TIDMCRDA
RNS Number : 2123R
Croda International PLC
28 February 2023
Press Release
28 February 2023
Results for the year ended 31 December 2022
Powerful operating model and consistent execution delivers
record performance
Croda International Plc ("Croda" or the "Group"), the company
that uses smart science to create high performance ingredients and
technologies that improve lives, announces its full year results
for the year ended 31 December 2022.
Highlights
Statutory results
(IFRS) Adjusted results
change
constant
Full year ended 31 December 2022 2021 change 2022 2021 change currency
Sales (GBPm) 2,089.3 1,889.6 10.6% 2,089.3 1,889.6 10.6% 5.2%
Operating profit (GBPm) 444.7 438.2 1.5% 515.1 468.6 9.9% 5.7%
Return on sales (%) 24.7 24.8 (0.1)ppt
Profit before tax (GBPm) 780.0 411.5 89.6% 496.1 445.2 11.4% 7.3%
Basic earnings per share
(p) 465.8 230.0 102.5% 272.0 250.0 8.8%
Ordinary dividend per share
declared (p) 108.0 100.0 8.0%
Free cash flow (GBPm) 167.4 153.6 9.0%
Net debt (GBPm) 295.2 823.2 (64.1)%
============================ ======= ======= ====== ======= ======= ======== =========
Powerful operating model and consistent execution deliver record
performance
-- Sales up 11% at over GBP2 billion, with successful input cost
inflation recovery reflecting strength of business model
o Growth across Consumer Care and Life Sciences, driven by
price/mix 24% higher
o Strong performance in Asia, Western Europe and Latin
America
-- Adjusted operating profit up 10%, exceeding GBP500m for the first time
o Profit growth across all three sectors
o Return on sales broadly flat at 24.7% (2021: 24.8%) - improved
mix from divestment and lower remuneration charge offset by
normalising Life Sciences margin and adverse operating gearing
-- IFRS profit before tax up 90% to GBP780.0m (2021: GBP411.5m),
including GBP356.0m gain on divestment
-- Improved free cash flow of GBP167.4m (2021: GBP153.6m), with
moderating raw material prices starting to benefit working
capital
-- Increase in full year dividend of 8% to 108.0p (2021: 100.0p)
Portfolio repositioned - aligned with emerging megatrends
-- Completed divestment of majority of Performance Technologies
and Industrial Chemicals (PTIC)
o Creates stronger margin, higher return, less cyclical, greater
IP and lower carbon intensive business
-- Reinvesting proceeds to drive future growth
o Enhanced organic capital investment programme, supported by
government co-investment in Pharma
o Agreed acquisition of Solus Biotech for cGBP232m, expanding
fast growth Beauty Actives business in Asia
Robust sector performances
-- Consumer Care performance demonstrating increased resilience
o Record sales and adjusted operating profit delivered;
encouraging growth in F&F
o Lower second half year volume and margin, primarily due to
destocking and supply constraints
-- Life Sciences building on exceptional prior year
o Further strong progress, driven by excellent Crop Protection
performance
o Extensive pipeline of non-Covid delivery systems driving
growth in Pharma, offsetting reduction in lipid systems for
Covid-19 applications
Following the divestment of the majority of our PTIC business,
the retained business is now known as Industrial Specialties. The
prior period has been restated to combine the PT and IC segments
which were previously reported separately. The divested business
did not meet the requirements to be classified as a discontinued
operation. Therefore, the divested business is included for a full
year within the Industrial Specialties result for 2021 and for the
first half year only for 2022.
Full year ended 31 December
Restated
Sales 2022 2021
GBPm Price/mix Volume Acquisition Currency Change GBPm
======================= ======= =========== ======== ============= ========== ======== ========
Consumer Care 897.8 22.0% (12.3)% 1.5% 6.5% 17.7% 763.0
Life Sciences 682.3 5.7% 8.2% 0.0% 5.3% 19.2% 572.3
Industrial Specialties 509.2 19.9% (31.7)% 0.0% 3.7% (8.1)% 554.3
======================= ======= =========== ======== ============= ========== ======== ========
Group 2,089.3 24.2% (19.6)% 0.6% 5.4% 10.6% 1,889.6
======================= ======= =========== ======== ============= ========== ======== ========
Full year ended 31 December
Underlying Acquisition Currency Restated
Adjusted profit 2022 growth impact impact 2021
GBPm GBPm GBPm GBPm GBPm Change
======================= ====== ========== =========== ======== ======== =======
Consumer Care 204.7 8.8 0.7 6.7 188.5 8.6%
Life Sciences 229.4 9.8 0.0 11.1 208.5 10.0%
Industrial Specialties 81.0 7.6 0.0 1.8 71.6 13.1%
======================= ====== ========== =========== ======== ======== =======
Operating profit 515.1 26.2 0.7 19.6 468.6 9.9%
Net interest (19.0) (23.4) (18.9)%
======================= ====== ========== =========== ======== ======== =======
Profit before tax 496.1 445.2 11.4%
======================= ====== ========== =========== ======== ======== =======
Steve Foots, Chief Executive Officer, commented:
"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. For the first time, we delivered
over GBP2 billion in sales and GBP500 million in adjusted operating
profit, reflecting progress across all areas of our business.
Consumer Care is increasingly resilient, supported by encouraging
growth in our F&F business, whilst Life Sciences has built on
an exceptional prior year, with an exciting project pipeline in
Pharma and a stand-out performance in Crop Protection.
"These record results have been achieved whilst managing a
challenging environment. This demonstrates the power of our
business model, our consistent execution, an increased resilience,
following our recent portfolio changes, and the increasing
importance of our products in our markets. We have a disciplined
investment approach which is driving both organic and acquisitive
growth.
"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."
Outlook
Though early in the year, the Group is trading in line with
expectations. We expect the customer destocking that has been
particularly apparent in North America to come to an end in the
first half year, supporting continued sales growth this year in
Consumer Care. In Life Sciences, we expect good sales growth in
Crop Care and the non-Covid related Pharma business to offset the
previously indicated decline in Covid-19 vaccine demand. Group
performance in 2023 will be more second half weighted than in the
prior year, reflecting the divestment of the majority of PTIC in
June 2022 and the phasing of lipid systems shipments to our
principal Covid-19 vaccine customers.
The combination of our differentiated business model, enhanced
investment programme and exciting innovation pipelines in
sustainable ingredients and drug delivery will continue to deliver
consistent, superior returns.
Further information:
An investor presentation will be available via webcast at 0845
GMT on 28 February 2023 at www.croda.com /investors .
For enquiries contact:
Investors: David Bishop, Croda +44 7823 874428
Press: Charlie Armitstead, Teneo +44 7703 330269
Notes:
Alternative Performance Measures (APMs): We use a number of APMs
to assist in presenting information in this statement in an easily
analysable and comparable form. We use such measures consistently
at the half year and full year, and reconcile them as appropriate.
Whilst the Board believes the APMs used provide a meaningful basis
upon which to analyse the Group's financial performance and
position, which is helpful to the reader, it notes that APMs have
certain limitations, including the exclusion of significant
recurring items, and may not be directly comparable with similarly
titled measures presented by other companies.
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.
Constant currency results are the primary measure used by
management to monitor the performance of overseas business units,
since they remove the impact of currency translation into Sterling,
the Group's reporting currency, over which those overseas units
have no control. Constant currency results are similarly useful to
shareholders in understanding the performance of the Group
excluding the impact of movements in currency translation over
which the Group has no control. Constant currency results are
reconciled to reported results in the Finance Review. The APMs are
calculated as follows:
a. For constant currency profit, translation is performed using the entity reporting currency;
b. 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;
-- Underlying results: these reflect constant currency values
adjusted to exclude acquisitions in the first year of impact. They
are used by management to measure the performance of each sector
before the benefit of acquisitions are included, in order to assess
the organic performance of the sector, thereby providing a
consistent basis on which to make year-on-year comparisons. They
are seen as similarly useful to shareholders in assessing the
performance of the business. Underlying results are reconciled to
reported results in the Finance Review;
-- Adjusted results: these are stated before exceptional items
and amortisation of intangible assets arising on acquisition, and
tax thereon. Exceptional items are those items that in the
Directors' view are required to be separately disclosed by virtue
of their size or incidence. Movements in contingent consideration
have been presented as exceptional as they are not directly
representative of the underlying business performance in the period
and therefore this presentation provides a meaningful basis to make
comparisons between reporting periods. The gain on business
disposal and impairment charges have been presented as exceptional
due to their size and one-off nature. The Board believes that the
adjusted presentation (and the columnar format adopted for the
Group income statement) assists shareholders by providing a basis
upon which to analyse 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. Management uses the measure to assess
the profitability of each sector and the Group, as part of its
drive to grow profit by more than sales value, in turn by more than
sales volume, as set out in the Group Performance Review;
-- Return on invested capital (ROIC): this is adjusted operating
profit after tax divided by the average adjusted invested capital.
Adjusted invested capital represents net assets adjusted for net
debt, earlier goodwill written off to reserves and accumulated
amortisation of acquired intangible assets. Calculations and
reconciliations are provided in the five year record of the Group's
Annual Report. The Board believes that ROIC is a key measure of
efficient capital allocation, in line with its policy set out in
the Finance Review, with its aim being to maintain a ROIC of two to
three times the cost of capital over the cycle, and that it is
useful to shareholders in assessing the returns delivered by the
Group and the impact of deploying more capital to grow future
returns faster;
-- Net debt: comprises cash and cash equivalents (including bank
overdrafts), current and non-current borrowings and lease
liabilities. Management uses this measure to monitor debt funding
levels and compliance with the Group's funding covenants which also
use this measure. It believes that net debt is a helpful additional
measure for shareholders in assessing the risk to equity holders
and the capacity to invest more capital in the business;
-- Leverage ratio: this is the ratio of net debt to Earnings
Before Interest, Tax, Depreciation and Amortisation (EBITDA)
adjusted to include EBITDA from acquisitions or disposals in the
last 12 month period calculated in line with the banking covenant
definition. EBITDA is adjusted operating profit plus depreciation
and amortisation. Calculations and reconciliations are provided in
the five year record of the Group's Annual Report. The Board
monitors the leverage ratio against the Group's debt funding
covenants and overall appetite for funding risk, in approving
capital expenditure and acquisitions. It believes that the APM is a
helpful additional measure for shareholders in assessing the risk
to equity holders and the capacity to invest more capital in the
business;
-- Free cash flow: comprises EBITDA less movements in working
capital, net capital expenditure, payment of lease liabilities,
non-cash pension expense, and interest and tax payments. The Board
uses free cash flow to monitor the Group's overall cash generation
capability, to assess the ability of the Company to pay dividends
and to finance future expansion, and, as such, it believes this is
useful to shareholders in their assessment of the Group's
performance;
-- New and Protected Products (NPP): these are products which
are protected by virtue of being either newly launched, protected
by intellectual property or by unique quality characteristics. NPP
is used by management to measure and assess the level of innovation
across the Group.
Croda International Plc
Group Performance Review
We use a number of APMs to assist in presenting information in
this statement in an easily analysable and comparable form (see
page 3).
Powerful operating model and consistent execution deliver record
performance
Croda achieved another milestone in 2022, exceeding GBP2 billion
of sales and GBP500 million of adjusted operating profit for the
first time. This continues our record of consistent execution. We
successfully recovered significant input cost inflation, and
navigated challenging economic conditions and continued supply
chain disruption. We are building a strong innovation pipeline,
supplemented by new technologies and organic investment. Our
performance demonstrates the power of our business model, the
benefit of our global footprint, greater resilience following
recent portfolio change and the increasing importance of our
products in a range of niche markets.
We delivered an 11% increase in both sales and adjusted profit
before tax, with good sales and profit growth in both core sectors.
Consumer Care delivered a solid performance, with sales up 18% and
adjusted operating profit 9% higher, albeit with margin diluted by
lower volume and change in product mix. Growth remained robust in
the second half year across Asia, Europe and Latin America, partly
offset by customer destocking that was particularly apparent in
North America. Life Sciences built on an exceptional 2021,
delivering 19% sales growth and 10% higher adjusted operating
profit, despite a reduction in Covid-19 vaccine demand by our
principal customers. The balance of the Pharma business, together
with Crop Protection and Seed Enhancement, each delivered double
digit percentage sales growth.
Adjusted operating profit was also higher in Industrial
Specialties, benefitting from strong trading ahead of the
divestment of the majority of its Performance Technologies and
Industrial Chemicals (PTIC) business midway through the year.
Through this divestment, and the acquisitions in recent years,
Croda has significantly repositioned to be more closely aligned
with the powerful megatrends that are reshaping our markets. We are
becoming a pure play company, focused on high value niches in
consumer care and life science markets. This is creating a stronger
margin, higher return, less cyclical and lower carbon intensive
business. We are also more knowledge intensive, with exciting
customer and technology innovation pipelines, particularly in
sustainable solutions and drug delivery systems. This will
translate into more consistent top line growth and increased
margins, delivering superior returns in the years ahead.
Managing a challenging environment
Group sales grew by 11% to GBP2,089.3m (2021: GBP1,889.6m).
Constant currency sales rose by 5%, driven by our ability to
recover input cost inflation, with price/mix up by 24%. The
chemical industry experienced a significant impact from inflation
and average prices within our raw material basket rose by 23% in
2022, adding to a 17% increase in 2021. Commodity markets remained
tight during the year but prices peaked in the third quarter, with
signs of modest declines as the year ended. Operating cost
inflation increased during 2022, with labour and energy most
impacted. The strength of Croda's business model helped manage this
challenging environment, ensuring inflation recovery and profit
protection.
