Croda International Plc 2011 Preliminary Results 21 February 2012 - - PowerPoint PPT Presentation

Croda International Plc 2011 Preliminary Results

21 February 2012

Overview

Martin Flower - Chairman

Introduction

Steve Foots - Chief Executive

Introduction

• Business reporting and management

changes

• Financial review
• Business Review
• Priorities
• Updated targets
• 2012 outlook

Steve Foots Sean Christie Steve Foots

4

A record year

• Sales up 6.6% to £1068.4m
• Pre-tax profit up 25.9% to £242.2m
• Return on sales up 2.9 percentage points to 22.7%
• Dividend increased by 57% to 55p
• £50m returned to shareholders through buyback programme
• Results confirm the resilience of Croda’s business model and strategy

5

A strong performance in a challenging world

New reporting format

6

Process Additives renamed and separately reported

Previous format New format

Consumer Care Industrial Specialities Consumer Care Performance Technologies

• Personal Care
• Health Care
• Crop Care
• Personal Care
• Health Care
• Crop Care
• Lubricants
• Coatings & Polymers
• Geo Technologies
• Polymer Additives
• Home Care
• Process Additives
• Lubricants
• Coatings & Polymers
• Geo Technologies
• Polymer Additives
• Home Care

Industrial Chemicals

• Process Additives

Three different business profiles

7 Consumer Care

• High growth driven by global

population dynamics

• Most new products patented
• Competition fragmented
• High margin (current ROS ~30%)
• Low volume
• Strong pricing power
• % of Group total
• Volume: 31%
• Sales: 54%
• EBIT: 72%

Performance Technologies

• Driven by performance and

sustainability

• Many new products patented
• High margin (current ROS ~15%)
• Higher volume than Consumer

Care

• Strong pricing power
• % of Group total
• Volume: 42%
• Sales: 36%
• EBIT: 25%

Industrial Chemicals

• By-product volumes are a function
• f our activity levels. Growth in
• ther markets (textiles, leather etc)

is global GDP related

• Lower margins (<10% ROS)
• Higher volume
• Many competitors
• Limited pricing power
• % of Group total
• Volume: 27%
• Sales: 10%
• EBIT: 3%

• New management appointments
• Chief Technology Officer
• President, Consumer Care Europe
• President, Performance Technologies & Industrial Chemicals Europe
• Dedicated business segment heads for Consumer Care, Performance Technologies and

Industrial Chemicals in each region

• Creation of Asia and Latam Boards, reflecting increased focus on fast growing economies
• Organisational changes will increase alignment between sales, marketing and technical

business teams

8

Experienced and entrepreneurial management team

Organisational changes

Financial Review

Sean Christie – Finance Director

Consumer Care (unchanged)

• Sales of £574m, operating profit £173m, ROS 30.2%
• Consistently strong sales and profit growth driven by population

dynamics, innovation and sustainability

• Personal Care, Health Care, Crop Care

10

Performance Technologies

• Sales of £389m, operating profit £60m, ROS 15.4%
• Strong underlying sales and profit growth expected
• Lubricants, Coatings & Polymers, Geo Technologies, Polymer Additives

and Home Care have all seen significantly improved performance over recent years

11

Industrial Chemicals

• Sales £105m, operating profit £9m, ROS 8.5%
• Fatty acids, glycerine plus other residues and by-products
• Sales to markets outside our core business areas (eg Textiles, Leather)
• Predominantly a commodity business but there are also some speciality

products

• Tends to be low margin but profitable
• Much of the output of two manufacturing sites, Cremona (Italy) and Cikarang

(Indonesia) go into this sector plus by-products from Croda’s other

• perations

12

Industrial Chemicals is changing

13 We have shed >75% of volume since 20071 but still almost as big as Consumer Care in volume terms

• 1. Management estimates

Industrial Chemicals £ 104.9 m 2011 Total sales £ 1068.4 m

• Recession exposure much reduced
• Utilise feed stocks internally
• Separation from Performance Technologies will

provide more focus

1

Croda is not about volume

• Since the acquisition of Uniqema
• We have shed 61% of our volume
• Almost trebled average selling

prices

• Concentrating on unique

patented chemistry

• Losing the ‘tail’
• Re-positioning incorrectly priced

Uniqema products

• Passing on raw material inflation
• More than quadrupled PBT

14

Croda has reduced volume every year except 2007 (Uniqema acquisition)

