Croda International Plc 2012 Preliminary Results 26 February 2013 - - PowerPoint PPT Presentation

Croda International Plc 2012 Preliminary Results

26 February 2013

Introduction

Steve Foots – Group Chief Executive

Strong performance in tough environment

• Sales up 2.3% to £1051.9m
• Operating profit up 7.4% to £255.4m
• Pre-tax profit up 6.6% to £253.2m
• Record ROS, up 1.2% points to 24.3%
• Earnings per share up 8.2% to 130p
• Dividend increased by 8.2% to 59.5p (payout ratio of 46%)

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Results confirm the resilience of Croda’s business model and strategy

A strong business, getting stronger

• Core business continues to achieve strong growth:
• Progress across all three market areas in Consumer Care with record ROS
• Continued specialisation in Performance Technologies
• Separation of Performance Technologies and Industrial Chemicals delivering

benefits

• New technology capture with acquisition of IRB and Innovachem
• Disposal of Cremona
• Investment has increased presence in the faster growing regions

4

Relentless innovation and continued investment delivering strong results

Financial Review

Sean Christie – Group Finance Director

2012 Q4 results

Q4 sales by segment

£m 2012 2011 Growth Consumer Care 136.3 134.4 +1.4% Performance Technologies 83.9 81.7 +2.7% Industrial Chemicals 19.9 18.9 +5.3% Total turnover 240.1 235.0 +2.2%

• Good underlying sales growth in all three segments reduced by currency

translation

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Sales trends v 2011

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Q1 Q2 Q3 Q4 Year Volume

• 0.7%

+2.4% +8.8% +11.7% +5.1% Price/mix +6.3% +1.0%

• 5.6%
• 6.0%
• 0.7%

Underlying +5.6% +3.4% +3.2% +5.7% +4.4% Currency

• 0.2%
• 2.3%
• 2.8%
• 3.7%
• 2.2%

Acquisition

• +0.1%

+0.2% +0.1% Continuing sales +5.4% +1.1% +0.5% +2.2% +2.3%

• Underlying sales growth steadily improving post Q2
• Currency translation headwind increased through 2012
• 2nd half growth in Industrial Chemicals flatters volumes and weakens mix

Q4 EBIT/ROS by segment

£m 2012 2011 Growth Consumer Care 44.5 42.6 +4.5%

ROS 32.6% 31.7%

Performance Technologies 13.4 12.8 +4.7%

ROS 16.0% 15.7%

Industrial Chemicals 4.0 3.5 +14.3%

ROS 20.1% 18.5%

Total EBIT 61.9 58.9 +5.1%

ROS 25.8% 25.1%

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Growth and improved ROS in all segments despite tough markets and adverse currency

2012 preliminary results

2012 turnover by destination

38% 26% 18% 10% 8%

• W. Europe -1%
• N. America +5%

Asia +3% LATAM +4% Other emerging markets* +8%

• Good sales growth in Asia

and Latam in high end products, partially obscured by our exit from a number of undifferentiated lines

• Strong trading in North

America

• Underlying European sales

growth in local currency is masked by 7% hit on Euro

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Underlying turnover growth in all regions despite strong 2011 comparatives

* Eastern Europe, Middle East and Africa

UK represents 5% of total sales 36% of sales in emerging markets

Consumer Care

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£m 2012 2011 Inc

Turnover 586.4 571.4 +2.6% Operating profit 185.4 171.2 +8.3% ROS 31.6% 30.0%

40 80 120 160 Q1 Q2 Q3 Q4

Sales (£m)

• Profit growth in all quarters despite sales

weakness in Q3

• All business areas saw underlying sales and

profit growth with Crop Care the strongest performer

10 20 30 40 50 60 Q1 Q2 Q3 Q4

EBIT (£m)

• 2011
• 2012

Performance Technologies

13 20 40 60 80 100 120 Q1 Q2 Q3 Q4

Sales (£m)

