19th Feb 2008 07:00
Croda International PLC19 February 2008 Tuesday, 19 February 2008Unaudited Croda International Plc Preliminary Results for the year to 31 December 2007 ANOTHER RECORD YEAR AND ROBUST OUTLOOK Highlights 2007 2006 change Sales - continuing operations £886.1m £480.1m Profit before tax - before exceptional items - Continuing £66.5m £52.5m +26.7%- Total including discontinued activities £74.7m £54.5m +37.1% Profit before tax £60.9m £17.2m Earnings per share - before exceptional items 37.1p 28.9p +28.4% Earnings per share - basic 64.8p 6.3p Dividend per share 15.75p 14.30p +10.1% • Uniqema acquisition a tremendous success: - Synergies achieved 12 months ahead of schedule - Synergies contributed £17m to the full year result - Total synergies now forecast to exceed £30m • Strong profit and margin performance in both Consumer Care and Industrial Specialities • Cost inflation fully recovered with average price increases of 12.3% • Record number of new product launches • £41m profit after tax on disposal of non core businesses Commenting on the results, Chairman, Martin Flower said: "This has been another exceptional year for Croda. Our ability to produceconsistent earnings and margin growth underlines the strength of our corebusiness and confirms our leadership position in our markets. Record resultshave been achieved despite a strong currency headwind and a further rise in rawmaterial costs. The integration of Uniqema is well ahead of schedule. The ongoing benefits ofthis acquisition, combined with our strong underlying business and robust demandfor Croda products across the globe, mean that we are confident of deliveringfurther progress, in line with our expectations for 2008." For further information, please contact: Mike Humphrey, Group Chief Executive Tel: 01405 860551Sean Christie, Group Finance Director Charlie Armitstead, Financial Dynamics Tel: 020 7269 7275 The company will broadcast the meeting with analysts in a live webcastcommencing at 09.30 AM on the company's website at www.croda.com. Chairman's Statement Introduction This has been another exceptional year for Croda. Our ability to produceconsistent earnings and margin growth underlines the strength of our corebusiness and confirms our leadership position in the market. Record results havebeen achieved despite a strong currency headwind and a further rise in rawmaterial costs. Results Underlying turnover*2 increased 3.0% on a constant currency basis withsignificant average price increases outweighing volume reductions as we shed lowmargin Uniqema business. Currency translation losses were lower in the secondhalf at 1.7% of turnover. As a result, underlying turnover for the year aftercurrency translation*2 was only 0.6% down on 2006 at £886.1m. Continuing pre-tax profit*1 (after charging the full year's interest on lastyear's acquisition of Uniqema) increased by 26.7% to £66.5m (2006: £52.5m).Total pre-tax profit*1 including £8.2m contribution from disposed businessesincreased 37.1% to £74.7m (2006: £54.5m). Earnings per share*1 increased by 28.4% to 37.1p (2006: 28.9p). We sold a number of non core businesses during the year for £76.8m in totalwhich resulted in a £41.0m profit after tax on disposal. Uniqema The integration of Uniqema is well ahead of schedule. The benefits of thisacquisition have exceeded our expectations and we have increased our synergyforecast to at least £30m per annum from the end of 2008 onwards. This, alliedto strong underlying trading across the enlarged group, has resulted in thesignificant uplift in pre tax profit and earnings per share. Dividend The Board is recommending a final dividend of 10.8p per ordinary share, making atotal for the year of 15.75p up 10.1% on 2006. This gives a dividend cover of2.4x. In the past we have sought to increase dividend cover. In the futuredividend growth will be more closely aligned to the underlying growth inearnings per share. Pricing We increased prices by 12.3% in the year, fully recovering input cost inflation.We will continue to pass on cost increases to our customers when necessary andhave already raised our selling prices in 2008. Outlook We have made a strong start to the year with good internal momentum driven by asound business model and increasing synergies from the Uniqema acquisition.Whilst we expect consumer markets in the US and UK to be unexciting, theongoing benefits of this acquisition, combined with our strong underlyingbusiness and robust demand for Croda products across the globe, mean that we areconfident of delivering further progress in line with our expectations for 2008. *1 Before exceptional items *2 Continuing operations adjusted for the acquisition of Uniqema Chief Executive's Review 2007 has been another year of extraordinary