Croda International Plc 2013 Preliminary Results 25 February 2014 - - PowerPoint PPT Presentation

Croda International Plc 2013 Preliminary Results

25 February 2014

Introduction

Steve Foots – Group Chief Executive

Robust results in a tough environment

• Profit before tax1 up 5.4% to £251.4m
• Earnings per share1 up 8.3% to 132.2p
• Strong sales growth of 10.8% in new and protected products (NPP)
• Quality of product mix helped increase ROS to 24.6%
• Very strong cash generation, free cash flow of £249m (2012: £181m)
• Full year dividend increased by 8.4% to 64.5p

3

Focus on quality of business, returns and cash flow generation is paying dividends

• 1. Figures quoted before acquisition costs and amortisation of intangible assets arising on

acquisition

A strong business, getting stronger

• Research and development expansion in Brazil, China and Singapore
• New customer training centres opened in Singapore and Brazil
• Acceleration of new technology capture with the acquisition of Arizona

Chemical’s speciality business

• Increased presence in emerging markets with Sipo joint venture
• New dedicated management team created to drive growth in EEMEA*

4

Making real progress with strategy delivery

*Eastern Europe, Middle East and Africa

Financial Review

Sean Christie – Group Finance Director

Basis of preparation

• All figures are quoted before
• Acquisition costs
• Amortisation of intangible assets arising on acquisition

6

2013 Q4 results

Q4 sales by segment

£m 2013 2012 Growth Consumer Care 135.0 136.3

• 1.0%

Performance Technologies 88.9 83.9 +6.0% Industrial Chemicals 22.5 19.9 +13.1% Total turnover 246.4 240.1 +2.6%

• Consumer Care sales show marginal constant currency growth before 1.2%

adverse currency translation

• Strong Performance Technologies performance driven by Lubricants and the

acquisition of Sipo plus 0.4% favourable currency translation

• Industrial Chemicals also boosted by Sipo

8

Sales trends v 2012

9

Q1 Q2 Q3 Q4 Year Mix/price

• 0.9%

+0.3% +1.6%

• 1.1%

0.0% Volume +0.1%

• 1.8%
• 0.8%

+2.0%

• 0.2%

Underlying

• 0.8%
• 1.5%

+0.8% +0.9%

• 0.2%

Currency +1.1% +3.4% +1.6%

• 0.9%

+1.4% Acquisition +0.1% +0.4% +2.0% +2.6% +1.2% Continuing sales +0.4% +2.3% +4.4% +2.6% +2.4%

• Underlying sales growth returned in H2
• Q4 adverse mix due to highest growth coming from lower average price PT & IC segments
• Currency translation negative in Q4 with worsening trend - December 2.5% adverse with
• nly the Euro in positive territory v Sterling

Q4 EBIT/ROS by segment

£m 2013 2012 Growth Consumer Care 46.5 44.5 +4.5%

ROS 34.4% 32.6%

Performance Technologies 14.6 13.4 +9.0%

ROS 16.4% 16.0%

Industrial Chemicals 2.2 4.0

• 45.0%

ROS 9.8% 20.1%

Total EBIT 63.3 61.9 +2.3%

ROS 25.7% 25.8%

10

Good profit growth and strong margins in CC & PT. Some one-off’s in IC in Q4 2012

2013 preliminary results

Full year update on key trading issues

Positives

• Good underlying sales growth in

all Consumer Care businesses in Western Europe

• Underlying sales growth in Asia,

US, Brazil and Mexico

• Crop returned to growth H2
• Favourable currency translation in

most territories Q1-Q3

Negatives

• Underlying Performance

Technologies sales down in Western Europe

• Very weak demand in all segments

in EEMEA, Argentina & Venezuela

• Crop sales declines H1
• Adverse currency translation in

Asia (negative almost everywhere by year end)

12

2013 turnover by destination

38% 26% 18% 11% 7%

• W. Europe +4%
• N. America +3%

Asia +4% LATAM +1% Other emerging markets* -8%

• Good underlying growth in Asia

but adverse currency translation

• European sales flattered by

currency translation

• Reasonable sales growth in

North America

• LATAM: Strong growth in Brazil

& Mexico. Sales well down in Argentina & Venezuela due to political turmoil

• Very weak sales in EEMEA*

13

Overall geographical mix of business is broadly unchanged versus 2012

* Eastern Europe, Middle East and Africa

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

Focus on high quality turnover growth

14

• New and Protected Products (NPP)
• Patented products
• Plus new products, less than 5 years old
• Products protected in some other way