• Good progress towards 20% medium

term ROS target despite difficult European marketplace

• Weak European markets (particularly

automotive) reduced profitability in Lubricants and Coatings and Polymers

5 10 15 20 Q1 Q2 Q3 Q4

EBIT (£m)

£m 2012 2011 Inc

Turnover 382.8 373.6 +2.5% Operating profit 59.7 55.3 +8.0% ROS 15.6% 14.8%

• 2011
• 2012

5 10 15 20 25 30 Q1 Q2 Q3 Q4

Sales (£m)

1 2 3 4 5 Q1 Q2 Q3 Q4

EBIT (£m)

Industrial Chemicals

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• Limited pricing power so sales, margins

and profit generation can be volatile

• Strong H2 performance after weak first

half £m 2012 2011 Inc

Turnover 82.7 83.0

• 0.4%

Operating profit 10.3 11.2

• 8.0%

12.5% 13.5%

• 2011
• 2012

2012 pre-tax profit up 6.6%

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Another very strong performance in a difficult market

£m 2012 2011 Growth Total operating profit 255.4 237.7 +7.4%

ROS 24.3% 23.1%

Financing (2.2) (0.2) Pre-tax profit 253.2 237.5 +6.6%

• Financing
• Reduced pension funding credit due to assumption changes

2012 Earnings Per Share up 8.2%

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£m 2012 2011 Growth Pre-tax profit 253.2 237.5 +6.6% Tax rate 30.8% 31.5% Average number of shares 134.6m 135.3m Earnings per share 130.0p 120.1p +8.2%

• Tax rate reduced to 30.8%
• Falling UK tax rates
• Average number of shares reduced due to 2011 buyback

Total dividend up 8.2%

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£m 2012 2011 Growth Earnings per share 130.0p 120.1p +8.2% Total dividend 59.5p 55.0p +8.2% Pay-out ratio 46% 46% Cover 2.2x 2.2x

• Dividend policy:
• Total dividend: 40-50% of full year earnings
• Total dividend 59.5p
• Interim dividend 26.75p
• Final dividend 32.75p
• Dividend growth exactly in line with earnings growth
• So payout ratio and cover unchanged from 2011

Investing in the business

10 20 30 40 50 60 70 80

2012 2013 2014 2015 £m Projected capital investment Estimated depreciation

2012 – 2015 Aiming to spend around twice depreciation over next few years

• >70% of spend in capacity

expansion, new technology and energy reduction projects

• More than doubling investment in

emerging markets (cf 2008 – 2011)

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Capital expenditure

• 2012 capital spend £52.3m (2011: £58.3m)
• 1.6x depreciation versus the medium term target of 2x
• Some of shortfall due to project phasing
• ROIC improved slightly despite capital spend and M&A
• Major spends include
• The acrylic polymer plant
• Capacity expansion in North America and Singapore
• New warehouse and offices in Germany

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Acquisitions

• IRB acquired in July 2012
• Cost €7.7m
• Based in Italy
• Integrated within Sederma
• Global leader in plant stem cell technology
• Innovachem acquired in December 2012
• Cost $2.8m
• Based in New Jersey, USA
• New and patented product lines for Personal Care

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Both acquisitions represent exciting niche opportunities in Personal Care

Disposal

• Cremona sold November 2012
• Final fatty acid/glycerine site acquired with Uniqema in 2006
• Turnover in Industrial Chemicals and lower end of Performance

Technologies

• Undifferentiated technology, not Croda’s core competence
• Treated as discontinued in 2012 accounts
• Loss on disposal £11.5m

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Free cash flow – £181.0m

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£m 2012 2011

EBITDA 285.0 274.6 Working Capital movement (51.7) (23.7) Cash from operations 233.3 250.9 Capital expenditure (52.3) (58.3) Free cash flow 181.0 192.6

• 3.8% growth in EBITDA
• Working capital
• High finished goods stock anticipating strong January trading
• High raw material stocks ahead of anticipated price increases
• High VAT refund due in Germany at year end

