
Current assets
Inventories 281.9 258.5
Trade and other receivables 229.4 202.2
Cash and cash equivalents 73.0 63.3
______ ______
584.3 524.0
______ ______
Liabilities
Current liabilities
Trade and other payables (203.8) (201.4)
Borrowings and other financial
liabilities (29.7) (18.4)
Provisions (4.2) (5.2)
Current tax liabilities (49.5) (45.9)
______ ______
(287.2) (270.9)
______ ______
Net current assets 297.1 253.1
______ ______
Non-current liabilities
Borrowings and other financial
liabilities (436.4) (426.4)
Other payables (0.8) (1.1)
Retirement benefit
liabilities (51.5) (49.6)
Provisions (7.6) (7.4)
Deferred tax liabilities (83.9) (63.4)
______ ______
(580.2) (547.9)
______ ______
Net assets 907.5 829.9
______ ______
Equity attributable to owners
of the parent 899.9 822.3
Non-controlling interests
in equity 7.6 7.6
______ ______
Total equity 907.5 829.9
______ ______
Group condensed interim statement of changes in equity
Share Non-
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 15.1 93.3 76.2 416.0 8.2 608.8
Profit for the period - - - 121.1 0.3 121.4
Other comprehensive
(expense)/income - - (11.5) 35.1 (0.3) 23.3
Transactions with owners:
Dividends on equity
shares - - - (54.1) - (54.1)
Share-based payments - - - 2.7 - 2.7
Transactions in own
shares - - - (0.5) - (0.5)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (51.9) - (51.9)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2017 15.1 93.3 64.7 520.3 8.2 701.6
______ ______ ______ ______ ______ ______
At 1 January 2018 15.1 93.3 53.9 660.0 7.6 829.9
Profit for the period - - - 128.1 (0.1) 128.0
Other comprehensive
(expense)/income - - (1.6) 9.5 0.1 8.0
Transactions with owners:
Dividends on equity
shares - - - (60.5) - (60.5)
Share-based payments - - - 3.0 - 3.0
Transactions in own
shares - - - (0.9) - (0.9)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (58.4) - (58.4)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2018 15.1 93.3 52.3 739.2 7.6 907.5
______ ______ ______ ______ ______ ______
Other reserves comprise the Capital Redemption Reserve of GBP0.9m
(30 June 2017: GBP0.9m) and the Translation Reserve of GBP51.4m (30
June 2017: GBP63.8m).
Group condensed interim statement of cash flows
2018 2017 2017
First First Full
Note half half year
GBPm GBPm GBPm
Cash flows from operating activities
Continuing operations
Operating profit 174.3 174.1 326.0
Adjustments for:
Depreciation and amortisation 27.4 26.2 53.3
(Profit)/loss on disposal of property,
plant and equipment (0.1) 1.1 1.5
Changes in working capital (57.9) (34.5) (33.3)
Non-cash pension expense 3.4 1.6 3.4
Share of loss of associate 0.1 - 0.1
Share based payments 7.2 5.9 9.2
Movement on provisions (0.4) (1.7) (0.9)
______ ______ ______
Cash generated from operations 154.0 172.7 359.3
Interest paid (7.1) (6.7) (13.9)
Tax paid (24.6) (49.7) (82.9)
______ ______ ______
Net cash generated from operating
activities 122.3 116.3 262.5
______ ______ ______
Cash flows from investing activities
Acquisition of subsidiaries (15.5) - (29.0)
Acquisition of associates - - (1.4)
Purchase of property, plant
and equipment (54.0) (70.1) (155.8)
Purchase of intangible assets (1.1) (1.2) (3.5)
Proceeds from sale of property,
plant and equipment 0.3 0.5 2.1
Proceeds from sale of other investments 0.4 - -
Cash paid against non-operating
provisions (0.6) (0.5) (2.5)
Interest received 0.7 0.2 0.6
______ ______ ______
Net cash used in investing
activities (69.8) (71.1) (189.5)
______ ______ ______
Cash flows from financing activities
New borrowings 70.5 58.0 359.3
Repayment of borrowings (58.5) (67.1) (331.8)
Transactions in own shares (0.9) (0.5) 0.7
Dividends paid to equity shareholders 4 (60.5) (54.1) (100.0)
Capital element of finance
lease payments (0.5) (0.4) (0.8)
______ ______ ______
Net cash used in financing
activities (49.9) (64.1) (72.6)
______ ______ ______
Net movement in cash and cash
equivalents 2.6 (18.9) 0.4
Cash and cash equivalents brought
forward 54.9 56.4 56.4
Exchange differences 0.7 0.3 (1.9)
______ ______ ______
Cash and cash equivalents carried
forward 58.2 37.8 54.9
______ ______ ______
Cash and cash equivalents carried
forward comprise:
Cash at bank and in hand 73.0 61.6 63.3
Bank overdrafts (14.8) (23.8) (8.4)
______ ______ ______
58.2 37.8 54.9
______ ______ ______
A reconciliation of the cash flows above to the movements in net
debt is shown in note 6.