Volumes and profits as reported each year. 2006 excludes Uniqema (acquired part way through the year)

2011 results: Q4

Q4 Results – PBT up 23% to £60m

• Modest sales increase overall
• Good growth in Consumer Care
• Slight declines in Performance Technologies and Industrial Chemicals
• Volumes down 18%
• Strong growth in new and patented products
• Declines in ex Uniqema ‘tail’ in all reporting business areas
• Extended Christmas holiday shutdown in European customer base
• PBT up 22.7% to £60.0m
• Record operating margins with group ROS at 24.5%
• £6.7m net debt reduction despite paying interim dividend of £34.5m

16

Q4 sales trends

17

Q4 Year Price and mix +20.1%

+17.1%

Volume

• 18.3%
• 9.7%

Underlying +1.8%

+7.4%

Currency +0.6%

• 0.8%

Continuing sales +2.4%

+6.6%

• Volumes down in all business areas in Q4 but mainly in high volume, low

value tail

• Mix continues to improve as a result
• Favourable currency in quarter, negative for the year as a whole

Q4 sales by segment

18

Strong sales growth in Consumer Care outweighs declines elsewhere

£m 2011 2010 Growth Consumer Care 135.1 123.8 +9.1% Performance Technologies 84.5 87.9

• 3.9%

Industrial Chemicals 23.6 25.7

• 8.2%

Total turnover 243.2 237.4 +2.4%

• Extended Christmas shutdown in European customer base
• Customers reduced WIP stocks at year end
• Good news for Q1 2012

Q4 EBIT/ROS by segment

£m 2011 2010 Growth Consumer Care 42.9 32.9 +30.4%

ROS 31.8% 26.6%

Performance Technologies 13.8 13.8

• ROS

16.3% 15.7%

Industrial Chemicals 2.8 2.7 +3.7%

ROS 11.9% 10.5%

Total EBIT 59.5 49.4 +20.4%

ROS 24.5% 20.8%

19

Outstanding profit growth continues in Consumer Care. Margins strong in all sectors

2011 results: Full year

2011 turnover by destination

• Strong Asian sales growth

in high end products, partially masked by our exit from a number of unprofitable product areas

• High end sales in Europe

and US often re-exported to Asia/LATAM by our customers

21 Turnover growth in all regions but slower than 2010. Emerging markets are 32% of Group turnover

UK represents 5%

• f total sales

2011 turnover by segment

£m 2011 2010 Growth Consumer Care 574.3 516.4

+11.2%

Performance Technologies 389.2 379.4

+2.6%

Industrial Chemicals 104.9 106.1

• 1.1%

Total turnover 1068.4 1001.9

+6.6%

22 Growth in Consumer Care and Performance Technologies but slight sales decline in Industrial Chemicals

2011 EBIT/ROS by segment

£m 2011 2010 Growth Consumer Care 173.4 136.5

+27.0% ROS 30.2% 26.4%

Performance Technologies 60.1 51.2

+17.4% ROS 15.4% 13.5%

Industrial Chemicals 8.9 10.9

• 18.3%

ROS 8.5% 10.3%

Total EBIT 242.4 198.6

+22.1% ROS 22.7% 19.8%

23

Again, strong profit growth driven by Consumer Care and Performance Technologies

Continuing Consumer Care

24

2011 2010 Inc

Turnover 574.3 516.4 +11.2% Operating profit 173.4 136.5 +27.0% ROS 30.2% 26.4%

• Consistent sales and profit progress throughout the year
• Return on sales reaches 30% for the first time
• Sales and profit growth in all business areas with

strongest performance in Crop Care and Health Care

• 2010
• 2011

Continuing Performance Technologies

25

• Volume losses in undifferentiated products in all areas
• Strong growth in new patented products drives margin

improvement

• Very strong performance seen in Lubricants, Coatings &

Polymers and Home Care

• Geo Technologies: good underlying performance but no

repeat of 2010 windfall from the Gulf of Mexico clean-up

• Profit decline in Polymer Additives

£m 2011 2010 Inc

Turnover 389.2 379.4 +2.6% Operating profit 60.1 51.2 +17.4% ROS 15.4% 13.5%

• 2010
• 2011

Continuing Industrial Chemicals

26

• Volumes reasonably stable throughout the year (we

always have by-products to sell)