Net cash flow

£m 2012 2011

Free cash flow 181.0 192.6 Excess pension contributions (25.2) (17.4) Share purchases/issues 1.1 (49.4) Dividends paid (76.8) (67.7) Interest (8.1) (10.1) Tax (60.6) (57.7) M&A 9.1 3.2 Other (mainly restructuring) (1.5) (3.2) Net cash flow 19.0 (9.7) Exchange differences 4.4 (1.1) Change in net debt 23.4 (10.8)

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Net debt reduced to £207.7m

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* As per loan covenant calculations, rolling 12 months

£m 2012 2011

Net debt 207.7 231.1 Committed facilities 466.3 477.0 Committed headroom 258.6 245.9 Net debt/EBITDA* 0.7x 0.8x EBITDA interest cover* 36.8x 33.5x

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

Pension deficit decreases by £33.1m pre tax (IAS19 basis)

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We do not plan to adopt the revised IAS19 rules until 2013, see appendix 3

£m 31 December 2012 31 December 2011 Market value of assets 712.3 647.5 Value of liabilities (878.1) (846.4) Deficit pre tax (165.8) (198.9) Deferred tax 44.9 57.3 Deficit post tax (120.9) (141.6)

• Changes to certain assumptions and underlying market rates by over £33m pre

tax, £20.7m post tax

• New deficit reduction schedule for the UK agreed post triennial valuation
• 2012: £20.4m
• 2013: £38.4m
• £20m (plus inflation) thereafter

Financial KPIs (I)

26 0% 5% 10% 15% 20% 25% 30% 08 09 10 11 12

ROS

• ROS
• Now stands at 24.3%
• CC: 31.6% (target: maintain)
• PT: 15.6% (target: 20% medium term)
• IC: 12.5% (target: maximise profitability)
• ROIC
• Very high after tax returns maintained
• ROIC 23.8%
• Far ahead of cost of capital
• WACC 6.8%
• Capital light business model

0% 5% 10% 15% 20% 25% 08 09 10 11 12

ROIC v WACC

Financial KPIs (II)

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• 20

40 60 80 100 120 140 2008 2009 2010 2011 2012

Eps (p)

• EPS growth
• 8.2% growth achieved in 2012
• Target 5-10%
• Debt ratios
• Debt/EBITDA 0.7x (target <3x)
• EBITDA interest cover 36.8x (target >4x)

5 10 15 20 25 30 35 40 2008 2009 2010 2011 2012

Debt Ratios x

Strategy Update

Steve Foots – Group Chief Executive

A global leading natural ingredients company

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Croda helps create multi-million and billion pound brands for its customers

Plant & marine sources Highly trained sales force Flexible manufacturing Valuable intellectual property

Innovation Unmet customer needs Differentiated technologies

Skin Care Oral Care Crop protection Oil & Gas Hair Care Lubricants

Mega trends driving structural growth

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Positioned well in very attractive growth markets

Beauty and ageing Health and well-being Sustainability

Population growth Disposable income increase Consumer spending growth

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

Developments

• New niches in adjuvants, skin actives and

drug delivery

• Over 50% of growth coming from new

product innovation

• Acquisitions: IRB and Innovachem

Looking ahead

• Higher brand awareness among emerging

economies

• Product quality and safety in use

becoming a key differentiator

• Open innovation increasing

Consumer Care

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£m 2012 2011 Inc

Turnover 586.4 571.4 +2.6% Operating profit 185.4 171.2 +8.3% ROS 31.6% 30.0%

Innovation driving growth

Performance Technologies

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£m 2012 2011 Inc

Turnover 382.8 373.6 +2.5% Operating profit 59.7 55.3 +8.0% ROS 15.6% 14.8% Developments