Notes to the Interim Financial Statement
1. a. General information
The Company is a public limited company (Plc) incorporated and
domiciled in the UK. The address of its registered office is Cowick
Hall, Snaith, Goole, East Yorkshire DN14 9AA. The Company is listed
on the London Stock Exchange. This consolidated interim report was
approved for issue on 25 July 2018. The financial information
included in this interim financial report for the six months ended
30 June 2018 does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006 and is unaudited. The
comparative information for the six months ended 30 June 2017 is
also unaudited. The comparative figures for the year ended 31
December 2017 have been extracted from the Group's financial
statements, as filed with the Registrar of Companies, on which the
auditors gave an unqualified opinion, did not contain an emphasis
of matter paragraph and did not make a statement under section 498
of the Companies Act 2006. These Group condensed interim financial
statements have been reviewed, not audited.
b. Basis of preparation
This consolidated interim financial report for the six months
ended 30 June 2018 has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 `Interim Financial Reporting' (as adopted by
the EU). The report should be read in conjunction with the Group's
financial statements for the year ended 31 December 2017, available
on the Group's website (www.croda.com), which were prepared in
accordance with IFRSs as adopted by the EU.
Going concern basis
After making enquiries, and having reassessed the principal
risks, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the interim financial
information.
c. Accounting policies
(i) The following standards have been adopted by the Group for
the first time for the financial year commencing 1 January
2018:
IFRS 15 'Revenue from contracts' requires revenue to be
recognised when a customer obtains control of a good or service and
thus has the ability to direct the use and obtain the benefits from
the good or service. It replaces IAS 18 'Revenue' and IAS 11
'Construction contracts' and related interpretations. The impact of
the new standard on the Group's revenue and profit is not material.
This reflects the relatively non-complex and largely standardised
terms and conditions applicable to the Group's revenue contracts.
Accordingly, the Group has not restated prior year comparators and
no adjustment has been recognised in the opening balance of equity
at the date of initial application.
IFRS 9 'Financial Instruments' replaced the classification and
measurement models for financial instruments in IAS 39 with three
classification categories: amortised cost, fair value through
profit or loss and fair value through other comprehensive income.
Consistent with the non-complex nature of the Group's financial
instruments, the impact of the new standard is not material and
therefore the Group has not restated prior year comparators. The
Group has amended its accounting policy for the establishment of
provisions against trade receivables to reflect the lifetime
expected loss model (consistent with the simplified approach under
IFRS 9).
(ii) Except as described below, the accounting policies applied
in these interim financial statements are the same as those applied
in the Group's financial statements for the year ended 31 December
2017. The changes in accounting policies are also expected to be
reflected in the Group's financial statements for the year ended 31
December 2018.
Revenue Recognition
Revenue is measured based on the consideration specified in a
contract with a customer and excludes inter-company sales. The
Group recognises revenue when it transfers control over a product
or service to a customer.