Group sales volume declined by 20%, with an estimated 13
percentage points of the reduction due to the divestment of much of
the industrials business. In addition, after strong consumer demand
and customer restocking post-pandemic in 2021, volume declined by
12% in Consumer Care, reflecting capacity constraints and customer
reduction of excess inventory levels. Volume in Life Sciences was
8% higher, driven by strong Crop Protection demand, supported by
the robust agricultural commodity pricing environment. Across the
Group, the challenge of global supply chain constraints began to
ease towards the end of the year.
Adjusted operating profit grew by 10% to GBP515.1m (2021:
GBP468.6m). Over half of this increase was driven by underlying
growth across all three sectors, with the balance primarily from
favourable currency translation. Return on sales was broadly flat
at 24.7% (2021: 24.8%), with an improved margin mix from the
reduced share of industrial sales and a lower variable remuneration
charge offset by normalisation of the Life Sciences margin, after
an exceptional 2021, and a lower Consumer Care margin diluted by
lower volume and weaker mix. Profit before tax (on an IFRS basis)
increased to GBP780.0m (2021: GBP411.5m), which included a gain on
the business disposal of GBP356.0m. Adjusting for this benefit and
one-off exceptional items outlined in the Finance Review, adjusted
profit before tax increased by 11% to a record GBP496.1m (2021:
GBP445.2m).
Inflation and supply chain challenges saw increased working
capital during 2021 and the first half of 2022. As expected, this
began to moderate in the second half of 2022. Free cash flow
increased to GBP167.4m (2021: GBP153.6m). Net debt reduced to
GBP295.2m (2021: GBP823.2m) and debt leverage reduced to 0.5x
(2021: 1.4x), due principally to the proceeds from the PTIC
divestment.
Reinvesting in the business
The Group successfully completed the divestment of the majority
of its PTIC business to Cargill Inc. on 30 June 2022 for gross
proceeds of EUR775m (GBP665m). The divestment agreement also
included a EUR140m option to sell Croda Sipo in China in which we
have a 65% stake; however, this was subject to reaching agreement
with our partner to also sell its stake, which now appears unlikely
to occur in the near term.
The divestment has released more capital to invest into a rich
seam of growth opportunities in the consumer care and life sciences
markets, whilst maintaining our discipline of careful capital
allocation to projects which generate superior returns on capital.
Our priority is organic capital expenditure, supplemented by
targeted acquisitions, in line with our preferred approach to 'buy
and build', as exemplified by our recent investments in Life
Sciences, where we have secured new technology platforms through
modest acquisition spends, then built scale through organic
investment.
Our investment in organic capital expenditure was GBP138.5m
(2021: GBP158.5m). This investment included a new Fragrances and
Flavours (F&F) operation in Brazil, expansion in protein
technology in Consumer Care and new laboratory capabilities in Life
Sciences, together with additional capacity in our Singapore plant
and initial work on a new greenfield manufacturing site in India
which will together meet fast growing demand in Asia. In addition
to our typical capital investment of around 6% of sales, which
includes delivering our carbon reduction roadmaps as part of our
sustainability commitment, we are investing an extra GBP175m over
the period 2021 to 2024 to broaden our Pharma footprint and
capabilities, particularly for nucleic acid drugs. We are investing
in our existing GMP sites in Denmark, the UK and Avanti (US), and
creating a new Pharma facility in Pennsylvania (US) to meet
forecast market demand, with over GBP90m invested to date under
this programme and spend expected to accelerate in 2023. Alongside
this investment, the US and UK governments are co-investing up to
an additional GBP75m, recognising the importance of new generation
delivery systems to global pandemic preparedness and drug
discovery. This investment will support our innovation pipeline of
sales from new product development in the Pharma business.
We expect to supplement our organic plan with selective
acquisitions to add adjacent and complementary technologies,
particularly those which can accelerate our transition to greater
use of natural raw materials or build new technology platforms,
enhancing future growth. Shortly after year end, we announced an
agreement to acquire Solus Biotech, a leading producer of premium,
biotechnology-derived beauty actives based in South Korea. Solus
consolidates our position as a global leader in sustainable
actives, builds our biotech knowledge base, adds a North Asian
manufacturing and innovation facility, and brings rich IP and
proprietary know-how that we can leverage globally. Our continued
capital deployment will be executed within our consistent capital
allocation policy, set out in the Finance Review. Alongside organic
and inorganic investment, the policy provides for a regular and
increasing ordinary dividend to shareholders, while operating an
appropriate balance sheet. As part of this, the Board has
recommended an increased full year declared dividend of 8% per
share to 108.0p (2021: 100.0p).
Strong performance in Asia, Western Europe and Latin America
On a geographic basis, all regions saw continuing good growth in
sales and profit, other than North America. Asia achieved a record
year with strong demand, particularly in Life Sciences, and modest
growth in China, despite pandemic lockdowns. Demand in Western
Europe remained robust, despite higher prices and energy costs,
with strong growth in Crop Protection and Beauty Care. Latin
America enjoyed good growth, led by demand in the regional Crop
Protection market and supported by Consumer Care demand, including
the new F&F operation. EEMEA (Eastern Europe, Middle East and
Africa) saw a negative financial impact from the closure of our
Russia business (which represented approximately 1% of Group sales
in 2021).
In North America, sales peaked in the first quarter before
softening in Consumer Care and Pharma, the latter partly reflecting
lower Covid-19 demand post-pandemic. Consumer Care was negatively
impacted by significant customer destocking, with US customers
particularly impacted by lower exports to China following
lockdowns.
Continued growth across sectors
Consumer Care performance demonstrating increased resilience
Consumer Care achieved record sales and adjusted operating
profit in 2022. Sales grew by 18% to GBP897.8m (2021: GBP763.0m),
with price/mix up 22% as significant inflation was successfully
recovered. Adjusted operating profit increased by 9% to GBP204.7m
(2021: GBP188.5m), resulting in return on sales reducing to 22.8%
(2021: 24.7%). This primarily reflected the operating gearing
effect of lower volume, alongside a weaker product mix as Beauty
Care and F&F grew faster than the higher margin Beauty Actives
business. IFRS operating profit declined to GBP144.5m (2021:
GBP168.0m), which included an impairment charge of GBP34.6m on
goodwill in the Flavours business, where the future value of this
business is behind the acquisition case.
After a stand-out performance in Consumer Care in the first half
of 2022, growth slowed in the second half year. Full year volume
was 12% lower than 2021, driven by two components. Firstly,
destocking developed across our customers and the retail supply
chain. This followed strong demand in 2021 to meet the
post-pandemic recovery, when customers, worried about global supply
chain delays and meeting this recovery, restocked significantly;
Personal Care sales grew by 20% in the second half of 2021. Slowing
consumer sales led to destocking by customers in the second half of
2022, particularly in North America. Secondly, volume was lower due
to selective demarketing of lower margin products due to capacity
constraints in some Croda sites, together with the closure of our
Russia office. It is estimated that customer destocking has
accounted for five percentage points of the volume decline, with
five points from demarketing and the balance from Russia and other
impacts.
Our sector strategy is to Strengthen to Grow and delivery is
progressing well, positioning Consumer Care as a more resilient
growth platform. Our ingredient transparency programme is
supporting a structural shift in behaviour by customers and
consumers towards sustainable ingredients, providing product
information dossiers and carbon footprint data that includes
upstream supply chain emissions. The sector delivered an increase
in bio-based ingredients to 56% (2021: 50%), greater use of biotech
across the product portfolio and nearly 290,000 tonnes of avoided
carbon emissions in 2022. Greater innovation is also being
delivered as part of an enhanced formulation capability, with our
new Formulation Academies minimising the customer's time to market
and giving smaller customers greater access to formulations
containing Croda's high performance ingredients. Consumer demand is
growing strongly in Asia and, to deliver fast growth in the China
domestic market, we have acquired a new site for a fragrance and
botanicals facility.
Encouragingly, sales growth was strongest in Beauty Care and
F&F. Beauty Care benefitted from strong pricing, good demand
from multinational customers and the move to sustainable
ingredients. With strong growth in solar protection for daily wear,
Croda's mineral sunscreens had a record year and sales of ECO
bio-based surfactants to Personal Care customers increased
threefold. In 2020 we added fragrances to Croda's portfolio and
2022 saw the creation of a full formulation service for customers.
Sales in fragrances recovered well, after a challenging 2021, with
growth in emerging markets, benefits from the integration of 2021's
Parfex fine fragrance acquisition and a developing pipeline of
sales synergies between Croda and Iberchem. Flavours suffered its
worst year for raw materials, with 32% price inflation and shortage
of supply, and margin was squeezed as the business did not fully
recover input cost inflation. A quieter year for Beauty Actives
sales nevertheless saw development into adjacent technologies
continue, with the launch of encapsulated retinol and a growing
pipeline of biotech-derived actives. The smaller Home Care business
continued its roll out of high value proteins for fabric care,
extending the life of clothes, with new contracts underpinning
future growth.
Life Sciences building on exceptional prior year
Following an outstanding year for Life Sciences in 2021, with
the rapid expansion of Croda Pharma following the Avanti
acquisition and exceptional demand for Covid-19 vaccines, 2022 saw
further strong progress, driven by an excellent performance in Crop
Protection and an extensive pipeline of non-Covid delivery systems
in Pharma.
Sales grew by 19% to GBP682.3m (2021: GBP572.3m) with
performance strengthening in the second half of the year. Price/mix
grew by 6%, while volume was 8% higher. Adjusted operating profit
increased by 10% to GBP229.4m (2021: GBP208.5.m), as did IFRS
operating profit to GBP220.3m (2021: GBP201.0m). With Crop
Protection a larger proportion of the sales mix and a normalising
lipid systems margin, return on sales reduced to 33.6% (2021:
36.4%).
Our strategy to Expand to Grow in Life Sciences sees us
empowering biologics delivery in Croda Pharma and reinforcing our
existing leadership in sustainable delivery systems for Crop Care.
In 2022, this saw the Health Care business repositioned as Croda
Pharma, focused on technologies with the fastest growth and
innovation needs. The relaunch was accompanied by a new brand,
organisational structure and governance for its exciting customer
and innovation pipelines. We are investing in innovation, knowledge
and capacity, and secured co-investment from national governments.
Crop Protection is meeting growing demand for sustainable crop care
solutions and emerging delivery systems for crop biologics that are
enabling customers to transition to biopesticides.
Encouragingly, 2022's performance was achieved despite the
anticipated near-40% decline in sales of lipid systems due to lower
demand from our principal Covid-19 vaccine customers. The balance
of the Pharma business, Crop Protection and Seed Enhancement all
grew sales by double digit percentages. Crop Protection was the
standout business, benefitting from a strong agricultural commodity
pricing and demand environment. Its strength in sustainability was
reflected in Croda's recognition by Syngenta in its 'Reduction in
Carbon' supplier award. Seed Enhancement's range of coatings free
from microplastics has now been proven in field trials with
customers in all major regions and commercial roll out has
commenced.
In Pharma, Protein/Small Molecule Delivery grew strongly,
providing delivery systems for both the more mature small molecule
drugs and the higher growth protein and monoclonal antibody (mAb)
applications, with over a thousand customer projects underway.
Adjuvant Systems experienced lower demand in Covid-19 applications,
offset by growth in its current generation adjuvants, now supplied
to over 100 customers, while supporting hundreds of projects to
develop new prophylactic vaccines and novel therapeutic vaccines
that fight already contracted diseases. These included a
respiratory syncytial virus (RSV) vaccine in phase 3 trial and a
personalised cancer vaccine in clinical phase 2 development.
The Nucleic Acid Delivery systems business is the world's
leading innovator of lipid and other components in this new field
of drug treatment. The business is developing its portfolio from
the blockbuster Covid-19 vaccines, which drove 2021 demand, to new
mRNA and gene therapy vaccines, and therapeutic drugs. 2022 sales
in this business were approximately US$170m (2021: $230m), a little
ahead of expectations, mainly due to additional Covid-19 vaccine
demand; sales outside the principal Covid-19 vaccine customers
already represent almost 40% of this business and are expected to
be the majority of the $120m sales forecast for 2023, as Covid-19
sales continue to decline. We are supplying delivery systems to
customers for close to 100 nucleic acid drugs currently in
development, including the world's first human trial of a gene
therapy application.
Industrial Specialties established
With the divesting of the majority of Croda's PTIC business on
30 June 2022, the remaining industrials business, including the
SIPO joint venture in China, has become the Industrial Specialties
sector. It plays an important role in our manufacturing model,
supporting the Consumer Care and Life Sciences sectors on shared
sites and operating a medium-term supply contract to the new owner
of the divested business. 2022 therefore comprised the full
business in the first half year and the retained business in the
second half year. Reported sales were GBP509.2m (2021: GBP554.3m)
and adjusted operating profit was GBP81.0m (2021: GBP71.6m). It is
estimated that, had the divestment occurred at the start of 2022,
sales would have been GBP191m lower and adjusted operating profit
GBP39m lower in 2022. Reported IFRS profit was GBP79.9m (2021:
GBP69.2m). After a strong first half year pre-divestment,
Industrial Specialties continued to perform well, benefitting from
higher commodity prices, with second half sales of GBP167m and a
return on sales of 12.3%.
Delivering our strategy
We combine leadership in sustainability with market-leading
innovation to deliver consistent top and bottom-line growth, with
profit growing ahead of sales, ahead of volume in the medium term.
This is enabling us to help to meet global challenges and capture
new opportunities.
Delivering our sustainability commitment
Sustainability trends are developing rapidly in our markets as
consumers look to make a positive contribution to living more
sustainably through the products that they buy. In addition,
climate change poses a major risk to the planet which we must all
address. We enable customers to realise their sustainability
ambitions through the application of our innovation, creating
sustainable alternatives that current supply chains cannot offer.
We are reinforcing our sustainability leadership by reducing the
adverse impact of our operations, by replacing fossil-based
ingredients with bio-based materials, reducing emissions, promoting
biodiversity and ensuring our sourcing activities make a positive
contribution to communities in our supply chains. Our
sustainability strategy is built on 23 UN SDG targets grouped
around the themes of climate, nature and society, supporting our
commitment to be Climate, Land and People Positive by 2030.
