25th Jul 2007 07:00
Croda International PLC25 July 2007 25 July 2007 CRODA INTERNATIONAL PLC Interim results announcement June 2007 Highlights • Turnover - continuing operations increased to £472.4m (2006: £156.6m). • Pre-tax profit - continuing operations up 23.0% to £34.7m (2006: £28.2m). • EPS - continuing operations up 11.3% to 16.7p (2006: 15.0p). • Interim dividend increased 6.5% to 4.95p per share (2006: 4.65p). • Pension deficit reduced to £56.6m (December 2006: £140.5m). • Repositioning of Uniqema progressing to plan. Commenting on the results, Chairman, Martin Flower, said: "The Group has performed well across all areas of the business, despite thewidely documented cost pressures facing the sector at present. Uniqema has beensuccessfully integrated and we remain confident that the Group will make furthergood progress in the second half of this year." For further information, please contact: Mike Humphrey, Group Chief Executive Tel: 01405 860551 Sean Christie, Group Finance Director Tel: 01405 860551 Charlie Watenphul or Andrew Dowler, Financial Dynamics Tel: 0207 831 3113 Or visit our web site at: www.croda.com where the presentation to analysts willbe available by midday today Chairman's Statement Our performance in the first six months of 2007 has been encouraging with a23.0% rise in pre-tax profits for continuing operations despite significantadverse currency movements and higher raw material costs. Continuing earnings per share increased by 11.3% to 16.7p (2006: 15.0p) and theBoard has declared an interim dividend of 4.95p, 6.5% higher than last year. Trading The repositioning of Uniqema is proceeding to plan. The separation of thebusiness into specialities (integrated into Croda's existing specialitiesbusinesses) and oleochemicals (run as a global business) has driven strongperformance on all fronts. We have made significant cost savings across theGroup, particularly in the areas of central overheads, distribution, transportand sales administration. We passed major price increases into the market as werefocus the newly acquired business and also to counter the raw materialinflation we are currently experiencing across the Group. We are improving the mix of the business, reducing volumes of lower marginproducts and focusing on specialities. As a result, underlying1 sales volumesdeclined by 6.5% with a corresponding uplift in price/mix of 8.5% leavingunderlying1 sales on a constant currency basis up 2.0%. After adverse currencymovements of 5.5%, underlying1 sales declined by 3.5%. The price improvements and cost savings generated helped to drive pre-taxprofits from continuing operations up 23.0% despite the decrease in underlying1sales. Finance We ended the first half with debt under £400m despite higher levels of workingcapital as we replace third party distributors in our routes to market. We alsobore significant cash restructuring costs and made one off contributions to thepension fund. In view of the strength of the Pound and increasing interestrates, our decisions to source fixed rate, Dollar and Euro denominated debt havebeen sound. As a result of the one off contributions, increasing bond rates andequity market outperformance, our gross pension deficit has reducedsignificantly from £140.5m at the year end to £56.6m at the end of June. InJune we sold Croda Food Services to AAK for £7.4m as part of the restructuringprogramme of the enlarged group. Outlook We are confident that we shall make further good progress in all our businessareas in the second half, supported by the continued successful repositioning ofUniqema. Martin FlowerChairman 1 Underlying sales include pro forma Uniqema revenues for 2006, but exclude the revenues for the Croda Food Services business sold to AAK in June Croda International PlcResults for the six months ended 30 June 2007 Condensed Group income statement Note 2007 2006 2006 2006 2006 First First Full Full Full Unaudited £m Half Half Year Year Year Before Exceptional Total Exceptional items itemsContinuing operations Revenue 2 472.4 156.6 502.6 - 502.6 Cost of sales (369.9) (106.2) (372.1) (7.3) (379.4) ----- ----- ----- ----- Gross profit 102.5 50.4 1 30.5 (7.3) 123.2 Operating expenses (56.8) (23.0) (71.1) (25.7) (96.8) Share of associate's post tax profits +-----------------------------------------------------+ Profit before tax | 0.7 1.0 1.9 - 1.9 | Tax | (0.2) (0.3) (0.6) - (0.6)| +-----------------------------------------------------+ 0.5 0.7 1.3 - 1.3 ----- ----- ----- ----- ----- Operating profit 2 46.2 28.1 60.7 (33.0) 27.7 Financial expenses 3 (14.5) (1.7) (13.3) (2.3) (15.6) Financial income 3 3.0 1.8 6.1 - 6.1 ----- ----- ----- ----- ----- Profit