Sale of goods
The principal activity from which the Group generates revenue is
the supply of products to customers from its various manufacturing
sites and warehouses, and in some limited instances from
consignment inventory held on customer sites. Products are supplied
under a variety of standard terms and conditions, and in each case,
revenue is recognised when contractual performance obligations
between the Group and the customer are satisfied. This will
typically be on dispatch or delivery. When sales discount and
rebate arrangements result in variable consideration, appropriate
provisions are recognised as a deduction from revenue at the point
of sale. The Group typically uses the expected value method for
estimating variable consideration, reflecting that such contracts
have similar characteristics and a range of possible outcomes.
Royalties, licenses and profit sharing arrangements
Revenues are recognised when performance obligations between the
Group and the customer are satisfied in accordance with the
substance of the underlying contract.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost, using the
effective interest method, less impairment losses. A provision for
impairment of trade receivables is recognised based on lifetime
expected losses, but principally comprises balances where objective
evidence exists that the amount will not be collectible. Such
amounts are written down to their estimated recoverable amounts,
with the charge being made to operating expenses.
Tax policy
Taxes on income in interim periods are accrued using the tax
rate that would be applicable to the expected total Group annual
profit or loss.
(iii) The following new standard is effective for annual periods
beginning after 1 January 2018 and earlier application is
permitted; however, the Group has not early adopted the standard in
preparing these interim consolidated financial statements:
IFRS 16 'Leases' will require lessees to recognise a lease
liability reflecting future lease payments and a 'right-of-use
asset' for virtually all lease contracts. Under IAS 17, lessees are
required to make a distinction between a finance lease (on balance
sheet) and an operating lease (off balance sheet). The IASB has
included an optional exemption for lessees for certain short term
leases and leases of low value assets. The standard is effective
for annual periods beginning on or after 1 January 2019.
The Group will complete its IFRS 16 implementation work over the
next six months, having already undertaken a significant
review.
The new standard will result in most of the Group's current
operating leases (as defined under IAS 17) being recognised on
balance sheet. As at 31 December 2017, the Group had
non-cancellable operating lease commitments of GBP30.7m.
However, the Group has not yet fully determined to what extent
these commitments will result in the recognition of an asset and a
liability for future payments and how this will affect the Group's
profit and classification of cash flows, although the impact on the
latter will not be material based on our detailed estimates. Some
existing operating lease commitments are expected to be covered by
the exemption for short term and low value leases, whilst other
commitments under IAS 17 will be extended under the IFRS 16
definition of a lease term.
The Group does not intend to restate prior year comparators when
the new standard is adopted, with lease asset values being set
equal to lease liabilities at the date of transition in line with
the 'simplified approach' under IFRS 16.
Other matters
For details on the principal risks and uncertainties facing the
Group refer to note 9.
For information on related party transactions during the period
refer to note 10.
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.
There are no significant seasonal variations which impact the
split of revenue between the first and second half of the financial
year.
Adjustments in the Group Income Statement of GBP4.2m (30 June
2017: GBP1.7m) relate to acquisition costs and amortisation of
intangible assets arising on acquisition. The adjustments relate to
our segments as follows: Personal Care GBP0.7m (30 June 2017:
GBP0.2m), Life Sciences GBP2.5m (30 June 2017: GBP1.4m),
Performance Technologies GBP1.0m (30 June 2017: GBP0.1m) and
Industrial Chemicals GBPNil (30 June 2017: GBPNil).
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Revenue
Personal Care 247.7 238.3 466.6
Life Sciences 158.6 162.4 322.6
Performance Technologies 235.9 239.9 456.9
Industrial Chemicals 60.6 66.7 127.0
______ ______ ______
702.8 707.3 1,373.1
______ ______ ______
Adjusted operating profit
Personal Care 84.4 82.6 155.5
Life Sciences 47.4 49.3 97.0
Performance Technologies 45.6 40.9 75.4
Industrial Chemicals 1.1 3.0 4.3
______ ______ ______
178.5 175.8 332.2
Exceptional items, acquisition
costs and amortisation of intangible
assets arising on acquisition (4.2) (1.7) (6.2)
______ ______ ______
Total Group operating profit 174.3 174.1 326.0
______ ______ ______
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.