To be Climate Positive, our verified carbon reduction target
will ensure we contribute to limiting the global temperature rise
to no more than 1.5degC above pre-industrial levels, providing
customers with an average 35% reduction in carbon emissions
associated with our products by 2030, compared to our 2018
baseline. To achieve this Science-Based Target (SBT), we have
developed externally validated decarbonisation roadmaps for every
Croda location and adopted an internal carbon price to ensure
investment decisions align with our sustainability ambitions. We
have also continued our focus on upstream supply chains, with
almost a quarter of suppliers by volume committed to SBTi carbon
reduction targets.
Building on our Land Positive commitment, we announced our
aspiration to be Net Nature Positive by 2030 and are working to
understand our impacts and dependencies on biodiversity. We also
joined the World Business Council for Sustainable Development and
its Nature programmes, with the aim of being an early adopter of
the future Science-Based Targets for Nature, when published.
Our People Positive objective addresses the needs of both our
communities and our employees. Living our Purpose, Smart science to
improve lives(TM) , we have met our target to protect 60 million
people from the damaging effects of the sun, seven years ahead of
schedule. Additionally, the Croda Foundation distributed GBP1
million of funding to 13 projects and another GBP2 million of
grants funded by our Pharma business for health infrastructure
projects in South Asia, Africa and Brazil, in total benefitting 15
million people. Our employee engagement surveys show that 71% of
our people are motivated by our Purpose and 69% feel involved in
delivering our sustainability ambitions. With a target to achieve
gender balance in Croda leadership roles by 2030, 2022 saw women
occupy 38% of these roles (2021: 36%).
Reflecting our absolute commitment to be a safe company for our
communities and our employees, we set a stronger safety target to
reduce our Total Recordable Incident Rate ("TRIR") to 0.3 by 2025,
requiring us to more than halve our current rate of 0.74 (2021:
0.76 restated), excluding Covid-19 cases. We conducted a safety
culture survey at more than 40 sites, enabling us to identify areas
for particular focus.
We have reflected the impact of the PTIC divestment in our
sustainability targets. Scope 1 and 2 emissions reduced by 26% as a
result of the sale and we have re-baselined our target to maintain
the original challenge. The proportion of bio-based organic raw
materials reduced to 59% due to the disposal (2021: 69%) but we
have retained our original target to achieve 75% by 2030. We have
also retained our carbon cover target (where use of our products
avoids four times the carbon emissions associated with operating
our business) which becomes more stretching as a result of the
divestment.
Driving innovation
Innovation is at the heart of what we do, creating new market
and technology niches. We have stepped up our rate of innovation
through more resource investment, more external partnerships and a
focus on 'big bet' projects. This will support higher growth,
improved mix and better margin as we become a more
knowledge-intensive company, capturing more intellectual property
(IP).
The foundation of our innovation model is internal R&D
investment, applying the expertise of our scientists at our global
innovation centres to meet customer needs. This is complemented by
our open innovation network, which provides access to over 500
universities and SMEs to help develop new intellectual property. We
also invest externally in disruptive technologies, the benefits of
which can be seen in recent product launches that have leveraged
expertise in both biotech and encapsulation to reduce impacts and
improve efficacy.
Our 'big bet' projects are reinforcing our leadership in
formulation science and harnessing the potential of biotech,
alongside our conventional chemical technologies. In formulation
science, we are developing a greater understanding of the impact of
our ingredients on wellbeing and self-esteem through neuroscience
research, and are sharing our expertise with customers through our
new Formulation Academies. We are scaling biotech, with projects to
develop more sustainable actives and bio-based fragrance
ingredients. R&D here is led by our five biotech laboratories,
mostly established through technology acquisitions over the last
decade. Candidate technologies are then scaled up at application
laboratories in Paris and two UK facilities, before being taken to
market by existing business units. Beauty Actives is launching
novel anti-ageing and anti-dandruff ingredients developed in this
way.
We seek to drive New & Protected Product (NPP) sales growth
at least as fast as total sales over the cycle, targeted at mid to
high single digit percentage growth. This allows the business to
grow through IP-rich NPP and technology acquisitions, while
leveraging our rich heritage product portfolio by finding new
applications and data for existing products. In 2022, NPP sales
grew at 2.6% in constant currency, adjusting for the impact of the
PTIC divestment, despite lower lipid systems sales in the year.
Sector strategies to deliver consistent growth and even stronger
margins
Within our strategy to drive sustainability and innovation to
deliver profitable growth, each of our seven businesses within the
two focus sectors targets superior sales growth, at least one and a
half times global GDP, margins of at least 20% and return on
invested capital (ROIC) of at least twice our cost of capital over
the medium term.
Our vision for Consumer Care is to be the most sustainable,
innovative and responsive solution provider globally through our
Strengthen to Grow strategy. Consumer Care targets annual organic
sales growth of at least 5%, supplemented by synergies from
integrating the recent F&F acquisitions, with a return on sales
at or above 25%, over the medium term.
Our vision for Life Sciences is to empower biologics delivery,
enabling our customers to transition to biologic actives which are
transforming pharmaceutical and crop science markets. Our Expand to
Grow strategy is reinforcing our leadership in sustainable delivery
systems in Crop Care and positioning Croda Pharma in drug and
vaccine markets which need complex, innovative delivery systems.
Life Sciences targets high single digit percentage annual sales
growth, with a return on sales over 30% over the medium term.
Supporting our strategic themes of 'Strengthen to Grow Consumer
Care', 'Expand to Grow Life Sciences' and 'Scaling Biotech', as set
out above, are three additional strategic initiatives:
-- 'Fast Grow Asia', where we are expanding our technical
capabilities and building new manufacturing capacity, to serve
rising regional consumption of Consumer Care products and growing
opportunities in Pharma and Crop Care. Investment in innovation and
sales resource helped deliver a record year for Asia. We are
continuing to expand our manufacturing capability in Asia,
including commencing construction of a new greenfield site in
India, to support the exciting opportunities ahead;
-- 'Proactive Acquisitions', where our global scouting network
is identifying potential adjacent technology opportunities in
Consumer Care and Life Sciences, such as the Solus Biotech
acquisition announced in February 2023; and
-- 'Doing the Basics Brilliantly', which is improving our
customer and employee experience through a combination of digital
technology, customer insights, new data architectures, enhanced
manufacturing capability and employer branding. 2022 saw good
results in our customer 'Net Promoter Score' (NPS) and a new
customer self-serve ordering online portal developed for global
roll-out.
Outlook
Though early in the year, the Group is trading in line with
expectations. We expect the customer destocking that has been
particularly apparent in North America to come to an end in the
first half year, supporting continued sales growth this year in
Consumer Care. In Life Sciences, we expect good sales growth in
Crop Care and the non-Covid related Pharma business to offset the
previously indicated decline in Covid-19 vaccine demand. Group
performance in 2023 will be more second half weighted than in the
prior year, reflecting the divestment of the majority of PTIC in
June 2022 and the phasing of lipid systems shipments to our
principal Covid-19 vaccine customers.
The combination of our differentiated business model, enhanced
investment programme and exciting innovation pipelines in
sustainable ingredients and drug delivery, will continue to deliver
consistent, superior returns.
Finance Review
Consistent execution delivers record performance
With our powerful business model, broad portfolio, global
footprint and flexible operations, we delivered an 11% increase in
both sales and adjusted profit before tax in 2022, managing a
challenging environment across global markets. On an IFRS basis,
profit before tax grew by 90%, which includes a significant gain on
the business divestment.
Currency translation
Sterling weakened against the US Dollar to US$1.237 (2021:
US$1.375) but was broadly flat against the Euro (EUR1.174 (2021:
EUR1.164)). Currency translation benefitted sales by GBP100.6m and
adjusted operating profit by GBP19.6m. Transactional currency
impact is correlated with translation, given that the UK and EU are
meaningful centres of production for the Group, with the weakness
of both Sterling and the Euro against the US Dollar having a net
positive impact.
Impact of PTIC divestment
The Group received cash consideration of GBP651.0m, net of
customary deductions, from the divestment of the majority of its
PTIC business. The divestment generated a pre-tax gain on disposal
of GBP356.0m which has been separately recognised in the Income
Statement, within the Adjustments column. The divested business did
not meet the requirements to be classified as a discontinued
operation as Croda did not exit a geographical area of operation
and it retained a proportion of the PTIC business, now reported as
Industrial Specialties. In 2022, the revenue of Industrial
Specialties was GBP509.2m and adjusted operating profit GBP81.0m
(with the prior period restated to combine the PT and IC segments,
which were previously reported separately). Taking account of the
sales and profit retained by Croda under supply agreements for
products manufactured at Croda retained sites and supplied to the
acquirer, together with dis-synergy costs remaining with Croda
which were previously allocated to the divested business, the
estimated impact of the divestment on these results, had disposal
occurred on 1 January 2022, would have been to reduce revenue by
GBP191m and adjusted operating profit by GBP39m. Following the
divestment, associated dis-synergy costs have been allocated across
the Consumer Care and Life Sciences sectors. This reduced second
half year return on sales in these two sectors by just under one
percentage point compared with the prior year comparator
period.
Strong sales from organic growth
Group sales grew by 10.6% to GBP2,089.3m (2021: GBP1,889.6m),
comprising underlying growth of 4.6%, currency translation of 5.4%
and acquisition impact of 0.6%. Within underlying growth,
sales/price mix improved by 24.2%, reflecting the successful
recovery of cost inflation and improved mix. By contrast, volume
reduced by 19.6%, with an estimated 13 percentage points of the
decline driven by the PTIC divestment, which resulted in lower
sales in Industrial Specialties in the second half year.
Full year ended 31 December
Sales Restated
2022 Price/mix 2021
GBPm Volume Acquisition Currency Change GBPm
======================= ======= =========== ======== ============= ========== ======== ========
Consumer Care 897.8 22.0% (12.3)% 1.5% 6.5% 17.7% 763.0
Life Sciences 682.3 5.7% 8.2% 0.0% 5.3% 19.2% 572.3
Industrial Specialties 509.2 19.9% (31.7)% 0.0% 3.7% (8.1)% 554.3
======================= ======= =========== ======== ============= ========== ======== ========
Group 2,089.3 24.2% (19.6)% 0.6% 5.4% 10.6% 1,889.6
======================= ======= =========== ======== ============= ========== ======== ========
Consumer Care sales increased by 17.7%, with underlying sales
9.7% higher. Sales/price mix was strong, partly offset by volume
which reduced due to a strong comparator period, de-marketing of
lower margin products in light of capacity constraints and customer
destocking in the second half of 2022. Life Sciences sales
increased by 19.2%, with underlying sales 13.9% higher, supported
by both price/mix and volume growth. Second half year growth
accelerated in Life Sciences, with a good performance in Seed
Enhancement complementing continued Crop Protection growth.
First Second Full
Half Half Year
2022 sales growth % % %
======================= ===== ====== =====
Consumer Care 24.0 11.8 17.7
Life Sciences 13.5 25.1 19.2
Industrial Specialties 23.9 (40.0) (8.1)
======================= ===== ====== =====
Group 20.7 0.7 10.6
======================= ===== ====== =====
Record Group profit delivery despite continued inflation
2022 saw a second consecutive year of raw material inflation
driven by global commodity prices and geopolitical events, with
prices of the top 75% of raw materials up by 23%, in addition to
the 17% rise seen in 2021. Raw material costs peaked in the third
quarter of 2022 and have seen modest declines since. Operating
costs were impacted by increasing inflation during 2022, most
notably in energy and labour costs. Croda's powerful business model
enabled overall inflation recovery, protecting absolute profit.
Operating costs also benefitted from a lower variable remuneration
charge, reflecting the impact of a lower share price on share
scheme costs.
2022 2021
========================== ================================= ------------------------------
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========= =========== ========= ======= =========== ========
Sales 2,089.3 - 2.089.3 1,889.6 - 1,889.6
Cost of sales (1,103.7) - (1,103.7) (950.7) - (950.7)
========================== ========= =========== ========= ======= =========== ========
Gross profit 985.6 - 985.6 938.9 - 938.9
Operating costs (540.9) (70.4) (470.5) (500.7) (30.4) (470.3)
========================== ========= =========== ========= ======= =========== ========
Operating profit 444.7 (70.4) 515.1 438.2 (30.4) 468.6
Gain on business disposal 356.0 356.0 - - - -
Net interest charge (20.7) (1.7) (19.0) (26.7) (3.3) (23.4)
-------------------------- --------- ----------- --------- ------- ----------- --------
Profit before tax 780.0 283.9 496.1 411.5 (33.7) 445.2
Tax (126.7) (13.8) (112.9) (88.7) 5.7 (94.4)
========================== ========= =========== ========= ======= =========== ========
Profit after tax 653.3 270.1 383.2 322.8 (28.0) 350.8
========================== ========= =========== ========= ======= =========== ========
IFRS operating profit was GBP444.7m (2021: GBP438.2m), the gain
on the PTIC disposal was GBP356.0m and interest charge GBP20.7m,
giving a profit before tax of GBP780.0m (2021: GBP411.5m).
Operating costs included a charge for other adjusting items of
GBP70.4m (2021: GBP30.4m), reflecting an unchanged charge for
amortisation of intangible assets arising on acquisition of
GBP34.3m (2021: GBP34.3m) and a charge for exceptional items of
GBP36.1m (2021: GBP3.9m credit). In common with many companies,
Croda separately identifies such items which require separate
disclosure by virtue of their size or incidence. The charge for
exceptional items comprised a gain on contingent consideration on a
previous acquisition of GBP6.1m and an impairment charge of
GBP42.2m, reflecting a GBP34.6m write-down of goodwill in the
Flavours cash generating unit, where forecast sales and margin are
behind the acquisition case, reducing the future value projection,
and a GBP7.6m write-off of unusable manufacturing equipment in
Japan. The adjusting charge within net interest relates to unwind
of the discount on contingent consideration of GBP1.7m (2021:
GBP3.3m).
