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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Croda International Plc | LSE:CRDA | London | Ordinary Share | GB00BJFFLV09 | ORD 10.609756P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 119.00 | 2.50% | 4,888.00 | 4,888.00 | 4,891.00 | 4,895.00 | 4,636.00 | 4,662.00 | 154,776 | 14:10:33 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chemicals & Chem Preps, Nec | 1.69B | 171M | 1.2246 | 39.67 | 6.78B |
From Apr 2019 to Apr 2024
TIDMCRDA
RNS Number : 6511V
Croda International PLC
25 July 2018
25 July 2018
Results for the six months ended 30 June 2018
Growth strategy delivering - sales momentum in Core Business
Croda International Plc ("Croda" or the "Group"), the speciality chemical company that creates high performance ingredients and technologies relied upon by industries and consumers globally, today announces its half year results for the six months ended 30 June 2018.
Reported results
Hot Features
Premium
Reported results (IFRS) Half year ended 30 June
2018 2017 % change
-------------------------- ------------ ------- ------- ----------
Sales GBPmillion 702.8 707.3 (0.6)%
Operating profit GBPmillion 174.3 174.1 +0.1%
Profit before tax GBPmillion 170.8 168.0 +1.7%
Basic earnings per share
(EPS) Pence 97.5 92.4 +5.5%
Ordinary dividend per
share Pence 38.0 35.0 +8.6%
-------------------------- ------------ ------- ------- ----------
-- Sales 0.6% lower at reported currency, after adverse impact of stronger Sterling on translation of 4.1%
-- Profit before tax up 1.7% at reported currency, after adverse 4.6% impact from currency translation
-- Basic earnings per share (EPS) up 5.5% at reported currency, including benefit of lower tax rate in US
-- Interim dividend increased by 8.6% to 38.0 pence
Adjusted(1) results
Adjusted results Half year ended 30 June
2018 2017 % change % change
constant
rate(2)
------------------- ------------ ------ ------ --------- ----------
Sales GBPmillion 702.8 707.3 (0.6)% +3.6%
Operating profit GBPmillion 178.5 175.8 +1.5% +6.0%
Profit before tax GBPmillion 175.0 169.7 +3.1% +7.7%
Basic EPS pence 100.2 93.4 +7.3% +12.0%
Return on sales % 25.4% 24.9% +0.5%pts n/a
Free cash flow GBPmillion 62.7 40.5 +54.8% n/a
------------------- ------------ ------ ------ --------- ----------
(1) Adjusted results are stated before exceptional items, acquisition costs and amortization of intangible assets arising on acquisition, and tax thereon, as set out in note 1 below
(2) Constant currency results reflect current year performance translated at the prior year's average exchange rate, as set out in note 2 below
-- Growing the Core
o Record profit - profit before tax up 7.7% and basic EPS up 12.0%, at constant currency(2)
o Robust top line momentum - Core Business sales up 4.7% at constant currency, demonstrating healthy demand in all three businesses
o Further improvement in profitability - return on sales up 50 basis points to 25.4%
o Stronger free cash generation - over 50% increase in free cash flow, driven by end of capital investment ramp and lower tax
-- Stretching the Growth
o Continued investment: two technology acquisitions completed during the period, supporting strategy to accelerate top-line growth through disruptive technologies, new market adjacencies and smart R&D
o Innovation in new products: increased sales of New and Protected Products (NPP) in Personal Care and through technology acquisitions, offset by impact of product exits in Life Sciences and Performance Technologies. NPP sales increased to 27.7% (2017: 27.5%)
Sector results (adjusted basis)
-- Three strong businesses
o Excellent sales growth in Personal Care, up 9.3% at constant currency. Operating profit growth of 6.1% at constant currency
o Resilient Life Sciences performance despite headwinds, with sales up 2.3% (+7.4% excluding impact of API contract withdrawal) and operating profit up 1.8%, at constant currency
o Impressive profit growth in Performance Technologies, with operating profit 15.2% higher on sales up 1.7%, at constant currency. With its transition to higher value add products, the sector is on target to achieve its medium term return on sales target of 20%.
Commenting on the results, Steve Foots, Chief Executive Officer, said:
"This is a strong first half performance. We are delivering our strategy of 'Growing the Core', driving top line organic growth at industry leading margins to achieve superior returns. Alongside this, we are 'Stretching the Growth', accelerating delivery across our markets by investing in disruptive technologies and exciting new growth opportunities. We have encouraging momentum in our consumer businesses and Performance Technologies has delivered double digit percentage profit growth for the third successive year, strong progress that is supported by improving cash generation, underpinning confidence for the full year."
Further information
A presentation for investors and analysts will be held at 0930 BST on 25 July 2018 at Farmers & Fletchers In the City, 3 Cloth Street, London EC1A 7LD. The presentation will be webcast on www.croda.com
For enquiries contact:
Investors: Conleth Campbell, VP Investor Relations, Croda +44 1405 860 551
Media: Charlie Armitstead, Teneo +44 20 3603 5220
Notes
(1) Adjusted results are stated before exceptional items (including discontinued business costs), acquisition costs and amortisation of intangible assets arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a meaningful basis upon which to analyse underlying 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.
(2) Reported currency results reflect current year performance translated at reported rates (actual average exchange rates). Constant currency results reflect current year performance for existing business translated at the prior year's average exchange rates.
For constant currency profit, translation is performed using the entity reporting currency. For constant currency sales, local currency rates 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. Constant currency results are reconciled to reported results in the Finance Review.
Non-statutory terms are defined in the 'Alternative Performance Measures' section of the Finance Review. The Core Business comprises Personal Care, Life Sciences and Performance Technologies.
Sector financial summary
Sales Half year ended 30 June
2018 2017 % change % change
constant
rate
-------------------------- ------ ------ ------ --------- ----------
Personal Care GBPm 247.7 238.3 +3.9% +9.3%
Life Sciences GBPm 158.6 162.4 (2.3)% +2.3%
Performance Technologies GBPm 235.9 239.9 (1.7)% +1.7%
-------------------------- ------ ------ ------ --------- ----------
Core Business GBPm 642.2 640.6 +0.2% +4.7%
Industrial Chemicals GBPm 60.6 66.7 (9.1)% (7.0)%
-------------------------- ------ ------ ------ --------- ----------
Group GBPm 702.8 707.3 (0.6)% +3.6%
-------------------------- ------ ------ ------ --------- ----------
Adjusted operating profit Half year ended 30 June
2018 2017 % change % change
constant
rate
--------------------------- ------ ------ ------ --------- ----------
Personal Care GBPm 84.4 82.6 +2.2% +6.1%
Life Sciences GBPm 47.4 49.3 (3.9)% +1.8%
Performance Technologies GBPm 45.6 40.9 +11.5% +15.2%
--------------------------- ------ ------ ------ --------- ----------
Core Business GBPm 177.4 172.8 +2.7% +7.0%
Industrial Chemicals GBPm 1.1 3.0 (63.3)% (50.0)%
--------------------------- ------ ------ ------ --------- ----------
Adjusted operating profit GBPm 178.5 175.8 +1.5% +6.0%
Interest GBPm (3.5) (6.1) (42.6)% (41.0)%
--------------------------- ------ ------ ------ --------- ----------
Adjusted profit before
tax GBPm 175.0 169.7 +3.1% +7.7%
--------------------------- ------ ------ ------ --------- ----------
GROUP PERFORMANCE REVIEW
Results are stated in adjusted(1) terms and growth at constant currency(2) rates unless otherwise stated. Alternative performance measures are defined in the Finance Review.
