Croda International Plc (LON:CRDA) has announced its full year results for the year ended 31 December 2023.
Highlights
| Statutory results (IFRS) | Adjusted results | Pro forma estimates1 | ||||||
| Full year ended 31 December | 2023 | 2022 | change | 2023 | 2022 | change | 2022 pro forma | Pro forma change |
| Sales (£m) | 1,694.5 | 2,089.3 | (18.9)% | 1,694.5 | 2,089.3 | (18.9)% | 1,898 | (11)% |
| Operating profit (£m) | 247.5 | 444.7 | (44.3)% | 320.0 | 515.1 | (37.9)% | 476 | (33)% |
| Operating margin (%) | 18.9 | 24.7 | (5.8)ppts | 25 | (6)ppts | |||
| Profit before tax (£m) | 236.3 | 780.0 | (69.7)% | 308.8 | 496.1 | (37.8)% | 463 | (33)% |
| Basic earnings per share (p) | 122.5 | 465.8 | (73.7)% | 167.6 | 272.0 | (38.4)% | ||
| Ordinary dividend per share declared (p) | 109.0 | 108.0 | 0.9% | |||||
| Free cash flow (£m) restated2 | 165.5 | 157.4 | 5.1% | |||||
| Net debt (£m) | 537.6 | 295.2 | (82.1)% | |||||
1Pro forma (pf) 2022 estimated results have been adjusted for the divestment of the majority of Performance Technologies and Industrial Specialities
(PTIC) on 30 June 2022 so that they exclude the divested business from the entirety of 2022.
22022 free cash flow has been restated in line with the revised definition on page 4.
2023 performance impacted by prolonged destocking and a weak macroeconomic environment
- Sales down 11% on a pro forma basis as customers reduced inventory levels across multiple markets
⁰ Consumer Care sales down 1% with underlying sales down 11% in Beauty Care, 1% lower in Beauty Actives and Home Care, and up 18% in lower-margin F&F business
⁰ Life Sciences sales 5% lower, excluding Covid-19 lipid sales, with sales up 3% in Pharma on that basis, up 9% in Seed Enhancement and down 19% in Crop Protection due to continued destocking
⁰ Pro forma sales down 35% in Industrial Specialities reflecting destocking and reduced demand
- Adjusted profit before tax down 33% to £308.8m (2022 pf: £463m) in line with updated expectations
⁰ 18.9% adjusted operating margin (2022 pf: 25%) due to the negative operating gearing impact from lower sales volumes, lower Covid-19 lipid sales and the negative mix impact of strong F&F sales
⁰ Implemented immediate actions to protect profits; employee costs broadly flat, freight and energy lower
- £236.3m IFRS profit before tax (2022: £780.0m); prior period benefitting from £356.0m divestment profit
- Strong balance sheet underpins ongoing investment and shareholder returns
⁰ £162.9m improvement in working capital; free cash flow up 5% to £165.5m (2022 restated: £157.4m)
⁰ £537.6m net debt (2022: £295.2m) post Solus Biotech acquisition; leverage at 1.3x
⁰ 1p increase in full year dividend with 32 years of unbroken dividend progression
Megatrends intact; continued strategic investment through the downturn; well positioned for market recovery
- Consumer Care – leadership in innovation and sustainability driving customer demand
⁰ Sales of new and protected products (NPP) improved to 42% of total sales (2022: 41%)
⁰ Strong demand for sustainable and lower carbon ingredients – ECO sales up over 20% and first sales of biotech-derived ceramides
⁰ Prioritising investment in Asia, particularly China and India, where sales grew 12%; new R&D labs in Shanghai and manufacturing site in India to be commissioned in 2025
- Life Sciences – excellent progress building industry-leading positions in high-growth markets
⁰ New Pharma delivery systems, including vaccine adjuvants, bioprocessing aids and phospholipids, supporting rapid expansion of customer drug pipelines
⁰ Scaling up Pharma; new R&D lab in India and capacity for nucleic acid delivery on-stream in 2025
⁰ Seed Enhancement winning market share through leadership in microplastic-free coatings
- Simpler operating model implemented to enhance customer responsiveness
| Full year ended 31 December | ||||||
Adjusted profit | 2023£m | Underlying growth£m | Acquisition impact£m | Currency impact£m | 2022£m | Change |
| Consumer Care | 160.3 | (41.3) | 0.4 | (3.5) | 204.7 | (21.7)% |
| Life Sciences | 150.3 | (73.9) | 0.0 | (5.2) | 229.4 | (34.5)% |