• Limited pricing power so sales, margins and profit

generation can be volatile

• Weak textile market
• Price versus cost at its worst in Q3 plus under utilisation
• f assets

£m 2011 2010 Inc

Turnover 104.9 106.1

• 1.1%

Operating profit 8.9 10.9

• 18.3%

ROS 8.5% 10.3%

• 2010
• 2011

2011 pre-tax profit up 26%

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Another very strong performance in a difficult market

£m 2011 2010 Growth Total operating profit 242.4 198.6 +22.1%

ROS 22.7% 19.8%

Financing (0.2) (6.3) Pre-tax profit 242.2 192.3 +25.9%

• Financing
• Slightly lower interest charge at £8.2m (2010: £8.6m)
• Significantly increased IAS19 pension funding credit of £8.0m (2010: £2.3m)

2011 earnings per share up 28.4%

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£m 2011 2010 Growth Pre-tax profit 242.2 192.3 +25.9% Tax Rate 31.5% 32.5% Average Number of shares 135.3m 136.0m Earnings per share 122.5p 95.4p +28.4%

• Reduced tax rate in UK and elsewhere
• Reduced average number of shares (buyback)

New dividend policy – dividend up 57%

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New policy: to pay out 40-50% of full year earnings in dividends

£m 2011 2010 Growth Earnings per share 122.5p 95.4p +28.4% Full year dividend 55.0p 35.0p +57.1% Pay-out ratio 45% 37% Cover 2.2x 2.7x Interim dividend 24.75p 9.75p +153.8% Final dividend 30.25p 25.25p +19.8%

• Total dividend at mid point of new policy range

Free cash flow

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£m 2011 2010 EBITDA 274.6 231.4 Working Capital movement (23.7) (21.7) Cash from operations 250.9 209.7 Capital expenditure (58.3) (41.3) Free cash flow 192.6 168.4

• Capital projects included the start of the acrylic polymer plant at Rawcliffe Bridge

plus a large number of individually small capacity expansion projects across our global asset base

Net cash flow

£m 2011 2010 Free cash flow 192.6 168.4 Excess pension contributions (17.4) (16.7) Share purchases/issues (49.4) 2.1 Dividends paid (67.7) (33.8) Interest (10.1) (9.9) Tax (57.7) (45.9) M&A 3.2 13.1 Other (3.2) (13.2) Net cash flow (9.7) 64.1 Exchange differences (1.1) 4.1 (Increase)/decrease in net debt (10.8) 68.2

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Net debt £231m after £118m dividends & buyback

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* Excludes IAS19 credit

£m 2011 2010 Net debt 231.1 220.3 Committed facilities 472.0 473.8 Committed headroom 240.9 253.5 Net debt/EBITDA 0.8x 1.0x EBITDA interest cover* 33.5x 26.9x

• Main banking facilities run to May 2015
• $100m fixed rate loan (5.94%) runs to January 2020
• $45m other dollar denominated (floating)
• €110m (floating)

Balance sheet structure

• 2011
• £50m buyback programme in Q2/Q3
• 2.8m shares bought at an average price of 1782p
• 2012
• Planned capital expenditure programme £65m
• Expect to generate surplus cash after this
• Would rather invest further in Croda if opportunities arise
• Any future buybacks will be reviewed in light of the above

33

Our top priority is to invest in the business

Pension deficit increases by £37m (IAS19 basis)

34

£m 2011 2010 Market value of assets 647.5 641.9 Value of liabilities (846.4) (789.7) Deficit pre tax (198.9) (147.8) Deferred tax 57.3 42.9 Deficit post tax (141.6) (104.9)

• Ever lower discount rates increase liabilities so deficit is almost back to where it

was two years ago despite cash contributions and asset appreciation

Financial KPIs (I)

35

• ROS
• Now at 22.7%
• ROIC
• Very high after tax returns achieved
• ROIC 23.7%
• Far ahead of cost of capital
• WACC 7.8%
• Capital light business model

Financial KPIs (II)

36

• EPS growth
• 28.4% achieved in 2011
• Debt ratios
• Debt/EBITDA 0.8x
• EBITDA interest cover 33.5x