Growth strategy delivering
The first half of 2018 has seen strong progress delivering our organic growth strategy - we call it 'Growing the Core'. We are driving top line organic growth at industry leading margins to achieve superior returns for shareholders. We have built on our exceptional market positions, leading technologies and focused innovation to drive profit growth and improve cash generation. We have continued to invest in new market opportunities and technologies to support future growth. As a result, in our Core Business we are delivering robust sales growth, strong profit growth and improved returns.
The top-line momentum seen in 2017 has continued through the first half of 2018. Sales in the Core Business increased 4.7%, reflecting volume growth across the Group's consumer businesses. Personal Care was the standout performer, with the Crop Care business in Life Sciences also growing well. Performance Technologies reduced sales volume in lower margin products as it continued to transition to stronger returns.
Profit grew faster than sales, in line with our 'value over volume' philosophy. Operating profit increased by 6.0% and return on sales increased by 50 basis points to 25.4% (2017: 24.9%). Profit before tax increased by 7.7% to GBP175.0m. Basic earnings per share (EPS) grew by 12.0%, benefitting from a lower tax rate.
Solid progress in reported results (IFRS)
The strengthening of Sterling adversely impacted sales and profit on a reported currency basis. Although sales at reported rates reduced slightly to GBP702.8m (2017: GBP707.3m), profit before tax on an IFRS basis increased by 1.7% to GBP170.8m (2017: GBP168.0m) and IFRS basic EPS increased by 5.5% to 97.5p (2017: 92.4p). With free cash generation improving, as we complete our recent capital investment ramp, the interim ordinary dividend has been increased by 8.6% to 38.0p (2017: 35.0p).
Growing the Core
We continue to deliver year on year progress. This is centred on delivering our strategy to connect to faster growth markets through two areas - 'Growing the Core' and 'Stretching the Growth'.
'Growing the Core' focuses on delivering robust top line growth above the market rate, at industry-leading margins, with a 'capital light' model. We achieve this through a powerful business model - sustainable products, with over 60% of our raw materials sourced from naturals; a balanced global footprint, with 29 manufacturing plants and sales operations in 37 countries; a dynamic innovation engine, where we have invested in 34 customer innovation centres globally; and an unrivalled local direct selling capability, serving over 17,000 customers, both multinational and local. This model drives profit growth ahead of sales growth ahead of volume growth.
Stretching the Growth
'Stretching the Growth' focuses on accelerating sales in our core markets; creating more technology, NPP and intellectual property; and taking a disciplined approach to capital allocation. The result is investment in high return opportunities and robust cash conversion to create capital return optionality, all driving superior shareholder returns.
In the first half year we achieved good progress in delivering this strategy. After some delays, we are approaching the end of the commissioning phase for our major capital investment in North America, which will introduce sustainable bio-surfactants to our markets. We continue to invest in disruptive technologies in core markets and exciting market adjacencies. We completed the acquisition of Nautilus, a marine biotechnology company which has potential applications in Personal Care Beauty Actives and other markets. In Life Sciences, we added a biostimulants business, Plant Impact, a complementary technology to our existing Crop Care business. Our open innovation programme, working with university and small enterprise partners, continues to supplement our in-house R&D investment. This included the launch of Poretect by Sederma with a Canadian partner and Atplus DRT-6000, developed in conjunction with the University of Nebraska, for spray drift control in Crop Care. We increased the number of innovation centres, opening a Beijing Crop Care lab and Singapore tribology lab for Performance Technologies, enabling us to work closer still with local customers to meet consumer needs. Our smart partnering initiative saw the launch in May of an exciting range of innovative special effect pigments for the premium colour cosmetics market.
This strategy is delivering. In the first half of the year, we delivered growth in profit before tax of 7.7%, ahead of sales growth of 3.6%, with a significant improvement in our product mix. Group NPP sales increased to 27.7% (2017: 27.5%), with strong growth in Personal Care. Customer reformulation led to reduced NPP sales in Life Sciences, whilst NPP was flat in Performance Technologies.
Three strong legs of growth
We have three strong legs of growth in our Core Business. Personal Care achieved an excellent performance, with sales up 9.3%. There was growth in all business segments and in all customer groups, with improved demand from multinationals, and with 'Indie' and local customers continuing to perform well. Return on sales remains industry-leading at 34.1% (2017: 34.7%), despite the impact of mix and transactional currency headwinds on European sales into US dollar denominated markets.
Performance in Life Sciences was resilient. Sales rose 2.3% and operating profit 1.8%, with strong growth in Crop Protection and Seed Enhancement, together with encouraging progress in high purity excipients in Health Care. These more than offset the headwinds - an adverse impact from the Active Pharmaceutical Ingredient (API) contract we exited in 2017, together with an initial loss following the acquisition of Plant Impact, an exciting entry into the biostimulants market. Excluding the API exit, sales in Life Sciences rose by 7.4%.
Performance Technologies continued its transition to a more profitable product portfolio. It progressed towards its medium-term return on sales target of 20%, significantly reducing volume of low value-add products and improving pricing and product mix. Sales rose by 1.7% and profit by 15.2%, demonstrating the success of this strategy.
Robust growth across all regions
We saw good organic sales growth in our Core Business across all geographic regions. Sales in North America rose 5%, with an excellent performance in Personal Care. In Asia, sales were 6% ahead, with increased proximity to local and regional customers, and China and Japan particularly strong. The market in Europe was solid with sales up 4%, including successful integration of our 2017 acquisition of IonPhasE and good growth in newer geographic markets in Eastern Europe, Middle East and Africa. Latin America continued to recover, with sales growing 5%, despite a difficult macroeconomic environment, benefitting from recent investment to expand production capacity in Brazil to meet local customer needs.
Robust financial platform and reducing capital investment
Our balance sheet is robust, giving flexibility for organic investment, acquisitions and returns to shareholders. As we reach the end of a period of significant capital expenditure, with the commissioning of our industry-leading bio-surfactant plant in North America, our free cash flow improved in the first half year to GBP62.7m (2017: GBP40.5m). We continue to invest in technology acquisitions, to further enhance innovation and supplement our in-house R&D capabilities, spending over GBP150m in the last three years. Our leverage (the ratio of net debt to EBITDA) remains prudent at 1.0 times (2017: 1.0x).
Outlook affirmed
We are delivering our strategy of 'Growing the Core', driving top line organic growth at industry leading margins to achieve superior returns. Alongside this, we are 'Stretching the Growth', accelerating delivery across our markets by investing in disruptive technologies and exciting new growth opportunities. We have encouraging momentum in our consumer businesses and Performance Technologies has delivered double digit percentage profit growth for the third successive year, strong progress that is supported by improving cash generation, underpinning confidence for the full year.