achievement for Croda. The businesshas produced record sales and profits despite one of the most challengingtrading environments. The integration of Uniqema is ahead of target anddelivering better than expected synergies and we introduced the highest numberof product innovations in our history. Croda's ability to deliver year-on-year growth is a testament to the leadershipposition we have established in the global speciality chemicals market place.The business benefits from a robust model that is not dependent upon a singlemarket or one major customer. Our diversity, in terms of geography, productinnovation, people and customers, means we can be confident in Croda's futureprospects and capacity to deliver superior returns. One of the fundamental ingredients of Croda's success is our people and the teamhas never been stronger or more committed. Throughout 2007, external pressureswere intense, and the tenacity and resolve of our staff has enabled Croda toovercome increased raw material prices, increased energy costs and a strongcurrency headwind to post an outstanding set of figures. The acquisition of Uniqema has surpassed our expectations. From the outset ourprincipal objective was to combine the best elements of both companies andcreate one team united under the Croda umbrella. This has now been done, and thesuccess of our integration and restructuring programme has enabled us to achieveour original £20m synergy target twelve months ahead of schedule. Furthermore,we have now identified additional synergies and expect to deliver more than £30mby the end of 2008. We were especially delighted that many of the newly acquiredsites have great capital projects with quick and secure returns. Theseinitiatives also reduce our energy usage and our environmental impact and, evenmore importantly, make Croda a safer and better place to work all over theworld. A good part of the resilience of the Croda business model is due to havingthousands of customers in hundreds of territories buying thousands of differentproducts. Our biggest global customer represents just over 4% of turnover andour top ten customers represent less than 15%. In addition, many customers buyas many as a hundred different products from Croda, which can be used in evenmore formulations. They are all designed to add value and performance to ourcustomers' products. As a result of the acquisition of Uniqema, we now havemany more growing markets and many more potentially interesting technologies. We made good progress in every area of the business as we continued ourrelentless focus on our customers and on getting fair value for our investmentsin quality and innovation. This ethos was spread across the whole business in2007 enabling us to achieve average price increases of 12.3% across all marketsectors. We continue to refine our product portfolio and reduce the proportionof low value, commodity business, in favour of adding value to our in-housefeedstocks. In areas where we can no longer add value we have made disposals. We sold thesoap and fatty acid business at Klang, Malaysia, the bakery ingredients businessat Oldham, UK and also the packaged refrigeration lubricant business for a totalof £76.8m. We will continue to focus our business on market sectors and productswhere we can add the most value for our customers and our shareholders. For the first time we are including a comprehensive review with our annualreport on how we care for all our stakeholders and the environment. In futureyears we expect to include increasing amounts of data to more accurately measureour progress. As more than 70% of Croda's raw materials are from renewablesources, we start from a strong position of sustainability. Each year we mustdo more to reduce our impact on the ecosystem. There are some excellentexamples of recent initiatives in the report, including the forest of 25,000native trees planted at our headquarters and the new wind turbine beinginstalled at our Hull site this year. 2007 was also a year in which we introduced our new structure of two divisions -Consumer Care and Industrial Specialities. They have different markets but oneunified focus - to grow profits through constant innovation. We haveconsolidated the global marketing network which was enlarged by the acquisitionof Uniqema and closed 6 offices leaving us with a dynamic global technical salesforce operating from 43 Croda offices in 36 countries. This is a truly powerfulnetwork and a key reason for our continuing success. Consumer Care Following the full integration programme this sector now consists of our globalbusinesses in the following markets: Personal Care, Health Care, Home Care andCrop Care. These are growth markets with an increasing need for innovation and sustainableingredients. We