Business Review

Steve Foots - Chief Executive

Innovation is at the heart of Croda

• Innovation at our core
• Focus on fast growing niche markets
• Unrivalled customer contact
• Value not volume driven
• Supply to all customers, large and small
• Market led R&D, satisfying unmet

customer and consumer needs

• Global reach

Customer Concepts

Innovation

Products

38

A marketing and technology company that creates and sells speciality chemicals

R & D

Macro and mega trends driving structural growth

39

Positioned well in very attractive growth markets

Personal Care Health Care Crop Care Lubricants Coatings & Polymers Polymer Additives Geo Technologies Home Care

Population growth Disposable income increase Consumer spending growth

Building on our success – business priorities

40

Acceleration of market led innovation at the heart of our future growth story

Niche market focus New technology capture Expansion in emerging markets Specialisation of Performance Technologies

Innovation Innovation Innovation Invest Invest Invest

41

Cystine Smoothing System – Hair Therapy

• Fully formulated solution for hair straightening
• Safe use formulation
• Smoother, sleeker hair

Incromega™ 3mulsion – Tastier Omega-3

• Concentrated flavoured emulsion for dietary supplements
• Tastier omega-3 well suited for consumption by children
• Positioned to meet EU health claims – one serving delivers RDI for omega-3

Resistem™ – Plant Stem Cell Technology

• Anti-ageing protection
• Improves skin transparency
• Reduces skin redness for a glowing complexion

Growth in niche markets – Consumer Care

42

VOC = Volatile Organic Compound

Perfad™ 3000 series – Organic Friction Modifiers

• Outstanding friction reduction in oil-based systems
• Increased fuel economy
• Increased oxidative stability compared to traditional materials

Modisurf™ Clarity – Stay Clean Additive

• Effective lime scale repellent on glass and polymeric surfaces
• Reduces misting of surfaces
• Environmentally friendly
• Kind to skin

Maxemul™ – Polymerics for VOC free coatings

• Total elimination of solvents in water borne alkyd paint systems
• Meets European 2010 VOC Directive and future proof
• No compromise on performance
• Easy to use and apply

Growth in niche markets – Performance T echnologies

Accelerated capture of new technologies

• Successful track record
• Bio-fermentation on stream now
• Acrylic polymers on stream Q3, 2012
• Now plan to globalise our Enterprise

Technology group

• Global “on the ground” sourcing network
• Targeting universities alongside small to

medium sized enterprise companies

• Includes resource in China, India and Brazil
• Bias toward smaller “bolt-on” acquisitions

supporting growth in our core markets 43

Sourcing of new technologies across the globe

Acrylic polymers

• £12m investment in Rawcliffe, UK
• Dedicated business team in place
• Improve rheology, dispersion and

suspension profile of formulations

• Several patented products planned for

launch H2 2012

• Target market £500m
• Initial focus on Personal Care, Crop Care

and Home Care

• Acrylic polymers have performance benefits

across all market sectors

44 33% of all products launched by top 10 Personal Care companies 2005 – 2011 contained acrylic polymers

Expansion in high growth markets

45

Significant expansion programme driving exciting growth opportunities

Expansion Plan 2012

• Expansion at all manufacturing sites
• New sales offices opening in Turkey (Nov 2011), Vietnam and Indonesia as well as sales support in Venezuela and Ecuador
• New regional R&D laboratories opening in Mexico and South Africa with significant scale up in India, Singapore and Brazil
• More distributor exits
• Increase in sales, marketing and technical employees
• Creation of Asia and Latam Boards

Sales office (24) Manufacturing (5) R&D (6)

Scaling up in China and Taiwan

46

• Sales offices in six major cities
• 50 employees
• Over 1200 customers
• Laboratories in Guangzhou
• Formulation development
• Efficacy testing

Specialisation of Performance T echnologies

47

Sector End market growth rates Our niche

Polymer Additives >3% p.a. Slip additives for polyolefins Lubricants specialities >5% p.a. Friction control modifiers Coating & Polymer specialities >5% p.a. Solvent reduction additives Home Care >3% p.a. Sustainable detergent ingredients Geo Technologies >5% p.a. Demulsifiers for heavy oil