SECTOR PERFORMANCE REVIEW
Excellent sales growth in Personal Care
Personal Care delivered an excellent performance in the first half of the year. Sales grew by 9.3% and adjusted operating profit by 6.1% in constant currency. Demand was strong across all three business units and in all customer groups. Growth was driven equally by volume increase and better price/mix, the latter reflecting raw material price recovery and richer innovation sales. NPP exceeded 42% of total sector sales (2017: 40%), with future innovation set to benefit from recent acquisitions and technology investments, including Enza and Cutitronics.
In reported currency, sales increased to GBP247.7m (2017: GBP238.3m) and adjusted operating profit increased to GBP84.4m (2017: GBP82.6m). Return on sales declined slightly to 34.1% (2017: 34.7%), due to the impact of mix and transactional currency impact of stronger Euro and Sterling on our Europe-manufactured sales into US dollar denominated markets.
Beauty Actives saw sales rise double digit percentage, benefitting from capacity expansion at Sederma commissioned during the first half of the year. Our innovative plant extract range of botanical ingredients from Crodarom included the launch of 'Green Caviar', a sustainable skin hydration ingredient produced from algae. The trend towards more sustainable and ethical sourcing of ingredients supported growth of plant cell products from IRB by Sederma. Opportunities are being developed through our newly acquired marine biotechnology company, Nautilus, which sustainably uses microbial biodiversity to create novel actives and ingredients.
Beauty Effects is a new, high return business, similar to Beauty Actives, focused on the creation of ingredients for instant impact and skin effects, particularly popular with the Millennial Generation of customers. Sales of the Solaveil(TM) solar protection range grew, including the launch of Solaveil(TM) XT-200, an inorganic UV active and a better performing, sustainable alternative to organic UV filters. Our smart partnership with pigments innovator Glassflake developed and launched a range of Moonshine(TM) ingredients, a new offering in colour cosmetics, in less than 12 months.
Beauty Formulation continued to improve sales momentum. A commercially sharper approach, together with improved engagement with multinational customers, has seen the successful development and differentiation of our heritage ingredients portfolio, with Croda ingredients being formulated into several major relaunches. New ingredient launches included Cropure(TM) Mango Butter, an excellent natural moisturiser extracted from mango seed, and Cithrol(TM) PGTL, a 100% bio-based, efficient and versatile water in oil emulsifier which allows our customers to formulate creams with excellent sensory performance. Local customers continue to grow, as we identify and leverage exciting trends in the industry, such as Japanese and Korean beauty. Our digital programme is developing tools to meet the needs of a growing number of agile 'Indie' brands.
Resilient performance in Life Sciences
Life Sciences delivered a resilient performance, with strong growth in the mainstream business offsetting headwinds from the 2017 exit of the North American API contract and added costs from acquisition. Sales grew by 2.3% and adjusted operating profit by 1.8% in constant currency. Adjusted for the API exit, sales were 7.4% higher. Demand was robust across Crop Protection, Seed Enhancement and Health Care excipients, growing volume by 3% overall. NPP reduced due to customer reformulation but the innovation pipeline is robust, as we become a more technology focused strategic supplier to our customers.
In reported currency, sales reduced to GBP158.6m (2017: GBP162.4m) and adjusted operating profit was GBP47.4m (2017: GBP49.3m), reflecting the adverse impact of APIs and acquisition. Return on sales was only marginally lower at 29.9% (2017: 30.4%), despite an operating loss at Plant Impact due to it having only early stage sales.
Sales volume grew in Crop Care, driven by investment in innovation, faster growth markets and expanding collaboration with crop science customers, both multinational and local. In Seed Enhancement, Incotec is focused on growth, benefitting from recent investment in better innovation, and is on track to achieve our 20% return on sales objective within three years of acquisition. Sales have been driven by industry-leading positions in priming and film coating, including Disco(R) AG Clear L-650, a new field crop encrustment product developed for the US corn market. Investment in manufacturing, together with a new technical laboratory, have positioned Incotec for faster growth in this key region.
We opened a new Crop Protection and Seed Enhancement laboratory in China, a territory with excellent growth opportunities. Globally, Crop Protection delivered excellent sales growth and good margin improvement. It benefitted from expansion of local manufacture in Brazil, providing opportunities to grow with multinational customers and adding innovative offerings for local customers. These technologies help customers deliver more complex, efficient and safer formulations that minimise the impact on the environment.
The acquisition of Plant Impact added a new leg to Crop Care. It introduces exciting opportunities in biostimulants, a new market adjacency for Croda. Reflecting its pre-acquisition performance, we anticipate a limited operating loss for Plant Impact in 2018 whilst sales are developed.
Health Care saw good excipient sales growth, helping offset the API exit. New product launches included Crodamol(TM) GMCC, an excipient used in nutritional and pharmaceutical applications, and Crodamol(TM) CCC, specifically created for use in pharmaceutical skin care preparations. We are investing GBP27m in North America to expand manufacturing of high purity excipients. Demand for complex drug delivery systems continues to grow rapidly, supported by a rich customer innovation pipeline. Asia is a region where, historically, we have been underweight. We are driving growth as we expand our regional presence. Our programme to create Chinese monograph compliant products and support the local registration of high purity systems is making good progress.
Impressive profit growth in Performance Technologies
Performance Technologies made further progress as part of its transition to a higher value business. Sales grew by only 1.7% but adjusted operating profit growth was impressive, up 15.2% in constant currency. Volume declined significantly, 9% lower, whilst price/mix improved by 11%, as low margin business was shed, improving mix, and price increases recovered raw material inflation. NPP remained flat.
At reported currency, sales declined slightly to GBP235.9m (2017: GBP239.9m) while adjusted operating profit increased to GBP45.6m (2017: GBP40.9m), the third consecutive year of double digit percentage profit growth. Return on sales increased strongly, up 230 basis points to 19.3% (2017: 17.0%), on target to achieve our medium term return on sales target for the sector of 20%.
Performance Technologies continues to drive 'value over volume'. Profitability has continued to improve in the strategic growth businesses of Smart Materials and Energy Technologies, supported by the recent acquisition of IonPhasE. Technology change will make these Performance Technologies markets increasingly attractive for Croda, supported by customers increasingly looking to improve their sustainability profile using Croda ingredients. As part of our 'Stretching the Growth' strategy, we are improving knowledge intensity, strengthening expertise in sales, marketing and technical resources, whilst reducing the capital we deploy in asset intensity. In addition, we have improved testing capability, to generate better application data and support new novel niches. In digital, we are running e-commerce trials to expand our customer reach. We continue to broaden our customer base beyond its traditional European heartland, into North America and Asia, with the opening of a new laboratory in Singapore during the first half year.
In Smart Materials, IonPhasE has made a positive start since its acquisition in December 2017. There was good sales growth in the first half year, distribution arrangements have been exited and sales transitioned to Croda's global sales teams, and new opportunities developed by adding this new technology to our existing product portfolio. A GBP27m investment to expand polymer additive manufacturing capacity in the UK is on track.
