Croda performs well in Q3 despite some regional challenges

Speciality chemical company Croda International said on Tuesday that the improved sales trend seen in the first half of 2017 continued through the third quarter, with group constant currency sales up 4.4% in the quarter and 4.0% year-to-date.

The FTSE 100 firm said that across the three core sectors, constant currency sales in the three months to 30 September grew 5.7%, and 4.8% year-to-date.

That was reportedly driven by a strengthening performance in personal care, with constant currency sales up 7.5% building on the recovery seen in the first half of the year.

Performance technologies recorded another “robust” performance, the board added, with sales up 7.0%, and life sciences achieved modest sales growth, up 0.7%.

In reported currency, third quarter group sales grew 6.1% to £334.6m, including a 1.7% benefit from currency translation.

Year-to-date sales were 12.8% higher, including a currency translation benefit of 8.8%.

Third quarter profit margin increased slightly over prior year, which Croda said reflected “improved product mix and pricing”, with a successful focus on growing value ahead of volume.

“We continue successfully to deliver on our priorities for 2017 - driving profitability through premium, faster growth market niches; improving performance in less differentiated markets; and making progress towards our target increases in return on sales in life sciences and performance technologies,” said Croda CEO Steve Foots.

“The combination of good top line growth and margin in Q3 gives us confidence in delivering our expectations for the full year.”

In its core business, measured in constant currency, the board said that action taken to restore growth to North America continued to benefit performance across all sectors during the period, with sales up 8% in the quarter.

Asia maintained its strong momentum, growing sales by 6%, which apparently reflected the benefits of increased proximity to local and regional customers following the transfer of distributor sales to Croda’s direct selling model.

Sales in Europe grew by 7%, benefiting from robust demand in personal care, while macro-economic conditions in Latin America remained challenging, with sales 2% lower, although there were some signs of improvement emerging.

On a divisional basis, sales in personal care strengthened, with constant currency sales up 7.5% in the quarter and 4.1% year-to-date.

That was said to reflect a “good performance” across all three businesses, with continued strong sales growth in Croda’s “market leading” beauty actives business; innovation in fast growth niches in hair, solar and skin treatments by the recently established beauty effects team; and a return to growth in beauty formulations - Croda’s heritage ingredient portfolio - enabled by a focus on targeted innovation and competitive product positioning.

“We are significantly enhancing innovation facilities and increasing production capacity at Sederma, which will benefit beauty actives from 2018,” Croda’s board explained in its statement.

“Recent technology acquisitions and investments, including Inventiva encapsulation, Enza Biotech, Cutitronics skin health and an enhanced digital platform for 'Indie' customers, will provide a platform for further growth.”

In life sciences, constant currency sales increased in the third quarter by 0.7%, and 0.8% year-to-date, and by 2.4% excluding the North American generic API contract.

Croda said it continued to make “good progress” refining the health care and seed enhancement businesses, whilst returning to growth in crop protection.

Growth in high purity health care delivery systems continued, and the company committed to a “significant expansion” in capacity as customers adopt its higher value excipients to deliver performance improvement in complex drug formulations.

“During the quarter, we completed the integration of Incotec and the associated rationalisation programme, including closure of the last of the identified sub-scale seed operations, in Japan,” the board explained.

“Going forward, the business will focus on growing sales through innovation, with our first Croda/Incotec product launch, Disco AG Clear L-650, already performing well and a new R&D centre creating a pipeline of opportunities through greater customer collaboration.

“Crop protection had a stronger quarter, built on increased innovation and customer partnering.”

Finally, its performance technologies business continued its “strong start” to the year, with constant currency sales in the third quarter up 7.0%, and up 8.4% year-to-date.

That was said to reflect a strategy of driving value ahead of volume, through greater innovation and higher value add products, coupled with selective demarketing of less differentiated products, particularly in the oil and gas markets.

“We also completed the recovery of higher raw material prices from the first half of the year.

“These actions will help the sector deliver its medium term return on sales target, through its focus on the faster growth premium markets of smart materials and energy technologies,” the board explained.

Croda's balance sheet remained “robust”, with net debt at the end of the quarter said to be broadly unchanged from the half year.

Capital investment was at its peak, with the company’s North American bio-surfactants plant expected to commission towards the end of the year.