have fully combined the various businesses with a great deal ofsuccess. Underlying growth was excellent in 2007 with sales reaching a new highof £351.1m. Operating profit was a record £71.7m, reflecting a margin of 20.4%.This is especially pleasing as it means we have significantly improved themargins of the acquired business. This was achieved by a combination of focuson value and moving away from the flawed Uniqema distribution model which gavemore margin to the intermediary than to the producer. There is more margin tobe gained in 2008, as we continue the return to direct selling and directcustomer relationships. The global market for Personal Care continues to grow at above 1.5 times globalGDP, with emerging countries more than compensating for flatter markets in moreestablished zones like the USA. New active ingredients from Sederma once againled the way, but our innovation pipeline is very healthy in all other areas ofPersonal Care, with many new product opportunities. Health Care made good progress in the area of high purity lipids with ourPuremax seal of approval now being used globally on more than 14 branded lines.We also gained new business for high quality excipients. The focus on Lanolinand derivatives for wound care and medical skin care resulted in a number ofsuccessful new product introductions by our customers. The drive for everhigher standards of purity and efficacy in our Health Care products exactlymirrors the aspirations of our customers - and, more importantly, the endconsumer. In Home Care, we focused heavily on demarketing unprofitable business whilstintroducing new products which will offer performance and value to ourcustomers' brands. The consumer-led drive for sustainability andbiodegradability, coupled with a desire for more "natural" raw materialsparallels Croda's innate strengths. We are delighted to have a vibrant Crop Care business. The agriculturalindustry's need for biodegradable adjuvants, which give enhanced active deliveryand performance, fits exactly with our re-energised strategy in this fastchanging market. The gestation time for business can be up to three years, dueto demanding test criteria, but it does lead to long term valuable business. Wehave a world class team in this area and have high hopes for the future, afteran excellent year in 2007. Industrial Specialities With our reorganisation now complete, the Industrial Specialities sectorconsists of: Base Oleochemicals, Lubricant Additives, Coatings Additives andPolymer Additives. With sales at £535.0m and operating profit of £17.0m, this division's progressbenefitted from our strong pricing policy and willingness to walk away fromunprofitable business. Profits increased substantially over the course of theyear and we expect real progress towards our long term margin target of 10% in2008 and beyond. The large base oleochemicals business became profitable inspite of suffering the brunt of a storm of natural oil cost increases. Therewas a small amount of extra profit from revitalised glycerine prices towards theend of the year, which should continue into at least the first half of 2008.Our plans to reduce our base oleochemical footprint and add value to thebuilding blocks have started to bear fruit. By walking away from loss making "plant fillers", our factories are now producing better quality products andbetter customer service. Relatively simple investments due on stream over thenext two years will reduce our costs of production and energy considerably. We sold a large part of the Lubricant product portfolio during 2007. Finishedlubricants for refrigeration did not fit our future focus on additives anddistracted the team from concentrating on the core business. Good progress wasmade with new additives in automotive, industrial, marine and agriculturallubricants. A number of our patented technologies are now finding favour asgreener solutions to improve lubrication and reduce energy usage. Our in-housespecial fatty acid and dimer building blocks give us a solid platform for futureprogress. We have a strong and dynamic Coatings Additives business, which was refocused in2007. New and patented technologies based on our expertise in dimers, estersand associated chemistries were well received in many application areas. Wehelped major automotive manufacturers reduce their VOC emissions and we alsohelped to put a spring in the step of a major leisure footwear manufacturer. Astrong research and development team and a new emphasis on customer needs willsupport profitable growth in this growing global business. The Polymer Additives business had another good year, especially in additivesfor polyolefins, where Croda is the world leader. New markets are being createdand new types of plastic