Energy Technologies has a developing pipeline of innovative flow assurance products. In the marine market, demand for environmentally friendly lubricants continued to grow, with additional opportunities in renewable energy markets.
Home Care and Water Treatment reduced low margin sales to the oil and gas markets, compared to a strong prior year comparator. We continued to selectively develop our presence in Home Care; commissioning of the North American plant will see the launch of our 'Eco' range of biosurfactants.
Continued portfolio refinement in Industrial Chemicals
We continued to refine the product portfolio in Industrial Chemicals, reducing volumes of low value co-product and tolling business. In constant currency, sales declined by 7.0%, equally split between lower volume and reduced commodity prices, with market conditions in China remaining weak. In reported currency, sales declined to GBP60.6m (2017: GBP66.7m) and adjusted operating profit decreased to GBP1.1m (2017: GBP3.0m).
FINANCE REVIEW
Currency
Currency translation adversely impacted both reported sales and profit in the first half year as Sterling strengthened, particularly against the US dollar. Sterling averaged US$1.375 (2017: US$1.260) and EUR1.137 (2017: EUR1.162). Currency translation reduced sales compared to 2017 by GBP29.7m and adjusted profit before tax by GBP7.8m.
Sales
Sales in reported currency declined by 0.6% to GBP702.8m (2017: GBP707.3m). In constant currency, sales increased by 3.6%. The acquisitions of IonPhasE and Plant Impact added GBP5.3m.
Sales GBPm % -------------------------------- ------- ------ 2017 reported 707.3 - Underlying growth 19.9 2.8 Impact of acquisitions 5.3 0.8 2018 at constant currency 732.5 3.6 Impact of currency translation (29.7) (4.2) -------------------------------- ------- ------ 2018 reported 702.8 (0.6) -------------------------------- ------- ------
In the Core Business, constant currency sales increased by 4.7%, with lower sales volume, down 4%, more than offset by increased sales price/mix, up 9%, reflecting the impact of improved product mix, innovation and some limited raw material price recovery.
Sales in constant currency % growth ---------------------------- --------- Personal Care 9.3 Life Sciences 2.3 Performance Technologies 1.7 ---------------------------- --------- Core Business 4.7 Industrial Chemicals (7.0) ---------------------------- --------- Group 3.6 ---------------------------- ---------
Adjusted profit
Adjusted operating profit increased to GBP178.5m (2017: GBP175.8m), a 6.0% increase in constant currency.
Adjusted operating profit GBPm % -------------------------------- ------ ------ 2017 reported 175.8 - Underlying growth 13.0 7.4 Impact of acquisitions (2.4) (1.4) 2018 at constant currency 186.4 6.0 Impact of currency translation (7.9) (4.5) -------------------------------- ------ ------ 2018 reported 178.5 1.5 -------------------------------- ------ ------
This growth in adjusted operating profit in constant currency was delivered through profit improvement across all Core Business sectors. Return on sales increased by 50 basis points to 25.4% (2017: 24.9%).
Half year 2018 Half year 2017
-------------------------------- ---------------
Reported rates Constant rates Reported rates
Adjusted operating profit GBPm GBPm GBPm
----------------------------- --------------- --------------- ---------------
Personal Care 84.4 87.6 82.6
Life Sciences 47.4 50.2 49.3
Performance Technologies 45.6 47.1 40.9
----------------------------- --------------- --------------- ---------------
Core Business 177.4 184.9 172.8
Industrial Chemicals 1.1 1.5 3.0
----------------------------- --------------- --------------- ---------------
Group 178.5 186.4 175.8
----------------------------- --------------- --------------- ---------------
The net interest charge decreased to GBP3.5m (2017: GBP6.1m) at reported rates, with an increase in capitalised interest on the construction of the North American bio-surfactant plant and a reduction in interest on pensions. Adjusted profit before tax increased to GBP175.0m (2017: GBP169.7m).
Half year (reported rates)
-----------------------------
2018 2017
Summary income statement GBPm GBPm
---------------------------- -------------- -------------
Sales 702.8 707.3
Operating costs (524.3) (531.5)
Adjusted operating profit 178.5 175.8
Net interest charge (3.5) (6.1)
---------------------------- -------------- -------------
Adjusted profit before tax 175.0 169.7
---------------------------- -------------- -------------
The effective tax rate on this profit reduced to 24.8% (2017: 27.7%), reflecting a lower US Federal rate of 21.0% (2017: 35.0%). There were no other significant adjustments between the Group's expected and reported tax charge based on its accounting profit. Adjusted profit after tax for the half year was GBP131.6m (2017: GBP122.7m) and adjusted basic EPS increased to 100.2p (2017: 93.4p).
IFRS profit
Adjusted profit is stated before exceptional items (including discontinued business costs), acquisition costs and amortisation of intangible assets arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a meaningful basis upon which to analyse underlying 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.
The charge before tax for exceptional items, acquisition costs and amortisation of intangible assets arising on acquisition was GBP4.2m (2017: GBP1.7m). This increase is due to GBP1.2m of acquisition expenses and GBP1.3m amortisation relating to recently acquired businesses. After deducting this charge, the profit before tax on an IFRS basis was GBP170.8m (2017: GBP168.0m). The profit after tax on an IFRS basis was GBP128.0m (2017: GBP121.4m) and basic EPS were 97.5p (2017: 92.4p).
Half year ended 30 June
--------------------------
2018 2017
Income statement GBPm GBPm
IFRS profit
-------------------------------------- ------------ ------------
Adjusted profit before tax 175.0 169.7
Exceptional items, acquisition costs
& intangibles (4.2) (1.7)
-------------------------------------- ------------ ------------
Profit before tax (IFRS) 170.8 168.0
Tax (42.8) (46.6)
-------------------------------------- ------------ ------------
Profit after tax (IFRS) 128.0 121.4
-------------------------------------- ------------ ------------
Cash management
Delivering good cash generation is core to Croda's strategy. This cash is used to invest in R&D, faster growth technologies, both organically and by acquisition, to expand production capacity and to pay increased dividends. EBITDA increased to GBP203.0m (2017: GBP200.4m). Net capital expenditure has begun to decline, as we approach the end of the commissioning of the North America bio-surfactants plant, to GBP54.8m (2017: GBP70.8m). Working capital increased by GBP57.9m, an increase of 11 days, reflecting higher inventories to support stronger sales growth, with this increase likely to reverse somewhat in the second half of the year. Free cash flow increased by more than 50% to GBP62.7m (2017: GBP40.5m).