Adjusted operating profit, measured excluding the adjusting
items above, increased by 9.9% to GBP515.1m (2021: GBP468.6m),
reflecting the higher sales. Return on sales was broadly unchanged
at 24.7% (2021: 24.8%), with an improved margin mix from the
reduced share of industrial sales and the lower variable
remuneration charge offset by normalisation of the Life Sciences
margin, after an exceptional 2021, and a lower Consumer Care margin
due to the operating gearing effect of lower volume and a weaker
product mix. Adjusted profit before tax increased by 11.4% to
GBP496.1m (2021: GBP445.2m).
The effective tax rate on adjusted profit was 22.8% (2021:
21.2%), the prior year having benefitted from a one-off benefit
from settlement of a previously uncertain tax position. The
effective tax rate on IFRS profit was 16.2% (2021: 21.6%), the
lower rate reflecting corporate tax exemptions available on the
PTIC divestment. There were no significant adjustments between the
Group's expected and reported tax charge based on its accounting
profit. IFRS basic earnings per share (EPS) more than doubled to
465.8p (2021: 230.0p), while adjusted basic EPS increased by 8.8%
to 272.0p (2021: 250.0p).
Growing sector profits
2022 2021 restated
======================= ============================ ----------------------------
IFRS Adjustments Adjusted IFRS Adjustments Adjusted
Operating profit GBPm GBPm GBPm GBPm GBPm GBPm
======================= ===== =========== ======== ===== =========== ========
Consumer Care 144.5 (60.2) 204.7 168.0 (20.5) 188.5
Life Sciences 220.3 (9.1) 229.4 201.0 (7.5) 208.5
Industrial Specialties 79.9 (1.1) 81.0 69.2 (2.4) 71.6
======================= ===== =========== ======== ===== =========== ========
Group 444.7 (70.4) 515.1 438.2 (30.4) 468.6
----------------------- ----- ----------- -------- ----- ----------- --------
Consumer Care adjusted operating profit grew by 8.6%, driven by
higher sales but at a lower margin, reflecting lower volume and an
adverse business mix. Life Sciences adjusted operating profit grew
by 10.0%, despite the prior year being buoyed by exceptional demand
for Covid-19 vaccines, with sales growing in the rest of the Pharma
business and in Crop Care. Industrial Specialties profit grew by
13.1%, a strong result given the business was significantly
smaller, following the divestment of the majority of the business
in June 2022 (with the second half of 2021 estimated to have
benefitted from GBP27m of adjusted operating profit from the
divested business (compared to GBPnil in the second half of 2022)).
Group profit growth reflected underlying growth and currency
translation benefit across all sectors, with no material impact
from acquisitions (covering the first 12 months of ownership).
Full year ended 31 December
Underlying Acquisition Currency Restated
Adjusted profit 2022 growth impact impact 2021
GBPm GBPm GBPm GBPm GBPm Change
===================== ====== ========== =========== ======== ======== =======
Consumer Care 204.7 8.8 0.7 6.7 188.5 8.6%
Life Sciences 229.4 9.8 0.0 11.1 208.5 10.0%
Industrial Chemicals 81.0 7.6 0.0 1.8 71.6 13.1%
===================== ====== ========== =========== ======== ======== =======
Operating profit 515.1 26.2 0.7 19.6 468.6 9.9%
Net interest (19.0) (23.4) (18.9)%
===================== ====== ========== =========== ======== ======== =======
Profit before tax 496.1 445.2 11.4%
===================== ====== ========== =========== ======== ======== =======
The phasing of return on sales between the first and second half
years reflected normal seasonality, together with a lower margin in
Consumer Care in the second half year due to the dilution effect of
lower volume and business mix.
First Second Full
Half Half Year
2022 return on sales % % %
======================= ===== ====== =====
Consumer Care 26.6 18.9 22.8
Life Sciences 36.0 31.4 33.6
Industrial Specialties 17.7 12.3 15.9
======================= ===== ====== =====
Group 26.6 22.3 24.7
======================= ===== ====== =====
Improving free cash flow
Free cash flow was GBP167.4m (2021: GBP153.6m), with working
capital improving, as expected, in the second half year as raw
material inflation peaked, resulting in a reduction in inventory
and receivables values. Nevertheless, average values remained
elevated at year end; of the GBP133.8m increase in working capital
during the year, approximately GBP82m reflected the impact of
inflation at a 'constant days cover'. The remaining GBP52m
reflected investment for growth, primarily higher receivables. Net
capital expenditure was GBP138.5m (2021: GBP158.5m), driving future
growth opportunities and supported by government funding grants in
the Pharma business. Investment was behind expectation, with some
supply chain challenges, but is expected to recover the shortfall
in 2023, in line with our plans.
Full year ended
31 December
2022 2021
Cash flow GBPm GBPm
===================================================== ======== =======
Adjusted operating profit 515.1 468.6
Depreciation and amortisation 86.4 79.0
===================================================== ======== =======
EBITDA 601.5 547.6
Working capital (133.8) (102.5)
Net capital expenditure (138.5) (158.5)
Payment of lease liabilities (17.4) (14.4)
Non-cash pension expense 4.5 11.2
Interest & tax (148.9) (129.8)
===================================================== ======== =======
Free cash flow 167.4 153.6
Dividends (144.4) (132.5)
Acquisitions (21.2) (58.8)
Business disposal net of cash in disposed businesses 579.0 -
Other cash movements (18.5) 19.0
===================================================== ======== =======
Net cash flow 562.3 (18.7)
===================================================== ======== =======
Net movement in borrowings (381.8) 37.6
===================================================== ======== =======
Net movement in cash and cash equivalents 180.5 18.9
===================================================== ======== =======
Closing net debt was GBP295.2m (2021: GBP823.2m), benefiting
from disposal proceeds. The leverage ratio reduced to 0.5x EBITDA
(2021: 1.4x). As at 31 December 2022, the Group had committed
funding in place of GBP1,122.5m, with undrawn committed facilities
of GBP579.3m and GBP320.6m in cash.
Assessing evolving risks
The Group conducts scenario modelling as part of its viability
and going concern evaluation, to evaluate the impact of
uncertainties, continually reassessing evolving risks and their
impact on the Group's strategy. These scenarios highlighted the
resilience of the Group and its ability to withstand unexpected
shocks.
Effective capital allocation
The divestment has released capital to be reinvested in faster
growth markets, further developing our sustainability leadership in
consumer care and crop care markets, whilst increasing our presence
in pharmaceutical delivery systems. We are prioritising organic
capital investment to create new technology platforms and expand
capacity for future growth. This will be complemented with
inorganic investment, where we can acquire complementary businesses
and organically invest in them to grow, in line with our 'buy and
build' model. These elements are reflected in the Group's capital
allocation policy, to:
1. Reinvest for growth - investment in organic capital
expenditure to drive shareholder value creation through new
capacity, product innovation and expansion in attractive geographic
markets to drive sales and profit growth;
2. Provide regular returns to shareholders - pay a regular
dividend to shareholders, representing 40 to 50% of adjusted
earnings over the business cycle. The full year dividend has been
raised by 8% to 108.0p (2021: 100.0p);
3. Acquire disruptive technologies - to supplement organic
growth, we are targeting a number of exciting technology
acquisitions in existing and adjacent markets, with a focus on
strengthening our Consumer Care business and expanding in Life
Sciences; and
4. Maintain an appropriate balance sheet and return excess
capital - maintain an appropriate balance sheet to meet future
investment and trading requirements, targeting a leverage ratio of
1 to 2x over the medium-term cycle. We consider returning excess
capital to shareholders when leverage falls below our target range
and sufficient capital is available to meet our investment
opportunities.
Retirement benefits
The post-tax asset on retirement benefit plans at 31 December
2022, measured on an accounting valuation basis under IAS19, was
GBP75.2m (2021: GBP5.8m), with the surplus primarily reflecting
higher discount rates. Cash funding of the various plans is driven
by the schemes' ongoing actuarial valuations. The triennial
actuarial valuation of the largest pension plan, the UK Croda
Pension Scheme, was performed as at 30 September 2020 and indicated
that the scheme was 101% funded on a technical provisions basis.
Consequently, no deficit recovery plan is required. Although the UK
scheme utilises a Liability Driven Investment (LDI) structure, its
gearing level is modest and no solvency issues were encountered
during the UK gilt 'crisis' during September 2022.
Post balance sheet events
On 3 February 2022, we agreed to acquire Solus Biotech, a global
leader in premium, biotechnology-derived beauty actives, from Solus
Advanced Materials for a total consideration of KRW350bn
(approximately GBP232m) on a debt-free, cash-free basis. Employing
95 people in South Korea, Solus expands Croda's Asian manufacturing
capability and will create a new biotechnology R&D hub in the
region. The business generated approximately KRW43bn (c.GBP28m) of
sales in 2022. The pending acquisition will provide access to
Solus' existing biotech-derived ceramide and phospholipid
technologies, and its emerging capabilities in natural retinol, and
will enhance and complement our Beauty Actives portfolio and
increase our exposure to targeted prestige segments. The
acquisition is subject to regulatory approval and will be funded
from cash and debt facilities.
Sector Performance Review
Consumer Care
Strengthening Consumer Care to be more responsive, innovative
and sustainable
Croda has the broadest range of critical Consumer Care
ingredients in the industry, speciality products that are both
sustainable and underpinned by performance. Our business model
helps us to win; operating in over 120 countries, Croda supports
customers large and small globally.
The Consumer Care strategy reflects the megatrends that shape
consumer behaviour and drive our customers' needs. Consumers want
performance and will pay a premium for high quality, innovative
formulations and substantiated product claims. They also want to
live their lives more sustainably and this is impacting their
decisions when it comes to the products to buy.
Our ambition is to be the world's most sustainable, innovative
and responsive solution provider. Already recognised as a
market-leading innovator, our strategy is to continue to strengthen
Consumer Care in fast growth niches, by accelerating innovation,
expanding our sustainable product portfolio and enhancing our
customer intimacy. Leadership requires us to deliver sustainable
ingredients with the best performance and data to support customer
claims. We will also lead in formulation science and application
technologies.
Our innovation is improving the sustainability of our
ingredients and finding high performance replacements for
fossil-based products. New Formulation Academies enable us to
showcase our ingredients, educate customers on their use and
develop finished formulations for customers, incorporating both our
performance-based ingredients and emotion-driven fragrances and
botanicals to deliver complete solutions. This is particularly
attractive to smaller companies, who can partner with Croda to
launch products to the market at pace.
With the personal care market in Asia developing rapidly, we
have a 'fast grow' programme to expand our technical and sales
presence. This is being supported by selective expansion in
manufacturing and a focus on acquisition opportunities, targeting
adjacent active technologies and natural ingredients. We have
reached agreement to acquire Solus Biotech, consolidating Croda's
position across three critical technology platforms of peptides,
ceramides and retinol, while adding a North Asia manufacturing
facility and biotech innovation hub.
Consumer Care targets annual organic sales growth of at least
5%, supplemented by synergies from integrating the recent F&F
acquisitions, with a return on sales at or above 25%, over the
medium term. Its key target markets are skin care, hair care, solar
protection, fabric and surface care, and fragrances. These are
addressed through four business units, as follows:
Beauty Actives (c15% of sector sales) operates in the highest
premium part of the market, offering customers scientific expertise
for unparalleled product efficacy. Croda leads the market with the
largest actives portfolio, through three brands: Sederma, for
differentiated skin actives derived from peptides and biotech;
Alban Muller, for natural botanical actives; and Crodarom, for
botanical extracts. The strategy is to be the 'go to' provider for
performance claims, reinforcing our leadership by expanding our
footprint, accessing sustainable technologies, leveraging the
recent Alban Muller acquisition and targeting new acquisitions in
adjacent technologies, such as the recently announced Solus
acquisition.
Beauty Care (c55% of sector sales) delivers differentiated
ingredients across skin, hair and solar care, with a heritage
portfolio which is the second largest in the industry. The strategy
is to strengthen Beauty Care through a focus on growth and agility
in the target market segments, innovate in sustainable effect
ingredients, deliver a full service formulation capability for
customers and differentiate our products through a rich data set
which customers can leverage to meet their specific market
needs.
Fragrances and Flavours (F&F) (c25% of sector sales) is the
preeminent emerging market provider, with near-global reach and
innovative technologies that meet smaller customers' needs. This is
delivered through two fragrance brands: Iberchem, differentiated by
its customer intimacy and responsiveness; and Parfex, with its
excellent reputation in prestige markets for fine and natural
fragrances, as well as Scentium in Flavours. The strategy is to
develop the business as a leader in sustainable fragrances,
unlocking the potential of F&F through organic growth and
driving synergies with Croda's ingredient customer base.
Home Care (c5% of sector sales) is focused on bringing Croda's
ingredients to selective premium home care markets. This is
delivered through two technology platforms which deliver improved
efficacy and sustainability: fabric care, with proteins that
increase the lifetime of clothes; and household care, with
sustainable alternatives to fossil-based surfactants.
Consumer Care - a solid performance demonstrates increased
resilience
Consumer Care delivered a solid performance in 2022, with record
sales and profit but a more constrained second half year
performance. Sales were up 18% and adjusted operating profit 9%
higher. Across the four businesses, Beauty Care and F&F saw the
strongest growth. Beauty Care developed well in the higher value
niches driven by demand for sustainable ingredients, such as
mineral sunscreens. Within F&F, sales in fragrances recovered
after a challenging 2021, as emerging market conditions improved,
alongside developing Croda sales synergies and benefits from
integration of the recent Parfex acquisition. Beauty Actives had a
quieter year, with destocking impacting performance but good
progress integrating the recent Alban Muller acquisition. Home Care
grew with the roll out of high value protein ingredients.
