Croda International’s full-year revenue fell by 0.8% to £1.6bn when ignoring exchange rates. 7% growth in the largest division (Consumer Care) wasn’t enough to offset a 14% decline in Life Sciences, which was impacted by the absence of COVID 19 sales and weak sales in consumer health.
Underlying operating profit fell 8.2% to £280mn, also impacted by the absence of higher margin COVID 19 sales. Margins improved in the second half, helped by cost discipline and higher utilisation at the company’s chemical manufacturing plants.
Free cash-flow rose from £166mn to £181mn, with decreased capital expenditure more than offsetting a decline in cash generated from operations. Net debt fell slightly to £532mn.
The full year dividend increased by 1p to 110p.
In 2025, Croda expects underlying pre-tax profit of between £265-295mn. At the mid-point, that’s growth of 2.5% compared to consensus forecasts of 6.2%.
The shares were broadly flat in mid-morning trading.
Our view
Croda posted a respectable set of 2024 numbers, with some challenged end-markets starting to recover. An easier set of comparatives and the benefits of ongoing strategic actions underpin expectations of modest growth in 2025.
Croda develops and supplies ingredients for industrial applications, the life sciences, and consumer care brands. It’s a relatively small player in the chemicals sector, so we support the increasing focus on innovative niche products, with sales of New and Protected Products now at 35%.
Its nimbleness at bringing products to market, combined with a broad manufacturing footprint, facilitate R&D based relationships with local & regional (L&R) customers. These have more specialised end products which can enjoy higher growth rates. This can also help Croda navigate trade restrictions and tariffs. In the US for example 70% of sales are manufactured there too.
The same approach is also helping to win business in higher growth territories such as India & South Korea. We support management’s view that the shift towards L&R can help with pricing and margins. There are other levers to pull on margins too, which is just as well as they are lagging historical norms. Improving factory utilisation is one, cost savings are another.
Looking ahead Croda’s well exposed to some attractive growth drivers. It’s well known for providing delivery systems for mRNA-based medicines such as Pfizer’s COVID 19 vaccine. This year it’s expecting clinical trial usage to drive growth in these products. Key medical approvals could see a step up but that’s not something Croda can control.
In consumer care, growing demand for more sustainable cosmetics, flavours and fragrances plays well to Croda’s strengths. In crop care its innovations are well placed to respond to regulatory and demographic drivers to increase food production in an environmentally responsible manner. However there remain pockets of weakness in certain markets. Croda’s not totally immune to economic conditions.
Robust cashflows and reasonable debt levels are other attractions. After a period of considerable investment, the financial position could strengthen further, supporting the 3.5% dividend yield and leaving room for acquisitions. But there are no guarantees of either.
The valuation has suffered in recent years due to dwindling COVID sales and cyclical challenges in crop care and consumer products. But with a recovery in sight Croda looks well placed to expand its business through product development, efficiency improvements, and market share gains. Despite being below the long-term average the valuation looks to be pricing in some strong growth expectations, there is pressure for management to execute the strategy.
Croda International key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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