Half year ended 30 June
--------------------------
2018 2017
Cash flow GBPm GBPm
------------------------------- ------------ ------------
Adjusted operating profit 178.5 175.8
Depreciation and amortisation 24.5 24.6
EBITDA 203.0 200.4
Working capital (57.9) (34.5)
Net capital expenditure (54.8) (70.8)
Non-cash pension expense 3.4 1.6
Interest & tax (31.0) (56.2)
------------------------------- ------------ ------------
Free cash flow 62.7 40.5
Dividends (60.5) (54.1)
Acquisitions (15.5) -
Other cash movements 4.4 4.2
------------------------------- ------------ ------------
Net cash flow (8.9) (9.4)
------------------------------- ------------ ------------
After currency translation, net debt increased slightly to GBP393.1m (2017: GBP367.6m). The leverage ratio (the ratio of net debt to EBITDA) remained at 1.0 times (2017: 1.0x) and remains substantially below the maximum covenant level under the Group's lending facilities of 3 times.
There were no material changes to committed debt facilities during the first half of the year. These facilities provide ample liquidity to meet the Group's immediate plans at a relatively low interest cost. At 30 June 2018 the Group had GBP407.6m (2017: GBP452.0m) of cash and undrawn committed credit facilities available.
Dividend and capital allocation
Croda seeks to deliver high quality profits, measured through a superior ROIC, earnings growth and strong cash returns. The Group's capital allocation policy is to:
1) Reinvest for growth - we reinvest in capital projects to grow sales, increase product innovation and expand in attractive geographic markets, delivering a superior ROIC. During the first half of 2018 capital investment was over twice depreciation, funding asset replacement and new investment in key technologies, all of which should support future ROIC;
2) Provide regular returns to shareholders - we pay a regular dividend to shareholders, representing 40 to 50% of adjusted earnings over the business cycle. The Board has increased the interim dividend by 8.6% to 38.0p (2017: 35.0p);
3) Acquire promising technologies - we have identified a number of exciting technologies to supplement organic growth in existing and adjacent markets. Some of these will be acquired, either as nascent opportunities for future scale-up or as larger 'bolt ons'. During the first half of 2018 we completed the acquisitions of Nautilus and Plant Impact; and
4) Maintain an appropriate balance sheet and return excess capital - we maintain an appropriate balance sheet to meet future investment and trading requirements. We target leverage of 1 to 1.5 times (excluding deficits on retirement benefit schemes), although we are prepared to move above this range if circumstances warrant and will consider further returns to shareholders in the event that leverage falls below the target range.
Retirement benefits
The post-tax deficit on retirement benefit plans at 30 June 2018, measured on an accounting valuation basis under IAS19, was broadly flat at GBP15.6m (31 December 2017: GBP21.1m). Cash funding of the various plans within the Group is driven by the schemes' ongoing actuarial valuation reviews. The latest valuation of the Group's largest pension scheme, the UK Croda Pension Scheme, as at 30 September 2017 showed a surplus on a Technical Provisions basis. As a result, no deficit funding payments are currently required.
Alternative performance measures
We use a number of alternative performance measures to assist in presenting information in this statement in an easily analysable and comprehensible form. We use such measures consistently at the half year and full year and reconcile them as appropriate. 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. For constant currency profit, translation is performed using the entity reporting currency. 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. Constant currency results are reconciled to reported results in the Finance Review;
-- Adjusted results: these are stated before exceptional items (including discontinued business costs), acquisition costs and amortisation of intangible assets arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a meaningful basis upon which to analyse underlying 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;
-- Return on Invested Capital (ROIC): this is adjusted operating profit after tax divided by the average invested capital for the year for the Group. Invested capital represents the net assets of the Group, adjusted for earlier goodwill written off to reserves, net debt, retirement benefit liabilities, provisions and deferred taxes;
-- Net debt: comprises cash and cash equivalents (including bank overdrafts), current and non-current borrowings and obligations under finance leases;
-- Leverage: this is the ratio of net debt to Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA is adjusted operating profit plus depreciation and amortisation;
-- Free cash flow: comprises EBITDA less movements in working capital, net capital expenditure, non-cash pension expense, and interest and tax payments.
Other matters
The principal risks and uncertainties facing the Group were set out in the Group's financial statements for the year ended 31 December 2017. There have been no changes in the Group's principal risks and uncertainties, risk management processes or policies since the year end. Related party transactions during the period are set out in note 10.
Statement of Directors' Responsibilities
The Directors confirm that this condensed interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last Annual Report.
The Directors of Croda International Plc at 30 June 2018 were as follows:
Anita Frew (Chairman)
Steve Foots (Chief Executive Officer)
Roberto Cirillo
Alan Ferguson
Dr Helena Ganczakowski
Professor Keith Layden
Jez Maiden
Steve Williams.
A list of current Directors is maintained on the Croda website: www.croda.com
By order of the Board
Steve Foots Jez Maiden Group Chief Executive Group Finance Director
INDEPENT REVIEW REPORT TO CRODA INTERNATIONAL PLC
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises Group condensed interim income statement, Group condensed interim statement of comprehensive income and expense, Group condensed interim balance sheet, Group condensed interim statement of changes in equity, Group condensed interim statement of cash flows, and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Chris Hearld
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds, LS1 4DA
25 July 2018
Croda International Plc
Interim announcement of trading results for the six months ended 30 June 2018
Group condensed interim income statement
First half 2018 First half 2017 Full year 2017
Reported Reported Reported
Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total Adjusted Adjustments(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 702.8 - 702.8 707.3 - 707.3 1,373.1 - 1,373.1
Cost of sales (428.5) - (428.5) (435.1) - (435.1) (855.7) - (855.7)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Gross profit 274.3 - 274.3 272.2 - 272.2 517.4 - 517.4
Operating costs (95.8) (4.2) (100.0) (96.4) (1.7) (98.1) (185.2) (6.2) (191.4)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Operating profit 2 178.5 (4.2) 174.3 175.8 (1.7) 174.1 332.2 (6.2) 326.0
Financial costs 3 (4.2) - (4.2) (6.3) - (6.3) (12.5) - (12.5)
Financial income 3 0.7 - 0.7 0.2 - 0.2 0.6 - 0.6
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit before
tax 175.0 (4.2) 170.8 169.7 (1.7) 168.0 320.3 (6.2) 314.1
Tax (43.4) 0.6 (42.8) (47.0) 0.4 (46.6) (85.9) 8.5 (77.4)
_______ _______ _______ _______ _______ _______ _______ _______ _______
Profit after tax
for the period 131.6 (3.6) 128.0 122.7 (1.3) 121.4 234.4 2.3 236.7
_______ _______ _______ _______ _______ _______ _______ _______ _______
Attributable to:
Non-controlling
interests (0.1) 0.3 (0.3)
Owners of the
parent 128.1 121.1 237.0
_______ _______ _______
128.0 121.4 236.7
_______ _______ _______
(1) Adjustments = exceptional items (including discontinued business costs), acquisition costs
and amortisation of intangible assets arising on acquisition and the tax thereon
Pence per Pence per Pence Pence Pence per Pence per
per per
share share Share Share Share Share
Adjusted Total Adjusted Total Adjusted Total
Earnings per 10.36p
share
Basic 100.2 97.5 93.4 92.4 179.0 180.8
Diluted 99.7 97.0 92.5 91.5 177.3 179.0
Ordinary dividends
Interim 38.00 35.00 35.00
Final 41.25
Group condensed interim statement of comprehensive income and expense
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Profit for the period 128.0 121.4 236.7
Other comprehensive
income/(expense):
Items that will not
be reclassified to
profit or loss:
Remeasurements of
post-
employment benefit
obligations 11.5 44.3 121.9
Tax on items that
will not be
reclassified (2.0) (9.2) (23.8)
______ ______ ______
9.5 35.1 98.1
______ ______ ______
Items that may be reclassified
subsequently to profit
or loss:
Currency translation (1.5) (11.8) (22.6)
______ ______ ______
Other comprehensive income
for the period 8.0 23.3 75.5
______ ______ ______
Total comprehensive
income for the period 136.0 144.7 312.2
______ ______ ______
Attributable to:
Non-controlling interests - - (0.6)
Owners of the parent 136.0 144.7 312.8
______ ______ ______
136.0 144.7 312.2
Arising from:
Continuing operations 136.0 144.7 313.9
Discontinued operations - - (1.7)
______ ______ ______
136.0 144.7 312.2
______ ______ ______
Group condensed interim balance sheet
At At
Note 30 June 31 December
2018 2017
GBPm GBPm
Assets
Non-current assets
Intangible assets 401.2 386.3
Property, plant and
equipment 5 724.1 684.0
Investments 1.7 2.2
Deferred tax assets 35.1 33.1
Retirement benefit
assets 28.5 19.1
______ ______
1,190.6 1,124.7
______ ______
Current assets
Inventories 281.9 258.5
Trade and other receivables 229.4 202.2
Cash and cash equivalents 73.0 63.3
______ ______
584.3 524.0
______ ______
Liabilities
Current liabilities
Trade and other payables (203.8) (201.4)
Borrowings and other financial
liabilities (29.7) (18.4)
Provisions (4.2) (5.2)
Current tax liabilities (49.5) (45.9)
______ ______
(287.2) (270.9)
______ ______
Net current assets 297.1 253.1
______ ______
Non-current liabilities
Borrowings and other financial
liabilities (436.4) (426.4)
Other payables (0.8) (1.1)
Retirement benefit
liabilities (51.5) (49.6)
Provisions (7.6) (7.4)
Deferred tax liabilities (83.9) (63.4)
______ ______
(580.2) (547.9)
______ ______
Net assets 907.5 829.9
______ ______
Equity attributable to owners
of the parent 899.9 822.3
Non-controlling interests
in equity 7.6 7.6
______ ______
Total equity 907.5 829.9
______ ______
Group condensed interim statement of changes in equity
Share Non-
Share premium Other Retained controlling Total
capital account reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 15.1 93.3 76.2 416.0 8.2 608.8
Profit for the period - - - 121.1 0.3 121.4
Other comprehensive
(expense)/income - - (11.5) 35.1 (0.3) 23.3
Transactions with owners:
Dividends on equity
shares - - - (54.1) - (54.1)
Share-based payments - - - 2.7 - 2.7
Transactions in own
shares - - - (0.5) - (0.5)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (51.9) - (51.9)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2017 15.1 93.3 64.7 520.3 8.2 701.6
______ ______ ______ ______ ______ ______
At 1 January 2018 15.1 93.3 53.9 660.0 7.6 829.9
Profit for the period - - - 128.1 (0.1) 128.0
Other comprehensive
(expense)/income - - (1.6) 9.5 0.1 8.0
Transactions with owners:
Dividends on equity
shares - - - (60.5) - (60.5)
Share-based payments - - - 3.0 - 3.0
Transactions in own
shares - - - (0.9) - (0.9)
______ ______ ______ ______ ______ ______
Total transactions with
owners - - - (58.4) - (58.4)
______ ______ ______ ______ ______ ______
Total equity at 30 June
2018 15.1 93.3 52.3 739.2 7.6 907.5
______ ______ ______ ______ ______ ______
Other reserves comprise the Capital Redemption Reserve of GBP0.9m
(30 June 2017: GBP0.9m) and the Translation Reserve of GBP51.4m (30
June 2017: GBP63.8m).
Group condensed interim statement of cash flows
2018 2017 2017
First First Full
Note half half year
GBPm GBPm GBPm
Cash flows from operating activities
Continuing operations
Operating profit 174.3 174.1 326.0
Adjustments for:
Depreciation and amortisation 27.4 26.2 53.3
(Profit)/loss on disposal of property,
plant and equipment (0.1) 1.1 1.5
Changes in working capital (57.9) (34.5) (33.3)
Non-cash pension expense 3.4 1.6 3.4
Share of loss of associate 0.1 - 0.1
Share based payments 7.2 5.9 9.2
Movement on provisions (0.4) (1.7) (0.9)
______ ______ ______
Cash generated from operations 154.0 172.7 359.3
Interest paid (7.1) (6.7) (13.9)
Tax paid (24.6) (49.7) (82.9)
______ ______ ______
Net cash generated from operating
activities 122.3 116.3 262.5
______ ______ ______
Cash flows from investing activities
Acquisition of subsidiaries (15.5) - (29.0)
Acquisition of associates - - (1.4)
Purchase of property, plant
and equipment (54.0) (70.1) (155.8)
Purchase of intangible assets (1.1) (1.2) (3.5)
Proceeds from sale of property,
plant and equipment 0.3 0.5 2.1
Proceeds from sale of other investments 0.4 - -
Cash paid against non-operating
provisions (0.6) (0.5) (2.5)
Interest received 0.7 0.2 0.6
______ ______ ______
Net cash used in investing
activities (69.8) (71.1) (189.5)
______ ______ ______
Cash flows from financing activities
New borrowings 70.5 58.0 359.3
Repayment of borrowings (58.5) (67.1) (331.8)
Transactions in own shares (0.9) (0.5) 0.7
Dividends paid to equity shareholders 4 (60.5) (54.1) (100.0)
Capital element of finance
lease payments (0.5) (0.4) (0.8)
______ ______ ______
Net cash used in financing
activities (49.9) (64.1) (72.6)
______ ______ ______
Net movement in cash and cash
equivalents 2.6 (18.9) 0.4
Cash and cash equivalents brought
forward 54.9 56.4 56.4
Exchange differences 0.7 0.3 (1.9)
______ ______ ______
Cash and cash equivalents carried
forward 58.2 37.8 54.9
______ ______ ______
Cash and cash equivalents carried
forward comprise:
Cash at bank and in hand 73.0 61.6 63.3
Bank overdrafts (14.8) (23.8) (8.4)
______ ______ ______
58.2 37.8 54.9
______ ______ ______
A reconciliation of the cash flows above to the movements in net debt is shown in note 6.
Notes to the Interim Financial Statement
1. a. General information
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. This consolidated interim report was approved for issue on 25 July 2018. The financial information included in this interim financial report for the six months ended 30 June 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and is unaudited. The comparative information for the six months ended 30 June 2017 is also unaudited. The comparative figures for the year ended 31 December 2017 have been extracted from the Group's financial statements, as filed with the Registrar of Companies, on which the auditors gave an unqualified opinion, did not contain an emphasis of matter paragraph and did not make a statement under section 498 of the Companies Act 2006. These Group condensed interim financial statements have been reviewed, not audited.
b. Basis of preparation
This consolidated interim financial report for the six months ended 30 June 2018 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 `Interim Financial Reporting' (as adopted by the EU). The report should be read in conjunction with the Group's financial statements for the year ended 31 December 2017, available on the Group's website (www.croda.com), which were prepared in accordance with IFRSs as adopted by the EU.