Sales grew to GBP897.8m (2021: GBP763.0m). Price/mix was up 22%
as significant input cost inflation was successfully recovered.
Volume was 12% lower than 2021, driven by two components. Firstly,
excess stocks across our customers and the retail supply chain,
following strong demand in 2021 to meet the post-pandemic recovery,
led to destocking by customers in the second half of 2022,
particularly in North America. Secondly, volume was lower due to
selective demarketing of lower margin products due to capacity
constraints in some Croda sites, together with the closure of our
Russia office. It is estimated that customer destocking has
accounted for five percentage points of the volume decline, with
five points from demarketing and the balance from Russia and other
impacts. Previous acquisitions added 2% to overall sales growth (in
their first 12 months of ownership) and currency translation added
6%.
Adjusted operating profit increased to GBP204.7m (2021:
GBP188.5m). Return on sales reduced to 22.8% (2021: 24.7%), with
second half year margin lower due to the gearing effect of lower
volume and the impact of the adverse business mix, as Beauty Care
and F&F grew faster than the higher margin Beauty Actives
business. IFRS operating profit declined to GBP144.5m (2021:
GBP168.0m), including an impairment charge of GBP34.6m to the
carrying value of the Flavours business, where lower forecast sales
and margin have reduced the future value projection.
Delivery of our Strengthen to Grow strategy is progressing well,
positioning Consumer Care as a more resilient growth platform.
Consumer care products are increasingly synonymous with wellbeing
and self-esteem, with consumers willing to pay a premium for new
trends and high quality/low impact products that are good for them
and good for the planet. Croda is positioned as the leading
innovator, developing cutting edge products with substantiated
claims and fully assured impact data for customers to develop their
new products. In 2022, we published product information dossiers on
our products and are developing life cycle assessments and
associated carbon footprint data that include the scope 3 carbon
emission data for our products. Driving fast innovation and
minimising customers' time to market, we have launched Formulation
Academies, promoting our full service formulation capability and
giving smaller customers greater access to market-leading
formulations. With over 70,000 customer/product combinations in
F&F and 40,000 across the remainder of Consumer Care, the
Academies are benefiting all our businesses, but particularly
Beauty Care and F&F.
We are expanding in Asia, with rising regional consumption
increasing penetration of consumer care products and Croda's sales
now matching those in North America. China is likely to be the
fastest growing market, with Croda already well established and
serving the domestic market through imports and local production,
achieving high single digit percentage sales growth in 2022 despite
local Covid lockdowns. With our 'fast grow Asia' strategic
initiative, investment in China is increasing innovation and sales
resource, replicating our US model to serve a growing customer base
of 'Indie' brands and acquiring a site to expand our fragrance and
botanical production. More broadly, investment in Consumer Care is
focused on expanding sustainable technologies, including biotech.
We continue to explore targeted acquisition of adjacent
knowledge-rich technologies, building on the agreement to acquire
Solus Biotech, with its rich IP and proprietary know-how in
biotech-derived beauty actives.
Skin care is a growth market, with the anti-ageing niche we
target growing even faster. Beauty Actives has the largest active
ingredient portfolio. Underlying sales were flat in 2022 against a
strong prior year which had seen sales grow close to 30%, and the
business experienced customer destocking in the third quarter but
recovering somewhat as the year finished. Beauty Actives increased
its customer base and innovation pipeline. Croda is the recognised
leader in peptide ingredients, an effective anti-ageing technology,
and is expanding into two other critical technology platforms -
retinol and ceramides. In retinol, 2022 saw the launch of
Revitalide, which is differentiated through encapsulation,
leveraging expertise from our Brazil encapsulation centre of
excellence, which improves skin penetration ninefold and doubles
its lasting effect. We are entering the ceramides market through
the agreement to acquire Solus.
Beauty Care saw success from new teams focused on mineral
sunscreens and professional hair care, segments growing twice as
fast as broader categories. Strong double digit percentage sales
growth saw record solar protection sales, driven by consumer
preference for mineral-only sunscreens and greater use of UV
filters in daily wear products, with sales particularly strong in
Asia. We achieved a People Positive commitment of protecting 60
million lives globally through sun care solutions, seven years
ahead of schedule. Alongside this success, the consumer shift to
sustainable ingredients saw Croda expand its bio-based and milder
surfactant portfolio, while personal care sales of ECO bio-based
surfactants tripled in the year, supporting our ambition to
eliminate petrochemical derived surfactants globally. New product
launches included ChromaPur, a natural alternative to microbeads
that contain microplastics and are currently used in a wide range
of personal care products.
F&F is focused on serving local customers in emerging
markets, which are seeing the highest growth in fragrances. Sales
grew by over 20%, with strong price recovery of raw material
inflation. Innovation included bio-based fragrances and the launch
of VernovaCaps, only the second biodegradable fragrance capsule on
the market. The technology opens up encapsulated fragrances to
customers beyond major global brands and has already been selected
for fabric conditioners. The recent acquisition of Parfex has
increased our presence in fine fragrances and our position in
France. We have expanded our teams in Indonesia and South Africa,
and launched a new F&F operation in Brazil, leveraging Croda's
existing personal care strength. We are investing in China, already
a significant fragrance market for Croda. Following some
Covid-imposed delays, we are now driving integration synergies
which will deliver nearly EUR50m of annual sales through
combination with Croda's formulation capability. Home Care secured
a new contract which will underpin growth in its core protein
fabric technology and launched a microbial cleaning technology
creating a new sustainable niche.
Life Sciences
Expanding Life Sciences to empower biologics delivery
In Life Sciences, Croda focuses on providing delivery systems
for active pharmaceutical and crop ingredients. Our technologies
deliver the active, improve its efficacy and solve challenges of
stability and sustainability in customer formulations. Our 'buy and
build' approach to new technology platforms has made Life Sciences
as important to Croda as Consumer Care.
Our global footprint gives us presence in the major crop regions
and access to leading pharma R&D. Our strength in North America
and Western Europe is now leveraged through expansion in Asia and
Latin America. Working as an innovation partner to the major crop
science companies, we have also expanded with medium and smaller
sized customers, especially local customers in Latin America, India
and China. Our acquisition of research-focused Avanti in 2020
expanded our pharma customer base to span drug and vaccine
discovery and clinical trial stages, alongside our established
commercialisation business. These relationships extend beyond
global brands to academia, start-ups and biotech, where significant
breakthrough discovery happens.
Our strategy is to expand Life Sciences to empower biologics
delivery, enabling the move from small chemically synthesised
molecules to large and complex biologics, a megatrend which is
transforming the pharmaceutical market and which will transform
agriculture. In Pharma, we focus on segments with the strongest
growth and highest innovation needs, leveraging our delivery
systems and technology platforms to create new solutions for
customers. In Crop Care, we are reinforcing our leadership with
sustainable solutions and leveraging our expertise to accelerate
the transition to biologics, which will enable greater targeting of
actives and reduced biodiversity impact.
To deliver this strategy, we are investing in innovation,
knowledge and capacity. Our R&D investment is creating an
extensive innovation pipeline. We are increasing our knowledge base
in innovation, sales and manufacturing, co-investing with national
governments who recognise the importance of biologics in the 21st
century. We are supplementing organic growth with acquisition of
new technology platforms, building on the successful growth of our
vaccine adjuvant platform, acquired in 2018 and already doubled in
sales, and our lipid systems platform, acquired in 2020 and the
first to deliver a commercial Covid-19 mRNA delivery system.
Life Sciences targets high single digit percentage annual sales
growth, with a return on sales over 30% over the medium term. This
is achieved through three businesses:
Crop Protection (c30% of sector sales) has leading relationships
with the major crop science companies, offering ingredients that
improve performance and delivery of crop formulations. Our strategy
is to deliver sustainable solutions using technology platforms and
expertise in complex crop formulation systems, improving yields,
accelerating the transition to biologics and contributing to food
security.
Seed Enhancement (c10% of sector sales) leverages our leadership
in seed coating systems to improve germination, stimulate healthy
development of seeds and increase crop yield. Our strategy is to be
the leader in sustainable solutions for field and vegetable
crops.
Pharma (c60% of sector sales) targets leadership in biologics
drug delivery, delivering drug and vaccine systems through
synthesis, system formulation and application technology know-how,
and comprises three platforms:
-- Protein/Small Molecule Delivery has an established record of
providing excipients (delivery systems) for complex protein drugs.
These large, sensitive molecules are typically injected. Our
differentiated range delivers the highest purity excipients to
customers, including 'Big Pharma'. Our strategy is to support
established small molecule drugs and develop excipients for complex
protein and monoclonal antibody (mAb) applications.
-- Adjuvant Systems was created by our 2018 acquisition of
Biosector, creating the best invested third party supplier of
adjuvants (immune response boosters) for vaccines. Our strategy is
to accelerate use of innovative adjuvant systems, comprising
multiple building blocks, supporting WHO vaccine programmes and the
development of future preventative and therapeutic vaccines.
-- Nucleic Acid Delivery was created by our 2020 acquisition of
Avanti and delivered the world's first commercial lipid system for
mRNA vaccines for Covid-19. Nucleic acid therapeutic drugs and
vaccines will be increasingly commercialised from 2025. Avanti
brought an unmatched portfolio of R&D customer relationships,
with over 3,000 customers and a diverse range of lipids and similar
components. Our strategy is to be a global leader in nucleic acid
delivery systems by expanding our portfolio of technologies and
ingredients.
Life Sciences building on exceptional prior year
Following an outstanding year for Life Sciences in 2021, with
the rapid expansion of Pharma following the Avanti acquisition and
exceptional demand for Covid-19 vaccines, 2022 saw further strong
progress. Sales increased by 19% and adjusted operating profit by
10%. Across the three businesses, Crop Protection led the way, with
exceptional growth driven by double-digit percentage volume and
price/mix increases. Seed Enhancement, with its innovative
microplastic-free product innovation, also grew sales by
double-digit percentage. Croda Pharma consolidated on its stellar
growth in 2021, with continued expansion in delivery systems in
Protein/Small Molecule Delivery and for non-Covid nucleic acid
applications.
Sector sales grew by 19% to GBP682.3m (2021: GBP572.3m) with
performance strengthening in the second half of the year. Price/mix
grew by 6%, while volume was 8% higher. Currency translation added
5% to overall sales growth. Adjusted operating profit increased by
10% to GBP229.4m (2021: GBP208.5.m), with IFRS operating profit
also up 10% to GBP220.3m (2021: GBP201.0m). 2022's performance was
achieved despite an anticipated near-40% decline in sales of lipid
systems to our principal Covid-19 vaccine customers. With Crop
Protection a larger proportion of the sales mix and normalising
lipid systems margin, return on sales reduced to 33.6% (2021:
36.4%).
Crop Protection was the standout business, delivering strong
double digit percentage sales growth, with a combination of high
global demand and significant commodity price inflation supporting
value added crop treatments. Working in partnership with crop
science customers and collaboratively to solve sustainability
challenges and improve yields, our aspiration is to be Net Nature
Positive by 2030. A particular area of focus is biodegradability to
promote soil health, with a number of new biodegradable ingredients
coming to market. Syngenta awarded Croda its 'Reduction in Carbon'
supplier award, recognising the carbon benefits in use of Croda's
products and the customer benefits from our sustainability
strategy. We are investing to develop systems for next generation
biopesticide delivery that use microbials and RNA, a market which
is currently much smaller than conventional pesticides but is
growing fast. Biologic actives are more complex and specific,
meaning land treatment can be at a much lower level than
conventional chemical pesticides.
Seed Enhancement also delivered a double-digit percentage sales
increase. As an innovation partner to leading seed companies, our
range of microplastic-free seed coatings have been proven in field
trials across a variety of vegetable and field crops, with all
major customers and in all major regions. This is creating
significant growth opportunities, with commercial sales in multiple
field crops and vegetables already secured. The business delivered
the first successful field trials in the Americas for
drought-resistant seed coatings, helping farmers to reduce the
negative impact from abiotic stress. It also developed a tailored
treatment for potato seeds which have multiple sustainability
benefits over potato tubers that farmers have traditionally
used.
In 2022, our Health Care business was repositioned as 'Croda
Pharma' to focus on segments with complex development requirements.
The relaunch was accompanied by a new brand, organisational
structure and governance for its exciting project and innovation
pipelines. Protein/Small Molecule Delivery grew strongly, providing
delivery systems for both mature small molecule drugs and higher
growth protein and mAb applications. With 1,400 direct customers,
the business is working on over a thousand customer projects across
both clinical development and commercial supply. These include
projects in several therapeutic areas, such as osteoporosis,
hypertension, diabetes and cancer, particularly in Asia, North
America and Europe. Strong demand in India will be supported by a
new Pharma innovation centre opening soon in Hyderabad.
Within Pharma, the Adjuvant Systems business saw reduced demand
from Covid systems in 2022 but has grown to over 100 commercial
customers for prophylactic vaccines that prevent disease. It is
also supporting many hundreds of pre-clinical and clinical
projects, including new prophylactic vaccines driven by the WHO's
immunisation agenda and novel therapeutic vaccines that fight
already contracted disease. These include a respiratory syncytial
virus (RSV) vaccine in phase 3 trials, a personalised cancer
vaccine in clinical phase 2 development and a new vaccine for
Ebola. The innovation pipeline is focused on the development of
adjuvant systems to power the therapeutic vaccines of the future,
leveraging expertise added with the Avanti acquisition and a new
applications laboratory in Denmark.