require new types of lubricants and other additives.Croda products are overwhelmingly based on natural feedstocks, utilising andadding value to the base oleochemical building blocks. Summary Croda set itself tough objectives in 2007 and the fact that they have beenachieved is a credit to the entire team. With Uniqema now fully integrated intoour business, Croda's prospects are even brighter for the future. We willcontinue to challenge our own orthodoxies, and relentlessly innovate to achievefurther growth in our chosen markets. The Croda story is about profitablesustainability. We are proud of our recent achievements, but there is much moreto do in 2008 and beyond. Financial review Turnover Underlying turnover*2 increased 3.0% on a constant currency basis withsignificant average price increases outweighing volume reductions as we shed lowmargin business. We saw particularly strong turnover growth in November andDecember. Currency translation losses were lower in the second half at 1.7% ofturnover. As a result underlying turnover for the year after currencytranslation*2 was only 0.6% down on 2006 at £886.1m. Selling prices increased by 9.9% in the first half for the continuingbusinesses. This increased to 14.8% in the second period, making the average forthe year 12.3%. These increases fully recovered the inflationary costs theCompany bore in the year and increased margins on products at the bottom end ofthe portfolio. Underlying volumes declined 9.2% over the year as we improved the quality of theacquired business and shed unprofitable lines. We see no change in our long term underlying revenue growth targets of 2 timesglobal GDP for our Consumer Care business and 1.5 times global GDP forIndustrial Specialities. Operating profit Continuing operating profit*1 increased 32.0% to £88.7m from the £67.2 pro-formaprofit achieved in 2006. (£7.5m continuing pre acquisition Uniqema profit addedto last year's reported operating profit of £59.7m). This increase was achieveddespite adverse currency translation of £3.0m. Like sales, profit showed animproving trend throughout the year with increasing revenues boosted by mountinglevels of synergy from last year's acquisition of Uniqema. For the year, synergies contributed £17.0m (2006: £2.0m) to profit before taxwith an exit run rate over £20m. Headcount savings were the biggest element ofthis total at £5.6m followed by savings in distribution and logistics at £2.9mand raw material price savings of £2.4m. Lower IT, insurance, consultancy and anumber of other smaller savings made up the balance. We now expect total synergies from the Uniqema acquisition to exceed £30m by theend of 2008 with the extra level of business brought in house from ex-Uniqemadistributors, further headcount reductions, improved yields and savings inenergy and logistics being the main elements. On a divisional basis, Consumer Care's continuing operating margin passed the20% level even including Uniqema's initially lower returns. Profit of £71.7m(2006: £50.8m) gave a 20.4% margin for the year on £351.1m turnover (2006:£264.1m) with an improving trend into the second half. Second half margins werehigher than those achieved by Croda in the first half of 2006, before theUniqema acquisition. Our target operating margin of 20%+ for Consumer Care has been achieved. Industrial Specialities' returns were more significantly diluted by theacquisition of Uniqema. Operating profits of £17.0m represented a 3.2% return on£535.0m turnover. (2006: £8.9m and £216.0m respectively). We have a long term target operating margin in Industrial Specialities of 10%and we expect to make further progress towards this goal in 2008. Pre-tax profit Continuing pre-tax profit*1 (after charging the full year's interest on lastyear's acquisition of Uniqema) increased by 26.7% to £66.5m (2006: £52.5m).Total pre-tax profit*1 increased 37.1% to £74.7m (2006: £54.5m). Earnings per share Earnings per share*1 increased by 28.4% to 37.1p (2006: 28.9p). The 33.5% taxrate on continuing operations was only marginally higher than 2006 and we arecomfortable that this rate is sustainable in the medium term. Dividend We propose to increase the final dividend by 11.9% to 10.8p, making a total forthe year of 15.75p (2006: 14.3p), up 10.1%. Dividend cover*1 increased to 2.4xcompared to 2.0x in 2006. We expect future dividend increases to be more closelyaligned to earnings growth. Disposals We sold three businesses in 2007. Food Services was sold for £7.4m in June,Klang for £9.8m in September and Refrigerant Lubricants for £59.6m at the end ofOctober. We made a net profit on disposal of £41.0m after tax from thesebusinesses in addition to an operating profit pre disposal of £8.2m. Exceptional items The main exceptional item was the £41.0m