(e.g. formula registration)

• Differentiated
• High barriers to entry

(quality/manufacturing know-how)

• Novel variants of existing products
• Tail
• Commodities and by-products
• Toll processing arrangements

We internally analyse the business in three categories

2 4 6 8 10 12 2013

Focus on high quality turnover growth

15

* Full year figures

200 400 600 800 1000 1200 2012 2013 NPP Differentiated Tail

Group revenue*

£m

11% 1%

• 4%

2.4%

+11% +1%

• 4%

New and protected products (NPP) – % of sale

5 10 15 20 25 30 35 2011 2012 2013

Consumer Care

5 10 15 20 25 30 35 2011 2012 2013

Performance Technologies

16

• Double digit NPP growth in both Consumer Care and Performance Technologies in 2013

Growth: 12% Growth 5% Growth: 11% Growth 10% % %

Consumer Care

17

£m 2013 2012 Inc

Turnover 593.2 586.4 +1.2% Operating profit 191.3 185.3 +3.2% ROS 32.2% 31.6%

40 80 120 160 Q1 Q2 Q3 Q4

Sales (£m)

• Good growth in Western Europe
• Robust margin performance driven by

double digit NPP sales growth

• Sales declined in less differentiated products

particularly in EEMEA

• Adverse currency translation in Asia

10 20 30 40 50 60 Q1 Q2 Q3 Q4

EBIT (£m)

• 2012
• 2013

Performance Technologies

18 20 40 60 80 100 120 Q1 Q2 Q3 Q4

Sales (£m)

• Weak demand in key Western European

marketplace until Q4 which saw a return to growth for Lubricants

• Strong underlying sales growth in Asia
• Very weak demand in EEMEA
• Double digit NPP sales growth driving

margins

5 10 15 20 Q1 Q2 Q3 Q4

EBIT (£m)

£m 2013 2012 Inc

Turnover 387.1 382.8 +1.1% Operating profit 63.0 59.5 +5.9% ROS 16.3% 15.5%

• 2012
• 2013

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

19

• Steady sales growth in specialities

boosted by Sipo acquisition in H2

• As expected, Sipo only made a marginal

contribution to EBIT in H2

• Q4 2012 profitability boosted by one off

items and lower overhead allocations £m 2013 2012 Inc

Turnover 96.7 82.7 +16.9% Operating profit 10.3 10.3

• ROS

10.7% 12.5%

• 2012
• 2013

2013 pre-tax profit up 5.4%

20

£m 2013 2012 Growth Total operating profit 264.6 255.1 +3.7%

ROS 24.6% 24.3%

Financing (13.2) (16.6) Pre-tax profit 251.4 238.5 +5.4%

• ROS increases to 24.6%
• Financing
• Reduced opening pension deficit reduces financing costs
• Pre tax profit £251.4m, up 5.4%

2013 Earnings Per Share up 8.3%

21

£m 2013 2012 Growth Pre-tax profit 251.4 238.5 +5.4% Tax rate 28.7% 31.1% Average number of shares 135.2m 134.6m Earnings per share 132.2p 122.1p +8.3%

• Tax rate reduced to 28.7%
• Falling UK tax rates, increased emerging market profit weighting in the mix
• Further (modest) reductions expected in the future
• Pre-tax growth plus falling tax takes EPS growth to 8.3%

Total dividend up 8.4%

22

£m 2013 2012 Growth Earnings per share 132.2p 122.1p +8.3% Total dividend 64.5p 59.5p +8.4% Pay-out ratio 49% 49% Cover 2.1x 2.1x

• Dividend policy:
• Total dividend: 40-50% of full year earnings
• Total dividend 64.5p
• Interim dividend 29.0p
• Final dividend 35.5p
• Dividend growth in line with earnings growth
• So payout ratio and cover unchanged from 2012

Capital expenditure

10 20 30 40 50 60

2012 2013 £m Capital investment Depreciation

Previous guidance was to spend around twice depreciation over next few years

• Project phasing plus reduced need for

capacity expansion in 2012 and 2013 reduced spend to 1.7 and 1.4 times depreciation