With mRNA vaccines for Covid-19 having proven the viability of
our Nucleic Acid Delivery business, the market for new drug and
vaccine applications is developing fast, both for mRNA-based drugs
and gene editing applications, which modify a patient's genetic
material to correct a disorder. 2022 sales were approximately
US$170m (2021: $230m), a little ahead of expectations. Sales
outside the principal Covid-19 vaccine customers now represent
almost 40% of business sales and are expected to be the majority of
the $120m sales expected in 2023, as Covid-19 sales continue to
decline. Supporting close to 100 nucleic acid drugs currently in
development, including manufacturing materials for a phase 3 trial
of a flu vaccine, combination vaccines, cancer immunotherapies and
the world's first human trial of a gene therapy application, the
pipeline for this business is strong.
We are investing in innovation, knowledge and capacity to
broaden our footprint and capabilities in drug delivery, including
new application laboratories aligned to each business. We have a
GBP175m capital programme for the period 2021-24 to expand our
Pharma capability, including the expansion of the US Avanti site
into a full GMP facility, the expansion of our UK lipid scale up
facility and the creation of a second US GMP scale up plant in
Pennsylvania. Our investment is supported by up to an additional
GBP75m from the UK and US governments, in recognition of the
importance of our delivery systems to future drug development and
their pandemic preparedness plans.
Industrial Specialties established
The Performance Technologies and Industrial Chemicals (PTIC)
business performed well in the first half of 2022, with recovery of
material input cost inflation, as volume declined as industrial
markets destocked and were impacted by emerging macroeconomic
recession. Industrial Chemicals benefitted from the strong
commodity pricing environment.
Croda divested the majority of the PTIC business on 30 June
2022. From 1 July 2022, the part of PTIC retained by Croda became
Industrial Specialties (IS), including the SIPO joint venture in
China. IS plays a critical role in our shared manufacturing model,
supporting the efficiency of the Consumer Care and Life Sciences
sectors. In addition to supplying ingredients for water treatment,
fibres and fabrics, emulsion technologies, low emission coatings,
display technologies and electronics, it also generates revenue
from a new supply agreement with the acquirer.
IS revenue totalled GBP509.2m in 2022 (2021: GBP554.3m) and
adjusted operating profit increased to GBP81.0m (2021: GBP71.6m),
despite the lack of the divested business in the second half year.
IFRS profit was GBP79.9m (2021: GBP69.2m).
Other matters
Principal risks
The Group's principal risks are revenue generation; product and
technology innovation and protection; digital technology
innovation; delivering sustainable solutions - Climate and Land
Positive; management of business change; our people - culture,
wellbeing, talent development and retention; product quality; loss
of significant manufacturing site; ethics and compliance; and
security of business information and networks. The following
principal risks were identified as heightened relative to 2021:
-- Revenue generation: This risk increased in likelihood and
impact as greater geopolitical instability, rising inflation and
slowing economic growth increased uncertainty. Our powerful
business model has allowed us to continue to manage this risk
effectively by recovering the significant inflation that persisted
throughout 2022. After a period of strong market growth, there are
some signs of macro-economic slowdown in some regions facing a
cost-of-living squeeze, which could impact our ability to deliver
short-term growth in consumer-facing markets;
-- Security of business information and networks: The conflict
in Ukraine highlights the increased risk of geopolitical disputes.
One impact of this can be an increase in state-sponsored
cyberattacks, increasing risk to computer networks and systems. We
are implementing an enhanced information security programme;
and
-- Our people - culture, wellbeing, talent development and
retention: Competitive labour markets and the cost-of-living crisis
in some regions increase the risk of not attracting and retaining
necessary talent. To successfully control that risk, we are
investing in talent development, enhanced benefits according to
regional needs and providing financial support to counter the
increase in employees' cost of living.
The following principal risk was identified as having reduced
relative to 2021:
-- Loss of significant manufacturing site (major safety or
environmental incident): This risk has decreased after the
successful divestment of two of our large industrial sites in 2022,
reducing the number of high hazard processes within the Company. In
addition, capital investments in several sites in more sustainable
and safer technologies, such as biofuel steam raising boilers which
displace natural gas, and the introduction of continuous processes
which are inherently safer and more efficient than old batch
technologies, have also contributed.
Croda International Plc
Summary Financial Statements for the Year Ended 31 December
2022
Group Income Statement
for the year ended 31 December 2022
2022 2022 2022 2021 2021 2021
Reported Reported
Adjusted Adjustments Total Adjusted Adjustments Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
========================== ==== ========= ============ ========= ========= ============ =========
Revenue 2 2,089.3 - 2,089.3 1,889.6 - 1,889.6
Cost of sales (1,103.7) - (1,103.7) (950.7) - (950.7)
========================== ==== ========= ============ ========= ========= ============ =========
Gross profit 985.6 - 985.6 938.9 - 938.9
Operating costs (470.5) (70.4) (540.9) (470.3) (30.4) (500.7)
========================== ==== ========= ============ ========= ========= ============ =========
Operating profit 2 515.1 (70.4) 444.7 468.6 (30.4) 438.2
Gain on business disposal 12 - 356.0 356.0 - - -
Financial costs 3 (24.1) (1.7) (25.8) (24.9) (3.3) (28.2)
Financial income 3 5.1 - 5.1 1.5 - 1.5
========================== ==== ========= ============ ========= ========= ============ =========
Profit before tax 496.1 283.9 780.0 445.2 (33.7) 411.5
Tax 4 (112.9) (13.8) (126.7) (94.4) 5.7 (88.7)
========================== ==== ========= ============ ========= ========= ============ =========
Profit after tax for
the year 383.2 270.1 653.3 350.8 (28.0) 322.8
========================== ==== ========= ============ ========= ========= ============ =========
Attributable to:
Non-controlling interests 4.0 - 4.0 2.0 - 2.0
Owners of the parent 379.2 270.1 649.3 348.8 (28.0) 320.8
========================== ==== ========= ============ ========= ========= ============ =========
383.2 270.1 653.3 350.8 (28.0) 322.8
========================== ==== ========= ============ ========= ========= ============ =========
Adjustments relate to exceptional items, amortisation of
intangible assets arising on acquisition and the tax thereon.
Details are disclosed in note 2.
Pence Pence Pence Pence
Reported Reported
Adjusted Total Adjusted Total
============================= ========= ========= ========= =========
Earnings per 10.61p ordinary
share
Basic 5 272.0 465.8 250.0 230.0
Diluted 271.4 464.8 249.5 229.5
Ordinary dividends paid
in the year
Interim 6 47.0 43.5
Final 6 56.5 51.5
============================= ========= ========= ========= =========
Group Statement of Comprehensive Income
for the year ended 31 December 2022
2022 2021
GBPm GBPm
================================================= ====== ======
Profit after tax for the year 653.3 322.8
Other comprehensive income/(expense):
Items that will not be reclassified subsequently
to profit or loss:
Remeasurements of post-retirement benefit
obligations 88.9 40.6
Tax on items that will not be reclassified (22.4) (8.3)
================================================= ====== ======
66.5 32.3
================================================= ====== ======
Items that have been or may be reclassified
subsequently to profit or loss:
Currency translation 104.2 (61.1)
Reclassification of currency translation (14.8) -
Cash flow hedging 2.8 3.7
Reclassification of cash flow hedging (6.5) -
Cost of hedging reserve - (6.0)
Reclassification of cost of hedging reserve 6.0 -
Tax on items that may be reclassified (0.4) 0.4
================================================= ====== ======
91.3 (63.0)
================================================= ====== ======
Other comprehensive income/(expense) for
the year 157.8 (30.7)
================================================= ====== ======
Total comprehensive income for the year 811.1 292.1
================================================= ====== ======
Attributable to:
Non-controlling interests 4.4 2.1
Owners of the parent 806.7 290.0
================================================= ====== ======
811.1 292.1
================================================= ====== ======
Arising from:
Continuing operations 811.1 292.1
================================================= ====== ======
Group Balance Sheet
at 31 December 2022
2022 2021
Note GBPm GBPm
============================================ ==== ======= =========
Assets
Non-current assets
Intangible assets 7 1,253.2 1,271.6
Property, plant and equipment 8 964.5 988.1
Right of use assets 96.9 87.9
Investments 3.4 3.3
Deferred tax assets 10.3 13.5
Retirement benefit assets 9 123.2 35.3
============================================ ==== ======= =========
2,451.5 2,399.7
============================================ ==== ======= =========
Current assets
Inventories 464.0 443.0
Trade and other receivables 375.8 337.9
Cash and cash equivalents 320.6 112.8
============================================ ==== ======= =========
1,160.4 893.7
============================================ ==== ======= =========
Liabilities
Current liabilities
Trade and other payables (320.0) (358.0)
Borrowings and other financial liabilities (121.9) (50.9)
Lease liabilities (12.9) (12.2)
Provisions 9 (6.1) (5.5)
Current tax liabilities (26.9) (33.3)
============================================ ==== ======= =========
(487.8) (459.9)
============================================ ==== ======= =========
Net current assets 672.6 433.8
============================================ ==== ======= =========
Non-current liabilities
Borrowings and other financial liabilities (401.8) (794.6)
Lease liabilities (79.2) (78.3)
Other payables (4.5) (12.3)
Retirement benefit liabilities 9 (23.1) (27.4)
Provisions 9 (11.5) (3.6)
Deferred tax liabilities (172.9) (151.4)
============================================ ==== ======= =========
(693.0) (1,067.6)
============================================ ==== ======= =========
Net assets 2,431.1 1,765.9
============================================ ==== ======= =========
Equity
Ordinary share capital 15.1 15.1
Preference share capital - 1.1
============================================ ==== ======= =========
Share capital 15.1 16.2
Share premium account 707.7 707.7
Reserves 1,692.8 1,029.2
============================================ ==== ======= =========
Equity attributable to owners of the parent 2,415.6 1,753.1
Non-controlling interests in equity 15.5 12.8
============================================ ==== ======= =========
Total equity 2,431.1 1,765.9
============================================ ==== ======= =========
Group Statement of Changes in Equity
for the year ended 31 December 2022
Share Non
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2021 16.2 707.7 19.3 842.6 9.3 1,595.1
Profit after tax for the year - - - 320.8 2.0 322.8
Other comprehensive (expense)/income - - (63.1) 32.3 0.1 (30.7)
========================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive (expense)/income
for the year - - (63.1) 353.1 2.1 292.1
========================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 6 - - - (132.5) - (132.5)
Share-based payments - - - 12.7 - 12.7
Transactions in own shares - - - (2.4) - (2.4)
========================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (122.2) - (122.2)
========================================== ==== ======== ======== ========= ========= ============ =======
Changes in ownership interests:
Acquisition of a subsidiary
with a non-controlling interest - - - - 1.6 1.6
Acquisition of a non-controlling
interest - - - (0.5) (0.2) (0.7)
Issue of share capital - - - - 0.2 0.2
Dividends paid to non-controlling
interests - - - - (0.2) (0.2)
Total changes in ownership interests - - - (0.5) 1.4 0.9
========================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 31 December
2021 16.2 707.7 (43.8) 1,073.0 12.8 1,765.9
========================================== ==== ======== ======== ========= ========= ============ =======
At 1 January 2022 16.2 707.7 (43.8) 1,073.0 12.8 1,765.9
Profit after tax for the year - - - 649.3 4.0 653.3
Other comprehensive income - - 90.9 66.5 0.4 157.8
========================================== ==== ======== ======== ========= ========= ============ =======
Total comprehensive income for
the year - - 90.9 715.8 4.4 811.1
========================================== ==== ======== ======== ========= ========= ============ =======
Transactions with owners:
Dividends on equity shares 6 - - - (144.4) - (144.4)
Share-based payments - - - 8.3 - 8.3
Transactions in own shares - - - (7.3) - (7.3)
========================================== ==== ======== ======== ========= ========= ============ =======
Total transactions with owners - - - (143.4) - (143.4)
========================================== ==== ======== ======== ========= ========= ============ =======
Changes in ownership interests:
Acquisition of a non-controlling
interest - - - 0.3 (1.7) (1.4)
Total changes in ownership interests - - - 0.3 (1.7) (1.4)
========================================== ==== ======== ======== ========= ========= ============ =======
Preference share capital reclassification (1.1) - - - - (1.1)
========================================== ==== ======== ======== ========= ========= ============ =======
Total equity at 31 December
2022 15.1 707.7 47.1 1,645.7 15.5 2,431.1
========================================== ==== ======== ======== ========= ========= ============ =======
Other reserves include the Capital Redemption Reserve of GBP0.9m
(2021: GBP0.9m), the Hedging Reserve of GBPnil (2021: GBP3.0m), the
Cost of Hedging Reserve of GBPnil (2021: GBP(4.9)m) and the
Translation Reserve of GBP46.2m (2021: GBP(42.8)m). During the year
the Group's preference share capital has been reclassified from
equity to borrowings and other financial liabilities.
