ii view: Croda breaks records but punished for profits miss

It's focused on growth businesses and keeps increasing the dividend. We assess prospects for this FTSE 100 company. 

Full-year results to 31 December

• Revenue up 11% to £2.08 billion
• Adjusted operating profit up 10% to £515 million
• Adjusted net debt down 64% to £295 million
• Total dividend for the year up 8% to 108p per share

Chief executive Steve Foots said:

"2022 has been a milestone year for Croda as we continued our transition to a pure play Consumer Care and Life Sciences business, evolving our portfolio to be more closely aligned to the emerging megatrends driving our markets. 

"The increased depth, breadth and resilience of Croda's business and the significant opportunities that we see in our high-growth markets underpin our confidence for the year ahead."

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ii round-up:

Speciality chemicals maker Croda International (LSE:CRDA) today detailed record annual profits as growth across all of its businesses helped sales exceed £2 billion for the first time. 

The FTSE 100 company, whose products include chemicals for consumer care items such as cosmetics and medical drugs, reported a 10% rise in operating profit to £515 million as demand across Asia, Western Europe and Latin America proved strong. 

However, Croda shares fell by around 4% in UK trading after profit at its Consumer Care missed expectations. The shares had come into this latest announcement up by almost 5% year-to-date. That’s similar to the FTSE 100 index and chemical sector rivals Elementis (LSE:ELM) and Synthomer (LSE:SYNT). 

Management said current 2023 trading was in line with its expectations, but warned that growth over the full year would be second-half weighted. That’s because Consumer Care customers, especially in North America, have been destocking – using up existing supplies before buying new ones.

That meant while adjusted profit at Consumer Care rose 9% year-over-year to £205 million, it was still less than the £222 million the City had expected. Profit on the same basis at Life Sciences rose 10% to £229 million, and by 13% to £81 million at its remaining Industrial Specialities business climbed. 

In 2022, Croda sold most of its Performance Technologies and Industrial Chemicals businesses, leaving it focused on higher growth areas of Consumer Care and drug ingredients, or Life Sciences. 

The total dividend payment for 2022 increased by 8% to 108p per share. Broker UBS has repeated its ‘buy’ rating.

First-half results are scheduled for publication on 25 July. 

ii view:

Started in 1925, Croda today employs over 6,000 people. Headquartered in Snaith, East Yorkshire, its Consumer Care division generates its biggest slug of sales at just over two-fifths, followed by Life Science at a third and Industrial Specialists the balance. 

Consumer Care products include chemicals for personal and home care products, plus fragrances. Life science chemicals assist both pharma companies such as Pfizer with its Covid-19 vaccine and crop protection and seed care product companies. 

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For investors, an uncertain economic outlook, including possible further interest rate rises and a consumer cost-of-living crisis, needs to be remembered. Rising costs have forced product price increases, pharmaceutical drug demand feeds into its Life Sciences division, while the broader issue of chemicals and their impact on the environment also warrants consideration.  

On the upside, Croda enjoys both business type and geographical diversity and it has been able to pass on higher costs on to customers. Meanwhile, it has made bolt-on acquisitions at both Life Sciences and Consumer Care divisions, and more than 20 years of consecutive annual dividend increases is also noteworthy. 

For now, caution remains sensible, and while a consensus analyst estimate of fair value at almost £80 per share implies room for optimism longer term, the 'buy' case hinges on the accuracy of management predictions that customer destocking will "come to an end in the first half year, supporting continued sales growth this year in Consumer Care".

Positives: 

• A diverse product and customer base
• A progressive dividend policy 

Negatives:

• Uncertain economic outlook
• Environmental concerns

The average rating of stock market analysts:

Strong hold