Going concern basis
After making enquiries, and having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.
c. Accounting policies
(i) The following standards have been adopted by the Group for the first time for the financial year commencing 1 January 2018:
IFRS 15 'Revenue from contracts' requires revenue to be recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. It replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The impact of the new standard on the Group's revenue and profit is not material. This reflects the relatively non-complex and largely standardised terms and conditions applicable to the Group's revenue contracts. Accordingly, the Group has not restated prior year comparators and no adjustment has been recognised in the opening balance of equity at the date of initial application.
IFRS 9 'Financial Instruments' replaced the classification and measurement models for financial instruments in IAS 39 with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Consistent with the non-complex nature of the Group's financial instruments, the impact of the new standard is not material and therefore the Group has not restated prior year comparators. The Group has amended its accounting policy for the establishment of provisions against trade receivables to reflect the lifetime expected loss model (consistent with the simplified approach under IFRS 9).
(ii) Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's financial statements for the year ended 31 December 2017. The changes in accounting policies are also expected to be reflected in the Group's financial statements for the year ended 31 December 2018.
Revenue Recognition
Revenue is measured based on the consideration specified in a contract with a customer and excludes inter-company sales. The Group recognises revenue when it transfers control over a product or service to a customer.
Sale of goods
The principal activity from which the Group generates revenue is the supply of products to customers from its various manufacturing sites and warehouses, and in some limited instances from consignment inventory held on customer sites. Products are supplied under a variety of standard terms and conditions, and in each case, revenue is recognised when contractual performance obligations between the Group and the customer are satisfied. This will typically be on dispatch or delivery. When sales discount and rebate arrangements result in variable consideration, appropriate provisions are recognised as a deduction from revenue at the point of sale. The Group typically uses the expected value method for estimating variable consideration, reflecting that such contracts have similar characteristics and a range of possible outcomes.
Royalties, licenses and profit sharing arrangements
Revenues are recognised when performance obligations between the Group and the customer are satisfied in accordance with the substance of the underlying contract.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest method, less impairment losses. A provision for impairment of trade receivables is recognised based on lifetime expected losses, but principally comprises balances where objective evidence exists that the amount will not be collectible. Such amounts are written down to their estimated recoverable amounts, with the charge being made to operating expenses.
Tax policy
Taxes on income in interim periods are accrued using the tax rate that would be applicable to the expected total Group annual profit or loss.
(iii) The following new standard is effective for annual periods beginning after 1 January 2018 and earlier application is permitted; however, the Group has not early adopted the standard in preparing these interim consolidated financial statements:
IFRS 16 'Leases' will require lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. Under IAS 17, lessees are required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). The IASB has included an optional exemption for lessees for certain short term leases and leases of low value assets. The standard is effective for annual periods beginning on or after 1 January 2019.
The Group will complete its IFRS 16 implementation work over the next six months, having already undertaken a significant review.
The new standard will result in most of the Group's current operating leases (as defined under IAS 17) being recognised on balance sheet. As at 31 December 2017, the Group had non-cancellable operating lease commitments of GBP30.7m.
However, the Group has not yet fully determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group's profit and classification of cash flows, although the impact on the latter will not be material based on our detailed estimates. Some existing operating lease commitments are expected to be covered by the exemption for short term and low value leases, whilst other commitments under IAS 17 will be extended under the IFRS 16 definition of a lease term.
The Group does not intend to restate prior year comparators when the new standard is adopted, with lease asset values being set equal to lease liabilities at the date of transition in line with the 'simplified approach' under IFRS 16.
Other matters
For details on the principal risks and uncertainties facing the Group refer to note 9.
For information on related party transactions during the period refer to note 10.
2. Segmental information
The Group's sales, marketing and research activities are organised into four global market sectors, being Personal Care, Life Sciences, Performance Technologies and Industrial Chemicals. 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.
There are no significant seasonal variations which impact the split of revenue between the first and second half of the financial year.
Adjustments in the Group Income Statement of GBP4.2m (30 June 2017: GBP1.7m) relate to acquisition costs and amortisation of intangible assets arising on acquisition. The adjustments relate to our segments as follows: Personal Care GBP0.7m (30 June 2017: GBP0.2m), Life Sciences GBP2.5m (30 June 2017: GBP1.4m), Performance Technologies GBP1.0m (30 June 2017: GBP0.1m) and Industrial Chemicals GBPNil (30 June 2017: GBPNil).
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Revenue
Personal Care 247.7 238.3 466.6
Life Sciences 158.6 162.4 322.6
Performance Technologies 235.9 239.9 456.9
Industrial Chemicals 60.6 66.7 127.0
______ ______ ______
702.8 707.3 1,373.1
______ ______ ______
Adjusted operating profit
Personal Care 84.4 82.6 155.5
Life Sciences 47.4 49.3 97.0
Performance Technologies 45.6 40.9 75.4
Industrial Chemicals 1.1 3.0 4.3
______ ______ ______
178.5 175.8 332.2
Exceptional items, acquisition
costs and amortisation of intangible
assets arising on acquisition (4.2) (1.7) (6.2)
______ ______ ______
Total Group operating profit 174.3 174.1 326.0
______ ______ ______
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.
North Latin Reported
Europe America America Asia Total
GBPm GBPm GBPm GBPm GBPm
Revenue
First half 2018
Personal Care 86.4 72.5 27.5 61.3 247.7
Life Sciences 64.9 48.6 21.0 24.1 158.6
Performance Technologies 118.0 63.6 14.1 40.2 235.9
Industrial Chemicals 32.0 5.2 1.5 21.9 60.6
______ ______ ______ ______ ______
301.3 189.9 64.1 147.5 702.8
______ ______ ______ ______ ______
Revenue
First half 2017
Personal Care 81.8 68.9 29.1 58.5 238.3
Life Sciences 62.3 55.9 20.1 24.1 162.4
Performance Technologies 113.5 67.1 16.2 43.1 239.9
Industrial Chemicals 32.3 7.5 2.1 24.8 66.7
______ ______ ______ ______ ______
289.9 199.4 67.5 150.5 707.3
______ ______ ______ ______ ______
3. Net financial costs
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Financial costs
Bank interest payable (7.1) (6.7) (13.9)
Capitalised interest 3.2 2.2 5.0
Net interest on retirement benefit
liabilities (0.3) (1.8) (3.6)
______ ______ ______
(4.2) (6.3) (12.5)
______ ______ ______
Financial income
Bank interest receivable and
similar income 0.7 0.2 0.6
______ ______ ______
Net financial costs (3.5) (6.1) (11.9)
______ ______ ______
4. Dividends paid
2018 2017 2017
First First Full
Pence half half year
per share GBPm GBPm GBPm
Ordinary
2016 Final - paid June
2017 41.25 - 54.1 54.1
2017 Interim - paid October
2017 35.00 - - 45.8
2017 Final - paid May
2018 46.00 60.5 - -
______ ______ ______
60.5 54.1 99.9
Preference (paid June and
December) 0.0 0.0 0.1
______ ______ ______
60.5 54.1 100.0
______ ______ ______
An interim dividend in respect of 2018 of 38.00p per share, amounting to a total dividend of GBP50.0m, was declared by the Directors at their meeting on 24 July 2018. This interim report does not reflect the 2018 interim dividend payable. The dividend will be paid on 3 October 2018 to shareholders registered on 24 August 2018.