• All major NPD/geographical

expansion capital has been spent as planned

• Key spends in North America and

Singapore

23

Expect to invest significantly more in 2014

Acquisitions

• Speciality business of Arizona Chemical
• Cost £7.8m
• Based in Florida, have moved manufacture to Europe post acquisition
• Enhances our leadership in speciality ingredients from renewable resources
• 65% share of Sichuan Sipo Chemical Co Ltd
• Cost £41.3m (equity £30.3m plus share of inherited debt)
• Strengthens existing operations and overall position in Asia

24

Both acquisitions expected to generate profits in 2014

Significant free cash generation

25

£m 2013 2012

EBITDA 298.2 284.5 Working Capital movement (3.0) (51.7) Cash from operations 295.2 232.8 Capital expenditure (46.2) (52.3) Free cash flow 249.0 180.5

• 38% increase in free cash flow to £249m
• 5% growth in EBITDA
• Low requirement for extra working capital
• Reduced capital spend

Net cash flow

£m 2013 2012

Free cash flow 249.0 180.5 Excess pension contributions (41.2) (24.7) Share purchases/issues 0.9 1.1 Dividends paid (83.6) (76.8) Interest (8.4) (8.1) Tax (50.1) (60.6) M&A (55.9) 9.1 Other (mainly restructuring) (5.0) (1.5) Net cash flow 5.7 19.0 Exchange differences (0.2) 4.4 Change in net debt 5.5 23.4

26

Net debt reduced to £202m

27

* As per loan covenant calculations, rolling 12 months

£m 2013 2012

Net debt 202.2 207.7 Committed facilities 465.8 466.3 Committed headroom 263.6 258.6 Net debt/EBITDA* 0.7x 0.7x EBITDA interest cover* 36.4x 36.8x

• Main banking facilities run to May 2015
• $100m fixed rate loan (5.94%) runs to January 2020
• $20m other dollar denominated (floating)
• €110m (floating)

Pension deficit decreases by £30m pre tax (IAS19 basis)

28

£m 31 December 2013 31 December 2012 Market value of assets 808.3 712.3 Value of liabilities (944.1) (878.1) Deficit pre tax (135.8) (165.8) Deferred tax 31.9 44.9 Deficit post tax (103.9) (120.9)

• Strong investment performance plus Company contributions to the fund boost

assets

• Further reductions in future assumptions for real discount rates increase the

liabilities

Financial KPIs (I)

29 0% 5% 10% 15% 20% 25% 30% 09 10 11 12 13

ROS

• ROS
• Now stands at 24.6%
• CC: 32.2% (target: maintain)
• PT: 16.3% (target: 20% medium term)
• IC: 10.7% (target: maximise profitability)
• ROIC
• Very high after tax returns maintained

despite M&A and capex

• ROIC 23.8%
• Far ahead of cost of capital
• WACC 6.3%

0% 5% 10% 15% 20% 25% 09 10 11 12 13

ROIC v WACC

Financial KPIs (II)

30

• 20

40 60 80 100 120 140 2009 2010 2011 2012 2013

Eps (p)

• EPS growth
• 8.3% growth achieved in 2013
• Target 5-10%
• Debt ratios
• Debt/EBITDA 0.7x (target <3x)
• EBITDA interest cover 36x (target >4x)
• 0.5

1.0 1.5 2.0 5 10 15 20 25 30 35 40 2009 2010 2011 2012 2013

Debt Ratios x

Proposed reporting changes 2014

• We will report NPP / differentiated / tail analysis twice yearly
• We propose to classify toll processing sales as Industrial Chemicals
• Transfers around £32m turnover from Performance Technologies to

Industrial Chemicals

• Almost no profit effect
• Better aligns with new analysis
• We will show underlying sales, currency, M&A by segment each quarter
• Will cease to report volume figures

31

Strategy review

Steve Foots – Group Chief Executive

Developments

• Personal Care mixed; excellent progress in skin actives with

reformulation activity less prevalent in excipients

• Good progress in Health Care with novel delivery systems

growth offsetting weaker omega-3 in nutrition

• Weak H1 for Crop Care due to restricted planting season in

USA with better H2

Looking ahead

• New technology growth
• Excipient innovation set to increase
• Product quality and safety in use

becoming a key differentiator

Consumer Care

33

£m 2013 2012 Inc

Turnover 593.2 586.4 +1.2% Operating profit 191.3 185.3 +3.2% ROS 32.2% 31.6%

Innovation is the key differentiator

Performance Technologies

34

£m 2013 2012 Inc

Turnover 387.1 382.8 +1.1% Operating profit 63.0 59.5 +5.9% ROS 16.3% 15.5% Developments