Group Statement of Cash Flows
for the year ended 31 December 2022
2022 2021
Note GBPm GBPm
========================================================= ==== ======= =======
Cash generated by operations
Adjusted operating profit 515.1 468.6
Exceptional items 2 (36.1) 3.9
Amortisation of intangible assets arising on acquisition (34.3) (34.3)
========================================================= ==== ======= =======
Operating profit 444.7 438.2
Adjustments for:
Depreciation and amortisation 120.7 113.3
Fair value movement on contingent consideration (6.1) (6.2)
Impairments on intangible assets and property, plant
and equipment 42.2 1.1
Loss on disposal and write-offs of intangible assets
and property, plant and equipment 0.2 5.8
Net provisions charged 1.6 1.6
Share-based payments (11.0) 29.1
Non-cash pension expense 4.5 -
Share of loss of associate - 0.7
Cash paid against operating provisions (0.8) (2.1)
Movement in inventories (98.1) (140.9)
Movement in receivables (43.3) (53.2)
Movement in payables 7.6 91.6
========================================================= ==== ======= =======
Cash generated by operations 462.2 479.0
Interest paid (23.2) (19.8)
Tax paid (130.8) (111.5)
========================================================= ==== ======= =======
Net cash generated from operating activities 308.2 347.7
========================================================= ==== ======= =======
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (48.9)
Payment of contingent consideration (13.7) (9.2)
Purchase of property, plant and equipment (141.2) (153.0)
Receipt of government grant 6.1 -
Purchase of other intangible assets (11.2) (5.7)
Proceeds from sale of property, plant and equipment 1.7 0.2
Proceeds from business disposal, net of cash in
disposed business 583.6 -
Tax paid on business disposals (4.6) -
Cash paid against non-operating provisions (1.2) (1.1)
Interest received 5.1 1.5
========================================================= ==== ======= =======
Net cash generated from/(used in) investing activities 424.6 (216.2)
========================================================= ==== ======= =======
Cash flows from financing activities
New borrowings 232.6 320.2
Repayment of borrowings (614.4) (282.6)
Payment of lease liabilities (17.4) (14.4)
Acquisition of non-controlling interest (1.4) (0.7)
Net transactions in own shares (7.3) (2.4)
Dividends paid to equity shareholders 6 (144.4) (132.5)
Dividends paid to non-controlling interests - (0.2)
========================================================= ==== ======= =======
Net cash used in financing activities (552.3) (112.6)
========================================================= ==== ======= =======
Net movement in cash and cash equivalents 180.5 18.9
Cash and cash equivalents brought forward 94.3 77.8
Exchange differences 6.8 (2.4)
========================================================= ==== ======= =======
Cash and cash equivalents carried forward 281.6 94.3
========================================================= ==== ======= =======
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand 320.6 112.8
Bank overdrafts (39.0) (18.5)
========================================================= ==== ======= =======
281.6 94.3
========================================================= ==== ======= =======
Reconciliation to net debt
2022 2021
Note GBPm GBPm
=========================================================== ===== ======= =======
Net movement in cash and cash equivalents 180.5 18.9
Net movement in borrowings and other financial liabilities 399.2 (23.2)
================================================================== ======= =======
Change in net debt from cash flows 579.7 (4.3)
Loans in acquired businesses - (5.7)
Non-cash movement in lease liabilities (13.4) (24.1)
Non-cash preference shares reclassification (1.1) -
Exchange differences (37.2) 11.4
================================================================== ======= =======
528.0 (22.7)
Net debt brought forward (823.2) (800.5)
================================================================== ======= =======
Net debt carried forward (295.2) (823.2)
================================================================== ======= =======
Notes to the Summary Financial Statements
1. Basis of preparation
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. The financial information set out
above does not constitute the Group's statutory financial
statements for the years ended 31 December 2022 or 2021 but is
derived from those financial statements. Statutory financial
statements for 2021 have been delivered to the Registrar of
Companies and those for 2022 will be delivered following the
Company's Annual General Meeting. The auditor has reported on those
financial statements; their reports were unqualified, did not draw
attention to any matters by way of emphasis without qualifying
their report and did not contain statements under s498(2) or (3) of
the Companies Act 2006.
Going concern basis
The consolidated financial statements have been prepared on a
going concern basis which the Directors believe to be appropriate
for the following reasons:
At 31 December 2022 the Group had GBP1,122m of committed debt
facilities available from its banking group, USPP bondholders and
lease providers, with principal maturities between 2023 and 2030,
of which GBP579.3m (2021: GBP334.4m) was undrawn, together with
cash balances of GBP320.6m (2021: GBP112.8m).
The Directors have reviewed the liquidity and covenant forecasts
for the Group's going concern assessment period covering at least
12 months from the date of approval of the financial statements.
Based on these forecasts, the Group continues to have significant
liquidity headroom and strong financial covenant headroom under its
debt facilities.
A reverse stress testing scenario has been performed which
assesses that adjusted operating profit would need to fall by over
90% to trigger an event of default as at 30 June 2024, before
considering additional unmodelled actions to conserve cash. The
Directors do not consider this a plausible scenario. The Directors
have also considered the impact on the Group from the agreement to
acquire Solus Biotech for total consideration of approximately
GBP232m. This acquisition will be funded by the reinvestment of
PTIC disposal proceeds and will have no material impact on Croda's
leverage and a limited impact on its liquidity. The Directors have
also considered the unlikely scenario that if the full reinvestment
of PTIC disposal proceeds was not made within the agreed timelines
with the USPP bondholders, certain future financial covenant
restrictions could trigger a partial repayment of the USPP bonds.
In this event any potential repayment could be funded from cash
balances and other existing debt facilities. The Directors are
therefore satisfied that the Group has sufficient resources to
continue in operation for a period of not less than 12 months from
the date of approval of the financial statements. Accordingly, the
consolidated financial statements have been prepared on a going
concern basis.
Climate change
The Group has long recognised the scale of the climate emergency
and considers this to offer both opportunities and risks in the
future. The Group's current climate change strategy focuses on
reducing its carbon footprint and increasing its use of bio-based
raw materials, whilst the benefits in using its ingredients will
enable more carbon to be saved than were emitted through operations
and supply chain.
The impact of climate change has been considered in the
preparation of these financial statements across a number of areas
including; our review of property, plant & equipment remaining
useful lives and our evaluation of critical accounting estimates
and judgements detailed in note 9 below. None of these risks had a
material effect on the consolidated financial statements of the
Group. The Group will continue developing its assessment of the
impact that climate change has on the assets and liabilities
recognised and presented in its financial statements.
Changes in accounting policy
In preparing this financial information, management has used the
principal accounting policies that will be detailed in the Group's
Annual Report for 2022 and which are unchanged from the prior
year.
(a) New and amended standards adopted by the Group
A number of new amendments to standards and interpretations are
effective for annual periods beginning on or after
1 January 2022 and have been applied in preparing these
consolidated financial statements. None of these had a significant
effect on the consolidated financial statements of the Group.
(b) New standards and interpretations not yet adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2023 and have not been applied in preparing the
consolidated financial statements. The Group is assessing the
impact of these new standards and the Group's financial reporting
will be presented in accordance with these standards from 1 January
2023 or 1 January 2024 as applicable.
2. Segmental information
The Group's sales, marketing and research activities are
organised into three global market sectors, being Consumer Care,
Life Sciences and Industrial Specialties. 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.
Restated
2022 2021
GBPm GBPm
=============================================================== ======= ========
Income statement
Revenue
Consumer Care 897.8 763.0
Life Sciences 682.3 572.3
Industrial Specialties 509.2 554.3
=============================================================== ======= ========
Total Group revenue 2,089.3 1,889.6
=============================================================== ======= ========
Adjusted operating profit
Consumer Care 204.7 188.5
Life Sciences 229.4 208.5
Industrial Specialties 81.0 71.6
=============================================================== ======= ========
Total Group operating profit (before exceptional items
and amortisation of intangible assets arising on acquisition) 515.1 468.6
Exceptional items and amortisation of intangible assets
arising on acquisition (70.4) (30.4)
=============================================================== ======= ========
Total Group operating profit 444.7 438.2
=============================================================== ======= ========
Following the divestment of the majority of the Performance
Technologies and Industrial Chemicals business as announced in the
2022 Interim Statement, the retained business now forms a new
Industrial Specialties sector. Accordingly, the Group has combined
the previously reported segment information for the year ended 31
December 2021 for both Performance Technologies and Industrial
Chemicals and shown as Industrial Specialties. This is aligned with
the information that is regularly reported to the Group's Executive
Committee.
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.
Europe,
Middle Asia
East & North Latin Reported
Africa America America Total
GBPm GBPm GBPm GBPm GBPm
======================== ======= ======== ======== ===== ========
Revenue 2022
Consumer Care 353.2 232.5 91.2 220.9 897.8
Life Sciences 297.5 186.1 89.8 108.9 682.3
Industrial Specialties 220.0 111.3 23.1 154.8 509.2
======================== ======= ======== ======== ===== ========
Total Group revenue 870.7 529.9 204.1 484.6 2,089.3
======================== ======= ======== ======== ===== ========
Revenue 2021 (Restated)
Consumer Care 300.3 210.9 68.6 183.2 763.0
Life Sciences 266.3 167.2 60.9 77.9 572.3
Industrial Specialties 258.7 115.1 24.8 155.7 554.3
======================== ======= ======== ======== ===== ========
Total Group revenue 825.3 493.2 154.3 416.8 1,889.6
======================== ======= ======== ======== ===== ========
Adjustments
2022 2021
GBPm GBPm
========================================================= ====== ======
Exceptional items - operating profit
Business acquisition and disposal costs - (13.5)
Pension curtailment gain - 11.2
Goodwill impairment (note 7) (34.6) -
Property, plant and equipment impairment (note 8) (7.6) -
Fair value movement on contingent consideration 6.1 6.2
Exceptional items - financial costs
Unwind of discount on contingent consideration (1.7) (3.3)
Gain on business disposal (note 12) 356.0 -
========================================================= ====== ======
Exceptional items 318.2 0.6
Amortisation of intangible assets arising on acquisition (34.3) (34.3)
========================================================= ====== ======
Total adjustments 283.9 (33.7)
========================================================= ====== ======
The exceptional items in the current year reflect the gain on
business disposal, discount unwind and fair value adjustment both
in respect of contingent consideration, the goodwill impairment of
the Group's Flavours Cash Generating Unit and an impairment
relating to the write-off of unusable manufacturing plant in Japan.
Movements in contingent consideration have been presented as
exceptional as they are not directly representative of the
underlying business performance in the period, and therefore this
presentation provides a meaningful basis to make comparisons
between reporting periods. The gain on business disposal and
impairment charges have been presented as exceptional due to their
size and one-off nature. The exceptional items in the prior year
related to the discount unwind and fair value adjustment both in
respect of contingent consideration, a pension curtailment gain
(arising from transfer of the Dutch scheme to a collective defined
contribution arrangement), acquisition costs and fees incurred in
preparation of the disposal of part of the PTIC business.
3. Net financial costs
2022 2021
GBPm GBPm
============================================================= ===== =====
Financial costs
Interest payable on borrowings 17.4 17.7
Net interest on post-retirement benefits - 0.3
Provision against non-operating loan - 2.5
Interest on lease liabilities 2.5 2.2
Other bank loans and overdrafts 2.9 2.2
Other interest costs 1.2 -
Unwind of discount on contingent consideration (exceptional) 1.7 3.3
Preference share dividend 0.1 -
============================================================= ===== =====
25.8 28.2
============================================================= ===== =====
Financial income
Bank interest receivable and similar income (2.7) (1.5)
Net interest on post-retirement benefits (2.4) -
============================================================= ===== =====
(5.1) (1.5)
============================================================= ===== =====
Net financial costs 20.7 26.7
============================================================= ===== =====
4. Tax
2022 2021
GBPm GBPm
==================================== ===== ======
Analysis of tax charge for the year
United Kingdom current tax 28.1 11.5
Overseas current tax 100.0 95.0
Deferred tax (1.4) (17.8)
==================================== ===== ======
126.7 88.7
==================================== ===== ======
The adjusted effective corporate tax rate before exceptional
items of 22.8% (2021: 21.2%) is significantly higher than the UK's
standard tax rate of 19.0%. The reported effective corporate tax
rate after exceptional items is 16.2% (2021: 21.6%).
The reported corporate tax rate after exceptional items includes
the tax arising on the gain of the PTIC divestment and associated
business disposal costs. Whilst the gain was subject to tax in the
jurisdictions in which business units were sold, a number of local
exemptions have resulted in the overall gain being taxed at a rate
significantly lower than the UK's standard tax rate of 19.0%. This
has reduced the reported corporate tax rate after exceptional items
in the current year.
Croda operates in many tax jurisdictions other than the UK, both
as a manufacturer and distributor, with the majority of those
jurisdictions having rates higher than the UK, considerably so in
some cases. It is principally the exposure to these different tax
rates that increases the effective tax rate above the UK standard
rate.
5. Earnings per share
2022 2021
pence pence
======================================================== ====== ======
Adjusted earnings per share 272.0 250.0
Impact of exceptional items, amortisation of intangible
assets arising on acquisition and the tax thereon 193.8 (20.0)
======================================================== ====== ======
Basic earnings per share 465.8 230.0
======================================================== ====== ======
6. Dividends paid
Pence Pence
per 2022 per 2021
share GBPm share GBPm
==================================== ====== ===== ====== =====
Ordinary
Interim
2021 interim, paid October 2021 - - 43.5 60.6
2022 interim, paid October 2022 47.0 65.6 - -
Final
2020 final, paid June 2021 - - 51.5 71.8
2021 final, paid June 2022 56.5 78.8 - -
==================================== ====== =====
103.5 144.4 95.0 132.4
==================================== ====== ======
Preference (paid June and December) - 0.1
==================================== ====== ===== ====== =====
144.4 132.5
==================================== ====== ===== ====== =====
The Directors are recommending a final dividend of 61.0p per
share amounting to a total of GBP85.1m in respect of the financial
year ended 31 December 2022. Subject to shareholder approval, the
dividend will be paid on 26 May 2023 to shareholders registered on
28 April 2023. The total proposed dividend for the year ended 31
December 2022 will be 108.0p per share amounting to GBP150.7m.
7. Intangible assets
2022 2021
GBPm GBPm
===================================================== ======= =======
Opening net book amount 1,271.6 1,311.7
Exchange differences 62.6 (54.6)
Additions 11.0 5.7
Acquisitions - 48.4
Disposals and write offs (20.5) (3.1)
Reclassifications from property, plant and equipment 0.4 0.5
Amortisation charge for the year (37.3) (37.0)
Impairments (34.6) -
Closing net book amount 1,253.2 1,271.6
===================================================== ======= =======
During the year goodwill was impaired by GBP34.6m. This
impairment is recorded in the income statement as an exceptional
item within operating costs and is within the Consumer Care
operating business segment. Intangible asset amortisation is also
recorded in operating costs.