profit after tax on disposal discussedabove. There was an additional £5.6m exceptional operating expense, mainly relating toadditional termination payments to ex Uniqema distributors reflecting the extraturnover and profit being repatriated to Croda as part of the higher synergyexpectation. Cash flow The main underlying driver of cash was EBITDA of £128.4m (2006: £82.1m) Working capital increased significantly during the year due to a number offactors including inflation and changing distribution arrangements. Inaddition, a very strong, sales driven performance through November into Decembermeant that year end working capital levels were ahead of those normallyassociated with our quietest month. We made a number of payments into thepension scheme during the year totalling £70m following the acquisition ofUniqema. Capital expenditure was a little ahead of depreciation at £38.1m with anumber of fast payback Uniqema projects being sanctioned. We had a net cash inflow from disposals of £75.7m and spent £17.5m onrestructuring post the acquisition of Uniqema. All this increased net debt by£36.1m to £366.0m Pensions Our deficit has fallen sharply as we have agreed the various transfers due fromICI post the acquisition of Uniqema and we continued to contribute to the fundat a higher level than the charge to profits. Rising bond yields reduced our liabilities leaving the year end deficit at£59.3m (2006: £159.9m). Within this total our UK final salary scheme has adeficit of only £7.5m. Balance Sheet At £219.7m, our net assets are much higher than 2006 as the increase in net debtwas outweighed by the reduction in the pension deficit. Financial KPIs 2007 2006 TargetReturn on sales* 10.0% 7.5% 15%EPS growth (before exceptional items) +28.4% +12.9% +5-10%ROIC (post tax)* 8.1% 6.9% > WACC Net debt/EBITDA* 2.8x 3.3x < 3xEBITDA interest cover* 5.8x 4.2x > 4x * 2006 pro-forma full year Uniqema We have a number of demanding financial KPI targets and we have made goodprogress on all of these during the year. Return on sales has increased to 10% in 2007 versus 7.5% on a like for likebasis in 2006. Before dilution from the acquisition of Uniqema, Croda beat its15% target and we would expect steady progress towards this goal as were-position and integrate the acquired business. We already exceed the target inour Consumer Care business and the biggest incremental gains should come inIndustrial Specialities. We aim to grow earnings per share at a higher rate than underlying sales growthand have comfortably beaten the 5-10% target in recent years. Growth coupled to Return on Invested Capital (ROIC) is the driver of shareholdervalue. The acquisition of Uniqema reduced the ROIC, but also reduced ourWeighted Average Cost of Capital (WACC) since the deal was predominantlyfinanced through debt. We employ two widely used ratios to measure our ability to pay our debt. Bothnet debt/EBITDA and EBITDA interest cover are ahead of target in 2007. *1 Before exceptional items *2 Continuing operations adjusted for the acquisition of Uniqema Croda International PlcPreliminary announcement of trading results for the year ended 31 December 2007Group income statement 2007 2007 2007 2006 2006 2006 Note £m £m £m £m £m £m Before Before exceptional Exceptional exceptional Exceptional items items items items Total Total Continuing operationsRevenue 2 886.1 - 886.1 480.1 - 480.1 Cost of sales (686.9) (7.0) (693.9) (352.8) (7.3) (360.1) ______ ______ ______ ______ ______ ______ Gross profit 199.2 (7.0) 192.2 127.3 (7.3) 120.0 Operating expenses (111.6) 1.4 (110.2) (68.9) (25.7) (94.6) Share of associate's post-taxprofits 1.1 - 1.1 1.3 - 1.3 ______ ______ ______ ______ ______ ______ Operating profit 2 88.7 (5.6) 83.1 59.7 (33.0) 26.7 Financial expenses 3 (31.1) - (31.1) (13.3) (2.3) (15.6) Financial income 3 8.9 - 8.9 6.1 - 6.1 ______ ______ ______ ______ ______ ______ Profit before tax 66.5 (5.6) 60.9 52.5 (35.3) 17.2 Tax 4 (22.3) 1.9 (20.4) (17.5) 6.8 (10.7) Profit after tax from continuingoperations 44.2 (3.7) 40.5 35.0 (28.5) 6.5 Profit after tax from discontinued operations 7 5.9 41.0 46.9 1.5 - 1.5 ______ ______ ______ ______ ______ ______ Profit for the year 50.1 37.3 87.4 36.5 (28.5) 8.0 ______ ______ ______ ______ ______ ______ Attributable to: Minority interest 0.1 - Equity shareholders 87.3 8.0 ______ ______ 87.4 8.0 ______ ______ pence per pence per share shareEarnings per share of 10p (note 5)BasicTotal 64.8 6.3Total before exceptional items 37.1 28.9Continuing operations 29.9 5.1Continuing operations before exceptional items 32.7 27.7 DilutedTotal 63.6 6.2Continuing operations 29.4 5.0 Ordinary dividends (note 6)Interim 4.95 4.65Final 10.80 9.65 Group statement of recognised income and expense 2007 2006 £m £m Profit for the