5. Property, plant and equipment
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Opening net book amount 684.0 598.1 598.1
Exchange differences 6.2 (14.8) (26.9)
Additions 57.2 72.3 160.8
Acquisitions 0.5 - 3.0
Disposals and write offs (0.2) (1.8) (3.1)
Depreciation charge for period (23.6) (23.6) (47.9)
______ ______ ______
Closing net book amount 724.1 630.2 684.0
______ ______ ______
At 30 June 2018 the Group had contracted capital expenditure commitments of GBP26.4m (30 June 2017: GBP40.7m).
6. Reconciliation to net debt
2018 2017 2017
First First Full
half half year
GBPm GBPm GBPm
Net movement in cash and cash
equivalents 2.6 (18.9) 0.4
Movement in debt and lease financing (11.5) 9.5 (26.7)
______ ______ ______
Change in net debt from cash
flows (8.9) (9.4) (26.3)
New finance lease contracts (0.5) (0.4) (0.7)
Exchange differences (2.2) 6.3 9.6
______ ______ ______
(11.6) (3.5) (17.4)
Net debt brought forward (381.5) (364.1) (364.1)
______ ______ ______
Net debt carried forward (393.1) (367.6) (381.5)
______ ______ ______
7. Accounting estimates and judgements
The Group's significant accounting policies under IFRS have been established 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 IFRS 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 judgements required when preparing the Group's accounts are as follows:
Provisions
Provisions are made where a constructive or legal obligation has arisen from a past event, can be quantified and where the timing of the transfer of economic benefits relating to the provisions cannot be ascertained with any degree of certainty.
At 30 June 2018, the Group has an environmental provision of GBP9.8m (31 December 2017: GBP10.2m) in respect of soil and potential ground water contamination on a number of sites, both currently in use and previously occupied, in Europe and the Americas.
In relation to the environmental provision, the Directors consider that the balance will be utilised within ten years. Provisions for remediation costs are made when there is a present obligation, it is probable that expenditures for remediation work will be required and the cost can be estimated within a reasonable range of possible outcomes. The costs are based on currently available facts and prior experience. Environmental liabilities are recorded at the estimated amount at which the liability could be settled at the balance sheet date. Remediation of environmental damage typically takes a long time to complete due to the substantial amount of planning and regulatory approvals normally required before remediation activities can begin. In addition, increases in or releases of environmental provisions may be necessary whenever new developments occur or additional information becomes available. Consequently, environmental provisions can change significantly. The level of environmental provision is based on management's best estimate of the most likely outcome for each individual exposure.
The Group has also considered the impact of discounting on its provisions and has concluded that, as a consequence of the significant utilisation expected in a relatively short timescale, the impact is not material.
Goodwill and fair value of assets acquired
The Group tests annually whether goodwill has suffered any impairment and the carrying value of goodwill in the Group balance sheet has been supported by detailed value-in-use calculations relating to the recoverable amounts of the underlying cash generating units. These calculations require the use of estimates and judgements, such as those around future trading and cash flows, however as recoverable amounts significantly exceed carrying values including goodwill, there is no impairment within a wide range of assumptions.
Retirement benefit liabilities
The Group's principal retirement benefit schemes are of the defined benefit type. 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 levels of scheme membership, key financial market indicators such as inflation and expectations on future salary growth. 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 prudent and in line with consensus opinion. The discount rate applied to the Group's UK scheme is based on Towers Watson's Rate: link model. Total Group retirement benefit liabilities have decreased by GBP7.5m in the first half of 2018 to GBP23.0m. This movement comprises GBP3.4m of service costs in excess of contributions, GBP0.3m of net financial costs and a GBP0.3m currency translation loss, offset by GBP11.5m due to changes in actuarial assumptions and the market value of assets.
Taxation
The Group is subject to corporate income taxes in numerous jurisdictions. Significant judgement is often required in determining the worldwide expense and liability for such taxes. There are many transactions and calculations where the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for tax issues based on estimates of whether additional taxes will be due, based on its best interpretation of the relevant tax laws and rules. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
8. Contingent liabilities
The Company has guaranteed loan capital and bank overdrafts of subsidiary undertakings amounting to GBP90.4m (31 December 2017: GBP91.2m).
The Group is subject to various claims which arise in the course of business. These contingent liabilities are reviewed on a regular basis and where possible an estimate is made of the potential financial impact on the Group.
The Group is also involved in certain legal and environmental actions and proceedings. Whilst the Group cannot predict the outcome of any current or future actions or proceedings with any certainty, it currently believes the likelihood of any material liabilities to be low, and that the liabilities, if any, will not have a material adverse effect on its consolidated income, financial position or cash flows. The Group also considers it has insurance in place in relation to any significant contingent liabilities.
9. Principal risks and uncertainties
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. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's financial statements for the year ended 31 December 2017. There have been no changes in the Group's risk management processes or policies since the year end.
Financial instruments
IFRS 13 requires disclosure of the Group's financial instruments measured at fair value by level of 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 other investments 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. 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 ten year bond that was issued in 2010. On the 27 June 2016, the Group issued GBP100m and EUR100m of new fixed rate bonds. The book value and fair values of these bonds can be found in the table below.
Book Value Fair value Book Value Fair value
First half First half Full year Full year
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
US$100m fixed rate 10
year bond 75.8 77.1 73.9 76.4
EUR30m fixed rate 7 year
bond 26.5 26.5 26.6 27.0
EUR70m fixed rate 10
year bond 61.9 63.7 62.1 63.1
GBP30m fixed rate 7 year
bond 30.0 30.3 30.0 30.5
GBP70m fixed rate 10
year bond 70.0 70.8 70.0 71.4
10. Related party transactions
The Group has not entered into any related party transactions in the first six months of the year, except for Directors' and key management compensation.
11. Business combinations
On the 11 January 2018, the Group acquired Nautilus Biosciences Canada Inc for a total consideration, inclusive of net debt, of GBP5.6m. This marine biotechnology company that uses marine microbial biodiversity to discover novel actives and materials, innovative science that will be used in applications across all our market sectors.
On 27 March 2018, the Group acquired Plant Impact Plc for a total consideration, inclusive of net debt, of GBP9.3m. Plant Impact researches and develops crop enhancement chemistry to improve crop yield and quality. This acquisition represents an exciting opportunity in combination with the Group's existing Crop Protection and Seed Enhancement market sectors.
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.
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