• Innovation increasing in all markets
• Geo Technologies and Polymer Additives leading

the growth

• De-marketing of Coatings & Polymers ‘tail’ held

sales back

Looking ahead

• Modest recovery in Europe
• New Houston (USA) office
• Emerging market growth

Increased innovation driving growth

Industrial Chemicals

35

£m 2013 2012 Inc

Turnover 96.7 82.7 +16.9% Operating profit 10.3 10.3

• ROS

10.7% 12.5% Developments

• Sipo integration progressing well
• Continuing to move from product focus to niche

segment focus

• Good growth in several niches

Looking ahead

• Increasing speciality focus
• Co-stream demand a function of

activity in Consumer Care and Performance Technologies

• Sipo growth with key

intermediates

Greater emphasis on specialities driving improvement

“Increasing the amount of Group turnover that is protected”

Bringing innovation to life

36 Now Future Fast grow Grow Manage

Focussed on NPP and differentiated products New white space opportunities Increasing barriers to entry

Bringing innovation to life

37

* Full year figures

200 400 600 800 1000 1200 2012 2013 NPP Differentiated Tail

Group revenue*

£m

11% 1%

• 4%

2.4%

Fundamentals in place

• Strong momentum in new and

protected products

• Tail becoming less exposed,

especially in Consumer Care

• Continue to fill our capacity with

high quality business

Making progress with our strategy

38

Bringing innovation to life through building capabilities

Beauty and ageing Health and well-being Sustainability

Increase innovation in core segments Accelerate technology capture Expansion in high growth markets

Mega trends Key growth streams Delivery On plan On plan On plan

Differentiated New and protected products

Increased innovation in our core segments Consumer Care

39 Light, silky touch for skin Low drift for safer crop spray Exceeding quality standards

Bringing innovation to life with new claims

Sustainable palm Improved drug performance Efficacious botanicals

New and protected products Differentiated

Increased innovation in our core segments Performance Technologies

40

VOC = Volatile Organic Compound

Bringing innovation to life with new claims

100% bio based dishwash Durable wicking for nappies Safer paint with lower VOC Novel oil gelling for air care Improved fuel economy Stable slip for better plastics

Accelerated technology capture

IRB by Sederma: The best of nature, amplified.

• Technology
• Plant stem cell: HTN™
• Consumer insights
• Multi-functional convenience
• Skin mattifying beauty trend
• Value
• Desired products with high level of

efficacy

41

HTN = High Tech Nature *2013 sales

Acrylic polymers: Powerful performance

• Technology
• Highly advanced, flexible polymerisation
• Consumer insights
• Liquid product formats transformed into

convenient novel, weightless non-drip mist sprays that re-gel on skin

• Value
• Convenience and less product wastage
• Additional dispersant benefits for high

active loading

Accelerated technology capture

42

Expansion in high growth markets – China

China: Customer engagement programme

• Increased exposure in H2 2013
• Laboratory based training sessions
• Customer workshops
• Countless online seminars for local market
• Closer relationships
• Active engagement with MNCs
• Several joint customer projects
• Value
• Delivery of invaluable education sessions
• Short-term and long-term customer projects

43

Moving ever closer to our customers

Brazil: Local knowledge focusses key growth opportunities

• Increased Lubricant manufacturing
• Transfer of product manufacture from

Europe in H1 2013

• Customer pull for our innovation
• Unknown in the region for Lubricants until

2012

• Introduction of Croda solutions is proving

to be vital to our customers

• Value
• Niche for Croda in region
• A number of projects set to deliver in

2014

Expansion in high growth markets – Brazil

44

Recent investment starting to deliver good growth

Take home messages

• Strong strategic progress
• Increasing barriers to entry
• More new high margin products
• More IP
• Emerging market growth
• More technology led acquisitions
• Fundamentals very much in place

45

Now Future

NPP Differentiated Tail

Fast grow Grow Manage

Outlook

• Current year has started in line with expectations
• Global trends are unpredictable and our forward visibility remains limited
• Currency translation expected to have an adverse impact on 2014 profit growth
• Expect to achieve constant currency sales and profit growth in 2014 characterised

by:

• Improvement in margins in Performance Technologies, progressing towards

target of 20% return on sales

• NPP sales growth
• Strong cash generation
• The Board is confident that Croda has the right strategy in place to deliver its

medium term growth targets.

46

Questions

47