Specialisation of Performance T echnologies

48

Speciality esters “Feeling is believing” Biopolymer innovations Solaveil™ UVA skin protection Perfad™ organic friction modifiers Coltide™ naturals for fabric care Solasorb™ packaging protection

Transfer of products from Consumer Care into Performance Technologies

Consumer Care Performance Technologies

Specialisation of Performance T echnologies

49

Transfer of marketing ideas from Consumer Care into Performance Technologies

• Roadshow academies
• Targeted countries and customers
• Home Care
• Polymer Additives
• Coatings & Polymers
• Innovative interactivity
• Animations and film
• Visual demonstrations
• Interactive online tools

Investing in the business

2012 – 2014

• >70% of spend in capacity

expansion, new technology and energy reduction projects

• More than doubling investment in

emerging markets versus 2008 – 2011

50

Medium term targets and priorities

51 Consumer Care Performance Technologies

• Sales to grow 5 – 10%
• ROS >25%
• Earnings growth > sales growth

Our targets Strategic priorities

• Sales to grow 4 – 8%
• ROS 20%
• Earnings growth > sales growth
• New technology capture
• New product innovation
• Emerging market development
• Niche market focus
• Emerging market development
• Specialisation of resource

Industrial Chemicals

• Maximise profitability
• Extract value
• Cost control

Positive outlook

• 2012
• Encouraging start to the year
• Expect 2012 to be another year of progress for Croda
• Longer term
• Focus on innovation and technology
• Increasing exposure to growing economies of Asia and Latam
• Great confidence in the future prospects of the Group

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Croda is well positioned to generate sustainable shareholder value

Croda International Plc 2011 Preliminary Results Appendix

21 February 2012

Appendix I: Price/volume trends by quarter

Q1 Q2 Q3 Q4 Year Price and mix +16.1% +13.9% +18.4% +20.1% +17.1% Volume

• 0.5%
• 5.4%
• 14.8%
• 18.3%
• 9.7%

Underlying +15.6% +8.5% +3.6% +1.8% +7.4% Currency

• 2.4%
• 2.8%

+1.5% +0.6%

• 0.8%

Continuing sales +13.2% +5.7% +5.1% +2.4% +6.6%

54

Appendix II: Sector sales trends by quarter

Q1 Q2 Q3 Q4 Year Consumer Care +14.2% +8.1% +13.6% +9.1% +11.2% Performance Technologies +14.1% +1.7%

• 1.3%
• 3.9%

+2.6% Industrial Chemicals +5.3% +9.6%

• 11.5%
• 8.2%
• 1.1%

Continuing sales +13.2% +5.7% +5.1% +2.4% +6.6%

55

Appendix III: 2010 by quarter

£m Q1 Q2 Q3 Q4 Year Consumer Care 128.1 136.3 128.2 123.8 516.4 Performance Technologies 91.1 103.0 97.4 87.9 379.4 Industrial Chemicals 26.3 27.1 27.0 25.7 106.1 Continuing sales 245.5 266.4 252.6 237.4 1001.9 Consumer Care 34.7 36.4 32.5 32.9 136.5 Performance Technologies 10.3 13.4 13.7 13.8 51.2 Industrial Chemicals 1.0 4.7 2.5 2.7 10.9 Continuing operating profit 46.0 54.5 48.7 49.4 198.6 Interest (2.7) (1.9) (1.2) (0.5) (6.3) Continuing pre-tax profit 43.3 52.6 47.5 48.9 192.3

56

Appendix IV: 2011 by quarter

£m Q1 Q2 Q3 Q4 Year Consumer Care 146.3 147.3 145.6 135.1 574.3 Performance Technologies 103.9 104.7 96.1 84.5 389.2 Industrial Chemicals 27.7 29.7 23.9 23.6 104.9 Continuing sales 277.9 281.7 265.6 243.2 1068.4 Consumer Care 42.4 45.6 42.5 42.9 173.4 Performance Technologies 16.1 15.5 14.7 13.8 60.1 Industrial Chemicals 2.4 3.3 0.4 2.8 8.9 Continuing operating profit 60.9 64.4 57.6 59.5 242.4 Interest (0.2) (0.3) (0.2) 0.5 (0.2) Continuing pre-tax profit 60.7 64.1 57.4 60.0 242.2

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