before tax 34.7 28.2 53.5 (35.3) 18.2 Tax (12.2) (9.8) (17.7) 6.8 (10.9) ----- ----- ----- ----- ----- Profit after tax from 22.5 18.4 35.8 (28.5) 7.3continuing operations Profit after tax 5 2.5 0.5 0.7 - 0.7from discontinued operations ----- ----- ----- ----- ----- Profit for the period 25.0 18.9 36.5 (28.5) 8.0 ===== ===== ===== ===== ===== Attributable to: Minority interest 0.1 - -Equity shareholders 24.9 18.9 8.0 ----- ----- ----- 25.0 18.9 8.0 ----- ----- ----- 2007 2006 2006 2006 First First Full Full Half Half Year Year Before Total exceptional items pence per pence per pence per pence per share share share shareEarnings per share of 10p BasicTotal 18.5 15.4 28.9 6.3Continuing operations 16.7 15.0 28.3 5.7 DilutedTotal 18.2 15.2 28.3 6.2Continuing operations 16.4 14.8 27.8 5.6 Ordinary dividendsInterim 4.95 4.65 4.65Final 9.65 Condensed Group statement of recognised income and expense 2007 2006 2006 First First FullUnaudited £m Half Half Year Profit attributable to equity shareholders 24.9 18.9 8.0Exchange differences (0.1) (2.4) (3.6)Actuarial movement on retirement benefit liabilities (net of deferred tax) 38.3 14.5 13.5 ----- ----- -----Total recognised income attributable to equity shareholders 63.1 31.0 17.9 ----- ----- ----- Condensed Group balance sheet Note At At AtUnaudited £m 30 June 30 June 31 December 2007 2006 2006 AssetsNon-current assetsIntangible assets 189.6 6.5 190.4Property, plant and equipment 328.2 119.8 333.5Investments 10.8 0.8 11.9Deferred tax assets 33.9 28.4 46.8 ----- ----- ----- 562.5 155.5 582.6 ----- ----- ----- Current assetsInventories 150.3 55.3 133.5Trade and other receivables 202.4 62.1 180.8Cash and cash equivalents 51.2 23.5 48.6 Other financial assets 6 2.8 - 0.8 Current tax assets - - 2.6Assets classified as held for sale 5 1.2 10.3 1.2 ----- ----- ----- 407.9 151.2 367.5 ----- ----- -----LiabilitiesCurrent liabilitiesTrade and other payables (189.8) (48.3) (200.1)Borrowings and other financial liabilities 6 (118.3) (34.7) (55.0) Provisions (17.4) - (17.4)Current tax liabilities (2.4) (5.0) - ----- ----- ----- (327.9) (88.0) (272.5) ----- ----- ----- Net current assets 80.0 63.2 95.0 ----- ----- -----Non-current liabilitiesBorrowings and other financial (329.9) (27.9) (324.3) liabilitiesOther payables (1.8) (0.8) (1.1)Retirement benefit liabilities (56.6) (82.3) (140.5)Provisions (23.5) (9.6) (33.0)Deferred tax liabilities (52.8) (16.4) (53.1) ----- ----- ----- (464.6) (137.0) (552.0) Net assets 177.9 81.7 125.6 ----- ----- ----- Shareholders' equity 7 176.1 81.5 123.7 Minority interest in equity 1.8 0.2 1.9 ----- ----- ----- Total equity 177.9 81.7 125.6 ----- ----- ----- Condensed Group cash flow statement 2007 2006 2006Unaudited £m First First Full Note Half Half Year Cash flows from operating activitiesContinuing operationsOperating profit 46.2 28.1 27.7Adjustments for: Depreciation and loss on disposal of fixed assets 15.7 6.7 19.7 Changes in working capital (37.3) (7.6) 4.7 Pension fund contributions in excess of service cost (29.6) (0.5) (11.3) Share based payments 0.5 0.5 1.0 Movement on provisions (8.0) - 29.7 Share of associate's post-tax profits (0.5) (0.7) (1.3) Dividend from associate 1.9 - - ______ ______ ______Cash used in continuing operations (11.1) 26.5 70.2Discontinued operations 1.0 0.6 0.1Interest paid (10.3) (1.7) (13.9)Tax paid (6.9) (10.1) (19.1) ______ ______ ______Net cash used in operating activities (27.3) 15.3 37.3 ______ ______ ______Cash flows from investing activitiesAcquisition of subsidiaries (18.9) - (356.2)Purchases of property, plant and equipment (16.0) (6.0) (22.6)Proceeds from sale of property, plant and equipment 0.1 0.9 1.5Proceeds from sale of investments - 0.5 0.5Proceeds from sale of businesses (net of costs) 7.9 3.4 3.2Cash paid against non-operating provisions (0.6) - (0.2)Interest received 0.6 0.4 1.5 ______ ______ ______Net cash used in investing activities (26.9) (0.8) (372.3) ______ ______ ______Cash flows from financing activitiesAdditional borrowings 83.7 - 341.9Repayment of borrowings (9.3) (10.5) (27.9) Net purchases of own shares 1.6 (18.8) (18.2)Proceeds from share placement - - 60.6Dividends paid 4 (13.2) (11.6) (17.9)Other (0.8) 0.3 (0.2) ______ ______ ______Net cash generated from financing activities 62.0 (40.6) 338.3 ______ ______ ______ Net movement in cash and cash equivalents 7.8 (26.1) 3.3Cash and cash equivalents brought forward 28.0 26.4 26.4Exchange differences (1.0) (0.9) (1.7) ______ ______ ______Cash and cash equivalents carried forward 34.8 (0.6) 28.0 ______ ______ ______ Cash and cash equivalents carried forward compriseCash at bank and in hand 51.2 23.5 48.6Bank overdrafts (16.4) (24.1) (20.6) ______ ______ ______ 34.8 (0.6) 28.0 ______ ______ ______ A reconciliation of the cash flows above to the movement in net debt is shown atnote 8. Notes to the interim report 1. Basis of preparation This interim financial report has been prepared under thehistorical cost convention and in accordance with the accounting policies usedin the Group's financial statements for the year ended 31 December 2006. TheIFRS and interpretations that will be applicable as at 31 December 2007,including those that will be applicable on an optional basis, are not yet knownwith certainty at the time of preparing this report. The financial information included in this interim financialreport for the six months ended 30 June 2007 does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985 and is unaudited.The comparative information for the six months ended 30 June 2006 is alsounaudited. The comparative figures for the year ended 31 December 2006 havebeen extracted from the Group's financial statements as filed with the Registrarof Companies, on which the auditors gave an unqualified opinion and did not makea statement under section 237 of the Companies Act 1985. 2. Segmental information Primary reporting format - business segments At 30 June 2007 the Group is 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. 2007 2006 2006 First First Full Half Half Year £m £m £m Revenue - continuing operationsConsumer Care 196.1 113.5 271.9Industrial Specialities 276.3 43.1 230.7 _____ _____ _____ 472.4 156.6 502.6 _____ _____ _____ Operating profit - continuing operationsConsumer Care 37.3 23.8 50.7Industrial Specialities 8.9 4.3 10.0Exceptional items - - (33.0) _____ _____ _____ 46.2 28.1 27.7 _____ _____ _____ Total inter-segment revenue in the six months ended 30 June 2007was £7.6m (2006: £nil) and arises on sales from the Industrial Specialitiessegment into Consumer Care. All operating costs of the Group are allocatedbetween the segments. 2. Segmental information (continued) Secondary reporting format - geographical segments The sales analysis in the table below is based on the location ofthe customer. 2007 2006 2006 First First Full Half Half Year £m £m £m Revenue by destination - continuing operationsEurope 225.4 63.6 226.5Americas 159.5 60.6 175.4Asia 66.7 21.9 72.1Rest of World 20.8 10.5 28.6 _____ _____ _____ 472.4 156.6 502.6 _____ _____ _____ 3. Net financial expenses Financial expensesBank interest payable 14.5 1.7 13.3Exceptional financial expenses - - 2.3 _____ _____ _____ 14.5 1.7 15.6 _____ _____ _____ Financial incomeBank interest receivable (0.6) (0.4) (3.1)Expected return on pension scheme assets less (2.4) (1.4) (3.0)interest on scheme liabilities _____ _____ _____ (3.0) (1.8) (6.1) _____ _____ _____Net financial expenses 11.5 (0.1) 9.5 _____ _____ _____ 4. Dividends paid Pence per shareOrdinary2005 Final - paid June 2006 9.00 - 10.9 10.9 2006 Interim - paid October 2006 4.65 - - 6.2 2006 Final - paid June 2007 9.65 13.0 - - _____ _____ _____ 13.0 10.9 17.1Preference (paid June and - - 0.1December) Dividends paid to minority 0.2 0.7 0.7shareholders _____ _____ _____ 13.2 11.6 17.9 _____ _____ _____ 4. Dividends paid (continued) An interim dividend in respect of 2007 of 4.95p, amounting to atotal dividend of £6.7m, was declared by the directors at their meeting on 24July 2007. This interim report does not reflect the 2007 interim dividendpayable. The dividend will be paid on 5 October 2007 to shareholders registeredon 7 September 2007. 5. Discontinued operations On 29 June 2007, in continuance of the Group's stated objective todispose of non-core activities, the Group's Food Services division was sold toAarhuskarlshamn UK Limited for £7.4m. During 2006, the Group's metal treatment division was sold toShell UK Limited. The sale did not include the non-current assets of thebusiness, primarily land and buildings. The land and buildings havesubsequently been actively marketed and a sale is expected in the near future.These have been valued significantly in excess of their carrying value of £1.2mand, accordingly, there has been no re-measurement to fair value less costs to sell. During 2005, the Group, in conjunction with the company's majorityshareholder, commenced the process of selling its holding in the Group's soleassociate, Baxenden Chemicals Limited. The sale process did not result in anyprospective purchaser being able to match the shareholders' valuation of thecompany and accordingly the process was discontinued. Baxenden has thus beenreclassified back into continuing operations. 