year 87.4 8.0 Exchange differences 6.6 (3.6)Movement in fair value of cash flow hedges (0.4) 0.8 Actuarial movement on retirement benefit obligations (net of deferred tax) 21.0 13.5 ______ ______ Total recognised income and expense 114.6 18.7 ______ ______ Attributable to: Minority interest 0.1 Equity shareholders 114.5 18.7 _____ _____ 114.6 18.7 ______ ______ Group balance sheet at 31 December 2007 2006 Note £m £m restated AssetsNon-current assetsIntangible assets 203.5 206.1Property, plant and equipment 342.2 333.5Investments: Associated undertaking 9.2 11.0 Other 0.9 0.9Deferred tax assets 43.1 60.0 ________ _____ 598.9 611.5 ________ _____ Current assetsInventories 161.4 133.5Trade and other receivables 186.4 192.5Cash and cash equivalents 43.4 48.6Other financial assets 8 0.4 0.8Current tax assets - 2.6Assets classified as held for sale 1.2 1.2 ________ ______ 392.8 379.2 ________ ______ LiabilitiesCurrent liabilitiesTrade and other payables (175.5) (195.1)Borrowings and other financial liabilities 8 (83.5) (54.2)Provisions 9 (14.2) (17.4)Current tax liabilities (11.5) - ________ ______ (284.7) (266.7) ________ _____ Net current assets 108.1 112.5 ________ ______Non-current liabilitiesBorrowings and other financial liabilities 8 (325.9) (324.3)Other payables (3.3) (3.3)Retirement benefit liabilities (59.3) (159.9)Provisions 9 (45.0) (56.0)Deferred tax liabilities (53.8) (54.1) ________ ______ (487.3) (597.6) ________ _____ Net assets 219.7 126.4 ________ ______ Equity shareholders' funds 10 218.0 124.5Minority interests 1.7 1.9 ________ ______ Total equity 219.7 126.4 ________ ______ 2006 figures have been restated following finalisation of the Uniqema fair valueexercise (note 11). Group cash flow statement Note 2007 2006 £m £m Cash flows from operating activitiesContinuing operationsOperating profit 83.1 26.7Adjustments for: Depreciation, amortisation and loss on disposal offixedassets fixed assets 31.3 19.2 Share of associate's post-tax profits (1.1) (1.3) Exceptional provision 5.6 33.0 Other provisions 0.4 0.2 Cash paid against operating provisions (17.5) (3.5) Changes in working capital (60.0) 5.1 Pension fund contributions in excess of service costs (70.0) (11.3) Share based payments 1.1 1.0 Dividend from associate 2.8 - ______ ______ Cash absorbed by continuing operations (24.3) 69.1Discontinued operations 9.1 1.2Exceptional financial expenses - (2.3)Interest paid (26.8) (11.6)Tax paid (14.2) (19.1) ______ ______ Net cash absorbed by operating activities (56.2) 37.3 ______ ______ Cash flows from investing activitiesAcquisition of subsidiaries (net of cash acquired) 7.7 (356.2)Purchase of property, plant and equipment (37.5) (22.6)Purchase of computer software (0.6) -Proceeds from sale of property, plant, equipment and other investments 0.2 2.0Proceeds from sale of businesses (net of costs) 75.7 3.2Cash paid against non-operating provisions (0.6) (0.2)Interest received 3.1 1.5 ______ ______ Net cash generated from investing activities 48.0 (372.3) ______ ______ Cash flows from financing activitiesAdditional borrowings 66.6 341.9Repayment of borrowings (63.9) (27.9)Capital element of finance lease repayments (0.1) (0.2)Net purchases of own shares (2.4) (18.2)Proceeds from share placement - 60.6Dividends paid 6 (20.0) (17.9) ______ ______ Net cash absorbed by financing activities (19.8) 338.3 ______ ______ Net movement in cash and cash equivalents (28.0) 3.3 Cash and cash equivalents brought forward 28.0 26.4Exchange differences 1.2 (1.7) ______ ______ Cash and cash equivalents carried forward 1.2 28.0 ______ ______ Cash and cash equivalents carried forward compriseCash at bank and in hand 43.4 48.6Bank overdrafts (42.2) (20.6) ______ ______ 1.2 28.0 ______ ______ Reconciliation to net debtNet movement in cash and cash equivalents (28.0) 3.3 Movement in debt and lease financing (2.6) (313.8) ______ ______ Change in net debt from cash flows (30.6) (310.5) Loans in acquired businesses - (0.8) New finance lease contracts (0.1) (0.1) Exchange differences (5.4) 5.7 ______ _____ (36.1) (305.7) Net debt brought forward (329.9) (24.2) ______ _____ Net debt carried forward (366.0) (329.9) ______ _____ Notes to the preliminary announcement 1. Basis of preparation In preparing this financial information, management has used theprincipal accounting policies as set out in the Group's annual financialstatements for the year ended 31 December 2006. The results shown for 2007 areunaudited. The financial information contained in this announcement does notconstitute statutory accounts within the meaning of Section 240(3) of theCompanies Act 1985. Statutory accounts of the Company in respect of thefinancial year ended 31 December 2006, upon which the Company's auditors havegiven a report which was unqualified and did not contain a statement underSection 237(2) or Section 237(3) of that Act, have been delivered to theRegistrar of Companies. 