North Latin Reported
Europe America America Asia Total
GBPm GBPm GBPm GBPm GBPm
Revenue
First half 2018
Personal Care 86.4 72.5 27.5 61.3 247.7
Life Sciences 64.9 48.6 21.0 24.1 158.6
Performance Technologies 118.0 63.6 14.1 40.2 235.9
Industrial Chemicals 32.0 5.2 1.5 21.9 60.6
______ ______ ______ ______ ______
301.3 189.9 64.1 147.5 702.8
______ ______ ______ ______ ______
Revenue
First half 2017
Personal Care 81.8 68.9 29.1 58.5 238.3
Life Sciences 62.3 55.9 20.1 24.1 162.4
Performance Technologies 113.5 67.1 16.2 43.1 239.9
Industrial Chemicals 32.3 7.5 2.1 24.8 66.7
______ ______ ______ ______ ______
289.9 199.4 67.5 150.5 707.3
______ ______ ______ ______ ______
3. Net financial costs
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Financial costs
Bank interest payable (7.1) (6.7) (13.9)
Capitalised interest 3.2 2.2 5.0
Net interest on retirement benefit
liabilities (0.3) (1.8) (3.6)
______ ______ ______
(4.2) (6.3) (12.5)
______ ______ ______
Financial income
Bank interest receivable and
similar income 0.7 0.2 0.6
______ ______ ______
Net financial costs (3.5) (6.1) (11.9)
______ ______ ______
4. Dividends paid
2018 2017 2017
First First Full
Pence half half year
per share GBPm GBPm GBPm
Ordinary
2016 Final - paid June
2017 41.25 - 54.1 54.1
2017 Interim - paid October
2017 35.00 - - 45.8
2017 Final - paid May
2018 46.00 60.5 - -
______ ______ ______
60.5 54.1 99.9
Preference (paid June and
December) 0.0 0.0 0.1
______ ______ ______
60.5 54.1 100.0
______ ______ ______
An interim dividend in respect of 2018 of 38.00p per share,
amounting to a total dividend of GBP50.0m, was declared by the
Directors at their meeting on 24 July 2018. This interim report
does not reflect the 2018 interim dividend payable. The dividend
will be paid on 3 October 2018 to shareholders registered on 24
August 2018.
5. Property, plant and equipment
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Opening net book amount 684.0 598.1 598.1
Exchange differences 6.2 (14.8) (26.9)
Additions 57.2 72.3 160.8
Acquisitions 0.5 - 3.0
Disposals and write offs (0.2) (1.8) (3.1)
Depreciation charge for period (23.6) (23.6) (47.9)
______ ______ ______
Closing net book amount 724.1 630.2 684.0
______ ______ ______
At 30 June 2018 the Group had contracted capital expenditure
commitments of GBP26.4m (30 June 2017: GBP40.7m).
6. Reconciliation to net debt
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Net movement in cash and cash
equivalents 2.6 (18.9) 0.4
Movement in debt and lease financing (11.5) 9.5 (26.7)
______ ______ ______
Change in net debt from cash
flows (8.9) (9.4) (26.3)
New finance lease contracts (0.5) (0.4) (0.7)
Exchange differences (2.2) 6.3 9.6
______ ______ ______
(11.6) (3.5) (17.4)
Net debt brought forward (381.5) (364.1) (364.1)
______ ______ ______
Net debt carried forward (393.1) (367.6) (381.5)
______ ______ ______
7. Accounting estimates and judgements
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
judgements required when preparing the Group's accounts are as
follows:
Provisions
Provisions are made where a constructive or legal obligation has
arisen from a past event, can be quantified and where the timing of
the transfer of economic benefits relating to the provisions cannot
be ascertained with any degree of certainty.