8. Property, plant and equipment
2022 2021
GBPm GBPm
======================================= ======= ======
Opening net book amount 988.1 900.8
Exchange differences 72.3 (12.4)
Additions 135.9 153.0
Acquisitions - 13.0
Disposals and write offs (155.2) (2.7)
Reclassifications to intangible assets (0.4) (0.5)
Depreciation charge for the year (68.6) (63.1)
Impairments (7.6) -
======================================= ======= ======
Closing net book amount 964.5 988.1
======================================= ======= ======
During the year the Group received government grant funding of
GBP6.1m (2021: GBPnil) relating to the US cGMP scale up project.
Also during the year plant and equipment was impaired by GBP7.6m
relating to the write-off of unusable manufacturing plant in Japan.
This impairment is recorded in the income statement as an
exceptional item within operating costs and is within the Consumer
Care ( GBP 5.0m) and Life Sciences ( GBP 2.6m) operating business
segments.
9. Critical accounting judgements and key sources of estimation
uncertainty
The Group's significant accounting policies under UK-adopted
international accounting standards have been set 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 UK-adopted international accounting standards 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 accounting judgement required when preparing the
Group's accounts is as follows:
Business disposal
The Group completed the divestment of the majority of its
Performance Technologies and Industrial Chemicals ('PTIC') business
to a wholly owned subsidiary of Cargill Inc. on 30 June 2022. The
Group's assessment that the disposal group does not meet the
definition of a separate major line of business or geographical
area of operations, and therefore is not a discontinued operation,
is a key judgement. The key considerations in forming this
conclusion were:
-- The Group is not exiting a geographical area of operations;
Croda will remain active in all territories in which the divested
business operates
-- Whilst the majority of the PTIC business is being divested, a
significant proportion remains with Croda via the retained
Industrial Specialties product portfolio, supply agreements and
retained production capabilities
-- The complex carve-out requirements of the disposal mean that
the operations and cash flows of the divested business cannot be
distinguished clearly from the remaining Croda Group.
Croda Sipo in which Croda has a 65% shareholding was excluded
from the transaction that completed on 30 June 2022. The Group's
assessment that Sipo is not available for sale in its present
condition is a key judgement in determining that Sipo is not
classified as an asset held for sale at 31 December 2022. The sale
of Sipo to Cargill Inc. is subject to reaching agreement with our
partner to also sell its stake, which now appears unlikely to occur
in the near term.
The critical accounting estimates and assumptions required when
preparing the Group's accounts are as follows:
Post-retirement benefits
The Group's principal retirement benefit schemes are of the
defined benefit type. Year end 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 key financial market indicators such as inflation and
expectations on future salary growth and asset returns. 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 appropriate and in line with consensus opinion.
The majority of the remeasurement gain in the period relates to
the Group's UK pension scheme as a result of a significant rise in
corporate bond yields increasing the discount rate to 4.8% (2021:
1.8%). The majority of the Group's retirement benefit asset relates
to the Group's UK pension scheme. The UK pension scheme is open to
future accrual and therefore the surplus is recognised on the basis
that this could be recovered through a reduction in future service
contributions. During the period the business divestment resulted
in a curtailment gain of GBP3.9m on cessation of defined benefit
accrual, primarily within the Group's UK pension scheme, which has
been recognised in the Group Income Statement as part of the gain
on business disposal.
2022 2021
GBPm GBPm
================================================= ======= =========
Opening net retirement benefit surplus/(deficit) 7.9 (32.3)
Current service cost (16.2) (25.1)
Net interest cost 2.4 (0.3)
Employer contributions 11.5 13.6
Benefits paid 0.2 0.3
Past service cost 3.9 11.2
Remeasurements 88.9 40.6
Acquisitions - (0.9)
Business disposal 1.5 -
Exchange movement - 0.8
================================================= ======= =========
Closing net retirement benefit surplus 100.1 7.9
================================================= ======= =========
Total market value of assets 969.3 1,340.1
Present value of scheme liabilities (858.4) (1,318.7)
================================================= ======= =========
Net pension plan asset 110.9 21.4
Post-employment medical benefits (10.8) (13.5)
================================================= ======= =========
Net retirement benefit surplus 100.1 7.9
================================================= ======= =========
Analysed in the balance sheet as:
Retirement benefit assets 123.2 35.3
Retirement benefit liabilities (23.1) (27.4)
================================================= ======= =========
Net retirement benefit surplus 100.1 7.9
================================================= ======= =========
The sensitivity of the defined benefit obligation to changes in
the significant assumptions is as follows:
Impact on retirement
benefit obligation
=====================================
Sensitivity Of increase Of decrease
========================================================= =========== =========== ===========
Discount rate 0.5% -6.3% 7.0%
Inflation rate 0.5% 4.7% -4.5%
Mortality (assumes a one-year change in life expectancy) 1 year 3.6% -3.6%
========================================================= =========== =========== ===========
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the
assumptions may be correlated. When calculating the sensitivity of
the defined benefit obligation to significant actuarial
assumptions, the same method (present value of the defined benefit
obligation calculated with the projected unit credit method at the
end of the reporting year) has been applied as when calculating the
retirement benefit obligation recognised in the Group balance
sheet.
Goodwill impairment
Management are required to undertake an annual test for
impairment of indefinite lived assets such as goodwill.
Accordingly, the Group tests annually whether goodwill has suffered
any impairment by comparing the carrying value of the underlying
Cash Generating Units ('CGUs') to their recoverable amount
calculated by detailed value in use calculations. These value in
use calculations require the use of estimates to enable the
calculation of the net present value of cash flow projections of
the relevant CGU. The critical assumptions are as follows:
-- Terminal value growth in EBITDA (calculated as operating
profit before depreciation and amortisation) - set for each CGU
with reference to the long-term growth rate for the market and
territory in which the CGU operates but not exceeding the Group's
long-term average growth rate, estimated at 3%.
-- Selection of appropriate market participant real post-tax
discount rates to reflect the specific nature of the CGU.
-- Specific risk adjusted, real term cash flow projections
including key assumptions on revenue growth and operating margins
over a 5 year period.
An impairment of GBP34.6m was recorded in relation to goodwill
arising on the acquisition of Iberchem's Flavours business. This
principally reflected the impact of significant cost inflation
which was not fully recovered, with future value of the business
being behind the acquisition case. Previously Fragrances and
Flavours cash flow projections were based on 10-year projections
that supported the acquisitions, however these have been refreshed
in the year based on management's latest view, and capped to a 5
year period to reduce the risk with longer term forecasting,
consistent with other CGU's cash flow projections. Due to the
changes in the cash flow projections, where applicable, comparative
growth rates are not presented. The assumptions underpinning the
cash flow projection used in the Flavours value in use calculation
reflect management's most recent five-year business plan. These
projections use an appropriate view of past experience,
specifically that operating margins will improve in the medium to
long term and sales growth targets will be achieved resulting in
approximately 14% compound average growth rates ('CAGR') at a sales
level and 20% EBITDA CAGR over the period.
Excluding Flavours, based on the annual impairment testing
performed for all standalone CGUs no impairment has been recognised
for the year ended 31 December 2022 and standalone CGUs remain on
track to perform to our long-term expectations. In forming this
conclusion, the Directors have reviewed sensitivity analysis which
considered all reasonably possible downsides on key assumptions,
both individually and in combination, and considered whether these
would give rise to an impairment. This analysis concluded that no
reasonably possible changes in key assumptions would cause the
recoverable amount of the Standalone CGUs to be less than the
carrying value, other than for the Fragrances and Flavours
CGUs.
The estimated recoverable amount of the Fragrances CGU exceeded
its carrying value by approximately GBP111m (2021: GBP17m) and
therefore the Directors concluded that no impairment was required;
however, the calculations are sensitive to changes in key
assumptions. The key assumptions considered by the Directors, where
a reasonably possible change could give rise to an impairment, were
the EBITDA CAGR, pre-tax discount rate and long-term growth rate.
Sensitivity disclosures for both the Fragrances and Flavours CGUs
are set out below.
The recoverable amount, and therefore level of headroom or
impairment charge, is predominantly dependent upon judgements used
in arriving at the cash flow projections, long-term growth rate,
and the discount rate. Although it is not management's current
expectation, the impact on the recoverable amount when applying a
reasonably possible change in these assumptions would be as follows
for the year ended 31 December 2022:
Flavours Fragrances
============================ =========================================== ===========================================
Increase Decrease Increase Decrease
Assumption Sensitivity GBPm GBPm Assumption Sensitivity GBPm GBPm
============================ ========== =========== ======== ======== ========== =========== ======== ========
Incremental
increase/(decrease)
in recoverable amount
Change in pre-tax discount
rate
by: 10.5% 1.0% (21.1) 27.7 10.6% 1.0% (80.0) 104.7
Change in long-term growth
rates
by: 3.0% 1.0% 28.5 (20.0) 3.0% 1.0% 109.5 (76.8)
Change in EBITDA compound
annual
growth rate by: 20.0% 5.0% 39.8 (33.9) 16.0% 5.0% 167.1 (141.3)
============================ ========== =========== ======== ======== ========== =========== ======== ========
The above sensitivity analyses are based on a change in an
assumption whilst holding all other assumptions constant. In
practice, some of the assumptions may be correlated.
Due to the nature of the Fragrances and Flavours business,
including its low carbon footprint, the key assumptions were not
materially impacted by the climate change risks and opportunities
set out in the Annual Report. The Group's other annual impairment
tests were not considered to be materially impacted by the climate
change risks and opportunities.
10. Financial instruments
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. These summary financial statements do
not include all financial risk management information; full
disclosures will be available in the Group's annual financial
statements for the year ended 31 December 2022.
Financial instruments measured at fair value use 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 contingent consideration, other investments
and lease liabilities, 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 (excluding continent
consideration which is discounted using a risk-adjusted discount
rate).
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 10 year note that was issued in 2010. In January
2020 the existing US$100m fixed rate ten-year note matured and was
repaid, this was replaced with a new US$100m fixed rate ten year
note (27 January 2020). On 27 June 2016, the Group issued GBP100m
and EUR100m of fixed rate notes. On 6 June 2019, the Group issued a
further GBP65m, EUR50m and US$60m of fixed rate notes.
The table below details a comparison of the Group's financial
assets and liabilities where book values and fair values
differ.
Book Fair Book Fair
value value value value
2022 2022 2021 2021
GBPm GBPm GBPm GBPm
====================================== ====== ====== ====== ======
US$100m 3.75% fixed rate 10 year note (83.0) (74.4) (74.1) (78.2)
EUR30m 1.08% fixed rate 7 year note (26.5) (26.3) (25.2) (25.5)
EUR70m 1.43% fixed rate 10 year note (61.9) (57.8) (58.7) (61.5)
GBP30m 2.54% fixed rate 7 year note (30.0) (29.7) (30.0) (30.3)
GBP70m 2.80% fixed rate 10 year note (70.0) (64.8) (70.0) (71.9)
EUR50m 1.18% fixed rate 8 year note (44.2) (40.1) (41.9) (43.5)
GBP65m 2.46% fixed rate 8 year note (65.0) (58.1) (65.0) (65.7)
US$60m 3.70% fixed rate 10 year note (49.8) (45.4) (44.5) (47.4)
====================================== ====== ====== ====== ======
11. Related party transactions
The Group has no related party transactions, with the exception
of remuneration paid to key management and Directors.
12. Business disposal
On 30 June 2022, the Group completed the disposal of the
majority of its Performance Technologies and Industrial Chemicals
business for cash consideration of GBP651.0m. The divested business
comprised four manufacturing facilities, together with associated
laboratory facilities and sales operations, and formed part of
Croda's integrated operating model prior to disposal. Refer to note
9 for an explanation of the related critical accounting judgement.
The following table summarises the effect of the disposal on the
Group's consolidated financial statements.
GBPm
================================================ ======
Cash consideration received 651.0
Intercompany settlement (24.1)
626.9
Assets and liabilities of the divested business
Intangible assets 20.2
Property, plant & equipment 154.4
Right of use assets 1.1
Inventories 99.7
Trade and other receivables 24.3
Cash and cash equivalents 9.3
Trade and other payables (35.3)
Lease liabilities (1.1)
Current tax payable 0.3
Retirement benefit liabilities (1.5)
Deferred tax (8.8)
================================================ ======
Net assets 262.6
Associated transactions and costs
Pension curtailment gain 3.9
Disposal and separation costs (33.9)
Foreign exchange gains 6.9
Reclassification of currency translation 14.8
================================================ ======
Gain on business disposal before tax 356.0
Income tax on business disposal (21.5)
================================================ ======
Gain on business disposal after tax 334.5
================================================ ======
Disposal and separation costs primarily comprise investment
banking fees, legal fees, external consultant support for
financial, tax and operational aspects of the transaction as well
as related employee bonuses. The gain on business disposal includes
foreign exchange gains that resulted from the settlement of
proceeds and associated intercompany balances across the Group
shortly following completion.
Income tax payable on the gain on business disposal has been
calculated on a jurisdiction-by-jurisdiction basis, applying the
relevant corporation tax rates and exemptions.
13. Post balance sheet events
Subsequent to 31 December 2022, the Group signed an agreement to
acquire Solus Biotech, based in South Korea, for total
consideration of KRW350bn (approximately GBP232m). The transaction
is subject to regulatory approval and had no impact on the Group's
2022 financial statements.
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR NKOBKCBKDFBB
(END) Dow Jones Newswires
February 28, 2023 02:00 ET (07:00 GMT)
Grafico Azioni Croda (LSE:CRDA)
Storico
Da Apr 2024 a Mag 2024
Grafico Azioni Croda (LSE:CRDA)
Storico
Da Mag 2023 a Mag 2024