• Robust performance due to improved

speciality portfolio, reducing cyclicality

• New niches in oil recovery and green

cleaners

• Good growth in our slip additives for

polyolefins

Looking ahead

• Asia and Latam set to grow
• European demand likely to remain

subdued

• Technology acquisition now on agenda

Innovation and margin expansion driving growth

Industrial Chemicals

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£m 2012 2011 Inc

Turnover 82.7 83.0

• 0.4%

Operating profit 10.3 11.2

• 8.0%

12.5% 13.5% Developments

• Increasing speciality focus in USA post

distributor exit

• Moving from product focus to niche

segment focus

• Speciality fatty acid sales driving strong

growth in several markets

Looking ahead

• Greater focus on specialities post

Cremona exit

• Co-stream demand a function of activity in

Consumer Care and Performance Technologies

• Fast growing niche segments identified

Greater emphasis on specialities driving improvement

Strategic growth themes

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

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

Innovation Innovation Innovation Invest Invest Invest

Innovation in niche markets – Consumer Care

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• Sustainable actives
• Novel performance claims
• Based on plant stem cells

from IRB

• Market growth exceeding

pharma, high purity needed

• Eye drop lubricants and

contact lens solutions

• Novel Super Refined™ and

surfactant technologies

• Regulation change creating

new niches

• Elimination of spray drift to

neighbouring surroundings

• In-house proprietary

measuring techniques driving new product development

Skin creams Sustainability Eye care Sustainability Spray drift Sustainability

Powerful sustainability mega trend creating new niches and new opportunities

Innovation in niche markets – Performance Technologies

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• Priplast™ range of 100%

bio-based ingredients

• High performance

adhesives for car head- lamps

• Better water repellency

and durability

• Replacement for

environmentally hazardous chemicals

• Gas fracking
• Inverts polymer emulsions

faster than traditional surfactants

• NatSurf™ range of green

surfactants

• Allows lower temperature

washing and reduces emissions and saves on energy Car sealants Sustainability Gas fracking Sustainability Laundry concentrates Sustainability

Powerful sustainability mega trend creating new niches and new opportunities

New technology development

Specialisation in Performance Technologies

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All now supported by dedicated commercial teams placed in all regions of the world

Oil & Gas demulsifiers People

• New capacity in Atlas

Point, USA

• On stream June 2013,

enabling faster growth in the Americas

• Unique fatty acid platforms
• Manufacture planned Q1

2013

• Derivatives will serve many

industrial markets

• Dedicated global sales

network in place

• Continued transfer of skills

from Consumer Care

• Asia and Latam teams

strengthened

Globalisation in Performance Technologies

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Moving manufacturing closer to our customers

Lube esters, Atlas Point £3.7m, 3.2 kT pa On stream July 2012 30% sales growth in H2 Lube esters, Brazil 2 kT pa, no spend needed On stream H1 2013 Lube esters, Singapore £1.8m, 4.5 kT pa On stream Q1 2013

Lubricants Europe

• Overly exposed to Europe
• Ester platforms transferred to local

markets

• Enabling faster growth
• Geo Technologies, Coatings & Polymers

and Home Care to follow in 2013

Very new technologies New technologies

Technology capture increasing

All six new technologies will contribute this year to our growth story

Acrylic Polymers, Rawcliffe Bridge Biofermentation, Ditton Omega-3 technology, Leek Polymeric emollients, USA Novel ester platforms, Spain & Singapore

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IRB, Italy & France

IRB integration

• Exceeding expectations already
• Customer feedback very positive
• Already coded in to new multinational global

formulations

• Distributor exit complete
• Several new product launches in place for this year

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Sederma and IRB partnership is progressing smoothly

Leontocell™ Anti-wrinkle Echingena™ Collagen booster

Shanghai, China Edison, USA

Expanding in high growth markets – R&D

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Investment to move Croda closer to our customers and their needs

• Formulation support
• Customer academy development
• More focused new product development
• Responsive technical service
• Globally coordinated to maximise efficiency

Shiga, Japan Campinas, Brazil

Regional training centres – Mexico

Ensuring our customers know how, when and where to use

• ur products

Continued investment in the education of our customers

• 10 customer formulating

workshops

• 5 customer technology events
• 28% increase in sampling

activity in 2012 from 2011

Non-financial performance Landfill Waste

2010 2011 2012

Financial Performance

A sustainable business model

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Non-financial performance now a key differentiator in the eyes of our customers

2010 2011 2012

Water Consumption Energy Consumption

2010 2011 2012

5% 50% 7.5%

Dividend

2010 2011 2012

EPS

2010 2011 2012

Operating Profit

2010 2011 2012

+168% +137% +128%

What would the ideal sustainable manufacturing business look like?