| Industrial Specialties | 9.4 | (70.0) | 0.0 | (1.6) | 81.0 | (88.4)% |
| Operating profit | 320.0 | (185.2) | 0.4 | (10.3) | 515.1 | (37.9)% |
| Net interest | (11.2) | (19.0) | (41.1)% | |||
| Profit before tax | 308.8 | 496.1 | (37.8)% | |||
| Estimated pro forma profit | 2023£m | 2022£m | Change |
| Operating profit | 320 | 515 | (38)% |
| Pro forma adjustment | – | (39) | |
| Operating profit (pro forma) | 320 | 476 | (33)% |
| Net interest | (11) | (13) | (15)% |
| Profit before tax (pro forma) | 309 | 463 | (33)% |
Steve Foots, Chief Executive Officer, commented:
“Our performance this year reflects the prolonged destocking and weaker macro environment that has followed two record years post the pandemic. Despite the financial impact of this ongoing uncertainty, the technology trends that will drive our future growth have not changed with a continued transition to sustainable ingredients and biologics. We have successfully realigned our portfolio with these megatrends and our strategy is delivering with continued customer demand for innovation and sustainable ingredients.
“In Consumer Care, sales of new and protected products increased, and F&F outperformed once again. In Life Sciences, our Pharma business is leading the industry in biologics drug delivery with more partnerships and product launches strengthening our pipeline. Despite the challenging macroeconomic backdrop, we have continued to invest for the future, adding biotech-derived active ingredients to our portfolio through our acquisition of Solus Biotech and expanding capacity in Pharma whilst maintaining strict capital and cost discipline.
“With our strong balance sheet, improving cash flow and consistent investment in our refocused portfolio, Croda is well positioned to take advantage of the demand recovery when it occurs. We expect the Group’s performance to accelerate from 2025, generating continued increasing returns for our shareholders.”
Outlook
Consumer Care has started the year well and we are cautiously optimistic about the improving demand trend we experienced in January. Within Life Sciences, we expect the non-Covid Pharma business to grow but that destocking will continue in Crop Protection. Demand in Industrial Specialties is expected to remain weak.
Given the ongoing uncertainty in our end markets, the recovery trajectory for each of our business units remains difficult to predict and the range of possible outcomes in 2024 is therefore wider than usual at this stage of the year. Overall, however, the Group expects to deliver mid to high single digit percentage sales growth in 2024, excluding the c.$60m of Covid-19 lipid sales in 2023, with higher sales volumes more than offsetting lower price/mix.
We expect 2024 Group adjusted operating margin to be two to three percentage points lower than 2023 due to the following:
| • | Different business mix effects year-on-year, with no Covid-19 lipid contribution and continued strong growth in Fragrances and Flavours. |
| • | Low overhead recovery is expected to persist as sales volumes remain depressed in Crop Protection and Industrial Specialties, two of the three businesses with the highest production volumes, alongside Beauty Care. |
| • | To support the return to sales growth, the cost base will reset back to a more normalised level from its low point in 2023. This will include the likely unwind in 2024 of the c.£25m benefit we saw in 2023 from a negligible variable remuneration charge. Some of this will be offset by modest cost savings from our recent reorganisation. |
| • | We will continue to invest to support our long-term strategy. Customer interest in innovation and sustainable ingredients remains strong, despite the current destocking cycle. |
Using these assumptions and at current exchange rates, we expect Group adjusted profit before tax to be between £260m and £300m in full year 2024.
Croda International will report sales performance quarterly during 2024 and we will provide an update on first quarter trading at the AGM on 24 April 2024. Croda expects to return to its normal cycle of half yearly reporting in 2025.