2. Segmental information Primary reporting format - business segments At 31 December 2007 the Group was organised on a worldwide basis intotwo main business segments, relating to the manufacture and sale of the Group'sproducts which are destined for either the Consumer Care market or the marketfor Industrial Specialities. There is no material trade between segments.Segment results include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Uniqema has been fullyintegrated into the Group's pre-acquisition structure and is no longer reportedas a stand alone segment. 2007 2006 £m £mRevenue - continuing operationsConsumer Care 351.1 264.1Industrial Specialities 535.0 216.0 ______ ______ 886.1 480.1 ______ Operating profit - continuing operations before exceptionalitemsConsumer Care 71.7 50.8Industrial Specialities 17.0 8.9 ______ 88.7 59.7 Secondary reporting format - geographical segments The sales analysis in the table below is based on the location of thecustomer. 2007 2006 £m £mRevenue by destination - continuing operationsoperationsEurope 419.2 218.7Americas 309.0 171.6Asia 116.5 61.2Rest of World 41.4 28.6 ______ 886.1 480.1 ______ _____ 3. Net financial expenses 2007 2006 £m £m Financial expensesBank interest payable 31.1 13.3 _____ ______ Financial incomeBank and other interest receivable (3.9) (3.1) Expected return on pension scheme assets less interest on scheme liabilities (5.0) (3.0) ______ (8.9) (6.1) ______ Net financial expenses 22.2 7.2 The above analysis excludes £ nil (2006: £2.3m) of exceptional financialexpenses. 4. Tax 2007 2006 £m £mAnalysis of tax charge for the yearUnited Kingdom current tax (3.7) (1.1)Overseas current tax 17.8 12.4Deferred tax 6.3 (0.6) _____ ______ 20.4 10.7 ______ ______ 5. Earnings per share 2007 2006 p p Earnings per share - continuing operations before exceptional items 32.7 27.7Impact of exceptional items and discontinued operations 32.1 (21.4) ______ ______ Earnings per share - basic 64.8 6.3 ______ _____ 6. Dividends paid Pence 2007 2006 per £m £m shareOrdinary2005 Final - paid June 2006 9.00 - 10.92006 Interim - paid October 2006 4.65 - 6.22006 Final - paid June 2007 9.65 13.0 -2007 Interim - paid October 2007 4.95 6.7 - _____ _____ 19.7 17.1 Preference (paid June and December) 0.1 0.1 Dividends paid to minority shareholders 0.2 0.7 _____ _____ 20.0 17.9 _____ The directors are proposing a final dividend of 10.8p per share (£14.6m) inrespect of the financial year ending 31 December 2007. It will be paid on 5June 2008 to shareholders registered on 2 May 2008. The total dividend for theyear ending 31 December 2007 is 15.75p per share (£21.7m). 7. Discontinued operations During 2007, in line with the Group's strategic restructuring followingthe acquisition of Uniqema, the Group disposed of three businesses; FoodServices, Refrigeration Lubricants and its Malaysian manufacturing operation. The Food Services business was sold to AAK in June 2007 for £7.4m cashconsideration, with the sale including all current and non-current assets of thebusiness. The Refrigeration Lubricants business was sold to Lubrizol in October2007 for a total cash consideration of £59.6m, with inventory, customer listsand product formulations passing across as part of the sale. No fixed assetswere disposed of as part of this transaction. The Group's Malaysianmanufacturing operation, Uniqema Malaysia SDN BHD, was sold to KLK for £9.8m inSeptember 2007 with all assets associated with the site and its bulkoleochemicals manufacturing operations being transferred. The impact of the operations discontinued in 2007, which, aside from asmall part of the Malaysian operation, resided within the IndustrialSpecialities segment, is as follows: 2007 2006 £m £m Pre tax operating results from discontinued operations 8.2 2.0Tax (2.3) (0.5) ______ ______ Post tax operating results from discontinued operations 5.9 1.5 ______ ______ Profit on disposal 41.0 - ______ ______ Total profit after tax from discontinued operations 46.9 1.5 ______ ______ 8. Financial assets and liabilities The Group manages its interest rate profile using a combination ofinterest rate swaps. Since 2002 a fair value swap has been used to convert aproportion of the Group's fixed rate debt to a floating rate. During 2006 theGroup took out additional interest rate swaps to fix a proportion of thefloating rate acquisition funding, these swaps being designated as cash flowhedges. Under IFRS, the fair value of such derivative instruments must berecognised in the financial statements with, in the case of fair value hedges, acorresponding fair value adjustment to the underlying loan