2007 2006 2006 First First Full Half Half Year £m £m £m Operating profit of discontinued operations 0.4 0.7 1.0 Profit on disposal and closure of discontinued 3.2 - -operations Tax (1.1) (0.2) (0.3) _____ _____ _____ 2.5 0.5 0.7 _____ _____ _____ 6. Financial assets and liabilities The Group manages its interest rate profile by use of interestrate swaps to maintain a balance between fixed and floating rate debt. UnderIFRS, the fair value of such derivative instruments must be recognised in thefinancial statements with a corresponding fair value adjustment to theunderlying loan instrument. Accordingly, a financial asset of £2.8m (2006: £0.1mliability) has been recognised within current assets, being the fair value ofthe interest rate swap, and current financial liabilities include a creditadjustment of £2.8m (2006: £0.1m debit) in recognition of the correspondingadjustment to the fair value of the Group's debt. 7. Condensed statement of changes in equity 2007 2006 2006 First First Full Half Half Year £m £m £m Opening shareholders' equity 123.7 79.7 79.7Total recognised income 63.1 31.0 17.9Dividends on equity shares (13.0) (10.9) (17.2)Transactions in own shares 1.6 (18.8) 42.4Share based payments 0.7 0.5 0.9 _____ _____ _____Closing shareholders' equity 176.1 81.5 123.7 _____ _____ _____ 8. Reconciliation to net debt 2007 2006 2006 First First Full Half Half Year £m £m £m Net movement in cash and cash equivalents 7.8 (26.1) 3.3Movement in debt and lease financing (73.6) 10.2 (313.8) _____ _____ _____Change in net debt from cash flows (65.8) (15.9) (310.5)Loans in acquired businesses - - (0.8)New finance lease contracts - - (0.1)Exchange differences 1.5 1.0 5.7 _____ _____ _____ (64.3) (14.9) (305.7)Net debt brought forward (329.9) (24.2) (24.2) _____ _____ _____Net debt carried forward (394.2) (39.1) (329.9) _____ _____ _____ 9. Accounting estimates and judgements The Group's critical accounting policies under IFRS have been setby management with the approval of the Audit Committee. The application ofthese policies requires estimates and assumptions to be made concerning thefuture and judgements to be made on the applicability of policies to particularsituations. Estimates and judgements are continually evaluated and are based onhistorical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances. Under IFRS anestimate or judgement may be considered critical if it involves matters that arehighly uncertain, or where different estimation methods could reasonably havebeen used, or if changes in the estimate that would have a material impact onthe Group's results are likely to occur from period to period. The criticaljudgements required when preparing the Group's accounts are as follows: (i) Provisions - the Group has made significant provision forpotential environmental liabilities and for the costs of the restructuringexercise following the acquisition of Uniqema. The environmental provision relates to soil and potential groundwater contamination on a number of sites, both currently in use and previouslyoccupied, in Europe and the Americas. Restructuring provisions relate to theongoing plans to integrate the acquired Uniqema business with the existing Crodabusinesses. Provisions are made where a constructive or legal obligation can bequantified and where the timing of the transfer of economic benefits relating tothe provisions cannot be ascertained with any degree of certainty. In relation to the environmental provision, the directors considerthat the balance will be utilised within 20 years. With regard to therestructuring provisions, significant elements have been utilised to date andthe directors' view is that there will be further elements, notably in respectof redundancy costs, that will be utilised in 2007 and that further significantutilisation will occur in 2008 and 2009 with the balance utilised within 20years. Based on information currently available and on the detailed plansestablished for the restructuring of the Group, this level of provision isconsidered appropriate by the directors. (ii) Goodwill and fair value of assets acquired - the Group'sgoodwill carrying value increased significantly in 2006 following theacquisition of Uniqema. The Group tests annually whether goodwill has sufferedany impairment and the Group's goodwill value has been supported by detailedvalue-in-use calculations relating to the recoverable amounts of the underlyingcash generating units. These calculations require the use of estimates, howeveras recoverable amounts as calculated at the end of last year far exceed carryingvalues, including goodwill, and as there has been no indication thus far thisyear of subsequent impairment, there is no sensitivity with regard toimpairment. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Croda International