At 30 June 2018, the Group has an environmental provision of
GBP9.8m (31 December 2017: GBP10.2m) 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
consider 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. 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.
Goodwill and fair value of assets acquired
The Group tests annually whether goodwill has suffered any
impairment and the carrying value of goodwill in the Group balance
sheet has been supported by detailed value-in-use calculations
relating to the recoverable amounts of the underlying cash
generating units. These calculations require the use of estimates
and judgements, such as those around future trading and cash flows,
however as recoverable amounts significantly exceed carrying values
including goodwill, there is no impairment within a wide range of
assumptions.
Retirement benefit liabilities
The Group's principal retirement benefit schemes are of the
defined benefit type. Recognition of the liabilities under these
schemes and the valuation of assets held to fund these liabilities
require a number of significant assumptions to be made, relating to
levels of scheme membership, key financial market indicators such
as inflation and expectations on future salary growth. 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 prudent and in line with consensus opinion. The discount
rate applied to the Group's UK scheme is based on Towers Watson's
Rate: link model. Total Group retirement benefit liabilities have
decreased by GBP7.5m in the first half of 2018 to GBP23.0m. This
movement comprises GBP3.4m of service costs in excess of
contributions, GBP0.3m of net financial costs and a GBP0.3m
currency translation loss, offset by GBP11.5m due to changes in
actuarial assumptions and the market value of assets.
Taxation
The Group is subject to corporate income taxes in numerous
jurisdictions. Significant judgement is often required in
determining the worldwide expense and liability for such taxes.
There are many transactions and calculations where the ultimate tax
determination is uncertain during the ordinary course of business.
The Group recognises liabilities for tax issues based on estimates
of whether additional taxes will be due, based on its best
interpretation of the relevant tax laws and rules. Where the final
tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income
tax and deferred tax provisions in the period in which such
determination is made.
8. Contingent liabilities
The Company has guaranteed loan capital and bank overdrafts of
subsidiary undertakings amounting to GBP90.4m (31 December 2017:
GBP91.2m).
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 legal and environmental
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.
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. The condensed interim financial
statements do not include all financial risk management information
and disclosures required in the annual financial statements; they
should be read in conjunction with the Group's financial statements
for the year ended 31 December 2017. There have been no changes in
the Group's risk management processes or policies since the year
end.
Financial instruments
IFRS 13 requires disclosure of the Group's financial instruments
measured at fair value by level of 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 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 new fixed rate
bonds. The book value and fair values of these bonds can be found
in the table below.
Book Value Fair value Book Value Fair value
First half First half Full year Full year
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
US$100m fixed rate 10
year bond 75.8 77.1 73.9 76.4
EUR30m fixed rate 7 year
bond 26.5 26.5 26.6 27.0
EUR70m fixed rate 10
year bond 61.9 63.7 62.1 63.1
GBP30m fixed rate 7 year
bond 30.0 30.3 30.0 30.5
GBP70m fixed rate 10
year bond 70.0 70.8 70.0 71.4
10. Related party transactions
The Group has not entered into any related party transactions in
the first six months of the year, except for Directors' and key
management compensation.
11. Business combinations
On the 11 January 2018, the Group acquired Nautilus Biosciences
Canada Inc for a total consideration, inclusive of net debt, of
GBP5.6m. This marine biotechnology company that uses marine
microbial biodiversity to discover novel actives and materials,
innovative science that will be used in applications across all our
market sectors.
On 27 March 2018, the Group acquired Plant Impact Plc for a
total consideration, inclusive of net debt, of GBP9.3m. Plant
Impact researches and develops crop enhancement chemistry to
improve crop yield and quality. This acquisition represents an
exciting opportunity in combination with the Group's existing Crop
Protection and Seed Enhancement market sectors.
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
IR LLFEADEISFIT
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