instrument.Accordingly, a financial asset of £0.4m has been recognised within currentassets, being the fair value of the interest rate swaps designated as cash flowhedges. As the fair value hedge has no value at 31 December 2007, no adjustmenthas been made to the fair value of the underlying loan. 9. Accounting estimates and judgements The Group's critical accounting policies under IFRS have beenestablished by management with the approval of the Audit Committee. Theapplication of these policies requires estimates and assumptions to be madeconcerning the future and judgements to be made on the applicability of policiesto particular situations. Estimates and judgements are continually evaluatedand are based on historical experience and other factors, including expectationsof future events that are believed to be reasonable under the circumstances. Under IFRS an estimate or judgement may be considered critical if itinvolves matters that are highly uncertain, or where different estimationmethods could reasonably have been used, or if changes in the estimate thatwould have a material impact on the Group's results are likely to occur fromperiod to period. Critical judgement has been required when preparing theGroup's accounts as follows: Provisions At 31 December 2007, the Group has an environmental provision of £15.1min respect of soil and potential ground water contamination on a number ofsites. Restructuring provisions, totalling £21.5m as at 31 December 2007,largely relate to the continuing restructuring of the Group following theacquisition of Uniqema in 2006. Other provisions include those established aspart of the FV exercise following the acquisition of Uniqema. These relate,amongst other items, to provisions in respect of onerous contracts. Based on environmental information currently available and the detailedplans established for the restructuring of the Group, this level of provision isconsidered appropriate by the directors. Goodwill and fair value of assets acquired The Group's goodwill carrying value increased significantly in 2006following the acquisition of Uniqema. The Group tests annually whether goodwillhas suffered any impairment and the Group's goodwill value has been supported bydetailed value-in-use calculations relating to the recoverable amounts of theunderlying cash generating units. These calculations require the use ofestimates, 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 benefittype. Year end recognition of the liabilities under these schemes and thevaluation of assets held to fund these liabilities require a number ofsignificant assumptions to be made, relating to levels of scheme membership,mortality rates, key financial market indicators such as inflation andexpectations on future salary growth and asset returns. These assumptions aremade by the Group in conjunction with the schemes' actuaries and the directorsare of the view that any estimation should be prudent and in line with consensusopinion. 10. Condensed statement of changes in equity 2007 2006 £m £m Opening shareholders' equity 124.5 79.7Shares issued - 60.6Total recognised income 114.5 18.7Dividends (note 6) (19.8) (17.2)Transactions in own shares (2.4) (18.2)Share based payments 1.2 0.9 _________ ______ Closing shareholders' equity 218.0 124.5 _________ ______ 11. Acquisition of Uniqema On 1 September 2006, the Group completed the purchase of the Uniqemabusiness from ICI plc and the Group's 2006 financial statements includedprovisional information on the fair values of assets acquired and consideration.By 31 August 2007 the Group had completed its review of the acquired asset baseand had finalised the fair values of all acquired assets and liabilities.Additionally during 2007, the final adjustments were agreed with respect to thepurchase consideration. The table below shows the carrying value of Uniqema'snet assets immediately prior to acquisition along with the final fair values andconsideration. Carrying values Provisional Final fair value Final fair values pre-acquisition fair value at adjustments in £m £m 31 December 2006 2007 £m £m Intangible 6.9 6.9 - 6.9assetsProperty, 248.2 217.1 - 217.1plant andequipmentInventories 82.9 82.9 82.9Receivables 111.6 111.6 - 111.6Cash and cash 18.1 18.1 - 18.1equivalentsLoans acquired (0.8) (0.8) - (0.8)Payables (118.3) (131.3) 5.2 (126.1)Deferred (23.2) (22.2) 12.2 (10.0)taxationProvisions (8.5) (8.5) (23.0) (31.5)Retirement (68.1) (68.1) (19.4) (87.5)benefitliabilitiesMinority (1.6) (1.6) - (1.6)interest ______ ______ ______ ______ Net assets acquired 247.2 204.1 (25.0) 179.1Goodwill 177.7 15.7 193.4 ______ ______ ______ ______ Total consideration 381.8 (9.3) 372.5 ______ ______ ______ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Croda International