Croda is as close as any to this model

44 Nature’s raw materials Carbon neutral process Unique performance Biodegradable Great customer & supplier value

Outlook

• Positive start to 2013; expect 2013 to be another year of progress
• Trading environment in Europe anticipated to remain challenging
• Focus on innovation and technology will enable further growth
• On-going investment in facilities and people will underpin progress, especially in

fast growing markets

• Continued confidence in Croda’s long term prospects

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Croda is well positioned to generate sustainable shareholder value

Questions

46

Croda International Plc 2012 Preliminary Results Appendices

26 February 2013

Appendix 1: Sector sales trends by quarter

Q1 Q2 Q3 Q4 Year Consumer Care +9.2% +2.5%

• 2.7%

+1.4% +2.6% Performance Technologies +3.5% +1.2% +2.5% +2.6% +2.5% Industrial Chemicals

• 11.1%
• 7.2%

+16.1% +5.3%

• 0.4%

Continuing sales +5.4% +1.1% +0.5% +2.2% +2.3%

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2012 v 2011

Appendix I1: 2011 by quarter

£m Q1 Q2 Q3 Q4 Year Consumer Care 145.7 146.5 144.8 134.4 571.4 Performance Technologies 99.2 100.3 92.4 81.7 373.6 Industrial Chemicals 22.6 23.5 18.0 18.9 83.0 Continuing sales 267.5 270.3 255.2 235.0 1,028.0 Consumer Care 41.8 45.0 41.8 42.6 171.2 Performance Technologies 14.6 14.2 13.7 12.8 55.3 Industrial Chemicals 2.7 3.5 1.5 3.5 11.2 Continuing operating profit 59.1 62.7 57.0 58.9 237.7 Interest (0.2) (0.3) (0.2) 0.5 (0.2) Continuing pre-tax profit 58.9 62.4 56.8 59.4 237.5

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Appendix III: 2012 by quarter

£m Q1 Q2 Q3 Q4 Year Consumer Care 159.1 150.1 140.9 136.3 586.4 Performance Technologies 102.7 101.5 94.7 83.9 382.8 Industrial Chemicals 20.1 21.8 20.9 19.9 82.7 Continuing sales 281.9 273.4 256.5 240.1 1,051.9 Consumer Care 48.2 48.5 44.2 44.5 185.4 Performance Technologies 15.8 17.1 13.4 13.4 59.7 Industrial Chemicals 1.5 2.7 2.1 4.0 10.3 Continuing operating profit 65.5 68.3 59.7 61.9 255.4 Interest (0.7) (0.4) (0.4) (0.7) (2.2) Continuing pre-tax profit 64.8 67.9 59.3 61.2 253.2

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Appendix IV: 2012 restated for revised IAS19 standard on pension accounting

£m Q1 Q2 Q3 Q4 Year Consumer Care 48.2 48.5 44.2 44.5 185.4 Performance Technologies 15.8 17.1 13.4 13.4 59.7 Industrial Chemicals 1.5 2.7 2.1 4.0 10.3 Continuing operating profit 65.5 68.3 59.7 61.9 255.4 Interest (0.7) (0.4) (0.4) (0.7) (2.2) Continuing pre-tax profit 64.8 67.9 59.3 61.2 253.2 Consumer Care 48.1 48.4 44.2 44.4 185.1 Performance Technologies 15.8 17.0 13.3 13.4 59.5 Industrial Chemicals 1.5 2.7 2.1 4.0 10.3 Continuing operating profit 65.4 68.1 59.6 61.8 254.9 Interest (4.3) (4.0) (4.0) (4.3) (16.6) Continuing pre-tax profit 61.1 64.1 55.6 57.5 238.3

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In 2013, the revision to IAS19 is expected to be somewhat less onerous, due to the reduction in the pension deficit.